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Coronavirus Recession and Small Business Impact: Next MSP Moves

How badly will the coronavirus pandemic impact small businesses — and the MSPs that support those SMB companies?

On a national level, the best way to wage a war against coronavirus (CORVID-19) is to risk recession and stop large public gatherings as well as non-urgent travel — regardless of the revenue impact, CNBC’s Jim Cramer told viewers on March 12.

But what does that mean for MSPs and their small business customers? Clues may be emerging in Seattle, Washington — where many small businesses are already expressing cash flow and revenue concerns.

Seattle: Cornavirus-related Mandates Pressure Small Businesses

Amid the coronavirus outbreak, Washington’s largest school district, Seattle Public Schools, has canceled classes for at least 14 days, and gatherings of more than 250 people are banned, US News & World Report says.

On the small business front, Seattle’s entrepreneurs are deeply worried about store foot traffic, revenue, payroll, and keeping the lights on for the long haul. According to a survey by Fresh Chalk, a Seattle-based small business directory:

  • Roughly 80 percent of surveyed Seattle businesses are seeing drops in customer demand
  • 45 are witnessing a “significant” decrease in demand.
  • Roughly 60 percent are considering wage cuts and staffing cuts.
  • And 35 percent of those businesses could face closure.

Survey participants included people across multiple sectors, including restaurants, fitness studios, and home services.

If Customers Shrink, So Will MSP Recurring Revenues

Those figures provide a wakeup call to channel partners and MSPs that somehow think the coronavirus won’t impact per-seat managed services contracts and associated recurring revenue.

The SMB, economic and societal hit will surely extend beyond Seattle:

  • Los Angeles, San Francisco and New York are taking extreme measures to enforce so-called social distancing — banning large crowds and shutting down selected events.
  • California’s governor issued an order allowing the state to commandeer hotels for health care use.
  • Maryland and Ohio have closed public schools.
  • New York’s Theater District — the famed Broadway area — is closed starting this evening. No Broadway shows will vastly reduce local foot traffic, restaurant activity, tourist spending and plenty more across Manhattan.
  • Amid the global risk, Amazon is telling all employees worldwide to work from home.

Back in Seattle, Fresh Chalk CEO Liz Pearce offers this warning about the SMB landscape:

“Seattle-area small businesses are bracing for impact. They don’t have the cash reserves to stay operational when business grinds to a halt. We are facing potentially devastating numbers of permanent business closures. It’s important that we galvanize our resources to help small businesses through this tough time.”

Federal Government Loans: Still, help is on the way. The Small Business Administration (SBA) has introduced loans to help small businesses navigate coronavirus (COVID-19)-related cash flow and revenue issues. Small business loans of up to $2 million per company are now available for those organizations, the SBA says.

More help could be coming. President Trump plans to ask Congress to increase funding for the SBA lending program to $50 billion. It’s unclear if or when that particular funding will arrive.

MSPs: Practice Social Distancing in Business

Amid the sobering challenges outlined above, how should MSPs move forward with their end customers? A refreshing answer comes from Perspicuity, an Ingram Micro TrustX Alliance member in the United Kingdom. (Perspicuity CEO Ben Gower is UK president for the TrustX community.)

Ben Gower, CEO of Perspicuity, and UK president for Ingram Micro’s TrustX community

In a communication to customers, Perspicuity said:

“It’s business unusual, let’s do it…

We love meeting you, and we still will, but for now we are going to work with you to deliver our services remotely: we think it’s the responsible thing to do, so video and Teams chat it is for now. Maybe it’s overkill, but the reality is we can do this. We’re changing the way we work to be a responsible world citizen whilst keeping the wheels of business turning, there is no excuse to stop, it’s a temporary measure and we’re up for the challenge. We look forward to continuing our work with you, we look forward to what we’re going to learn on the journey, and we wish you all good health, good luck and good business.

From all of us at Perspicuity”

Memo to U.S. partners: Follow Perspicuity’s lead. Leverage technology to practice social distancing. And think like your customers. Figure out which of your clientele will likely face the biggest potential cash flow and business continuity risks. Then, take appropriate action — before it’s needed.

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2 Comments

Comments

    Chris Day:

    Hi Joe – tantalizing post, thanks for stimulating the conversation as always! I remember running an MSP during the last crash in 2008, and a lot of people would ask me if we were OK, or if we were sinking… During that downturn, we in fact saw the opposite: a significant increase in new managed services customers and managed services revenue growth (expansion).

    The largest contributing factor was mid-sized firms who were looking to cut costs (usually meant internal IT jobs) and replace it with more cost-effective and efficient outsourced services. Certainly, we had customers who were cutting back or even going out of business, but that was completely overshadowed by cost saving initiatives put in place by many SMBs which ultimately increased our recurring revenue during that period. Let’s hope that we see something similar this time!

    Fingers crossed,
    Chris

    Joe Panettieri:

    Hey Chris: Thanks for your note and all of the briefings over the years.

    A few folks have reminded me of that upside mid-market opportunity during these crazy times. In my own experience, our previous business boomed during the 2008-2009 financial crisis because we remained fast-moving and nimble while other media companies hunkered down during lean times. So I certainly think there are always upside opportunities — even in a down market.

    However, I think the variables are a bit different for MSPs in 2020. The market is crowded with commodity remote monitoring service providers. But there are underserved sectors: If you’re an MSP that can offer public cloud migration and management for mid-market customers, for instance, I think you’ll do very well during these challenging times. There are fewer than 100 certified Microsoft Azure Expert MSPs in the world. The Top 200 Public Cloud MSPs typically have very little in common with traditional MSPs, and will certainly stand out from the broader market for the next year or two. No doubt, other niches await MSPs who are ready for that mid-market business you mention.

    Please keep me updated on your investments & tech incubations.

    Best,
    -jp

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