MSPs and Vertical Market Business Strategies

If you’re a first-time business owner, or just starting out in the IT managed services industry, it can be tempting to go after any and every possible client or opportunity that could bring revenue to the business. Sure, it may seem like a good idea at the time, but after taking on more and more clients with varying needs and technology requirements, you start to lose focus and see your bottom line shrinking and your frustrations growing.

Seasoned MSPs know that one bad client relationship or experience can ruin your chances of becoming a successful and profitable company.  Our September MSP FastTrack Series Hangout, “How to Pivot Your Business into New Verticals,” addressed this issue head on as we discussed how to find and develop your niche and vertical focus as an MSP using a simple strategic approach.

Meet Our Panelists

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  • Vertical Solutions - Bruce Nelson, President
  • CMIT Solutions of North LA - Billy Solano, CEO
  • Continuum - Gretchen Hoffman, senior director, demand generation (that’s me).

Their conversation certainly gave MSPs a lot to think about on the topic.

Things to Consider Before Going Vertical

It may be a conscious decision to go vertical based on growth objectives or market research, or your clients could begin to steer you this way. Whatever the reason, our panelists agreed that you should start with assessing the growth potential that vertical may offer you. This may include assessing the number of businesses in a specific industry within your geographic area, competitive landscape, potential reach and market share. Or it could be driven by your technology partner’s focuses.

In Bruce’s case, “We were a Microsoft partner, pretty deep in the ERP. And when you're in ERP and implementation and systems, you really need to know the business. So, Microsoft was really pushing us in vertical markets because it's hard to implement a financial management system, payroll, HR workflow if you don't know and understand their work models, their priorities.”

Billy added that, “Your organization should be mature and have been in market at least two years before you decide to go into a verticalized go-to-market strategy.  You have to understand your offerings and the target market you want to sell to—and become an expert, somebody that is known in their community that can add value to businesses in their market.”

Choosing the Right Verticals to Focus On

Our panelists had a range of experiences when choosing the verticals they wanted to build their business around.  For Bruce, “Healthcare was a broad vertical, but we fell into it through a technology partnership and ended up focusing on independent physicians, ophthalmologists, dermatologists and expanded into long-term care facilities. We were just getting deals and learning as we went. So, it wasn't really a strategic sort of sit down, create a roadmap, understand the vertical.”  He added “but when we expanded into Denver, we knew this vertical market, we now knew how to value it, we understood what trade shows to go to, which technology partners best supported their business model and who to talk to.”

The choice to target a specific vertical might be by personal preference versus potential profitability or knowledge of the market.  Billy noted “maybe you like manufacturing and supporting factory operations?  Or maybe you want to work with retail companies or law firms and enjoy working in those environments?  Is the industry data intensive or technology intensive or people intensive?  Since each industry has its own set of challenges and requirements you must find the right fit for your business and your employees who will be onsite working with the clients in that target market”.

According to Billy of CMIT, “focus on no more than three verticals, especially for new or smaller businesses.  You can expand within one vertical that has many different sectors or choose to cover a more diverse set of markets, but you can’t truly live and know your vertical if you try to expand too much, too quickly.”

Deepening Your Vertical-Specific Knowledge and Expertise

Both Vertical Solutions and CMIT had great insights for how to seek out and gain knowledge of your target industry verticals. They suggested seeking out and interacting with industry associations, going to their industry trade shows, building relationships and finding out what their pain points are because as Bruce of Vertical Solutions put it, “They buy on pain and want partners who understand their business model.”  Consistent presence at industry related events was heavily emphasized.  Many competitors will show up to one event, but you need to truly commit to showing up year after year, so you become recognized and viewed as a trusted insider.

Staffing around certain verticals was addressed as well. I asked our panelists next how they train and develop the talent and skills necessary to service their target markets.  Both Billy and Bruce said they leverage their partners to assist with market specific use case technology and training. Whether it’s Azure, AWS, Microsoft etc. your existing partners are a valuable resource for learning the right areas to build expertise around.

Bruce of Vertical Solutions stated, “We had a big EMR consulting partner that we worked with really closely. We used them to help guide us where to go for education. Plus to address the questions: How do you train your team on what's happening in the industry? What should we be signed up to? Who do we need to talk to? And then we talked to our clients as well.  What educational events do you go to?  Where do you focus on your practice? How do you look for and grow people in your groups, from an industry perspective?”

Addressing Concerns Over Revenue Impact

A popular question amongst attendees was how to deal with perceived impact to revenue by going vertical and how to gain buy-in for a vertical go-to-market approach.  In other words, how did they address the perception, especially from businesses just starting out, that all revenue is good revenue?  Billy and Bruce both reinforced the need for top down support from the executive team as one key element but also educating colleagues that deeper vertical focus yields more scalable and repeatable business with higher profit margins.

Bruce shared, “I had to show that I was committed to this and I wasn't willing to just say, okay, let's forget what I've preached over the years, turn a blind eye to that and just take this easy money. I started by asking if this meets our requirements. It may look good on paper, but how much is it really going to cost us to close? Are we going to be able to win? If we do, are we going to be able to service it? What does that take away from our core client base?  I don't want to do a one off where I'm not getting a referral from this client anyway. It takes leadership commitment at the company level.  If they're not committed to it, or if you're trying to convince another sales rep or somebody else that doesn't have influence to do it, it's going to be very difficult. It has to be top down and leadership truly has to buy into it.”

Pivoting their business to new verticals wasn’t an overnight effort. It takes many years for MSPs to develop the right toolset, industry expertise and relationships to understand the nuances of the industries they decided to target.

Our panelists succeeded in growing their profit margins and gained more market share by doing three things:

  1. Developing a deep knowledge of the technology requirements and business needs of their verticals
  2. Networking in industry associations and gaining referrals
  3. Working with partners to train staff on market-specific skills and tech.

Mastering this approach should have you well on your way to becoming a vertically focused MSP and yield better results.

For more on this informative dialog between CMIT and Vertical Solutions, check out the full hangout, “How to Pivot Your Business into New Verticals.”

Gretchen Hoffman is senior director, demand generation at Continuum. Read more Continuum guest blogs here.