The vast majority of MSPs in the world are under $ 2 million in revenue. Breaking through that barrier is not easy. As part of our business transformation program, we see a large number of MSPs that have been going for more than 10 years but can’t seem to push through to the next level. Often these MSP businesses are stuck in the $800k-$2M turnover range with around five to 15 techs working for them.
We consistently see four challenges that are preventing these MSPs from taking their businesses to the next level:
1. Their Operating Model
Many MSPs fail to create an operating model that is designed to deliver the type of free cash flow they need to grow. Often the reality is hidden by the fact the owners are underpaying themselves, compared to a market rate, or taking their compensation primarily through owner’s distributions rather than salary. In these cases, they are mistakenly thinking, “I'm doing 8-9% profit”, when in reality, they might be barely breaking even (or even have a negative “true net profit”). As a result, they don't actually have the cash needed to invest in their MSP business to help it grow. MSPs need to have a framework in place through which they can understand their operating model and have clarity around how to achieve the gross margin they need to achieve growth.
2. Their Service Model
One of the keys to a profitable operating model is developing a strong service model. This is often the first piece that a successfully growing MSP figures out; how to standardize an offering so that it can be delivered efficiently and effectively. This includes understanding what to include in a recurring monthly fee and what should be a separate professional services project. It involves figuring out how to staff and assign roles and responsibilities to minimize the impact caused by task-switching. It also requires understanding how to package and price services to capture value. It’s rare for an MSP to grow past $3M without having figured out its service model.
3. Their Go-to-Market Model
Most small businesses struggle with Sales and Marketing. When you’re smaller, you don’t have a lot of room for error with your spend, and you are often limited in your ability to experiment your way into success. On top of this, MSPs are exposed to a lot of “conventional wisdom” in the MSP space around Sales and Marketing that doesn’t match up with what we actually see from MSPs that are growing. It’s far too common a story that an MSP will hire a sales person, thinking that’s what they need to do to grow. They invest six months with that person and it doesn't work out. So then they say: “We should go and work with a marketing agency to help us get leads.” They do that for six months, spend another $30k-$50k and again that doesn't work out. So they say: “Wait a minute. Maybe a sales rep was right approach, we just had the wrong person.” So they hire another sales rep and again that doesn’t work out. This ends up creating a vicious circle that can waste the MSP a ton of money and time. Understanding what really drives growth for overachieving MSPs is essential to not potentially wasting years of effort and money.
4. Their Organizational Model
So much of business is about the “who”. Do you have the right “who”s in various roles across your business? Sometimes as a business owner you need to be able to ask and answer brutally honest questions. This includes: are you the person getting in the way of growth? We see cases where MSP owners have made the decision that they are more likely to achieve their business growth goals by bringing in someone with complementary skills that can help lead the company into the next stage of its growth. As a company grows, the role of the owner has to evolve. If you’re the owner and still responding to tickets, it’s going to be really tough to grow.
Help Is at Hand
To help MSPs look at these challenges and start to find answers for them, the N-able Business Transformation team has set up a program called Escape Velocity—Getting to $2M! the first of which was held in Texas at the end of this month.
These events will take place over two days, during which time we will cover these four key areas in detail to help partners understand how to drive revenue growth in their businesses. The sessions are a mixture of “main stage” expert-led sessions, interviews with MSPs who have successfully grown their businesses, and moderated peer discussions.
Each participant will join a table of 8-10 peers to facilitate smart group discussions throughout the two-day program. As part of the program, each MSP will be challenged to think differently about their growth tactics.
If you’re an N-able partner and you want to get involved in the Business Transformation Program, contact your Partner Success Manager, or email Chris Massey.
Guest blog courtesy of N-able and authored by Robert Wilburn, VP of Partner Growth at N-able.