There are compelling reasons to be a niche-focused service provider. After all, specialists can charge significantly more than generalists. Focusing on one type of customer allows you to really speak your customer’s language – from understanding the abbreviations a specific target market uses to supporting industry-specific software. If you only work with one kind of company, you only need learn about one market. That’s a whole lot easier than becoming an expert in twelve, and a whole lot more profitable when you can implement solutions you create for one client across your whole client base.
Before you decide if going niche-specific is the right choice for your company, let’s talk about the challenges that being niche-specific presents.
The pandemic identified some major flaws in having a client base that isn’t diverse. If your MSP supported hospitality exclusively, you likely had a rough year. If you support only one kind of business, when that industry experiences upheaval, so does your MSP.
IT companies that support healthcare have unique challenges. Elective surgeries being cancelled for a year means many practices won’t have the budget they had pre-pandemic. Many MSPs are also currently attempting to recover from large revenue holes left in their MRR after a client merger or acquisition.
Law firms, on the other hand, are thriving. But each niche has its own challenges and drawbacks.
Considering the risk involved in “putting all your eggs in one basket,” it’s not surprising many MSP owners take a different approach and don’t want to limit the types of clients they serve.
MSPs: Looking Beyond One Vertical Market
If you don’t want to narrow your industry focus, you may want to consider exclusively supporting companies of a certain size. You can be a specialist and have a diverse client base by industry if you choose a specific size of business to work with. A five-person advertising agency will have completely different requirements from their 100-seat counterparts. Specializing in micro-environments or co-managed support are both viable market opportunities.
Still, other MSPs are finding their sweet spot in supporting specific solutions – cloud environments, for example. Some become AWS (Amazon Web Services) support experts, and others choose to resell and implement Microsoft Azure only. Some are pivoting to become small business security experts.
Regardless of the way in which you choose to specialize, becoming the “only game in town” for a certain kind of client means you can begin to enjoy the luxury of turning away business that isn’t a good fit for you. You’ll be able to raise your rates as your knowledge base grows. One more big benefit for niche MSPs is that when you become an industry expert, you eliminate a lot of marketing overhead.
Having one message to deliver to one target group is not just less expensive, it’s more effective. A distinct client profile that rarely changes means you create and refine one message, and it’s far easier to catch the attention of one group than that of every group. More often than not, the broader the audience, the more watered-down the message becomes.
If you’ve made the decision to focus on one niche only, you don’t need to immediately get rid all of your out-of-scope relationships. You’ll have limited hours to support a limited number of clients. It makes more sense to do less work for more money than it does to “make it up in volume.”
Letting Go Of Low-Margin Customers
Eventually you’ll have the ability to replace lower-margin legacy clients with your new higher-rate niche-focused clients. (Replacing them by seats is a good idea.) When you on-board 20 new seats with a niche client, you begin the process of helping a 20-seat legacy client find a new IT support provider. Find another IT company you respect – ideally one that isn’t going to focus in the space you’ve chosen – and help clients transition to their new home as simply as possible.
No hard feelings is important; just because these clients aren’t in your niche doesn’t mean they don’t have potential referrals for you, and it certainly doesn’t mean they won’t talk about their experience with peers or at events. You want the best possible experience for any client who is off-boarding to limit any negative online reviews or poor customer satisfaction scores.
For an excellent reference on how to swap out profitable clients for legacy clients, “Pumpkin Plan” by Mike Michalowicz is a great step-by-step guide that’s based on – you guessed it – a few of the same methods pumpkin farmers to grow their award-winning crops.
Whatever your focus, providing powerful, reliable security for your clients will keep them returning to you at the end of each renewal period. Check out how a few MSPs did just that and got to the top of their game in our ongoing series "Rockstars of MSP."