Small business, Channel markets

Will Small MSPs Go Extinct?

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I've been in the MSP market long enough to see my fair share of mergers and acquisitions first hand. As a former employee of inhouseIT, I witnessed the changes that took place when the company purchased a competitor, Baseline. In the time since I left the company, inhouseIT has seen some other significant changes, including an acquisition by Cal Net. Most recently, Cal Net has also joined the ranks of an even bigger organization, NexusTek.

We have seen similar roll-ups around the country, which leads to the question, "Will small regional MSPs become a thing of the past as they get swallowed up by larger national organizations?"

Why are large MSPs purchasing smaller organizations?

Obviously, the No. 1 reason large MSPs are interested in taking over these smaller businesses is growth. As these national organizations look to establish themselves in new regions, the easiest way to get their foot in the door is to purchase an already established MSP. This gives them an automatic client base and reputation in the region.

There are so many small business MSPs in every region, the market is bound to pair itself down over time. When one MSP is ready to throw in the towel, you can believe there is another one ready to scoop it, and it's clients, up. Sometimes it's not just solely about growth, but about being able to provide a higher level of support to a smaller market.

Why are small MSPs selling?

Smaller MSPs are attracted to joining forces with a large national brand in order to take advantage of their vast resources. As a small business, growing pains can be difficult to manage. Finding that sweet spot of when to hire a new employee to cover the number of clients you have is hard. With the resources available through a large MSP, they can concentrate more on finding new clients without worrying if the staff will be able to handle the load.

Another reason some small MSPs are selling is that the owner is ready to get out of the game. Sometimes these owners have life goals that have nothing to do with supporting small business IT, and it is time for them to move on. The large brand provides them with an exit strategy, and they are ready to take that leap.

What small MSPs should watch out for

Having been part of a few mergers and acquisitions, I know it can be a little scary for employees. You are unsure if you will have a job tomorrow, and if you do still have a job, will your company be recognizable in the future? Company culture can certainly suffer during an M&A transaction. This is especially true when a small MSP is acquired by a larger or even national MSP. If you are the owner that is being acquired, helping employees through this transition can go a long way.

Although many new small MSPs are created regularly, will they be able to compete with these large national chains in the near future? It feels similar to when a large national chain like Walmart is built in an area with many local stores. Eventually, the smaller local stores lose business because it is easier to shop at Walmart.

In order to compete when a national brand establishes itself in your regional market, you will need to rely on your customer service and provide a personal approach to support. Clients can feel lost in the sea of clients at a large national MSP, and this is your opportunity to really show your strengths in the market. This would not be a time to rely on automation and efficiency. It might take a little bit longer to complete a task, but as long as it is done with amazing customer service, the clients will stick with you.

I think there is definitely space for both large national brands and smaller MSPs in any given market. The smaller guys might need to work a little bit harder when the large MSP rolls into town, but it is definitely doable. Small MSPs just need to ensure they have a unique enough selling proposition to compete.