MSPs without scalability will not survive

MSPs without scalability will not survive. Smaller MSPs will have issues to achieve the level of pricing that it makes sense for end user organizations to pay for the service. I run into an excellent article about this topic in Channeleconomics.

When I look back at all of the workshops and discussions I have had with different organizations in MSP, ISV and SI space, it is easy to agree that without scalability, a MSP can’t possibly compete with larger MSPs that have resources and capital  to service its clients. The article provides multiple dimensions that a MSP needs to be thinking about:

• Scale
• Cost of doing business
• Target market segment it wants to service
• Vertical it wants to become a specialist on

SCALE

Let’s tackle scale first. Within MSP space, it is economies of scale. To be able to provide everything that a MSP needs to cover while providing its services will cost money and require investments. The more customers you have it will be easier to spread these investments across multiple customers. Cost of labor is also something that one can’t avoid. Providing 24-hour support is not only cost you money, but also software to manage the support organization and people to manage the service. The barrier to entry in MSP space might seem low, but for the operation to be believable and for the MSP to be able to provide the level of quality operations that is expected, the MSP can’t avoid the investments in people and tools.

COST OF DOING BUSINESS

Cost of doing business is something that is changing in many organizations especially when working in the cloud services markets. Based on the Channeleconomics article and findings from a MSP, there are new requirements for sales people as well. Customers expect sales people to be able to take the discussion to the “next level”,which means that the sales rep needs to have an understanding of technology, the process and software tools. Besides this, the velocity of the deal making has changed with digital marketing spearheading the lead generation with effective follow-up.

TARGET MARKET

Target market is one of the most important things that any company needs to be crystal clear with. I meet too often software vendors, MSPs and system integrators without clear focus what the “optimal” customer profile should be and this could kill the business. The organizations might end up being nothing to nobody.

SPECIALIZATION

Finally, there is a true need for specialization in the marketplace. If you want to impress a customer, you need to understand their business and the only way you can do this is to focus on some key verticals where your solution and services fit well and you have great references that you can have your leads talk to.