The urgent and unexpected customer needs brought on by COVID-19 created a surge in revenue for many MSPs during the past year. At what point that growth plateaus or subsides is in the hands of how MSPs steer their businesses in the wake of the immediate crisis brought on by the pandemic.
But COVID-19 only accelerated changes that were inevitable and already underway in how customers procure technology and services. MSPs seeking growth can achieve it if they pivot and adapt to those changes, two prominent industry experts emphasized on Thursday.
TruMethods president Gary Pica and 7 Figure MSP CEO Chris Wiser underscored that prognosis during a panel discussion at Channel Partners Virtual 2021. Channel Partners and Channel Futures head of content Bob DeMarzo moderated the session, called "The MSP Market: Anything but Business as Usual."
According to Pica and Wiser, whose firms advise MSPs on how to pivot their businesses, those that are willing to break with traditional ways of doing business and commit to the modern managed services model are poised for years of ongoing growth.
“It's the best time ever to be a managed service provider right now,” Wiser said. “This industry is ripe; we have so much opportunity in front of us.”
“There will be more recurring revenue sold at a higher price this year than in any year in managed service history,” Pica said.
However, he warned that the growth won’t spread evenly across all MSPs.
“It’s going to be pretty weighted to probably 15-20%,” he said. “But everybody has the opportunity to be in that 15-20%.”
DeMarzo challenged the bullish outlook, noting many businesses have endured tough times with the changing revenue models, exacerbated by the pandemic, which is now entering its second year.
“We're coming off a period of incredible growth, but do you fear a little bit that that growth is going to slow?” DeMarzo asked. “As customers look at what they accomplished to get through the pandemic to sustain their businesses, and then they assess what they need going forward, that's probably on the minds of a lot of MSPs.”
'Race to the Bottom'
While that is an issue, Wiser said there are more significant headwinds for MSPs that don’t see the changes already occurring in the business.
“It is a commoditized space; it’s more of a race to the bottom,” Wiser said. The MSPs Wiser described are those with fewer than 10 employees, who still perform break-fix services and fear if they give customers an ultimatum about moving to managed services agreements, they will lose them.
The good news, according to Pica, is that the total addressable market (TAM) of SMBs spending on technology is going to continue to rise, regardless of the economy because SMBs are already committed to it.
“They're in the middle of their tech revolution that the enterprise went through in the '90s,” Pica said. “So, their spend on tech as a percentage of revenue is going to increase. That's why the equity money is here; they chase TAM. We have to be positioned as MSPs to understand where those wedges are, why people would do business with us.”
Investing in Sales and Marketing
One thing that MSPs need to focus on more rigorously, is sales and marketing, according to Wiser.
“It's so critical to actually have a sales psychology, to have a sales process, put all these things in place,” said Wiser, whose company trains MSPs to put that model into practice. To move in the right direction, Wiser said MSPs must “stop focusing on selling products all the time, focus on selling the solution to the problem.”
The acceleration to cloud and the expectation that many people will continue to work differently even after the pandemic is over requires a new mindset to providing technology services to customers, Pica said.
Historically, “if you're an MSP, you buy an RMM, and it's about endpoints,” Pica said. “Now it's about users. It's about data. It's changing, and you have to change the way you deliver services.”
Investments in collaboration are also now a key part of the managed services equation.
“Customers need to collaborate,” Pica said. “I have some customers that are way down the line with the Microsoft stack in a whole different way. And they're getting an extra $25 a seat to help people with the optimization and management around them. That’s an opportunity.”
'Eat or Be Eaten'
Pica said smaller MSPs will have to find ways to get bigger, because there are larger ones that are suddenly looking over their shoulders.
“There are more companies that have scaled above $4 million-$6 million; they're super regionals and there's equity, venture-backed,” he said. “And they all share one thing in common. They have dedicated sales and marketing, which means they're coming for your customers now. It's eat or be eaten.”
DeMarzo asked if vendors are in alignment with the changes by adapting their programs, incentives and go-to-market strategies. Pica said vendors still have significant work to do.
“Because they're so tied into their solutions, and many of them are solutions for a world that's changing or going away,” Pica said. “And the bigger the company is, the harder it is for them to adapt to that.”
Most vendors don’t adapt until they’re forced to, notably when they see it hitting their sales numbers, Pica added.
“That’s what they react to,” he said. “Also, the industry is maturing.”
Wiser agreed, noting MSPs that are adapting are becoming less product-focused and more of an aggregator.
“The days of the MSP that crawls under desks are winding down, he emphasized. “In reality there are still a lot of them out there.”
Wiser said there is another key issue at play: cybersecurity and the ongoing rise of more sophisticated attacks. Any MSP today that has IT named as part of their business is considered a managed security services provider (MSSP), “whether you want to be or not,” Wiser said.
As recent events have demonstrated, MSPs are taking on a higher level of risk when letting customers choose services on an ala carte basis.
“All these MSPs think ‘this vendor’s got my back' — well, now you’ve got to be vetting them,” Wiser said. “You have to be making sure not only is your house in order, but your vendor’s house better be in order.”