MSPs Open Their Arms To Small Businesses

With offerings ranging from network management to full-scale IT operations, the MSP community is embracing small business and sees a fruitful and expanding market for their services. Some have been in the services business since day one, and other solution providers are beginning to make the transition.

Bringing in new business, however, is no easy task, and solution providers who want to be successful MSPs have both financial and logistical hurdles to leap.

“The biggest problem is that the small business is what I call an IT castaway. They don’t have the leverage to deal with the technology, to recruit the people they need to run with the technology or to build a system that [they] can manage themselves,” said Peter Cowie, CEO of CBE Technologies, Boston.

“They’re definitely much more reliant on us vs. a larger company. The services you have to provide a small business are much more comprehensive than what you’re going to provide to an enterprise client,” he said.

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CBE began offering managed networking services in 2002, and about one-quarter of its business comes from the less-than-100-seat market. It’s managed IT offering features user and PC support, help desk, managed server and PC services, including virus protection, backup, patch management, software management, on-site break/fix, as well as field support for mobile users.

Bringing big-time IT to the small guys is what Thrive Networks’ CEO Jim Lippie said drives his company’s business.

Thrive Networks, Concord, Mass., started in 2000 doing on-site visits and selling technology solutions to customers. In 2002, the company began offering network monitoring services and last year began making the transition to offering a full managed service package.

Thrive’s niche is the small business, and about 90 percent of its customer base fits into the less-than-100-seat market space.

“We felt that small businesses needed access to the same level of support that a Fortune 500 internal IT department could offer. A company of 30 has the same technical requirements as a company of 3,000 in many cases, and we felt that market segment was being underserved,” he said.

The biggest hurdle that customers must overcome when thinking about purchasing a service and not a server is the financial hurdle.

The majority of Thrive’s clients have adapted to the monthly fee the MSP charges for managed services, but some customers are hesitant, Lippie said.

“We have a conversion plan that we’re working through. What we’re doing is we’re looking at our client data over the last six months to a year and summarizing what they spent with us and showing them what—under this new package—they will pay and the advantages from a service standpoint,” Lippie said. “We’re walking them through all of the benefits and asking them to switch over.”

He estimates that 90 percent will make the change, and offering perks and bonuses has been a way of getting customers onboard.

“We offer a pre-scheduled number of hours on-site to take care of higher-level issues. If they don’t use those hours, those can roll over up to a year and they can use those hours for an infrastructure upgrade project,” said Lippie.

For example, “if a client has built up 25 hours in the course of a year and they need to upgrade their Exchange server—outside of the scope of daily ongoing maintenance—that project may take 30 hours to complete, so we’ll allocate the 25 hours banked to the 30-hour project. They pay for 5 hours,” he said.

So far, the company’s strategy is paying off. First-quarter revenue for 2006 was up 44 percent over 2005.

“We like to say that we give our clients the best of both, the automation and efficiency of the managed services with the human touch from our engineers,” Lippie said.

Alphanumeric Systems, a Raleigh, N.C.-based solution provider with 300 employees that generates about $100 million in annual revenue also is taking the managed services plunge.

The company’s TotalCare offering—which includes desktop, network and server management—was officially launched last fall after Alphanumeric spent six months working out the kinks.

“After being in business for 26 years here in the Carolinas, our reputation is everything. We wanted to make sure that we had a robust service offering when we went to market,” said Tim Finnegan, director of the TotalCare program at Alphanumeric.

“We find that with a recurring revenue stream that also provides you unprecedented access into your customers IT infrastructure and their business plan, we can become a trusted advisor over time,” Finnegan said. “As a result, it really helps us participate in the business and how we may help them meet their business goals.”

Moving customers away from per-project payments to a managed service with a monthly fee takes business savvy and a knowledge of what small businesses want from IT, Finnegan said.

“We’ve identified a few catalysts in the small to medium-[size] business that really make managed services the appropriate fit for them at this time. One of those is their adoption of advanced technologies. We’ve seen a lot of investment in CRM and accounting systems. Voice over IP is now a big driver, Finnegan said. Overall, their [small and medium-size business’] reliance on technology to do their business [increased],” he said.

Bingham, Mich.-based solution provider Qualitech began offering managed services last year. So far, half a dozen customers are using the managed service, and the company hopes to have between 25 and 30 customers by the end of 2006, said CEO Gordon Scobel.

More than 90 percent of Qualitech’s clients are small businesses, and selling services to them means telling a good story. “[With a managed service] we can be proactive as far as preventing problems. … That’s got to be the compelling story to the executives. If it’s an IT group, the compelling story is that we can provide them with information before something goes wrong so that they can be the heroes,” he said.

Declining hardware margins, he said, pushed his company toward services, and the company is still making the decision on whether its managed services will be for new customers or whether they’ll try and transition existing customers.

“It really is a different avenue of selling,” Scobel said.