NexTI: Becoming A World-Class MSP Requires Planning, Process

Any solution provider can become a managed services provider and take advantage of ever increasing recurring revenue streams, but the required planning, introspection, and reorganization to do so is no trivial matter.

That's the message from Gary Pica, an early pioneer in the managed services business and now the president of TruMethods, a Morristown, N.J.-based mentor to budding MSPs.

Pica, speaking to an audience of solution providers at NexTI, an event hosted by CRN publisher The Channel Company, said becoming a legend in the MSP business is easy.

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"The first step: Tell everyone you are a legend," Pica said. "Step number two? There is no step number two."

Becoming a world-class MSP, however, takes more time, Pica said.

Pica also said there are three types of MSPs.

The average MSP has an inconsistent monthly recurring revenue stream, and an average service price of under $100. That results in revenue per employee of about $100,000, or a total of $1.2 million for a 12-person company, Pica said.

A best-in-class MSP, however, has more consistent monthly recurring revenue and a slightly higher average selling price per service, giving a yearly revenue of $1.5 million for that same 12-person company.

A world-class MSP, however, sells services with average prices of $120 to $160, and can have a per-employee revenue of $150,000 with 25 percent to 35 percent margins, Pica said.

Being a world-class MSP should be the goal of every solution provider that wants to enter the managed services business, he said.

"Your people can be part of a thriving business, and everyone enjoys it," he said. "And you as a business owner can get return from your risk."

Pica's outline of how to be a world-class MSP was very quite illuminating, said Christopher Haight, president of Prevare, a Beverly, Mass.-based managed services provider.

"Gary has a very good reputation in this space," Haight said.

Having the kind of metrics to determine what is an average, best-of-breed and world-class MSP is important for measuring one's own degree of success, Haight said.

"We don't always know how well we're doing," he said "I know my own numbers, but I may not know if we are doing as well as we can."

Pica outlined his five-step system for becoming a world-class MSP.

NEXT: Developing A Business Planning Process

The first step is to have a business planning process.

"Business planning discipline is the greatest indication of business success. ... If there's one thing you can do today that will ensure your success, it's business planning," TruMethods' Pica said.

Developing that discipline has to start by having a vision, and to do that MSPs need to stop focusing all day on details such as taking care of emails or watching employee hours, Pica said.

He said developing that vision helps start the business planning process, which in turn provides a framework for making decisions, allows hiring to be based on facts and not feelings, and aligns short -term actions with long-term goals.

Pica also said to avoid the typical excuses that interfere with the business planning process such as, "I'm already working as hard as I can," "I'm buried in work," "I don't have the time or resources" or "I'm too small to have a business plan."

"These are actually all reasons you need to have a business plan," he said.

As for waiting to "clear the decks" before developing the business plan, Pica said to forget about that. "Clear the decks?" he said. "It's never happened in 20 years."

The second step, Pica said, is to know what you sell.

"I love this one," he said. "It seems so obvious, but most MSPs don't know what they sell."

Every company needs three things for technology, including the physical or virtual infrastructure, support, and a strategic direction, Pica said.

These three things are also what customers want, he said. "Our clients want the same things we do: Make more revenue with lower costs."

Rather than the latest hardware and software, what customers really want are to be more productive, increase morale, increase functionality, decrease risk, increase security, and gain peace of mind, Pica said.

"This is what you should sell," he said.

To do so requires focusing on the end results, Pica said. For instance, he cited the first time he talked to a customer about email monitoring tools. However, he later realized, the customer did not need monitoring, because if they didn't get their email, they knew their Exchange server was down.

"I realized monitoring is not for our customer," he said. "It's for us."

Pica also said it is important to give customers limited choices and options while carefully defining the "edges" of the service. That includes being clear about what is and is not included with services, because when a customer calls for help, he or she, along with the person taking the call, probably did not read the service contract, he said.

NEXT: Be 'Sales-Focused,' Not 'Sales-Interested'

TruMethods' Pica also said to remember that everyone offers patch, spy and spam, anti-virus, monitoring, data backups, help desk, and other similar services. What is unique to a particular MSP are its people, resources and processes.

"If you are selling [what everybody else has], you are on the way to commoditization," he said.

The third step is to become sales-focused, which is not the same as being sales-interested, Pica said.

Being sales-focused when developing business that brings monthly recurring revenue requires a process and someone who is accountable inside the company to ensure it gets done, he said.

Being sales-focused also requires a focus on warm lead sources, not on cold calling or marketing, as well as on being realistic in setting goals.

Pica said MSPs should have a weekly sales meeting to ensure their personnel are sales-focused.

"I've had a weekly sales meeting from the beginning," he said. "In the first few years, I was the only one in the meeting. And, sometimes it got ugly."

The fourth step is to be process-driven.

Pica said this requires establishing a culture of process that involves the entire team, as well as one that allows for continual improvement. He also said successful MSPs should create a system for measuring their personnel against the company's goal, and to do so in real time if possible.

MSPs must also be accountable for their processes, Pica said.

"Who on your team is accountable for your processes?" he said. "Are you documenting your processes?"

The fifth step is to gain command over one's own business by having a 360-degree view of that business, Pica said.

This includes having a macro view, or matching roles within the company to the monthly recurring revenue, and a micro view, or understanding the gross margin per seat.

Once those different views are easily available, MSPs can develop smart numbers, Pica said.

"If you're selling recurring revenue with unlimited support, and you don't know how many service tickets that generates, you can't measure success," he said.

Prevare's Haight said Pica's differentiation between being sales-focused and sales-interested is important.

"By his definition, we are probably more sales-interested," he said. "We probably don't have all the dedicated resources we need. We fill the pipeline, work the pipeline, then refill the pipeline. We need processes in place to keep the pipeline full."