While IT solution providers have been around for a while, Managed IT Services is a fairly new offering comparatively. Managed services is not just a product, it's a way of doing business. In order to be successful as an MSP, you need to fully buy into this business model. But what exactly is this business model?

On this episode of MSPradio, we're joined by Stuart Selbst, a Business Coach and MSP Consultant, as well as Nick Merola and Matt Waters, both of whom are Directors of Sales at Continuum. We discuss the MSP business model, how MSPs can successfully adopt the model and where some MSPs are falling short.

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Episode Transcription:


Nate:                       Alright will come back to another episode of MSP radio. I am your host Nate Teplow. We’ve got the great episode lined up for you all today. Just before we get into it I just wanted to remind everyone to follow us on Twitter. Our handle is @follow Continuum. We are very active on Twitter. We do a lot of great tweeting and collecting some good content for you there and would also love to hear what you have to say about the radio show. If you use the # MSP radio, we will be looking out for those tweets and love hearing what everyone has to say.

So today’s episode we’re talking about the MSP business model; how to make it work for you, where some people might be falling short and how you really should be thinking about managed IT services and your business as an MSP.

So we’ve got some great guests here today. First off I am joined here by Stuart Selbst. He is also known as the MSP coach. He’s got a ton of great experience as a business coach and working with MSP’s to help them grow their business. So Stuart, welcome to MSP radio!

Stuart:                    Thanks Nate! Thanks for having me today.

Nate:                       Yeah, no problem! Glad you could join us today. And we are also joined here by Nick Merola and Matt Waters. They are both directors of sales at Continuum. They’ve both been with Continuum for many years. They’ve had a lot of great experience again working with MSP’s, helping them solve business issues so I thought they would be great for other people to join us here on the show. So Nick and Matt, how are you guys doing today?

Male:                       Doing great Nate! Thanks for having us. We are looking forward to the discussion.

Nate:                       Definitely, definitely. So before we get into this I just wanted to mention that Stuart will be speaking at Navigate 2014 which is Continuum’s first ever user conference taking place this September in Boston Massachusetts. So Stuart, really excited about the event and excited to have you there. I know we will be touching on a few of these points during our discussion today but can you give us a little sneak peek of what you would be talking about at the conference?

Stuart:                    Sure happy to. My topic is called: Managed services, not a product but a business model. And what I am going to do is based on my experience being an MSP and working with MSP’s, so many MSP’s think managed services is a product and they sell it, they line item it. So what we are going to talk about in that session is; it is a business model. It is a way of doing business, a way of accomplishing more for your clients and making your business more profitable and helping your staff be more productive. So I’m going to kind of cover that in the timeframe that we have at Navigate 2014.

Nate:                       Awesome, sounds like a great topic. And again we are going to be touching on some of that today during our discussion. And just one more thing about Navigate, what are you most excited for about the event in September?

Stuart:                    I love Boston. It’s a great city. I am excited about being there. I am excited about the partners being there and just so you know, last week I had the opportunity to tour the service desk in Pittsburgh and I want to talk to people about what I got out of that as well as the tools that Continuum offers to help the MSP’s businesses grow. It’s amazing [03:30 inaudible].

Nate:                       Yeah, that’s great! I mean Boston is great. I’m actually from here in Boston and it’s beautiful in September. The winters are a little rough but fall in Boston is beautiful; so looking forward to seeing you at Navigate and many other people at Navigate. If you are interested in learning more you can go to www. continuum.net\navigate. You can check on our agenda, some of the speakers there and also register for the event. So hope to see you all at Navigate 2014!

We wanted to touch on where some MSP’s are falling short. I know all of our guests here talk to MSP’s frequently. I guess Stew you can kick it off. As an MSP coach, what do you find to be the most common issues among MSP’s in terms of where they are lacking when it comes to growing their business?

Stuart:                    I don’t want to be mean but where do I begin? There are so many of them! But typically the reason people want to engage me because they want to sell more. They want to sell more of their services but before they can sell their services they need a process behind it and so many MSP’s don’t realize that the model, the business model is a process. Now I think process to the nth degree. When I ran my MSP everything was process based. We did $4 million a year in recurring revenue with eight people or nine people based on process. Even today me and my staff are all Six Sigma certified. We take that whole process development into every one of the clients that we work with. So the common issue is they can’t effectively take on more business until they have a process to support the business they have.

So I hear all the time, time management is a big issue, finding the right types of clients is a big issue, selling their services; and a lot of people will just go and, like I mentioned earlier, sell their services as a line item. I even had a partner earlier this year that is no longer with us, selling managed services as an online tool. You wasn’t a Continuum partner thankfully but he was selling his RMM tool as a line item and doing it as such. So taking his cost of his RMM tool, marking it up and selling it to his clients! Well, that’s not the way we need to do business effectively. That’s not a possible way to do business. And people will argue that point with me all day long because they think, “We are making 20 points on this!” It’s not a Dell laptop folks! It’s a business model! And so when you are selling your services as a product, you are not going to be profitable, you are just not going to be profitable.

Nate:                       Yeah, yeah definitely.

Stuart:                    When you sell your service as a business model, well then you are making a ton of money and I see it all day long with partners that I work with. And it is getting their mind wrapped around the business model of managed services. It’s the business of IT, not the IT business.

Nate:                       Yeah, yeah definitely. Now Nick and Matt, same question. What you guys, I know you speak to MSP’s frequently, what do you find to be some of the most common issues?

Matt:                       Yeah Nate, this is Matt. A lot of what Stuart touched on is common. I’d say a lot of our MSP’s don’t do well is they live and die off referrals when it comes to new business. They are not very good in some cases when it comes to concentrating on certain market veritable. They don’t really have a good marketing approach when it comes to landing new clients. I will talk to a partner whose goal might be to land one or two clients I year; which might be a little bit of a modest goal but when you look at why they have done in the past and what type of marketing initiatives they are doing. One or two when you clients I year might not actually happen. So when they sit back and rely on referrals and they get comfortable with their existing client base and maybe and maybe turn it into more of a lifestyle bar or lifestyle MSP versus attacking a marketing veritable or adopting a new product like an MDM or a mobile device management solution or IAS, something that’s new and possibly a little niche to have that expertise upfront and possibly be known as one of the early adopters of those types of solutions; they are not doing that the successfully as I think they could.

Make I think you have some thoughts on product adoption too.

Nick:                         Yeah I think you guys touched on a lot and it’s all good stuff. I think one of the common issues that MSP’s are facing is just that and Stuart mentioned, it’s not just a product, and it’s a complete process. And it involves a full product adoption across the board; monitoring and maintenances and [08:32 enough PDR] alone isn’t enough. It’s really got to be one that your end client is going to buy into and understand the value of. It’s pretty easy to explain the great specs. And I hesitate to go back to that model but it’s a financial disaster for everyone included. You’ve got the technician that’s on-site that’s only there to resolve an issue. So the end client is already not in the greatest mood and on top of that, when they are there, they are getting paid for that time. So that model has to go by the wayside. And I think moving forward you have the opportunity to let software work for you but it’s more than just that, it’s services as well. It’s nocs, it’s service desk.

I’ll give you a quick example. I think this partner I was talking to the other day, he was discussing the ability to… He was having a profile about his business and we were talking about the fact that he was looking for a [09:24 void phone] system solution. So we got into that a little bit and we were talking about it and it was exciting to talk about and she was saying, “I have five end clients that are looking to get rid of their PDX and add a [09:38 void phone] system. And I congratulated him on those wins and then I asked him, I said, “Who is going to do the installation of the phone system? Because I know with the switch installations and all you have to do with auto attendants and all the work that goes into [09:49 void phone] systems, is going to put some strain on some of your techs.” And he had just before that said to me he had six techs, three of which were on a rotation for their internal service desk. And after I asked him who is going to do the installation, there was a pause and he said, “My techs that are existing.” And I said, “What kind of strain is that going to put on your service desk? What kind of strain is going to put on your business to your clients?”

And so as you can tell, we have further discussions to talk about and how we can assist him in the future and going forward but it’s an opportunity spawn and I think an epiphany moment happened for that business owner was the realization of; That business is a great, it’s a great opportunity but I do need some and the help can’t just be continually adding labor cost and that can’t be a good model. So I think that’s one of the mistakes.

Matt:                       To touch on that Nick, part of what Nick and I do when we have our guys on the road and they are meeting with partners face-to-face and we can do it internally with our guys here, is take a look at everything that an MSP might provide. The stores use the term ‘line item’ or ‘sku number’. If unfortunately that’s the case where somebody might be line item-ing something or they might have four, five different solutions that they charge for; project work, BDR, RMM, maybe voice, maybe help desk; put that up there on a whiteboard or put that up there in front of somebody and say, “Okay, you are selling project work or you do project work. You have a BDR solution, you have a managed services and monitoring solution. You have possibly voice and you provide helpdesk. Okay now you have 100 clients or 50 clients; how many of those 50 clients have all of that?

Nick:                         I say that a lot and I spoke at the conference not too long ago and I gave a presentation on selling IT services and not to suck at it. Part of it is, I could talk to any MSP anywhere in the world and I can guarantee that they are not selling 100% of their services to each and every one of their clients. So they missing 30, 40, 50% more in revenue anywhere you go because they are not servicing the clients, they are not giving the clients what they need, they are letting the client run their business. For instance, the client is telling them what they want and they are not consulting it, they are not running it as a business model.

Nate:                       Yeah, definitely and I think you have to speak to your client in business value and not just a technical value. Like going back to your point, you don’t sell a product what you really want to sell a solution and tell them what kind of business pain you are eliminating by offloading my IT services to you as my MSP. So I know this is a great discussion guys. Hate to cut it off but we have to take a quick commercial break here.

Coming up next we are going to talk a little bit more about this business model and how to make it work for you, what this business model really means and how MSP’s can leverage it to grow their business and adopt a full managed services business model.

So a quick commercial break here and coming right back in a few minutes.

Nate:                       Alright welcome back everyone to MSP radio. We are chatting here with Stuart Selbst also known as the MSP coach and Nick Merloa and Matt Waters from here at Continuum. We’re talking about MSP business model, some of the issues MSP’s are running into and how to really make the model work for you.

First segment we talked about the business model like I mentioned. Can you describe a little further Stew, what is this business model, what are some of the features and methodology and how does it really help contribute to my success as an MSP?

Stuart:                    I’d love to. The business model is more of a consulting model. And I would say quote unquote, any monkey can Google how to fix something. But it’s really takes a consultant to show the benefits of IT. And I use the word ‘benefits’, some people use the word ‘value’ but let’s go with ‘benefit’ for today. As you are selling your services to your end-user client, there has got to be a benefit for both of you to do business together. The benefit to them is that they are going to get a fair service for a fair price but really what they are thinking about is; where is the return on their investment? We always seem to be looking at a return on investment from an economic perspective as a business and the whole model.

So when we try out an investment from a technology service provider or MST, is: How can my stuff be more productive? Now I can sit here and quote statistics [15:06 inaudible] has done surveys and whatnot over the last few years but really we all know that a monitor the network stays up 45, 50% more often than a nonmonitored network. So that helps with [15:26 inaudible] activity. When the staff is more productive, they can do more, they can build more. And there is a statistic out there that I quote a lot that; the average American worker is productive 4 ¾ hours a day.

As the business owner, I would like to see stuff be productive five hours each day, six hours each day. Eight hours a day is what the worker is getting paid for. Now a lot of the excuses are that; “My computer doesn’t work”, “I can’t get email”, “I can’t print” but if the network is monitored, when now we can increase productivity and on the average of say 10 user company at a million dollars a year, now we’ve managed to increase productivity 30, 40% and that’s dollars the bottom line. More sales could be processed, payroll could be processed, invoicing could be processed [16:11 inaudible]. So when you look at the MSP business model as a way to increase productivity for your end-user client, you are selling $1000 a month to monitor that 10 user network. It’s not even on the P&L anymore because you’ve done so much to help the company be more productive, you’ve consulted with them now, there is projects in there.

Now I am looking at the MSP’s that there is projects in there, there are servers up, there is [16:39 moods], there is [16:40 as mood] changes, there is a lot more stuff that you can now bill for as a project that will contribute to your MSP success. So it’s knowing you’re not only getting a couple thousand dollars a month, now you are probably doing three, four, five $10,000 a quarter in billable projects that now that $12,000 a year client is now probably a $50,000 a year client and they are going to also send you more business because you continue to help them. And now that you are part of the executive team and the domino effect just continues to go and go and go but you’ve got to look at what their business model is and how technology is going to help them and not try to sell them on everything under the sun. Just sell them the services that are going to benefit them; they monitoring, the support, the service desk, the [17:12 PDR] and so many MSP’s get pushback from the clients, “Oh, we don’t need a PDR, we don’t need a backup solution.” It’s not ‘when’ they are going to. The fact is that if they are going to use it it’s ‘when’, you’ve got to be prepared for that. So it all comes down to methodology of the business model, taking care of the client, helping the staff be more productive, putting more dollars to the bottom line and all the stuff that will help contribute to more revenue for the MSP.

Nate:                       Say I am an MSP and I will direct this to Matt and Nick and I’ve recognized that I have all these issues, I am not utilizing my technicians the best way, I am selling my products and not necessarily my services and I recognize I need to adopt this business model, how long can you expect to take to really get this thing working for me? It’s not something I can just turn on overnight correct?

Matt:                       No, it takes a process, it takes a commitment. So you have to make sure that the MSP is ready to do it. Stuart mentioned a lot of good things as far as their own internal business model but I think you really have to. There still is a bit of reluctance from MSP’s to make the full commitment and go to that process as opposed to à la carte picking products and services. You have to make a full investment into this because it’s beneficial to the end client and once you realize that, you can move forward. I think the key component in the migration to it is tech utilization. The critical piece on that is you have techs today and they are doing internal helpdesk, they are doing on-site break/fix work or whatever they are doing but I think there has to be a commitment to repurposing, repositioning those people internally to be able to fully understand the value of an MSP model.

I think recently, I hate to tell another story but I talk to partners every day and I was talking to a partner the other day specifically about service desk and his two issues around outsourcing his internal service desk where:

  1. The guys that handle the phone internally, their end clients love and they know their business and they appreciate the relationship and all of those things.
  2. And the second thing was that the manager of the helpdesk internally was his brother-in-law.

And, “He couldn’t just fire his brother-in-law” was what he said to me. And I said to him, “I wouldn’t ask you to do that. That would certainly make holiday season difficult”. So I wasn’t asking him to do that but if you outsource your service desk and created a better model, you can repurpose those guys into even into account managers if they have the relationships in place with the end client, think of the value can get from having that guy sit down not in the billable situation but in the consultative, as you mentioned earlier, as the trusted advisor in front of that end client and put them as an account manager, even a sales rep. You don’t have to fire your techs, you just have to repurpose them.

Nick:                         I agree with you on repurposing them but some people are account managers but everybody needs to have a call center and this is best to the contribution to the MSP success. Now everyone needs to have a call center. So if you are going to use the outsourced service desk, we’re talking about huge fan of you guy’s service desk since I saw it last week. My God, every MSP needs to be using this! Every partner that you guys have needs to be using it.

But even if you are repurposing them, you need to have some kind of incentives for the MSP business. So if you are taking that brother-in-law and taking him off the service desk and you are making him and account manager, well he needs to learn how to up sell. He needs to learn how to renew the contracts. He needs to learn ways to offer more services to those clients and be able to build out the network and that’s training, it’s customer service, it’s all these things that may not fit [21:11 inaudible].

So the owner of the MSP doesn’t want to fire his brother-in-law, when maybe he’s not the right guy to work in that company. And you have to look at it not so much... I am not so much a fan of never hiring family, except my wife, she works with me, she is my best employee, you just can’t always hire family.

And I have worked with partners who have hired their fathers, their brothers, their cousins and you know what? Sometimes you just need to… If they are not beneficial to the customer or the company, it’s a business decision. And so many people need to just, “Hey, it’s a business decision, it’s nothing personal.” Some people take it personal and sure the holidays will be interrupted. If you let them go in October, Christmas is going to be sticky but if you let them go in May, they get over it by December, they find a new job. But you have to put the right people in the right seats on the bus for your business and it’s not always family, it’s not always friends.

I have a partner right now that is a Continuum partner that’s hired a lot of his friends from previous jobs that he worked for and Friday I was with him and I am like, “This isn’t working.” And he finally saw the bigger picture. So having the right people in your organization doing the right jobs and even the repositioning it may or may not work out, make sure you have the right people to be successful with your clients.

Nate:                       Yeah.

Matt:                       A lot of business owners out there don’t have anybody right now in the account management role. It is the business owner wearing two or three other hats at the same time and the idea, “In order for me to bring in a new client and not for me to take on this number of endpoints this year, I need to add X number of technicians.” That mentality I think is what hinders an MSP. And until they overcome that, adopting this business model is going to be a little rough.

Now, to answer Nate’s question about, “How does this transition take place and how long will that transition take place?” That’s a little bit tough to quantify but one example where one of the strategies that can possibly be used is, let us look at the existing client base you have now that you are not selling that business model to. So go back to that account in 2012 that gave you $12,000 or $15,000 a month in break/fix revenue and not a month but in a year, $12,000 in 2012 for break/fix.

Listen, you gave me $12,000, you are spending $12,000 a month on a break/fix model that isn’t proactive, it’s all reactive. I am making money when your systems are down, it should be the opposite. I should be making money off it when your systems are up, when you have email, when you have uptime, when your systems are healthy. I can do that for roughly the same amount of money that you are paying in a break/fix contract.

Now it’s a fixed IT cost. You know what you’re going to be spending on your IT in 2014. You can now budget what your IT cost will be and instead of it being a wildcard where maybe in 2012 is $12,000 a year, maybe in 2013 is $4000 a year, maybe in 2014 is $20,000. Now I have a fixed cost of that I know my IT is going to cost me moving forward and it’s as a service. So I don’t have to write a $12,000 check. I pay you a service, you provide me validation in reports each month and make sure my systems and networks are healthy; you back it up, you monitor it, you have a back end noc looking at things 24/7 and whenever I have an issue or we need to call you guys, you answer and you remote in and fix it.

Nick:                         I agree with you completely. So just a quick story about Continuum. Last year at the channel partner’s , I did a half K event and it was sponsored by Continuum and [25:24 inaudible] and one of the people we had [25:25 inaudible] was a Continuum partner and they were a one person shop. One person shop using your noc, using your service desk, doing somewhere in the neighborhood of $3-$500,000 a year in revenue for a one person shop but they are utilizing their tools so they have a great business model based on that.

He doesn’t want to hire employees. You kind of want to this quote unquote lifestyle business but he is making money. He has used the tools that are available him to service his clients better than his competitors. I am a big fan of that. Now I like having employees and stuff like that. I think as an MSP you can’t do it all by yourself. If you really want to grow and adapt, you need to have staff. But the services that you guys offer for this managed services business model, because it is consultative, you don’t need to be turning a screw where the service desk can be turning the screw for you 24/7 and there’s escalation.

So the MSP needs to be hiring the right higher-level people that they can grow their business with the services they have now to get the revenue coming in where they can now hire those level II, level III engineers to do the higher-level projects and be escalation points for them and give that amazing level of customer service because really folks, the MSP business model is a customer service model. We are in the business of customer service, we are not developing technology. Companies like Continuum, Intel, Dell, Lenovo, they build technology, Microsoft writes technology. We support it and we support people and if we take the people perspective to our business model we are going to be successful.

Nate:                       Yeah, absolutely. I mean I think what it was down to is that in order to grow your business, you need to be a businessman, you need to think with the business mentality and fully buy into this business model. You can’t do a 50-50. There will be a transition period, there will be some growing pains but ultimately if you can buy into this model and do it correctly, it will be better for your business. It will be better for your employees and I think ultimately better for your clients.

Alright well thanks everyone for tuning in to MSP radio and thank you to our guests who joined us today; Stuart Selbst also known as MSP coach, you can follow him on Twitter very easy at the handle @MSP coach. So Stew thanks for joining us today.

Stuart:                    Thanks Nate and thank you for all who are listening and those of you who are going to attend Navigate, please come to my session, I think it will be very informative. Also I will be available to anyone during the session or during the conference to [28:03 inaudible]. So printout your business plan, bring it to me, let me review it, let me give you some pointers. There is nothing better than working together to help you succeed whether you meet with me to work with me or just need a little advice, bring your business model, bring your information, come and find me. Follow me on Twitter, follow my blog at Stuartselbst.com/blog and just I am looking forward to seeing everybody at Navigate in Boston.

Nate:                       And also just wanted to thank Nick Merloa and Matt Waters for joining us today. Thanks gentlemen.

Matt:                       Thank you Nate!

Nick:                         Thanks Nate!

Nate:                       It was great having you on the show. I think we had a great discussion today. Again focus on the MSP business model; how you can really buy into it and how to make it work for your business. So hope all our listeners enjoyed the discussion today. Don’t forget to Tweet us and follow us at @Continuum and use the hash tag MSP radio. I’d love to see some people on our blog too if you go to blog.continuum.net, we’ve got a ton of great content there for MSP’s, again focus on growing your business and staying in touch with the latest industry news.

So thanks for tuning to MSP radio this week and I will see you all next week!