In 2002 the Oakland Athletics had a payroll of roughly $41 million. By baseball standards, that is next to nothing. In fact, it was the third smallest collective team salary in all of Major League Baseball for that season. Despite Oakland’s financial shortcomings, the A’s finished the year tied for the most wins in baseball with 103. The other team with 103 victories? The New York Yankees, who had a colossal $125 million payroll.
So how did a team with such sparse funding compete with a moneybag powerhouse like the Yankees? It found success through rigorous analysis and educated investments, and achieved the same amount of wins for 1/3 of the cost.
You can be doing the same for your managed IT services business.
How does Moneyball relate to managed IT services?
Being a baseball fanatic, I tend to relate everything in life to America’s pastime. In fact, I spent the past three months watching baseball all day, every day. As a member of the MLB Fan Cave, baseball was literally my entire life. So naturally, I’ve come to realize that the moneyball mindset is not restricted to the diamond. The theory behind this game-changing way of growing a business is actually quite simple; obtain the highest level of production at the lowest cost.
In baseball, that means crunching numbers and looking into objective analytics, AKA sabermetrics, such as wins above replacement (WAR), and ultimate zone rating (UZR).
For managed service providers (MSPs) it means focusing on business KPIs to ensure that you’re continuing to expand and grow without having to increase costly labor and time expenses. Much as the A’s were able to compete with big-market teams despite a small payroll, employing a third-party Network Operations Center (NOC) is one way to achieve these savings.
It’s all about being aware of the allocation of funds. The Athletics had a chance to re-sign one of its best hitters in Jason Giambi after the 2001 season, but knew he would come at a high price. Other teams in the market were willing to pay Giambi nearly $20 million per season for his offensive production. The Athletics had to decide whether or not they wanted to spend more than half of its previous year’s total payroll ($33 million) on one player. In the end, they let Giambi walk and redistributed their savings to other, more practical areas of the team such as bullpen depth and player development. Despite losing a powerful offensive asset, the A’s improved their record in 2002 from the previous year by one win.
How does that translate to an MSP? Let’s say you pay a technician $70,000 per year. If half of his time is spent on ticket remediation, your company is now paying $35,000 per year on ticket remediation alone. Instead, the same MSP could leverage a NOC or outsourced IT help desk to provide the same (or possibly improved) work for a fraction of the cost, allowing the saved expenses to go toward growing the business by improving sales, marketing, and other core business objectives.
Isn’t that so much more cost-effective than staffing your technicians to do the same job, without knowing when an IT crisis would hit? Bench them. Give them the night off! They’ll come back refreshed and ready to play even harder.
MSPs and the 2002 Oakland Athletics
Jason Giambi as a member of the
What the A's Did:
The A’s allowed perennial slugger and former AL MVP Jason Giambi to sign a mega deal with the New York Yankees worth $125 million. Oakland replaced his production with other, more cost-effective players like Scott Hatteberg and John Mabry.
Run a cost/benefit analysis on your efforts to maintain an in-house NOC and/or Help Desk. The development and maintenance of such a facility is expensive, and takes a huge effort to seek out the talent to keep them appropriately staffed.
What the A's Did:
Oakland allowed its players to fill the roles that they were good at. Because of the Athletics’ commitment to finding a cost-efficient way of building its team, no player was trying to do too much. This allowed the front office to continue to invest in the future by developing its draft picks and grooming them to help improve the team for years to come.
Make sure you are considering the longevity of your MSP business. Are your current spending and staffing practices sustainable? Are you charging customers a stable amount on a monthly basis or are you waiting for them to pay you back after you’ve already completed the job? If the latter, call a time out and re-evaluate how you price your services! Emulate the Athletics and adjust operations so as to secure a predicable and reliable revenue stream.
What the A's Did:
The Athletics were able to build a winning team by combining existing players with key acquisitions. The balance of affordable new players (David Justice, Ray Durham, etc.) and those who were continuing to contribute to the team’s success (Miguel Tejada, Eric Chavez, etc.) allowed the Athletics to compete with baseball’s powerhouses.
Are all your bases covered? More importantly, are all your clients’ bases covered? Are you offering everything they’d need to maintain business continuity? Selling RMM without Back Up and Disaster Recovery (BDR) is like gambling on one star player, without thinking of the entire team. By offering a full suite of services, you can better protect clients’ data, better protect your margins, and eliminate the 2 am emergency calls.
It takes a full team to grow your MSP business. Make sure you have all of the right players!
Look to alternative methods of growing your business
While the rest of Major League Baseball was focused on home runs, stolen bases, and batting average, the A’s turned to alternative metrics that would yield the same, if not greater return. By analyzing other metrics like on-base percentage and slugging percentage, Oakland was able to acquire their desired production at a drastically lower cost.
Additionally, the Athletics were committed to retaining some of its core players. With the money that the organization was able to save by utilizing sabermetrics, it was able to lock up a few of its most productive assets at a reasonable price. Eric Chavez, Mark Mulder, and Barry Zito were a few of Oakland’s most consistent performers on the field. Oakland was able to extend the contracts of each of these players to ensure continued contributions in the future.
Your business is dependent on its clients. Many MSPs experience high levels of client churn by becoming too remote and devoting too much time to expanding and taking on new clients. Although taking on new clients is important, it also requires time and money. Take some time to set yourself apart by tracking customer service KPIs. If you can keep your existing clients happy, you can depend on their monthly recurring contracts to continue.
Offer your clients a survey. This will not only make them feel valued, but their responses will help you to improve your business practices.
Stay current, don’t fall behind the times
|George Steinbrenner owned the Yankees
Image source: https://www.flickr.com/photos/chrisptacek/
The Athletics are regarded as the first team to apply this moneyball mindset to baseball. However since then, many teams, including the New York Yankees, Boston Red Sox, and New York Mets have hired sabermetrics analysts to incorporate a similar strategy to their respective ball clubs.
There’s no difference for MSPs. Today, managed IT service providers are becoming more business-savvy. Make sure you are effectively leveraging the right metrics and KPIs in order to grow your business in the most efficient way possible.
Are you evaluating your MSP at all levels? Profitability can often be found by using alternative methods of growing your business. If something isn’t working, change it! If something is too expensive or time consuming to maintain, find an alternative!
The bottom line is that it takes strategic, cost-efficient planning to grow any business. Understanding where your costs can be optimized is an opportunity that is sometimes wasted. Use the 2002 Oakland Athletics as inspiration, and start taking a Moneyball approach to managed IT services.
You don't need a library card to check out any of this MSP material!
By Tonya Barnett
By Susan Perez