7 Tips for MSP Business Success
By Ian Richardson, Managing Partner, Richardson & Richardson Consulting LLC
MSP Business Success is Hard
Business ownership is hard. Achieving MSP Business Sucess is REALLY hard. I’ve started, operated and owned 3 businesses. One was my I.T. managed services provider company, which I started when I was 21 years old, back in 2005. It evolved from a part time night/weekend break-fix operation to supplement income while I worked and attended a local community college, to a multi-million dollar, nationally recognized MSP that I sold in 2021. The second was a commercial real-estate holding company that I utilized to build a commercial real-estate portfolio, I liquidated those holdings in 2022. The third business is R&R, which I co-founded with my partner in life and business, Carrie, in 2020.
As mentioned I sold my MSP and RE companies — I also assisted Carrie as a CEO for hire through the sale of her telemarketing agency, Managed Sales Pros, which took place in 2022 as well. I’ve bought a couple of businesses as well: In 2017, Doberman (My old IT Shop), purchased a distressed, sub $1M ARR two person IT shop. In 2022, Carrie and I purchased a small distressed marketing firm.
Throughout those experiences, I’ve made enough mistakes to retire off of – and I’ll share some of them in a new mini-blog series around business ownership, leading up to our M&A e-book that we hope to release in Q3 of 2023. I have 7 tips for MSP business success that have proven useful time and again, and wanted to share them here.
7 Tips for MSP Business Success
- Across all of my endeavors, lack of process, documentation, and expectation management were the number one issue – it will only be a problem once you try to offload certain business functions to other humans (outsourced or internal employees). Additionally, documenting the processes YOU will follow can be helpful to hold yourself accountable against – I can’t stress writing things down enough as a secret weapon to success.
- Solid understanding of finances (specifically your Profit & Loss, Balance Sheet, and Cashflow statements) are a close second – knowing what levers impact Margin, EBITDA, COGS, Expenses, etc. is crucial, as well as a profit-first mentality to build value in the company – If you’re bootstrapping an org (not taking outside funding), my opinion is that you would need to have profit from day one – you never know when you will need to sell the company due to circumstances outside of your control. Profit allows for pivots and handling circumstances that arise (lost client, unexpected expense, etc.). Healthy management of debt load and equity is crucial to value creation.
- Understanding complex sales is third – Selling to a C-Suite existing customer (a project at an MSP) is different than selling first time to an organization: You’ve got trust already established, and it’s always easier to “sell again” that to sell the first deal. Discovery is the most important part of the equation: It’s all gap analysis and psychology.
- Creating a simple marketing cadence you can execute every week is fourth: Making sure you have solid time allocated to brand awareness (creation of name recognition and validity of your operation) will be critical to pass the smell test for any organization that would hire an MS(S)P (it’s an abstract concept at best). You’ll also want to recognize many of your primary customer targets will be I.T. directors at a mid-sized company looking to augment their team with specific needs from a third party, or owners / managers of small businesses who don’t understand technology at all. Having that profile established and understanding how to attract them will be critical to success.
- Overall Strategy comes next: I’d start with perspective and reflection. WHY do you want to start the business? A list of those reasons, and why they are important to you as a human is a good place to sit for a while. What’s the reason your company should exist? Why does that matter to your potential clients? Why would it matter to their customer base? What’s the reason you should be listened to instead of someone else?
- When it comes to “living”, I’ve found it is way easier to start a business with 2 years’ worth of living expenses, plus 6 figures of operating capital in the bank (We did this with R&R). You won’t make money for a while – complex sales with a new process = long sales cycle and a high miss rate until it gets dialed in. Removing the financial pressure of “I need to pay my bills” makes that easier to cope with.
- Last, but not least: Pricing models are bloody well difficult. Aim for a service gross margin (SGM) of 55-60%, with a basement of 45% during your cash flow building phase. Anything less, and you’ll lose your shirt, along with your house.
Final Thoughts on Achieving Success in your MSP
I hope this article provides value: Only you can decide what’s right for you – but having solid plans around Process/How things will be done, Finance, Sales, Marketing, Strategy, Funding your life, and Pricing Models is a good place to start.
If there is something I can do that will help you on any of these, I’m happy to be of service. You can meet with me by heading to https://randr.consulting/connect to do so. You might also check out our White Papers for processes and best practices created by Carrie and Myself, or collected from other entrepreneurs and leaders on our webcast, The Thursday Process.
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