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News & Articles

September 16, 2020 |

Go Big or Go Home

MSPs scaling up to compete with a rising class of giant MSPs have multiple options. Here are four of the most promising.

SEVERAL YEARS AGO, when Cirrus Technologies, of Ohio’s Dayton/Cincinnati region, was still very young, it found itself competing with a far larger IT provider for a client who wanted to verify that both firms could meet its needs by visiting their headquarters. That seemingly simple request posed a problem for Cirrus CEO Chris Traxler, however, because in those days his tiny firm operated out of his house.

Traxler’s response was to explain to the prospect that he was part of an end-to-end service provider called The 20 with locations across the country and an HQ in Plano, Texas.

“”I did offer that they could come down to Dallas and see it, but they declined, and they ended up signing an agreement with us,”” Traxler recalls. “”We had more breadth and depth and capability than that local company did, even though they had a nice, impressive office in downtown Cincinnati.””

In reality, however, The 20 isn’t a giant MSP. It’s a collection of smaller, independently owned businesses that seem giant because they share common tools and processes, plus a 24/7 help desk and security operations center. Traxler, who has customers in 16 states but just five employees, became a member because he knew he’d need to cast a long shadow to outmatch a new wave of MSPs with regional and even national footprints that was then just emerging but is now gaining traction with substantial help from private equity funding.

“”The industry, I think, is consolidating more, and if you’re a small MSP and living on an island in your market, and you don’t have the tools and skills and knowledge and resource and breadth and depth that your bigger competitors do, you’re going to be left in the dust,”” Traxler says.

Chris Traxler

Go big, in other words, or go home.

There are other answers to the rise of big-time MSPs, of course, from selling your business and exiting the industry to going deep on a niche market or vertical industry. But channel pros who choose to scale up in response have several options for doing so. As Traxler’s story illustrates, moreover, only some of them involve becoming big. Others simply require you to look big.

Option 1: Organic Growth

The most familiar way to get big, if getting big is your goal, is to grow revenue, and the MSPs who do it fastest keep their sales pipeline continually filled with fresh prospects. Indeed, Traxler invests heavily in lead generation all year long. “”We’ve been very aggressive on consistent outbound marketing and inbound marketing,”” he says.

Pursuing larger, rather than simply more, customers can be just as effective. David Stinner, for example, is increasingly targeting midsize businesses rather than just small ones. “”I’ve been moving up the ranks in who I’m prospecting to versus two and three years ago,”” says Stinner, who is president of US itek, an MSP and system builder in Tonawanda, N.Y.

COVID-19, he adds, has made that strategy even more potent. The economic tailspin set off by the pandemic has left some midmarket companies turning to shrunken IT departments with little knowledge of remote management to support small armies of work-from-home employees.

“”I didn’t really have much of a chance to go into a 100-, 200-, 300-seat network before,”” Stinner says. “”Now I’ve had a whole bunch of those in my sales funnel during COVID because of people who are doing lousy IT.””

Option 2: Mergers and Acquisitions

Organic growth, most channel pros will attest, takes time. Mergers and acquisitions are far quicker, but also generally costlier, according to Karl Bickmore, CEO of Snap Tech IT, an MSP with offices in Atlanta, Phoenix, and San Francisco.

“”The speed of an acquisition has a huge benefit, but you will probably in the long run pay a little bit more to acquire a customer than you would have if you’d done it directly yourself,”” he says.

There are other risks as well, notes Traxler, who calls acquisitions a “”double-edged sword.”” Buying another channel pro, he observes, is often a shortcut to more customers but more headaches as well. “”You’ve just basically bought all that company’s problems and you have to deal with those and integrate them and eliminate them along with your own company’s problems,”” Traxler says.

Option 3: Outsource

Big MSPs with big budgets typically have expensive resources like round-the-clock help desks and SOCs at their disposal. Smaller firms looking to compete, according to Bickmore, are usually better off purchasing such services from outsiders instead.

“”You either build, partner, or buy, and a lot of the smaller guys should partner to be able to compete with the bigger guys,”” he says.

Cirrus, which gets cybersecurity help from a third-party MSSP and farms SharePoint development projects out to another firm, doesn’t worry much about white labeling those offerings either.

“”A lot of MSP business owners think they have to do it all on their own … otherwise the client won’t buy it,”” Traxler says. In his experience, however, the bigger danger is talking to customers about in-house capabilities that you don’t really have.

“”They’re going to see right through that eventually,”” says Traxler, who recommends telling clients instead that you coordinate delivery of services from the industry’s most respected providers of cybersecurity, disaster recovery, and other specialized solutions.

Option 4: Collaborate with Peers

Joining IT communities like The ASCII Group is another way for smaller MSPs to collect benefits only larger firms normally enjoy. Stinner, for example, is a longtime ASCII member who regularly dips into that organization’s catalog of bulk-rate, third-party solutions.

“”They’re a little bit more vetted than when I find somebody in a Google search,”” he says of ASCII’s vendor partners, adding that buying their products at ASCII’s discounted prices saves him hundreds of dollars a month.

Co-ops like The 20 and master MSPs like Collabrance, meanwhile, provide entire stacks of preintegrated managed services tools that come ready for use. “”It’s one less thing you’ve got to worry about and try to do on your own,”” Traxler notes.

Groups like The 20 and The ASCII Group offer something else regional and national MSPs take for granted: on-call assistance with short-term projects and out-of-town rollouts from fellow members who are contractually banned from poaching your clients. “”You can scale on demand and you have instant access to a team that you can leverage beyond having to hire and fire your own,”” Traxler says.

Assets like that go a long way these days with SMBs who hear regularly from managed service giants. Today’s end users want comprehensive services, Traxler says, and channel pros without a plan for providing them have a steeper competitive challenge ahead.

Image: iStock

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