E-guide

Guide to Building
MSPWorld 2019: 5
and Executing
Things an
Our Editor
MSP Business
LearnedModel
 E-guide

In this e-guide
In this e-guide:

Guide to building and executing an

This managed service guide provides an overview of how to get started
MSP business model p. 2
in the MSP business, covering the basics of building a service provider
Benefits and challenges p. 2 and the challenges in doing so.

How to build an MSP business

model p. 6

Executing the MSP business model

. p. 13

Further reading p. 15

Page 1 of 15
 E-guide

In this e-guide
Guide to building and executing an MSP business
Guide to building and executing an model
MSP business model p. 2
John Moore, Senior Site Editor, SearchITChannel
Benefits and challenges p. 2
The MSP business model emerged in the late 1990s, a product of the internet's
meteoric rise, and has matured into a widely recognized mechanism for delivering IT
How to build an MSP business services.
model p. 6
Awareness of managed service providers has grown among customers, from SMBs to
Executing the MSP business model enterprises. MSPs are called on to provide services such as remote monitoring and
. p. 13 management, cloud consulting and migration and cybersecurity. The increased
visibility of MSPs, and their recurring revenue streams, have made them an attractive
Further reading p. 15 target for investors.

Prospects for future growth are strong, especially now that more customers rely on IT
to provide products and services in a rapidly digitalizing world.

Benefits and Challenges

Entrepreneurs considering the launch of an MSP business, or investors eyeing MSPs as
an investment opportunity, should consider the pros and cons of managed IT services.

Page 2 of 15
 E-guide

First, we'll take a look at the main benefits.

In this e-guide
Predictable, recurring revenue. Managed services are sold as a subscription, with
Guide to building and executing an customers paying a monthly fee. This approach provides a consistent flow of monthly
MSP business model p. 2 recurring revenue (MRR) for the MSP, in contrast to the unpredictability of generating
revenue from one-off projects. The stability of MRR is part of what has attracted
Benefits and challenges p. 2 investors to the MSP sector. So, although the entrepreneur might be far from needing
an exit strategy, it's good to know that one exists.

How to build an MSP business Opportunity for higher margins. Many companies that transitioned into the MSP
model p. 6 business model were originally resellers. Those companies sought higher profitability in
services as hardware margins eroded over the years. MSP business management
Executing the MSP business model software and various automated tools offer service providers the ability to support
. p. 13 multiple customers with a relatively small number of employees, opening
opportunities to boost profits.
Further reading p. 15

Image on the next page

Page 3 of 15
 E-guide

In this e-guide

Guide to building and executing an

MSP business model p. 2

Benefits and challenges p. 2

How to build an MSP business

model p. 6

Executing the MSP business model

. p. 13

Further reading p. 15
Opportunity for expanded services. MSPs that successfully launch an initial service line
are poised to provide additional offerings, from IT strategy consulting to backup and
recovery. Those additional services help a provider avoid customer churn because
clients can meet more of their needs through the MSP without having to turn to other
suppliers. Add-on services also increase the amount of revenue generated per month,
per customer.

Ability to tap mature technology. Early MSPs built their own tools or used
commercially available, but non-MSP-specific, data center management software to

Page 4 of 15
 E-guide

run their operations. Today, MSPs have a wide range of purpose-built software
In this e-guide products to manage their businesses. Remote monitoring and management (RMM)
and professional services automation (PSA) products are among the offerings that can
Guide to building and executing an serve as an MSP's technology foundation.
MSP business model p. 2
Service provider startups interested in seizing those MSP advantages will encounter
Benefits and challenges p. 2 challenges along the way.

Developing the initial offer. An early task for the MSP is developing and pricing the
How to build an MSP business offer. There are numerous pricing models -- see section below -- from which to choose.
model p. 6
Obtaining talent. MSPs face the same technology talent shortage as any other
Executing the MSP business model technology business. The problem becomes more acute as the MSP ventures into high-
. p. 13 demand areas, such as cybersecurity and cloud engineering.

Marketing services. Most MSPs rely on with word-of-mouth promotion and customer
Further reading p. 15
referrals to get off the ground. At some point, however, MSPs tend to reach a plateau
in which new sales just keep up with the natural rate of customer attrition. MSPs must
develop a marketing plan to promote their value proposition, maintain a healthy sales
pipeline and keep the company growing.

Gearing up for vertical markets. As MSPs expand, they might choose to focus on one
or a handful of vertical markets. To pursue such a strategy, a service provider might
need to acquire specialized industry knowledge or develop expertise in technologies
endemic to particular industries.

Page 5 of 15
 E-guide

Adjusting to changing market conditions. MSPs operate in a dynamic, rapidly changing

In this e-guide market. Service providers must constantly refine their business plans to remain
relevant. The arrival of cloud computing, for example, compelled many MSPs to
Guide to building and executing an reinvent their services. They must also adapt to macroeconomic patterns and
MSP business model p. 2
unpredictable events, such as the COVID-19 pandemic. The latter has presented MSPs
with several challenges, including the need to develop business strategies that take
Benefits and challenges p. 2 uncertainty into account. The pandemic's financial lessons favored service providers
with broader portfolios that provide a mix of security, collaboration and cloud
How to build an MSP business offerings.
model p. 6

Executing the MSP business model

How to Build an MSP Business Model
. p. 13
Entering the managed services market requires several steps. Here's a summary.

Further reading p. 15 1. Define the business strategy

Where, what and how are the first questions to answer when devising the core MSP
strategy. What geographical area or areas will the company pursue? What services will
the MSP provide? How will the MSP deliver the services offered? MSP veteran Dave
Sobel advised entrepreneurs starting a service to consider focusing on a line-of-
business technology, which lets the MSP deliver business value with an offering specific
to a vertical market. The MSP business strategy can extend to how the MSP plans to
work with customers' internal IT teams. The co-managed IT services approach, for

Page 6 of 15
 E-guide

example, aims to create a cooperative relationship between the MSP and the IT
In this e-guide department as opposed to an adversarial one.

Guide to building and executing an 2. Determine the pricing model

MSP business model p. 2
Pricing is an element of business strategy that deserves special attention. An MSP's
pricing model provides the basis for recurring revenue. In addition, proper pricing will
Benefits and challenges p. 2
make it easier for customers to assess and consume a provider's offerings. An MSP can
choose from at least six popular pricing models, which run the gamut from simple
How to build an MSP business plans to all-encompassing packages. Which model works for an individual company will
model p. 6 depend on the scope of the services it plans to sell and the intended customer base.

Executing the MSP business model

. p. 13 Image on the next page

Further reading p. 15

Page 7 of 15
 E-guide

In this e-guide

Guide to building and executing an

MSP business model p. 2

Benefits and challenges p. 2

How to build an MSP business

model p. 6

Executing the MSP business model

. p. 13

Further reading p. 15

Page 8 of 15
 E-guide

MSPs starting from scratch have a clearer path when adopting a pricing model.
In this e-guide Companies transitioning to the MSP business model from a different approach will
likely need to revamp their pricing to obtain a predictable revenue flow. Once a pricing
Guide to building and executing an approach has been established, MSPs must learn how to stay competitive without
MSP business model p. 2
slashing prices. Techniques include paying close attention to labor costs and focusing
on a vertical market or technical specialization that reinforces the company's value in
Benefits and challenges p. 2 the eyes of customers.

3. Create and offer an SLA

How to build an MSP business
model p. 6 An MSP must offer a service-level agreement (SLA) to govern its relationships with
clients. The SLA documents the services the MSP will provide, defines the standards for
Executing the MSP business model delivery and establishes the means for redressing issues. Service provides might also
. p. 13 create a master service agreement, which sets forth the general terms and conditions
for client work. The service agreement might incorporate the SLA by reference. SLAs
Further reading p. 15 help manage customer expectations and provide customers with a tool for comparing
offers from different MSPs.

4. Create a sales and marketing strategy

Sales and marketing are often not the strongest parts of an MSP's business. Engineers
and technicians often launch such companies, which initially gain new customers
through referrals rather than active selling. MSPs built as lifestyle business might not
need to grow past a certain point. But service providers that seek continued business
expansion will probably need to create a proactive sales and marketing effort.

Page 9 of 15
 E-guide

Creating an MSP sales process starts with finding an experienced MSP salesperson.
In this e-guide People with that experience are difficult to find, so an MSP might need to hire
salespeople and train them on the fundamentals of the technology and the MSP
Guide to building and executing an business. Another option is to have an MSP technician, in a sales engineering role,
MSP business model p. 2
partner with a salesperson on customer calls. The sales process should be
standardized, from the initial contact with a prospect to order processing.
Benefits and challenges p. 2
A sales and marketing strategy rests on two essentials: knowledge of self and
knowledge of customer. An MSP needs to know its strengths to craft a go-to-market
How to build an MSP business
message. Based on that insight, a service provider can also develop a profile of the
model p. 6
ideal customer and then focus its sales and marketing activities in that direction.
Consultative selling, which zeros in on a client's pain points, is another approach that
Executing the MSP business model
MSPs can adopt when targeting SMB customers. MSP marketing considerations include
. p. 13
making sure website copy speaks to targeted customers, building a brand around core
services and appointing one person in-house to take on marketing duties.
Further reading p. 15
5. Develop a recruiting strategy

An MSP that launches with a core group of employees will eventually need to recruit
talent in order to serve customers as it grows. An IT recruitment strategy should ideally
strike a balance between looking for required skill sets and looking for personality
traits that fit the organization's culture. Technical expertise, while important, isn't the
whole employee picture. Service providers seeking new employees should consider an
applicant's ability to cope with pressure, learn as they go and adapt to unexpected
situations.

Page 10 of 15
 E-guide

6. Think about the type of MSP you want to become

In this e-guide
A startup MSP might initially concentrate of basic services, such as network monitoring
Guide to building and executing an and management. But it's never too early to think about a growth trajectory. A service
MSP business model p. 2 provider should assess customer needs to determine next steps, such as offering
backup and disaster recovery or cybersecurity. Eventually, an MSP can choose to
Benefits and challenges p. 2 specialize in one or more areas. Here are some possibilities:

• Vertically focused MSP. Here, the MSP would acquire expertise in one or more
How to build an MSP business verticals and go to market as an industry-specific service provider.
model p. 6 • Platform-oriented MSP. An MSP can choose to focus on a particular technology
stack, public cloud infrastructure platform or SaaS offering.
• Consultative MSP. Early-stage service providers tend to focus on the technical
Executing the MSP business model
aspects of supporting customers. Providing consulting services, however, puts
. p. 13
MSPs in a position to address business concerns. MSPs can evolve to the point
of offering a virtual CIO service.
Further reading p. 15 • Managed security services provider. An MSSP offers a range of services to help
customers address security, privacy and compliance issues. While MSSPs
specialize in security, MSPs increasingly offer at least some security features.
• White-label service provider. An MSP, at some point in its development, might
decide to offer its infrastructure to smaller MSPs. This MSP business model
variation can provide a range of offerings, including network operations center
services, staff augmentation and cybersecurity.

Page 11 of 15
 E-guide

7. Embrace change
In this e-guide
The IT services market is subject to constant change. Channel companies have
Guide to building and executing an continuously evolved over the years, from resellers to solution providers to MSPs to
MSP business model p. 2 cloud-driven MSPs. A service provider can expect to transform its business model every
few years and must tweak its service mix on an ongoing basis. Transformation can
Benefits and challenges p. 2 prove expensive and disruptive to employees, vendor partners and customers. MSPs
will need to periodically evaluate the feasibility of launching new lines of business and
explore how a new business model would affect its web of relationships.
How to build an MSP business
model p. 6

Executing the MSP business model

. p. 13

Further reading p. 15

Page 12 of 15
 E-guide

In this e-guide
Executing the MSP business model
Guide to building and executing an The task for service providers shifts from planning to execution once the MSP business
MSP business model p. 2 model is in place.

Benefits and challenges p. 2 The client onboarding process is a key aspect of bringing a business model to life. The
customer relationship depends on this early step. MSPs should document and
standardize the process to make it consistent. Client onboarding typically involves
How to build an MSP business
several actions, including assessing the client's IT infrastructure and tools and
model p. 6
identifying specialized requirements with respect to specific technologies or vertical
markets. The process also aims to provide a smooth transition for the customer along
Executing the MSP business model
the relationship continuum, from presales and sales to ongoing operations. MSP
. p. 13
employees involved in the process can include an onboarding manager and customer
advocates.
Further reading p. 15
Realizing the benefits of the MSP model -- namely, the opportunities for recurring
revenue and higher margins -- will depend on a service provider's operational
efficiency. An MSP that fails to deliver quality services or struggles with keeping labor
costs in check will have a hard time retaining customers or turning a profit.

Specialized software for managing and automating an MSP's operations plays a crucial
role in sustaining the business. RMM software, the technology cornerstone for most
MSPs, lets service providers remotely manage their customers' IT infrastructure. In
addition to keeping tabs on a range of customer gear, from servers to mobile devices,

Page 13 of 15
 E-guide

RMM also manages patching and software updates. PSA software tools, meanwhile,
In this e-guide automate an MSP's core business functions, playing a role like that of ERP in other
types of businesses. PSA functionality varies from one software vendor to another, but
Guide to building and executing an typical functions include time and billing, project management, ticketing and reporting.
MSP business model p. 2
Although RMM and PSA serve as the technology underpinning for many MSPs, those
Benefits and challenges p. 2 products aren't the only approaches service providers employ. Other companies use a
combination of network performance monitoring, IT service management and CRM
products, for example.
How to build an MSP business
model p. 6 Flexibility should be built into an MSP's operations, given the pace of technology
change and the potential for unforeseen events. The COVID-19 pandemic, for instance,
Executing the MSP business model disrupted many types of businesses, but perhaps had less severe effects on the MSP
. p. 13 model. Many industries, amid work-from-home directives, needed to develop remote
workforce management strategies. MSPs, however, founded on the concept of remote
Further reading p. 15 management, have long maintained distributed workforces. Service providers might
have expanded the population of remote workers and relied more heavily on
collaboration tools, but rarely needed to devise an entirely new strategy for managing
remote employees.

Other MSP trends managers should prepare to accommodate include the increasingly
complex nature of managing multi-cloud environments, the evolution of cybersecurity
needs and rising demand for automation.

Further reading

Page 14 of 15
 E-guide

In this e-guide
About SearchITChannel
Guide to building and executing an
MSP business model p. 2
If you're a value-added reseller (VAR), information technology reseller, managed
service provider or a systems integrator, all of your research needs are met at
Benefits and challenges p. 2 SearchITChannel.com.

The first resource of its kind, SearchITChannel.com offers unique, fully integrated
How to build an MSP business
information -- both business advice and technical guidance -- specialized for
model p. 6
information technology resellers.

Executing the MSP business model Stay educated on the reseller channel marketplace with SearchITChannel.com -- the
. p. 13 source for all of your value-added reseller news, industry analysis and information on
emerging products and technologies that directly affect your business
Further reading p. 15

For further reading visit us at

https://searchITChannel.techtarget.com/
Images; Fotalia

© 2020 TechTarget. No part of this publication may be transmitted or reproduced in any form or by any means without written
permission from the publisher.

Page 15 of 15