Can your MSP Practice Grow Too Fast?
By Charles Weaver
It sounds like a problem of the 1% MSPs. In reality, aggressive growth within the MSP market (this theory is true for any market though) can have very real consequences and can happen with a larger percentage of MSPs today than you may think.
Private equity interest in the MSP market has caused a sudden influx of capital to flow into the managed services profession, prompting a wide range of business impacts, most of them good. But there are some unintended consequences of such a large amount of money entering a profession, including growth which outpaces internal capacity to expand.
When investment capital suddenly rushes into any organization, there is often an implied (if not explicit) mandate to spend the money. No investor wants to see their money sitting idly in a checking account. So, once a funding round or liquidity event has taken place, the new investors often encourage growth to take place.
Now, to be perfectly clear, there is nothing wrong with this expectation of growth from investment. Whether we are taking organic growth or mergers and acquisitions, growth is healthy in the MSP profession. I should clarify that manageable growth is healthy. Unmanageable growth is chaos.
I detest lists, but I have created a short list of key areas where you may want to examine your MSP growth and make sure it is manageable. This applies both to investors and to MSP owners/operators alike.
Have a plan when you are going about the business of pushing accelerated growth within an MSP business. Whether you are a business owner, an investor, or MSP operator, you must have a plan for whatever type of growth you are attempting.
Regardless of your growth plan, you should contemplate unintended consequences of any significant growth period. What does that mean? Depending on where your starting point is, you may have business elements you have never contemplated before which must be developed before you can achieve true and scalable growth. These business elements may be human resources, accounting, middle management, sales, service delivery, or other investments which must be made in the company before growth can be achieved. Anticipating these elements before you begin can help you save time, money, and prevent unexpected delays in the execution of your strategy.
Remember, before you go out and accept money, have a plan for how you will spend it. Doing this simple thing will make your life a lot easier later on.
When you take investment money with the knowledge that there will be acquisition growth, it is paramount to have the plan (mentioned above) and to execute that plan throughout the entirety of your organization. Unless you are taking a measured approach of very strategic acquisitions, attempting roll-up style acquisitions could result in undesirable outcomes if there is no plan.
A quick word about M&A plans. In my experience, whenever asked if they have a plan for acquisitions, MSP/investors invariably answer in the affirmative. However, these M&A plans are largely focused on the financial picture and pay little attention to the non-financial integration work which must take place.
Non-financial integration involves more than just technical redundancies such as RMM, ticketing, backup, and other core service delivery software. M&A integration must evaluate, anticipate, and plan for the impact such growth will have on process, procedures, and controls within the organization. Think of these elements as the DNA of your MSP practice; the very essence of what makes you an MSP. If your acquisition strategy begins to fracture these business elements, your growth may not continue very long.
Regardless of how you intend to achieve growth (M&A or organically) you must be prepared for it before it happens. Dealing with all the changes occurring within a massive growth period will be difficult if not impossible to handle if you have not planned for it beforehand.
So, having a plan before you begin your growth cycle is critical. Once you have embarked upon whatever growth strategy you have chosen, it is important to focus on all elements of your MSP practice, paying particular attention to the foundational elements of your service delivery capabilities. For example, during a growth cycle, you may find that organic or acquisition caused onboarding of a larger number of clients than you are accustomed to may result in a breakdown of your fundamental security. Onboarding of employees (to keep up with demand) may also be negatively impacted if you have not planned for such an event.
Change control considerations are also at the core of any MSP practice and are likely areas to be impacted when dealing with aggressive growth that has not been planned for from a control, policy, or process level.
I am not anti-growth and I very much believe in M&A as a necessary strategy for both liquidity events as well as generational transition planning. M&A is also a great way to achieve growth on a timetable unlikely to be met by purely organic means (I do believe you should begin with organic growth before you embark upon any significant M&A campaign). But I do believe that the odds of success for any growth strategy, regardless of the means employed, are markedly improved when you have a plan, and the plan involves not just financial considerations, but all the elements used within a service delivery organization such as an MSP.