Written by: Charles Weaver – CEO, MSPAlliance
For decades, MSPs have been trying to leave their historical roots of being hardware and software resellers and move towards more profitable professional managed services business models. Struggling MSPs often do so because they have business model characteristics too similar to a reseller or break/fix company (not identical models, but they do often run in parallel). Ultimately, these are inefficiencies caused by reactive or break/fix IT business models and not a failure of a managed services business model.
For MSPs to truly break free of being in a commodity business, there are some elementary steps they can (and must) take. Compliance is one of those first steps.
Compliance and Commoditization
Many commodity pressures are facing the modern manage service provider. What I find to be a common culprit plaguing MSP today is price pressure. Pricing pressures can be a product of:
- a customer trying to get a better deal,
- a competitive MSP trying to win a deal, or
- an ill-prepared salesperson believing that dropping price is the best and only way to win a managed services contract.
All of these pressures can be easily fixed.
Pricing can be viewed not as a result of commodity, but rather a cause of it. Commodity pressures typically do not appear in MSP organizations
- who are selling to clearly defined customers
- have clearly defined managed services offerings (i.e., they have a service catalog), and
- can defend their services without significant fluctuations on price (i.e., they have disciplined sales and marketing messages)
Today, and in the future, MSPs who can demonstrate compliance will be better insulated against commodity pressures. Compliance with what, you may ask.
Compliance comes in two flavors. First, you must be aware of and compliant with whatever regulations apply to your MSP practice. This could a state or provincial law, and national law, or something which impacts a particular vertical market, such as healthcare or financial services.
Second, you must be able to demonstrate your compliance. It is not enough for you to know you are compliant; you must also be able to communicate this compliance to customers effectively.
Demonstrating compliance will go a long way towards fighting off commodity pressures facing your MSP practice.
