Financial problems were a major concern during the dot com years; I should say, they only became a problem at the end when everything unravelled. The problem with that time period and specifically the MSPs that existed back then was bad financial structuring. To be fair, much of what plagued the early stage MSPs was simply lack of knowledge. These companies were blazing a trail for the rest of the MSP community that came later. However, it would be foolish indeed to ignore the lessons they offer us today. Let’s examine a few if those lessons.
Revenue distribution
The early MSPs were in shaky ground because they put too many eggs in one basket. Basically, they had too much revenue tied to too few customers. This had the obvious effect that when a customer left, it tended to throw the entire stability of the MSP into question. What was, and still is, a challenge is how to avoid this today. Put more bluntly, how do you know if the company with whom you are doing business has good revenue distribution or is one or two customers away from collapse?
Service Margins
MSPs need to be capable of delivering better IT services than an IT department could on its own. More importantly, MSPs need to do this for hundreds even thousands of customers. This scalability is only capable if the MSP can deliver its solutions in such a manner that generates profit. In fact, getting better margins on services is part of the reason MSPs came into popularity over the last decade.
Profitability/Financial Health
This tends to be the dirty word in the industry. MSPs need to be profitable in order to do their job. Profitability, in essence, is a very critical aspect to the performance of a MSP. Because so many customers rely on MSPs, that one company needs to have the ability to be financially viable, even in difficult times. Profitability, while ideal, is not the only way that a MSP can demonstrate their viability. Many MSPs leverage funding sources in order to build and grow their practice. As long as their business plan and model has a path towards profitability and the likelihood of reaching that goal, customers should have comfort in knowing their IT management needs are in good hands.
Is your MSP Certified?
All of the above issues are important when selecting a MSP. If you have the ability to ask all of these questions, including the other questions that are important in choosing a qualified and stable MSP, you should definitely do so. However, you can always ask your MSP if they have their Unified Certification Standard (UCS) audit report.