NexTI: Becoming A World-Class MSP Requires Planning, Process

Any solution provider can become a managed services provider and take advantage of ever increasing recurring revenue streams, but the required planning, introspection, and reorganization to do so is no trivial matter.

That's the message from Gary Pica, an early pioneer in the managed services business and now the president of TruMethods, a Morristown, N.J.-based mentor to budding MSPs.

Pica, speaking to an audience of solution providers at NexTI, an event hosted by CRN publisher The Channel Company, said becoming a legend in the MSP business is easy.

[Related: eFolder Acquires Anchor, Brings Channel-Focused File Sync And Share To Cloud Storage]

"The first step: Tell everyone you are a legend," Pica said. "Step number two? There is no step number two."

Becoming a world-class MSP, however, takes more time, Pica said.

Pica also said there are three types of MSPs.

The average MSP has an inconsistent monthly recurring revenue stream, and an average service price of under $100. That results in revenue per employee of about $100,000, or a total of $1.2 million for a 12-person company, Pica said.

A best-in-class MSP, however, has more consistent monthly recurring revenue and a slightly higher average selling price per service, giving a yearly revenue of $1.5 million for that same 12-person company.

A world-class MSP, however, sells services with average prices of $120 to $160, and can have a per-employee revenue of $150,000 with 25 percent to 35 percent margins, Pica said.

Being a world-class MSP should be the goal of every solution provider that wants to enter the managed services business, he said.

"Your people can be part of a thriving business, and everyone enjoys it," he said. "And you as a business owner can get return from your risk."

Pica's outline of how to be a world-class MSP was very quite illuminating, said Christopher Haight, president of Prevare, a Beverly, Mass.-based managed services provider.

"Gary has a very good reputation in this space," Haight said.

Having the kind of metrics to determine what is an average, best-of-breed and world-class MSP is important for measuring one's own degree of success, Haight said.

"We don't always know how well we're doing," he said "I know my own numbers, but I may not know if we are doing as well as we can."

Pica outlined his five-step system for becoming a world-class MSP.

NEXT: Developing A Business Planning Process

The first step is to have a business planning process.

"Business planning discipline is the greatest indication of business success. ... If there's one thing you can do today that will ensure your success, it's business planning," TruMethods' Pica said.

Developing that discipline has to start by having a vision, and to do that MSPs need to stop focusing all day on details such as taking care of emails or watching employee hours, Pica said.

He said developing that vision helps start the business planning process, which in turn provides a framework for making decisions, allows hiring to be based on facts and not feelings, and aligns short -term actions with long-term goals.

Pica also said to avoid the typical excuses that interfere with the business planning process such as, "I'm already working as hard as I can," "I'm buried in work," "I don't have the time or resources" or "I'm too small to have a business plan."

"These are actually all reasons you need to have a business plan," he said.

As for waiting to "clear the decks" before developing the business plan, Pica said to forget about that. "Clear the decks?" he said. "It's never happened in 20 years."

The second step, Pica said, is to know what you sell.

"I love this one," he said. "It seems so obvious, but most MSPs don't know what they sell."

Every company needs three things for technology, including the physical or virtual infrastructure, support, and a strategic direction, Pica said.

These three things are also what customers want, he said. "Our clients want the same things we do: Make more revenue with lower costs."

Rather than the latest hardware and software, what customers really want are to be more productive, increase morale, increase functionality, decrease risk, increase security, and gain peace of mind, Pica said.

"This is what you should sell," he said.

To do so requires focusing on the end results, Pica said. For instance, he cited the first time he talked to a customer about email monitoring tools. However, he later realized, the customer did not need monitoring, because if they didn't get their email, they knew their Exchange server was down.

"I realized monitoring is not for our customer," he said. "It's for us."

Pica also said it is important to give customers limited choices and options while carefully defining the "edges" of the service. That includes being clear about what is and is not included with services, because when a customer calls for help, he or she, along with the person taking the call, probably did not read the service contract, he said.

NEXT: Be 'Sales-Focused,' Not 'Sales-Interested'