When breaking up is hard to do (but staying put means you go nowhere)

For MSPs seeking to provide strategic services, they’re pitching at the wrong customers.

It’s you, not me.

It hurts when you know they’re not quite the right customer for you.

Although many managed service providers (MSPs) competently serve all-comers, some eschew the cash ‘sugar hit’ by specialising in strategy.

Paradoxically, their starting point may not be technology. MSPs should become subject-matter experts on their customers’ turf suggested Zaun Bhana, managing director of Perth MSP, Leap Consulting.

“Do we know how our clients make money?” asked Bhana.

“If you know how their business operates and use the same language [it] can help you open a conversation.”

Customers get “good support” from mass-market channels so MSPs must be something else, he said.

“Experience in their [customer’s] particular industry’s segments is number one. We don’t claim this is our salt and pepper as an MSP and that’s yours” as a customer, said Bhana.

“Our thing is, what is our understanding of the client's business? Can we challenge the client's approach? Can we challenge their thinking? And can we lead them?

“Because, if we can't do those three things, the question would be, why would they change” what they do at our request?

Bhana said on the spectrum of customers seeking support to fix problems versus enabling their organisations, Leap Consulting served the latter.

“There's plenty of [prospective] clients we are obviously not a fit because what they're looking for is not aligned with our approach and how we operate.”

The task for MSPs was to “get to that point where you stay in front of what customers are looking for”.

This was a well-worn path blazed by lawyers and accountants, and is a natural —some say inevitable — evolution from MSPs’ technical offerings.

MSP 3.0: Building business value as a strategic consultancy

Just as accountants evolved from bean counters into corporate advisory by buying specialist consultants so, too, may MSPs evolve. Otherwise, MSPs risked commoditising themselves, said Grant Crough.

“You could almost have an MSP in a box” that outsourced everything from helpdesk to sales, said Crough, managing director of Melbourne-based Leap Strategies (not affiliated with Perth’s Leap Consulting).

“We need to be more part of a business, not just someone they call when something breaks.”

MSPs blinded by products risked “stagnating”, he said.

“Start looking for people, either through partnership or internal development,where you can get

into that strategic consulting space. This is where it's going to go. And we either do it really well, or we just end up with a whole lot of snake oil salesmen.”

Hexicor group CEO Paul Bouris said the traditional MSP recurring-revenue model for desktop management led to a “race to the bottom” as automation proliferated. MSPs must expand into areas such as cybersecurity, automation, and networks to be viable. Hexicor diversified its business model to mitigate risk.

“If you haven't got a point of differentiation, it could become commercially unviable," Bouris said.

“For us, it's as much about diversification as it is about scale. And because our collective customer base is now substantial, across three states, we've got the opportunity to go to [them] with subject matter experts.”

A narrow window of opportunity existed for MSPs to broaden their base before declining revenues bit.

As MSP turned consultant to MSPs, Ryan Spillane has a view from the mountaintop. Rising cybersecurity spending masked a decline in customer spending on MSPs’ bread-and-butter services.

“There is downward pressure on generic MSP services, that is getting more and more commoditised so the price will continue to fall,” said Spillane, 360 Consulting CEO.  

“However, we are seeing spend … increase as clients take up professional … security tools/offerings, and I think that will happen for at least another two years.”

Providing strategic consultancy boosted revenue and value of the MSP, said Spillane, while spinning up a flywheel for a higher business valuation.

An MSP with annual revenue of up to $3 million might be valued at 1.5–3 times annual revenue, but an MSP with $10 million to $20 million annual revenue might return 5 times annual revenue. Their valuation was greater in absolute and relative terms owing to the multiplier effect on its value.

The Power of a platform: How Microsoft’s low-code language heralds an IP revolution for MSPs

And what boosted the value of a MSP even more is their own intellectual property (IP). Spillane said Microsoft’s Power platform heralded higher, “stickier” valuations for MSPs. It’s a product line encompassing data, artificial intelligence (Copilot) and automation tools, welded by a ‘low code’ programming language.

“You can build out a simplified process for a customer on that platform without having to build code. That's where MSPs should be going,” said Spillane.

“Start building your own IP, because that increases the valuation of your company quite a lot.”

Potential investors in the MSP may also be attracted because they have customers ready to consume those solutions.

“They could sell a … ton of professional services around it — that's where the real profit can be,” said Spillane.

“Help a customer be more efficient — and have the documentation — and you're … a lot more sticky than a standard infrastructure or a [Microsoft] Dynamics MSP.”

AI’s spread also revealed opportunities to provide strategic services as organisations graduated from pilot programs to seek ethics and governance guidance.

Chuong Mai-Viet cautioned that Copilot came with caveats for users that MSPs were well placed to manage.

“Once you open up the AI tool to all your data, it can open up a can of worms; Copilot’s searching is just next level,” said Mai-Viet, managing director of Sydney MSP Fuse Technology.

“A lot of our clients will [ask], where's all our data and who has access to it?”

Optimising and streamlining: Essentials for business consultancy

Optimisation and streamlining has been a mainstay of management consultants since they emerged in the 19^th century.

But as technology shook business practices, a gap opened for MSPs to grab a slice of the estimated $51 billion a year pie. And advising businesses on how to capitalise on AI, deploying tools such as Microsoft Copilot, was a natural flex for MSPs.

“Using Copilot to take meeting notes, follow-up action items and build that maturity in businesses is going to be huge [for] SMBs,” said Mai-Viet.

“So there's an opportunity to optimise modern workplaces …  around the AI tools and making sure that it gets all the right data from all the right sources.”

Even while they advise customers on their AI adoption, some MSPs were boosting their human numbers.

Peter Ward’s Dijital Team was poised to provide from its Colombo, Sri Lanka base, qualified and motivated IT staff for rapidly growing MSPs. Ward cited an MSP customer that built an Azure costing platform that started with an offshore worker and now has four staff in Sri Lanka.

“[They] spent about six months looking for the right skills … a very difficult role to find globally,” said Ward.

“He's leverage(d) that team to … deliver … from a development perspective [and] free him … to spend more time on the business.”