Managed Service Best Practice - Target Growth for Profitability

Note: This is the second of eight blog entries in which I examine the 2010 managed services best practices identified in CompTIA MSP Partners’ market research.

Nature confirms what we all intuitively understand - living things need time to mature before they become fruitful. None of us plant a seed in the springtime and then stand over it with a fork in hand waiting for dinner. Those of us who have teenagers can also heartily attest to this fact - fruitfulness takes time and is often preceded by a period of intense painful growth. The same is true in business – companies typically mature before they become profitable. This observation is what makes the first best practice so remarkable – the most profitable MSPs are not those that are mature and stable but those that are aggressively growing. Contrary to what nature teaches, profits and expansion in the current managed services market go hand in hand.

Growing businesses understandably focus on top-line revenue. Companies do this as a means of generating cash which they put back into the business to facilitate growth. In this scenario, profitability typically takes a back seat, becoming a long term goal after the business begins to mature. With managed services, those that are growing faster are generally realizing better profits. What accounts for this contradiction of the laws of nature and business? Our research shows that the market for managed services is growing faster in relation to the rest of the industry. This is the perfect (and rare) market condition that allows growth and profit to co-exist in a business. Rapidly expanding markets mean rapidly expanding opportunity. Successful MSPs realize this and deliberately target this new market opportunity, allowing them to reap the monetary rewards.

Deliberate growth can be brought about in a managed service business through a strategy of product alignment, expanded capacity and opportunity generation. First, an MSP must have the right product offering for their customer base. By understanding their customers’ needs and their own capabilities, the successful MSP crafts the right blend of services to satisfy the business requirements for their clients. Secondly, as customers begin to embrace this carefully crafted offering, the MSP then optimizes their capacity to support more customers. Without this increase in capacity, MSPs can fall into the trap of over promising and under delivering–a sure recipe for failure. Finally, once they have the right offering with the right amount of capacity, successful MSPs deliberately drive more opportunity into their business using marketing as a means of increasing leads and sales. Failure in this last area of opportunity generation is akin to swimming half way across the English Channel, getting tired and swimming back. Success is in reach–you have the right product and the ability to satisfy demand, but also have to let prospects know how great you are. Growth in a managed services business comes with careful alignment, expanded capacity and opportunity generation. The bottom line – be deliberate about growth in this emerging market. Be smart and be aggressive, and the profits will come.