ChannelTrends: Taking Managed Services to the Next Level

Almost all businesses go through periods of stagnation. That doesn’t mean the companies become unprofitable or experience sales declines, but less emphasis seems to be placed on new organizational activities. It’s a natural occurrence, as owners and managers struggle to keep up with the needs of their growing clientele, there often isn’t enough time (or the urgency) to focus on the future.

After several years of rapid expansion, a number of managed services professionals are experiencing similar challenges, realizing their business is at a point where they need to make a change. Stagnation is a real threat, requiring the stakeholders to bring on additional managers and employees, merge or purchase another provider, or sell. MSPs, like other highly successful professionals, hit a wall at a certain point in their organization’s development. The answers may seem simple, but the decision for each business owner requires a deep evaluation of their markets and organizational strengths (and weaknesses).

In most cases, the owners haven’t slacked off or taken a well-deserved break. The day-to-day activities of a thriving MSP business can be overwhelming, requiring a high level of attention to manage employees and a growing infrastructure. That leaves less time to focus on planning and business intelligence, which typically take a backseat to client issues and other organizational emergencies.  When MSPs reach a certain point in their growth cycle, the demands often require them to bring on a partner (sometimes through acquisitions or mergers) or sell their company.

MSP M&A Activity on the Rise

Dave Sobel acknowledges that similar challenges were involved in his decision to sell his managed services business to Network Depot. In a recent CRN interview, the former Evolve Technologies CEO stated that the organization grew to a point where he needed to hire another executive to help him manage the organization, as well as a high caliber engineer to oversee the technical team. Each would be costly and require a shift in Sobel’s organizational structure, so he had a critical decision to make and opted to go in a new direction.

M&A activity continues to grow in the managed services space, perhaps a sign of the model’s maturity and the prolonged economic challenges for many business clients, as well as the issues mentioned above. The most recent activity involved the merger between outsourceIT and GoBeyondIT, with CEO Craig Guice indicating that two more acquisitions are in the works. 2012 brought a flurry of other activities, including the ePlus Technology Inc. acquisition of VantiCore LLC and the purchase of Integris Tech by JMARK Business Solutions. Canfield Computers merger with Steel Valley Computers continued the M&A surge, though each transaction appears to have unique circumstances (and stem from specific opportunities).

It’s Not too Late to Join the MSP Revolution

Before solution providers face the growth challenges and chance to sell their managed services business, they have to build one. That doesn’t mean traditional VARs have to ditch their product sales and services business in favor of remote management and a recurring revenue model: they can create a separate practice to support new clients and transition legacy customers as the opportunity arises. Some may argue that you have to choose one model or another, but a hybrid approach is becoming accepted by a majority of solution providers.

If you’re not offering managed services currently, it’s not too late to add it to your dance card. Others have not only blazed the trail, but shared details of their successes and failures with the industry. For example, the CompTIA MSP Partners Community compiled a number of best practices and created a guide for building a successful recurring revenue business.  The group of experienced MSPs and other industry professionals not only gathers and updates the information in monthly meetings, but they validate the process in their own businesses every day.

The MSP Partners Community projects are numerous, creating tools and education programs to improve the managed services industry. A result of their collaboration is the Quick Start Guide to Managed Services, Seven Steps to Next-Gen Managed IT Services Success. This document was specifically designed for IT professionals, offering a detailed and easy to follow list of activities that will help them to build a profitable and thriving practice. The guide is also helpful for existing MSPs, offering tips and tricks to help them fine-tune operations and other key processes.

The opportunities in managed services are far from over, but continued success may require a shakeup in many MSPs’ daily operations or management—as demonstrated by the high number of M&A activities. That trend surely won’t affect every solution provider business, but the stakeholders in every organization should be prepared to face those challenges (and opportunities).

Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and industry alliances director with Autotask. Contact Brian at Bsherman@techsuccesscommunications.com.