MSPs: Do you have the flexibility and resiliency to weather COVID-19?
Most MSPs that we work with have a roster of SMB clients along with one or a few larger and more stable mid to large enterprise clients.
If this is you, then the impact of COVID-19 on your business is variable, and recent research reports back that up.
Worldwide channel sizing and channel trends studies from Techaisle found that 62 per cent of MSPs have less than 25 employees, while 92 per cent of MSPs have less than US$5 million in annual revenue. A large majority of these MSPs sell to smaller SMBs that are facing major business disruptions, if not the very real prospect of going out of business altogether.
Larger enterprises, at least at present, expect more resilience. A forecast from market research firm Information Services Group (ISG) pegs a decline in global spending on managed services of only seven per cent for 2020.
Another survey from OpsRamp, which delivers an SaaS infrastructure platform, finds that 73 per cent of mid-to-large enterprises expect to keep spending in 2020 on digital transformation initiatives, which would include any cloud migration projects.
One chief area of priority spending continues to be security and compliance and remote work and collaboration – no surprise there, considering social distancing measures. This is followed by big data and analytics, and public and multi-cloud infrastructure with data centres and private clouds.
So where does this leave MSPs?
Techaisle’s studies found that 15 per cent of the MSPs it surveyed either want to sell their business or wind down, while 52 per cent need external capital to grow and remain viable or are seeking M&A opportunities.
Techaisle goes on to analyze MSP business models and the pros and cons of having too much of the revenue mix tied up in recurring monthly revenue versus higher margin non-recurring services.
The key consideration for an MSP from our point of view is efficiency.
Regardless of your revenue mix, how cost-effectively can you provision, deliver, support and bill for the services you provide to your clients, without wasting the billable time of your most valuable team members?
This should be the chief strategic and tactical question for MSPs as some clients face potential insolvency, other clients desperately need help to shift from working in the office to working from home and yet others forge ahead with large-scale IT transformation initiatives.
Our own MSP clients are having these kinds of internal discussions right now, to better manage their operations and determine how to grow their businesses in the current climate.
Human resources cost – by far the largest single line item for an MSP – is a recurring theme in these conversations. A shortage of qualified tech talent has been replaced by hiring freezes. How can an MSP modernize and automate to enable its team to do more, and drive higher revenues and margins, without more bodies?
Another discussion point is adding new services – how can an MSP expand the value it can deliver to clients and generate more revenue per client? This is a valid question. But if you haven’t invested in an automation platform that streamlines and improves the efficiency of service delivery, adding more services may be counterproductive. The strain this may put on the capacity of your team, and those old manual back-office processes on which you still rely, can easily erode profitability.
A more prudent first step that can help you address your HR challenges and your growth objectives is to invest in tools that will give your business the agility and efficiency to improve margins and achieve more with less. This will enable you to deliver the services and flexibility your clients need as they work through the economic impacts of COVID-19.