Intense competition and diminished profit margins have value added re-sellers (VARs) looking over the fence at managed service providers (MSPs) and wondering if they should join them. Some VARs have been running smoothly for years but see an opportunity to tap into a growing market by diversifying their products and services. Whether you are a VAR or MSP, the peaks and valleys of the market has owners searching for a stable business model. The ability of the MSP to build a strong relationship with the customer and offer ongoing IT services for a monthly fee is attractive model. The MSP model breeds a degree of stability into the business compared to the VAR model of “one and done” transactions. Moving your business from a VAR to MSP is a challenge. In fact, the lines between the two are blurring more each day. If you are considering making the switch, this article will discuss a few tips and considerations to think about before converting to an MSP.
VAR vs. MSP
First, it helps if we have a ballpark understanding of the differences between a VAR and MSP: VARs specialize and sell more hardware products. They may also sell managed services but selling hardware is their primary revenue source. VARs have highly skilled engineers that bill hourly and attempt to satisfy the customer, no matter how long it takes. The VAR culture rewards technical expertise over customer service. MSPs offer managed services for a recurring monthly fee. They may also sell hardware that augments their service. MSPs value engineers who can solve problems quickly and efficiently. Customer service is as important to the MSP as technical acumen. The MSP culture is one of teamwork and mentorship.
Dale McConkey said, “Plans are less important than planning.” You will not have answers to all your questions at the beginning. Nor will you always be asking all the right questions from the start. The goal of creating a plan is to organize all your ideas, thoughts, and goals into one area. Here are a few items to consider in this phase:
- What do I want my business to look like five or ten years from now?
- What are the two or three pain points of my current VAR business?
- How will moving to an MSP model reduce those pain points?
- What values of my current business do I want to protect?
- What is my pitch to my current customers if I move over?
These questions are intentionally “big picture” because that is where you need to start before you dive into the details. Maintain the patience to answer these questions before you do anything else. You might find your reasons to become an MSP require you to give up too much. The time to ask these questions is before you begin the transition.
Simplify Your Offering
Kitchen Nightmares is a Fox TV show where famous chef, Gordon Ramsey, travels the country advising troubled restaurants. Ramsey possesses a “take no prisoners” attitude when it comes to running a business. There is one change he immediately makes to nearly every restaurant he visits: he brutally prunes the menu down to a few items. Ramsey understands that nobody is good at everything. As a VAR, you may have offered to do whatever the customer asked of you. It was no skin off your back because your engineers billed hourly. But that philosophy will not translate well to the MSP model. Many customers today are searching for simplicity, and your business offering should reflect that. You should be able to answer the following the questions:
- What is my core service offering? These are the fundamental services that define your business such as remote monitoring or disaster recovery (DR).
- What are my related services? These include newer or related services to your core offering. Mobile device management many fall into this category.
- What are the services that differentiate your business? These are the services that set you apart from your competition while providing real value to the customer. For example, you may have a cloud security expert on staff to help give you that step up.
You might only have one service to offer in each bucket. That is OK. You can expand your services as you grow the business. The goal here is to offer a simple and cohesive solution to your customers. Do not make the mistake of dragging the customer into the technological weeds. That is for you to figure out behind the scenes.
Assess Your Team
This is one of the most difficult assessments you will have to make, but it might be the most important. The team you assembled when creating a VAR may not completely transition over to an MSP. For example, if you have commissioned sales people selling only hardware, they might not fit into your new plan. When you are collecting a fixed monthly fee for managed services, you will need to hire efficient employees who can solve problems quickly. You cannot afford to have expensive tier 3 engineers solving issues on the front lines anymore. There is a company who used to sell general-purpose computers. The PC business has become a “race to the bottom” with Dell and HP offering PCs for under $500. Over the past three years, the owner decided to offer workstations into colleges, labs, and large companies who would not balk at dropping $10,000 on a high-end workstation. The first issue the owner had to address was his sales team, which acted as order takers when the company sold general purpose PCs. The sales skills required to sell a PC to a gamer were not the same skills needed to sell to a scientist or engineer. The business owner decided to hire more experienced sales consultants while offering advanced sales training to the current sales staff.
Establish Effective Processes and Teams
You will not get very far as an MSP without effective processes. These include setting up standards for responding to technical support tickets, answering calls, documenting new services, and training new team members. Creating teams of people whose skills complement each other is also important. The ability of your team to collaborate and share knowledge will help you resolve issues while maintaining an elevated level of customer service. VARs can get away with hiring “lone wolf” types who get accustomed to working independently. That personality type will not translate well to the MSP. It might mean finding a way to motivate the right behavior.
A single trait most successful MSPs possess is their high degree of proactiveness. The best MSPs do not wait around for the customer to report an issue. Instead, they actively monitor the situation and alert the customer of the problem. They also strive to delight the customer. Remember, it is easier to teach technical skills to someone with excellent customer service skills than teach a technical guru how to treat a customer. Take it slowly. Pare down your offering to what you do well. And focus on nurturing a cohesive team. If you do those three things well, you will be on your way. Good luck!
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