Are Most MSP P&L Statements On a Slow Death-March in a Denial Parade?

Is your MSP P&L statement (profit and loss, sometimes called an income statement) in relatively good financial health? Or is your managed service provider company basically on a slow death march, with you starring as the grand marshal in a denial parade?

Understanding the MSP Wannabe

I was at a conference last summer, listening to a breakout session on MSP business transformation, when a dirty little secret about the state of managed services came out. What secret do you ask? (OK, it wasn't a secret to me but to most in the room. I've known about this issue since 2008, right around the time we started getting questions about why the Computer Consulting Kit Home Study Course wasn't going to be transformed into a managed service provider home study course.)

The moderator began the panel discussion by asking the audience:

• "How many of you consider your businesses an MSP?" In response to the question, most hands went up.

• "Now, how many of you are generating most of your revenue from managed services?  Less than half -- actually closer to a quarter of attendees.

So how do you explain this massive contradiction?

Why do so many IT business owners aspire to chase after the MSP business model, when so few MSPs actually make the business model work?

It's really simple: Most think (mistakenly) that the grass is greener on the other side of the fence.

Even the developers of managed services have apparently struggled financially as 2013 saw three different vendors either consolidate into a larger parent company or force a change in ownership.

Navigating the Triple-Threat to Managed Services Providers

The dysfunctional MSP P&L statements have caught my attention lately.

In part of my role as Co-Founder of SP Home Run, I speak with a handful of MSPs in the $1M to $10M annual revenue range just about every week.

The common trend I see: These MSPs are showing impressive top-line revenue numbers, but are hemorrhaging cash and struggling to stay afloat.

It's kind of a triple threat where these managed service providers are getting squeezed:

• Staffing costs - Many of the technical skills required to staff up an MSP are still in relatively short supply, at the intermediate and advanced levels, an issue being exacerbated as 10,000 baby boomers turn 65 every day.

• Health insurance costs - It's impossible to turn on any major news outlet in the USA without being bombarded with commentary on the health care crisis.

• Vendors squeezing smaller partners - So as the managed services developers consolidate and pick up more sophisticated investors, these investors and their chosen management will demand greater bottom-line results. Where's one of the first places they'll turn? Squeeze the little "guy" --- their smaller partners.

Connecting the Dots Between Marketing Denial, Competing on Price, and Profit Destruction

What I'm seeing:

Most MSPs ignore marketing. (Note: Word of mouth isn't marketing. It's denial and procrastination.)

Now that 80%+ of the typical B2B sales cycle is over before potential clients contact any vendor, being absent from the marketing conversation is a surefire way to become invisible and irrelevant.

When your company doesn't factor into these early sales cycle search queries, most of your leads only appear at the absolute tail end of the sales cycle.

At this stage, it's nearly impossible to differentiate (it's way too late) as the late-stage purchase decision is largely made based on price, rather than value.

When selling IT services that are largely similar to your competition, marketing innovation -- that develops and promotes your company's thought leadership -- is one of the only tools left that can protect your company's pricing power, profit margins, and ultimate survival.

The IT industry graveyard is filled with companies that tried to bet against investing in marketing innovation. Don't accept the marketplace's default plan for just scraping by.

Chart your own course for long-term growth with inbound marketing.

Attract. Convert. Close. Delight.

What's your take on the state of small MSPs' financial health? Is the MSP business model dysfunctional? Or do owners not have the time or skills to make sound financial decisions? Perhaps the managed service industry needs more seasoned CFOs rather than relatively low-level, lowly-paid bookkeepers. Let us know your thoughts in the Comments box below.

And to figure out how you can market your way out of a dysfunctional MSP P&L statement, and slow death march, especially if you also support SaaS and IaaS, be sure to enroll now in our free 7-day eCourse: Go-to-Market Strategy 101 for B2B SaaS Startups and Scaleups.