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Managed services business model relies on careful client acquisitions
When it comes to customer acquisitions, MSPs have to be particularly selective. Learn best practices to steer clear of bad clients and wasted time.
Ryan Giles, partner at AGJ Systems & Networks, remembers the first time he walked away from a managed services prospect as an eye-opening experience.
The IT company, based in Gulfport, Miss., was in the early days of its transition to the managed services business model when it met the prospect, a dental business that had just moved to town. The prospect planned to open a family dental practice and had started building a new office in Gulfport.
After giving the prospect a quote, AGJ visited the site of the new office to meet the owner. "It was still early in the construction project, but it was definitely a very nice building," Giles said. "So we immediately think, 'Okay, they obviously have a significant budget. They want to do this right.'"
However, as AGJ worked through the presales process, the construction project slowed down. AGJ wasn't sure why.
"[During] the last visit we made … we heard the owner on the phone saying that they had just ordered all their furniture from the local Salvation Army thrift shop," Giles said. When trucks began to arrive with the secondhand furniture, he knew for sure this prospect likely had some problems.
AGJ decided to find out where the prospect stood. "We said [to the owner], 'Listen, we gave you some ballpark numbers early on, but let's just reiterate [that quote]. … And they immediately stopped calling," he said. AGJ didn't pursue the prospect any further.
The MSP had put nearly 70 hours into working with this potential client. The time it lost is unfortunate, but one can only imagine what kind of customer AGJ would have had it won the business.
While some types of IT channel companies, such as break/fix companies, value-added resellers and systems integrators, "may thrive on chaotic or asymmetrical types of requests from customers," managed services providers (MSPs) definitely do not, said Charles Weaver, CEO of MSPAlliance. Ultimately, if an MSP dedicates too much of its time and resources on dealing with a problematic customer, the rest of the MSP's clients will suffer. According to Weaver, "the risk to the MSP … is the wrong customer coming in and breaking the process."
The best MSPs, Weaver said, are willing to walk away from a prospect if it isn't a good fit or else refer the business to somebody else. "That's discipline, but it can really help [MSPs] save themselves down the line," he said.
Know who you're looking for
One way to avoid the wrong clients is to develop a clear customer profile, Weaver said. "It is an understatement that the more mature, the more successful MSPs … are those that know who the customers are before they even step a foot out the door in the morning. They know, 'All right, I'm going after these types of customers in a vertical market or customers that typically buy these types of services.' … They have a profile already built," he said.
Ryan Gilespartner, AGJ Systems & Networks
Knowing which customers to target, however, is not always easy to figure out, especially when you're just getting started. Tom McDonald, president of NSI TotalCare, an MSP based in Naugatuck, Conn., said his company went through a difficult trial-and-error period when it began signing up managed services clients. "It's really hard to understand what your target customer profile is until you have customers there," he said. "I don't know how you could do this without having some failure at the beginning. …You're just trying to get everybody you can. … The reality is it takes some time to figure out what would be a good fit and good match for you. … How else do you do it? At least, that's how we did it."
NSI TotalCare eventually developed two distinct client personas to target, as well as a more discriminating presales process. One of those personas is a person in the company with financial responsibility, such as the comptroller, CFO, vice president of finance or general manager. "We're actively trying to disqualify versus qualify [customers]. … We're looking for every reason why they're not a good fit. And the better we do at that, it seems that we have a higher degree of success," McDonald said.
Managed services business model: Targeting verticals
While it may be a good idea to narrow your customer profile down to a vertical, many MSPs choose to keep their customer profiles broad. Even so, these MSPs may discover a particular business type that proves a good fit for its services.
AGJ, which focuses on small and medium-sized businesses, has found accounting and law firms to be good fits, Giles said, because they tend to value time. "As an MSP, [time is] really what I'm giving back to them. By keeping their network up, by keeping their technology happy, I'm making them more productive. So I'm either giving their current employees more time in the day by helping them be more efficient, or I'm giving them actual hours by keeping hardware up and running when it would otherwise be down."
But sometimes a good customer type can turn bad, Giles added. When AGJ started out, it signed a number of clients in the construction industry -- a great fit for AGJ because they understood the value of IT and paid their bills on time, he said. In the aftermath of Hurricane Katrina, "the construction companies became even more profitable, so they're buying more gear and paying their bills even faster." This post-disaster construction boom didn't last, of course. "All of a sudden, one day, the worked stopped and the construction boom was over. Some of these great clients, who were still a great fit [for us] culturally … had no money coming in. We had some good clients become not-so-good clients almost overnight because they just simply didn’t have cash flow," he said.
Vetting your managed services prospects
Besides having customer profiles built, MSPs must learn to vet their prospects if they hope to dodge the risky clients among them. Weaver advised MSPs to interview their prospects as much as prospects interview them. "It's less [about] asking certain types of questions, specific questions; it's more about asking probing questions that will lead the MSP toward a greater understanding of what they're getting into," he said.
Those questions should uncover the following areas about the prospect:
- What are the prospect's business goals?
- What are its technology challenges?
- Is there internal IT (an IT manager or department)? If the prospect does have internal IT, MSPs should find out what its involvement is and how IT would be interacting with the MSP, Weaver said.
It's also important to find out is if the prospect truly values technology and the services the MSP business offers. For example, is the prospect looking for a break/fix, transactional type of relationship or more of a consultative partnership?
Michael Maddox, president of ASK, an MSP headquartered in Lansing, Mich., said his company gets a sense of prospects' attitudes toward IT based on their reactions to two pieces of information it presents. The first piece is its managed services pricing. "We tend to price our managed services at probably the high end of what a lot of our competitors do. And that's by design," he said. "So when our account managers go out, based on their reaction to that type of proposal, we get a pretty good indication of how they value technology and consultative IT services."
The second piece is the technical vulnerabilities discovered from a site analysis. If a customer responds indifferently to the vulnerabilities, then "that's a good indication they're not a good client for us," Maddox said.
MSPs may also want to inquire into a prospect's financial standing. "More and more MSPs are starting to do credit checks on their clients," Giles said.
Each MSP's will design customer profiles and a vetting process unique to what it does, but one strategy should steer all customer acquisitions: Be selective. "Every company has a task to grow [its] company. The issue is, do you do it intelligently and safely, or do you do it recklessly and in a way that sacrifices the long-term stability of the company for short-term revenue goals being attained?" Weaver said.
Giles agreed, noting that MSPs can sometimes lose focus of this. "We all agree that when we hire employees, we need to be selective. … When we meet clients, though, we don't remember this all the time," he said. "[Customers] need to be a good cultural fit as well as a good fit in every other way."
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