Partnering with a managed service provider (MSP) vendor

Managed service provider (MSP) partnerships are rarely as fruitful as both sides would like. When choosing an MSP vendor, ask these questions to determine if your partnership will be a good one.

The majority of channel partnerships are not as productive as both sides would like, yet we treat each letdown as if it were some new phenomenon. The decision-making criteria to determine who to choose as a partner has changed little over the years. From the vendor's perspective, the driving force is incremental revenue and reach. For the managed service provider (MSP), it's the product offerings that best fit customer requirements and whether enough money can be made selling, implementing and supporting them.

Tim Hannibal of VaultLogix, a Mass.-based MSP, explained that besides the obvious profitability factor, the vendor must be flexible to work with. In a market like today's, where conditions are continually changing, having a flexible partner that you can easily communicate with is critical. Tim said VaultLogix's MSP software vendor has demonstrated its ability to do just that. Both parties have to recognize that the world is fluid and dynamic today, and without the ability to communicate candidly and honestly, even then longest relationships will be put to the test. In addition, channel partners rely heavily on their vendors' abilities to constantly explore upcoming market needs and new opportunities.

Philosophically, it makes sense to ask yourself the following questions during the qualification phase when you are considering implementing an MSP offering.

  • Does the vendor provide unique functionality? By providing this functionality, the customer (end user) derives value, which can be justifiable and does not require me (the VAR) to compete solely on price.
  • Is the vendor's product offering geared to the MSP market, or was it bolted together to fill a perceived need? One that is bolted together may require you to become your own little software company in order to provide the managed service offering (i.e.: middleware may be needed). Getting the facts, obtaining concrete examples and asking the tough questions can save you a lot of time and money up front.
  • Is the vendor's software licensing model "MSP friendly", or do you need to outlay large sums up front? Since you will be charging your customers as they grow, it is beneficial for you to buy the same way. Vendors that grew up in the MSP market understand this model and will charge accordingly.
  • Does the vendor understand the MSP space? What education can they provide that enables you to invest in an MSP initiative profitably from the beginning?
  • Does the vendor have a direct-sales force? If so, do the field reps have a channel neutral (or channel favoring) compensation plan? This means that the vendor representative gets paid as if they sold it themselves, which in turn creates the right field behavior.
  • Do the MSP vendors' solutions tie into other MSP products like Level Platforms, ConnectWise, AutoTask, Kaseya, N-Able, Silverback, etc.? By working with a vendor that performs this service for you, the requirements you have to provide for internal expertise and expenses can be minimized.
  • How easy is it to work with the vendor? Speak with other VARs outside of your territory that have worked with the vendor and find out the real scoop. The vendor may sound good on the surface but you should drill down just to be certain. If you don't pose a competitive threat, other partners will most likely be happy to share the good, bad and ugly truth.

In review, to increase the probability of a successful business relationship, look for the following qualities in your MSP vendor.

  • Simplicity in delivery and being as non-invasive as possible (agentless or appliance based) will dictate how much training and investment you'll need to make up front, and how fast you can go to market.
  • VAR's ability to brand the software to leverage existing brands' equity
  • Flexible terms (pay as you go or creative licensing), aligned with incentives.
  • A proven solution in the field. Is your customer the vendor's beta site? If so, you need to be compensated for the risk and for being their QA lab.
  • Quick start package from solution to billing available now. If not, how much work do you need to do before you can really start selling?
  • Advanced security. This will be a concern for any customer who is sending data to someone else.
  • World class customer service. Ideally the vendor's support is a virtual extension of your own. If not, you need resolution efficiently and easily until your own staff can get up to speed.
  • Tools to increase selling efficiency. Learn from the vendors' experiences.
  • They are easy to do business with. It's a red flag if they are difficult to deal with before you bring them customers.

Perfection is hard to find anywhere you look, however there are vendors that are at the top of the list each time you prioritize criteria. These are the folks you want to do business with; starting a new initiative is challenging enough.

One of the key focus areas for you during your due diligence should be the tools the MSP OEM provides for you to be successful. The first explanation should occur before you sign on the dotted line. If an MSP OEM does not sit down with you to calculate an internal rate of return (IRR) for your business and set expectations in both directions, I would question every assumption they throw at you. A good IRR tool should be in the MSP OEM's bag. You should be able to examine the breakeven and the profit areas of the business. Companies that were built to provide MSP services should be able to quantify all aspects of the IRR before you commit a dime. A good OEM knows that your success is shared by them, so not giving you all the realistic assumptions up front does no one any good over the long haul.

Becoming a managed service provider
Home: Introduction
1: Is your company a good match for the MSP model?
2: What are the benefits of providing managed services? 
3: What questions should you ask a potential MSP vendor?
4: How should you price MSP offerings?
5: How can you avoid failed MSP partnerships?

About the author:
Paul Myerson is a senior channel analyst for the Enterprise Strategy Group. Paul has core competency in direct and indirect sales model efficiency, channel program management and business strategy required for successful vendor/partner success. Myerson comes to ESG from EMC where he played a key role in developing the company's channel business. Prior to joining EMC's channel business, Myerson ran EMC's southeast region direct sales operations. Highlights of his 12-year career with EMC include signing and managing EMC's first resellers as well as the company's largest worldwide partners. In particular, he was recognized for his unique approach to channel management -- strength he now applies to the industry at large. Myerson's charter at ESG is to run the channel practice and to aid ESG clients with their channel initiatives.

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