Wednesday, August 08, 2007

7 Traps For Prospective Managed Service Providers

If you're a VAR who is deciding to take the leap into Managed Services, you are faced with numerous opportunities and many challenges ahead. Having spent the last 6 months at KitRx doing exactly this, I have an interesting perspective of what you should and should not do, as well as a few pointers which you can use to set your own expectations about how easy you may think this is. I must preface this by saying that even though I sound a little negative or skeptical, it's not that I don't believe the MSP model actual works. It does - I just believe that you need to do it with intelligence. The longer you wait to do it, the harder it will be. Here are 7 traps for prospective Managed Service Providers.

Trap #1 Blowing your wad: No matter what the sales guy at your prospective MSP platform software says, only buy the minumum number of licenses you need to get going. Most MSP platforms, including our choice Kaseya, have a unique method to bury you under a mountain of debt before you can afford it. Most use a licensing method, similar to leasing or much like perpetual renting,
which you effectively own nothing for a long time or possibly never. Starting your new endeavor by paying $2,500 a month for software licenses which you don't own, which you are not going to be using, and before you have a single customer signed is a trap. They do this because they are trying to pay their bills by selling you very expensive software by disabling your brain function for long enough for your heart to take over your mind.

Some vendors will even hard sell you on an integrated solution which involves shipping you an entire Server, bundled with their software for a large up-front fee ($30,000) and annual maintenance fees - leaving you to do the heavy lifting. Although most will give you an opt-out clause, they will try every trick in the book can to keep you in it if you decide to take advantage of this clause. Make the choice of functionality and cost up-front, because by opting out too early you run the risk of losing all your hard work in customizing and scripting the software - it's a trap, so read the fine print so to speak. Remember, these guys need to earn a living and need to close deals to pay their bloated overhead and your needs are secondary although the better salespeople will give you the opposite impression. Kudos to Kaseya for having Justin Ramsey on staff, but they still gotta earn a living, normally at your expense.

Trap #2: Thinking you'll keep all your customers: Another trick MSP software vendors will use is to make you believe what you have today, is what you'll keep tomorrow. Hell no!
Trust me the reason why most of your customers are doing business with you is because you're a pushover. I'm sorry but it's true - Imagine them being able to call in an expert at a moments notice and have you respond immediately without any commitment on their behalf. Often paying you a $100 for your troubles after a quick fix. Yikes! What a deal they get! It's no wonder lawyers ask for retainers.

The day you try and level the playing field and nicely notify them that you're going to charge them a minimum $500 a month for access to your genius - whoosh!! They disappear out the door looking for the next sucker to meet their unfair needs,
and there are always other suckers out there I promise you - Not before they ask you to detail out your transition plan.

Yes, the vision of having a 100 of your existing customers paying you $500 a month is an attractive proposition - it just won't happen! You'll lose 80% of your existing customers or you'll try and mix and match and still lose 50%. Charging some customers monthly and leave others to call you reactively, is a bad idea because you'll have an SLA with some and not with others (more later). It's a major dilemma but it'll be worked out in say 6 months or so. Do you threaten cut them off or do you sack up and actually do it? One thing I do know is that you absolutely should dump your residential customers. MSP's and Home computing don't match, no matter what the genius calling you 3 times a day tells you.

Trap #3: Creating a "NOC": Dude, you're a small company and so are your customers. They don't expect you to be able to afford a NASA control center. I assure you that running your well configured server, behind a robust firewall, using a business class of cable internet will be plenty. Especially when you're starting up! Why spend a gazillion dollars on unnecessary services when you could be using that money to feed yourself and your employee(s). When you grow your business to a 1000 managed devices then do it.

Trap #4: Do it on your own: Unless you plan on splitting yourself in two, it's not possible to watch over your customers systems and be available for on-site services. Firstly, on-site may drive your revenue initially until you get a critical mass of managed customers, and secondly you'll find yourself being much more productive doing this stuff from your office or home and being available at a moments notice for your customers. Additionally, I don't remember the last time I was able to take a vacation on the break-fix cycle, and the whole point to of this is too get back your life and make a few bucks doing it. Get a partner or use a contractor and split the revenue. I assure you that this is about improving your efficiency and adding way more customers that you'd be able to handle alone out in the field. Give yourself at least 6 months to get this all squared away.

Trap #5: It'll happen overnight: The analysts have been touting the merits of the VAR/ISV to MSP transitions since 2001, and there are carcasses of hundred's of small companies that listened to this crapola scattered all along this highway of doom. You're starting a new business from scratch with a small leg up on people that are actually starting from scratch. Make sure you have the funds to cover you for at least 6 months of less income than you had before. Plan for the worst and you won't be sorry.

Trap #6: Hire a consultant to make you a Millionaire: There are a few well known consultants who are trolling for you and they're good at it. They are marketing experts and they're here to tell you bout one simple fact which can be paraphrased as "You're a dope and should stick to what you do well and leave the marketing to the experts". They tie themselves to the MSP software vendors who are using them to promote the concept of Managed Services, and in turn they use the MSP software vendors to get at you. Well, you're not a dope 'cause you did the math!

Paying them $3,000 for a book or a guide of pointers or gaggle of letter templates will not make you into a dynamo salesperson if you're not one today. Granted, a well written letter to your customers, a nice brochure or a professional website will definitely help you grow your business but this is something you can hire a pro to do for you. The unfortunate fact is that they've managed to find a few suckers who are prepared to tell the world and you that they became successful because of it. If you believe them then I have this bottle of stuff for you to buy that'll make your dick hard, rewire your house and wash your car. All for less than the cost of having your ex. wife whacked.

Trap #7: Not using an SLA: The Service Level Agreement is what you're selling. It tells your customers how, when, where, what and how, in minute detail. If you sell a fixed price managed service without a solid SLA you're shooting yourself squarely in the foot with a Barrett .50 caliber snipers rifle, while you swallow a roadside bomb. They'll be picking up the pieces of your business in Beirut. The reason is that when you tell someone that they are able
to contact you, for a fixed price, with any system problem they have at anytime without detailed restrictions, they will do just that. Is this not something that people have been doing to you for years? I know you could never figure out a way to stop them from calling from about their neighbors Maxtor external hard drive failure at 11pm on a Saturday night, without being a complete a'hole. Now you have this opportunity to put it in black and white. Here are a few examples of SLA's for you to download in case you need them. Leave comments, as you wish


Unknown said...

Thank you, thank you, thank you. I have been looking at getting into the MSP game for awhile now and could not find anyone who could tell me the truth about what to expect. All the sales people from the MSP's I contact tried to paint this rosy picture of how my sales would go through the roof if i just plunked down $$$ thousands of dollars for their service. Your article answered a lot of the questions i had and has helped to put my mind at ease as i transform my break-fix business into a real solutions provider. I know it's been a long time since you first wrote this article. With that in mind, do you have any new thoughts you could possibly send my way. my email address is: mrx at charter dot net.

Johnny Kessel said...

Hey Walter,

I'm glad this helped. Yes, it is all still very valid except in the last year many more players have gotten into the business of selling MSP's these products. For a small one/two man shop, the concept of Virtual Consultancies works very well - where you bill for time integrating backup services, Exchange hosting, network appliances etc. and charge monthly for help desk support and monitoring (even outsource the monitoring piece to India) The platform for keeping your clients systems healthy is the core of your investment but don't consider having these services (SAAS) integrated into the platform as important. Platform vendors business model is trying to sell you these services after the fact. Choose the best of breed and use their web management tools - you'll be better off that way. Remove yourself from being responsible for the heavy lifting services such as backup, and charge to interface with the Vendor if something goes wrong. Hope this helps!

Anonymous said...

I'm glad people like you think there is no room for MSP in the home. Just provides me more folks to service.

Johnny Kessel said...

Have at it would cost you more to get a new client than you'll make from that client. You'll have no control over what happens in the house and they'll expect to fix everything for free. and lastly you'll be competing with a call center of 500 master IT tech's in India charging the client $50/a year for unlimited support.. again have at it!