I’m not ready to press a panic button or sound an alarm. Generally speaking, the managed services market remains healthy and growing rapidly. But the weak US economy is starting to impact some managed service providers, according to a recent MSP roundtable attended by Axis Business Solutions.
Here are some anecdotal stats and trends culled from the event.
The roundtable, held at the MSPAlliance’s Atlanta conference in April, revealed the following findings, according to Joseph Paquet, VP of vendor alliance and relations at Axis Business Solutions:
- Accounts Receivable Challenges: Small business customers (50 users and below) are “lagging and late” to pay their monthly MSP bills. In fact, 30 to 40 percent of these small business customers are taking 30 to 60 days to pay outstanding invoices, according to Axis Business Solutions.
- New Business Challenges: It’s taking longer for MSPs to close new business. Opportunities that had required 30 to 45 days are now taking 60, 75 and even 90 days to close. Plus, some MSP-related projects are getting delayed, according to Axis.
To counter these trends, Paquet says, some MSPs are:
- Billing for a month of service in advance of the month.
- Embracing EFT (electronic funds transfer) to speed the payment process.
- Pushing into vertical markets (healthcare, legal, financial, etc.) where deep relationships and deep skills can ensure ongoing business and timely payments.
Proper Context
Axis Business Solutions’ Paquet was kind enough to share the findings above in a PDF he sent out to me and other MSP industry watchers.
To be sure, anecdotal information from roundtables and IT conferences can reveal key market trends. While the MSP industry generally remains strong, I maintain that no portion of the IT industry is completely immune to an economic slowdown.
One way or another, small business owners will cut their IT spending — through reduced purchases or aggressive price negotiations — if they’re nervous about their own cash flow.
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Some of these challenges are certainly tied to the economy. But other challenges are more associated with MSPs not understanding how to build and run their businesses.
After you take some of the easy dollars out of the market, you really need to refine your sales messaging and business processes to accelerate sales cycles with clients who are more difficult to sell on managed services.
My financing business, not just of tech purchases, has seen the sales cycle get longer too. I have no doubt its companies saying ‘let me see if i can stretch another month (or qtr or….) with what I have’ and that its based on the economic environment and cash being tight everywhere. Every one of my clients has less cash on hand now than they did a year ago. So while mismanagement is always a factor especially if the market has been easy money, the environment is the bigger factor that I see.
Although I must confess, my tech vendors have seen the most activity, as opposed to other industries I finance but the cycles are longer for them too, not just for me.
Stu: Thanks for your views. Very timely.
I do believe we’re in for some sort of spending slowdown, and MSPs will be impacted. However, there is a silver lining.
In 2001 when the dot-com bubble burst and spending went off a cliff, many IT customers were money-losing businesses. Even Cisco was guilty of selling to customers with bad business models and no real path to profits.
This time around, most businesses seem to be focused on the right metrics (true net income rather than EBITDA; sustainable growth rather than Internet eyeballs). So hopefully, MSPs are selling to real customers with viable business strategies during these challenging times.
A few outsourcers and service providers will surely get burned by customers that go bust (example: Bear Stearns).
But overall, I’m still cautiously optimistic. And I keep hearing solid financial anecdotes from MSP platform providers, which is somewhat reassuring.
I agree with Joe. We are not in a bubble like 2001, where everything went pop. The Nasdaq isn’t at 5,000. IPOs aren’t skyrocketing every week. I agree though that managed services will feel a bit of a pinch as the year goes on.
Small business owners are notorious for failing to pay bills, moving to new zip codes, and starting over. If these nomads avoid their bills, MSPs could be left holding the bag on some SLAs and managed service contracts.
It’s true that MSPs should be mindful of environmental factors that can impact their business and their clients, such as an economic slowdown. However, customers closely examining their own businesses for areas where they can save money or gain efficiency spells opportunity for a good MSP. As an MSP, it’s vital to look beyond the obvious IT budget the client has, and help them find ways to avoid lost productivity, security risk, and workflow inefficencies. If you help them save money in other areas by adopting a sound IT support strategy, then you’re less likely to be painted into a corner trying to negotiate support based on your hourly rate. Your contract sizes will actually go up.