Did the SMB managed services market grow 20 percent — or more — in 2011? That’s my early hunch, based on data from HTG Peer Groups and some anecdotal information I’ve gathered in recent weeks. I’m not suggesting that all MSPs are thriving. But concerns about the MSP market slowing down are overstated based on my observations at this week’s ConnectWise IT Nation conference in Orlando, Fla.
For starters, MSPs and VARs within HTG Peer Groups generated $808 million in combined annual revenues over the past four quarters, up 19 percent from $674 million for the corresponding four quarters a year ago, according to HTG founder Arlin Sorensen. A large number of HTG members consider themselves MSPs. (Side notes: Admittedly, those revenues include a hefty amount of IT product sales and consulting services. Also, HTG Peer Groups has grown by about 10 companies in the past 12 months.)
Meanwhile, early data from the fifth-annual MSPmentor 100 survey suggests top MSPs have seen their monthly recurring revenues grow 25 percent or more in 2011 vs. 2010. The survey runs through December 23, with final results in February 2012.
The Struggling Middle Class
Much like the broader U.S. economy, I sense that the MSP market has a struggling middle class — and perhaps even a shrinking middle class. Generally speaking, I think the rich MSPs are getting richer, pulling away from middle-class MSPs that have yet to fully optimize their sales and business processes.
During a chat with one MSP CEO today, he said scaling his business has actually gotten easier once he pushed beyond $6 million in annual recurring revenues. MSPs with $1 million or less in annual recurring revenues, in particular, seem to be struggling because vendors are getting tired of training small MSPs that may not deliver enough revenue potential, he added.
I half-agree: Since every MSP starts with $0 in annual recurring revenue, it’s logical to hear that many MSPs struggle to reach the $1 million mark, and even fewer march to $2 million and beyond. Heck, it’s survival of the fittest.
And the fittest certainly are surviving. Ironically, I think the tough U.S. economy has allowed some MSPs to book even more recurring revenue. Nick Bock, CEO of Five Nines Technology Group, told me several of his recent wins involve small business customers that are cutting internal IT staff and signing up for Five Nines’ IT services.
Is the managed services market easy? Certainly not. Are revenues growing in the MSP market? Absolutely yes. I just hope the middle class MSPs — neither leaders nor laggards — manage to grab their fair share of the pie.
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Posted In: Events | Managed Services | North America | Sales
Tags: Arlin Sorensen | ConnectWise IT Nation | HTG Peer Groups | managed services growth | managed services market size | Monthly Recurring Revenues | MRR | MSPmentor 100
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The fundamental difference between those who are thriving, and those who are merely surviving, is a focus on salespeople and sales process.
In looking back at this week’s partner conversations in Orlando, a common theme pops out: the partners that have made meaningful investments in full time salespeople are growing at a much faster clip.
Key learnings for MSPs:
1. Dedicate people to sales:
Partners in the HTG Marketing SIG talked about how adding dedicated Inside Sales is having a huge impact. Inside Sales should outbound call and nurture the client prospect list over the phone to uncover new leads and opportunities for outside sales follow up. The important thing is: you can’t have part time salespeople. They need to be fully dedicated to the selling effort and have a big part of their compensation at risk, upwards of 50%. They must have a quota and measurable goals every month.
2. Change the sales conversation:
Paul Dippell, from Service Strategies, hosted an excellent breakout session on selling the MSP value proposition to business owners. It all comes down to shifting the conversation from “selling” to having a “business conversation” with owners about their true, total cost of IT. “Principal led selling” turns the first call into a business conversation by having the salesperson ask the business owners key questions about the things that keep them awake at night: increasing revenues, reducing costs, and reducing risks. Paul shared some simple templates to guide the conversation. If an MSP can lead with questions and dialog first, they will immediately be differentiated in the mind of the prospect as not just another “IT shop.”
To take revenue growth to another level, MSPs need real sales resources and to engage in principal led selling.
Ted: Can I simply reply “ditto” to your comment?
One side note: You mention Paul Dippell. Agreed, sharp guy. For those who don’t know him — you can learn about Paul Dippell and Service Leadership here: http://www.service-leadership.com/
Best,
-jp
I thought I’d share my “7 steps to sales function success” that I’ve used in hiring/managing dozens (over 100 maybe) sales reps in my career.
1. Job description
In specific detail document (1 full page) what exactly this person is expected to do, ISR making outbound calls, qualifying inbound leads, setting appts, conducting web-based presentations or OSR prospecting, setting and attending appts, achieving quota etc. In any case the more detail the better as well as don’t forget to include activities metrics and quotas to be achieved.
2. DNA
Now that you have the job description fully documented, define 5 characteristics/DNA of the ideal candidate that match the salient points in the job description. Create a form with these 5 DNA where each is rated 1-5 and as resumes come in and interviews are done, rate each candidate 1-5 on each DNA. You can then rate each candidate on consistent criteria up to 25 points.
3. Outreach
Don’t use head hunters. Use your network, give finders fees for successful hires, use LinkedIN, Facebook etc and local job boards.
4. Interview process
Never stop interviewing! First interviews can easily be done over the phone (use the DNA worksheet). Second and third interviews must be done face-to-face. Involve 4-5 other team members in these 1on1 interviews (using the DNA worksheet). Don’t forget reference checks. The references the candidate provides you and find at least one back-door reference.
5. Comp plan
Too long of a topic. But, base salary and OTE match job description, base salary=50% OTE, matches business /revenue plan, no draws, no cap, progressive commission %’s, include overachievement incentives etc
6. On-boarding
Must do! 90-day documented and jointly signed definition of daily, weekly and monthly activities, training, metrics etc the new rep must achieve (with your help). You are equally as responsible for the new reps success as they are.
7. Sales mgt.
Again, you are equally as responsible for their success as they are. Weekly, monthly, quarterly and annual review and analysis of reports that include: goals, pipeline, activities, quota, appt reviews, etc. It’s your job to detect under-performance before it happens.
best,
Todd Hussey
Todd, Thanks for the insights. I think tip 6 is overlooked frequently. Onboarding was a big topic during sales discussions at IT Nation.
-jp
Hi Joe,
I hope all is well. I just wanted to throw a quick comment here about the middle class. The sub 1 million MSPs who I have had the privilege to work with as a business coach for the last few years. I have a number of partners (clients/MSPs) who I have been working with since they were start ups a couple years ago who are hitting the 1 million mark and above. The problem that I see with the sub 1-million is that there no accountability within their organization and that is why they are not growing or outright failing.
If you are not setting yourself up with a strong sales pipeline of prospects, getting in front of the right types of people than I would say better polish up that resume.
I believe that in 2012 we will see a number of these less mature MSPs go away. Only the strong will survive in this ever changing marketplace of technology consulting.
All the best,
Stu Selbst
Stuart,
You’ve found a niche with the sub $1 million MSPs. I hope a healthy number of them march forward and enjoy success in 2012. One thing I do worry about, regardless of MSP size, is so-called “entrepreneurial fatigue.” Basically… some MSPs are getting tired of really long hours. I think some folks expected success to come faster. But the managed services market is extremely challenging. Even mindSHIFT CEO Paul Chisholm told me over the summer that it was the most challenging market in which he has ever built a company.
-jp
The most successful MSPs that I work with are building a better quality of life and not “having to work” crazy hours. I believe that if they are working too long of hours, they are not delegating the work throughout their organization or they have the wrong people on their team.
I would totally agree with Paul (Chisholm), it is a challenging marketing, but when we think about what we as technologists do, we do things that others don’t have the knowledge and that every business needs. No matter the size of the MSP they still need to show the benefit of why someone should do business with them.
Stu
Stuart,
A classic line from the ConnectWise Keynotes: All of the GM executives were “really busy” but they still managed to bankrupt the car company earlier this decade. So “really busy” isn’t necessarily a good way to run your company — reinforcing your point about avoiding crazy hours.
(But alas, I’m guilty of being really busy too — and still need to learn to delegate more.)
-jp