MAX 2015: Paul Dippell – Get narrow to get profitable
I first met Paul Dippell, from Service Leadership, way back when I owned my first managed service business and belonged to HTG (Heartland Technology Group). Service Leadership gathers financial and performance data from thousands of technology companies. Since he's been doing this for more than a decade, he has historic data for comparing millions of data points.
As you can imagine, Paul was very excited to see the LOGICcards announcement yesterday. After all, MAX and Service Leadership are organizations working with truly big data in the Managed Service space.
Paul has been doing more than collecting data. He’s also been analyzing it. As he looks at actual performance data across thousands of companies, he's developed some sophisticated ways of defining who's doing well, who's doing poorly, and the business practices of those companies. Here's a bit of advice from his findings.
The number one recommendation is to commit to your tool set. He notes that this is true whether you use MAXfocus or something else. Committing to the tool set means that you deploy all of the tools to all of your clients. There's a huge correlation between MSPs who install the whole tool set and those that deploy only one or two offerings.
The reasons for this are no surprise. Because your tool set provides consistency across tools, this makes your staff more efficient. And when you spread this consistency across all of your clients, you multiply that increase in efficiency. As Paul says: "This is not a technology business. You don't make money inventing new technology. You make money executing processes." Amen to that.
You are in the service delivery business. So you need to find clients that value excellent execution.
What's the payoff for going "all in" with your tool set? In a word: Money!
The average (median, actually) MSP has a 7.3% profit after paying themselves a reasonable salary. At the same time, the top 25% of MSPs have a profit margin of 19.3%. That's almost three times as profitable. Whether you want that because you just want to make more money or you want to sell your business for a higher price, you obviously should try to move into that top quartile.
How do you get there? As Paul says, "Better analytics is the magic." Once you look at your own operations, you can begin upgrading your operations. No matter what excuses you hear (or hear yourself saying), these numbers are consistent across all markets. That means your business can move to the next level!
But the news gets even better
Paul argues, based on historical data, that there is NO evidence that managed services is becoming “commoditized.” Some people have been worrying about this and some people have even assumed that it's true. They just assume it's happening because some companies are out there selling at very low prices. But here's the reality: Those people under-selling are losing money. Period. They just are. There's no magic. There's no rainbows and unicorns. When people under-charge, they lose money. Eventually this will go away. At a minimum, they will always be in the lowest 25%!
The data shows that the best MSPs have been earning the same margins every year for the past five years. In other words, they are just as profitable year after year. Why? Processes. The top tier service providers sell a small variety of services and they sell as much of their tool set offering to as many clients as possible. And, finally, they have very strict standards for new clients.
If you sell to the lowest prospects, you will lose money. It's better to walk away from people who see technology as a necessary evil. Stop selling losing deals. The only thing that's scalable is to be "all-in" and only sell the best.
The bottom line is to FOCUS your business. Get narrow by focusing on technology-savvy clients that are willing to invest in service. Narrow your services by selling a core offering that you can be very profitable with. Stop making exceptions and having a different agreement with every client in order to try to get every sale. And, of course, narrow your tool set offering. Stop buying from six different vendors. Narrow it down and buy as much as you can from as few vendors as possible.
As with many things in business, the clearer your focus on a few key elements of success, the more success you'll enjoy!