Tom Watson: “If I Were to Start an MSP Today…”

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In anticipation of Tom Watson’s upcoming book Managed Services Now I sat down with him to discuss the IT space as it relates to MSPs and his past and current experience. A central theme of this book is evolution; how has the IT channel evolved, and how must an MSP evolve their strategies to thrive in a changing market?

What do we mean when we talk about the evolution of the IT channel?

The nature of the business has changed quite a bit since MSPs first appeared a couple of decades back. Most are aware of the transformation from break/fix to managed services, but there have been plenty of gradual changes in terms of how solutions are provided and what falls under an MSP’s purview. The mass proliferation of cloud alone has completely altered the landscape of IT.

Aside from the functional aspects of IT, there have been sweeping changes in consumer demand. While more organizations are aware of managed IT and outsourced IT options, they’re also more savvy in regards to what these options entail. Much of this consumer awareness comes from the sheer amount of MSP marketing that they’ve been exposed to over the years — and the fact that the majority of that marketing says the same things. By simple repetition, consumers have been taught what to expect from managed IT services, a phenomenon that has also led to an unfortunate commoditization of the industry.

There are also changes in the market that can’t be taken lightly. The market is saturated with IT providers, and competition is fierce. Many of the newcomers to the space are ambitious upstarts with no better strategy than to undercut their entrenched competitors on price. (While we all know MSPs who try this usually end up going out of business, they still take slices of the market away for long periods of time.) In addition to creating price wars, these small shops often damage the reputation of managed IT as a whole when they provide poor service or fail to secure their clients and expose them to a cyberattack.

None of these developments are surprising. Industries always evolve through life cycles that are relatively predictable, and the IT channel is simply “growing up”. However, MSPs run into problems when they don’t embrace the changes and try to run their businesses as if it’s still 2010. This happens more often than you might think, and quite often, it’s because industry leaders and peers are still handing out advice from 2010.

Smart MSPs are looking ahead for their advice and guidance, not backwards. Toward that end, we wanted to conduct a quick interview with channel expert, former MSP owner, and MSP consultant Tom Watson — someone who tempers his decades of experience in a deep understanding of the current market. You’ll probably recognize Tom as the former VP of Managed Services Best Practices at Axcient and host of their  MSPIgnition! series, or more recently, as Channel Chief Advisor at NinjaRMM and co-host of their MSP Live Chat webinar series.

Tom brings a lot of useful experience and information to bear for his MSP clients, many of whom are just starting out in the channel. We’ve asked him to share some of his insight with our readers by discussing how he would start and run an MSP if he were just entering the market today.

J.P.: Real quickly, can you bring our readers up to speed on your experience starting, growing, and selling an MSP? And tell us when your MSP was operating.

Tom: I started my MSP in the year 2000 and had a successful exit in 2016. Prior to 2000, I had been working corporate IT for several years before working for an MSP. I learned that I liked the model, and I decided to start my own. I was in the process of adding clients when I found out the owner of the MSP I had worked for was looking to retire and was willing to sell me two contracts he had. I used this as a model to build out a managed services practice.  I knew I wanted to sell at some point and I built the business around the idea that every substantive business decision should me moving the business towards increased profitability and the ultimate sale of the business.  By the time I sold I had built a sizeable MSP with all clients contracted up and paying before the month started which allowed me to get what I wanted for it. 

J.P.: What are a few major differences you see between the IT market now compared to when your MSP was starting out?

Tom: I see more MSPs going the route of Managed Service Agreements and all-inclusive packaging. As mentioned, the commoditization of IT has changed it up quite a bit for MSPs in that you need to look at how you are going to differentiate your offering. Of course, cybersecurity weighs heavily on MSPs now and is an area I feel every MSP must focus on to protect themselves and their clients. 

J.P.: I know your book will explore these ideas in depth, but just for the sake of this interview, let’s get hypothetical. What would be the top three most important things you would focus on if you were starting up an MSP in 2021?

Tom:  We all know that in most fields specialists get paid more than generalists. Unfortunately, most MSPs are generalists and this caps what they will be able to do in term of scaling their businesses and maximizing profitability. I would focus on the following:

  • Selling to particular verticals where my MSP had expertise that differentiated us from other MSPs.
  • Making cyber security a focus with the understanding that you need to be doing it. Your clients think you are already and beyond being a necessity it can be highly profitable.
  • Additionally, I would only take on Managed Service Agreements with clients that were over $2500 per month. While lesser amounts may work for some, I have found that at $2500 profitability becomes easier to achieve. 

J.P.: In terms of payment structures and agreements, what is the biggest mistake you commonly see MSPs making these days?

Tom: Trying too hard to please the client by doing whatever they can to get the sale, giving service away for free, and not being tough enough when it comes to getting paid. 

J.P.: And your relationship with NinjaRMM gives you some additional insight into how MSPs are using RMM tools. You’ve told me a few times that there seems to be a gap where many IT providers aren’t using these tools to their full potential. Can you talk about that, and why that could be a costly mistake?

Tom: It used to be that so much of IT work was about the technicians and skill set. While that is still important, it’s how the tools are used that can shift profitability dramatically. I see many MSPs get RMM tools and end up using it for remote access and patching, but fail do take advantage of the automations it can do. When you get a new tool, it is critical to maximize what it can do for you as the commoditization of IT service delivery now hinges upon how well you can parlay the tools into generating a return. 

We’ve just highlighted a few of the challenges that MSPs are facing as the industry moves forward, as well as practical considerations for facing them. What we’ve seen here is just the tip of the iceberg, and Tom’s new book will be addressing all of the topics still beneath the surface.

The book is titled Managed Services Now and lays out a complete, actionable framework for building or transforming a managed services business in the modern IT market. The anticipated release date will be August 2021.

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