OVER THE COURSE of his career, Paul Dippell has built four successful IT businesses, and each time he faced the same dilemma. He knew his companies were doing well. He wanted to know how well, though, in relation to his peers, and there was no reliable means of answering that question.
“”We found that it was hard to get data to compare our performance to the best in class,”” Dippell recalls.
Eventually, he decided to do something about it. In 2001, he founded Service Leadership, a consultancy for IT providers owned since February by ConnectWise. And in 2006, he introduced the Service Leadership Index, a pool of anonymized financial and head-count data updated quarterly by thousands of MSPs around the globe eager to know how they stack up against industry norms.
Fifteen years later, it’s arguably the deepest, longest running, most detailed performance benchmark for MSPs in existence, and it reveals just how big the divide is between ordinary providers and great ones. Since 2008, in fact, MSPs in the index’s top quartile have a 2.4x bigger profit percentage than the median MSP.
“”That’s a huge amount of cash flow that you could use to reinvest in the business,”” Dippell observes.
The inevitable question, though, is what do best-in-class MSPs have in common that puts them in the top quartile? Dippell has spent years studying the matter, and concluded that the key variable separating the top 25% of IT providers from the bottom 25% is what he calls their Operational Maturity Level (OML), a 1-5 ranking system in which high scorers grow faster and make more than low scorers.
A seemingly small difference in OML, Dippell notes, can have an outsized impact on results. Indeed, top-quartile MSPs, who have a 3.8 OML on average, raised profits 40% over the last eight quarters. Bottom-quartile providers, who have a 2.8 OML, saw profit dollars shrink by 1% in the same period.
According to Dippell, high-maturity MSPs share 39 characteristics. These five, however, loom especially large:
1. They have a specific value creation strategy
Low-OML MSPs figure they’re doing fine so long as they’re increasing revenue and profit every year. High-OML firms, by contrast, have a regularly updated roadmap for exactly how big they want to grow the business, how they’ll do it, and how long the process will take.
“”They say, ‘We know the amount of stock value that we want to create, we know by when we want to create it, and we know how we’re going to get that stock value out of the company,'”” Dippell explains.
2. They sell to a targeted set of customers
Market yourself only to businesses within a defined size range, like mature MSPs do, and you increase efficiency by decreasing the number of solutions and services you deliver. Market yourself to anyone with money to spend and a pulse, on the other hand, and you end up needing more people with more skills to support a wider variety of technologies.
“”Your profit goes down. Your service level goes down. Your employee happiness goes down. It’s harder to grow the firm profitably,”” Dippell says.
3. They embrace standardization
There’s a broader lesson to be learned from that last winning trait. Standardizing the products you sell enhances profitability.
“”The ability of a managed service organization to deliver great service and have happy employees and make good money—all of which contribute to growth—is based on the degree to which the technology stack that that MSP is supporting is the same from customer to customer to customer,”” Dippell says.
High-maturity providers, therefore, get new customers onto a standard set of technologies as soon as possible. Less mature peers worry that even broaching standardization with their clients will get them fired. They suffer the inevitable consequences as a result.
The same logic applies to the tools MSPs use to run their business, Dippell notes. Mature firms partner with a small set of vendors offering tightly integrated products. Less mature ones use stand-alone systems and do the integration themselves.
4. They cross-sell everything they offer
Consistency breeds simplicity, and simplicity breeds profit. Standardizing the products you sell is one route to consistency. Persuading all of your customers to buy everything you offer is another. Top-quartile MSPs, therefore, don’t provide the usual bronze, silver, and gold service plans. They offer nothing but gold.
“”If you look at the high performers, they sell one package,”” Dippell says. They sell it successfully right from the start of a client relationship 70% of the time on average, too, and convince the other 30% to buy the “”full meal deal”” shortly thereafter.
5. They charge for assessments
Most MSPs recognize that quoting sales prospects accurately is difficult without an assessment to guide them. Low-maturity providers, however, evaluate technical issues only and do it for free, out of fear that asking for money will be a turn-off to potential clients. High-maturity providers scrutinize technology and business processes, and charge for it 95% of the time, knowing that clients unwilling to pay for an assessment are usually clients not worth having.
“”They sell richer deals for any given size of customer, and they more successfully close deals because they’ve qualified on price,”” Dippell says.
If that’s not you at present, he adds, or you lack maturity in other ways, don’t despair. With a little determination, any MSP can teach themselves to run their company like the great ones.
“”It’s learnable,”” Dippell says. “”You can do things the way the top performers do, and they will work with your customers in your market at your size.””
Image: iStock
