Starting a MSP

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Starting a Managed Services Provider (MSP) involves a lot of steps, and diligence, but it is one of the easiest businesses to start. Modern businesses rely so much on their technology, that there is a requirement in business to find a competent IT provider. So let’s get started!

WORK hard and be diligent. “The process is simple, diligence is hard” – Clay Clark –  Focused time at the beginning of each day is a key to having a successful day, we call this meta time. Checklists.  If you want to know what gets done and that it doesn’t get missed then you need checklists. What matters gets measured. Another way to say this is that you track what you treasure.  If you treasure money then you hire an accounting and a financial planner.  If you treasure new customers then you track your leads.  If you treasure your family then you provide for them and spend time nurturing those relationships.

Find some time each morning for your meta time. This is the time that you need that is FREE of distractions. In this meta time you list out what you need to do that day and what each item requires of you and your team. Then ONLY do those items that day. Stop eating lunch, it’s a waste of time. Also stop doing anything else that wastes your time. Also stop interacting with people that waste your time. Actually, just stop wasting time in all areas of your life. This even means turning off all push notifications on your cell phone and essentially not looking at your phone.

Make a list of what you did yesterday. You will find that whatever you wrote down would actually only take a couple hours to complete if those tasks had your undivided attention; you are a time WASTER!

You need leads, products, and a way to deliver them. The easiest way to start is with a Google location listing. This is going to be the place you start collecting 5 star reviews from friends, family members, coworkers, etc. Anyone that is willing to give you a 5 star endorsement, needs to give you a 5 star rating on Google, and write a short testimonial if possible. Google reviews are one of the critical metrics Google uses to sort listings on its search engine. When someone wants to find a managed services provider, or IT company to work with, then their first stop will most likely be Google.

You need to have an overwhelming number of reviews for two reasons: 1. We need to make sure that the competition never catches up. For this reason, you can never stop collecting reviews. 2. We also need to make sure that we have ten times the reviews of your competition Having an overwhelming number of reviews will tell new customers that you are the best, and will give them the push they need to choose you over your competition.

Next you need to figure out what products you are going to provide to your customers. This should not end with simply providing customer or technology support for their environments. Roughly half of your revenue will come from non-consulting sources. These are hardware, software, line of business applications, website and application hosting, co-location of equipment, redundant and disaster recovery hardware and service, and the list goes on. You need to setup your vendor relationships to source this hardware and software which will require banking and credit references

Next you will need to setup your formal company structure with your state. This will be an LLC or corporate designation. Paul Hood with Hood CPAs is where you need to start this process. https://hoodcpas.com/ Hood will get you setup with a proactive plan to keep your company finances on track. It is required to have your LLC or corporation designation; you will need your articles of incorporation, and EIN and some other corporate documents. If you have partners in this endeavor, make sure and follow some basic business principles.

Another thing to note is that two is company, three is a crowd. Never enter into a small business relationship with more than two people. Two people can agree almost all the time, but three people will almost never agree any of the time. Because business decisions need to be made on a daily basis, time will be wasted with endless debate. Someone needs to be the captain of the ship. In any debate, once the facts have been discussed, a single person must make a decision, and the rest of the partners need to shut up and go along with the decision. If decisions are not made, your business will not grow. Be quick to make decisions, but slow to change them. If you are constantly changing your mind, your partners, employees, and customers will leave you and your business will go to business hell. (Business hell is reserved for businesses that don’t make money, it’s otherwise known as bankruptcy)

Set your goals for time freedom, how much time do you want to allow for your F6 goals. Outline what your goals are for Faith, Family, Finances, Friends, Fitness, and Fun. This is the process for outlining what kind of life do you want to live. Once you know what kind of life you want, what size house, what kind of car, and where you want to live, with friends, family, and fun around you, this will set the dollar amount that you need to make to bring this life into reality.

Business, and the money it generates, is simply the fuel for the kind of life you want to live. You need to be intentional about planning this life so that we can set reasonable goals for your business. For instance, if you need $100,000 in profits every year to fund your lifestyle, then we need 10 clients, with an average billed amount of $2500 with a 40% net profit margin. This will generate $120,000 annually and $25,000 monthly. You would charge your clients a per user fee of $125 per user, and these clients would have an average of 20 employees. You would be personally supporting 200 end users, so you would need to make sure that you were efficient, and used industry best practices for time management, goal setting, and documentation.

          Monthly Yearly Revenue Yearly Profit
Clients Users per Client Per User Pricing Gross Profit Margin Net Profit Margin Gross Revenue Gross Profit Net Profit    
10 20 125 0.7 0.4 $25,000 $17,500 $10,000 $300,000 $120,000

 

Once you reach this first goal, you will find that you have enough financial freedom, but to grow you will want to stretch and add on another 5 clients. Once you add on these 5 additional clients, you will have the additional revenue to hire your first employee. You will then follow this practice of hiring an additional employee for every 10 new clients you on-board, or for every $20,000 a month revenue you add through smaller client acquisitions. Because every 200 new end users you support will need to have a devoted technician. Every time you get ready to add new clients, there will be a stretch period. For you, it was adding an additional 5 clients to your already comfortable 10. This will stretch your time, and finances and therefore needs to be budgeted. When you add these 5 new clients and make your first hire, things will start to settle down and become comfortable again. This is because you will be under your 10 clients per employee metric. Your first task is to get this new employee to be able to support those 10 clients. This will allow you your first taste of time freedom. You personally are now only supporting 5 clients instead of 10.

You now have a choice. You can continue to work in your business, or you can hire your second employee and now own a successful managed services business. You would then be supporting 15 clients, with a capacity to add an additional 5 clients that would be generating $500,000 in revenue.  This is exceeding your initial $100,000 in profits, but now you do not need to support your clients directly. You have successfully taken the day to day work of fixing computer problems off your plate. However, you are still responsible for the sales and marketing aspect of your business.

Continue to add clients and employees on a 10 to 1 ratio, until you are at 5 employees. You now have enough revenue to hire your first salesperson. But get ready to double in size during the next 12 – 18 months.  Make sure you read Who owns the relationship, because when you hire a sales person, you will have less of a relationship with you clients, and you do not want clients following a sales person that leaves you. https://500kmsp.com/who-owns-the-relationship/

You MUST be in a position to hire and train very quickly to keep up with the new clients that are going to be coming your way. However, you will only get these new clients if you have a marketing and sales strategy.  You will want to follow what we can the weekly group interview so that you do not waste time interviewing morons on a one-on-one basis for the rest of your life.

The first thing your marketing department needs is a 3 legged marketing stool. In other words, you need at least three sources where you can go find new clients. For instance, Google Reviews, Website, and Dream 100 (https://www.thrivetimeshow.com/business-podcasts/execute-dream-100-system/) might be your 3 legged marketing stool. The reason for at least three sources for leads is that if one source dries up, you have another 2 sources to depend on while you work on adding back that third leg.

This is where our coaching program becomes critical to future growth. Once you are at 5 employees, and are now generating $1,000,000 in revenue. You will find that most MSP owners fail to thrive due to constant mistakes, poor employee management, having an office culture that no-one wants to work in, etc. This is the time that you will see clients start to leave your service and look to your competitors because your customer service is no longer what it was. You are continuing to add new clients because you have a dedicated salesperson, but your old clients are now beginning to leave you. This is referred to as churn.

Unless you have a resource to look to for advice, like a business MSP coach, your MSP will never grow past this level. You will simply be remembered as that really nice IT company that your clients used to use, but outgrew because you did not have the proven systems to become a successful managed services provider.

So how do the best IT companies in the industry get more clients, close more, serve more clients, and keep more clients than you? They do it by following some proven best practices.

How to soft sell your services? Do it by recommending your competition.  I know this sounds weird, but when you are starting out, or trying to grow, you will gain credibility by recommending your top competitors to your clients, but since they are talking to you, it gives you a chance to explain how you are different.  It takes price out of the equation, because your top competitors are probably charging more than you.  So if your potential client calls your competitors, it will only be to validate pricing.  I close a ton of deals this way.

How to keep clients? Answer the phone, with a human. Your competition is hiding behind a phone system with endless options, and ticketing systems that prevent your clients from accessing the help-desk people they need. If you force your clients to interact with you on a basis that allows your employees to lazily prioritize your client’s problems based on what your employees want, instead of your clients need, you will find yourself losing clients.

Create sticky clients. The more services and products that your clients consume from you, the more your services become integrated into their business, then the harder it will become for them to leave your service, and the more patient they will become with the occasional mistake.

Here are the steps needed to start an IT company in no particular order.

  • Website
  • Domain name
  • Logo
  • Phone number
  • Google Location
  • Google Reviews
  • Write more website content than your competition
  • LLC or corporate designation
  • CPA
  • Bank Accounts
  • Remote monitoring and management (RMM)
  • Professional Services administration (PSA)
  • Define service offering, be full service
  • Hardware Vendor
  • Software Vendor
  • Backup vendor
  • Disaster recovery vendor
  • Phone system
  • Call recording
  • Video recording in office
  • Dream 100 marketing cold calling
  • Cold calling scripts
  • Formal Agreement for structuring client relationship
  • Pricing model, 40% net profit, 70% gross profit
  • Get your 1st 10 clients
  • Hire your first employee, Hire character, train skills
  • Find attorney, you will be sued
  • Office space, stay close to your clients to keep travel costs low

Contact us to schedule a 10 minute conversation with one of our founders to see how you too can find time and financial freedom.

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