Running a managed services practice is all about generating recurring revenue. Too many small IT providers get so hung up on the service part of Managed Services that they forget about the other ways to make recurring revenue. Here is my top ten list of ways to generate recurring revenue.

They include…

1. Watch Their Networks: Even if you are not a full-fledged MSP, why not offer some basic monitoring services for your clients? Just bill them for being a little proactive. It is an easy way to get them started in Managed Services.

2. Manage Their Internet Usage: Firewalls can be managed and monitored. Wouldn’t your customers want to know who is doing what on the network and when they are doing it?  Many firewalls have remote management tools to fulfill this need. Manage your customers’ firewalls, provide them detailed reports on network usage and make some monthly income while doing so.

3. Clean Their E-mail: Everyone gets spam. Everyone hates spam. There are many ways to filter it. Why not solve your customers’ spam issues with a service that generates recurring revenue? Filter it in the cloud and save your customer the hassle and expense of purchasing a email filtering device and generate recurring revenue while doing so.

4. Protect Their Data: Backups are a no brainer for your clients. You have two choices: 1. Local backups to protect against hardware failure, data deletion, and corruption. 2. Offsite backups to protect from disasters (fire, theft, and water). Both options generate recurring revenue while protecting their data.

5. Virus Defense: Just like spam, every business has to deal with the constant threat from viruses and malware. Your clients need protection and you should be selling it to them as a monthly subscription service.

6. Offer a Variety of Web Services: Most businesses have websites and there are needs associated with maintaining them such as domain name registration, email, and hosting. What about SSL certs for your Exchange servers? These are opportunities to make recurring revenue that most service providers pass up.

7. Get Them Hooked Up: Are you cashing in on phone and internet service? ISP’s, phone providers, and brokers offer recurring commissions for referring business their way.

8. Use SaaS Options Like Hosted Exchange: Smaller clients might not need an in-house Exchange server. Why not offer hosted Exchange as an alternative? This is a great way to generate recurring revenue. There are many other hosted applications you can also resell to your clients and generate recurring revenue with (CRM tools, Google Apps, etc.).

9. File Sharing: File sharing and collaboration is a big conundrum for small businesses. Most end up using clunky FTP services as a solution, and we all know that this is less than ideal. There is another option. Offer an online file sharing and collaboration service as a monthly subscription.

10. Keep it Current: While not a monthly recurring revenue generator, licenses for firewalls, software, services, and warranties come up for renewal. Why let an opportunity to make money slip by? Most vendors pay good commissions for renewals and you should cash in.

There are many other ways to generate recurring revenue. Keep your eyes open for them and add them to your menu.

Paul Barnett is marketing director for VirtualAdministrator, which offers hosted solutions for managed service providers. Read all of Paul’s guest blogs here. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship.

A very cool part of my day-to-day calendar is dialoguing with early stage MSPs.  Why is it cool?  Because in a prior life I worked at an early stage MSP that moved out of a teething period of losing money and operational pain to achieve long-term, high revenue, highly profitable mature operations. I am often asked about critical success factors – what were the difference makers on our path to success?  While we executed many key moves (some right/some wrong), my answer to that question is always another question:  What’s in your Service Catalog?

The existence, or lack of a published Service Catalog is a solid leading indicator as to the organization’s operational maturity and propensity to succeed. Most MSPs I speak with have a pretty good idea who they’re selling to (i.e..” we sell into SMBs, - organizations with 10-50 servers,” etc.) But when it comes to what they’re selling, or how they plan to deliver, there isn’t anywhere near the same clarity of thought. A well-constructed Service Catalog addresses both the what and the how.

Why do new MSPs miss this critical step?  Part of the issue undoubtedly is the DNA of many MSPs - the fact they were founded as VARs. When a hardware manufacturer pushes a new box out into the reseller channel, it come with specs, support docs, marketing collateral and list pricing already on board. Because of this, VARs have little experience “productizing” their new MSP offerings.  There often is no one in the company on the hook to get managed services into market.

What’s In A Service Catalog?

To understand the function of a Service Catalog, let’s get out of IT and onto the factory floor.  Well run, profitable MSPs are practitioners of mass customization — just like a manufacturer.

First, they design and build IT components to a single configuration that supports high availability, i.e. they build factory “parts” with quality in mind. Parts with maximum mean time between failure. Then, they rapidly assemble those “parts” into a customized service that solves a customer business problem, i.e. the factory assembly line.  It’s not sexy or mysterious — but mass customization — becoming an “IT Solutions Factory” is the secret to superior MSP economics.  Every customer can get a highly customized solution as long as it’s built out of a “parts bin” of standardized IT components.  Think of your Service Catalog as your “IT Parts Bin.”

The Service Catalog — your Parts Bin - should be a living document owned by one person with contributors across all company functions.  Many I have seen are “wikified” with version control in place. The table of contents of a Service Catalog varies from MSP to MSP depending on market focus and technology expertise – but should generally look something like this:

1.    General Description of Delivery/Support Framework

2.    Description of Services Offerings

2.1.    Network
2.2.    Security
2.3.    Servers
2.4.    Database
2.5.    Email
2.6.    Other…

3.    Description of Tiered Service Offerings

3.1.    Monitoring (Silver)
3.2.    Management (Gold)…

4.    List of Supported Technologies

4.1.    Network
4.1.1.    Cisco ASA
4.1.2.    Cisco Layer 2 and 3 Switch…
4.2.    Servers
4.2.1.    Microsoft Windows
4.2.2.    Red Hat Linux….
4.3.    Database
4.3.1.    MS SQL
4.3.2.    Oracle…

5.    Detailed Task Descriptions for Each Supported Technology

5.1.    How to Monitor – log capture, thresholding, alerting
5.2.    How To Upgrade – testing and patching
5.3.    How to Maintain – daily, weekly, monthly

Your Blueprint For MSP Success

Version 1.0 of your Service Catalog will become the linchpin document that informs all aspects of your MSP business.  Marketing will use it as the basis for all customer facing services descriptions — including tiering your offerings — Platinum, Gold, Silver?

The sales team will show it off to customers as a proof point of your operational maturity.  The delivery and support teams will use it as a blueprint for how solutions are architected and managed efficiently against your SLA promises.

The Service Catalog gets your entire MSP organization on the same page.  This consistency in approach and messaging drives extreme customer confidence — that you have a plan — that your not making stuff up on the fly.

The Service Catalog is much more than a simple menu of offerings, it’s a recipe for how you run the business, shaping everything — the people you hire, the customers you target, the investments you make. Without a clearly defined Service Catalog, it’s not clear what business you’re in and how to run it.  An MSP that has a well-defined Service Catalog is one that executes with great economies of scale that come with sound, repeatable business processes.

Phil LaForge is VP of managed services at Nimsoft. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship.

Like it or not, the reality for MSPs is that they’re only an SLA breach or significant outage away from losing a customer. This immense contractual pressure is a significant motivator that drives MSPs to develop sophisticated approaches to continuous service improvement.

In my experience as an MSP executive and in discussions with leading MSPs around the world, I’ve seen many innovative programs developed to drive home service quality. Here are just a few real world examples. And best of all, you don’t need to be a Six Sigma black belt to make these changes part of your day-to-day service ethic.

Continuous Service Improvement isn’t a Project, it’s a Way of Life!

Service improvement needs to feed into all aspects of an MSP’s daily operations—including organizational reporting, hiring practices, compensation planning, customer communication, engineering operating procedures, and more.

For example, when employees are compensated (at least partially) based on customer satisfaction metrics, they are more likely to go the extra mile, and deliver service that delights, rather than underwhelms, customers. Beyond formal compensation models that drive satisfaction, managers can develop ad hoc programs that recognize excellent service “in the moment.” One MSP manager I know keeps $50 gift cards for local restaurants in their portfolio, and uses them to recognize superlative efforts in real time.

When hiring talent, finding engineers and support professionals with advanced certifications and killer IT skills is not enough. The interview gauntlet should vet candidates for their history of dealing with failure as well as success. Despite best efforts, outages will happen. It is important that engineering and project staff are honest in their assessment of their own post-incident performance. There is no room for defensiveness. In demanding blunt assessments of their performance and that of their co-workers, unforeseen incidents can be discussed and analyzed as a learning experience, an opportunity to improve rather than just an opportunity to be punitive. Likewise, support managers should be hired with a track record of orchestrating these “learning moments” for their staff.

Across the board, management and staff should be encouraged and motivated to come up with better ways of doing things. One MSP I know has a $50 prize for employees who submit a suggestion that drives a signification improvement in service quality. At an MSP where I worked, our engineering managers paid out a quarterly reward for the most creative and practical suggestions that improved the customer experience. The monetary award was appreciated, but what really made the program special was the selection process—peers would nominate their coworkers to the leadership team and submit the quality improvement case study for review. So in addition to the cash, accolades were received from colleagues and the supervisor—a motivational “home run”!

Defining the Right Measures

The saying goes that “you can’t improve what you can’t measure” and it’s true. Establishing baselines and tracking improvements is the only way to determine whether progress is being made in improving service delivery. But how do you determine which areas are the most important to track? Following are a few of the most critical areas to measure for any MSP:

• Customer retention. Highly satisfied customers stay customers, and unhappy ones exercise their right of market choice and leave. That’s why tracking retention is so vital. Year over year retention rates should be in the 90% and higher range.
• SLA compliance. SLAs are the means our customers use to measure our performance, so it’s vital to track success in SLA compliance. How many breaches have occurred? How is that number tracking over time.
• SLA credits. The degree to which an MSP is issuing SLA credits is also a similarly vital aspect to track. MSPs should track SLA credits as a percentage of monthly recurring revenue.
• Customer satisfaction. MSPs should create formal processes for ongoing customer surveys, and also to do surveys after big projects, in order to gauge customers’ perception of the services being delivered.

Those are just a few of my tips. If you have additional guidance to share I’ll be watching the comment area.

As people who live along the Gulf Coast and Eastern Seaboard know, hurricane season is in full swing. For residents there, checking flashlight batteries and having sheets of plywood ready to cover windows are annual rites. But when a major storm system does loom on the horizon, there’s still an inevitable swirl of commotion as people near the sea head for safer habitats. Perhaps forgotten in concern for personal safety are thoughts of company financial records and business data. While skies and minds are clear, it may be a good time to start a conversation with your customers about their business continuity plans.

Even if your market is far from any body of water larger than a duck pond, there’s still no time like the present for talking to unprotected customers about a backup and disaster recovery (BDR) solution. In addition to fires, floods and other catastrophes (natural or man-made), server crashes have been known to occur in all 50 states, the District of Columbia and all of Canada.

The Compelling Case for Business Continuity Planning

Business continuity planning (BCP) should be seen as necessity by owners of small and midsized businesses (SMBs). According to a study by the Gartner Group, 43 percent of companies were immediately put out of business by a “major loss” of computer records, and another 51 percent permanently closed their doors within two years — leaving a mere six percent survival rate.

In devising a BCP, business owners need to consider and address:

• Risk of losing vital business data, such as customer records
• Industry regulatory compliance requirements such as the Healthcare Insurance Portability and Accountability Act (HIPAA) and the Gramm-Leach-Bliley Act (GLBA) as well as other local, state and federal laws
• Environmental hazards to business infrastructure
• Time necessary to recover if disaster strikes
• What happens if you don’t have a business continuity plan in place

Though data loss may be catastrophic, the expense of optimal, in-house BCP strategies and solutions are beyond the budgets of many smaller businesses. The challenge comes in finding an affordable BDR solution that will perform the following:

• Be relatively easy to implement and maintain
• Provide quick restore or recovery times
• Be able to restore files, emails or attachments
• Ensure all backed-up data is encrypted and otherwise kept safe
• Restore backed-up data to different kinds of servers in the event of catastrophe
• Continue data backup even during active recovery phases
• Monitor and manage ongoing data backup processes so failures can be diagnosed and remedied before adversely impacting the BCP lifecycle

And most importantly, the BDR solution should enable an organization to get back to business within minutes rather than hours or days after a system failure.

Finding Solutions

Not by coincidence, Zenith Infotech works closely with MSPs and VARs on business continuity. In minutes, Zenith Infotech’s business continuity solution can restore files, file folders, emails, or email attachments. In addition, if a server crashes, you can perform a manual failover to the BDR device in approximately 15 minutes. Sold under your own brand, this reasonably priced, all-encompassing solution includes:

• Frequent full, block-level backups
• Standby server virtualization
• Bare metal restorations to dissimilar hardware
• Optional Offsite Storage

With Zenith backup and disaster recovery solution, you can easily and profitably provide your customers with secure, effective and affordable protection for their irreplaceable business records. Visit us to learn more.

The managed services market is growing rapidly and has strong, long-term potential for many who are pursuing it. It is changing the way IT services are consumed and delivered. It is helping many of us diversify and strengthen our value propositions and balance sheets. We are all bullish about the future and the opportunity in front of us. There is one significant hurdle, however, that nobody seems to want to acknowledge — the proverbial elephant in the room.  Here’s the problem.

For those of us who target the reseller, solution provider, or managed service provider market as our customer base, this issue is top of mind.  Selling managed services is hard, but not because of the technology involved.

The Real Challenge

Not enough end users are consuming their IT services in a “managed service” form factor yet.  There is a very real, and very problematic growth bottleneck at the point of sale with end users of these services. We, as an industry, are simply not getting the penetration into the end user base that is required to grow and scale this market quickly.  And for many of us, that growth is not happening fast enough.

In fact, the technology sale is not the problem.  The bigger issue here is the selling itself — how do we take our offerings to the next end user?  And the next?  And the next?  If you ask several solution providers how many customers they have and then ask them how many managed services customer they have, you will find that the managed services penetration into their overall customer base is low.

Why?

We, as an industry and a channel are still not investing enough in the sales and marketing capabilities of our respective organizations. Everyone is to blame – vendors, distributors, solution providers. Nobody invests enough in developing their sales and marketing capabilities.

When I hear a VAR ask a vendor how much margin is available for him to sell a managed service, I know we are not evolving.  The margin in any managed service is how much you can get, not a number determined by a vendor or application provider. Yet we continue to ask those around us, or blame each other, for margins we can or cannot get out of any particular offering.  The reason that this concept is so hard for us to grasp is that we simply don’t understand how to sell value and differentiate ourselves from one another.  And until we recognize that and take steps to resolve it, we will always struggle to provide the value proposition that customers demand from us.

If you find yourself fortunate enough to have some dollars to re-invest in your business, where are you going to focus those dollars?

First, let me be clear (hopefully before I get tarred and feathered): this isn’t intended as any kind of attack on open source, whether the concept, the technology, or the business model. To do so would be to discount one of the most meaningful trends in IT over the past decade. What I’m discussing is open source within a very specific context: Managed service providers (MSPs) using open source products to monitor their clients’ and their internally hosted IT infrastructures. That’s a very different proposition than, say, using open source as part of a Web development service or adopting a LAMP stack in a hosting environment. Here’s why.

Perhaps more than any other single technology, monitoring is a key contributor in the way the MSP services its clients. Monitoring capabilities play a vital role in how proactively an MSP’s staff can manage the infrastructure, how effectively they can be kept apprised of issues, and how quickly they can respond in terms of identifying and rectifying issues. Further, monitoring can be an enabler or a hindrance for MSPs looking to add new services and serve new clients—and in whether these new services can be delivered profitably. Consequently, monitoring can play a key role in an MSP’s competitive position.

Before an MSP goes down the path of using an open source product for these critical capabilities, I’d suggest they first ask four key questions:

1. Who will be the support organization?

When evaluating a short list of alternatives, it is important to understand who will be doing the support if any issues arise with the monitoring platform. When it comes to supporting their clients, MSPs need to respond as if their hair’s on fire if there’s an issue; MSPs would be well served by seeking vendors with that same mindset. Is an open source community going to share that commitment if you need help on a critical issue? Don’t bet on it. In this scenario, the MSP has to be very clear: while the open source community can be a useful resource, when it comes to following up and addressing mission-critical customer issues, the MSP is going be the support organization. That’s the only way they can ensure the level of service they need to provide clients.

Or, if you are considering purchasing an open source product from a vendor, it is important to understand what kind of support that vendor will offer. Clearly, this is an issue that’s bigger than simply deciding between open source and a commercial offering. There are plenty of commercial vendors that don’t deliver the level of support MSPs need. That’s why it’s important to speak with peers, and do a lot of research to really understand what happens if a monitoring platform goes down.

Customers expect a high level of responsiveness and consistency from their service providers when critical issues arise, as hours or even minutes of downtime can result in breached SLAs and lost business—both for the customer and the MSP. MSPs need to expect the same level of support commitment from their monitoring supplier.

2. What kind of scalability and monitoring sophistication is delivered?

Most MSPs I’ve worked with say they’re looking to not only expand the number of customers they serve, but at the same time they’re looking to sell into larger businesses. This can mean scaling from monitoring five servers for one client to 50 or more, and potentially hundreds to thousands of technologies across a collective client base.  Can the open source alternative in question scale to handle tens of thousands of concurrent events? Can you affordably and efficiently set up monitoring for dozens to hundreds of servers as quickly as a new client demands—and then efficiently monitor these resources on an ongoing basis?

A high scale environment calls for a sophisticated monitoring tool that fosters efficient operations. MSPs need monitoring solutions that enable composite SLA definitions, and that predict breaches so MSPs can prevent costly violations. MSPs also need the sophistication to gain the historical perspectives required to observe and demonstrate continued SLA compliance.  Finally, MSPs require a tool that performs automated, high-powered event processing capabilities that help prioritize operational efforts and aid in remediation. As an MSP seeks to grow, scalability and sophistication becomes an increasingly critical differentiator.

3. Do you want your engineers focused on developing and maintaining products or supporting customers?

While an open source product may meet the immediate needs of clients, what happens if a client needs help monitoring a virtualized or cloud computing environment? How about networks and unified communications?  Or end user response and deep analysis for the myriad business applications that clients adopt? If the selected open source offering doesn’t provide the required coverage initially, who will develop it?

Let’s face it, like any organization, MSPs have limited internal resources. If you look at the time your engineers have during a given week, how much is free? I’ll bet the answer is pretty much none. If you need an open source product to gain expanded functionality, it will largely fall to your organization to make it happen. Where will the time come from if they need to start supporting and enhancing an open source monitoring product? Ultimately, an MSP has to decide if they’re willing to reallocate engineers’ time from support of customers to support of open source projects.

4. Do limited management interfaces negate upfront cost savings?

For many MSPs, open source alternatives work fine initially, and represent a minimal upfront investment. What often happens however, is that, as the MSP’s business grows over time, and the size and complexity of customer accounts increases, open source alternatives start to be very cumbersome.

Many open source products lack a robust management interface, which means a lot of custom coding, a lot of time dedicated to management and maintenance, and an increasing distraction for staff from the MSP’s core business objectives. Time is money, and having staff handling the development and maintenance of their own scripts has a direct, ongoing cost that MSPs need to factor in. There’s also significant business risk in having one internal developer writing a bunch of custom code: what happens if that engineer walks? Further, because of the limited capabilities of open source, MSPs can suffer significant costs in terms of lost opportunities because it’s difficult to add new services and pursue new accounts. As a result, the upfront savings of open source often start to look pretty meager, or evaporate completely, over time.

Conclusion

Ultimately, MSPs need to look at their DNA. Are they a product development organization or a service organization? I’d argue it’s very hard to be both. Can the MSP afford the cost and distraction of developing, maintaining, and supporting an open source monitoring product internally?

In addition, MSPs need to look at the DNA of the open source products available. Do they have the makeup to be an enterprise-grade solution that enables, rather than hinders, an MSP’s growth objectives? Is it in their DNA to move elegantly beyond being a tactical, low-cost point solution to one that yields real business advantage in a competitive MSP market?

Possibly the worst outcome for an MSP is that they dedicate the time and resources to configuring and maintaining an open source alternative, only to abandon it when they run into a wall. That’s why it’s critical to ask some of these hard questions earlier rather than later.

Today as technology providers grapple with a weak economy, anything less than an all-out effort to increase sales — either by attracting new customers or earning additional business from existing clients — is short-sighted. IT Solution Providers need to refocus on becoming sales-driven organizations. You can start by resetting your in-house priorities. Delegate non-demand generating activities to external support specialists by using a virtual help desk. If you don’t offer this service, this is a good time to do so as long as any added cost is tied to added revenue.

We see Help Desk Services growing for two reasons. First, more businesses have cut back on support personnel and any desktop/laptop issues will more severely compromise the company’s ability to perform because employees have no one to go to. Secondly, now more than ever, businesses have many remote employees and branch offices linked by technology. Technology glitches cause downtime that could be costly. According to the companies that we work with, a user support contract may be more welcome now more than ever. In particular, clients providing professional services are willing to listen if the cost is right. A fixed fee, 24×7 remote support agreement is resonating especially if the client need not make a long-term commitment.

Your Skilled Professionals Have Something Better to Do

Doubtlessly you have highly knowledgeable and well trained technicians on your staff. At the same time, you also understand the importance of exceptional customer service to keep your clients happy. When a customer whose network you set up calls to tell you his email isn’t working, you feel compelled to help him find and correct the problem. Could be a multitude of reasons but you need to respond.

A satisfied customer? No doubt. But the profit from that network you installed just went down a bit. Worse yet, you or a well-paid technician were possibly distracted from working on a high-margin project, or from collaborating with one of your account executives in putting together a proposal to  long-sought, major prospect. And even when your customers pay something for ongoing support, how much are they actually costing you?

No one is suggesting you turn a blind eye to the ongoing support needs of existing customers. Instead, the idea is to make sure the people who take care of the everyday trials and tribulations of the typical computer user are ideally suited to that responsibility. Of course, you wouldn’t turn your customers’ care over to just anybody, nor should you.

What Should You Expect of a Virtual Service Desk?

Other key resources will also be necessary to keep your clients networks up and running. When selecting a team to support your customers virtually, be sure to evaluate that help desk solution by looking at three P’s:

People – What is their level of training? Are Level One and Level Two technicians available? Are they familiar with a wide variety of standard applications such, including Exchange and SQL? Can they support handheld devices? And are there enough people available so that you customer’s call will be answered in a timely manner?  How do they support remote users?

Proactive Engagement – In addition to responsiveness to phone calls or emails, is the support offered to customers bolstered by ongoing monitoring of their systems?  Can they proactively resolve issues before your customer even knows there was a problem? Can the technicians troubleshoot problems on the network and the servers in addition to the desktops or are they limited to desktops only?

Presentation – How may the virtual help desk be presented to your customers. Is it affordable? Must they sign long-term contracts? Will you be able to offer it transparently under your own brand and using your own company information, including phone number?

The most important thing is that your customers have proper expectations set and they are completely happy with the support provided by the virtual help desk staff.

Where Zenith Infotech Fits In

You can provide technical support for your customers — easily and profitably — with Zenith Infotech’s Virtual Service Desk. No long term contracts. Pay as you go, on a month to month basis. Level One and Level Two technicians available to support your customer under your own brand. Costs are based on fixed fees per desktop for unlimited calls. Zenith technicians do the work while you expand your services and realize additional recurring monthly revenues. Let Zenith Infotech’s U.S.-based team handle the calls as your skilled technicians focus on completing project-based work and securing new business opportunities.

Will there be a day when a managed service provider offers every service from the cloud? Before you answer that question consider some recent trends.

Already a few MSPs have got onto the Google/Zoho bandwagon to provide SaaS-based email and messaging tools replacing traditional packaged software from Microsoft.

Now, add the numerous hosted Exchange services, antivirus solutions, backup services, desktop management services, remote desktop services… the list goes on and on. With all of those services in mind, I wonder:

• Will future MSPs carry any hardware (other than some systems for testing purposes)?
• Will future MSPs even have their own dedicated network facility from which to operate?
• Will this new-age MSP be thin, sharp, and be willing to offer any service to anybody at competitive rates ?

Only time will tell …

Devanand is product manager, MSP Solutions, ManageEngine. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship. Read all of Devanand’s guest entries here.

The managed services market is never without its intrigue. Vendors, application developers, tool providers, platform aggregators, managed service providers, solution providers, and end customers all swimming about in the fragmented, highly competitive, primordial soup that is a growing market. Now, for the challenge…

There are many companies among us who are vying for the managed service provider or solution provider business, that prescribe to a vision that is hindering the explosion of opportunity in this market. Vendors, application providers, peer group organizers, and service providers are among this group.

We, the above mentioned suspects, are not the center of the solar system or universe.  The Sun does not rotate around us, nor do solution providers, managed service providers, or end customers.  So why do we keep acting like they do?

This may come as a shock to some of you. Possibly even bruise egos.  Some of you may accuse me of heresy.  Perhaps you should sit down, maybe take some water.

What’s Next

Fragmented markets must eventually organize. They cannot, by nature, remain fragmented if there is a legitimate growth opportunity to be had or if scale is required to obtain that growth.  Why?  Because singularly focused applications or companies, or specific tools that deliver a specific value, are in-of-themselves unable to deliver the growing ease-of-use and broader applicability that the scaling market will require of them.

If I’m an ice cream shop and I make the best vanilla ice cream in the world, how long will it be until a customer asks for chocolate or strawberry?  What do I do then?

• Do I learn how to make chocolate or strawberry ice cream?
• Do I send them to a partner who makes and sells those flavors?
• Do I buy and integrate a partner who makes those flavors?
• What do I do if the customer starts to ask for adjacent products like milk shakes and sundaes?
• What if they ask for a gluten free, dairy free, soy free chocolate malt? Then what?

The point is the universe doesn’t revolve around my vanilla ice cream shop.  It doesn’t matter if I make the best vanilla ice cream in the world. Customers will eventually demand I diversify my offering into additional flavors or confections.  My customer will start to demand more “functionality” from my company in the form of product breadth, an elegant customer experience, and the convenience of getting all of those things in one place.

Food for Thought

What are you doing about offering different flavors?

• What is your plan for milk shakes and sundaes?  Can you grow without offering those things?
• Can you stay singularly focused and niche forever?
• Do you see strong growth opportunity or are you already at war in a market share fight?

Beware — market share battles in nascent, fragmented markets should be a clear wake-up call: It’s time to revisit the long-term strategic plan.

“Geocentric Companies” – those organizations that believe they are the center of the universe and their customers revolve around them – are everywhere in this fragmented managed services market.  Can you spot them?  Once you convince yourself that your customers are beholden to you, expect trouble.

“Heliocentric Companies” – those that believe the universe revolves around their customers – are the ones that emerge from the fragmentation and assume leadership positions, sometimes for the long-term.  They separate from the pack by offering the breadth and customer experience required to sustain growth and long-term value to their customers.

What kind of company are you?  More importantly, what are you doing about it?

Why isn’t every VAR a successful managed service provider (MSP)? There are many paths to success, but aspiring MSPs also make many common mistakes that hinder their ability to become profitable. In part 1 and part 2 in our series, we covered eight common errors that MSPs make. Interested in becoming a successful provider of managed services? In this last part in the series, here are five more common blunders you need to avoid.

Let’s take a look.

Error 9: You think simple monitoring is good enough

The money is in remediation. It’s good practice to offer several tiers of managed service, which can vary by systems monitored, time of day coverage, response times, etc. But the most critical variable is the level of remediation that you’ll undertake when encountering a problem. Typical levels of remediation you can offer include:

1. No remediation – just report the problem to the customer.
2. Low effort, pre-defined remediation – e.g. restarting services and rebooting platforms.
3. Extensive proactive remediation – full-expertise efforts to restore services.

Through working with successful MSPs, we’ve seen that the pricing difference between the first level of remediation and the third level approaches three-to-one. Furthermore, fault, performance, and security monitoring often uncover opportunities for remediation tasks that are more project-related — such as upgrading a server that’s running low on capacity.

Error 10: You purchase a tool instead of investing in a partnership

Your service is only as stable as your vendor’s financial viability. In a managed services relationship, your customers are depending on the quality and availability of your service. You can hire great people and put together great processes, but inevitably you’ll also be depending on your platform vendor to support your business through good times and bad. Therefore it’s critical that you choose stable vendors – you’re depending on them. Questions to consider include:

• Have you reviewed your platform vendor’s financials? How do they look?
• Are they committed to this business for the long run?
• Does your vendor carry a brand name that is meaningful to the customers you serve?

Error 11: You decrease your cash-flow by purchasing licenses you may never use

Many platform vendors have purchasing programs that are “one-size-fits-all”… the problem is that these programs fit the needs of the vendors, not the needs of MSPs. If a platform vendor asks you to make an upfront purchase of a large quantity of either device-based or site-based licenses, a warning bell should immediately go off.

Here are some common scenarios:

• Buy 100-device site licenses for sites where you’ll never manage more than 10 assets.
• Buy 1000 device licenses… and buy them all right NOW. Put the recurring cost of all 1000 on your books, allow the license costs to limit your cash-flow for months/years, and never get a penny of return on the licenses you don’t deploy.

Error 12: You dabble in the market instead of committing to success.

If you planned to run a marathon would you buy the cheapest shoes and hope you trained properly to reach the finish? Most successful runners invest in the proper equipment and join running clubs or hire coaches to make the time they invest in preparing for a marathon worthwhile.

Why would you sell your MSP practice short? Think scalability up front. It’s tempting to just “try it out” and assume you can find your way to growth. Resist the temptation.

Many managed services platform vendors provide a pretty interface that can manage a handful of systems, but their limitations impact the profitability of your service offering as it grows. To build a scalable offering you need a defined set of services, alignment between what you sell and what you deliver, and sales & operations teams who are in synch. Tools that drive operational efficiency and features that focus on consistency across a large, growing customer base are keys to long-term success.

At the outset, you need to think about the following:

• Do you have the proper service offerings to meet your customers’ needs?
• Do you have the skills to run a NOC, build a Run Book and establish SLAs that you can deliver against? If not, is your platform vendor helping you in this area?
• Can your platform handle 1000s of devices through a single pane of glass?
• Do you have to set up each device one-by-one, specifying exactly what faults to monitor for, which performance metrics to track, and what security items to review?
• Is it easy to insure that all devices of a similar type and a similar level of service are being handled in the same, consistent way?
• If you need to change your services, can you do it in one place, or do you have to go customer by customer to make changes?

Error 13: You estimate your service costs using addition, not subtraction

Pricing for a high quality managed service with remediation typically averages over $250/server/month – and in many cases considerably more. In that situation your managed services platform should cost less than 10% of your revenue. Your largest operating expense will be the cost of your staff so select a managed services platform that runs with minimal administrative overhead. A tool that forces you to set up each device one-by-one is wasting your staff’s time. Find tools that reduce (this is the subtraction part…) your staff’s valuable time by allowing them to reduce time to set up new customers and perform ongoing MACs.

Error 14: You’re convinced every MSP needs a 24×7 NOC

Customers that depend on your managed services will often want 24×7 monitoring – indeed, they’ll often supplement their IT staff with a managed services offering for just that reason. But that doesn’t mean you need to construct a NOC that’s manned continuously. You just need to be able to monitor and respond reliably on a 24×7 basis. You need to choose a services platform that provides:

• Reliable pager capabilities built into your managed services platform, to notify off-hour staff;
• Web-based remote access to your managed services platform, so that staff members on call have the full capability available to them wherever they go; and
• Built in remediation capabilities – not light-weight external “hooks” – that include Remote Desktop, Telnet, and SSH, so that on call staff can remediate problems remotely.

Have you encountered the errors above — and additional mistakes? Share your best practices in the comments area below.

Peter Klanian is a senior channel services sales manager in Dell’s global channel group, which develops managed services software for MSPs. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship.