In this post, I share observations on how many new MSP businesses started based on hundreds of stories I heard over the last ten years of working with MSPs.
The MSP market is growing with the growing demands of business customers for quality IT services. Grand View Research estimated the size of the global managed services market at $276 billion in 2022 and predicted growth at 13.6% CAGR from 2023 to 2030. Markets and Markets valued the market at $242 billion in 2021 and projected growth to $354 billion by 2026. Microsoft calls SMBs are $420 billion untapped opportunity for SMBs.
The opportunity is there, and there is room for the new MSP firms. Let’s look at the typical scenario of starting a new MSP business, its challenges, and how MSPs overcame them.
Getting ready to start an MSP business
It starts with an IT person entertaining the idea of running their own services business. They have the skills and experience; they know how to handle customers –even the annoying guy from the next cubicle who looks like a personality from “The Office.” They can build networks, manage physical and virtual machines, and deploy security and data protection. They have what it takes to run IT infrastructure for a small business customer.
Usually, by they already have a few occasional customers. Friends and friends of friends ask for help and pay them for occasional service. Not yet a stable source of income, yet something, and clearly shows an opportunity.
Many stops at the stage of entertaining the idea, as they have bills to pay and are afraid of the stability of the corporate job. Yet, some find ways to overcome the fear of failure.
Below are the steps successful MSPs take to launch the business.
1. Write down the worst-case scenarios and plan how to overcome them
Having a plan for each scenario helps to gain confidence. Worst-case scenarios are unlikely to happen; however, in the process of coming up with ideas on how to mitigate them, backup plans are made.
Quite a few people start by looking at their savings accounts, estimating that they can cut down on their expenses, and planning when they will have to look for a job with a stable income in case their business fails.
Remembering that there is a shortage of tech talent, and good IT professionals don’t stay without a job for long, helps too.
2. Write a plan for transitioning from a corporate job to owning an MSP business
Having a plan and visualizing the next steps helps to overcome anxiety about getting the business running.
Many start by listing the engagements they had in the past to understand how many customers they can sign up easily. Then look into their networks for initial conversations with potential customers to understand who else may need their services.
Researching the pricing for the MSP services in their area, starting from the global reports like the one from Kaseya as a general direction, future MSP owners can build a simple financial model, estimating the number of contracts they need to get the desired level of income that will allow sustaining their business and their lifestyle.
3. Prepare for the transition from the corporate job
Not everyone has enough customers to sustain the business right away. Thus, many chose to have a gradual transition. Starting from getting more productive at their corporate job to freeing up time for customers and transitioning to remote or part-time positions to have the flexibility to build the business.
The best practice here is to become effective in delivering on daily tasks. Automation plays a significant role here. Writing scripts for routine tasks takes time, yet it saves us much time in the future. Being efficient in the primary job gives time to do the side gig while also helping automate many tasks for the future MSP business.
4. Develop service-level agreements and standard contracts
Before offering services to more customers, MSPs decide on what level of service they can realistically provide. While combining the corporate job with the business, quite often, the agreements will indicate service during the evenings and weekends, which means that customers may have to wait sometimes 24–48 to get issues resolved.
Yet, getting a consultation with a lawyer, drafting the agreements and offering services at a fixed monthly fee, calculated from the number of devices or users, and then pitching it to customers converts the relationships with “break-fix” to proper managed services arrangements.
The primary selling point for the customers is the reliability of the infrastructure that has preventative maintenance, as the same person maintains the infrastructure.
5. Transition to the MSP full time
Customers tend to tell other businesses about the quality service provided to them by their MSP, and the customer base slowly yet steadily grows. Customers demand more and more attention and get impatient to have service provided during evenings and weekends. MSP gets to the point where combining a full-time day job with an MSP business is impossible.
Usually, by this time, there are established procedures for client intake and onboarding and experience with taking over unmanaged and previously (poorly) managed infrastructure. Basic tools for management, protection and automation for the business are in place, and it is possible to scale the operations by adding more people to manage clients’ infrastructure.
Many new MSPs look to recruit former colleagues whom they know through past experience, as they know their qualifications. However, new MSPs often look to recruit recent graduates with little to no experience, as they can train them on their procedures and technologies while paying relatively small salaries.