The Art of Scaling as an MSP
Scalability in business is everything — if you want to scale. But what does it mean to scale? Here’s one definition you might have encountered:
To scale is to increase revenue faster than costs.
This definition helps us start to get a feel for the concept of scalability. ‘Profitable growth’ is concise, and it does capture what it means to scale. Unfortunately, it only captures half of it …
Scalability refers to the capacity to not only scale up — i.e., increase revenue faster than costs — but also down. Scaling down is being able to minimize losses when business slows. In other words, it’s decreasing costs in the face of decreasing revenue. A concrete example: If you lose customers, you’re going to lose revenue. How do you reduce costs to maintain profitability? Answering that question is figuring out how to scale down.
Scalability is straightforward on paper. But as a business owner, you don’t just want a textbook
understanding of scalability. You want knowledge you can apply. You want wisdom.
Look no further. In this blog post, we’re going to talk about scalability in the managed services industry, discuss whether scalability is necessary for your managed service provider (MSP), and share three important points to keep in mind as you pursue greater scalability at your MSP business.
What if I don’t want to scale?
We started this article with a qualification: scalability in business is everything — if you want to scale. “But what if I don’t want to scale?” you might ask.
The short answer is that that’s fine. Scalability, like most things in business, is something you can choose to work toward. The operative term here is “choose.” Your reasons for starting or acquiring your own business are just that — yours. You might not be looking to grow a gigantic, hugely profitable MSP. Maybe your ambition is simply to be your own boss, and make a little money doing something you’re passionate about. Nothing wrong with that!
But if you happen to be in the managed IT services game, things are a bit more complicated …
The market for managed services isn’t just growing, it’s ballooning. Competition is on the rise, as more MSPs throw their hats in the ring for a piece of the rapidly expanding pie.
At the same time, clients — i.e., businesses that need IT support — are looking to do more and more on the digitalization front, and accordingly, expecting more and more from their MSPs and ITSPs.
What does all of this mean for an MSP with modest ambitions on the scalability and growth front?
In short, it means that you can’t afford to ignore scalability, even if you don’t aspire to grow and scale up in significant ways. When you’re swimming against a current, it takes effort to stay in the same place, let alone move forward. The ‘current’ your MSP is currently facing consists of other MSPs looking to steal your clients, ever-evolving technology that threatens to render your services obsolete, and greater/more numerous client expectations.
So, even if your goal isn’t to grow, but simply stay in business and serve your clients, chances are you will need to do things like improve your operational efficiency so that you can not only keep your current clients, but also, meet their ever-evolving needs.
Summing up: as an MSP, you need scalability to stay afloat (maintain or slowly increase profitability) because you’re not operating in a vacuum, but a highly competitive and dynamic industry. Staying the same means falling behind, and falling behind could mean going under.
Scale Forward to Scale Up
If you’re an MSP looking to scale up, you need to think in terms of scaling forward. This just means thinking ahead, and building out the infrastructure and operational capacities that will be required once you’ve grown to a certain point.
But what point? How far in advance should you plan?
We can’t give you a precise answer to that question (it depends crucially on your specific situation), but we
can tell you this much: it’s the right question to be asking!
Scalability is all about anticipating growth, and finding the ‘sweet spot’ between two extremes:
On one hand, you don’t want to only scale reactively, and scramble to adjust operations to accommodate a greater workload, whether it comes from an influx of new clients, an expansion in your service offerings, or whatever else.
On the other hand, you shouldn’t make the opposite mistake, and assume that ‘if you build it, they (clients/revenue) will come.’ It’s good to be optimistic, but it’s better to be realistic, and investing in a bunch of new resources, whether staff or technology, because you’re simply hoping to grow a lot, and soon, isn’t bold; it’s foolhardy and could cost you a lot, including your business.
Figuring out how far to ‘scale forward’ means taking a good, hard look at not only your MSP — where it’s at and where you expect it to be in 1 year (5 years, 10 years …) — but also, your industry and what the market’s doing. You don’t have to know with certainty that your efforts to inject scalability into your MSP will be met with
enough growth to justify the investment. But you should at least have good reasons to predict that such growth will occur in a timely manner (i.e., soon enough to prevent any severe dips in profitability).
At the same time, bear in mind that adding scalability to your MSP — hiring more technicians, streamlining workflows, opening a second location, etc. — doesn’t just prepare you for future growth. It can facilitate future growth. When your services are more scalable, they’re more efficient, and when they’re more efficient, they’re more attractive to prospective clients.
Business is numbers. Cold, hard data.
Sure, but it’s also imagination, risk-taking, vision, and brute persistence. This is particularly evident when it comes to cultivating scalability at your business.
Business executive and startup advisor, Gordon Daugherty, suggests that one of the best ways for business owners to maintain an appropriate level of scalability is by asking one simple question, again and again:
Where would we break?
If one of your clients opened two locations in a different state, where would your MSP break?
If your revenue doubled next quarter, where would your MSP break?
If you landed a client with triple the endpoints of your current largest client, where would your MSP break?
When you can zero in on the parts of your business that would start to unravel — or fall apart entirely — under the pressure of an increased workload, you can focus on injecting more scalability into those weak points, so that they don’t end up hampering growth.
Of course, when you ask, “If X happened, where would we break?”, the likelihood of ‘X’ matters a great deal. If ‘X’ is highly unlikely, fixing the part of your business that would break in the event of X isn’t so pressing, or even advisable. But if ‘X’ is something you’re expecting and/or striving toward — if it’s a scenario you’re preparing to encounter — then making your operations more scalable to accommodate ‘X’ becomes a much higher priority.
The devil is in the details with all of this, which is why it’s a good idea to recruit outside help when trying to increase your MSP’s scalability. The 20 gives MSPs something very valuable in this regard: an entire community of MSP owners who’ve gone through a variety of growth stages, and learned crucial lessons along the way. Our MSP members can draw on the collective wisdom of the group when planning for future growth.
Become a Process Pro
If you want to make your MSP more scalable, it’s time to fall in love with process. This is just another way of saying that becoming scalable is all about efficiency. Scalable processes, all things being equal, are efficient ones.
Your MSP might operate efficiently with its current workload, but what if your client base doubled — where would operations bend? Where would they break? A general principle of scaling up is that it amplifies what’s bad, and makes what’s good harder (a
big reason why so many companies fail to scale up successfully!). So, when considering the efficiency (and scalability) of your MSP’s workflows, keep in mind that small or minor inefficiencies can quickly become glaring service issues when the scope of your services increases. Similarly, scaling up requires that you keep an eye on areas where your MSP shines, and ask: How can we continue to excel at these things under greater operational demands?
In your pursuit of greater operational efficiency, two invaluable tools at your disposal are metrics and documentation. Employing the right metrics, including key performance indicators (KPIs), can help you track, analyze, and improve your team’s performance, enabling your MSP to reach greater and greater heights of efficiency. Documenting your MSP’s core processes, and developing standard operating procedures (SOPs), not only helps technicians perform their jobs faster and more smoothly, it also makes it easier to bring new hires up to speed. This is vital, as scaling up often means hiring more people, and if your
MSP’s hiring/onboarding/training protocols aren’t standardized and documented, the costs of expanding your workforce can easily start to exceed any gains in revenue that such growth produces.
And remember, employing metrics and documentation at your MSP is only worth doing if you’re committed to doing these things well. Using ineffective KPIs, or documenting processes without also scouring those processes for inefficiencies, costs more than it’s worth in time, resources, and energy. So don’t just dip your toe into metrics and documentation; dive in with gusto!
Scale Your MSP with The 20
If you want to see real changes at your MSP, you need to make real changes — and this is especially true when it comes to scalability. The main reason MSPs struggle to scale up successfully — i.e., increase revenue faster than costs — isn’t that scalability is too complex or difficult. It’s that it’s too scary!
Generally speaking, scaling up doesn’t mean getting better at what you already do, but rather, getting good at new things. It means changing your business model — the very plumbin
up some control (if you are your business, that’s fine, but it’s not scalable!). In short, becoming a scalable business often means becoming a different kind of business, which is why many MSP owners make scalability-oriented changes only halfway, or half-heartedly — they’re afraid of the meaningful change that is actually required to achieve a high level of scalability!
The 20 works with MSPs that are serious about growth. Our revolutionary approach not only gives you a blueprint for how to scale, but an entire community of MSP owners to help you along the way. You can spend years and years trying to puzzle out scalability all on your own, or you can plug into The 20’s model and give your MSP the tools and tactics to scale up (or down) with ease. If you’re in the MSP game to grow a large and profitable company, The 20 is your “easy button.”
Get in touch today to learn more, and check out this 2-minute testimonial video to find out how The 20 helped one MSP owner solve the problem of scalability.