The race to build the MSP business of the future

South African technology resellers that target small and mid-market enterprises have a small window of opportunity to transform themselves into true managed services providers if they are to defend and grow their businesses in a changing world. Those that don’t act fast risk falling behind their customers’ expectations and losing ground to more agile competitors.

That’s according to Gary Pickford, Chief Commercial Officer at Tarsus Distribution. He  says many resellers in the mid-market segment are struggling to make the transition to managed services because of the complexity of the change. It demands that resellers relook every facet of their business model—from the structure of their sales team to how they bill customers.

Says Pickford: “A future-focused managed services provider (MSP) isn’t just a break-fix company that provides ad hoc services on demand. It’s a partner that offers customers a complete solution to an infrastructure challenge with a subscription- or consumption-based billing model."

“A true MSP will offer customers a solution to a business problem—whether that’s remote worker productivity, cybersecurity or running an ecommerce platform. What makes it different to a maintenance and repair company is that it relieves the end-customer from needing to own assets, think about maintenance or run operations. It takes care of it all."

“Meeting these demands is key to thriving in a world where SMBs are not interested in running IT operations or owning and managing firewalls, services, or disaster recovery infrastructure. They simply want to pay someone else to ensure that everything works—preferably without making a capex purchase and assuming all the risk. They want to share the risk with the service provider.”

Friction on the road to the MSP business model 

"Yet resellers face a range of sticking points in transitioning to the new business model," says Pickford. "One major challenge is that switching customers to as-a-service consumption may demand that the reseller cannibalise some of its traditional hardware and software sales. With margins under pressure, some resellers are concerned about the financial impact of moving from large deals to monthly billing."

"Furthermore, sales teams at most resellers are still trained and incentivised to close large deals. In this new world, they need to shift from a transactional mindset towards a consultative approach. To make a successful transition, resellers will need to relook remuneration and incentives for their sales teams as well as reskill existing salespeople and hire new talent."

"In addition, most resellers don’t yet have the technical skills and infrastructure to support an MSP business model," says Pickford. "They also cannot afford the capital investment it would take to build out the remote management solutions and data centre infrastructure they need to offer enterprise-class MSP services to their customers."

The good news is that the IT channel still has some time to make the transition. Pickford suggests three strategies that resellers can adopt to smooth the way to their MSP business of the future. Firstly, he recommends that they build an as-a-service division or business on the edge of their existing transactional business. This  team should have skills and incentives tuned for the as-a-service world.

Build a beach head 

"This approach will enable resellers to create a beachhead in the new world, while protecting and prolonging revenue streams from their traditional business," says Pickford. “We see the traditional reseller business and the MSP model co-existing for some years to come,” he adds. “There are some elements of the business such as end-user devices that will not move to an as-a-service model for several years.”

Pickford’s second strategic recommendation is to start with a piece of low-hanging fruit. “Identify something that is a real pain point for SMB customers and develop a solution that solves the problem,” says Pickford. “In the SMB space, that might be cybersecurity or backup and recovery as a service, since many companies are still struggling with the threat of ransomware.”

Don’t go it alone

The third recommendation is not to attempt to go it alone. A value-added distribution partner or cloud aggregator can provide access to infrastructure such as private cloud infrastructure, cloud management tools, cloud solution catalogues and billing software—so that the reseller doesn’t need to try and build it all itself.

Pickford says that resellers that don’t start making the switch to an MSP model soon risk losing customers to hyperscale cloud companies, MSPs that traditionally focus on larger enterprises and even new competitors like banks or telecom companies. These competitors already have the infrastructure to support consumption-based or subscription billing.

Says Pickford: “The level of change the channel faces is daunting, but becoming an MSP offers resellers the opportunity to scale up their businesses, build stickier customer relationships and benefit from more predictable revenue streams. It’s also the way that the market is moving. Rather than fighting the future, mid-market resellers should embrace its new opportunities."