Managed service providers offering multiple tiers of services to customers are setting themselves up for failure, Paul Dippell belives. Dippell, CEO of Service Leadership, is in a unique position to understand of which he speaks — his organization audits managed services providers to assess the maturity of their operations, business plan, and organization.
And speaking at LogicNow’s Max 2015 conference near Washington, DC, Dippell told attendees that “all-Gold all the time” is one of the keys to be a top-performing MSP. That is to say, those who offer multiple tiers of service to appeal to any customer at any price point are doing themselves a disservice.
“Only sell Gold,” Dippell told attendees. “No Silver, Bronze, Tin, Balsamwood, Dirt, nothing.”
Dipp called the idea of commoditization in managed service a “self-fulfilling prophecy” that is the result of “knuckleheads selling below costs,” but there’s no evidence to support it as a trend outside of that because “the top quartile is making the same amount of money they have for the last six years.”
“Stop worrying about commoditization, and start worrying about doing a great job for the customer,” Dippell advised.
The customer focus is perhaps the key to Dippell’s argument on top-performing MSPs. Technology, he argues, can become commoditized. But fortunately, top-performing MSPs aren’t in the technology business. MSPs don’t make money, he argues, by inventing new technology. They make money by executing service operations “better than the other guy.”
“If you really want to make money, pursue customers who demand flawless execution, and have the money to pay for it,” Dippell said. “Set your price back near the top, and go find customers who will pay for it. That’s where the top financial performing service providers go. They walk from anyone who just wants to buy monitoring.”
He compares the common MSP strategy of starting with a low-price stack and then upselling over time to selling someone a unicycle, and then trying to upsell them over time to a four-door sedan with all the options. It’s a great idea in theory. The problem is that, if that customer was willing to buy a sedan, they wouldn’t have bought a unicycle in the first place.
So how does an MSP find those customers? Dippell describes customers’ attitudes around IT in their business as falling into one of three buckets. The first view IT as critical to their success, the second view IT as important but ultimately a success, and the third view IT as “a (possibly necessary) evil.”
The third category is easy to deal with, Dippell said: “Say goodbye, and leave your competitor’s card on the way out the door.”
The first category is, of course, the kind of customer you want — because they view IT as strategic, and don’t want to do it themselves, they’ll happily hand it over to you, follow your lead in terms of service provision, and will pay a monthly fee on which you can make a solid profit for your services.
The customers in the middle category are more tricky. A majority will remain in their current viewpoint, and are probably not a great fit. But about a quarter to a third, Dippell said, can, with a gentle nudge in the right direction and some timely education, be brought away to see your world view, bumping them up into that top category of customers.
“But you’d better be charging $160 or $180 per user per month, because you’ve got a tiger by the tail, and they’re going to demand great service from you,” Dippell warned.
And that service offering had better include a standardized stack of hardware and other products. In fact, Dippell said, top performing MSPs demand all of their customers move very quickly to their standard offering. Dippell said “it’s not whether you sell products, it’s what products you sell,” in the managed services game, and that standardizing on a single stack of hardware and software for infrastructure across all customers allows MSPs to look much larger to their vendor and drive a better deal, because simultaneous upgrades of all those customers at the same time will look like a big enterprise deal to vendors.