For a while after our session with Sea-Level something was bugging me. We pondered a conundrum in this seminar: why can’t MSPs not become the victim of their own success? Why does a smooth service have to lead to disengaged clients? How can the MSP remain the hero not justhen the client has problems in their day-to-day operation but even when those problems are gone and the technology just works, and they stop noticing the value of the services?
After many 1-1 discussions we came up with an answer. The issue comes into clear view from a distant overhead, as does the solution. Now having been able to create a model that explains the problems, the solution is far less difficult to manage.
We are going to break down the problem into 3 stages each with a brief explanation.
The Model of Perceived value and Maturity
We are going to use a little model here. On the vertical axis you see the level of the Client’s IT operation maturity. The more mature the IT operation, the fewer problems will arise. This is where MSPs commonly focus their energy to ensure reduced ticket noise and a smooth IT operation. The operation maturity is climbing not only on the MSP’s side but on the client’s side, as well.
On the vertical axis you can see the Client’s Perceived Value of the IT services. As you see you are a victim of your own success. The better IT you provide to the client the less value they perceive from Technology Services.
This model is not about the net value that they got but their perceived value. There are three distinct phases along the journey. Let’s tackle one at a time.
Phase 1.: Constant IT Problems
This is the phase in which most MSPs have made the initial sales deal. The prospect had low IT maturity with minimal in-house or outside resources. They were fed up with the problems. When their MSP came on board perceived value of the services skyrocketed. The MSP was able to bring order, standardize operations and improve the quality of their work.
In this case the value was entirely in Technical Services and was very obvious to them. Nobody had to sell the value. Everybody has it laid out in front of their relieved eyes.
Phase 2.: Reduced IT related issues
Now after years of your hard work it seems that IT is no longer on the board meeting agenda as it no longer generates issues. Everybody is working efficiently, the discussions with the MSP become “business as usual”. Some problems arise occasionally but are mostly within development projects and aren’t emergency issues. Complacency grows and clients start to see the MSPs more as a service provider rather than a hero.
Now in this phase, the value is even more clear from the MSP’s perspective. The work is harder, more processed and very high maturity. But this is exactly what prevents problems from germinating and if the client has no metric to evaluate the MSP other than “problem, issue resolution” then the perceived value will start to fall. Cruelly, their net value is rising while perceived value declines.
To maintain your well-deserved perceived value to the client in this phase is no longer a technical service-related task, but communication-related. This is the phase when the MSP needs to establish a proper Account Management / Technical Account Management practice to be able to communicate the value of the services. These are the technical reports, and roadmaps to be able to show to the client the hard work the MSP is actually doing. Nothing fancy, just let them see what they are paying for. Without introducing Account Management, the perceived value will diminish. That is the beginning of accruing an Account Management Debt.
Phase 3.: No IT related issues
The next phase is where very few MSPs can increase the perceived value without stretching the boundaries of the initial Managed IT Infrastructure Contract. In this phase, the IT infrastructure is not just good enough, but probably overshooting their need. Just think about how much advantage most aren’t taking of their Office 365 subscriptions outside of email.
The client’s IT maturity cannot be raised more without them actually implementing applications and leveraging the opportunities of technology. This part is hard as now the client’s willingness will essentially decide what’s next.
This is the place where churn becomes likely even with very satisfied clients. Why? Because they start shopping for “cheaper” alternatives. The majority of the developments have been done and no more technology projects are on the horizon. They start feeling less value in their services.
This phase is no longer just a technical and communication related one. If the MSP cannot connect the application of technology to their business then the client will not see value or opportunity within IT. If the IT only keeps firewalls and emailing with Office 365 then it will not be seen by them as a real business relationship.
The MSP has to establish a business conversation with a client to be able to stay relevant. The client management team should believe in the future and the opportunities that technology can bring to the table. This requires a true IT consultancy mindset and services. Without a business consultancy, digital transformation or business vCIO mindset and services the perceived value will stagnate at best.
1. Treat Clients differently based on their maturity: Check your client base and determine at which stage you are with them.
- If they are in phase one, you need to push awesome technical solutions.
- If they are in phase two, you need to add high-touch account management to be able to communicate the given service value.
- If they are reaching phase three, then brace yourself…you need to introduce a new way of thinking and sets of services to generate business value outside of the technology focus. It’s that or create many mechanisms to lock them in even as their perception of value declines.
- Defensive Strategy - shoot for the clients on Phase 1 and 2 then monetize the opportunities along the way. Once they’re reaching Phase 3 do whatever it takes to keep them even with a declining engagement
- Offensive Strategy - do not even try to sell to Phase 1 clients but focus your efforts to catch Phase 2 clients. Invest in development services for Phase 3. (vCIO, Application Management, Cyber Security Compliance etc.) Then go out to the market and steal clients from MSPs playing the Defensive Strategy. How? Simply offer the client’s executives “business value” with IT strategy planning sessions and Digital Transformation services.
The trends are obvious.
- Fewer and fewer small and medium businesses will be in the Phase 1 stage.
- There will still be a great deal of clients in Phase 2 but the competition will be very fierce here.
- More and more clients need higher-level IT services - it’s a real emerging market with little competition. Here the challenge is service development and a consultative sales process.
None of the options is easy to manage but all are predictable from the big picture standpoint.