Blog | January 15, 2013

Don't Let This Delay Your Transition To Managed Services

By Jay McCall

One of the most common themes I see in the channel centers around a VAR's decision to become a managed services provider (MSP). So many see the value in it, but less than half actually take action to make that transition. And, of those who do, only a minority become successful. A few months ago, I wrote an article about underpricing being the #1 culprit plaguing many VARs-turned-MSPs. I recently came across one other problem many new MSPs face, which Steve Rutkovitz, CEO of Choice Technologies, summarizes as effective communications. "With managed services, there is a lot more communication required to be successful compared to what's required to be a break-fix VAR," he says. "In the past, IT skills were the big differentiator among channel competitors. Going forward, the VARs and MSPs that communicate more effectively will be the big winners."

The reason Rutkovitz is the perfect person to deliver this message is because he's gone through the struggle himself and learned from the mistakes that other MSPs continue to make. Choice Technologies earned $5.2 million in revenue in 2012, up 7% over the previous year, and it's projecting to do $6 million this year. Currently, 50% of the MSPs customers are on a fixed-price managed services program, which is 38% higher than the average MSP, according to N-able's research.

So, exactly how did poor communication manifest itself? Here are two examples that illustrate this point:

1. Ad-hoc requests often weren't followed up. For example, in one instance, one of Choice Technologies’ technicians was leaving a customer’s facility and was approached by a customer about an issue with his PC. “The tech said he’d stop back the following day, then forgot all about it, and we found out about the oversight a week later when the customer called complaining about our poor service,” says Rutkovitz.

2. Nearly every project had missed billing opportunities. “For example, a server upgrade might require the customer to also upgrade the network cards in a couple of older PCs from 10/100 Ethernet to Gigabit Ethernet,” says Rutkovitz. This oversight typically led to one of two problems: Either the customer caught the problem and complained, or if the technician caught the oversight during the implementation, he would add-in the updated PC cards and forget to bill the customer.

After recognizing these common occurrences, Choice Technologies made two significant changes to rectify the problem, including:

1. A change order process. Instead of manually tracking projects in Excel, the MSP started using Tigerpaw's PSA (professional services automation) software, which includes project management functionality. “Now, anytime a customer wants to add something to its original project — such as ordering additional software licenses or workstations — a change order is created in our PSA, and the authorized buyer is sent an authorization form, which must be signed and returned before any updates can be made to the project,”  says Rutkovitz.

2. Creating IT management positions. “These are detail-oriented employees that are good at handling changes that occur to projects, as well as coordinating communication between customers, sales engineers, and technicians to ensure projects are rolled out on time and on budget,” says Rutkovitz.

Choice Technologies made these changes two years ago and started realizing improvements in customer satisfaction and revenue growth after that point. Even though communications isn't the only skill required to be a successful MSP, Rutkovitz would be the first to admit that you can't become a profitable MSP without having effective communications in place at every level of your company.

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