Featured Articles

Geoff Croshaw

As an MSP, do you want to invite the fox into the henhouse?

February 4, 2025

The short answer to this question is yes, for any number of very good reasons.

Both sides of any MSP-customer relationship have their parts to play in any meaningful engagement. As I said before, the starting point is the contract, which represents the framework for success. But we see breaches of contract taking place too often, and, in what might be a surprise, it happens inbothdirections, from MSP to customer,and customer to MSP. In our experience, many contracts (I’d estimate as many as 80%) that we have seen or have audited have either been poorly negotiated by the end user client or no longer deliver what was originally agreed on.

Focus on the needs of the business, not the needs of the contract

The most obvious, simplistic example is monthly reporting. After an initial flurry of reporting, the customer says that they are no longer needed. When the MSP complies with this request, the MSP relinquishes control of the contract to the customer, and is instantly in breach of that contract.

These breaches can be different in their detail and in their scope, but when customers focus on the wrong thing for the wrong reasons when negotiating the contract, things can go badly wrong. An example is to focus on penalty clauses, something that became a priority five or six years ago, and which is still prevalent today. Commonly, these are linked to an explicit system and infrastructure up-time and availability target. If the MSP misses that target, the customer invokes the clause, earns service credits, and the relationship continues. An unforeseen consequence of this approach is that the MSP loads the penalties into its fees in the knowledge that it will miss the up-time target most months, and to meet them would in any case require additional resources. If the customer misses this when negotiating the contract, the customer pays for the incompetence of the MSP, which is never motivated to improve either its performance for the customer, or its internal expertise, because it’s successfully negotiated that the customer pays for the under-performance.

For the customer in this example, its entire infrastructure is compromised, as is its ability to grow its business, all because it focused on negotiating around the wrong measurement.

Things are even more complicated today with the focus on cloud services. Subscription services can be complex and misleading. Too often, the customer makes the assumption that updates are inevitable and covered by the contract, only to find the partner vendor has a major upgrade on the way that is outside the scope of the contract, which only covers minor upgrades. In the face of a major fee through the MSP to the vendor partner, the contract ROI goes through the floor. In many cases, the cost of maintaining the subscription directly with the vendor can be less than the reality with the MSP, and the MSP has never had to build resources to cover this scenario.

To change, start at the top

On the customer side, there is an awful lot of opportunity for customers to better manage their contractual engagements with their suppliers and get greater value. Where should these conversations start? With the CEO and CFO, if possible. Many managers within organisations are wary of CEO scrutiny. Managers have made decisions that they need to justify. Senior managers are operating within their own performance criteria, so they may feel comfortable at the decisions they have made, but if these performance criteria have become disconnected (for example, negotiating best price rather than best value to the business, or negotiating penalty rates than that ensuring there are wateright relationships with vendors) only the CEO or CFO will be able to call this out.

In all this, internally inside the customer, and with the MSP, an “us-and-them” mindset, of the fox being kept outside the henhouse, has to change. Both parties, MSP and customer, must have a clear understanding of the criticality of the business requirement, and be clear about the importance within the business of a service. If the customer doesn't communicate this, and the MSP doesn't seek to understand the relevance of whatever it is they are managing within a customer environment, both parties can write and sign a contract that is just not fit for purpose.

It really is often the best outcome for the fox and the hens to work together in the henhouse, to focus on detail, and to consider and be clear about what is of value.

Geoff Croshaw

MSPs need to work on the contract, not in the contract

November 26, 2024

Picking up on my earlier article, which talked about what defines a managed services provider (MSP), I want to focus here on the steps that MSPs can take to move closer to becoming a true MSP, and do so more quickly.

This is not to play down the valuable work that hundreds of MSPs do for their customers around the country. Business is difficult at the best of times, and there will be as many responses to what customers want as there are customers seeking support.

But what works today won’t necessarily work next month, and certainly won’t work in three-five years’ time.

In fact, once a contract between an MSP and a customer is signed, just about the only thing that’s guaranteed to happen is that the contract will at some point change. How the MSP structures that contract, embeds value in the contract, and aligns its resources (especially people) to deliver that value, will therefore change.

This is much more than being good at contract variations (though that’s a good skill to have). This is about assessing where MSPs might be right now, determining where they want to take their businesses, and working out how to get there, all without breaking the business on the way.

A new focus: from short-term to long-term

In our work with MSPs and their partners, there are three critical elements to focus on when determining whether as an MSP you are doing the right thing, or providing or having the right processes in order to enable you to provide a managed service.

The first is what do you actually deliver.

The second is what you are contracted to deliver.

And the third is what your customer's expectation is of what the deliverable needs to be.

In talking to MSPs of all sizes, these three elements are the overriding reason why a managed service contract is or is not successful, because these three things determine the structure of your managed service to be able to be successful.

At this point, I suspect a number of you reading this will be saying that this is nothing new, and that of course this makes perfect sense. We’d agree, of course, but it’s not our experience. Even successful MSPs will often be missing one of these critical factors from their planning, business model, or resources.

I’ve said in the past that if you put 30 people in a room and ask them what managed services are, I’ll get more than 30 answers. This applies to customers, not just the MSPs.

Perhaps the best example of this is the differences in interpretation of contracts, and even what contracts are supposed to be (which is different from the actual words in the contract).

Whatever the detail is in any contract, it needs to be related to and interpreted by your internal teams as being an actual deliverable, and how that relates to the customer’s expectations.

Does the customer expect the MSP to fix a problem when it happens, or manage the whole environment to an outcome?

Which of these options has the most value, both to the customer (centred on business outcomes) and the MSP (managing profitability and revenues)?

A plan for change

The biggest differentiator for any MSP is when the MSP looks to provide a service to customers that deliver a business outcome, a much broader set of criteria than is often within the contract or actually being delivered.

The first step to delivering this is to change to a medium-term to long-term view of your business, away from the short-term.

It means moving away from a transactional, short-term view (what's coming in this month) to how you can sustain and grow profit from existing relationships over three-five years (and what new business is needed to ensure that continues into the future).

And it means being clear about the difference between KPIs that reward and motivate delivery resources to focus on fixing faults, and having KPIs that focus on using root cause analysis to determine the impact of recurring incidents on the customer's business.

The majority of MSPs end up in the contract, being part of the resolution, not on the contract, being part of the solution.

To reverse this, the focus for the MSP should become:

● understand the contractual requirements of the engagement

● understand the interpretation of those contractual requirements both within the delivery group and within the customer, and how the contact is being interpreted on both sides

● from a services point of view ensure continuity of the deliverable

● and, from a commercial point of view, highlight opportunities within the contract for service improvements and revenue improvements within that contractual environment

Geoff Croshaw

Is your business really a managed service business? (And how do you know?)

November 1, 2024

A true understanding of what should define any company’s real or aspirational managed services must begin with an audit of what is actually being provided, the capability gap between that and what customers seek, and an appraisal of what is required, in skills and investment, to close that gap.

And all of this needs to be the start of something bigger. Providing managed services, or becoming a recognised managed services provider (MSP), is not sufficient if those services aren’t profitable or scalable.

This appraisal and audit process often leads to results that companies then shy away from. Too often, I see companies who believe they are already managed services providers, or which plan to become MSPs, simply not be prepared to consider, accept, and then act on this information.

An example is the confusion that still exists between being a body shop, and being an ITIL-based, SOC 2-based MSP. (ITIL, originally from the UK, is the Information Technology Infrastructure Library, a set of practices and a framework for IT activities such as IT service management aligned to the needs of a business. SOC 2is Systems and Organization Controls 2, the standards developed by the American Institute of Certified Public Accountants around security, availability, processing integrity, confidentiality, and privacy.)

If your company is missing one of these, it’s not an MSP. If it has no plan to become ITIL-compliant or SOC 2-compliant, it will likely not become an MSP.

A body shop, or a resource provider, is a fixer of problems. An MSP is a provider of value, strategically hooked to the needs of a client’s business, and providing whatever services that client needs, at scale, for the long term. If you plan to go to market as an MSP, you have to do it under ITIL methodology to create the agile framework that you will need, and that your customers will demand. It's an expectation in the market.

Manage resources to grow margins

It’s also useful to compare what defines an MSP with other types of professional services companies.

If you look at professional services, their delivery margin will actually decline from the original margin at the point of sale, as delivery starts to happen. The reasons this happens is that projects blow out, products or services are not available on time, and so on.

True managed services should be the reverse: their margin should actually increase during the term of the contract, because as they get better at delivering services for that customer, they should become more efficient. They can continually reduce their cost of delivery, by introducing automation, as just one example (something that continues to grow with the adoption of AI).

Over the term of a three-year or five-year contract, the margin position on that contract should increase. If it doesn’t, the operational environment delivering the managed service is not working well.

An example is incident management. I have a fault in my IT infrastructure, I call my service partner, and they fix my fault. That, though, is not problem management, and so the fault recurs, often at the same time every week, and is continually fixed by a technical team that is measured on tickets closed.

They believe they are being successful, as measured by the contract in place. In reality, the business is losing margin because they are charging for the wrong thing and measuring the wrong thing.

A true MSP resolves the problem, not just the fault, by looking at the larger context, and having the needs of the business in mind, not just the tactical task of a reset or a repair.

Be clear about what you are and what you want to be

In this example, the skills gap is the difference between the break-fix body-shop resources business and being able to provide strategic solutions. And of course, body-shop resources can only scale with more bodies, so the margins never improve.

IT services companies that understand the difference, and are prepared to act on building out the business structure and resources they need, will rapidly move ahead.

They build their own MSP portfolio.

They understand the skills they have, so that they can deliver early projects as they expand these skills, and close their capability gaps.

These early successes build market credibility, and morale inside the company.

The flywheel effect, of success breeding success, starts to build.

They have a benchmark to measure progress against.

And so understanding what your business actually is today is perhaps the most important step you will take in becoming a true MSP