3 ways to segment the market for MSP 2.0 services for maximum effect
Many MSPs are not able to well define their target segments. The result can be a huge sales effort with disappointing sales closes. There are three main differentiating factors we could use to fine tune service directed toward the different segments:
- Industry, verticality
- Seats
- Complexity
IT managed services providers could divide their market among three segments described below to benefit from more focused communication and delivery strategies.
The 3 minute video discusses the segmentation based on seats and complexity.
So you are convinced that the MSP 2.0 model with the 7C is a good companion for you. Maybe you are just interested in who can benefit from such services; who are the target markets? So here’s a nice chart again. We are going to see how we can divide the market into meaningful segments to be able to communicate better and give the needed service.
In this chart the horizontal axis shows the business model complexity, with respect to the operation and the business processes of the client. You know clients whose processes are fairly straightforward and easy to maintain, but you also know clients who are developing the internal operation building systems all the time. So we measure these activities on the scale of the horizontal axis.
On the vertical axis there is basically the size of the company with relation the IT ecosystem. So if there is a manufacturing plant with 40 office workers and 150 floor workers, we count them as 40. If there is a service company with 20 employees with individual subcontractors of 20, all of them connected in any way, we count it as 40 as well. We want to see the people involved in the IT ecosystem.
Let's divide this chart into 3 segments.
The first segment is the MSP 2.0 light segment
Here we have the companies with fairly low need for IT management and MSP 2.0 services.
Either they have 30-40 people, but very limited complexity, or very few people with a complex operation, but they can handle it mostly themselves.
We can offer them an MSP 2.0 light version, which includes only the yearly cycles with IT strategy facilitation, budget settings, alignment, and the quarterly sessions with action plans etc.
We are just trusted advisors here, giving them the structure, and the facilitation. The rest they can do, of course with our management support from the background.
The second segment contains the companies with more people and more complexity
The upper limit is where they have to have an internal CIO full time with an internal IT team. This is flexible depending on the industry and the management style.
So in this middle segment, we can run our weekly and monthly IT management rhythms. In this section we are involved more in the execution part of the operation and are leading the departments and so on.
This is the ideal way to deliver the MSP 2.0 as we have full control and we can give the best value per dollar.
In the third segment are the companies with internal CIO, part time CIO, and internal IT
Here our value is in providing the necessary framework for them for an efficient operation. Basically we can onboard them to the MSP 2.0 activities, coach, support them and give additional management capacity, outside control and advice.
This is a very fruitful segment, because we are able to get a very limited accountability in general, but we can get a project to manage or execute completely. So this is a good way to have a strong link with a company who usually runs several high value projects all the time.
So the lines are not strict but more like guidelines. You have to put your clients in one of these slots, and try to establish the model as best suits their needs. In the first segment you have limited resources but high profitability, in the second the monthly recurring is highest and you can get decent project work and additional management work as well. In the third you are the trusted advisor and help them establish their efficient IT operation, and you can get the juicy projects to manage or execute.
Why are MSPs struggling with IT sales these days?
We think that one of the biggest reasons for this is the failure to separate different kinds of sales, and trying to use one strategy to sell everything offered.
In the days before cloud-based applications and storage, when clients had to maintain a lot more of their own IT infrastructure, when the inevitable problems arose there was a clear need for the MSP to be there - to use a bit of business-validated tech mumbo-jumbo, and the sales were natural. Because the client had obvious identifiable business pains, the choice of solution was straightforward.
These formerly ready solutions are now fragmented; company infrastructures are much less homogenous, so our model of one-size-fits-all IT service is no longer appropriate. In short, sales have become more complex.
So let's simplify the different IT sales roles and address them.
1. Upgrade T&M clients to MSP
Problem:
We have so much potential on existing T&M clients, but they have not upgraded to the MSP recurring contract yet - we’re leaving money on the table.
Challenge:
In order to import these existing clients we must demonstrate the business value of the MSP contract versus the T&M contract, but C level executives are rarely aware of the subtleties of this distinction and usually don’t put them high on their list of concerns.
Solution:
First of all, you have to identify who could benefit from the MSP contract at all. Companies of 15 or fewer users rarely suffer the complex problems an MSP contract solves. Give them the service of T&M, but don’t wait around hoping to see great potentials arising around them.
Second, you have to produce a business comparison between the T&M and the MSP contract in terms of delivered value, rather than on the features. To that end we developed the Managed Services Platform scoring system, which illustrates the difference in the competitiveness of IT with T&M compared to that with an MSP. This practical measure commonly generates T&M scores of 10-20 out of 100, and 45-55 for operations with managed service provider. This is their introduction to what we call the reframing process.
2. Acquire new clients
Problem:
There’s no getting around it...it’s real work to go through this process effectively.
Challenge:
This is a long process; you have to create leads, qualify them, and invest a lot of time with no guaranteed results. Long hours and multiple meetings go by without us and the client reaching alignment. We know there’s opportunities, but those who would benefit often seem unable to see them.
Solution:
After the first initial meeting, we usually use the IT competitiveness scoring we used in T&M. The role here though is different; it is is to evaluate the business context of their current IT setup. The scores show what they have going on at present. Our role is to assess what score they want to reach.
So if they score a 30, why is that? Do they lack the wherewithal to score higher, or is it a matter of choice? We can then use the different topics within the composite score to introduce possibilities. This shows them a clearly structured way to assess how they can enhance their IT’s impact on being a competitive company. Also, the benchmark score gives them a reference point for them to compare their performance to the industry.
Finally, with this approach, client acquisition could consume less of the upper level personnel's time as the process is standardized and proven in use.
3. UPsell third party productized services
Problem:
For some problems, we are tasked to find the solutions.
Challenge:
There are so many XaaS offering MSPs that could sell (virtualized desktops, BDR, DRP, etc.). Most of them are disrupting one or another current MSP service, so it is quite difficult to fit the portfolio. For example, Office 365 is now disrupting current Hosted Exchange solutions, and BDR solutions are disrupting our existing backup practices, and so on.
Solution:
This is product-based selling, which is very different from traditional service-based selling. Although the product is a service, there is a beginning; an end; and a package with features. These are not the flexible services we usually sell to customers.
That means that there are are certain problems and opportunities that can be dealt with by features you could put on the contract page. For instance, you could have a slide deck, and the problem is solved therein.
However, you have to determine if clients are interested in the features and then sell them, and because we’re talking about product selling, a different IT sales approach is required. Hire IT sales representatives for that and let them do the job...give them the quotas and products, and train them. Then you can sell those items since you’ve defined the problems have been through a minor discovery, and consulting will follow.
4. Complex Solution Selling
Problem:
Complex solutions like MSP services are hard and slow to sell, but are where the big money is. These are the complete cloud adoption and virtualization projects, ERP, CRM, and B2B E-commerce solutions we are always waiting for.
Challenge:
Selling complex solutions is a slow process. It involves third parties, and figuring out the needs of the client and evaluate the available solutions. In this case, it is very unlikely that we are operating without any competitors, and while our services are not always measured, our products are. So even when we’re great, they have their own priorities, and could choose another product.
Solution:
In most cases the party with the better understanding of the client is going to win, so again we highly recommend the IT competitiveness scoring tool, as it will distinguish us from our competitors. We can be more sure and precise about their priorities, problems and hidden opportunities. In this way we‘re able to develop a more appropriate and tailored solution, and highlight this in our presentation. Moreover, showing the business context around the IT solutions is always beneficial. It means we spell out the "why" of the solution, instead of the "what" and "how." The client will understand from their own point of view why they need those in their operation, sales, marketing, etc.
Conclusion
First, understand what you’re selling. Don’t use one method for all different types of sales, sell only one thing at a time, and don’t sell everything at once to a new client - you’ll likely mess up the flow of processes, and leave the client confused.
Second, use a business scoring tool to align your prospects and clients with their business perspectives. It’ll helps you close deals faster and with a better success rate.
The 3 building blocks of a remarkable MSP sales process
I’ve been talking with a fellow MSP entrepreneur recently about sales. He’s been suffering the inability to find the right someone for MSP contract sales, so he or the other directors are saddled with the sales work.
This is actually the usual situation among IT managed services providers... I see it all the time. The directors, CEOs and company presidents, are doing the sales for MSP services and neglecting their bailiwicks...developing the business.
The problem however is not HR, but the nature of the operation. Usually, when you find yourself unable to hire someone, and the high level staff are stuck doing it, you only see that symptom and not the root cause. In this case, the operational problem is causing the HR problem. The process is so complex that it narrows your field of potential hires. Only those with the most experience can manage it, and those people are most needed in other roles.
So let's see the typical MSP sales process of an MSP 2.0
- Lead generation: by referrals mostly, sometimes through networking.
- Opportunity qualification: no protocols in place for that, so everybody is the target group, from 2-5 people shops to enterprises of 200 and up.
- Client discovery process: technology-based assessments suited to ‘techs’, but the C-level of the MSP can also talk business with the client.
- Problem presentation: only a C-level MSP can properly execute this.
- Proposal: coming from the C-level again, preparing the solution
- Close: handshake between the client and MSP executives
- Follow up, execution, onboarding: this is where process starts to be seen
...and the obvious problems arising from it:
- This is not a scalable process. Each move forward costs the executive's time and jumbles priorities.
- Very hectic sales and operations cycles...so if the sales are brisk, the operation will also be demanding on the C-level, who will have to focus on execution. When the sales slow down, IT companies will be losing opportunities in the funnel as a result.
- The C-level is stuck in account management positions. They have the trust of the client company, so in every future endeavour the client will expect them to show up...and they are relegated to the delivery team.
- If nobody else has authority and accountability on the sales, only the C-level can do it.
- Devalues the role of the C-level of the MSP to the operational level in the eyes of the client.
- Working in the business instead of working on the company.
So currently the expected salesperson is by default a C-level executive, and not a dedicated sales professional, of whom there is no shortage in the workforce. Since we can’t change the facts of the status quo, we’ll change the sales process.
1. Create MSP sales roles:
There are three roles in sales, not one. You can distribute them to your existing people, or of course hire part-time or full-time pros.
Inside sales: creating qualified leads to generate opportunities, communicating by email, phone, and social networks.
Outside sales: visiting prospects, pre-sales, sales, nurturing the account, closing sales, visiting clients regularly, all the time spending company money on fuel, food and CRM software licenses.
Executive: maintaining high level connections, making conversation, meeting with clients when processes are stuck, or whenever executive encouragement is needed.
Account manager: all the up-selling to existing clients, and checking in on a monthly basis to do monthly/quarterly activities and to calculate the required budget for upcoming projects and new products.
If you’re able to separate these different functions, you’ll find you can get the right people from the labour market to work for you and achieve real results.
2. MSP sales process as a system
The sales process can be very long and complex. This isn’t a grocery store where the problem of hunger is solved in every aisle with little or no consultation. Our clients’ problems are layered and technical, often hard to see, and we are the ones who have to put together the solution. We need to actually get to know and understand the client. So for every step along the journey we better find the best practices and separate responsibilities.
Draw a funnel and divide it into three horizontal segments. These are the fundamentals of a remarkable MSP sales process:
The first one we call Top Of The Funnel (TOFU).
This is where prospects are made aware of our existence...they check our website, read our blogs, newsletters, etc. The best approach at this point is to provide valuable content in these mediums. It includes both inbound and outbound marketing...either they’re coming to us, or we’re drawing them.
The former is more likely to be long term and more engaging, while the latter is the traditional (not as fun) cold calling, ad-driven marketing we all know. Both have their merits; it’s just a decision where in the marketing and inbound sales territory you want to invest.
The second is the Middle of the Funnel (MOFU).
This is the evaluation period...we’re talking with the clients, discovering their company, and presenting our expertise. This person to person sales is the most effective method of doing business, with supportive inbound marketing materials like relevant blog posts and articles we’ve published. This helps distinguish our unique value proposition, so it’s critical that you have a system in place. This is the outside sales role, with support from executives, where we have to show who we are, and what we can do.
The third part is the Bottom of the Funnel (BOFU)
This is where the yes/no decisions are made, where we have the proposals, action plans, and company references. The critical item is the product - it needs to demonstrate it fits the needs of the client, so our ability to articulate those issues, the root of the problems, and a viable solution and a professional proposal is what matters.
You need a process to get your sales force in front of the client as soon as possible. This is again the responsibility of outside sales. The executives will come in only if necessary...they shouldn’t be tasked to close deals. If this is happening, then they’re not available for the higher level work only they can do.
After the closing, the growing phase is coming
...where you’re trying to sell more services to your existing clients, and performing the quarterly business reviews, yearly strategic sessions, and monthly phone calls. An annual executive check-in (not during the renewal phase) could further provide valuable feedback for both sides.
3. Automate and standardize
Now that you have the roles and the processes in place, standardization and automation come into play.
For TOFU, you can use marketing automation packages like Hubspot. You can leverage LinkedIn for prospecting, or any other cold calling agency you deem fit. Here’s where your scripts, email templates, and pre-written referral letters come in handy. Don’t over-think though: grab them from your favourite sources and have someone custom-edit to your enterprise.
For MOFU, you can use CRMs like Zoho, Salesforce, or the built-in PSA modules. I am surprised that only 20% of PSA users are using the CRM functionality or CRM integrations at all. A basic fact of MSP sales is that it’s usually time and problem based.. If your timing’s not right, you won’t be able to sell. You should nurture these prospects over time, so when the inevitable troubles come, you have everything covered.. Without CRM functionality, it’s just not going to happen.
For BOFU, you can use a proposal, an action plan, leaflets, agreements, or contract templates. However, usually regardless of all your effort, the client will flip to the last page where the pricing is located. The automation in this regard is more difficult as it involves person-to-person interaction as well.
The problem specifically involves the follow-ups, price recalculations, version revisions, and special clauses. Thus, you have to define follow-up processes, your non-negotiable bottom price for first clients, and the administration process for setting up new accounts. Taking care of these matters in advance will streamline your process so you can strike while the iron is hot.
Conclusion
No, this isn’t rocket surgery. Nonetheless it requires a fair amount of planning and dedicated work to accomplish, but the benefit is that you owners will have more free and creative time. If you’re not able to develop this process, automation, and roles, you will be working too much in the company rather than on the company, and squandering your entrepreneurial spirit on breathing life into your organization.
Research: World of Virtual CIOs on LinkedIn
I was interested about the vCIO, vCTO, and Virtual Executive types of services. So my colleague Peter did some research on LinkedIn on the topic. Keep in mind everything herein is based on LinkedIn publicly accessible data...it’s interesting but there’s a limit to the depth of research you can do this way.So in general, I found that clearly the Virtual CIO industry is driven by the US. I can confirm this from personal experience, that American MSPs are much more comfortable with this term than European or even Canadian IT managed services providers.
- since 70% of vCIOs are hired by companies with under 200 employees, and 9% to large organizations (10,000+), there must be some local support need for interim or part-time high level IT executives.
- when looking at companies offering vCIO services, 97% have fewer than 50 employees and just over half (55%) have a staff roster of under 10.
Here’s our slide deck on our findings:
- 78% of vCIOs have more than 10 years experience, 16% between 6 and 10 - not surprising figures.
- the most essential roles of vCIOs are IT Consultant, Engineer, Sales, and Business Development. Interestingly 12% of identify as entrepreneur, in the sense that they are owners of an MSP organization.
- from what we see these vCIOs doing on LinkedIn, it seems that the largest collectors of these people is the cloud-related, and traditional CIO groups.
- 84% of these people exhibit little to no activity on the LinkedIn social network.
What I get out of this in summary is that there is no accepted academic definition of a vCIO, though companies do grasp the idea of a part time C-level executive assigned to the wheelhouse of their IT. The need is evident...just not widely recognized.
From this I see that we need to address the following: how to define and communicate the value proposition, the MSP sales funnel and the specific service offering that IT companies have invented to sell and deliver vCIO services.
The next step would be to define the vCIO roles and responsibilities and create a framework around their work. This would be required to disseminate this unrecognized need, and to enable the less resourced or less innovative IT managed services providers to start such services, and help the current vCIO practitioners to streamline their vCIO type of services.
See: 2019 Managed Services Platform vCIO Report and Managed Services Platform Account Manager Report 2019
