Identifying and Breaking Through Growth Barriers in Your MSP

Very few MSPs organically grow beyond about 35 employees. Why is this? How do you break through that barrier? And if you are smaller than 35 employees, what can you do now to ease that transition when it comes? 

Before I answer these questions, I want to look at what makes the MSP industry unique and, therefore, uniquely challenging. There are four characteristics that each by themselves are common but, when combined, present extremely difficult challenges.  

1. The requirement for highly technical employees. Common to many industries.

2. Relationship driven business. Again, common to many industries, however, it is not common for your technical staff to also be your front-line customer service reps. Imagine an engineering company doing work for NASA where the success of their business depended on the quality of their scientists’ daily social interactions with clients. Actually, you don’t have to imagine it – you already live it. High IQ and high EQ don’t often come in the same package, but that’s what is required in the MSP industry.

3. Management of thousands of data points in a loosely controlled environment. MSPs must successfully manage thousands of data points every day because even one single miss could cause a crisis. End point protection, managed backups, security threats and end-user behavior all generate information that must be monitored and managed. This level of complexity is not that unusual by itself, but the complexity is exponentially magnified when you don’t fully control the environments you manage. You work for your clients, not the other way around. This adds a further requirement to be adaptable and constantly innovating to successfully navigate the challenges your clients throw at you.

4. Requirement for an Operational Mature (OM) culture. A highly disciplined, process driven, proactive culture is required to manage the complexity of the business highlighted in #3. Many industries that require an OM culture and highly technical employees draw from the best technical schools in the country that inculcate a team oriented, disciplined corporate mentality. In contrast, MSP technical workforces are often self-taught or the product of small vocational schools. While extremely gifted, highly intelligent and superb in a crisis, these workers often possess lone-wolf, task-focused natures that are not naturally suited to the disciplined, proactive, team oriented, process driven behaviors required to successfully manage highly complex environments. 

So, MSP’s need unicorns for employees – customer service focused, highly technical employees who behave in disciplined, highly proactive ways, innovate constantly, and play nicely with a team. 

This is the case no matter the size, so why the barrier at the 35 threshold? When MSPs are small their daily internal information flows are simple. For example, when I was a one-man shop doing a project, I did the assessment and then designed, priced, proposed and closed the project. I set client expectations, ordered the equipment, staged the equipment, installed and configured the equipment, did the documentation and training, billed for the equipment and services, collected payment, deposited it and did the accounting. All the information transfers from sales to procurement to technical to accounting for the project took place in my head and, because I was young and I still possessed a functioning brain, there were no disconnects. This is great from a consistency and repeatability perspective, but it doesn’t scale. As MSP’s grow, of necessity, specialization takes place and the project that was handled by one person now might include a salesperson, a solution designer, a second level technical review by a different engineer a procurement person, sales again, more engineers, a project manager, accounting and an A/R person. 

By the time you reach 35 people (~$5,000,000 to $7,000,000 in sales) you have successfully navigated growth through several thresholds (5-7, 12-14 and 22-25 employees) and tweaked your internal processes and organizational structure numerous times to handle the increased complexity and volume. And yet now, at around 35 people, you are experiencing a major increase in disconnects, misses, self-inflicted crisis, unhappy clients and disgruntled employees. Churn is now a major factor and you are losing revenue as fast as you add it.  

The first thing to understand is that what you are experiencing is normal. Every growing organization experiences these challenges, and you are not unique. The only time you are done with corporate challenges is the day you close your doors, sell the business, or retire. The two relevant questions to be answered are 1. Are these problems normal for my size, and 2. Am I efficiently solving them.  

As for question 1, if you have grown to 35 people and you are experiencing what I have described, you are normal. As for 2, if these problems have persisted for longer than a year or two then you are not efficiently solving them. You likely need help. Incidentally, the same holds true for other thresholds ($500,000, $1000,000, $2,500,000, $12,000), if you are stuck there for too long, we can help.  

So, what is happening? In my experience, MSP’s can grow to about 30 to 35 people before their lack of a process driven, disciplined, proactive culture becomes a critical barrier. The primary determinant of quality and client satisfaction in a small MSP is the quality of the particular tech servicing them or the close relationship a client has with the MSP owner. This, by definition, means quality is variable between engineers and not sustainable for the owner as the demands of the business take them away from time with clients. This structure is not scalable. MSPs in this boat are also susceptible to employees going to competitors and taking business with them. And techs will leave for better offers or because an operationally immature culture is very wearing on employees due to so many self-inflicted crises occurring all the time. Companies that don’t solve this problem will forever be growing a little and then losing a little. It can look like bad luck – a key employee leaves a large client gets bought – but these are symptoms of internal disfunction that encourage losses and prevents rapid enough growth to exceed the losses.  

The challenge at this point is that the tweaks and band-aids that got you to your current size are no longer adequate. You need a totally different approach to business and the major challenge is that both the owner and the workforce are by nature, fire-fighters. And now you need farmers. In addition, because of all the band-aids over the years you likely have many people wearing multiple hats in your company, a lot of specialized knowledge residing in people’s heads to get things done, and misaligned incentives that work against efficient problem solving.  

What to do? 

1. Commit to doing whatever it takes to get to the next level. Recognize that it is going be painful and expensive to fix the problems but trust that it’s going to be worth it. It is.

2. Tackle problems one at a time within the context of an overall plan. No more band-aids.

3. Accept that one of the costs of reaching the next level is going to be people. Operational improvement requires the design of new processes and their accompanying behavior changes that produce consistent high-quality outputs and that are scalable. If you don’t have people who can follow the process or change their behavior to make it work, you must find other places in the organization where they fit or let them go. You need to start fitting people to processes, not adapting your processes to people.

4. Most importantly, look in the mirror. When I started this journey toward process driven outcomes, my operational people courageously came to me and said I was sabotaging their efforts. It took me a while, but I realized that as the leader of the company, I had to follow processes myself. My people were going to do what I did, not what I said. For example, my habit when I needed work on my own PC or a favored client was to go to the bullpen and grab the best available tech I could find to fix the problem. The tech was very happy to help the boss, but it completely messed up my dispatchers and account management people who had set expectations with our clients around what that particular tech was going to do for them. So, I changed my behavior to follow the same procedure all our clients followed – contact an account manager, tell them I had a need along with a priority, and let them assign the tech.
 

Recognizing and addressing the growth barriers for an MSP is crucial to achieving sustained success. It requires a shift from reactive, short-term fixes to a proactive, process-driven approach. Leadership must be willing to adopt new behaviors and commit to comprehensive operational improvements and re-structuring, even if it means making tough personnel decisions. By doing so, you create a scalable, efficient, and high-quality service delivery model that not only retains clients and employees but also sets the foundation for future growth. Stay tuned for the next part of this post, where I’ll outline how to execute on 1-4 above.