It’s very tempting – particularly when you are starting out as a managed services provider, to think that all business is good business; to follow up all interest in your services even though at times you know a company isn’t really a good match for you.
Taking a more selective approach by focussing on a specific vertical and/or a particular size or profile company for example, will enable you to play to your strengths and you will be better-placed to:
- Differentiate your offering
From being one among many providers of IT services to companies across industry, you will become a specialist and your competitors will reduce from potentially hundreds of generic MSPs to the handful that have chosen a similar focus.
- Develop a strong rapport with your customers and prospects
You will become a member of their club. You will speak the same language; know the business and IT issues challenging them; the regulatory and compliance requirements they face. You will be attuned to changes taking place across the sector.
- Communicate a clear marketing message
With clearly defined target markets, you know your target audience. You know their ‘hot buttons’; what drives their business and IT decisions. It’s much easier now to deliver consistent, highly relevant marketing messaging.
- Increase profitability
Focussing on a clearly defined vertical sector can mean more profitable business through repeat sales and services. The first time you sell into a new vertical you incur the costs of learning about it and customising your services to fit. It may even mean recruiting specialists from that sector. These costs are mitigated with subsequent sales, increasing the profitability of each engagement.
When to take a more targeted approach
Some MSPs set up their business with a particular vertical sector and/or customer profile in mind from the outset. Many more, however, started out as generalists, with a ‘take all comers’ attitude towards new customers. Over the years though, and with organic growth, they may build up a strong customer base in a particular vertical. It wasn’t planned – it happened ‘accidentally’ as the result of customer referrals and word of mouth in that sector.
Eric Rockwell, President of centrexIT recounted in our recent Trailblazers webinar how their move from general business to a focus on healthcare was an organic rather than a planned development:
Well we definitely went wide [at first], but our business coach analysed our client base and said ‘65% of your clients are in healthcare! You guys are vertically focussed on healthcare’. We said wow – we’re focussed on healthcare! So we still maintain that healthcare, biotech and life science focus. We now have vCIOs, vITMs (virtual IT managers) and help desk resources that only work in those verticals and specialise in them so they understand all the regulatory requirements, and the complexities of working with publicly traded companies and that’s allowed us to maintain a high level of subject matter expertise without having to say we only work with healthcare. But it’s definitely a vertical focus for us..….It’s a great strategy – you just have to make sure that if you only focus on one vertical, your marketing and positioning statement is tight enough to speak to that vertical so you have a strategic advantage over any general competitor. For a lot of MSPs who don’t have that level of maturity with their positioning statement or product offering, it’s so much easier to take on general business; it’s easier to grow and then decide that you want to vertically focus. I decided that we would build muscles in different verticals and we would have teams who were vertically focussed – and that’s been a good strategy for us.
How to get there
Sometimes you are just too focussed on the here and now to take an objective look at your business, work out where you want to be in five or ten years’ time – and assess if your current operation can deliver this.
You may need to ask some basic questions:
How well do you know your business?
Do you have a clear vision of where you want to be; the kind of company you want to run? What is your core business? Where are you making money? What kind of services do you deliver well? What aren’t you doing so well? Where do you add most value for customers?
Don’t be afraid to canvas your customers for answers to some of these – it could challenge your own preconceptions of your strengths and weaknesses.
Have you identified your ideal customer profile?
- Vertical focus: Does your ideal customer come from a specific vertical? Have you coincidentally or deliberately built up a presence in this sector that you can use as a beachhead for expansion? Have you already got the specialist skills and/or accreditations required to deliver services to that vertical?
- Size: Focusing on the SME market may seem a logical choice for MSPs, but this umbrella grouping covers a wide variation in size, depending on which definition you use – from fewer than 250 employees up to 500 employees. The IT requirements and customer expectations at either end of this scale vary considerably. Is your business geared up to meet both sets of expectations profitably – or would it be more profitable to focus on one or the other?
- Geographical location: When you’re building up your business, it’s tempting to take on customers wherever they are based. But this can be difficult to manage and it may be more cost-effective to limit the geographical focus of your operation. If you’re based in the US, for example, one state may generate more than enough business at any single point. Even in the UK, we have partner MSPs who have decided to focus on a particular region until all business opportunities there are exhausted: Shackleton Technologies in north-east Scotland for example and Vermont Systems, who are successfully focussing on a single English county – Hampshire.
Do you know which customers are profitable?
As your business grows, you may begin to realise some customers are just not profitable. Their requirements and expectations fall outside those of your ‘ideal’ customer profile: they may be too small, or too big; they may not have the necessary budget; they may not be open to change; not looking for growth. It’s a difficult call to make, but increasingly MSPs are taking the decision to move them on so they can focus resources on more profitable customers.
To cite centrexIT again, Eric Rockwell takes a scientific approach here:
We do cull the unprofitable clients but we go through a process to measure that: for all of our clients, for every dollar that a client pays us, there’s some level of ‘cents’ that should go into every different delivery area. For example, for every dollar we get from a client, about 28 cents should go into the help desk. So we can measure how much time is going into all of those different delivery areas and if a client is over-utilising the VCIO or the vITM (Virtual IT manager) or the help desk – then we look into why that is. In some cases we just need to uplift them and in others we’ve found that we need to staff a resource at a lower hourly rate than a project rate for a set number of days per week because they [the client] is just growing so rapidly and there are a lot of changes. They’re not necessarily experiencing pain, but there is a lot of stuff to do. So by managing where the time is going and having some command around that, we’re able to get paid for the time that we need to be spending with our clients and at this point we’ve really shed all the clients who are just noisy, not able to pay for changes, not making the right changes – we’ve really gotten rid of those over time. For every $10k a month client we would bring in, we would get rid of a $1500 a month client that just wasn’t budgeting for technology the way that we wanted them to and it wasn’t a good partnership.
The holy grail for every MSP of course is to be able to focus on higher value customers; those who have progressed up through the stack of services you offer and view you as a trusted partner.
Want to focus but not sure where to start?
Focussing on vertical markets can result in profitable business – but you need to do some groundwork first.
- 1. Identify a likely niche
If you’re just setting out or are looking to expand from one target market to encompass another, you will need to identify a niche that is not currently being served well by existing service providers – but at the same time, one where your services and expertise match requirements reasonably well.You need to be sure that there are enough potential customers to make it a viable niche – particularly if you have also set a geographical focus – and that they are likely to have the budget (and the inclination) to partner for managed services.
- 2. Develop what you’ve got
Focussing on a vertical where you have no experience at all will put you at a serious disadvantage to MSPs who have been working in that sector for years.But you may have developed a customer base in a particular vertical ‘accidentally’. This is your beachhead to develop further. These customers will provide valuable relationships for market intelligence/information gathering and could also serve to attract similar profile companies through testimonials and warm referrals.
- 3. Know the scale of the task
Operating in a vertical sector means you need to fully understand the way it works: trends, terminology and regulatory challenges -such as HIPAA for the US medical market, or anti-money laundering (AML) and know your customer (KYC) for financial services – in short, you need to be au fait with all aspects of the business environment.You will also have to identify what you need to add or tweak in your service offering to ensure you will be accepted in your chosen niche and can still deliver a quality service.
- 4. Use your network
Use industry partners and peer group members to help you to enter a new sector (or build on an existing one) by providing market intelligence, making introductions and possibly even through contact sharing.
5. Refine your marketing strategy
As you narrow your focus it becomes much easier to build marketing messaging and sales campaigns that resonate with the specific information requirements and pain points of your target audience.It is also easier to use the experience you have gained to develop accurate buyer personas: who is involved in buying decisions for example – the business owner for small businesses or the heads of multiple departments (including marketing and HR these days) in a larger, more complex organisation; what are the pressures on each; what are the ‘hot buttons’ for each role?
What are other MSPs doing?
It seems that MSPs are increasingly taking the advice to target at least one vertical market.
Nearly three-quarters of companies at the top of MSPmentor’s 2016 MSP501 Worldwide List and Ranking reported serving clients in specific vertical industries, while 64% of MSPs surveyed by Datto also confirmed vertical specialisation.
By recognising and building up experience in vertical markets and other defined segments, you can target a particular audience more effectively, gain more insight into your customers and ultimately become a more trusted partner in their business.
 Datto’s 2017 State of the MSP Report