Optimal Target Verticals for MSPs
Written by Tommy Wald
A strong trend I am seeing today is how MSPs are moving more quickly to carve out a vertical, or technical specialty, to augment their standard MSP service offerings. The reasons for establishing this vertical specialty are clear and the results are in…MSPs that adopt a vertical or technical specialty are generally more profitable and experience stronger sales growth than the average MSP.
Why should MSP’s develop this vertical specialty? And what are the optimal target verticals for MSP?
Why a Target Vertical is Important
Today, MSPs may find headwinds in selling just based on help desk, network admin, backup/DR, endpoint security or vCIO offerings. While these MSP service offerings were somewhat unique and innovative at one time this is not the case today.
Adding to this the cost barrier to compete as an MSP has never been lower. The capital expenditures for the software tools and platforms to deliver MSP services can now be had ‘As a Service’. Services such as service desk and NOC are also easily outsourced today as well.
This additional influx of competitors and lower barrier to entry has led to commodity pricing and marketing of our basic MSP service offerings. Which brings us back to why an MSP would specialize in a vertical.
A 2018 survey of the top 501 MSPs by Channel Futures confirms that the largest and highest growth MSPs worldwide claim to have a vertical presence stating that “Only 22 percent of the companies that earned a spot on the MSP 501 this year offer no sort of vertical-market focus.”
Another popular market survey is by ChannelE2E that publishes the “Top Vertical Market MSPs” annual survey of the top MSPs in each vertical market including financial services, healthcare, legal, not-for-profit, manufacturing, government & education and others. As the 2017 edition reveals, healthcare and financial services lead the ways with average recurring annual revenue averaging approximately $3.5M for each company in these two verticals.
These surveys and others like it confirm that the best performing and higher growth MSPs have developed a vertical specialty.
A vertical specialty also provides a higher value proposition for MSPs when selling their MSP offerings. Think about it…most business owners are seeking an IT provider they perceiveunderstands their business the best. This is where a vertical or technical specialty will help to separate your MSP from the others.
Put yourself in the business owner’s position; all things considered equal from an IT support standpoint who would I trust my IT to more? Chances are the MSP that exhibits the most business knowledge and understanding about their workflow will win the business. Even better, this MSP will most likely be able to charge a premium for the same services.
Effective selling of MSP services today requires the MSP to have conversations that are “higher in the IT value stack.” These conversations with customers and prospects should be around business work flow and the line-of-business platforms. The MSP should be fluent in the business vernacular of these prospects and customers and understand the key drivers of their industry and their major challenges or opportunities. This keeps the conversation about business outcome, and not just service level agreements or technology.
Finding the Optimal Target Vertical
Many MSPs I talk to are always initially challenged at the thought of creating this vertical specialty. It seems daunting at first, mostly because it requires a different approach to selling and the staffing changes it may require. But most MSPs I found already have this vertical specialty, they’re just not articulating or messaging their capabilities.
So what is the best way for an MSP to go about identifying and establishing their most optimal vertical or technical specialty?
A good place to start for the MSP is to just look at their current customer roster. Look for a preponderance of customers that are in the same or similar industry; legal, medical, construction, manufacturing or real estate as examples. It may be that the MSP provides deeper services in the area of compliance and regulation, document management or security. In any case, the MSP has inherent skills and talents that often go untold and not promoted.
Having a vertical or technical specialty is a key advantage for smaller MSPs that develop a reputation for being a boutique provider with high expertise. A great example of this is GPL Technologies (www.gpltech.com) located in the Los Angeles metro area. Their founder and CEO, Brian Terrell, believes that by selling to a niche it helped them develop greater expertise in that area. “In our case we started by supporting Hollywood film studio. Because we understand all aspects of our clients’ business we provide greater value to the customer. It takes a lot to craft a business who truly understands the end users business model. The reward is worth the effort.”
It may seem somewhat overwhelming for some MSPs to tackle the effort of developing a vertical. However, the competitive advantage as Terrell points out is “When you mastered your vertical clients will seek you out for advice. If you are bidding on a project you will have preference over others that do not have this proper domain expertise.”
How do you go about establishing a vertical or technical specialization? Terrell advises “Attend industry conferences and spend time with the people who work in your target vertical. Most knowledgeable people are willing to share information.”
When developing a deeper specialty, seek out those vendors that are established across your customers and support the same line of business or technical solution. Developing a strategic relationship with these vendor partners will help the MSP establish their domain expertise in this sector. It will also lead to more a more collaborative support strategy for these customers you have in common.
After getting the first vertical/specialization established within your MSP, then look for other areas of the company to do the same. When you break it down most of your support services will be shared across the verticals, such as service desk and NOC. Most of the effort goes into developing the ‘business consulting’ skills and having a dedicated resource for leading the business conversations for this vertical.
Remember, at this stage it’s more about understanding the business workflow than it is about technical support. Hire appropriately.
On my site at www.mspceo.com I have a complimentary download titled “7 Steps to Creating a Vertical for MSPs” that outlines the steps to accomplish this. By following these guidelines, the MSP will be able to identify, develop and deliver a vertical specialty that will be the leader in gross margins for their MSP.
Tommy Wald is the founder and president of TW TechVentures, LLC and resides in Austin, TX. He may be reached at email@example.com.