The One Metric That Matters Most

By Ryan Morris

What causes a solution provider or managed service provider to succeed?

This is a loaded question. Like any complex system, there are many variables that have to work just right to make the overall machine work effectively: Advanced technical skills. Efficient processes. Reliable systems and tools. Effective customer service. If any one of these things goes wrong, the whole business can falter.

In fact, it’s much easier to determine why a company fails than it is to determine why it succeeds. Countless stories are written to try and explain the secret to success. But more often than not, those stories wind up focusing on what went wrong. When a story does focus on success, the emphasis tends to be on personal experiences that are neither repeatable nor understandable in isolation.

One thing is certain: this industry has no shortage of metrics. We measure services and tickets and time. We measure OpEx and CapEx and cash flow. And after all these years of research and thousands of interviews and hundreds of engagements, what have we learned?

We can conclude with certainty that there isn’t just one moving part of the service-based business that matters more than the others. But there is one piece that matters before the others. 

To be perfectly direct: the foundation of a successful solution provider is a meeting with a new potential customer.

Think about success in terms of sequence.

You meet with a customer. You deliver a compelling presentation about the value of technology in the customer’s business and the pivotal role of your service offerings. The customer sees the value and signs a contract or purchase order. You onboard the customer, deliver products, stabilize their IT environment, and (ideally) deliver ongoing services. You monitor and maintain the highest levels of system performance and reliability. You provide succinct reports and clear evidence of the value from your services. You meet with decision makers and maintain a strong and stable account relationship.

In a nutshell, that’s the recipe for a successful solution provider business.  And each element is a critical skill. If any one were to go wrong, you could flop. So while we can debate all day about which one is most important, it’s undeniable which one is important first. If you don’t get a meeting with a potential customer, the rest is just a well-organized, highly-skilled hobby.

If you’re in the process of starting up a brand new business, this sequential point of view is only theoretical. Of course you need a customer before you can capture revenue and pay for operations, but you have to build the service offering first in order to have something to sell.

But once the business is established, you’ve attained a roster of current customers, and the list of operational challenges is long and urgent, it’s unfortunately easy to lose sight of the value of sequence.

You might tell yourself that’s okay. It’s fine if you slack off a little on new business development activities. You’re busy with “paying customers.” And as long as they keep paying you, everything will be fine. Except, the overwhelming evidence is clear that it won’t be fine.

The loss of past customers for non-recurring revenue businesses is so high as to be legendary – that’s why an entire industry was motivated to move to a managed services model to begin with. Build an MSP practice, and that will remove the need to find new customers, right? Wrong. According to three different financial benchmark studies focused on the managed services industry, the average rate of current customers who cancel or do not renew contracts with their providers each year is between eight and 15 percent. No matter what your monthly recurring revenue is today, it may be less tomorrow if you don’t do something about finding new customers. It’s called “churn.” And it’s a fact of life.

Why do customers go away? Perhaps they think their systems are fine (now that you’ve fixed them). Perhaps they have a bad experience with your service. Perhaps a competitor convinces them they have a better offer at a lower price. Perhaps they hire IT staff that make your services obsolete. It happens even to the very best businesses.

The more valuable, tactical question is this: in addition to improving your services and customer retention, how will you get new customers?

It requires a return to the basics. To sequence. To getting a meeting with a potential new customer.

So how will you get a meeting? Contrary to the folk tales you may have heard around the industry, meetings don’t just fall from the sky. If you don’t have a reliable, measurable system that produces meeting after meeting with potential customers, then it’s time to fix your sequence and build a sales engine.