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An Open Letter to Every Technician Everywhere Who Decided to Start a Channel Business
You cannot create a long term sustainable business that transacts less than $2 million per year. Here’s the short list of why so many things get easier when you cross over that $2 million barrier.
LogMeIn Guest Blogger
December 16, 2013
5 Min Read
$2 Million Dollars. That's the run rate you must reach to create a sustainable long-term business.
I had the distinct pleasure this week to spend a couple hours with a Michigan-based channel partner discussing a really wide range of channel topics ranging from how her business model differs from “the traditional MSP model”, to LogMeIn product releases and updates, then off to what keeps channel partners up at night and so on.
She has an amazing model – I was singularly impressed with her attitude towards contracted MSP relationships (let’s agree to work together and not specify a time limit), her attitude towards employees (this needs to be the single best place to work imaginable, or people will leave, so we implement four-day work weeks in the summer, cover all medical expenses, and the list goes on) and the business model itself (built more like a law firm or accounting firm than the traditional IT Service business).
It was a two person, two-hour channel conference on my way to the airport (the flight was cancelled, I didn’t get to travel until the next day, but I walked away thinking that I had a very productive trip (not my usual attitude after driving an hour for a cancelled flight)).
The entirety of the conversation left me thinking for the rest of the week about fledgling channel partners, how hard it is to get an MSP up and running, and how many silly mistakes people make along the way. While any number of people might disagree with me on this, my take on the MSP model is that you cannot create a long term sustainable business that transacts less than $2 million per year. Here’s the short list of why so many things get easier when you cross over that $2 million barrier:
Your prospects consider you a real business, not just a hobby: You have employees, a local reputation, etc. There is just no getting around the smell of success.
Your vendors pay more attention: Your business has the ability to drive meaningful revenue to them, and as a result they are going to pay attention. That, my friends, makes business much easier.
Your local community considers you a contributor to the community: I will never forget the day a local bank president stopped by my office and told me that “the community” had decided my business had “a great opportunity” to provide technology solutions to the local school district. Sweet! The second message was that I needed to begin to consciously contribute to the well-being of the community, and a good start would be joining the local Chamber of Commerce. That was actually a bit intimidating at first, but made a huge difference for the business, me personally, and eventually many of my employees.
You have enough income and cash flow to grow your business: Let’s face it, most MSPs are not venture backed, and the model is not one that regularly attracts investors. As a result, MSPs need to generate enough revenue to implement a marketing effort, maintain sales professionals, be a member of the aforementioned Chamber of Commerce, and a million other things. Until you are able to do these things, the business is wholly dependent on your “in the business” efforts personally to keep things churning. Not sustainable.
You get to be a CEO: At $2 million annual revenue in this model, you can afford (or you can’t afford not to) focus on the strategic aspects of your business. The ability to be strategic takes up a significant percentage of your time annually and is hampered by the day-to-day tactical aspects of “making the trains run on time” in a smaller business. But at this level you can actually spend time focused on business direction, delivery enhancements, process improvement, and strategic relationships. I struggled with this as a channel partner – I had to get over the constant feeling that I wasn’t contributing meaningfully to the business when I wasn’t making a call, taking an order, unloading a truck, or mowing the lawn (I could write an entire blog about this, maybe next month).
The point is this – when you launch your new IT business, and you come to a crossroads about whether to hire the first additional technician or new salesperson or whatever, a great way to evaluate the purchase decision is to determine whether or not the investment in necessary to get to a $2 million annual run rate. If the answer is yes, and the investment makes sense, then move forward.
Every decision has inherent risk when you are building a business, but it is often just as risky not to make tough decisions. To quote the band Rush, “if you choose not to decide, you still have made a choice”.
As we head into 2014, try to factor company growth into every big decision next year. If you are faced with the choice of growing or shrinking (and for what it is worth – running a business is like going up the down escalator – if you are not going up you are going down), think hard about getting to the $2 million mark.
Happy holidays to everyone and best of luck with everything you do in 2014.
Ted Roller is vice president of Channel Development at LogMeIn. This guest blog is part of MSPmentor’s Platinum Sponsorship Program.
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