Buying an IT company that has already built the business is an option to get into managed services. The advantage of buying an IT company are that you can get to market much faster because the offering is already built, resources are already in place, and a customer base is already established that is bringing in revenue. The biggest challenge with buying a company is that it can be very expensive. In addition, the offering could have been built wrong, the resources may not be the right ones, the culture may be hard to make your own, and it is hard to know if the customers you acquire are the right ones.
If you want to build your own managed IT offering, there are a few things to consider. The pros of building your own managed services business are you can build it specifically how you want to build it. You have complete control, and you get the full financial benefits of your operation. However, it takes a lot of time, money, and resources. We do a lot of work with a lot of industry experts and while the numbers vary, most experts estimate that you will need to make an upfront investment of $1-$1.2 million to get the people, tools, and technology you need to launch an MSP. In addition, it can take anywhere from 1-2 years to build your managed IT offering and test it before you can start selling your solution to customers. Service Leadership Inc. found that over the long term of 6+ years, the numbers show you have the potential to get a better return on your investment (as long as you build your business correctly). However, building a managed services business is very expensive and time consuming. It is difficult to scale, and owners struggle with working in the business vs on the business.
Another option is to outsource with a Master MSP who has already built the platform, and resell their managed services solution. The benefits of outsourcing with a Master MSP are that it requires a much smaller investment, and you can go to market much faster. Service Providers can use a platform that has already been proven verses trying to build their own platform, and they can save loads of time not having to worry as much about staffing, noise, and vendor management. In addition, Master MSPs have built very effective and efficient back-end systems that a business can use immediately verses building their own solution. With the outsource option, make sure the Master MSP has a culture that aligns with yours, and learn as much as you can about how the Master MSP will treat your end customers. Choosing the wrong Master MSP as an extension of your team can be detrimental if they are not a good fit, and that could reflect poorly on your customers and business.
Solution Providers who decide to outsouce to a Master MSP can realize faster results and get easier entry into the managed services business. According to Service Leadership Inc., with the right Master MSP, Solution Providers can get a positive return on their investment over a year faster than if they were to build. In addition, the maximum negative return with outsourcing can be up to 75% less because they do not have to make all of the investments in people, processes, and technologies that they would if they built the business on their own. If the Master MSP can effectively manage one or several areas of your business so you don’t have to, it can enable you to focus your time on other strategic things needed to move the business forward. Outsourcing allows you to scale faster and with less risk than if you were to build your managed services business from the ground up.
Paul Dippell, Founder and CEO at Service Leadership Inc., discusses the different managed services options for Service Providers of whether to build, buy or outsource.