Is your MSP recession-proof?
A slowdown here, a downturn there, talk of recession is everywhere. But how does it affect us in the MSP world? And, what should you be doing to not just survive, but thrive?
Let’s first tackle the trillion-dollar question—is a recession really round the corner? Many of the key economic indicators definitely point towards the fact that we are barrelling towards a recession.
The U.S. economy contracted by 1.4% in the first quarter of 2022. Global growth is projected to slow down from over 6% in 2021 to 3.6% in 2022, a sharp decline. Inflation in the U.S. dipped a bit to 8.3%, but is still hovering worryingly close to the 40-year high of 8.5%; the global rate is at 9.2%. There’s no cheer in the stock market numbers either, with the S&P 500, considered a leading benchmark, declining 13.3% in April. This is the steepest four-month drop at the start of any year since 1939. The only holdout is the U.S. unemployment rate, which at 3.6% in April is the lowest since February of 2020.
Just like these numbers clearly articulate current realities, so does the fact that technology is an essential infrastructure today; the technology genie is not going back into any bottle. If the pandemic years have shown us anything, it is that distributed, remote work is the future of work and that future is already here. What this means is MSPs are today an essential part of running the world of business. If you have kept yourself relevant, are nimble, and play your cards right, then a recession should not matter too much.
That said you should not be continuing with business-as-usual when a downturn is upon us. A slowdown, a downturn or a recession—whatever it may be—should be looked at as an opportunity for improving your operations and business, making it stronger, and reinforcing its focus towards growth. Plus, ensuring you are poised to ride the growth wave the moment recession is behind us.
I know all this sounds great, but how do you make your business recession-proof in real life? Here’s how:
Assess your business health
If you haven’t done this in recent weeks or don’t do this too regularly, do run a 360-degree assessment of the health of your business. Look beyond metrics like, Monthly Recurring Revenue (MRR) and Profits. What’s the state of your cash flows, what’s the condition of your aged debt (the total money you're owed by your customers), are you too exposed to one customer, what’s the productivity of your technicians, what is your overhead ratio, what about your margins. Get a truly realistic picture of where your business is right now and what the problem areas are. This will give you a blueprint of where to start if you need to take corrective action.
Even the best businesses have some issues or the other. Now is the time to fix things, to do all the plumbing and repairs that you put off for later.
Get finances in order
Ensure your cash is not entirely tied up elsewhere. If you have done your assessment right, you will know exactly how much you need in the bank to ensure you are covering all your costs at least for a month even if income completely dries out. Try and keep this cash in the bank. Tracy Pound, founder of IT training, consultancy and project management services provider MaximITy and Chair of the Board of Directors at CompTIA, says, “Keep a tight eye on finances and particularly credit control, by making sure clients pay on time.”
Andrew Eardley, founder of Prompt PC and MSP Easy Tools, says you should be generating and collecting your invoices on a regular basis. He suggests invoicing daily rather than weekly or monthly, using tools like Xero, and collecting via direct debit 30 days later.
Make sure that you have good monthly recurring revenue systems in place – you want all your bills paid for at the beginning of the month, whether you do any project work that month or not.
Founder of Prompt PC and MSP Easy Tools
The main task is to have complete visibility of where your cash is, where it is coming from, when it will come, and will there be any delays. This will help you take steps before a situation turns critical.
Surprisingly, some tech tools turn out to be an invisible drain on your valuable resources. There are products that you pay licenses for or tools you subscribe to that are rarely used. Do an audit of the tools that you pay for and retain the ones you truly use. This will free up cash that can cover the salary of an employee. Check what functionalities you need, what tools will effectively improve the services you offer, and get only those tools. It makes good business sense to automate tasks and invest in tools that truly make you better and more efficient.
Make yourself indispensable
Your clients are reading the same market and economic signals that you are. They too are worried. But, there is an important point you need to remember and one that will help you. They too want to survive the recession; they too want to thrive. Can you help them with that? If yes, you have dealt yourself a winning hand.
Call your clients, schedule meetings where possible, and go with solutions. “Make sure you are in regular contact with your clients and know what issues they may be facing and discuss how they could better use technology to optimize their time and efficiency – use it as an opportunity to increase sales by adding value and solving their business pain points,” says Tracy.
Make sure you are in regular contact with your clients and know what issues they may be facing and discuss how they could better use technology to optimize their time and efficiency – use it as an opportunity to increase sales by adding value and solving their business pain points.
Founder of MaximITy and Chair of the Board of Directors at CompTIA
You know your clients well. If you help them save money, time, and resources at a time when they need these the most, you will make yourself indispensable. Show them you are positive, you are right there for them, and that you are continuing to focus on growth.
On the flip side, if you have problematic clients that are a drain on your resources and on your and your technician’s time, now may be the time to fire them.
Double down on right marketing
One of the mistakes many of us make is cutting costs across the board in a bid to conserve cash. But, now is the time to double down on marketing - on the right sort of marketing.
“Keep marketing up but make it about helping businesses not about direct selling and make marketing as relatable as possible. Short videos are great for this, and take an omni-channel approach to marketing,” suggests Tracy. Keep your marketing pointed and super-focused on existing clients and on potential clients who fit your ICP (Ideal Customer Profile). “Start talking to them (clients) now and show your existing and potential clients how you are going to help them through the difficult times in the future. Show them how, through excellent IT systems, you can help them streamline and enhance their businesses, providing flexibility in increasing/ decreasing support and licensing very rapidly,” says Andrew.
Don’t forget about your employees
In the midst of this, don’t forget that your team will also have concerns and worries. Keep lines of communication open and be realistic. If your staff feel like they will not have a place in your team or that your MSP is going to downsize or not grow, they may start looking out for opportunities. The last thing you want is to give less than stellar service to your clients; employees leaving will result in that.
Equally important, your employees are your eyes and ears. They will know immediately if a client is being shaky. They need to give confidence to your clients, take corrective action when needed, or escalate to you when necessary. Tell them the signs to look out for with your clients, suggests Andrew. He also suggests that if business does slow down, ensure your staff has productive “hospital jobs”, something they can start and stop quickly in case regular business picks up. “Make sure these “hospital” jobs are productive and not time wasting, this demoralizes the staff and makes them think they are just killing time – make sure it either makes your support systems better or it increases your sales revenue,” adds Andrew.
Be flexible & competitive
When clients are worried about the future you may need to be flexible. Especially when onboarding new clients. They may need more flexibility in the contracts, they might want to pay for work done, or may want a trial period first. Some may need a payment plan. Decide how flexible you want to be, otherwise it can be a slippery slope to complete chaos with clients making unreasonable demands.
Also, be prepared for longer sales cycles and greater scrutiny.
That said, this is a good time to go out there and bag new clients, like Andrew says in his note (below). Companies will look to cut costs and outsourcing their IT could be on the cards. Others may be looking for greater efficiency. Still others may want to cut off their inefficient or expensive IT partner.
The pandemic has been a primer, in a sense, for what a recession could be like. Just like there was a lot of economic pain during the last couple of pandemic years, there was also opportunity. Those of us who have seen a few downturns, know this. Others will find out soon enough, that, like Jack Welch said, you should:
Never miss out on an opportunity like a good recession.
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