Jonathan Crowe

Building a $6 Million Managed Services Provider Business: 5 More Things I Wish I’d Known Starting Out

Advice on Starting a Managed Services Provider Business

Photo by Pablo Garcia Saldaña

There’s plenty of best practice guides written to help MSPs grow their businesses, but there’s nothing quite like hearing firsthand advice from peers.

That’s why we’ve launched “MSP Success Stories,” a new series highlighting MSPs who have built multimillion-dollar businesses and who are graciously open to sharing the crucial lessons they learned along the way.

Earlier this month, we kicked off the series by talking with Aaron Underhill, the COO and a Managing Member of Dedicated IT, a managed services provider based out of Palm Beach Gardens, Florida. Aaron explained how the company has been able to grow its revenue 10x in five years, currently hitting $6 million in ARR. 

If you missed Part 1 of that conversation, you can see it here. Aaron shares some great nuggets on the importance of partnering with the right type of clients, and he also shares his secrets for successful sales prospecting, so it’s definitely worth checking out.

Here in Part 2, Aaron opens up even more, offering tough, honest advice for MSP owners and sharing two cautionary lessons he and Dedicated IT had to learn the hard way.

Questions Aaron answers in this post:

  • At what point MRR/ARR-wise do you need to consider bringing on someone in a specialized sales role?
  • What’s the one thing MSP owners need to do before hiring (or even outsourcing) for sales?
  • Do great salespeople make great sales managers?
  • How important is it to specialize in a vertical, and how do you start down that road?
  • What tools do you need to kick-off basic sales campaigns?
  • Why is the stage between $1.5M ARR – $4M ARR called the “Valley of Death”?

Note: The following are excerpts from my interview with Aaron that have been edited for clarity and to fit this format.

1) You need sales training, even if you don’t plan on doing sales personally

Every MSP owner should go through some amount of sales training. Here’s why.

Some MSPs are able to get quite far along without an organized sales operation. Let’s say maybe you’re in a good market, you get some good referrals. It’s perfectly likely for you to grow quickly early on. But sooner or later — it could be at $100,000 MRR, it could be at $200,000 MRR — you’re going to stall out and plateau. At that point, if you want to continue driving growth you’re going to either need to build out a more formalized sales function yourself, or bring someone on to do that for you.

But here’s the thing — if, as the owner, you don’t have any personal expertise in sales or sales management not only will you not be able to do the former, you also won’t be able to do the latter. That’s because hiring a sales leader when you don’t know anything about sales is incredibly difficult. You don’t know what to value and what to really dig into. And once you do hire someone you likely won’t know how to effectively evaluate and manage them.

You don’t need to become a sales expert, but you do need to have a decent foundational knowledge of sales. Consider going to Sandler training, or hiring a consultant to develop a playbook and provide some basic sales management training. If you’re serious about growing it will absolutely pay off.

“You don’t need to become a sales expert, but you do need to have a decent foundational knowledge of sales.”

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As a short cautionary tale, there was a point where we tried outsourcing sales and I put somebody in charge of managing that company who didn’t know how to run sales. That person was great, but because they lacked sales experience they weren’t able to quickly catch when that company wasn’t performing or was giving us bad appointments. As a result, I had to jump in and correct some things, but I wouldn’t have been able to do that if I hadn’t personally sought out sales experience and sales roles for myself.

2) A great salesperson doesn’t necessarily make a great manager

Here’s another cautionary tale for you. This one happened a while ago and it honestly may have cost us up to a year of growth. We hired a VP of Sales who was fantastic at selling, but who turned out to be horrible at managing.

It was bad enough to where we eventually had to let him go. When that happened the entire sales team fell apart. We didn’t have anyone managing them. My business partner and I were already overextended ourselves. We had hired the VP of Sales on as a real necessity and couldn’t just step in to take over the role. The whole thing was detrimental and took a lot of time and effort to recover from.

“It was bad enough to where we eventually had to let him go. When that happened the entire sales team fell apart.”

Needless to say, having the right sales leader in place is critical. It’s a hire you shouldn’t rush or take lightly. Finding the person often isn’t easy, and getting them to join can be even tougher. If you’re a smaller shop you may have to be prepared to offer the person a small stake in the company. Either way, you really need to know what you’re looking for and how to properly vet candidates, which reinforces the previous point that you need to get sales management training, yourself, or have a consultant who can help.

Otherwise, you’re going to find yourself looking for a diamond in the rough, only you’re also not going to know what a diamond looks like.

3) It pays to specialize in a vertical

Gaining traction as a MSP is often much easier when you focus in on a vertical. Referrals stack up faster and you get the benefit of a ready-made answer to the question, “why should I partner with you?” You can simply point to your list of customers and say, “Because we specialize in serving companies exactly like you.”

If you haven’t started focusing on a particular vertical yet, try picking one or two that you do a particularly good job with currently. Who do you consider to be your “best” customers? These should be customers your services really gel with, who you can close relatively easily, and who provide you with great margins. When you see their number pop up on your phone your gut reaction should be positive, not a groan.

For example, we love healthcare. We know the space and the pain points. We can speak their language and we know all the things that make them feel warm and fuzzy. They’re also great customers for us, and by doubling our focus on them that relationship has gotten better and better.

Once you’ve picked a vertical, start going to trade shows. Better yet, start sponsoring them. It doesn’t have to be at the most expensive level. To get the ball rolling simply sponsor them at the lowest level where you still get an attendee list.

“Once you’ve picked a vertical, start going to trade shows. Better yet, start sponsoring them.”

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Then follow up with outreach to those attendees. Pick up the phone and say, “Hey, I would love to get plugged into your community. How could I bring value as a technology company? What would you wanna hear?” Just start asking questions. Go through the list then find the next vertical-specific trade show and repeat. It’s a proven way to fill your pipeline.

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4) It’s way too easy to overcomplicate things

Because MSPs are so technical there’s a tendency to want to build out very formalized processes and use cool sales tools and other MSP software right from the get-go. But you shouldn’t let that impulse get in the way of diving in and getting started.

This is probably going to hurt a lot of people’s ears out there in the MSP world, but when I was first building out our sales outreach I just used Excel. I would literally dump a trade show attendee list into an Excel sheet and would just start working my way down the names making dials. As I did that I’d sort the list into three colors — red (no use calling back), yellow (try again in six months), and green (keep calling or meet in person). That was my prospecting list and I added to it after every trade show.

Eventually, we moved on to using Salesforce once we started building finances and had the capacity to do so, but in those early days I found that my system didn’t need to be complicated at all.

“I would literally dump a trade show attendee list into an Excel sheet and would just start working my way down the names making dials.”

There are plenty of inexpensive or even free CRM tools out there now, of course. Things like Insightly and Zoho, etc. Those can certainly help, but the most important thing when you’re trying to get your company off the ground isn’t finding the perfect sales system or tool, it’s having a simple tracking method and making those dials.

5) Growth isn’t for everyone, and that’s okay

I’ve been talking a lot about laying the foundation for building a scalable sales function, but the truth is how far you want to take any of this ultimately comes down to what your goals are for your business.

Obviously, not everyone is going to have the same growth trajectory in mind. Ultimately, it’s something you’ll need to decide for yourself.

Do you want to want to try to grow a $100 million company and make very real sacrifices to your quality of life in the process? Or do you simply want to have a company that’s profitable and be able to take a vacation and enjoy time with your family?

It’s a very real question that many owners don’t always seriously consider. If you choose to go for that former route you need to be very realistic about it. Your family, your friendships — a lot of things are going to take a backseat and potentially suffer, because growing a business like that takes a lot of work.

If you’re serious about it and you really want to build a big company, that’s great. Go out and shoot for it. But there are a couple of extremely key inflection points in the growth cycle of small businesses that you should really keep in mind.

You can generally operate on your own or with a small team without a specialized sales role up to about $1 million or $1.5 million ARR. Once you begin crossing that threshold, though, you will likely start really feeling the need for additional headcount including managers and specialists.

“You can generally operate on your own or with a small team without a specialized sales role up to about $1 million or $1.5 million ARR.”

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The trouble is, until you reach roughly $4 million, you typically don’t have enough profit margin to hire good managers and specialists, so as the owner you often find yourself running all over the place trying to wear many, many hats. There’s even a name for this difficult transition period for small businesses — it’s called “the Valley of Death.”

Before you lead your company headlong into that valley, make sure you’ve asked yourself what type of company you truly want to have. If you’re determined to grow past $4 million then you can brace yourself for that period and prepare accordingly. If you’re unsure then you might be better served staying under $1.5 million, in which case you can still have a profitable business and make some decent money.

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