As managed service providers (MSPs) respond to escalating Covid-19 challenges, creating new market and economic realities in the process, business and personal pressures continue to mount.
Customer defaults are dragging the ecosystem down, resulting in cash flow concerns and placing new strains on a channel built on wafer-thin margins, with the vendor cavalry yet to arrive.
The domino effect has created a network of MSPs searching for ways to stop the bleeding and for those yet to experience the full financial force of the pandemic, hatches are being battened down in preparation.
Some may argue that the rise of remote working has triggered a new wave of demand within the channel, as customers rush to build out business continuity, collaboration and security strategies, underpinned by a digital transformation agenda.
At enterprise level, such a scenario is likely already playing out but in most cases - especially at SMB and mid-market levels - the problem isn’t necessarily the deployment of technology, rather who’s paying for it. For the tier-2 ecosystem, the reality is more sobering.
“The economy is going to struggle as long as there is uncertainty,” observed Arlin Sorensen, vice president of Ecosystem at ConnectWise. “That means a lot of people will be struggling to make payments and financially survive.
“As we turned the page to the new year of 2020, it looked like we were on a rocket ship of prosperity unlike any previous time. Now we’re facing the biggest decline in market history and a threat to our entire planet of a virus with no treatment or cure. That’s about as opposite as you can get.”
In response, Sorensen advised MSPs to make both business and personal adjustments during the months ahead, in a bid to overcome the crisis. Here are 15 steps for MSPs to consider:
1 - Know your numbers:
“Keep your accounting entries up to date and stay on top of where you are,” advised Sorensen, renowned as one of the leading MSP experts globally. “If you’re normally a ‘do it when I have to for tax filing’ kind of person, change that behaviour and enter things now so you have facts on your financial status.”
2 - Use a budget
Sorensen suggests a budget with at least two columns - one for the expected and one for worst case, coming in at perhaps 20-30 per cent less.
“Compare your real financial information to the budget at least monthly but more often is better,” he outlined. “Any good accounting package will let you compare current to budget. You need to see when you’re deviating from the plan.”
3 - Conserve cash:
For Sorensen, “cash is king, always”. Therefore, MSPs must assess expenses to work out if anything can be temporarily ended or deferred: "a report you should track is ‘free cash flow’ which is the amount of cash available to do business."
4 - Talk with your experts:
Now is the time to discuss the potential of a longer-term financial slowdown, or even recession with trusted financial advisors, said Sorensen, stressing that “preparation is essential”.
5 - Have a bank line of credit in place:
“Banks loan money to people who can prove they can repay it, so don’t wait until there is a need to get a line of credit set up,” he said.
6 - Stay close to clients:
“They will face the same challenges you do, so connect and assure them you will be there to help them through the chaos,” Sorensen added. “Find ways to bless them from afar but in a way that lets them know you are in the boat with them and thinking of them.”
7 - Take care of your people:
Sorensen acknowledged that school closings will create issues with childcare, with financial pressure potentially becoming an issue for some employees. “Listen carefully and help where you are able,” he advised. “This builds loyalty that is never forgotten.”
8 - Over communicate with your team:
“Everyone is facing a new normal and the more we can communicate the facts and details needed to serve clients, the more effective our team will be and more empowered they will act,” he detailed.
9 - Work remotely and productively:
Work from home will be the immediate reality for many, with Sorensen advising MSPs to do whatever necessary to enable employees to be productive outside of the office, and to share best practice examples with customers.
10 - EBITDA and the balance sheet matter:
“Don’t lose sight of the reality that you have to stay in business to be able to pay your team and serve your clients,” Sorensen cautioned. “There will likely be concessions that need to be made to help others but you have to keep perspective on the truth that bankruptcy helps no one. Care and help but don’t go overboard and destroy your own company in the process.”
11 - Pay close attention to sales pipeline:
According to Sorensen, projects will be disrupted and likely pushed forward, meaning MSPs must stay on top of where deals are while ensuring they don’t drop off but are continually moved toward a close.
12 - Evaluate your people:
“No one likes to consider downsizing during a difficult period like this,” Sorensen acknowledged. “But if it comes down to reducing your team or losing the business, there is a clear choice to be made. Create a RIF list (reduction in force) before it is needed so emotion and personal feelings don’t get in the way of making the best decision if it comes to that.”
13 - Planning is always a valuable tool:
Take time to plan for contingencies but also opportunities, advised Sorensen. “This too will pass, and as it does, there will be significant opportunities for those who are prepared and have a plan,” he said.
14 - Stay calm and press on:
“As leaders, all of us need to stay calm and keep things in perspective,” he added. “Sometimes that means we have to pretend a bit when we’re overwhelmed and unsure what’s next. But we simply need to put the next foot forward and keep walking.”
15 - Start planning for the celebration:
For Sorensen, people need something to look forward to so “plan a party and keep pointing people to something special to come when this is contained”.
Arlin Sorensen founded and served as CEO of HTG Peer Groups before HTG was acquired by ConnectWise in 2018. HTG, now IT Nation Evolve, is one of the most respected communities of technology service providers in the market today.