Vertical Expertise: The Best Defense Against IT Services Commoditization

Pick a market—at least one market—and prosper. Numerous channel partners have used that philosophy over the years to build successful IT service businesses, from healthcare and banking specializations to k-12 education and municipal government support. Some used to be accountants or attorneys who developed applications to improve their own practices, and then decided to share their expertise with former peers. No matter how they get there, many MSPs who can differentiate their businesses with specialized services increase their value (and profitability) with the clients who need that particular type of support.

With just a couple clients in each industry, each support request can be a learning experience and customization becomes the norm. When the majority of an MSP’s customers are in a particular market and share similar systems and workflow, it allows the provider to standardize many of their own procedures as well. For example, a provider who focuses on healthcare may create a solution template to offer doctors’ offices, which can be tailored to fit the specific needs of each office. Rather than reinvent entire systems, they develop a standard implementation that makes it easier for their technical team to install and support. In effect, company employees become specialists in those systems, able to diagnose issues faster. Repeatable processes typically reduce the amount of labor required for an MSP, which can reduce costs significantly over time.

None of this is new. In fact, verticalization is one of the most recommended channel best practices ̶ and there is no better time for those who don’t have a specialization to get in the game. The reality is that cloud and managed services have lowered the barrier to new entrants, making it easier than ever to build an IT support business. These technologies are also breaking down geographic borders, allowing MSPs to expand with geographically with few limitations. National and global competition is already here. Whether your customers are being bombarded by the local internet firm or a large cable company, as the competition heats up, the profit potential for basic IT support is quickly being driven down.

The best defense against this commoditization threat is specialization. Today, more than ever, building and growing a vertical practices make real business sense for MSPs. They present a solid option for those willing and able to build the specific set of services that market needs and a crucial component of that portfolio is often the entry point for new clients…the assessment. From reviewing a company’s current systems, processes and internal policies to evaluating its existing security and industry compliance procedures, it allows an MSP to identify gaps and develop a plan to address shortfalls. More importantly, it lets providers become part of their clients’ long-term strategies. The assessment gets prospects beyond the “speeds and feeds” and cost discussions, allowing them to move beyond the IT infrastructure to become more valued business advisors.

 

Expertise=Margin

Spreading any organization’s development and marketing energy between several different markets and objectives, without the employees and financial resources to do it, is both unwise and unsustainable.

Industry experts do agree on the proverbial, “jack of all trades, master of none” philosophy. While most MSPs typically manage clients from multiple markets when they open for business, those same customers can be a detriment to their growth over time. They pull resources in a number of directions based on their individual needs, and the processes are often non-repeatable. That creates huge inefficiencies and adds costs that diminish an MSPs competitive advantage, especially if a competitor could do it faster and cheaper.

When MSPs start focusing on one or two key industries, their teams can develop standard processes and hone their skills and knowledge related those particular businesses. The transition can be a challenge, but if the market opportunity is substantial, the return on investment for building a new practice can be substantial.

Take the legal vertical as an example. An MSP will need the technology expertise required to support these clients, as well as someone with the ability to market and sell to lawyers and staff members. They don’t need to be legal scholars, but have to understand the terminology, procedures and office protocols. Hiring full-time employees with those specific skills can be hard to justify, as can making major investments in training and other vertical-specific tools. The good news is that less costly options are available, through partnerships with vendors, distributors and, yes, peer providers.

MSPs should explore all the possibilities. After identifying the best potential markets for your particular organization (industry and regional research, as well as talking with actual prospects), invest some extra time discussing the various options with possible partners.

Look inside the organization as well. Could current employees take on greater responsibilities (with the proper training)? Consider redeploying them part-time to a new vertical focus. For example, a highly motivated tech could become their legal software support specialist and some of his or her previous duties could be outsourced to a third-party helpdesk. Low risk and easily reversible if things don’t go as planned.

Verticalization is more than just a hedge against service commoditization. These practices, when done well, forge stronger relationships between MSPs and their customers . Providers become true advisors and gain greater insight to their clients’ long-term business needs, and that creates greater value for everyone.

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