This is a story we see play out with MSPs repeatedly:
- We meet an MSP owner feeling intense price pressure, unable to pay him or herself, and unable to hire others.
- They bounce back and forth between delivery and sales, doing each at about 80% and making nobody completely happy, especially themselves.
- They charge a meager price, often well under $100 a seat.
Invariably, they believe that adjusting their price will lead customers to run to another MSP, leaving them with nothing.
And they’re wrong. Always.
Demand for MSP services is ballooning, there is not enough supply to keep up, and there is no reason you should be under price pressure.
So why do so many MSPs struggle to raise their prices? Because they sell a commodity product that is no different than anybody else’s. In this post, I explain how to create your unavailable competitive advantage.
What is a competitive advantage?
The model we like comes from David Collis and Michael Rukstad, which they published in their HBR article, “Can You Say What Your Strategy Is?”
It’s a simple model that has proven very useful across industries and has formed the basis of our strategy work with MSPs since we began advising.
The idea is that there are three factors in your offer: what the “Customer Needs,” the “Competitive Offering” to address those needs, what you are good at, and your “Company Capabilities.”
Picture these as a Venn diagram, with each a circle and all three circles overlapping.
In every case, there is some overlap between what you do and what your competitor does, some of which matters to your customer, and both you and your competition have overlap with the customer needs. Your differentiation, or your “competitive sweet spot,” is where your offering overlaps with the customer’s needs but does not overlap with the competition.
That sweet spot is your competitive advantage: where what you do intersects with your customer needs and differs from the competition.
The Commodity MSP Problem: why MSPs feel competitive pressure
In the past, MSPs could sell technical knowledge. Technology was broad enough and vague enough that every business wanted it. They knew they needed “technology support,” but they either didn’t want to pay a full-time person or couldn’t afford it, so they hired technical experts.
Also, there was more variability in tech. There were different protocols to deal with (remember Token Ring?). Each setup was different, so the support for each configuration was differentiated.
Today, the tech part of technology is largely commoditized. Therefore, any MSP selling technology is essentially selling the same thing as every other tech company selling technology.
The competitive sweet spot, in this case, shrinks to a sliver, and nobody addresses customer needs.
This leads to frustrated customers who always want more while always wanting to pay less. As an MSP, it can feel like you are being pulled in a million different directions at once.
At the base of this is customer dissatisfaction. They aren’t getting everything they need and, therefore, they are frustrated.
How to know if you are a commodity MSP
The test is pretty straightforward. When we ask MSPs who their target customers are, we generally get one of four answers:
- The honest answer: “Everybody.”
- The clever answer: “Anybody whose check will clear.”
- The trying to target a specific market but actually not answer: “SMBs” (see 93% of businesses are SMBs, and I’ve never seen anyone target SMBs but turn down a multiyear multimillion-dollar contract with a large company).
- And the trying to use fancy words answer: “We are agnostic.”
These answers indicate that you are not differentiated and are trying to compete in a highly competitive, commoditized market.
You look exactly like everyone else.
Which leads to the frustration and price competition we discussed. That’s why we say that agnostic is where MSPs go to die.
Or perhaps a fate worse than death: survival. The better option is to create your unassailable competitive advantage and thrive.
How to create your unassailable competitive advantage
The nifty thing about using a model is that it shows you where the opportunity is.
It’s in customer needs. Customers have huge unmet needs. Everybody is so focused on technology and competing in the same agnostic space that nobody is paying attention to the customer.
To create your unassailable competitive advantage, learn about and focus on a customer type.
Focusing on your customer aligns your services to your customer’s needs, makes them happier, and helps you turn that sliver of advantage into a massive yellow-shaded barrier to entry that your competition will be hard-pressed to copy.
I don’t mean focusing on a single customer; it’s about focusing on a customer type an avatar, or a niche. Joe’s first MSP served personal injury attorneys who used Saga. That’s it.
Since he was the only one with this offer, the lawyers tripped over themselves to hire him. His price could be whatever he wanted, and there was zero competition. He’d present his proposal and tell prospects: “We are more expensive than anybody else you will get a quote from. But we know Saga; we integrate it with your expense system and ensure you have all the data when you need it. You win cases more easily and make more money.’
Or something like that; the point is he was more expensive, he told people he was more expensive, and they hired him. (Or didn’t, which was fine; he worked with the lawyers who wanted his services.)
On the competitive front, we surveyed MSPs, and less than 30% claimed specialization. When we dug into it, less than 10% were actually specialized. There are about 40,000 MSPs in the US. If 30% are specialized, a specialized MSP has an immediate competitive advantage over 28,000 MSPs. If only 10% are specialized, you compete with only 4,000 MSPs.
And that 4,000 is a dramatic overstatement because all the specialized MSPs focus on different niches. In any given niche, you are looking at dozens of competitors nationwide. So you go from one of thousands to one of a few dozen.
That’s why we call it an unassailable competitive advantage.
It helps you too…
Another benefit to defining your unassailable competitive advantage is that it helps you get better at what you do.
Since you focus on a narrow customer segment, the universe of software and issues you support shrinks dramatically. Your team solves the same problem repeatedly, so you can capture the solution the first time and save time every single time you solve the problem.
This is intellectual property, allowing you to deliver a higher level of service with less effort and for more money.
So, define your unassailable competitive advantage
The riches, they say, are in the niches. This post explains why.
A highly valuable company exists to solve problems for a customer type. The better you do that, and the narrower the customer type, the more valuable you are and the more efficient your delivery.
So now, get started on your unassailable competitive advantage.