Why Smart MSPs Make Good Investments

Unfair advantage

For those institutional investors, owners and operators of Managed Service Providers (MSPs) wondering whether the managed services model is still viable, the answer is a resounding yes. Investors are looking for a safe place to put their money, especially under the pressure of slow economic growth and MSPs remain a safe bet for those seeking recurring revenue from resilient business models.

Arguably one of the biggest threats to MSPs is the emergence of non-traditional competitors that act as digital native disruptors and have an immediate advantage with a slick service offering. To combat this new wave of competition, many service providers are looking at ways to differentiate themselves through enhanced customer experience and the development of new products. The central pillar of this strategy is digital transformation.

However, transformation doesn’t solely apply to improving IT processes. It’s all-encompassing and must be directly linked to delivering a better customer experience. Only by adopting this approach will MSPs maximise the benefits and achieve a full return on transformation investments. For example, according to research by Deloitte, organisations that focus on a customer-centric approach are 60% more profitable than those that don’t.

Adopting a smart approach to business

Digital transformation requires MSPs to challenge traditional business processes by adopting an innovative approach that puts customer needs first. However, maintaining a balance between the need for change and keeping focused on core business values can be challenging. The reality is transformation can’t happen fast enough, but it’s a delicate process.

Transforming to a Smart MSP doesn’t happen overnight. The key factors to making it successful include the consolidation of disparate tools, integration of internal, external and third-party systems, and the automation of tasks and processes. But what makes a smart MSP stand out from the crowd?

• Lead with innovation: Implementing automation into service delivery is key to becoming a Smart MSP. It can significantly improve efficiency and reduce costs. Furthermore, adopting agile development methodologies will allow MSPs to provide more flexible and responsive services.
• Leverage technology: Differentiate from competitors by improving service delivery via new technologies. Using artificial intelligence, machine learning, and data analytics will improve the quality of services as well as provide a more personalised approach.
• Focus on client needs: Automation will help deliver improved, streamlined customer service and remove levels of complication. It’s also important to conduct regular client satisfaction surveys, gather feedback and use responses to improve services.
• Encourage employee innovation: Empower employees to propose new ideas and approaches. Challenge them to think outside the box to create a culture of innovation that rewards creativity and risk-taking.
• Continuous improvement: Don’t stand still. Use data and analytics to identify areas of improvement and implement continuous processes focused on improving service delivery.

Why investors should bet on Smart MSPs

Investors must be able to see a clear pathway to adding value to any new asset. Transformation may even present the opportunity to consider investments in challenged businesses that can be quickly integrated into a roll-up entity to reap higher future returns. Here are some ways that Smart MSPs deliver on their valuations:

• Predictable Recurring Revenue: One of the most attractive aspects of MSPs for investors is the predictable recurring revenue stream. MSPs typically charge clients a monthly fee for their services, providing a steady stream of revenue. This revenue stream is more predictable than other types of businesses, where it can be volatile and dependent on new customers or projects.
• High Demand for IT Services: The demand for IT services is on the rise, with businesses of all sizes needing help managing their IT infrastructure. MSPs are well-positioned to meet this demand, offering businesses access to advanced technology and expertise that would be too expensive to manage in-house. As a result, MSPs are becoming an increasingly critical component of many businesses' operations, making them an attractive investment for investors.
• Strong Growth Potential: The MSP industry is still relatively new, and there is plenty of room for growth. The demand for IT services is only going to increase as businesses continue to embrace digital transformation, making MSPs an attractive investment opportunity. Additionally, MSPs can expand their services beyond traditional IT services to include cloud computing, cybersecurity, and other advanced technologies, creating even more opportunities for growth.
• Recession-Proof Business Model: During times of economic uncertainty, businesses still need to manage their IT infrastructure, and MSPs can provide critical services that can help businesses stay operational. As a result, MSPs are less susceptible to economic downturns than other types of businesses, making them a safer investment.

Innovate and transform

For institutional investors preparing MSPs in their portfolio for the next stage, achieving transformation is fundamental. Only in this way can an MSP’s service operations and the underpinning technology that runs them be viewed as an asset, rather than be flagged as a potential risk during the due diligence process.

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