Q: Right now, we have more business than we can handle, and cash flow is exceeding our projections for the year. Still, I get nervous and worry about the next downturn. Is there something I should be doing now to prepare my MSP business for the next recession?
Recessions are scary, but with a little planning, you should be just fine. Not all recessions are created equal. Some are short, mild, and industry specific (like the manufacturing recession of 1991) while others are long and seem to hit every industry (for example the Great Recession of 2007-2008).
Economists are worried about the national economy with over half predicting a recession within a year. Still, most MSPs remain optimistic about the near-term future.
To understand what MSPs can to do to blunt the impact of an upcoming recession, we turned to Dr. John “Skip” Benamati. Dr. Benamati sits at the intersection of business and technology as a professor and Chair of the Department of Information Systems and Analytics in the acclaimed Farmer School of Business at Miami University in Oxford, Ohio.
Dr. Benamati expresses the same optimism that many MSP owners have: that the next recession might not ravage the tech industry the way past ones have.
“I am not sure the next recession will be a tech recession. When the economy turned bad in the past, companies ratcheted their spending on tech back. In the last couple of downturns, doing more with less by leveraging technology in effective ways became more prevalent,” recalls Benamati. That is good news for MSPs.
“For example, (during the last recession) the hiring of our Information systems students remained pretty solid. Companies are more dependent on tech and managed services now than they have been in the past,” states Benamati. This makes MSP packages less likely to be scrapped during tough times.
Making your MSP indispensable is vitally important, especially during a downturn.
“A company leveraging managed payroll service can’t simply decide to stop that spend because of a downturn. They still need to pay those employees. Those types of MSPs should be in solid positions,” predicts Benamati. Think about different services you could be offering that make your MSP an integral part of an enterprise’s ecosystem.
#ManagedServiceProviders can prepare for an economic #recession by offering services that make you an integral part of your customers’ ecosystem. #AskanMSPExpert
What about that excess cash flow? Use it to solidify your MSPs indispensability.
“Excess cash now should be invested in staying in those types of positions, as competition is always fierce and increasing,” advises Benamati.
“There will always be debate whether companies should respond to a recession by focusing on core services or offering a diversified portfolio of services to better insulate against a recession. Each MSP is going to be different in that regard. Other expenditures should be made now to better inoculate against a downturn, including services that help customers make it through a downturn.”
“I would invest in whatever makes my company different and competitive. Service enhancements, R&D, intellectual property, whatever it is. These are the things that will matter most during tough times,” explains Benamati. Keeping an eye on the competition and catering to customers going through tight times is also key.
“If whatever service an MSP offers is delivered “better than” the competitors’ offering and customers need it to be successful, they will make it through hard times,” explains Benamati.
Invest in core competencies
So now is the time to create a checklist. What is your MSP’s strength? Certain industries tend to be hit harder in recessions (manufacturing, transportation), while others tend to be more recession-proof (healthcare and education). Go after those recession-proof clients now while times are good.
Ironically, MSPs should tap into their own expertise – technology – to get through the tough times.
#MSP tips to prepare for an economic downturn: Build your customer base in more recession-proof industries like #healthcare and education. Focus on your strengths to make your MSP indispensable.
“Small MSP companies should focus on core competencies and leverage larger cloud-based MSP’s infrastructure for everything that makes sense. Instead of investing in their own equipment and personnel to run and manage infrastructure, rely on cloud providers to do so,” recommends Benamati. Doing this will make an MSP nimbler when customers are sparse.
“This will allow them to scale up and down as needed and provide more ability to ride out a downturn should one occur,” details Benamati. Doing so also shifts some of the recession fallout to larger customers.
“It essentially moves some of that risk to the bigger cloud-based infrastructure providers. MSPs should be investing in technology and the personnel needed to enhance whatever it is that makes the business unique. This type of thinking is what will make smaller companies less vulnerable to a downturn,” describes Benamati.
Follow this advice, lean into your MSP’s strength, so that when the next recession hits, you’ll be able to say, “I’ve got this.”
Photo: JMiks / Shutterstock