Context is everything when building a growth strategy.
Quite often when I’m talking to MSP owners (and I meet a lot of new people every month), we get round to talking about the correct growth strategy for their business. And while I have dozens of different growth strategies tucked away in my head, as a consultant, my job is actually to figure out which are the right strategies for each of the business.
You see, the advice that you would give to a business is dramatically affected by the context of that business.
What do I mean by that? Well, let’s imagine there are two MSP owners
Let’s call them MSP owner A, and MSP owner B.
MSP owner A is 45 years old. He’s happy to do another 10, 15 maybe 20 years in the business. He’s making good money, he’s enjoying the work, and he can’t see him leaving that business anytime soon. He’s got young children, so he wants to spend time with them. But also wants to keep having the Audi RS6. He wants the nice house with the gravel driveway, and he wants to go on nice holidays with his nice family.
MSP owner B is in a wholly different situation. This gentleman is late fifties. He’s done his 20, 25 years, and he’s got one eye on the door. He’s ready to exit that business in two to three years’ time.
These two businesses could have the same turnover, they could have the same staffing levels, the same resource levels. They could be the same businesses next to each other, in the same street, in the same town, and yet I would advise completely different strategies for each of those.
For MSP owner A, there should be some aggressive growth strategies in place. That means aggressively going after new clients, because, of course, that business owner has 10, 15, 20 years to capitalise on those new clients and to take all of their lovely revenue (and one of the things we love about MSPs is how long clients stay with you).
It can cost a couple to several thousand pounds to acquire new clients.
If you want to figure out the cost of acquiring a new client for your business, take every single penny that you have spent on marketing in the last three years, including all the hours that you’ve put in yourself, and divide it by the number of new clients you’ve had. It’s almost guaranteed to be a four figure sum.
It’s probably a lot higher than you thought it was. So that’s the right thing to advise a business owner who’s got 10, 15 years left to do.
Whereas for MSP owner B, where he’s planning to get out in the next two to three years, he’s only got a shorter period of time to recoup his investment in new clients.
In a business like that, I’d be advising them to focus on growing net profits and monthly recurring revenue. Because ultimately when they come to put the business up for sale, they will get a multiple of EBITDA, or a multiple of monthly recurring revenue.
If they’ve only won a couple of new clients in those three years, it’s no big deal. It’s less of a deal than if their EBITDA was lower and their monthly recurring revenue was in decline.
So with MSP owner B, I would be focusing them on upselling to existing clients, using the profit matrix and strategic reviews, and doing everything in their power to account manage their clients to death and remain to have excellent retention.
As we head into 2020 and you start to put together a growth strategy for your business next year…
Whether that’s an informal one that’s in your head or a formal one on a piece of paper, please do bear context in mind. It really is absolutely everything.