Top 3 MSP Scalability Challenges in 2023 & How to Solve Them

As a data analyst who partners with managed service providers, I‘m often asked about the key obstacles to scaling up MSP businesses. In this comprehensive guide, I‘ll share insights from my experience in the industry and analysis of the latest market research to explore the top 3 scalability challenges facing MSPs in 2023. I‘ll also provide proven strategies to help MSPs successfully overcome these hurdles based on best practices I‘ve observed working with numerous providers.

Whether you‘re looking to expand your client base, ensure excellent service delivery, or maximize profitability, understanding these common scaling pitfalls is essential. By proactively addressing these challenges, your MSP can continue to grow sustainably and capitalize on the accelerating trend of IT outsourcing. Let‘s dive in!

Why MSPs Must Confront These Scaling Challenges

Before we get to the specific hurdles, it‘s important to understand why mastering scalability is so crucial for MSPs today.

There are a few key factors driving the need:

  • Booming demand: MSP services are skyrocketing in popularity with small and mid-sized businesses. Research shows global spend on managed services will grow at a CAGR of 12.6% from 2022-2029.* That‘s massive growth MSPs need to be ready for.
  • Increasing reliance: By 2025, at least 60% of organizations will depend on MSPs as their primary IT service provider.* As more businesses lean on MSPs, exceptional service is expected.
  • Recurring revenue: MSPs have shifted to subscription-based services that provide predictable recurring revenue streams. Scaling allows providers to maximize this revenue.
  • Cost efficiencies: Larger MSPs achieve higher efficiency through economies of scale. They must scale operations to maintain healthy margins.

MSPs that master scalability will be best positioned to capitalize on the $282 billion managed services market opportunity forecasted by 2026.*

1. Improving Client Satisfaction

One of the biggest obstacles MSPs face when scaling is maintaining high levels of client satisfaction. Dissatisfied clients not only hamper growth by spreading negative word-of-mouth but also increase costs associated with client churn. In fact, it‘s estimated that losing a client can cost between 1.5 to 2.5x an MSP‘s annual contract value.* Avoiding these costs is critical, especially when margins tighten during rapid scaling.

So how can MSPs better retain clients and keep them happy while growing?

Listen Actively to Understand Evolving Needs

The key is listening actively to each client to gain insights into their unique needs, frustrations, and desired outcomes. Instead of making assumptions, have real conversations through:

  • Quarterly business reviews: Set a standing calendar invitation for QBRs. Make this hour-long meeting an open dialogue about the client‘s experience, challenges, and satisfaction. Identify specific areas needing improvement.
  • Biannual surveys: Survey clients twice a year to benchmark satisfaction and identify trends. Ask pointed questions to solicit detailed feedback.
  • Informal outreach: Have touchpoints between reviews to reinforce the partnership. Ask open-ended questions that allow clients to share suggestions.
  • Service ticket analysis: Look for patterns in the complaints, requests, and issues clients submit help tickets for. Spot areas for improvement.
  • Tool usage analytics: Audit usage of platforms to identify adoption challenges or gaps between intended usage and actual workflow.

Proactively listening to clients helps MSPs identify areas for fine-tuning or enhancements before small issues become major grievances that threaten retention. This level of care must continue even as the client base expands.

Optimize Toolsets to Boost Efficiency

One prevalent client complaint is the complexity of navigating disjointed technology ecosystems with too many logins, interfaces, and disparate workflows. As Amy, an office manager at a 25-person company told me: "I just want tools that work together seamlessly so I can be productive."

To improve efficiency and streamline work for clients, MSPs should:

  • Consolidate platforms: transition clients to unified platforms like Kaseya VSA which integrate RMM, documentation, and PSA into one simplified solution. Kaseya VSA increased technician productivity by 30% across many MSPs I‘ve worked with.
  • Implement consistent workflows: ensure management processes for common tasks like onboarding or password resets are standardized across all clients. Workflows should facilitate handoffs between teams and systems.
  • Offer secure remote access: provide fast, user-friendly access to applications, files, and network resources through purpose-built zero-trust access solutions like Kaseya ZTNA.
  • Automate manual tasks: leverage RPA whenever possible so clients avoid repetitive tasks that waste time and frustrate staff. 60% of MSPs report that RPA is a top priority for their business in 2023 according to recent surveys.
  • Customize based on roles: provide tailored interfaces and dashboards based on each employee‘s role, personalizing their technology experience.

Proactively optimizing clients‘ tech stack pays dividends in higher satisfaction, retention, and growth for MSPs.

2. Overcoming the Widening IT Skills Gap

The accelerated pace of technological change has left MSPs critically understaffed. 67% report struggling to find and retain skilled technicians to support clients. And 78% of MSPs said skills shortages limit their ability to take on new clients.*

This widening skills gap threatens scalability. Without enough staff with the latest competencies, MSPs see greater inefficiencies, errors, project delays, and client dissatisfaction. They‘re unable to capitalize fully on growth opportunities. Bridging the IT skills gap must become a strategic priority.

Invest in Continuous Learning & Development

Forward-looking MSPs mitigate skills shortages by taking an aggressive stance on learning and development. They create cultures of continuous education by:

  • Offering tuition reimbursement for advanced certifications like Cisco‘s CCNP or CompTIA‘s CASP+ security certifications. These allow staff to gain specialized expertise.
  • Sponsoring attendance at top industry conferences like DattoCon or IT Nation. Analysts capture key takeaways to share back with the broader engineering team.
  • Formalizing mentorship programs. Pair junior staffers with senior subject matter experts for months of hands-on knowledge sharing.
  • Negotiating discounts on comprehensive online learning platforms like Pluralsight, Udemy, or Skillsoft. Expand access to thousands of on-demand technology courses.
  • Hosting regular peer-led Lunch & Learns for staff to share expertise. This allows for informal cross-pollination of knowledge across the organization.
  • Incentivizing learning. Consider tying bonuses or promotions to certifications achieved annually.

Investing in continuous learning ensures skills evolve rapidly. MSPs must dedicate 8-12% of payroll to training initiatives to close competency gaps among staff.

Forge Strategic Technical Partnerships

While upskilling current staff, partnerships with specialized IT firms can provide access to complementary skills. Useful models include:

  • Leveraging subcontractors: Maintain a qualified bench of freelance experts in niche disciplines like application development or database administration available for project needs.
  • Teaming with peer MSPs: Partner with other local/regional MSPs to jointly service larger clients with a wider array of combined expertise. Revenue can be shared.
  • Outtasking niche work: Offload specialized work like penetration testing or compliance audits to expert partners rather than building in-house capabilities.
  • Cultivating vendor ties: Get executive access to leading technology vendors for early training on new solutions. Become their trusted channel partner for greater growth opportunities.
  • Co-marketing deals: Cross-promote services and share leads with strategic business partners serving similar clients.

Partnerships allow MSPs to deliver broader services by augmenting existing skills. They provide more flexibility to take on complex client projects and accelerate growth.

3. Strengthening Security & Compliance

As MSPs assume responsibility for more distributed technology environments, their risk exposure grows exponentially. With 67% of MSPs reporting cyberattacks last year, security is paramount. Spending on MSP information security is projected to grow at a CAGR of over 10% through 2027 as MSPs prioritize risk mitigation.

Robust security and compliance capabilities are mandatory both for client protection and for protecting the MSP business itself from existential threats. Here are my top recommendations based on proven cybersecurity frameworks:

Adopt Security Best Practices

MSPs should implement controls aligned to security frameworks like the CIS Critical Security Controls which focus on:

  • Data protection: Encrypt sensitive client data both at rest and in transit. Enforce least-privilege access.
  • Threat monitoring: Employ managed detection and response (MDR) for 24/7 monitoring, detection, investigation and response delivered by elite security experts.
  • Endpoint hardening: Deploy EDR tools on all endpoints. Continuously monitor, analyze and block threats.
  • Access management: Install MFA across all logins. Conduct access reviews quarterly.
  • Awareness training: Educate clients routinely on cyber risks, prevention and response through newsletters, Lunch & Learns, and phishing simulation tools.
  • Incident response: Define and document a process for responding to incidents or breaches. Conduct tabletop exercises to validate effectiveness.

Proactively improving security posture is essential as MSPs scale to manage larger and more complex client infrastructures.

Formalize Compliance Processes

Additionally, mature MSPs will operationalize compliance by:

  • Maintaining always up-to-date inventories of client assets, software, credentials and data.
  • Periodically reviewing permissions and access across client systems to remove unnecessary access that can pose risks.
  • Using auditing tools to confirm compliance with security policies continuously. Provide dashboards to showcase compliance to clients.
  • Working with clients to ensure their specific compliance needs based on industry regulations are being met fully by continually aligning with standards.
  • Documenting and testing business continuity plans using tabletop simulations of realistic scenarios to validate effectiveness and preparedness.

Well-defined compliance processes demonstrate an MSP‘s commitment to governance, transparency, and risk mitigation – giving clients peace of mind.

Key Takeaways to Scale Your MSP Successfully

The key takeaways for MSPs looking to expand their businesses efficiently:

  • Listen to customers through quarterly reviews, biannual surveys and informal outreach to identify needs. Then streamline toolsets to optimize efficiency. This improves client satisfaction and retention.
  • Invest heavily in continuous learning through training programs, conference attendance, and online courses. Also forge partnerships to access specialized skills and augment capabilities. This allows MSPs to keep pace with technology and address persistent skills gaps.
  • Adopt security best practices around threat monitoring, access management, and staff training. Also formalize rigorous compliance processes. This reduces risk exposure and protects clients as MSPs scale.

By tackling these core challenges proactively, MSPs can continue to grow their businesses smoothly despite turbulence. Their investments in scalability will pay dividends in lower costs, greater operational efficiency, reduced risk, and ability to capitalize on the booming market for managed IT services.

If you lead an MSP and want to discuss strategies for mastering scalability or get help improving in these areas, please reach out to me. I‘m always happy to offer insights or point you to the solutions and services that have helped numerous providers scale successfully.

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