MSP companies go through three stages of business growth to be successful. The first stage is up to the $1 million mark.
I know most MSP owners don’t like this, but it’s kind of proof of concept because most business owners can bootstrap to a million bucks. Kevin O’Leary, of Shark Tank, says $1 million is what they consider proof of concept. It requires heavy investment in the sales and marketing because at that stage, all you’re doing is customer acquisition.
The one question they always ask everybody is: What’s your customer acquisition costs?
P.S. If you don’t know, they don’t do a deal with you because what you’re signaling to them is you don’t understand marketing, right?
Marcus Lemonis was just doing this with a small business owner. He asks what their customer acquisition and lead cost is. They didn’t know, and he got after him. As a small business, you need to know this, because this is your biggest expense. It requires a heavy investment in the sales and marketing.
Click here to watch Marcus Lemonis share what MSP’s need to do right now.
79% of the MSP industry never gets beyond this stage.
Stage two is one million to five million. This is the valley of death, and I went through it myself. Between $1 million and $5 million with $3.5 million being the deepest, darkest part of that valley.
If you work hard, you implement the campaigns, then you’re going to be able to hit the $1 million mark. Where you’re transitioning from $1 million to $5 million, you have to learn the next skill.
You have to learn how to hire and delegate.
I deal with this problem all the time with Producers Club Members. They come to me and tell me that they’re trying to do multiple things at once. I constantly ask them: Do you have a marketing person? Do you have a marketing admin? Do you have a salesperson? They answer, no.
The reason you’re struggling, stressed, and overwhelmed is because you’re trying to be part time CEO, part time HR, part time lead tech, part time help desk, part time admin, part time payroll, and a part time bookkeeper.
You can’t be effective at any of it, and you’ve got to start learning how to hire and manage people. This was the hardest thing for me. Marketing is easy for me, but you cannot grow a company on your own back.
You have to start hiring people and managing people.
The first hire you should make is to hire a good admin. If you currently don’t have a good admin, then you are one. They can do a lot, they can do list cleaning, they can get newsletters out, they can proofread, etc. Don’t hire a marketing manager because they’re going to want a $60-70K salary. Hire an admin, and hire someone who’s sharp, detail oriented, and direct with their work. That’s the best thing you’re going to do.
And then after that, maybe think about a marketing manager. And, if you’re focusing on sales, an appointment setter is the next best hire. This is someone who’s going to call and make appointments for you.
When I find someone good, I hire them. Then I’ll find a place for them. A good employee on your team can multiply your business. You need to constantly be looking for those people.
So, step one, there’s a more sophisticated sales and marketing approach. Step two requires the hiring ability to manage a productive team while you learn to run the business.
Profitability may dip during this phase because you’re reinvesting and may be screwing up here and there.
If you make a lot of mistakes, that’s OK.
As long as you don’t do it forever and put yourself out of business. Your profitability might be 5% or 10% because you’re hiring people. Everybody always talks about “top line is for vanity, bottom line is for sanity,” but you also have to understand that there are years to reinvest big chunks of money into the business. For example, if I buy a piece of real estate in Florida for $4 million, I wouldn’t expect to get $8 million back within the next month.
So you have to look at your business where you’re doing these strategic investments in people, in technology and process, in CRM systems, in marketing. And you’re putting your money on the table and investing in yourself.
The third stage, once you get past five million, is where people start to take off. When I got to six million, I literally said, “I’m not even going to try to grow”, and we grew 30 percent the next year.
You start to get the right people, you get the right marketing, you get the right target market, you get the right message, you get all that and it just starts to work.
If you get to $5 million, you can get to $50 million.
This might require expansions within your company:
- You might expand your market outside of a 20-30 mile radius.
- You might set up a cybersecurity division.
- You might set up a telephony division.
- You might set up an application development division to serve your customers where you see the opportunity.
You’ll start to build circles around the core business in order to grow. This will also strengthen your business, all your money isn’t in one bucket. Your business grows to multiple buckets, which requires the building of a leadership team. Danny Hawman runs the MAP Division. Allison now runs our Done For You division. Jeff runs Big Red Virtual. Ryan and Will are now running Producers and Accelerators Club.
Once you’re in phase three, you’ll start to find that your first question is: “Who am I going to hire?” Then you’ll put that person in and have them run it and feed it cash like an investor.
Tom Glover, President of Responsive Technology Partners and two-time Better Your Best Competition finalist has gotten to a place by growing through acquisition.
An MSP owner, Tom Glover presenting in the Better Your Best competition at Boot Camp.
He’s gotten to a place where he’s now thinking like an entrepreneur. He has a sales team, he has a marketing team, he’s got a technical lead and team, and now he’s doing acquisitions and growing his business.
This is typically where most of the money is made from $5 million you’re reinvesting and reinvesting, and from there you’re going to grow.
