MSPs need to master demand-supply tension for sustained success, a leading entrepreneur has said, suggesting providers face key challenges in balancing being a great supplier while maximizing profitability.
To illustrate his point, he gave the examples of two types of business – an airline and a luxury watch maker – to show that becoming “wildly profitable” is not only about providing a brilliant service, but also generating demand for that service.
“You would think that a business like an airline would be highly profitable. It’s totally transformed humanity and provides an incredible service,” he said. “It’s an incredible business that has to be perfect in every aspect.”
But Priestley revealed that, even in the best circumstances, airlines operate on just a 7% profit margin. Whereas a luxury watchmaker like Rolex, for example, operates very differently but arguably to greater success.
Priestley explained that you often need to suffer through a waiting list to buy a Rolex and the company has “terrible customer service”, where it could take months to fix an issue with no updates on the progress of the repair.
He added that the firm hasn’t innovated on its products in decades, and its products are easily mimicked to a high degree of quality for a fraction of the price.
Although no person “really needs a Rolex” and its products have had nowhere near the same impact on society, the company is extremely profitable – operating at 70% margins – and this is because it has mastered the balance of supply and demand, Priestley concluded.
This comparison has particular bearing on the MSP ecosystem, he argued, stating that MSPs are too often laser-focused on the supply side, refining their tech stack and integrating as many professional services as possible without considering demand at all.
MSPs are missing a trick
Speaking to ITPro, Jason Howells, VP of Channels EMEA at Barracuda Networks, agreed with Priestley’s assessment, explaining because many in leadership positions at MSPs are technically-inclined, they can get lost in the weeds of providing the best service without
“They’re technically-led organizations, they’re not sales and marketing-led organizations. They will be a founder who comes from a technical background that will be working with one customer that they do a bunch of stuff for and some of those will expand out from that and build more customers based on what they’re doing for that one customer,” he said.
“Some of them get really stuck and have all their eggs in that one basket and if that one basket was to do something different then they’re in a world of pain.”
Priestley continued on this point, stating that the vast majority of MSPs are “not even close to being in that mindset”, referring to allocating resources toward ramping up demand. But if they are able to do so they can reap the benefits and transform their profitability.
Priestley concluded that MSPs will want to provide the best service possible and they should, but forgetting the other side of the equation will inevitably limit profitability.
“The one thing I really do go running around telling people all the time is the reason you get paid what you get paid has almost nothing to do with the value that you delivered,” he explained.
“It’s just the relationship between the demand and supply of the value of what you deliver. You take someone who’s a nurse in the NHS, literally saving lives but can’t get a pay rise because it’s easier to swap nurses. So there’s no demand and supply tension. It sucks, but it’s true. [But], if you take someone who delivers a pretty reasonable value with what they do, but they’ve got a waiting list, they can put their prices up.”
Ultimately, like any business, MSPs want people waiting in line to do business with them, who have “a little bit of fear of missing out”, according to Priestley, and this could be the answer to thriving in the channel ecosystem.
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