MSP Extinction Event

IT Business
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I spend a fair bit of my time considering doomsday scenarios – it’s a part of responsible business ownership to consider and plan for contingencies that may impact the business model. Many people believe otherwise, that only small course corrections need to be made over time, and those people already work as mediocre middle management if they were lucky to stay in the IT industry at all. No sense debating the dodo bird so let’s just be sensible and review the brief history of what likely leads to the next level of extinction.


Likely candidates

So what’s likely to take out the IT Solution Provider? I asked on Facebook.

Incompetence – Nope. IT is one of those industries where incompetence is par for the course, your job is piecing together stuff that naturally breaks.

Pot – Nope. Legalized pot just means more money changing hands and better economy. Plus more people interested in IT..

Franchising – Meh. Franchised IT is kind of like paying someone for a crappy marketing kit because she has red hair. Using

Cloud – Nope. Besides, most solution providers already rely on cloud solutions.

Bad at selling services – If they sucked at this they would have been long gone.

Retirement – True but not everyone is about to retire. Not to mention that this is the primary driver behind most successful IT shops – they are working harder and harder to be able to make someone else do their job while they live on the beach.

Let’s look at history

I’m a big fan of writing stuff down and looking at it.

Nothing is more sobering and defeating like having your own ego check your stupidity every now and then. Believe me, the archive for Vladville goes to July 2005 and it’s available right here.

What happened the last time the economy imploded?

What has changed since?

Who survived and why?

Cause of the next extinction cycle: The Economy

The last major IT extinction event coincided with the last major small business downturn: 2008/2009.

Up to that point pretty much all sorts of IT related businesses worked, even if they were totally illegal. SPF? Sure buddy, go ahead and reinstall Windows all day and call it a business. Action Pack Reseller? It’s cheaper than retail plus Microsoft sold it to us so why not. Y2K? Ok, I’m pushing it but a lot of people made a lot of money.

Then something interesting happened: The housing get-rich-quick scheme imploded and the IT businesses blew up almost overnight!

Small businesses immediately cut back on long-term infrastructure investment and froze purchasing of pretty much everything except the essentials.

Break-fix? More like bye-bye, the trunk slammers simply stopped getting the calls.

This didn’t affect some solution providers – it affected all of them. Banks froze the credit, pulled lines of credit some people were operating their business on, businesses started trimming their staff that they could no longer afford, office space got downsized (or eliminated) and people started closing down shop.

Folks like to pretend like this was a non-event and that only tiny corrections needed to be made.. but I can tell you of countless discounts and deferment arrangements I had to make for the “cream of the crop IT group/cult” that couldn’t even afford their office space much less SPAM filtering.

When economy takes the hit – everyone takes a hit – big, small, weak, strong, cutting edge as well as tried and true.

2008-2012 was the best period for us financially because we made the changes to go from an infrastructure-heavy data center business that virtualized tons of SBS to offering hosted cloud solutions in a shared environment. When people sobered up from their $10k+ Exchange projects they couldn’t wait to buy $10/month mailboxes and not worry about paying someone $100/hr every time it went down.

The economics, and landscape of IT, changed dramatically and pretty much eradicated the traditional IT model.

The folks that survived and thrived.. were the ones that could quickly scale back, had a plan in place, didn’t live above their means and had a reliable source of revenue to make it through the rough patch.

Now look at your client base: You know who they are, you’ve been to their offices and you’ve seen them do. Which ones will be around when the next economic disaster hits?

Can your business survive that? Cause there are only so many vendor jobs out there and most of them are hinging (very, very losely) on the prosperity of the IT VAR/MSP. So obviously, they are optimistic Smile

I on the other hand have to put the tools and services in your hands that will make it possible for you to both make significant profits today and hedge the likelyhood that the downturn in the economy impacts your bottom line enough to make a significant change in course.

Why the next one won’t be pretty

For the most part, the recent (20 years) economic collapses did not impact IT too much because IT was a highly skilled trade, even in small business.

Small business technology today is not that skill intensive. You don’t need the level of experience in a very diverse set of technical fields and most of the really complex problems have been solved – which is why the six figure IT guy salaries are very much a thing of a far distant past. Lots of high prized technology consultants and authors are far more latter than the former.

With the rise of consumerization, tablets, cloud services.. you don’t even need to be a $12/hour IT expert (aka Apple Genius.. and those guys get free tshirts) to get most of this modern stuff hooked up.

So as long as the economy keeps up, the gravy train keeps on chugging.

Now be honest, how much faith do you have in the leadership in Washington DC?

Start thinking. Small adjustments in the course have left an IT Solution Provider road covered with tombstones. It is important to have a structured business with multiple products, services and revenue streams because 1 trick pony is the first to get shot. Happy Monday!

P.S. Yes, I know this is just a problem and no solution is listed. Mostly because there is no singular solution that will apply to all businesses and the variations are immense. The threat is unique: We are paid well (as an industry) because we are now service oriented instead of product oriented. What that means is: We are paid to deal with IT because they don’t want to. Even though it’s getting easier and easier. Even though they could do it themselves. Because it’s easier to pay someone to deal with it than to hire an employee. But when the push comes to shove.. they might just do the service on their own. And you need a contingency plan. That’s my point.