Why local MSPs are obsolete

The days of the small, local Managed Services Provider (MSP) are numbered. It’s the industry’s little secret that no local provider will discuss with their clients, but it’s the talk of every industry event and peer group meeting.

Why local MSPs are obsolete

BY Dave DelVecchio |April 11, 2023|BLOG

Historically, most MSPs have been founded by an entrepreneurial network admin who accidentally starts a business when they start taking on more business than they can handle. The first milestone is the hiring of their first employee. If they can fix more than they break and aren’t so shy as to never ask for referrals, the founder often looks up and finds ten years have passed and they are a small business owner.

Our industry has been dominated by such companies, particularly in supporting clients in the small-to-medium business (SMB) category. According to MSP technology company Datto in their 2020 Global State of the MSP Report, 24% of MSPs report their businesses make less than $2.5M in annual revenue, and 69% of MSPs have fewer than 100 clients.

However, there are several challenges that small MSPs face that cannot be adequately addressed at that size that can only be mitigated at scale.

Cybersecurity risks

The increasing complexity of all things IT makes cybersecurity a primary concern. As much as smaller MSPs try to be cybersecurity experts, it’s an entire field unto itself that requires expertise and process. The costs associated with creating the ability to monitor and respond to threats 24×7 by a qualified Security Operations Center (SOC) and the ability to maintain regulatory compliance requirements of certain vertical markets are very difficult for a small MSP. Larger organizations have the resources to build-out in-house Security Operations and allow for the distribution of cyber security risks among a much broader ecosystem.

Recruiting and retaining talented people

There isn’t a small, local MSP that hasn’t suffered from lack of available talent. The challenges of recruiting and retaining people makes moving the ball forward on all aspects of running a small MSP that much more difficult. If short staffed, small MSPs are challenged with just trying to keep up with a normal workload and it’s very difficult to try to build out a comprehensive cybersecurity program.

In addition, talent is often lost to a larger organization which can be a more attractive place for many IT professionals as it allows them to have more focus in their role. Smaller MSPs, by necessity, need their engineers to wear lots of hats – project engineering, escalation tech, network admin, security incident response team, etc.) which can be stressful and, at times, a bit chaotic. Larger organizations allow people to focus on a career path and they often can provide better compensation and benefits packages through more mature HR functions.

As a result, it’s inevitable that a lot of smaller, local MSPs are going to conclude it’s best to integrate into a larger service provider. This benefits clients as this provides access to a greater depth of resources, and benefits employees by providing more structure and a more defined role.

Dave DelVecchio is the Sourcepass VP of Marketing and Communications. Reach out to Dave at (877) 678-8080.

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