MSP Contracts: The Good, the Bad, and the Secrets to Getting the Best Value for Your Business

Todd Nielsen: Okay. This is Todd Nielsen at JMARK Business Solutions. We have Thomas Douglas, Dax Bamborough,  and Kristina Coons. Welcome to the JMARK Business Innovation Technology Experience. Today we’re going to be talking about contracts. Contracts are a touchy topic among MSPs. Since there’s so much risk in the world, so to start off, Tom, we’ve talked a lot about month to month contracts in the past. We’ve seen a lot of competition, a lot of IT companies that are offering these month on month contracts, generally, they’re smaller companies and trying to get the foot in the door. Can you explain some of the things that you’ve seen? Why these contracts aren’t quite as wonderful as they seem to appear?

Thomas Douglas:  Yeah, it’s a good, good question. Good topic. In the technology industry, when you have a organization that’s less mature, they don’t know how to demonstrate the value. They don’t know how to create a long term partnership. So the way that they overcome that essentially is to try to avoid it. So by putting in the short term contract, it reduces the sales barrier. The problem with that is that it demonstrates that they don’t have confidence in their own ability to demonstrate value for the long-term, managed service providing services, organizations who provide managed services should never look at things for a short period of time.

Thomas Douglas: When you when you invest in a technology stack, you invest in that stack for a period of three to five year. If you go in and you invest in you rebuild an environment, and three to six months later, another provider comes back in and adopts that or sees that technology, they’re going to need to make changes to it. They’re going to need to re-engineer it. They’re going to want to potentially even replace some of the infrastructure that’s in place.

Thomas Douglas:  Therefore, you’re reinventing the wheel every time you shift providers. So what’s most important is to get engaged with an organization that that you want to work with for a long period of time. So there’s cultural conversations, there’s technology stacks, there’s investments, there’s what happens if you fail to provide the services. Making sure that you are partnered with the right company, that you’re aligned for the long-term. From a business owner perspective, most importantly, that there’s enough teeth in the agreement that you can hold the manage service provider accountable for providing the promises that they’ve committed to in the sales process and in the agreement itself.

Todd Nielsen:  I think that, I don’t know, just thinking back, a lot of people might look at an explanation like that and say, they’re just looking for the long term commitment in terms of pricing structure. What I think though and from what I’ve seen is a lot of people don’t quite understand what happens with an MSP that’s offering these short term services and what happens with an MSP that’s offering this long term contract. There is a drastic difference in the onboarding in the level of services provided and in the investment. I mean, somebody that’s invested for the long haul, they take the time to get things set up right. They take the time to make sure that systems are running properly. They take the time to make sure your strategy, your long term strategy is set up. Whereas the short term, they’re just trying to get in the door to get the deal. They’re just really reactionary. They’re fixing things.

Thomas Douglas:   Yeah, there’s no way that they can justify making the substantial outlay or the substantial investment into a network to get all the best practices implemented, to make sure that it’s prepared for the long haul in an environment like that. They can’t justify it. In our organization as an example, we’ll throw enough labor at just the onboarding process, that it really takes almost eight months for us to see an ROI associated with that investment because it’s so substantial, hundreds and hundreds of hours go into making sure that the network is at best practices, that has the right security implemented, that is running at an optimal level.

Thomas Douglas:  We try to do that all upfront. It’s because of that investment upfront that shows that we’re committed for the long term. If we just have a an agreement that’s month to month, I can’t throw eight months of labor into one month’s timeframe and cross my fingers and hope that it’s going to work. That that’s not what it’s about. When you develop a true partnership, you’re committed to the long term. It’s like a marriage.

Thomas Douglas:   You don’t get married and then get remarried every month. You get married and you stayed married long term because you’re committed to the long term outcomes of business. If that means that an organization needs to take more time and do due diligence on the organization before they make a commitment, then the time should be committed upfront to ensure that the partnership is aligned, not go into it and just “Oh well, nevermind, we can we can fire him if it doesn’t work out.” Because you can pretty well guarantee at some point, that’s going to occur.

Todd Nielsen:  Yeah, it’s a drastic difference. I think it’s amazing why people look at this at short term, it’s going to be cheaper, I can get out anytime I want or test the waters. But ultimately just testing the waters, you’re making your employees suffer and it’s just not … You’re not getting everything set up for the long haul and make things right.

Thomas Douglas:  Yeah, ultimately, you want to get the network as healthy as possible right from the very beginning, not in maybe incremental in the way. You really want to narrow down and get it up to those standards, mitigate any security risks. That requires that substantial investment. Right.

Dax Bamborough:   I always think the idea of testing the waters is for something that you’re going to dive into, you’re testing the waters because you’re going to dive in and invest, getting all the way in the water, not testing the waters to only walk away quickly thereafter. So testing the waters doesn’t make any sense if you’re not going to commit to the same extent.

Todd Nielsen:   Can’t get clean if you just dip your toes in.

Dax Bamborough:  Exactly. I was interested in what you said, Tom, that I think maybe some other business leaders don’t think about. They’re thinking from their perspective of what they’re investing, the money that they’re spending on MSP, on IT services, but maybe talk a little bit more about the investment that JMARK is putting in. You mentioned all the time that now the labor that goes into getting things ready to go on the onboarding process. I think that’s a perspective that maybe the other business owners don’t see that JMARK when we’re going out and bringing a client on board, we’re also investing in them because of the marriage type thing that you talked about.

Thomas Douglas: Yeah, absolutely. Well, from the very beginning of the process, and in conjunction with that, Dax, one of the things that a lot of business owners think is that transitioning into a managed services service provider is really painful. I can tell you that in some cases, that’s true. But we’ve done it so much now that it’s actually not painful at all. It’s a very fun and an exciting time for an organization where we come in and we actually spend the time to interview every employee in the organization and find the things that they like about the environment. What are the challenges that exist, sort of those funny errors that pop up in their world that they don’t tell anybody about, that are just there.

Thomas Douglas:   We find all of those things. We compile those into a great big list to determine what is going on in the environment that we can fix at a global level. Then what’s going on in the environment that we needed to fix at an individual level. Then we create a plan to go through and do those. It involves things like interviewing the C suite to make sure that we have clear expectations of their backups and disaster recovery strategy, how much capability or tolerance do they have for downtime to make sure that the servers are designed for that. So if they want five nines, no problem. There’s a set of servers and a design that facilitates that. It’s more expensive than one that’s 99 point or 98.9% of time. So it’s really designing the environment around what those customer expectations are.

Thomas Douglas:  That takes a lot of time, a lot of work to make sure that there’s clarity, the biggest frustration that business owners have around their IT infrastructure is the mismatch between the business owner and the geek. So our job is to come in and to bridge that gap so that we drive clarity. That’s done initially in the sales process. Then it’s continued all the way through the onboarding process, where we can show a deliverable who says, “Hey, here’s what you asked for and here’s what we’re delivering at the end of it.”

Thomas Douglas:  That obviously requires some of the best engineers in our organization to ensure that those promises are met. Those guys aren’t cheap, but they do a fantastic job. So it’s that long term commitment, that long term view of success that allows us to make those investments up front to make sure that we check all the boxes, and then we get the clarity between the business owner and the technology team.

Todd Nielsen:  The other thing on that, that’s related to that is is the risks from the standpoint of when you’re looking at a short term contract versus a long-term contract. There are just so many more risks that are involved in somebody offering a quick fix short-term solution versus a long term solution. What thoughts do you all have on a short-term contract related to all of the security risks that there are in the world? I mean, what would you expect to get?

Thomas Douglas:  Well, I think things fundamentally and first, an organization that just operates with the short term agreements, doesn’t have enough strength in their business in order to put the right insurances, the right policies, the right procedures, to go through the right certifications in place to make sure that their business is properly protected as a managed service provider. If if they’re not taking the time to protect their own business that way, are they going to take the time to protect your business that way.

Thomas Douglas:  They just don’t have that long term view of making sure that people are being trained properly, that all the policies are set up on the network that matches the expectations of the business. That the best practices that continue to come out from Microsoft, and Cisco, and the other vendors and the standards that are updated by the Department of Homeland, and all the other industry standards, if you don’t have the long term view, you’re not going to constantly update the network to comply with all of the latest standards.

Thomas Douglas:   We’re going to go in, maybe we fix it in a reactionary manner. Somebody got a virus, let’s go fix it and make sure that we mitigate that or deal with that particular issue. But the long term view is no, no, no. The security landscape changes every single day. The requirements change every single day. So how do we go about making sure that a network is always updated to comply with the latest and greatest standards and expectations for those scary things? If you’ve got the short term view, you can’t justify a forward or have the resources to do that.

Todd Nielsen:   I also am thinking about this from the standpoint of staffing. A company that treats their clients in a short-term relationship would also have problems holding on to staff, it would be much more volatile. You wouldn’t have the staff needed to really understand the accounts, that really understand the industry, that really understand the security threats. You’d have people come and go potentially, right?

Thomas Douglas:   So yeah, there’s no doubt. I mean, we see a lot higher turnover in the smaller organizations and some of the larger organizations that don’t focus on those long term agreements because it’s a cultural thing. When you’re working with the same people that you enjoy working with day in and day out, you stay within an organization. When there’s churn and that turnover that exists in that environment every day, you’re walking into another firestorm, another challenge, because you’re taking the short term view on everything. If you want to retain the top talent, you want to create that successful culture, you’ve got to have the long view of what it means to deliver services where engineers actually get to the point where they can come to work and develop the next piece of technology, not just deal with the fires of the day.

Todd Nielsen:  Yeah. Teamwork just isn’t just a nice little phrase to people who are around when it comes to your risk and your IT productivity. Having a solid team behind you that isn’t churning and changing all the time becomes really important.

Thomas Douglas: Well and in today’s world, you know, you can no longer be a jack of all trades and master of most like like we used to be able to do, that’s just not possible. You have to be a subject matter experts. So when you do have that turnover, it’s really hard to replace an SME who is focused in a particular area. So if you’ve got somebody who’s focused on the real high end server stuff or if you’ve got somebody focused on particular security, antivirus technology, a particular backup technology, and you lose one of those resources, you have to go through almost a whole year’s worth of training to create another person capable of troubleshooting and managing the technology as well.

Todd Nielsen:  Yeah, isn’t the unemployment rate in the technical space like under 3% right now?

Thomas Douglas:   Under 2% right now.

Todd Nielsen:  Under 2% right now.

Thomas Douglas:   Yeah, yeah, it’s really bad. The churn that exists in in-house IT people, the churn that exists in providers whose culture isn’t really strong, where they’re driving towards best in class all the way through the organization to include salaries, and the benefits, and the plans that they put together, you’re going to have that churn. Because the demand for good IT people is going to continue to go get higher and higher. It’s accelerating to mean the growth rate of the technology professional is over 16% in 2020. The number of people that is being created in the industry is about half that in. So we’re going to see that deficit continue to grow.

Dax Bamborough:   That has an effect that bleeds down to the clients to the businesses we’re serving because they’re … They they have something they need help with. If you’re not seeing the same people to come service your business again and again, the technicians at JMARK get to know that clients that they serve and get to know … You mentioned at the beginning when they talk and kind of learn some of the idiosyncrasies of maybe the way they use their technology or the funny things that happened and stuff. You learn those things and those things add to the knowledge of how we can take better care of them and of the needs that they have. Where if it’s a new guy every few months or whatever it is, you never know who know who you’re going to get when you call up and need some help.

Thomas Douglas: Yeah, absolutely. You nailed it, Dax. I mean, there’s kind of three primary things that people get frustrated with when it comes to managed services. The first is things just don’t get done, whether it’s tickets that sit there or problems that sit there too long or projects that don’t move forward. That’s the primary one. The second one is when they have to manage, the managed service provider, which is just crazy. That’s what they’re getting paid for. The third one is when the client feels like they have to constantly train the staff of the managed service provider.

Thomas Douglas:   Those are the top three issues that we hear that people just get frustrated with. I don’t blame them. I would I would too. I don’t want to have to train our vendors on how we do things over and over and over again.

Kristina Coons:   Tom, will you talk a little bit more about partnerships? So specifically say that I’m a business owner? I’m vetting a couple of different MSPs. What are some characteristics that I should be looking for that will show if they’re going to be a good partner rather than just another vendor that my company uses?

Thomas Douglas:  That’s a great question. One of the things that I would I would challenge all business owners to do when evaluating what managed service provider they’re going to go with, first is go to their building, look at the facility, look at the environment. I mean, is it well run? Is it in an environment where the engineers can be successful, where you can see that the attention to detail matters? Or is it a big mess? Is it chaos? Is it people hanging around sitting in a room not getting anything done?

Thomas Douglas: So first and foremost, make sure that you actually understand the culture that you’re signing up for. Then secondarily, do the due diligence, make sure that the managed service provider has the security credentials, that they’ve had third party validation. That’s a big deficit that I think a lot of organizations fail to consider is that there’s no validation by a third party that says that this is a managed service provider who knows how to protect my data, who knows how to handle change management, who knows how to ensure that things are set up to best practices.

Thomas Douglas:  When that third party validation isn’t done, then you’re just dealing with generally a salesperson saying, “Yeah, we do all those things. Yeah, we all do all those things.” That’s not good enough with technology anymore. I mean, that used to be us 10 years ago. I remember the day where we felt like we were doing that, but there was no third party validation. We realized that we needed somebody to come in and verify that we’re doing everything that we’re supposed to be doing and help us to constantly improve and get better. If an organization doesn’t have that validation, then it can be a big indicator that they really don’t have their stuff together.

Todd Nielsen:  Well, I think this has been a good discussion. We could go in a lot of different directions on this topic, but it has become a recent trend to where these smaller MSPs are throwing out these month to month contracts to try to get in the door. But as we’ve seen and talked about, it’s not the best long-term decision. So we have a lot of other … Go ahead.

Thomas Douglas:  One thing I’ll throw out to deal with in there is that it’s not just the small MSPs. Some of them are really large MSPs or larger organizations in the say, printer industry that are trying to become a managed service provider because their industry is dying. So it’s like, “Well, I gotta go somewhere. I’ve got to get into the managed services space. I’ve got to figure that out.” But they’ve not been doing it for a long term.

Thomas Douglas:  So they may appear to be a large company, but ask them how long they’ve done the managed services game. How long have they been in it and have that third party validation as a part of the managed services business? Not just the printer business, but the entire environment as a part of what those questions are. So sometimes it’s not the size of the organization, it’s the maturity of the organization, how long they’ve been doing it that we really need to make sure people pay attention to.

Todd Nielsen:  People need to look at these organizations and like you said, look at the manage services division or side of the business and treat that as if it’s its own company. You can’t take the entire stability and culture of a massive company and apply that necessarily to a small division with a handful of people that’s offering a new service.

Thomas Douglas:   Exactly.

Todd Nielsen:   Okay, well then we’ll post more information on this topic when we get it published out there on our blog and in other places, but until next time. Stay safe.

Thomas Douglas:  Have a good day.

Kristina Coons:   See you.

Dax Bamborough:   Buh-bye.