It’s no secret that the needs of a business change as they grow and mature. Think about it, when you were just starting did you need to spend time thinking about how you were going to motivate a team of employees? What about a clear mission and core values of your MSP? Of course not… you needed to know how to attract a client and maybe not even that – maybe you just needed to build your technical expertise so you could start taking on more profitable projects as a one-man/woman show.
Regardless, as you grew your business you hired a team that helped solve your problems, but also seemed to keep leading to more. It is precisely for this reason that it is important to determine how “mature” your business is so that you can determine which problems are relevant and focus your time on preventing them.
At Stratified Accounting, we have grouped business maturity for IT Service Providers into 4 phases. Depending on which phase you are currently in, there are likely some painful problems that will need immediate attention and some not-so-painful ones you can push off. By solving the lower phase problems first, you will save yourself significant time and energy and prevent them from stifling your growth. Below are the 4 phases of business maturity.
1. Startup - This is the first stage of every professional service business. Typically, firms in this stage are solo practitioners who do the actual technical work rather than focusing on owning a business. They are owner-operators who know the pain points of their operations because they are in it every day. They may also have some employees who assist, but they are still deeply involved in the day-to-day operations of their business.
During this stage, it is not wise to invest time/money in data collection, improving reporting, metrics/KPIs, or other “big business” problem-solving, because these are not the problems these firms are facing. They know the data, which employees are doing well versus need training, and which aspects of their operations need improvement without the fancy tools/processes telling them.
Instead, these IT firms will want to focus on:
Being compliant with all local, state, and federal governments
Provide the best service they can
Building their client base
Additionally, these businesses should spend their time learning more about their industry and building a professional network within it to further develop their services.
Most companies in this phase will have less than $1 million in annual revenue and will not have a manager acting as a filter between the day-to-day problems of the firm and the owner(s). Depending on the nature of the business, these companies may have 10-15 employees before needing to hire a manager. Once they leap to hiring a full-time manager, they have officially moved onto the next business phase.
When you are a client of Stratified Accounting, Phase 1 is where we help you with the problems that are impacting your current situation. We will never upsell solutions for problems that only plague more mature businesses in higher phases. We provide bookkeeping, payroll & related taxes, sales tax, and financial coaching (vCFO) for MSPs/TSPs within this phase. We focus our financial consulting on pricing, cost-management, and profitability goal setting preparing the way for Phase 2 - Standardize.
2. Standardize - We often hear feedback that once a manager is hired, the principal(s) no longer have a full view of what is going on within the business. They keep growing at the rate they did in Phase 1 but feel as though their bank account never seems to reflect the increase in workload. Essentially, as they grow they retain less of the profits in the business and their service level decreases. There is good news: this is completely normal and every business experiences this. However, the bad news is there is a lot of work ahead to fix this problem, and ignoring it can lead to disaster for the firm you’ve spent so long building.
So, why is this happening? Why do businesses inevitably face this growth wall? Well, ultimately it is because the processes that got you to this size of a business are no longer suitable and will only cause you to fall further behind. Once the owner has a manager and is not working “in” the business, their visibility into the helpdesk is gone. As much as you would like to think you know what the specific operational problems are… you might not. You can ask the manager for their insight, but ultimately it will be subjective and of little help.
Luckily, there are a few simple steps to fix this problem. First, you will want to slow down your sales engine. Don’t stop it altogether as there will be client churn (turnover) that you will want to replace, but resist the urge to accept poor-quality clients. Then, use the freed-up time to optimize your processes that are directly geared toward gathering the data you are missing. You never want to be surprised by a client complaint again! Additionally, you will want this data to be gathered automatically, either by system-automation, or process-automation (both work). Ultimately, what you need to do is regain visibility into your firm through processes, technology, and standardization.
Finally, during this phase, you need to standardize every process that your team does. From sales - to service delivery - to billing. This way your processes and your voice (as the owner) will still reach everyone even if you don’t have the time to train someone yourself. Only standardized processes have the power to put your expertise in more than one place at a time.
Our clients in this phase are often upgraded to our Enhanced Service Plan and begin our industry-specific tracking and benchmarking services so they know which aspects of their MSP are lagging behind Best In Class (BIC) standards. We also provide additional back-office support to ease the load of a growing workforce, as well as monthly operations coaching. Your consulting is now geared toward process standardization, automation, and technology implementation.
3. Scale - Some businesses stay in this phase permanently. This is the phase where you put all your processes and standardized service offerings into action.
As you enter Phase 3 you will start to prioritize:
Reinvesting into your sales engine
Hiring more teams
Expanding into new locations and markets
As with “Phase 2” there is good news and bad news to be prepared for. The good news is that your profitability should stay consistent as you grow. You won’t have the issue of feeling like you are running on a hamster wheel and never making any progress. For every new client you serve, you will reap the rewards. The bad news? The more you track and analyze your business the more you will find aspects that require improvement. This race for perfection will never stop and you will always want to go more granular in your data collection.
During this phase, you will want to start reviewing “continuous improvement” business management principles and build a company culture around finding and solving inefficiencies. You will want to build an employee compensation structure focused more on performance and incentives rather than base salary. This will align the team and management in identifying improvement opportunities.
A large problem that many clients find in this phase is that a phenomenon known as the “information loop” begins to form. Similar to the childhood game “Telephone” the information changes as it passes from one team member to another. Soon no one knows what the truth is (through word of mouth) and this will cause expensive inefficiencies to form.
The simplest way we solve this problem for our clients is through automated and curated reporting that is sent to every member of the team. The team is coached on understanding their relevant metrics and have real-time access to this data. They also have bonuses and incentives tied to these metrics to align the employee and firm fully.
We help our clients in this phase by tracking and sending employee metrics/KPIs, building automated billing, vendor payments, cash flow processes, and a weekly tactics meeting to review nitty gritty improvement opportunities. We will walk with you every step of the way as you navigate this phase.
4. Succession - This is the final stage and is also often temporary, sending the firm back into “Phase 3” as the equity of the business gets passed on. In this phase, companies spend a lot of time reflecting on their purpose and why they built their MSP in the first place. Maybe it was to cash out by being acquired, maybe they wanted to go public with an IPO or it could be as simple as the firm-owner wanting to begin philanthropic ventures. Regardless of the initial purpose, this is where you begin to do this. You have built your business into a self-running asset that can be used to reach your goals.
If all of this seems overwhelming you just have to take a step back and identify what phase your business is in. Once you know that, focus on the problems for that phase before considering future phases. Industry best practices have been built over decades and can save you years of reinventing the wheel if you seek a helping hand. Regardless of where you and your business are at today, take it one step - or Phase - at a time. We offer free consultations and a no-risk trial of our services if you think a helping hand is for you.
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