MSPs On Growth During Economic Uncertainty: ‘Traditional IT Is Dead’

‘I think most partners out there at this point realize that traditional IT is dead. They need to pivot, they need to move with the flow because customers are buying smarter, they’re shopping smarter, they’re looking for that ROI,’ says Karen Penticost, Envision Technology Advisors’ vice president of development and operations, during a keynote panel at XChange 2023.

During the COVID-19 pandemic, the channel saw a bump in revenue as businesses all over the country quickly adopted new IT services to keep their company and their employees up and running. Then, revenue flattened.

The resulting period of economic uncertainty that has continued into the first half of 2023 has MSPs seeking out the services that their customers need while remaining profitable and growing the business. The good news is that growth in the second half of 2023 and 2024 is expected to rise steadily and there are steps that MSPs can take to position themselves to succeed, according to Blaine Raddon, CEO of The Channel Company.

Raddon during his keynote panel spoke with three MSP leaders at the XChange August 2023 conference, hosted by CRN parent The Channel Company, about how the current economic situation has impacted their overall business, how customers are starting to move their business transformation projects back to the front burner, and how MSPs can capitalize on the growing demand for managed and security services.

“What we saw in the partner perspective is borne out in what we see in the analyst perspective,” Raddon said. “Last year at this time, there was a lot of concern. We saw people worried about a recession. It took a lot of time for people to see what was going to come. Gartner told us this year that they expect 2023 [in the U.S.] to grow slightly about 2.4 percent,” he said.

In The Channel Company’s survey of solution provider perspectives, business growth has been largely split, but more partners than not are reporting growth in their MSP and services businesses in the first half of 2023, Raddon said. About 57 percent of the audience polled during the keynote said they expect the economic situation to impact their overall channel business positively in 2024.

Envision Technology Advisors, a Providence, R.I.-based MSP focused on cybersecurity services and its Microsoft practice, saw strong revenue during the first half of 2023 thanks to its focus on services, said Karen Penticost, vice president of development and operations for Envision.

“I think most partners out there at this point realize that traditional IT is dead. They need to pivot, they need to move with the flow because customers are buying smarter, they’re shopping smarter, they’re looking for that ROI,” Penticost said. “I can happily say that our services business was up. Our hardware business was down a little bit, but services is where we focus, so we really didn’t see a decline at all.”

[Related: AI Tools Can Tackle MSP Pain Points: Pia Channel Chief]

Wichita, Kan.-based Novacoast, a cybersecurity-focused company specializing in managed services and software development, on the other hand, has experienced a “mixed bag” of revenue results. While the company’s top-line revenue is up about 5 percent in the first half of 2023 thanks to managed security services, the company is seeing declines in specific segments.

“Some of our services, like the project-oriented services, that was definitely down,” said Paul Anderson, CEO of Novacoast.

Routes To Growth

The panel of solution providers agreed that the shift away from hardware and component shortages has driven down their product resell businesses. But as a result, managed, cloud and security services are picking up the slack.

For 5K Technical Services, revenue was down at the start of the year, but the MSP—which is focused on serving the SMB market in and around Texas—knew it needed to “get back to its fundamentals,” according to Corey Kirkendoll, 5K’s president and CEO.

“It forced us to go have some conversations with [customers] to see where they’re going to be. And it also forced us to have conversations with our vendor partners to figure out where they were. We saw a lot of contract changes that forced us to go into different agreements [and] to really change,” Kirkendoll said.

That practice, he said, has put the company back on a growth trajectory. “I expect us to be up probably 10 percent-plus and start to recover before the end of the year,” he said.

Meanwhile, a major path to business growth for Envision has been through partnering with fellow solution providers. Penticost launched a channel partner program within Envision aimed at assisting other partners who were looking to add a fully baked cybersecurity practice and a Microsoft practice to meet their own customers’ needs.

“[This has helped] in making them more secure in their accounts, bringing more added value and services to their clients and keeping the competition out,” she said.

Now, the company has partners outside New England in states such as Texas, California, New York and New Jersey, Penticost said.

“The [partner program] really has allowed us to expand our growth [and] our footprint,” she said. “It’s changed the business and we really had to change the business to go with where the industry is going.”

Novacoast, on the other hand, is also interacting with fellow MSPs as a way to grow revenue. The company today operates five Security Operations Centers, three of which are located in the U.S. This strength allowed Anderson and his team to launch Pillr, a separate company that offers a security operations platform backed by 24x7 SOC service and support that is sold through MSPs.

Pillr, said Anderson, takes advantage of the infrastructure that Novacoast already had in place. “We didn’t have to build SOCs—they were already there. That’s how we’re engaging with the MSP community,” he said.

Pillr, which is in a growth stage, hasn’t slowed down at all, Anderson added. “The second half of the year is looking great,” he said.