Many believe we’re either in a recession or on the brink of one. It’s a familiar cycle: high inflation, international strife, supply chain challenges, and tightening monetary policies are all driving fears of a downturn. While the IT industry has exceeded expectations for the past few years, it isn’t immune to a recession. As a result, many IT MSPs are thinking about what they can do to ensure a recession-proof business over the next year and beyond.
Let’s explore the potential impact of a recession on IT, how “recession-proof” MSP businesses actually are, and strategies MSPs can use to help survive a downturn.
What will be the impact of a recession on IT?
In IDC’s recent special presentation, Global Recession Scenario for IT Spending, the research firm reinforced the idea that IT has traditionally been resilient to downturns in the economy. As Stephen Minton, IDC’s VP of Customer Insights & Analysis points out in the presentation, some of this resilience can be attributed to the fact a lot of IT spending is “keeping the lights on” spending that businesses can’t just cut. Technology and cybersecurity are fixed costs for day-to-day business operations, even during an economic downturn.
That said, it isn’t all sunshine and roses in tech. IDC projects spending on endpoint devices like PCs, phones, and peripherals will decrease, possibly stagnate, throughout 2022 and 2023. That leaves us with a mixed bag of projections depending on the area of tech you’re interested in.
Source: IDC
Minton also implies that IT spending is traditionally about 80% of budgets, and with cloud subscriptions becoming the norm, is likely higher today. After all, investments in long-term digital transformation aren’t going to stop due to short-term economic downturns.
The IDC presentation is far from the only data suggesting the IT market will continue to grow. A Spiceworks Ziff Davis (SWZD) survey of IT decision-makers indicates that despite recession fears and precautionary cost-cutting measures only 6% of respondents plan on decreasing spending and IT budgets are expected to increase by 21% on average in 2023.
It’s reasonable to assume that overall IT will see a small amount of growth through 2023. IaaS and other software businesses are likely to be the more recession-proof tech companies.
How “recession-proof” are MSPs?
MSPs with recurring revenue from service contracts are often viewed as fairly recession-resistant. Recent data, like Channel2e reporting MSP/MSSP valuations holding strong through July of 2022, suggests that is the case so far.
In fact, some view recessions as an opportunity for MSPs— time to adopt new trends an MSP can perform cheaper than in-house IT staff; therefore organizations looking to cut costs may reduce in-house staff and use an MSP instead.
It isn’t just analysts and “industry experts” suggesting there are reasons for MSPs to remain optimistic. This r/MSP thread from earlier this year suggests individual MSPs tend to see growth (or at least resilience) during downturns.
Of course, while IT MSPs seem to be resilient to downturns, no industry is completely recession-proof. There’s also no recession exactly the same as the one before it. The fact that so many SMBs use IT MSPs instead of in-house IT today could actually impact MSP growth negatively during a recession. Where organizations may have cut back on in-house staff in the past, today there may not be in-house staff to cut. That leaves scaling down or canceling service contracts.
MSPs aren’t immune to inflation and a tight job market either. Hardware and the cost of labor to install and maintain it are both going up, and increasing prices to offset those costs isn’t always easy.
Your MSP: Create a recession-proof business
While no guide on the Internet will run your business for you (wouldn’t that be nice?!), these strategies are great starting points for creating a plan to help your MSP business survive and even thrive, during a recession.
Know your customers
Fundamentally, all the rest of our tips center around this theme. MSPs exist to solve problems for clients. If you don’t know what problems your customers have, you could be missing out on an opportunity.
As an MSP scales, it can be easy to become more and more transactional in your correspondence with clients. The day-to-day grind of service tickets and projects can make it easy to focus too much on task completion and not enough on the business problems your clients have.
Exactly what the problems are will vary widely. Maybe they need to achieve compliance for a specific network. Maybe they need to improve collaboration for teams working remotely. Maybe they need to decommission some old hardware. Whatever the case, staying close to your clients is important. Problems for your clients are opportunities for you. Make sure someone from your organization is close enough to your clients to know what is keeping them up at night.
Become indispensable to your clients
As an MSP, the more problems you can solve for your clients, the more valuable you become. To that end, aim to be your client’s trusted advisor and expert for all the tech you handle. Integrating your processes into your clients’ day-to-day operations, and allowing them to offload IT complexity to your business, makes you a critical part of their infrastructure.
Individual projects are important, but just completing projects in a vacuum limit your value proposition and recurring revenue.
To give a practical example, the MSP that does a rack-and-stack installation then hands the network off to a client for management to deliver value, but they’re not needed after the handoff. If the MSP can also provide ongoing network monitoring and management to the package, it can become a win/win. The client can focus less on infrastructure management and more on their core business. You can lock in recurring revenue and increase your value to the client.
For a deeper dive into the topic of MSP value in the modern era, check out Sarah Cunningham-Scharf’s post Are We In a New Age of MSPs? The ideas behind the “second” and “fourth” age of managed services provide a useful reference to help understand how modern MSPs can compete, deliver value, and become more indispensable.
Offset or replace in-house teams
Recessions lead to cutbacks, but businesses still need technology to support day-to-day operations. If your clients are cutting back on job postings or laying off staff due to tighter budgets, see if you can replace those positions at a lower cost. Similarly, make sure you’re marketing enough to get your business on the radar of companies looking to use an IT MSP in your niche.
Demonstrate value
It’s one thing to deliver value. It’s another for your clients to know you deliver value. After all, no one really stops to think “hey, we haven’t had a single system failure or network outage all year, our MSP must be doing a great job!” Instead, it’s a common trope in IT for a lack of problems to lead to business stakeholders questioning the need for IT spending.
In an environment where your clients are looking to cut back, make sure they understand the value you deliver. Reports and dashboards that visualize data can go a long way here. This is particularly true if you have data on a system before and after you integrated your processes.
Get creative
The growing popularity of the managed security service provider (MSSP) segment is a great example of where a traditional IT MSP could expand. If you already have cybersecurity competencies, offering MSSP services could be a great way to capture more revenue.
Alternatively, there is still plenty of work to be done to accommodate the large-scale shift to remote work. Becoming the MSP that solves the challenges of remote work for specific industries could be a great differentiator that attracts new clients.
Frankly, there’s no single approach that will work for every MSP. Take some time to think about your competencies and then come up with a strategy that makes sense for you. As a simple thought experiment to get the creative juices flowing, use an Ansoff Matrix but replace “products” with “services”.
Be flexible with clients
While there are some recession-proof industries, you can expect some clients to struggle during an economic downturn. While you can’t provide your services for free, knowing when to be flexible can help you retain more clients long-term.
A strategic discount, credit, or flexible payment option to help a client get through a rough patch can build loyalty and help lock in a longer-term contract. The key here is balancing doing right by good clients with getting paid a fair price for your services.
Focus on customer (and employee!) retention
Even if you’re acquiring new customers during a recession, too much churn can kill an otherwise viable MSP business. Customer satisfaction and client retention go hand-in-hand in a recession-proof business. Stay on top of issues that might lead to a client not renewing a contract, and make sure the value you provide to their business is clear.
Don’t forget that employee retention is part of this equation too. To keep your customers happy, you’ll need IT pros capable of doing good work. In a tight job market, the MSPs that have the talent to get things done have a competitive advantage.
Be transparent about price increases
Be transparent with your clients, and do the best you can to remain competitive, but raise prices if you need to. Inflation is real and MSPs aren’t immune. Reasonable people will understand.
But don’t use inflation as an excuse to raise prices without any justification. One of the interesting insights from IDC’s presentation was a quote from an IT buyer that indicated they were seeing prices go up for no reason in some cases. If your customers feel they’re being price-gouged, they probably won’t remain your customers for long. That’s why transparency matters.
Value Wins in the Long Run
Ultimately, the MSPs that create a recession-proof business will be the ones that do a good job of making smart financial decisions, marketing, and providing value to their customers. That holds true regardless of the economic climate. All that changes in a downturn are the strategies and tactics that make sense in the short term.
If you’re looking for a network management solution to help you deliver the most value to your clients, check out Auvik. It’s no secret, we love MSPs. And, if we’d like to think they love us back, we’ll let you be the judge. Check out our MSP case studies to see what real-world MSPs have to say about Auvik.
If you’d like to try Auvik for yourself, sign up for a free trial today!
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