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VAR to MSP Part One: Who Has the Better Business Model?

VAR to MSP Part One: Who Has the Better Business Model?

March 1
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Note: This is part one in a series on moving from VAR to MSP. Be sure to check out parts two and three

The IT services market is one of the fastest growing sectors in existence. Spending surpassed 900 billion in 2015 and is expected to reach well beyond 1 trillion by 2019. There is plenty of pie to share, but quantities and serving sizes vary from one suit of providers to the next.

In exploring types of IT Providers, it becomes clear to see that while not all ITSPs are created equal, several parallels exist between them. When it comes to MSPs an VARs, the line seems to further blur as the days go by, especially from an end user perspective. The client may see both groups as resellers of turnkey solutions that remove the burden of infrastructure management and provide value beyond core offerings. We’ll revisit the technical definitions and examine the components that truly set these classes of IT providers apart.

Worth noting, also, is that plenty of IT providers have some elements of the MSP model and elements of the VAR model. Some of the most successful are hybrids that can provide managed services, while also providing everything from break-fix services to one-and-done projects and even software and hardware sales. You’ll want to keep revenue doors open where it makes sense to do so, so be mindful of not just ways to move to the managed service model, but to think of ways you might continue to offer VAR services for special cases or if they’re profitable.

Who Does What

A managed service provider is in the business of providing and maintaining IT services for clients. These services may include network monitoring, server management, and IT security to name a few. In handling the grueling day to day aspects of keeping those services up and running, they essentially become an extension of the client’s IT department. An MSP’s target market is the SMB community, which they cater to with technology they either own or procure from a third-party partner.

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A value-added reseller specializes in reselling software and hardware with the goal of providing value beyond simply fulfilling an order. VARs typically combine their base offerings with services such as IT consulting, design, and training for the purpose of “added value.” Similar to MSPs, resellers often team up with technology partners that can supply those necessary services. These channel partners are vital to a VARs’ success as they often provide support and marketing assistance in addition to the various products they offer for resell.

Not only do they cater to SMBs, MSPs are often relatively small in size. An MSP outfit may employ 20 people, or consist solely of a two-person team that does the work of dozens. VARs, on the other hand, tend to service larger firms and are usually larger themselves compared to MSPs. However, if there was ever a case to be made for why bigger isn’t always better, this is it. In this scenario, it is the managed service provider who can gloat that size doesn’t matter.

Advantages of the MSP Business Model

Companies typically call on VARs for one-time projects. Maybe they need a new fleet of servers installed in the data center. Or maybe it’s a company-wide migration from Windows 7 to Windows 10. VARs normally operate on the basis of per project, per license, or short-term contracts that run no longer than the length of the event. It’s literally a one-and-done deal. MSPs service customers on annual contracts, or agreements that span over several years. They’re in it for the long haul, and the security they enjoy is the envy of VARs operating under the classic “break-fix ” model.

Shifting to the MSP model is increasingly becoming a goal of VARs looking to maximize their growth and revenue potential. Below we take a look at some of the distinct advantages this business model has to offer:

Service Flexibility

Businesses today have a wide variety of needs and wants. They require all the essentials of the standard IT environment, yet desire the luxury to integrate additional components as new trends evolve. They want to implement new technology as fast as possible, but don’t want to compromise security or introduce unnecessary risks in the process. Leveraging a robust portfolio and key partnerships, an MSP can provide these benefits and others all while keeping the investment easy to afford and even easier to manage.

Enhanced Client Relations

MSPs, by nature, are typically able to forge close relationships with their clients. They are more or less communicating on a daily basis and therefore gain a thorough understanding of the client’s environment, policies, and culture. Armed with this intimate knowledge, these providers can deliver services that exceed the value of their core offerings. When you handle, server management, for example, you can make informed suggestions for new applications and solutions based on your knowledge of the client’s EOL dates, app ecosystem, and so forth.

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When you’re a valuable asset to the organization, any such recommendations you offer will be given careful thought and consideration. It is not uncommon for a client to view their MSP as the trusted consultant they to turn for input on everything from product upgrades to vital technological investments. Managed service providers are IT professionals so they are usually more than qualified to advise clients on what technology is available and adopting trends most likely to accelerate business.

Revenue Potential

Back to the revenue model, it is arguably the strongest suit an MSP brings to the card table. But in order to appreciate it, you must understand the VAR and its tireless pursuit for profit. A value-added reseller is a lot like a freelancer and that there is very little certainty in their industry. They move from one project to another and depend on the next project as a means of keeping the lights on and food on the table. Some manage to sustain a consist flow of new clients and projects. Others struggle due to the lack of consistent revenue and profitability.

Sink or Swim!

The flexibility, consistency, and profitability of the MSP model is too irresistible to ignore. And unlike some business moves, this one may no longer be optional. If you’re not going to offer managed services, somebody else is. If you want to keep clients and grow your business, you’ve got to do it,” says Guy Baroan of Baroan Technologies. “There’s no way you can scale your business at all and protect and provide for your clients under a break-fix model.”

Assembling a strong portfolio of manage services is much easier for the VAR already seasoned in selling professional IT services. Stay tuned for part 2 of this series when we outline the specifics steps VARs must take in order to transition to the MSP model.