Knowing when it’s best to work with an MSP, and when it’s not
By Amy Bingham
Given the explosive growth of managed services solutions and vendor management technology, if yours is a small to midsize staffing ﬁrm, it wouldn’t be surprising if you’re grappling with whether or not — or how — to play in this space to avoid losing your existing business with large accounts.
Every week I hear another sad story about a local or regional ﬁrm that loses its biggest account to an MSP because the buyer seeks efficiencies, solutions and a footprint the incumbents can’t provide. Such a loss can be devastating. If the ﬁrm is lucky enough to retain a piece of the business as a “preferred supplier” — an honor often bestowed at lower margins — it’s typically looking at revenue of a third or less than it has been accustomed to once the MSP is fully functional and the business is divided among multiple vendors.
You only have to be burned like this once to realize a change in strategy may be critical to your survival. What do you do? Do you try to compete head-to-head with the national MSPs or concede and ﬁsh where you’re most likely to catch? Does it have to be either-or, is there a middle ground that enables you to not only retain business with your large accounts but potentially capture additional share?
Some ﬁrms have chosen to opt out of large accounts entirely because they “don’t want that low-margin business we have to buy from a competitor.” That’s the easy route to take, but is it the best one given buyers’ evolution to managed services and vendor neutrality?
First, ask yourself these questions:
- Do we specialize in a particular niche that’s in high demand today?
- What does our current portfolio look like relative to the mix of large and small to midsize accounts? Are we masters in the SMB space with few, if any, large accounts, or is our brand already well-established among the Fortune 500 in the markets we serve today?
- If we primarily serve the clerical and light industrial sectors, how does our gross proﬁt percentage compare with the national average? (If you’re below the national average, you’ve probably been selling your services on price, and you may not be able to aﬀord more low-margin business that comes with the territory as a supplier to an MSP in these sectors.)
- How’s our cash position and balance sheet? Are we ﬁnancially healthy enough to invest in the business should we decide to enter the MSP space ourselves?
- Can we make money as a preferred supplier to an MSP? (This question will likely have to be answered on a deal-by-deal basis.)
If you’re satisﬁed with your answers to those questions, here are some strategies to ponder:
- Continue to knock on the doors of the few big logos without MSPs and VMS in place today and hope the company never realizes there may be a more efficient way to manage its contingent labor spend. If you decide to adopt this strategy, good luck. Hope is not a strategy, and all those pesky national account sales people are busy at work doing their best to enlighten the company that there’s a better way. At best, unless your ﬁrm is highly niched and has little competition, you may get a nice chunk of this business to enjoy while it lasts. Just know that it won’t last.
- Go head-to-head with the nationals by becoming an MSP. While this could be tempting, it is fraught with challenges. You must have signiﬁcant working capital for the investments you will make before, during and after implementation, leading-edge front- and back-office systems with robust reporting capabilities, and consultative sales resources capable of conveying your value proposition better than the competitors. Not to mention a well-constructed MSP delivery model and experienced account management team once the business is won. For most local and regional ﬁrms, this option is both impractical and unaﬀordable unless you raise the capital to acquire your way in.
- Enter managed services as a second cousin of the MSP, the master supplier or hybrid program models. This is more attractive than option 2, but still not easy. As the master supplier, your ﬁrm will be responsible for managing the second-tier suppliers, requiring investments in staﬀ and technology you may be unprepared for. The hybrid model includes elements of vendor-neutral and master supplier programs. This could be a viable option to propose to your existing on-sites threatening to move to a pure-play MSP if you have a long-standing relationship providing commercial staffing for the company. In this model, you could still retain and manage the clerical and light industrial business, for example, while the company’s IT positions are competitively bid across multiple suppliers.
- Sell to your competitor, the MSP. Once a goliath buyer contracts with an MSP, unless you try to crawl in the back door (fun and exciting until you get caught, which is a certainty at some point), if you want a piece of the business you have to play by their rules. And “their” isn’t just the client, it’s the MSP of course — your new gatekeeper and essentially your client in the sales process. If the thought of wining and dining the MSP — your competitor — to make the cut as a preferred supplier nauseates you, you’re not alone. But in the end, this could be your best strategy.
Here’s a stomach settler: the latest trend in outsourcing is for the outsourcing ﬁrms to outsource. An example right in the staffing industry is one many ﬁrms are familiar with and have begun utilizing: an oﬀshore sourcing ﬁrm. Oﬄoading front-end candidate sourcing to a company whose workforce can source for your recruiters while they sleep means more potential candidates to place when they arrive at work in the morning. These sourcing ﬁrms that could themselves compete directly with staffing ﬁrms are instead selling to them because they know they have a valuable service the ﬁrm needs. Similarly, the MSP needs the skills your ﬁrm provides — particularly if you serve a narrow niche in high demand by their client. If you face the fact that to play in large accounts you will have to sell to your competitors, you’ll fare better with large account business over time. Many ﬁrms have already cured their nausea and are happily making money by working cooperatively with MSPs.
Strategic decisions such as this are never easy. But as the saying goes, if you can’t beat ’em, join ’em.
Amy Bingham is managing partner of Bingham Consulting Professionals LLC. An industry veteran, she advises staffing firms in the area of sales effectiveness through strategic planning, strategy execution and performance coaching. She can be reached at firstname.lastname@example.org.