Scalability is one of those operational terms that gets bandied about a lot but can mean very different things for different people. When most MSPs talk scalability, they are usually focused on increasing revenues. A lot of complexity and a lot of moving parts go into dissecting the question, “How ready are we to grow the company?”
For truly effective scalability, which means having established approaches that are repeatable at every stage of maturity, you need to expand your focus and look at your ability to drive both growth and operational excellence. This means you should examine the business changes, the leadership changes, and the operational changes your company must work though in preparation for multiplying current revenue.
To help you get an initial idea of your MSP’s scalability, here’s a short self-assessment you can take. Grab a piece of paper or open a notepad on your phone and rate your MSP on each of these ten scalability metrics that represent the most common roadblocks or issues MSP’s face as they try to grow and scale their businesses. You’ll find the scoring key at the end.
Rating Your MSP’s Scalability
1) Leadership Team Development – The Rule of 7 dictates each manager should have 7 direct reports. This means, for every 7 employees, you will need to hire someone that has both the technical skills you need and the leadership qualities you can develop. Lack of leadership in the pipeline is the number one reason companies stop growing. If you hit a leadership deficiency barrier, you can expect to be stuck for at least 2 or 3 years. To create alignment and accountability as your leadership team reaches around 4 members, you will need to embrace a management strategy such as Gazelle’s Scaling Up or Gino Wickman’s Traction/EOS.
Rate your leadership team development on a scale of 1 to 10.
2) Strategy and Culture – Yogi Berra said it best, “If you don’t know where you’re going, you might not get there.” We like the EOS (entrepreneurial operating system) methodology around defining your 10-Year Target, 3-Year Picture, 1-Year Plan, Quarterly Rocks, and Weekly To-dos. Leadership teams that create alignment from today to 10 years from now usually make great things happen. Culture starts with your mission and vision. Your core values determine who should be working at your company. If you have individuals who do not represent your core values, they should not be part of your company. You must be hiring, firing, and making all business decisions based on alignment with your core values. You must be hiring, firing, and making all business decisions based on your alignment with your core values.
Rate your strategy and culture on a scale of 1 to 10.
3) Acting with Urgency – Scaling requires understanding what action everyone needs to take next. Setting deadlines and holding each other accountable to accomplishing quality work is essential. If growing at a 5% Compound Annual Growth Rate (CAGR) is the goal, you will move at a certain pace. If you plan to grow at a 30+% CAGR, you need to accomplish your yearly goals at a quarterly pace. This means your team must learn to prioritize time and work urgently on the most important tasks in order to accomplish your monthly goals each week, and your quarterly goals each month.
Rate your ability to act with urgency on a scale of 1 to 10.
4) Revenue Generation – Revenue growth can come organically through marketing and sales, or it can be acquired through mergers and acquisitions. Regardless, marketing and sales must scale in sync with service delivery. As the company scales, you must develop and work a solid plan and accurately measure Marketing Qualified Leads (MQL), Sales Qualified Leads (SQL) and lead conversions in terms of opportunity ratio and opportunity-to-win ratio. Your plan must begin with revenue and margin targets and work backwards to the number of MQLs needed to reach your goal. Because the Rule of 7 always applies to every part of business, don’t forget to develop sales leadership.
Rate your revenue generation plan on a scale of 1 to 10.
5) Directed Communication – As companies grow and scale, information becomes noise. In smaller companies, since everyone does everything, even small pieces of information need to be broadcast to everyone. As the company grows, communication should be directed to only the individuals or groups that need that information. Alternative methods for communication other than email also need to be developed, such as dashboards.
Rate your directed communications on a scale of 1 to 10.
6) Financial Literacy – The CEO is responsible for the balance sheet and net profit while the service executive is responsible for gross margin (GM). Create a budget and manage it. Financial performance should never be a surprise. Low maturity companies tend to keep financial information confidential from the employees. High maturity companies (those more prepared to scale) teach employees to understand the financial status of the company and help them understand their role in making a positive impact. The progression we normally see in MSPs is the owners share GM information with the service manager first. As they become more comfortable, the next step is to share GM with the entire team and the full P&L with the leadership team. Ultimately, with the right financial literacy education, everyone can drive the full P&L. Check out Jack Stack’s The Great Game of Business.
Rate your financial literacy on a scale of 1 to 10.
7) Process Improvement – Desired MSP business outcomes such as, grow the company, lead the company, manage the company, and deliver best in class services, are accomplished by facing any combination of business challenges. This includes efficient service flow, understanding agreement profitability, visibility for client satisfaction, and measuring by metrics. Each of these business challenges are solved by tackling a combination of more than 100 operational solutions such as ticket triage/dispatch, service KPIs, QBR processes, and client documentation standards. Sea-Level recommends that every manager spend at least 10% of their time (4 hours/week) working on the business by prioritizing one of the 100+ operational solutions and working each one through the Sea-Level 5 Phases of Operational Excellence.
Rate your ability to improve processes on a scale of 1 to 10.
8) Working with Data – Due to the lack of standardization and low process compliance, low maturity companies don’t have much data to work with. However, most MSPs at this stage don’t need mountains of data because the decision makers are close enough to the day-to-day client interactions and tickets to make their “gut reactions” fairly accurate. As companies grow and mature and the decision makers are distanced from day-to-day operations, the dependence on having good data and KPIs becomes critical. Good data will drive a higher compliance and commitment for employee adherence to company processes. Data analysis skills and business intelligence literacy become invaluable.
Rate your data intelligence on a scale of 1 to 10.
9) Simplify to Multiply – If you’ve been to the Southwest US, you’ve probably been to In-N-Out Burger. They have over 350 locations, and if you have a craving for one, be prepared to wait in line. They do one thing — burgers. And many would argue they do it the best. Their menu only has 5 items on it — Double-Double, Cheeseburger, Hamburger, French fries, and beverages. That’s it. Take a page from the In-N-Out playbook. Don’t try to be everything to everyone. Decide what you are best at, standardize, productize, nail down your value proposition, and get set to scale. For example, let’s say your PSA has 3 work roles and 10 work types. That makes 30 possible combinations, 1 correct and 29 incorrect possibilities during time entry. Adding just 1 work role you now have 40 possible combinations, 1 correct and 39 potentials for error. This only adds confusion for your engineers, managers, admin staff and even your clients.
Rate your simplification on a scale of 1 to 10.
10) Standardization – Companies that are prepared to scale have standardized these 5 categories: offering, solution stack, core processes, company brand, and staff development.
Rate your standardization on a scale of 1 to 10.
Calculating Your Scalability Score
Now that you’ve rated your business for each of these scalability metrics, it’s time to see where you stand. Add up your total to reveal your scalability readiness score.
|1-50||It’s Time to Make Some Tough Decisions
What you are doing has worked so far, but it is not going to help you grow the company. It’s likely that many bottlenecks or constraints exist in the way your company operates.
|51-65||You Are Headed in a Great Direction
Someone other than the owner is probably starting to tackle key constraints, but many constraints are hidden or masked. You won’t discover them until the current bottlenecks are resolved.
|66-85||You Can Taste Victory
You have worked through many of the scalability challenges and identified most of the remaining constraints.
|86-95||Buckle Up for Accelerated Growth
Most if not all the constraints have been removed, and new processes have been designed and implemented. You will likely experience rapid growth until the next barrier is reached.
|96-100||Are You Accepting Investors?
You are in a place where your shareholders should expect significant value creation.
So, What’s Next?
This scalability metrics quiz is just a stepping-off point. Whether you scored high or low, there are likely areas in your business that need improvement in order to reach your operational, revenue, or valuation goals. While MSPs are like snowflakes (no two are exactly alike) the process for building scalability and growth is pretty universal. It starts with establishing your current baseline then determining where you want to get to and by when.
One place to begin is by downloading our 68 Key Decisions to Increase the Value of Your Business ebook. It will help you identify what steps to take to build an asset out of your organization and increase the value and maturity of your MSP.
Pax8 Academy Coaching
Through our Sea-Level Coaching powered by Pax8, you can enlist the help of a 1:1 coach who will work with you and your organization to build a strong, scalable business that is primed to hit your growth or valuation goals. It starts with a free one-hour assessment with our coaching consultants. They’ll help you determine your best plan of attack, whether that would be Operations Coaching or Value Creation Coaching.