N-able CEO John Pagliuca doesn’t believe that anything is recession proof.
“But the good news is the MSP industry is recession resilient,” he said.
Pagliuca (pictured) spoke to more than 400 MSPsat N-able’s Empower conference in Las Vegas this week about what partners can do to recession proof their business and weather an economic downturn that could be on the horizon.
“We’re seeing the cost of money increase,” he said. “The cost of capital has gone up. The decades of basically free money that we all were experiencing with low interest rates…unfortunately, they’re over.”
He added that in 2022 he is seeing the highest increase of cost of capital in U.S. history.ADVERTISEMENT
Pagliuca shared that he’s on Reddit, a social news and discussion website, and recently followed a Reddit thread that said MSPs were starting to see an economic slowdown, but only about half.
“Half of the thread said they’re experience slowdowns, they’re experiencing pricing pressure, they’re experiencing elongated sales cycles,” he said. “The other half is having services fly off the shelf, so to speak.”
Catherine Wendt, president of Hinsdale, Ill-.based MSP Syscon, Inc., said her business got to recession proofing a long time ago.
“We built up a lot of cash and we built a lot of efficiencies to bring down long-term costs,” she said. “It became focusing on moving [our customers] from Outlook to 365 for email…so a lot of project work.”
And through some of that project work, she said some clients have actually reduced costs with her MSP company.
“We made it a point a few years ago that first of the month means we’re paid first of the month,” she said. “These are all things that we did up front knowing that after so many years in business as a company, there’s always these cycles.”
In “prepare for turbulence,” Pagliuca shared “good financial hygiene” for MSPs and what they should do in preparation for uncertainty.
Here are four ways partners can recession proof their business and come out stronger on the other side.
Look At Your Financial Books And Think About Securing Debt
Pagliuca urged partners to go over their books and look closely at their financial statements.
“Understand your balance sheet, understand your accounts receivable, understand your debt structure,” he said to MSPs. “Understand where your costs are.”
He said MSPs will need to know if their debt is a fixed rate or a variable rate, “because as that moves, as that capital increases, it’s going to put pressure on your cash flow, it’s going to put pressure on your balance sheet.”
It’s also crucial to identify profitable customers as he said not all end-customers are profitable.
MSPs should get an extended line of credit as well, to leverage it in case it’s needed.
“Build cushion, build that parachute in now,” he said. “Failing to plan is planning to fail. Period.”
Plan For 2023 Now
He said as N-able starts to plan for 2023, MSPs should be doing the same.
“We’re looking at our forecasts, we’re making sure that we can understand how we’re going to grow the business,” he said. “Are you doing that? Are you building your financial plan? Do you understand your growth algorithm? In a down cycle, how can I grow my business?”
He added that it’s cheaper to expand a current customer base than attract new customers.
Build a contingency plan, he said, and understand what verticals can be captured.
He added that he believed “some parts of the market, whether it be a geographical concentration or a vertical concentration, will feel some of the these inflationary and recessionary pressures in the short term and medium term.”
“But ultimately, this will impact all of us,” he said.
Standardize And Optimize
While certain things are out of anyone’s control, Pugliuca said certain things can be in an individual’s control.
“You’ll be hearing a lot of talk about automation…you’ll want to increase your EBITA (earnings before interest, taxes and amortization), you’ll want to increase your profits, and by the way when the cost of money goes up, cash is king,” he said.
To drive that, he said it’s crucial to standardize the tech stack, service offerings and support. And automate what can be automated.
“Everything you do to standardize makes your teams more efficient, allows your team to drive to a higher set of strategic initiatives and drives bottom line.”
Be An Expert, Not A Commodity
During a financial downturn, Pagliuca said MSPs should communicate to their customers that they are a strategic partner, not a commodity.
“Remind them of their cyber hygiene, remind them of the value add that you bring, be that strategic partner,” he said. “Ask them what they are doing differently and what you can do to help bring down their costs to automate some of their business. What are they doing for CapEx? Are they moving to the cloud? These are all the things that we can do to prepare for some of the turbulence that may hit us today or may hit us down the road.”
He said as business leaders in the cockpit, MSPs must make sure that their business is successful.
If these steps are taken in advance, he said MSPs will come out of a downturn stronger, more profitable and better able to gain more market share.
“The weather outside may impact us to one degree or another, these are the steps to bring a raincoat,” he said. “But ultimately, the climate is quite strong.”LEARN MORE: Infrastructure Management | Managed Security | SMB-Midmarket Opportunities | Vertical Opportunities | Remote Monitoring
CJ Fairfield is an associate editor at CRN covering solution providers, MSPs and distributors. Prior to joining CRN, she worked at daily newspapers, including The Press of Atlantic City in New Jersey and The Frederick News-Post in Maryland. She can be reached at [email protected].
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