The MSP Growth Trap: Why Sales and Marketing Misalignment Is Costing You

Lauren Keeves (00:03.093)
Today we're talking about how MSPs are leaving money on the table and that boils down to sales and marketing either not being well established or not being aligned. And here with James Davis, we're going to unpack that a little bit more. So to dive straight in, James, what in your experience have you seen the industry kind of fall short on when it comes to sales and marketing?
James Davis (00:33.0)
I think if you start really at the core challenge that we have as an industry is the fact that most owners see sales and marketing is dirty. there's a lack of understanding of sales and marketing, but it's even one step further around. People don't want to be doing sales and marketing. It goes against what they believe. And I think that's where all the spiral of challenges come from that.
Just from the lack of willingness to want to do it. And then all the structures that they put in place to avoid that. But it's a conflict of what we're trying to do as a business and deep down actually, more than anything is actually a conflict of not delivering the outcomes that our clients want and need. And I can say that with great authority because I've seen when clients churn from one partner at the moment and go to a more mature partner. It's like a breath of fresh air. All of a sudden they're getting all this advice. They're solving all this technology problem. And the only difference really is, is they've got sales and marketing in place that are driving, driving that. it's, it's, it's clear that there's a really, really bad point that we're at.
Lauren Keeves (01:53.097)
Yeah, I guess from my perspective as well, I see many MSPs when they do start to come around to it, they jump into either camp. It's either, okay, right, I need to move away from being owner led sales. Let's move into, let's get a BDR and let's push that only to not give them the support they need from a marketing perspective. So then they kind of cuddle ties and then jump into the marketing camp without realizing there's that mutual relationship that they need to be successful. I mean, how often do you come across that scenario?
James Davis (02:32.713)
All the time. It's chasing, it's chasing sort of silver bullets. it's the problem is really again, step back a bit and look at the core challenge is the partners are looking to grow their businesses. trying to generate, more profit. And I say that very deliberately because if you're looking at that way, you're not just chasing all this random revenue.
It becomes very targeted in what you're trying to do, but most partners aren't looking at it from that lens and aren't, they're not looking at strategically to, to actually know what they're trying to achieve. They, they, and this is where you like what you mentioned, they're just starting to, take extreme approaches. So they jump from one thing to another because they've got no strategy around it and they've got no long-term view.
And I'm seeing more and more, panic is increasing because client churn is higher than it ever has. And so for a long time, a lot of, partners out there haven't been growing their business through new business, um, new logos. They've been doing it by bolting on some stuff to their existing clients. And that's, that's grown us to a certain point.
We grew a bit over COVID because all of a sudden there's all this different technology that clients all of a sudden needed. But now as we're getting further away from that and client in turn is increasing, a lot of partners are seeing that their businesses are very static or for a lot, they're going backwards. And so they're going to more of these knee jerk panic responses of I need to hire a magic salesperson that's going to sell all this new business to
That's not working. let's make marketing generators, all these leads to that doesn't work. So let's just go back to account management. We don't do that properly. And there's no, there's no sort of holistic view or holistic approach. It's all done very piecemeal. And that again comes back to, we don't actually under as an industry and as owners that have organically grown our business from being techs, we don't actually understand sales and marketing and how that, how that whole engine works so we're coming out from that place of ignorance while we're panicking which doesn't help.
Lauren Keeves (04:55.593)
So how do you at the TSP advisory kind of broach that subject? Because obviously, you know, I'm in marketing, we've got other, you know, SDRs out there and so many different businesses that can support from all those different angles. And again, from a business owner perspective, they're being overwhelmed. They've got all these different voices, but you in your unique position, kind of leading from and supporting the top.
How do you get them to see clarity so they know what is the right step? again, so instead of taking the shotgun approach and trying to pull off all these band-aids at one time and they're panicking, how do you actually get them to slow down and think about it so they do things the right way?
James Davis (05:43.958)
It helps coming from the top, top down approach. And, a lot of partners, I have that sort of reputation of, I've already got a proven track record of this sort of success before. So I sort of carry that weight that when I talk, people will slow down and listen. I can't, can't save everyone, but in general, the ones that are willing to be, to listen and be coachable. Well, what I always do is understand current status.
Firstly, what we need to understand is it current profitability in our in our clients. So if we're, if we've got low profitability and we don't have the right pricing, right there is the one of the first steps because that allows us to generate revenue and profit without doing a whole lot. but it starts to set that mentality of where, does our values sit? One of the other things I do very early on is understand what their ICP and their TCP are their ideal client profile and their target client profile, because that determines a lot of what we should be offering and how we actually engage the clients. Because if they're in different sort of segments, their approaches are very different. And the one of the biggest things I find is, when I say segments, what I really mean is the different company sizes. So like micro business, small business, medium business, mid market enterprise type thing.
A lot of MSPs are working with three. And as soon you start working with three segments, those extremities of both sides don't actually line up. And that's causing a whole bunch of challenges. So it's not even the industry niche. It's that segmentation that causes a lot of problems. So we look into that. And then we look at what's our long-term actual strategy. What are we aiming to be? Are we trying to be a smaller deliberate lifestyle business. that, what I mean by that is that we're staying sort of lean and agile. might be around 10 to 20 people at most. We're, we're generating high premium offerings. We're delivering high outcomes. Or are we trying to actually be that growth business? Are we trying to be 20, 30, 50, a hundred million dollar company? Those sort of.
Attributes dictate a lot of what we need to do and how we need to do it. If you're smaller, if you're trying to stay small and lean and highly premium, a lot of decisions then become a lot more obvious where if we're trying to be that growth company that then our strategies differ a lot. But the problem is most partners are neither of those things. They're trying to be both and you can't actually be both when you're, when you're both here, you fail because they're very polar opposites of how you operate things.
Lauren Keeves (08:42.281)
Yeah, so let's say just sticking on the once they've decided what camps are in, they're building a lifestyle business or whether they're growing and after new logos. If we stick to the lifestyle business, what would be and again, each business is going to be slightly different. So we'll get listeners to take this with a pinch of salt. But where would you say they start from a sales and marketing perspective if they're just after the lifestyle.
James Davis (09:14.882)
What they need to focus on is profitability and the right clients. So an average, let's just say an average $3 million revenue business will typically have somewhere between 80 and 100 clients on their books. But typically, and this is, I've done it, seen enough partner businesses out there, their top five to eight clients are generating 80 % of their revenue margins.
So there's a big discrepancy there of, we've got all these clients. And what that tells me all the time is we're just chasing revenue. Yeah. We that's that whole growth side. we need revenue to grow, but you need profitable revenue. Yeah. That's, that's what really is. And so when you start looking at that, we create, there's a reason why a lot of those businesses aren't profitable because they've got, creating so much busy work because they're having to hire more account managers. They're having to hire more people, but they're not getting the margins out of all of that to drive the profitability. And so if they want to stay small, of the first things that we focus on is who is our ideal clients that we're going to work with? What's those sort of minimum baseline in the types of engagements that we're going to have and then right. So go through the client base and get them on board or not and right there will create growth or at worst you consolidate down to quite a profitable business and then you can service your clients more deeply because you're not running around with busy work and a whole bunch of noise. And so that very much becomes that account management strategy and solely reliant on that core business and core clients and really servicing them very well. And then you can line up the sort of marketing around it to present that identity out to the wider world. So as the owner or the account managers out there meeting other people, that validation of the digital presence is there that so you filter out a lot of the rubbish that you don't want. So the right people are coming to you.
You also don't want to have a lot of new logos coming on because you're trying to maintain a smaller client base. So you're not trying to chase getting like hundred inquiries because you only really want like one new client every so often to maintain some growth and mitigate against some client churn. And I think that's the mindset again, if I go back to what I said before, a lot of owners have, are trying to be both. They're trying to be that lifestyle and trying to be that growth. And that's why they get no success because as soon as you look at that deliberate lifestyle and what I just said, that's very different to what, a lot of people actually take actions on, but they don't actually want to grow. So it's this, they're stuck in this, this sort of mental trap.
Lauren Keeves (12:29.769)
Yeah, and I see them mentally struggling with justifying marketing as well when it comes to, we just want a lifestyle business, therefore, you we're just going to focus on growing white space. And therefore, it's just down to the account managers. And they miss that marketing piece because there's that whole misconception that, hey, no, marketing is just going to give me a new business and just purely be lead generation. And they miss the mark there, not realizing as well that it can also be two birds with one stone because you're building those solid foundations, you're building up the brand and then that can then help build case studies to bring in new logos down the track if they do want to then start bringing in those odd clients here and there. But yeah, I feel there's a real big disconnect between hey, where marketing actually sits and then especially when they're going, hey, well, we're not actually bringing any new logos - how can we justify marketing spend, but actually you will or you can see a return in marketing for white space. Would you agree?
James Davis (13:37.71)
I think that this is that lack of knowledge. I'll say it because I'll give you a chuckle that a lot of marketers don't know how to educate non-educated people very well in general, because you're the expert. If I flip it back to the technology services business area, a lot of the owners are super technical. So they do the same thing. It's very much a trust-based exercise with us and our clients that, I know what I'm talking about. If I say something, you probably don't understand it, but you go, with it. But the challenge for the technology services businesses, we have been burnt in the past by overspending in areas and whether that's because we brought in the wrong people, we didn't have the right strategy. There's multiple reasons for it, but we've been burnt. there's immediately not this trust and `for marketing, think a lot of the, lot of the technology services, businesses owners, because they're not experts in the space. don't, they don't follow, and understand a lot of the language that's used either. They default to what they know it to be. What they know it to be is what it was in the past. It's the, you just have a website up there. It's like your brochure. You, you, basically put out a catalog. You take a.
You take a brochure with you when you go visit a client, that's what they see as marketing. but that's not actually what it is. And I think when you start to break it down and you've mentioned it before around like the branding. So one of the things in the past and a lot of business owners still rely on is that referrals. That's the, that's the brand. But as, as the, your traditional friends and family circle, that we've built our business on starts to shrink because it is shrinking. All the baby boomers are starting to exit and sell out of their businesses. They're going away. So you need to start talking to a whole bunch of new people. And that's where that sort of branding and that presence comes from. And what you're sort of touching on around like the white space. We should be saying marketing is not just.
James Davis (16:03.026)
doing that whole brochure, external out and come and come and buy from me type attitude. It's actually the educational part and it's actually having the validation and the resources. So when we're looking at that, even at that smaller business that, let's just say it is a $3 million business. consolidate down and we've got 30 clients. My marketing and having a digital presence. we're providing, pushing out education, what that does is start to amplify the messages. So we start talking about cyber security as an example, that's been a buzz or AI. If we're wanting to talk to people at the moment, all we can really do is go talk to them individually. And we need to go talk to them individually, but there's a lot of seeding that we can do through putting out digital content, whether that's video, whether that's doing webinars, whether that's even taking, even having written content.
Even taking out of the digital side and throwing events. That's what we should see as our scalable activities so that we can get a lot of that fundamental knowledge out to people. Cause they do read it. lot of that stuff, as long as it's done right and you're not just churning out generic rubbish, if you're tailoring it to the, to your ideal client profile, they read it, it's valuable. That seeds conversation. So when you actually are having face to face time with becomes a lot meaningful, more meaningful for their business. Cause you've already set them up to understand a lot of the base concepts. You're not having to go in and do the whole generic conversations. That's not as valuable, in those face to face things. So a lot of this is just understanding what you're trying to achieve again. And then what are the best ways, to do that. And just knowing, think a lot of, partners out there just aren't aware of the different methodologies that they've got at their disposal to make decisions about how they're going to go about their strategy.
Lauren Keeves (18:08.979)
Yeah, I think the seeding is totally underestimated, especially because you can't clearly measure a return on investment on that one email that could have been, or a collection of emails that, again, empowered that conversation when they did have their account management meeting, or when they did go out, or when they bump into someone and went, hey, I saw you did this video on LinkedIn without actually going and having that conversation.
And again, that's not a, you can't measure that in terms of a return on investment. That's where they'll struggle as well. So yeah, I guess with that, how do you broach those conversations? So I imagine when you're going into a client and saying, hey, well, one of the things you need to sort out is your sales and marketing. And they turn around and go, and they start bringing up the return on investment. What do you say to get them to kind of snap out of that and educate them?
James Davis (19:07.918)
really interesting when, like when we talk about sales and marketing as more intertwined, just to, just to challenge, um, lot of owners out there. Marketing, we go straight to ROI. Sales we never do. Funnily enough. Um, I, I can't articulate why, but as you were mentioning that, I was just like that it stands out to me as a, as a constant theme.
And I think it's cause we, for a lot of longstanding owners, feel like, I've hired someone I've, I've got control over control over them. So it's very rare that we hire a marketing team as a, as a small business. It's one of those areas like HR that's like way, way down the road for, for a lot of us, but we always have sales people, whether they're account managers, whether the sales support, whatever, whatever role.
And I think just cause we they're there, the person, they're, they're an individual. know who they are. We don't put the same views on, that approach. And the reason why I bring that up, not just to contrast that, most, most, technology services, businesses, their sales performance is actually pretty poor. and account, I'll pick on account management as an example.
We all know generally a lot of businesses don't have success with their BDMs and that's, there's a combination of reasons, but most, most businesses have an account manager and there's a key measure there are called the, sales labor, to gross margin ratio. And what that means is how, how much does your salesperson cost, commissions?
And for a lot, don't do commissions. Um, I won't go down that ramp, but as an account manager, let's just say they're on a hundred thousand dollars a year. And then how much in their portfolio are they managing? And that covers their product sales, their, um, those project services, sales, the recurring services and the recurring product. What's the, what's the overall margin of that divided by that a hundred thousand. So if they're generating.
James Davis (21:36.436)
and managing $500,000 and they cost a hundred thousand. Well, that's a ratio of five. So the best highest performers are doing around 10 times ratio. The average in the industry is about three to four. So that's basically break even when you're running around three to four from an account manager. So you're not actually getting an ROI from your person, but a lot of people don't know that.
And I think that again, going back to that personal side. so when you go to marketing, it's not like we're already a super mature business that's, managing our profitability. We've got all these metrics through. I think mainly we come to ROI is we don't understand in general what we're doing. And then we don't actually have that personal attachment to the person that's delivering the stuff for us. It's a business thing. So it's much easier to go.
We're not winning. It's an ROI problem. And so we can, we can stop and whether, whether they're the right person to be doing it, whether it's problems with ourselves, problems with our management, measurement problems with our expectations. think that that sort of. There's problems everywhere in that, but I think we don't persevere in it because we don't have that personal attachment to it.
It's a, we just see it as a, as a cost and we're expecting we're going to get an immediate lead and that's ready to buy from us. And that's, that's all we're expecting. yet we're not expecting that from sales. So I think again, it comes back to that lack of understanding.
Lauren Keeves (23:21.941)
Yeah, there definitely needs to be a blended measurement between the two as well, because marketing can only take you so far and then you do rely on the sales or account management to get it over the line. So it's quite unfair, not to wave the poor me flag, but it's unfair to necessarily measure marketing against that because it will get to a point where it's out of our control. We've done everything from our side to draw.
people in or empowered those conversations. It's hard to measure. And I think, I mean, you love a good racey chart. I think it comes down to, I think your mindset that you raised and then treating it as external spot on, but actually trying to think of it all as just one team and together create a race of who's responsible, who's accountable, who should be included in here. And actually it's a return on investment across both.
think dog just joining me there. But yeah, I think it's definitely something that people need to consider that combined approach when they're measuring success, rather than looking at it siloed, it's independent, because the success of both rely on both. They can't be done individually and to expect the best result.
James Davis (24:21.23)
Yeah.
James Davis (24:47.15)
And I think this goes back to the, the old school thinking that it was separated. And let's be honest, it used to be, it's just sent, especially in the use the compute consumer side. We send out a catalog that will generate demand and then they'll come to our shop and they'll, they'll be ready to buy something. And then the people in the store will find a way to get them to buy something. And.
Lauren Keeves (25:12.895)
Hmm.
James Davis (25:14.37)
That's not how B2B services work. And we already know this because every single owner is like our, our best clients are the ones that will refer to us. We're a relationship company. And so this is that contradiction between how we act and what we put out. So we, we want to be that relationship driven company. That's how, that's how we want to do it.
But when we engage, say marketing, we act like, well, you just go put out catalogs and then people come and transactionally buy from us. But we know that's not what we want or how we want it to. So that translation there, we need to be more seeing it as, that marketing component is more projecting that relationship out and how do people build trust and that intertwining.
I can't undersell this, like how important it is. Even Canales has put out data around like the average B2B technology buyer. So our clients need like 27 touch points to buy things. And we already know this because we know no one ever has rocked up to us where you have one meeting and they buy a managed service.
Lauren Keeves (26:34.676)
Mm.
James Davis (26:35.41)
We know that there's touch points here and it's only getting more complicated for us as technology services businesses, especially the ones that are evolving into technology solutions partners. The broad technology that we need to be across while understanding those clients businesses, we're not going to do transactional stuff as much. We need to understand their business to give them the right solutions. If you want to play a commodity game,
Which you can, when you're going scale, again, this is that conflict between, you deliberate lifestyle business providing premium services to, we going for a hundred million dollar business that's delivering a lot of standardized approaches? Again, what we portray is very different. And that's where that sort of branding and identity comes into play. But then how are we getting someone, how are we getting someone that's got some interest that we can help that's in our.
I, our TCP, how are we getting them to get a bit more educated to then come and do the next touch point? And what's the next touch point and what do we need to understand? And I think as I'm saying this, sounds like it's all too hard. I just want new business. And I think that's what ends up being, even if some people are open to hearing this, when you start, when you start breaking it down like that, that's, that's a lot of work.
That's not going to achieve what I think I want. And that's again, think that's that lack of, for a lot of us is the lack of overall business strategy. We don't actually know what we want. We don't have a plan. And I can say that with great authority because I'll meet the average $2 million MSP. I can guarantee nearly everyone out there doesn't have a plan, but they'll tell me they will want to get to 5 million in the next three years.
The guys in the 5 million range will be saying, I need to be in 10 million in the next three, three to five years. The ones that 10 million are talking to me about doubling their business in three to five years. It's we're saying that because we don't know actually know what we want and what we're trying to achieve. And so we default to all of these behaviors. We don't have a strategy. And so how is anyone going to come in and be able to be successful in that area, whether it's sales, whether it's marketing.
James Davis (28:59.074)
We just don't have enough direction in that space and that's where a lot of these initiatives fail.
Lauren Keeves (29:06.003)
Yeah, so I guess with that, what would you say to summarise today's catch up? If you were to give the audience, I'd say three takeaways or I'll let the number be up to you. But some key takeaways to actually go away and think about how they can change their mindset and a other things, what would you give them?
James Davis (29:31.714)
Take a step back and actually think about what you want from the business. most of us are driving it like it's monopoly money. We've gotten to the point where it's just part of our identity that we rock up day to day. We need to bring back that purpose. What are we trying to achieve? Is it that deliberate lifestyle business? Is it that large, that large scale growth company? Is it that we need to transform? Do we need to exit?
You need that clarity first before you do anything else. Once you know that a lot of these operational decisions and growth strategies become super simple. From there, I would say the other key thing is really understand from your identity is who are your clients? Like who are your ideal clients? Who do you
best work with, who do you provide the most value with, who do you have the most, the best partnership with that it's, it's give and take both sides. What are the, what are the attributes and qualities there? Do you have enough of those to achieve your results or do you need to change up your client base? And then I'd say it's then starting to work out, the strategies to either increase my, wallet share in your existing client.
base and uplift them and take them on a journey or have you exhausted that and you do need to go for a new business and then where are you going after that business? What are the different touch points that you need to go through and actually create a strategy? All of what I said just then can be boiled down to one thing. We need a clear, clear revision and strategy and execution plans. Without that, none of us, none of us are going to be successful.
It's a highly competitive market. What got us to where we are now in our success is not what's going to determine the success for the next chapter. And especially with the dynamics in the market that are going on. You can't afford to be complacent and static. You're only going to go backwards quite rapidly with what's happening with client churn. So you need to be proactive about what you're going to do.
James Davis (31:52.438)
And there's no single right answer of how to do that, but you need to be deliberate for yourself and make those decisions.
Lauren Keeves (32:00.181)
Great, great. Yeah. And I think if I could just end on one last thing thought as well, just going back to your point there about if you don't start doing something and moving forward, you're going to fall backwards. It's now not a matter of, and back in the day where you were coming up against competitors and you're fighting across all the different marketing channels or other channels.
with someone down the road and whatnot. You're not even competing with necessarily people interstate and elsewhere. You're now actually competing for attention. People, they're sponsoring their consuming content, you're getting stuff out there and you start being proactive and moving forward. The game's got a lot harder. It's not as easy as it was before. Besides the...
know, everyone's saying attention spans are shorter, people do highly can highly focus on things that do interest them. And so if you're not getting out there with content that resonates, talk to language, comes back down to your point, James, knowing who your audience are and having that strategy, and then go realize and you're actually in a game and trying to just compete for attention in general, you'll know that you'll need to start acting now and stop delaying.
James Davis (33:25.036)
You have to do something. You've got to be deliberate with if you're going to stick around for the longer than three years in the future, you have to spend a lot of time transforming your approach. If you're not, you got to make a deliberate decision to exit as quickly as possible because there's more risks than there ever has been. that can't emphasize enough.
Lauren Keeves (33:25.098)
Great.
James Davis (33:48.226)
the client churn risks that you've got, you probably don't think that you've got it, but you do. It's higher than it ever has and it's only going to increase.
Lauren Keeves (33:58.239)
Well, thank you so much, James. We'll wrap it up there and yeah, we'll see you again on a future episode.
James Davis (34:06.062)
Thanks for having me.