Managed services is a growth industry, with three-quarters of MSPs reporting year-over-year revenue increases. Even COVID hasn’t dampened industry growth too much. Estimates are for 10% annual growth in the space for the next few years. That might actually be a lowball number, given the increased demand that the pandemic has put on service providers to facilitate remote work and increased cybersecurity.
Managed services is also a profitable industry, with over one-quarter of MSPs reporting net margins of 20% or more. The barriers to entry are fairly low, which is encouraging new entrants into the business. A few years ago, new entrants were usually IT techs starting their own shop, but today we’re seeing more private equity firms investing in MSPs. This, in turn, has started to result in more M&A activity, and a corresponding increase in the number of large MSPs.
There’s even more opportunity going forward as well. A lot of small and medium-sized businesses are finding it increasingly difficult to manage their own IT operations entirely. Whether it’s keeping up with the rapidly changing cybersecurity environment, or being able to offer 24-hour support for global or remote workers, or just being able to attract talent, there’s a lot of reasons why co-managed IT is on the rise.
While some MSPs are perfectly content to run as a lifestyle business, many others are seeing the threat of new entrants from below, and the substantial opportunities represented by private equity, M&A and co-managed IT. The common conclusion is that they need to get bigger in order to carve out an unassailable niche for themselves. In fact, the minute you decide to get out of the lifestyle game, you’ve got to start on the growth trajectory.
And to move along the growth trajectory quickly, you need Enterprise Fuel.