When The VAR Guy woke up this morning, he noticed that the PSA (professional services automation) software landscape looked slightly different. Autotask has a new CEO and founder Bob Godgart is shifting to a new role as Autotask seeks more SaaS revenue growth. Plenty of media pundits applaud Godgart for his 10-years of leadership at Autotask. But the CEO change also represents an inflection point for the next-generation IT channel. Simply put: Roughly 12,000 MSPs and VARs run PSA software to automate their sales, marketing, help desk and customer relationship tasks. The big question: When is the rest of the North American IT Channel going to adopt PSA and business management software to manage operations and drive growth? Hmmm…
Some pundits think there are roughly 80,000 to 120,000 solutions provider in North America — ranging from basic resellers to sophisticated MSPs and emerging cloud services providers (CSPs). Generally speaking, the leading MSPs have adopted PSA and RMM (remote monitoring and management) software to automate in-house business tasks and remote technical support. In the PSA market, companies like ConnectWise, Autotask and Tigerpaw Software come to mind. Each of those three PSA providers is growing. All totaled, the trio likely has about 10,000 to 12,000 PSA customers, The VAR Guy Estimates.
Crunching the Numbers
Best case scenario: The PSA industry has huge room for growth, since there are roughly 70,000 to 110,000 North American channel partners that aren’t running PSA yet. Still, the PSA industry isn’t new: ConnectWise launched as a Tampa, Fla., solutions provider in 1982 and introduced a PSA product around 2000. The VAR Guy is checking to see when ConnectWise officially started building PSA software. Meanwhile, Tigerpaw has been around since 1984. And Autotask launched in 2001. Best estimates: ConnectWise generates $25 million to $40 million in annual revenues, Autotask roughly $20 million and Tigerpaw under $10 million.
Now let’s do some quick analysis:
- The best, most profitable MSPs are running some form of PSA, CRM or business management software, according to the annual MSPmentor 100 survey (the latest survey closes today).
- The three leading PSA providers in the channel generate roughly $70 million in combined annual revenues.
- Only about 10,000 to 12,000 channel partners — out of a potential North American pool of 80,000 to 120,000 channel partners — run PSA software from the top three providers.
Hmmm… Something doesn’t add up. Generally speaking, the PSA software platforms are mature and they work. Yet the vast majority of the IT channel remains in denial — working with pen and pad or spreadsheets to run their businesses. The horror. The horror.
Solid Start, Bigger Encore?
So what’s it gonna take for the rest of the IT channel to automate their businesses? Will it ever happen?
For PSA to go channel-wide, some myths have to die. Including:
1. Myth One – PSA is only for MSPs: Sure, the most successful MSPs run PSA and RMM in tandem. But resellers who want to stick with project work — without shifting to a recurring revenue model — can still benefit from PSA. After all, PSA allows resellers to measure the profitability of each project, while tracking trouble tickets and other break-fix services. Sure, the PSA vendors remain committed to growing the MSP market. But watch for PSA software companies to push into new verticals (health care, financial services, etc.) to connect more deeply with VARs working in those niches.
Fact is, many of the same faces keep showing up at dozens of MSP conferences. PSA software companies are seeking new channel faces at vertical market events.
2. Myth Two – PSA is too expensive for small resellers: Take a look around. Both ConnectWise and Tigerpaw are offering year-end promotions (for on-premise software) that may include tax write-offs for new customers. Also, the SaaS and hosted models promoted by Autotask and ConnectWise, respectively, can eliminate up-front financial commitments. Even without seasonal discounts or special pricing in place, the entire goal of PSA is to (A) automate your business to (B) make your company more profitable. Sometimes you gotta spend a little to get a lot.
3. Myth Three – Actually, there is no myth three. But two myths seemed a little short for a myths list. So The VAR Guy inserted this filler for dramatic impact.
CEO Change Is An Inflection Point
No doubt, folks like Autotask Founder Bob Godgart, ConnectWise Co-founders Arnie and David Bellini, and the Foxall family at Tigerpaw Software deserve credit for helping 10,000 to 12,000 VARs and MSPs become more profitable.
But today marks an inflection point in the industry. Autotask is changing CEOs so that Godgart can focus on innovation and incoming CEO Mark Cattini can focus on business growth. Translation: This is really a search for growth opportunities.
Over the next few months, The VAR Guy expects each of the PSA players to both broaden and narrow their messages. By going broad, the PSA companies will attempt to get the entire IT channel to automate their businesses. But you’ll also see narrower messages that target specific verticals — such as VARs working in health care.
In the meantime The VAR Guy is scratching his head: PSA solutions are proven. But for some reason, less than one-tenth of today’s solutions providers have gotten the message. What are 70,000+ resellers waiting for?
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1. A lot of businesses put all their energy into getting revenue to pay the bills and forget about the back office systems. Things become a bit chaotic but they are so busy driving the car they forget to stop, step back and look for a better road.
2. It can be hard to get going. It takes discipline and time to put the data in which seems at first a lot slower to throwing a quote in an email. You have to force yourself to use it for a few months before you start to see the benefits.
3. A generalisation here – but IT professionals often like to be in control of how things work, they would often prefer to design a system rather than use one.
Love this post and it’s something near and dear to my heart. Investing in a PSA will TRANSFORM an IT Service Providers business within months. You will earn back every penny you invested guaranteed. I think providers that don’t invest in a PSA are short sited and are long term putting their business in jeopardy.
This is why I believe the IT Service Provider industry goes up and down so much with all the small shops that may not have a solid understanding of the overall business which doesn’t matter in the good times, but the moment a speed bump comes along they could struggle.
We invested in our Connectwise solution in 2002, I think Arnie did the actual install, and it has been one of the best investments we have ever done in our 30 year history.
To all providers out there without a PSA, do your research to find the right solution for you and then make the investment.
To all the PSA’s out there, sounds like you have a huge pipeline with over 70,000 prospects, use your Sales Module and Marketing Module and get after them
-Eric
Greg@1: The VAR Guy rather enjoyed point 3
Eric@2: The VAR Guy hears Arnie is back on the road consulting with customers… Curious to hear what he discovers.
Also, Eric: There are those who say IT Service Providers need to decide between traditional CRM vs. a PSA platform. Could traditional CRM meet you needs?
-TVG
The VAR Guy:
The rumor about Arnie hitting the road is true and I know he’s a big believer in using his Sales Module to drive more business. He does his best work in front of clients helping them with their business.
I think a CRM is useful and will certainly help with your business but a true end to end PSA that includes Sales, Support, Marketing, Billing, and Finance can help improve you’re overall business. The operational efficiencies gained can not be measured ahead of time and can only be truly realized after implementation. No way we could live without our Connectwise. We rely on it to manage our 30+ engineers, managing our marketing campaigns, track our leads, and send out invoices.
-Eric
If the North American market is anything like our local market, (Victoria, BC, Canada) then I think the current ratio of non-PSAers to PSAers is appropriate. Canada can lag behind the US market, but locally, I would hazard a guess that over 90% of providers are One Man Shows (OMS). We RARELY cross paths with any of the top 5 providers in the city. We still occasionally take over a new business from the “owner’s nephew”.
So should an OMS have a PSA, RMM and/or CRM system? Honestly, I don’t think a PSA makes sense in these situations (even the lower overhead versions). Perhaps an RMM does in the right circumstances, but given the large portion of ultra-small and residential clients, I’d suggest it probably doesn’t.
It is when you add the complexity of coordinating a team and more complex business deliverables that the power of this software really shines. I just don’t see that for the majority of companies in my area.
I think Dave makes a good point. At Tigerpaw we often recommend a 3-user buy-in minimum for the sake of the client. We don’t want them to bite off more than they can chew. We understand that smaller VAR’s (1-2 man shops)wear multiple hats and find a CRM/PSA package to be a bit overwhelming.
Saying that, we have tried to steer our clients away from thinking about their business in terms of software “silos” (to use a borrowed word) and to think in terms of buying into a platform that creates sustainable growth over all the areas of a business including the organization/set-up, customer experience, back-office management, marketing/sales and business intelligence. Of course, that type of automation is needed at every level of growth.
As a very (very) new IT shop, I can’t justify the expense of a PSA package. My focus right now is on getting clients/revenue. So yes, I am only focusing on driving and haven’t stopped yet. However, given my structured background (corporate IT) I made sure to check the map before hitting the road. I just can’t justify going through toll roads (ex. Connectwise) when I can get by using non toll roads (ex. Zoho CRM/Helpdesk/Active Campaign) that get me to my destination safely. With that said, I respect the opinions of this blog and the commentators’ views and am definitely looking forward to being able to afford it