Choppy seas on the way out of the pandemic, higher inflation and supply-chain snarls have increased the risk of recession in the coming months. Like everyone else, MSPs, MSSPs and channel resellers are working to prepare for the possibility.
Are MSSPs Recession-Proof?
Cybersecurity has long been considered close to recession-proof. That doesn’t mean the economic risks are zero or that another popular opinion – that MSPs and MSSPs stand to benefit as organizations cut in-house infosec staff – is likely to play out as predicted.
In one sobering example, the recently released 2023 planning guide from Forrester recommended that managed services be scaled back in the event of an economic downturn. “As MSSPs wane, swap those investments to managed detection and response (MDR) or security operations center-as-a-service (SOCaaS) providers,” the report recommended.
The risks were not born of the current climate. In the early days of the Covid-19 pandemic, Joe Panettieri, formerly of CyberRisk Alliance, warned that MSSPs would experience job cuts.
There is some reason for optimism this time, however. Just last month, Panettieri wrote in ChannelE2E that the MSP market continues to show financial strength despite broader macro-economic recession fears. The latest evidence: N-able announced strong quarterly financial results. Also, research from Service Leadership — the benchmarking arm of ConnectWise — found that the MSP sector was not in recession. Not yet, anyway.
Preparing for a recession
Predictions aside, it’s clear that the economic climate is uncertain and that this industry should be thinking about how to survive and thrive amid whatever comes.
Some advice that has surfaced in recent weeks:
A December 2022 IT Glue article recommended five areas for MSPs to focus on:
- Managing cash flow
- Building an agile workforce
- Investing in the right technology
- Seizing opportunities
- Riding the recession wave
“While the term ‘recession’ may set off panic waves among business owners, it need not necessarily be the same for MSPs,” the article noted. “IT is the backbone of every business, and industry observers are expecting the managed services sector to continue to grow, albeit at a slower rate, in the coming year. Slower growth might, however, mean it’s a good idea to pay closer attention to managing costs.”
The Connect Booster site, meanwhile, has recommended that service providers focus on the right metrics to measure economic health amid a downturn, including:
- Net operating income
- Contract profitability
- Monthly recurring revenue
Connect Booster also recommends payment automation to ensure clients make payments without being begged to do so amid lean times.
“Savvy providers don’t play the waiting game,” Connect Booster said. “Those MSPs incorporate tight accounts receivables policies in all clients’ contracts and provide online payment portals like to ensure timely collections. Cash in the bank puts you in the driver’s seat. A combination of effective A/R management practices and automation will put you in control should economic conditions worsen. The payout from having strong managed services contacts with steady cash flow is economic freedom.”
