One of the most important lessons I’ve learned from working with MSPs around the world is that growth strategies don’t always travel well. What succeeds in one area might not in another, regardless of what experts may tell you. This is particularly true when trying to adapt a process designed for a metropolitan service area and apply it to a rural context.
Being an east coast MSP, I learned this lesson the hard way. Our company was strategically located between the New York and Philadelphia metro areas, serving both simultaneously. In terms of location, we were privileged, yet we took it for granted. After launching this blog, I began collaborating with MSPs far from urban centers. I couldn’t believe how difficult it was to adapt our tried-and-true methods to a rural MSP setting. It simply didn’t work. In nearly every case, we had to discard our existing strategies and rebuild from the ground up.
Power Law Distribution
In many cases, we’ve encountered an incredible founder of an MSP who met all the necessary requirements for success. They attempt to follow industry guidance and best practices, only to fail, and then are told they are the problem. I’ve seen this scenario play out enough times to realize that something else is in play here. The issue isn’t with the organization, but rather with how resources are allocated in areas of scarcity. This is referred to as “Power Law Distribution,” more commonly known as the Pareto Principle.
In a Power Law Distribution, a small number of items have the highest frequency or importance, while a large number of items have a low frequency or importance. This is often visualized as a long-tail curve such as the example here. A classic example is the 80-20 rule: whereas 80% of effects come from 20% of causes.
In areas of low scarcity (such as rural communities), Power Law Distribution becomes more extreme. The typical 80-20 distribution can quickly become 85-15, 90-10, 95-5, and so on. This volatility is caused by the following:
Intense Competition: In an area with limited resources, there’s more intense competition for those resources, regardless of the size of the field. As a result, MSPs that can secure early advantages will dominate the available resources, blocking out the competition.
First-Mover Advantage: For those MSPs that have early advantages, these can become self-reinforcing. For instance, a company that gets a head start in obtaining resources (gaining customers, hiring talent, etc.) can use these resources to grow and secure even more resources as a result. This feedback loop can cause a single MSP to dominate the limited resource pool rapidly.
Barriers to Entry: In these rural areas, barriers to entry can be higher. Those who control resources can set the rules (customer seat pricing, minimum wages, etc.), further preventing newcomers from accessing or competing for those resources. This dynamic further consolidates power or influence among a few entities.
Network Effects: Especially in resource-limited environments, network effects can be more potent. If one or a few MSPs control a significant portion of the resources, customers and talent are more likely to gravitate towards them as their connections into the organization will be much stronger. This further reinforces the power law distribution.
Reduced Mobility: In major metro areas, MSPs that can’t compete in one domain can potentially pivot or move to another. However, in a rural setting with a small resource pool, there’s less room to maneuver, which can trap entities in direct competition, intensifying power law effects.
Impact On Rural MSPs
Now that we have a better understanding of why growth is more difficult in these areas, let’s talk about how this actually surfaces within a rural MSP’s organization on a day-to-day basis:
The vast expanse of rural areas often means that MSPs must invest more time and resources in travel to serve clients or provide on-site services. They are more inclined to accept clients far beyond their usual range because such opportunities are rare. While remote capabilities do help mitigate some challenges, infrastructure remains a concern. These areas often lack reliable high-speed internet, leading to even more connectivity problems that require an on-site presence. I recall speaking with an MSP owner who drove 90 minutes each way from Louisiana to Texas to service a client on-site, incurring a loss almost every time.
As one MSP Owner notes, “We have a large MSP that dominates the region. They offer higher entry-level wages and often recruit our technicians after they’ve gained a few years of experience. Finding new talent is becoming increasingly difficult.” Although wages in these areas are lower than in major metropolitan markets, the cost of training is frequently higher. With fewer educational institutions or competitors to source from, many rural MSPs bear the entire cost of training. Often, this means hiring individuals with little to no professional IT background and nurturing them from the ground up as level 1 technicians.
Every rural MSP I’ve worked with over the years unanimously agrees that industry best practices on seat pricing simply aren’t achievable in their market. This can be incredibly frustrating for them, as their vendors and consultants advise them to charge a certain amount per seat, yet their customers resist even the slightest increase. I spoke with one Idaho-based MSP who said, “We charge more per seat than all of our local competitors, yet we’re only at half the cost per seat compared to MSPs in the Salt Lake City and Seattle markets.” This stark difference from one location to another is proof that you must truly cater to the needs of your immediate customers, regardless of what the industry might suggest.
The real issue with lower seat pricing is that vendors frequently base their product prices on economies of scale. This means that the more licenses you purchase, the lower the cost per license. Additionally, they often set minimum quantities that can exceed the actual number needed. For an MSP with a small customer base, this means paying the highest amount per license, only to then resell at a seat price significantly below the industry average. This situation compresses their profit margins and hampers their potential for growth. As Jay McBain, Chief Analyst of Canalys puts it, “The average MSP in these regions have 8 people, generate just over a million in revenue, and struggle with consistent profitability.” He then went on to say that, “Price compression and national competition are driving a race to zero.”
As I previously stated regarding reduced mobility, it’s easy for rural MSPs to fall into direct competition with one another. While the industry is gravitating towards more specialized technical services and vertical specialization, many rural providers are left out of this trend completely. Instead, they are often forced to become the “jack-of-all-trades” that their market requires. In many instances, these local MSPs also maintain physical storefronts for consumer computer repair and offer services on a time and material basis when suitable. While this might seem like a glimpse into the past for those in denser markets, it’s a means of survival for these MSPs who show up everyday to serve their communities—and they deserve to be commended for it.
Thriving In A Rural Market
Despite all of these challenges, all hope is not lost. In fact, these markets present a ton of opportunities that can be leveraged to not only compete locally, but also on a national scale. Here are a few ways that MSPs can learn to thrive in a rural market:
Exporting Remote Services
As previously mentioned, the cost of living in rural areas is often lower than in major urban centers. This can be a significant advantage for MSPs that operate in one market but service another. To capitalize on this, MSPs can develop remote-only service offerings, delivered from the comfort of their headquarters, and target larger markets. While my MSP was based in the not-so-rural Southern NJ, we introduced a specific remote-only package for startups in New York City. Even though it’s less than an hour away, the cost of goods and services in NYC zip codes is 2-3 times higher than in our immediate area. While this package wasn’t economically viable locally, selling to our neighboring market proved incredibly profitable.
Networking, Networking, Networking
With the strength of network effects being incredibly potent in rural markets, establishing these valuable connections is of utmost importance. I recently had a conversation with Nate Freedman, CEO of Tech Pro Marketing and Ulistic, about this very topic. His advice to MSPs was to “focus on building authority in your market. Become the president of your Chamber of Commerce. Show up to every single networking opportunity. Build relationships with every business in your market – don’t try to sell to them, but focus on having a relationship with 100% of your addressable market, and then when IT becomes a focus you will grow your business.”
Leveraging Upstart Vendors
There was once a time when the list of vendors selling through MSPs was quite short. Those days are long gone. Now, it seems almost every B2B product is eager to establish a partner program for indirect sales. This shift presents numerous opportunities for rural MSPs, who previously felt the pressure from major vendors in the channel. These emerging vendors often provide more flexible contract terms, competitive pricing, and in many instances, more innovative technology. Integrating these upstart vendors into a tech stack can boost margins, giving rural MSPs the space they need to compete and expand.
Impeccable Service Delivery
With local competitors struggling to hire and retain talent, service delivery becomes an even more significant x-factor. By offering an impeccable service delivery model (despite their own labor challenges), rural MSPs can truly set themselves apart from the competition in ways not always feasible in other markets where service delivery is more consistent. The idea of turning your competitor’s biggest weakness into your strength has been proven time and again. More importantly, this directly leads to referrals and organic growth, which is invaluable in such markets.
The MSP landscape is as diverse as the regions they operate in. While metropolitan areas offer their own set of advantages and challenges, rural MSPs face a unique set of circumstances shaped by the principles of Power Law Distribution. The scarcity of resources, intense competition, and the inherent volatility of rural markets can make growth strategies, which work seamlessly in urban settings, seem almost untranslatable. The key here lies in adapting to the environment, understanding the local nuances, and consistently delivering value to the community. In the end, success in the MSP world, whether urban or rural, boils down to resilience, adaptability, and an unwavering commitment to service excellence.