I was reviewing Kaseya's 2024 MSP Benchmark Survey Report last week and found something puzzling. Despite the tremendous opportunity in the co-managed IT space, only 28% of MSPs include it in their growth strategy—a mere 1% increase from 2023.

This statistic is surprising because in my weekly conversations with MSPs, I consistently hear the same challenges: the struggle to increase sales, add new logos, and find sustainable growth avenues in an increasingly competitive market. Yet many overlook what could be their most significant growth opportunity—partnering with mid-sized organizations that already have internal IT departments.

During COVID, many MSPs experienced a surge in co-managed IT opportunities when internal IT teams were suddenly forced to support distributed workforces. Those MSPs who were ready capitalized on this shift, with some increasing their co-managed IT revenues by 30% or more. But here's what's interesting: this trend hasn't reversed post-pandemic. Instead, it's created a permanent shift in how internal IT departments view external expertise.

If you're an MSP focused exclusively on fully managed services for smaller organizations, here are three actionable tips to successfully enter and excel in the co-managed IT space:

1. Understand Your New Role in the IT Ecosystem

When providing fully managed services to smaller clients, you're typically the primary technology decision-maker, reporting directly to the business owner or CEO. In a co-managed arrangement, this dynamic fundamentally changes.

You're now a "gear in the machine" of a larger IT organization with its own leadership, vision, and goals. Your services support objectives you don't directly manage, and your primary decision-maker might be a technical leader or cybersecurity director rather than the CEO.

Action steps:

• Identify the specific pain points of mid-market IT departments (typically organizations with 100-250 employees)
• Develop messaging that speaks directly to technical leadership rather than business owners
• Create a sales process that acknowledges the different buying journey of an internal IT team
• Position your services as complementary resources that fill specific skills or capacity gaps

This shift in perspective is crucial. The value proposition that wins small business clients won't resonate with technical leaders who are evaluating your services against hiring additional internal staff.

2. Define Clear Boundaries and Responsibilities

The quickest way to damage a co-managed relationship is through ambiguous responsibilities. I've seen numerous MSPs get into trouble when scope boundaries become blurred, and internal teams start "tossing work over the fence" that falls outside the agreed-upon services.

This creates two significant problems: it strains your resources and profitability, and it risks your performance being judged on work that wasn't initially part of your core offering.

Action steps:

• Develop detailed service definitions specifically for co-managed arrangements
• Create clear documentation of who owns which processes, systems, and responsibilities
• Implement strong change management procedures from day one
• Be willing to say, "We can help with that, but it falls outside our current agreement and will be billed accordingly"

When an internal IT department asks you to "do them a solid" by handling something outside your scope, be helpful but transparent. Make it clear when you're stepping outside the agreed services and how that will be handled commercially.

3. Lead With Specialized Expertise, Not Just Additional Capacity

From my experience working with MSPs in the co-managed space, I've observed two common approaches:

The first is positioning your services as "taking care of the noise"—handling level 1 and 2 support so the internal team can focus on strategic initiatives. While this approach can work, it often leads to commoditization and pricing pressure.

The more effective strategy is leading with specialized expertise that the internal team lacks and cannot justify hiring full-time. This might be advanced cybersecurity capabilities, cloud migration expertise, Microsoft Azure optimization, or AI implementation.

Action steps:

• Identify 2-3 high-value specializations your team excels at that mid-market companies struggle to staff internally
• Develop service packages that showcase these specialized capabilities
• Create case studies demonstrating how these specialized services complemented existing IT teams
• Position these specializations as "unlocking" capabilities the organization couldn't otherwise access

By providing expertise rather than just additional capacity, you elevate your position from commodity service provider to strategic partner—a distinction that justifies premium pricing and creates stickier client relationships.

The reluctance of many MSPs to pursue co-managed opportunities is understandable. It requires different skills, sales approaches, and service delivery models. But the market opportunity is substantial, and internal IT departments are more receptive than ever to working with external partners.

As competition in the small business space intensifies, MSPs that develop effective co-managed service offerings can access an entirely new market segment with higher average contract values and typically longer client retention.

What's your experience with co-managed IT? Have you found success with this model, or are you hesitant to pursue it? I'd love to hear your thoughts in the comments.
 

Have a great week everyone.

- Tulsie