Why MSPs Become Reliant on Referrals

I say this a lot, but referrals are not bad.

Referral dependency is bad because it puts your business in the hands of other people. You're hoping they do what you want them to do, when you want them to do it, and you have zero control over that.

So why does an MSP end up in a position where the only way it can acquire a new client, or the most reliable way it can acquire a new client, is through referrals?

To answer that, it's worth looking at how most MSPs start.

Most MSPs Start With a Network

Most MSPs start because a technician or engineer decides to launch a business.

That person has contacts in different companies and different industries. They've spent years building relationships and earning trust. When they decide to go it alone, they naturally leverage that network.

One of the things that's so obvious about MSPs is that they're not easy to evaluate. It's not a decision people want to make lightly because they're often signing a three-year agreement or entering into a long-term relationship with a provider that is responsible for the infrastructure of their company.

People often don't know whether they've made the right decision until after they've signed the deal.

That's why I've often said MSPs are the gynecologists of business. They're dealing with the inner mechanics that make a business function. It's a sensitive and delicate area, and businesses need reliability.

As a result, the easiest leads for an MSP to acquire are often people from the founder's network, referrals and opportunities that come through trusted relationships.

There's nothing wrong with that.

The problem is that it creates a cycle.

The Referral-Capacity Cycle

The founder starts an MSP.

The founder's network brings early business.

In one sense, it's an incredible scenario. You've got monthly recurring revenue and long-term contracts. A couple of good clients and a couple of good introductions can put you in a position where you're generating a couple of hundred thousand pounds a year without trying particularly hard.

The referrals bring good clients. The founder's network brings good clients. Those good clients create fulfilment and delivery work. That means capacity has to be managed, which means marketing gets delayed. Because marketing gets delayed, referrals become even more important.

Over time, a self-reinforcing loop develops:

• Referrals bring work.

• Work consumes capacity.

• Marketing gets delayed.

• Referrals become more important.

The very thing helping the business grow is also preventing it from building another source of demand.

MSPs Sell Something People Don't Want

Another reason MSPs become reliant on referrals is that they're selling something people don't really want.

Nobody wakes up thinking, "We want to change the company that looks after our infrastructure."

Most businesses only consider making a change when there is a problem.

This is one of the reasons referrals work so well. The recommendation creates trust before the sales process even begins.

However, it also creates another challenge.

Why Marketing Feels Different

Many MSP founders struggle to tolerate the difference between referral-led growth and marketing-led growth.

Referral conversion rates are so good that they distort expectations.

When you've spent years acquiring clients through referrals, you become accustomed to opportunities that already contain a significant amount of trust. Those leads convert well and move through the sales process relatively easily.

Then you start investing in marketing.

Suddenly you're trying to convince people to make a change they weren't planning to make. You're talking to people who don't know you, don't trust you yet and may not even be actively looking for a new provider.

The difference can be jarring.

As a result, many founders look at marketing and conclude that it isn't working. In reality, they're comparing it to referrals, which are an entirely different type of opportunity.

Marketing requires tighter positioning, greater focus and more consistency.

More importantly, marketing has a lag.

You don't see the impact immediately.

This is one of the reasons MSPs often try a campaign for a few weeks, decide it isn't working and abandon it. Referral-led growth is so effective that it creates unrealistic expectations about how quickly other forms of demand generation should produce results.

The Shrinking Pond Problem

The long-term risk is that a referral-driven business can end up draining a pond of opportunity.

You can absolutely build a successful business through referrals. However, if your referral network isn't growing, you're relying on the same group of people to generate opportunities year after year.

Eventually, that becomes a problem.

Whilst you can have a referral-driven business, you still need to deliberately grow the network that creates those referrals. You need to build trust with more people and create more opportunities for referrals to happen in the future.

That's the part many MSPs underestimate.

Marketing and Referrals Are More Similar Than People Think

Imagine that all of the contacts you have today stopped bringing you opportunities.

Imagine you decided that from this point forward, you were going to have to generate new business from scratch.

What would you do?

You would have to develop new relationships.

You would have to build trust with new people.

You would have to invest time in creating the depth of relationship required before somebody would be willing to refer you.

That process wouldn't happen overnight.

Marketing works in exactly the same way.

Whether you're using LinkedIn or any other channel, you're still developing relationships and building trust. The difference is that you're doing it deliberately and at scale.

Just as a new relationship takes time before it generates referrals, marketing takes time before it generates enquiries.

In both cases, trust has to be built first.

The Difference Between Active and Passive Growth

The key difference is that marketing is active.

Marketing involves going out into the market and deliberately positioning your business so that people think, "Maybe we should look at these guys."

Referrals are passive.

Referrals happen when somebody encounters a business with a problem and happens to think of you.

That's why referrals aren't bad.

They're incredibly valuable.

They're just dangerous when they become your only source of growth.

Because of the nature of the MSP business model, it is very easy to become reliant on referrals. The trust required to win clients, the effectiveness of founder networks and the recurring revenue model all push businesses in that direction.

The problem is that referral dependency creates a passive pipeline.

What MSPs need is an active pipeline alongside it.

That's difficult, not because it's hard to build, but because marketing feels more uncertain. Referrals feel predictable. Marketing requires a level of patience and commitment that many MSPs never develop because referrals work so well in the early years.

And that's ultimately why so many MSPs become reliant on referrals.

How I help you

The solution isn't to stop asking for referrals. It's to build a second source of demand that you control. LinkedIn is one of those places... where else can you access 1.3 billion people?

• You can find exactly the right audience quickly.
• You can build trust, credibility and visibility easily
• You can leverage it in 30-mins per day and get 2-3 clients per month.

This is how I help my clients...

• Step 1: Map out your goals / what success looks like.
• Step 2: Audit your existing services and positioning.
• Step 3: Rebuild / tighten your positioning and message.
• Step 4: Build a simple lead to client system.
• Step 5: Launch and get new leads.

Typically it takes 30-90 days to launch depending on your bandwidth and 90 days to start seeing ROI.

If you'd like my coaching and support to launch this, schedule a call here.