Confessions of an IT Business Owner
Confessions of an IT Business Owner is a podcast where we share inspiring stories of IT Business Owners, just like you, on how they’ve become healthy by improving their cash flow, automated their businesses, and built trust with their clients and prospects by looking more professional, growing their MSP’s.
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Welcome to the Confessions of an IT Business Owner podcast where we believe that healthy cashflow is critical for your IT business. Automation is paramount and building trust with your clients by looking professional will help grow your business. I’m your host, Ryan Goodman. Today, you’ll learn about some profound struggles related to owning and growing an IT business and how Will Nobles from Vector Choice overcame them.
Will Nobles:
Be honest to your clients. Be honest to your vendors. There is going to be times in your business career that, “Oh, I don’t know if I can make that payment.” Don’t stick your head in the sand. Talk to them, because if you talk to a vendor, they’re understanding. If you put your head in the sand and not return emails and not return phone calls, they’re going to have a problem with you.
Ryan Goodman:
Here’s the podcast with Will. Well Will, thank you for taking time out of your busy schedule to join us here today on the Confessions of an IT Business Owners Podcast. Really looking forward to digging in, learning more about you, learning more about your experience and your business how you serve your customers today, and all of it. The good, bad, the ugly, that’s what we’re going to dig into today, Man.
Will Nobles:
Good, thanks for having me.
Ryan Goodman:
Well, to kick things off, let’s get some of the basics out of the way.
Will Nobles:
Sure.
Ryan Goodman:
Tell us just about your business from a hundred thousand foot view and then where people can find you online.
Will Nobles:
Sure. My name is Will Nobles. I’m the founder, CEO of Vector Choice Technology Solutions. We are actually based out of Atlanta, Georgia. We have four offices. We have Baton Rouge, Louisiana, eastern North Carolina, and DC. We have four offices. We have clients in about 17 states and two other countries. Our journey started in 2008 where I started as an MSP at that point and grew the business. I was a single man shop.
Will Nobles:
My background, I actually was doing a lot of large consulting for fortune 500 companies and stuff, and decided I saw a need for the meeting of small business world, and figured to jump in and join the MSP community. I didn’t start out break fix. I started out straight as MSP, and grew from there.
Ryan Goodman:
Wow, nice. Very cool, very cool. You had mentioned a little bit about you doing consulting for large firms. Was there a point beyond that background where you said, “I’m spinning up my own gig. I’m starting my own company?”
Will Nobles:
I think every story of any business owner, sometimes it’s not ideal. “When am I going to start a company?” I actually was doing the consulting, left the consulting, actually take a VP of technology job at a mortgage company. We had about 900 employees. We had three locations across the U.S. I did that for about two and a half years. Then in 2007 when the mortgages industry blew up, I saw myself laying off a whole bunch of engineers and technicians, and eventually, we shut the doors and I ended up with one… Besides the CFO and CEO, I was one of the last ones out the door.
Will Nobles:
In 2007, I said, “You know what? I already had a business plan written. I knew what I wanted to do.” I wanted the management experience, so I went from consulting to management. I said, “You know what? It’s not the best time in the world to do it, but I’m going to go do it.” It ended up being a great time even though the economy was bad. It was great because everybody was trying to outsource, get rid of their staff, get rid of… It was actually good for me to get started. I didn’t have any debt, anything to get started with, and so we got started 2007, incorporated in 2008.
Ryan Goodman:
Sure. Cool. Now, the catalyst for getting into your business sounds like it was pretty pointed, right? You knew what you wanted to do and timing was perfect within your career to make that happen. What are they whys today? Obviously, it’s 11 going on 12 years later. What are the passions inside of yourself and inside of the business that keep you going and growing? Have there been any major paradigm shifts for you as a business owner in terms of business passion?
Will Nobles:
Sure, absolutely. We started out as the company being a vapor services corporation, like, vaping e-cigarettes. My concept in my mind was, “Oh, I’m going to cloud computing. That’s what I was going to focus on. That’s when cloud computing was really getting really hot. I said, “Vapor makes sense. Cloud. Yep, that was bad when a e-cigarettes and vaping came along.” About three and a half years, four years ago now, we changed the name to Vector Choice. That was a big change and not just starting a company but in midstream trying to rebrand at the same time.
Will Nobles:
That was a whole learning experience in itself. Owning a business or starting a business, it’s not the glamor everybody thinks. A lot of people think, “Oh, I can make my own schedule. I can go on vacation when I want.” Not for the first five years, no. You are working for the man and still in a way. If you bust your butt and work hard to do it, yes you can start taking vacations. In three weeks, me and my wife is going to Aruba for seven days. I’ve got a team now that takes care of everything for me while I’m gone so I won’t get any phone calls.
Will Nobles:
It’s not the glamor, and it’s a lot of stress. That’s where all the gray hair comes from, that and kids. It’s a great experience but it’s not for the lighter heart by no means.
Ryan Goodman:
We end up doing a lot of speaking to students, whether it’s the colleges in the area or even high school students coming into our facility. The concept that a lot of times I think the young people don’t understand is there are times when you start your business, you’re actually paying to do a job. You’re not getting paid. You are actually paying to work. You’re not getting paid to work. Wrapping their mind around that concept can be interesting.
Will Nobles:
That first year and sometimes the first two years, you look at your paycheck, and it’s like, “Why am I doing it? I can go work for someone and make triple as what I’m paying myself.” It’s not a get rich quick. Owning a business is not a get rich quick scheme by no means. It is hard work, dedication, and you have to look in the future, what benefit it’s going to give you in the future as a business owner.
Ryan Goodman:
Well, I think that’s really good encouragement. For those individuals that are just starting out, that are listening to this podcast and watching with us, the pain is normal. Stay the course. It gets better. That really leads me into a couple… What are some of the any specific struggles that question or that conversation brings you back to that were a make or break point inside of your business that you can share with us?
Will Nobles:
Running a business and starting a business, you think everything has to be perfect. It doesn’t have to be. Get a business card. Get a website up. Do the basics. The lease get started. Don’t go blow a lot of money. In my mind when I start a business, “Oh, I’ve got to have a nice car because I’m going to be driving clients around,” and I went and bought a Mercedes. I never drove a client around. I have to have a big night office, flashy office. As a managed services company, people will really never come to your office. You’re going to their office.
Will Nobles:
There’s a lot of mistakes along the way that we made that if I had to go do it again, I would not make, or if I started another company and I have, I don’t make those mistakes. Don’t have all your eggs in one basket. From a standpoint, it was probably 2010 or 11 area, I believe, we had a lot of our clients, large clients, but not a lot of medium and small clients. Well, I lost 60% of my business that year. It wasn’t anything we did wrong. It was [inaudible 00:08:30]. When I say 60% of my business, that was revenue and it was three clients.
Will Nobles:
One of them went out of business. One of them merged with another company, and one of them sold to another company. We ended up getting pushed out with that. Diversify your clients from medium, small, big. Then we have mega clients, what we consider mega. When we’re going after a clientele, balance that out. When you’re in your sales process, make sure you have a good pipeline of different sized clients because you don’t want one client to take you by no means.
Ryan Goodman:
That’s great advice. How about some of the wins? Any big milestones where you’d crossed the threshold in terms of client count, revenue count? What are the things that you can say help put your flag in the sand and stabilized your business on your entrepreneurial path?
Will Nobles:
I think one of the hardest things was to get past a million dollars as MSP in a year. Once you get past that, you’re like, “Okay great, I’m getting established.” Then you hit that, and then it’s hard to get it to two million. Then at two million, it’s like, “Okay, now, things are starting to run on its own and I got managers to take care of stuff, and I don’t feel like I’m in the grind every day.” We look at the three million, five million, 10 million mark as you grow your MSP. We’re not at the 10 million by no means, but getting there, there’s key markers that I’ve seen of other MSPs where they get that three million, then also boom, getting the five million is easy.
Will Nobles:
They get to five, and then getting to 10 million is easy. There’s always a stop, and it’s always changed. Don’t think that the same thing that you did when you started the company at a million that you’re going to do at three million. The processes are different. The staff might have to change. You have to find the right people to lead your company. Now, you start leading a company and not working in the business. You’re actually working on the business. I spent most of my time today working on the business. I’ll probably do 10% of my time if that working into business at this point.
Ryan Goodman:
Was that a tough transition for you, or is that something that you learned well in the corporate world.
Will Nobles:
It was a tough transition because it’s your baby, and you don’t want to let go. I mean, my managers say, “Will, I got this.”
Ryan Goodman:
Get out.
Will Nobles:
“Get out. Leave me alone.” I still struggle with it and I think any business owner is going to, but it is a transition, and it’s setting back getting the right team and trusting that they’re going to take care of your business like you do. If they don’t, you’ve got to replace them. You got to find someone that’s got the best interest in the company at heart, and find a good team. Building a good team is probably the biggest in being an owner or learning financials or dealing with clients. Building the right team around you is key.
Ryan Goodman:
That is obviously critical. Leverage is really the only way you grow the business. Whether that’s insource, outsource, it’s great advice. A question for you, this is more on the personal side. Did you have a family when you made that transition?
Will Nobles:
I was getting married, so the mortgage company went out of business. Friday the 13th, April, Friday the 13th [inaudible 00:12:09].
Ryan Goodman:
You don’t say.
Will Nobles:
What a nightmare. I was getting married, and I hate to say it, I don’t remember either June or July. We’ll say June or July that year. I was getting married, so I was going into… I’m losing my job perse. I’m starting a business, and I’m starting a new marriage all at once. It costs me my first marriage. It costs that marriage. I am remarried. I’ve got three kids, a two-and-a-half, three-and-a-half, and nine.
Will Nobles:
It can take a toll on you personally, in your personal life.
Ryan Goodman:
Absolutely.
Will Nobles:
Even with your friends, with your family because you start running out of having that… When people talk about a balanced life, you don’t have a balanced life the first couple years of business. It’s until later. Really after five years, you start getting that balance back. Personally, you burned some bridges and not intentionally for the first five years. It’s because people don’t understand why you do it. When I lost those clients that year, people were like, “You need to get your resume ready. You need to go and get a job. You got a family to support.”
Will Nobles:
At the same time, I’m like, “Yeah, you’re right, probably so,” but the hunger in me said, “I can do this.” Every day that I wake up, there’s challenges. No matter how big you are or where you get in life, there’s a challenge. It’s getting past that challenge every single day and fighting through that. It doesn’t get easier. It’s not easier. I think you just handled it better.
Ryan Goodman:
The problems change, right, and you have more people to help elevate them.
Will Nobles:
Yeah. Before, it’s like, “Am I going to get a paycheck?” Then it’s, “Oh, now, I’ve got a whole bunch of employees and I’ve got personalities and I’ve got HR. Oh, I’m gonna make payroll every two weeks.” When you’re an employee, two weeks don’t come fast enough. When you’re an employer, two weeks come very fast.
Ryan Goodman:
I hear you. One thing that you hit on there, which I think I’m completely going off script now. You’ve given me so much great information. I’m just asking questions being just super interested-
Will Nobles:
Not a problem.
Ryan Goodman:
… because I think it’s stuff that I hear all the time. This is specifically related to HR. At what point inside of your organization did you say, “This needs to be…” Do you have an official person in the business? Do you outsource it? How do you guys deal with HR personally, and at what point did it become mission critical for your organization?
Will Nobles:
It’s always been a joke in our company, “We don’t need HR,” and now we’re probably would be one of the first ones fired if we had HR. All kidding aside, we actually put a handbook in place probably four years in. Again, it depends on how fast you grow and how many employees you have. It’s live and learn, right? You hire an employee that for some reason he thinks getting a beer out of the refrigerator at 11:00 is okay, where we’re only supposed to have beer Friday after 4:00 on Fridays.
Will Nobles:
It’s those things that hit you like common sense. You start having a question of some of the common sense of some employees, and that employee is not with us anymore, but it happens. When you start seeing things happen, it’s like, “Oh, I need this. Oh, I need this.” I would say it depends on how fast you grow and how many employees you have and when you really need HR. We outsource our HR still, so we have a outsource payroll. We do outsource HR.
Will Nobles:
We have an internal person that handles new hire packet and all of the forms that fill out, but if we have an HR issue, they help us with our handbook each year. If we have to let someone go, they help us do that process. It all depends on the employee size really. We still outsource. I don’t know if I’ll ever bring HR in house.
Ryan Goodman:
No, that makes a lot of sense.
Ryan Goodman:
Hey guys, Ryan Goodman here, president at ConnectBooster and your host for this fine podcast. We want to take a quick break from our episode and thank you for listening. We wouldn’t do this if it weren’t for you, so thank you for sticking with us on this adventure. We also want to thank Will for joining us on today’s episode. You can find out more about Will and Vector Choice at vectorchoice.com. Will has given us a lot of fantastic information about his struggles and successes with owning an IT business. There’s a lot more coming after this break.
Ryan Goodman:
If you want to learn more about Vector Choice and their services, give them a call, send an email, throw a carrier pigeon if you have to. They want to help you out. Before we get back to the episode, we want to let you know all of the ways that you can find us online starting with connectbooster.com/podcast. That’s where all our new episodes go up first, so if you want to listen right away, check out connectbooster.com/podcast and sign up for our podcast email list. Episodes are available on iTunes, Spotify, and Google as well.
Ryan Goodman:
Subscribe to our channel or find us on your favorite podcast platform, and they’ll let you know when new episodes are ready to listen to. If you want to connect with us or be a guest on this podcast, email us at [email protected], or send us a message on Facebook or Twitter, and we’ll point you in the right direction. Lastly, if you liked the podcast, tweet about it using the Hashtag IT confessions. We don’t pay to promote the show, so sharing the show is the best way you can let us know how you like it.
Ryan Goodman:
Thanks again for listening to the Confessions of an IT Business Owner. We’ll get back to the podcast and talk to you soon.
Ryan Goodman:
Seeing where you’re at now and what you’ve accomplished, what are a couple of things that you would tell your younger self in addition to, “I don’t need to buy the Mercedes right away, and I don’t need to have the glamorous office?” Any specific bits of business advice that you would you relay back to yourself outside of those couple of items?
Will Nobles:
Work hard. Be honest. Be honest to yourself. Be honest to your clients. Be honest to your vendors. There is going to be times in your business career that, “Oh, I don’t know if I can make that payment.” Don’t stick your head in the sand. Talk to them, because if you talk to a vendor, they are understanding. If you put your head in the sand and not return emails and not return phone calls, they’re going to have a problem with you. Again, hire the right employees at the right time. Get out of working on the business as fast as you can.
Will Nobles:
Hire people that can replace you. Don’t be scared to hire someone who’s smarter than you. Know your weaknesses. Make sure that if you’re not good at QuickBooks and invoicing, outsource it or bring someone else to do it. Don’t tank your business. I say that because when I started out, I hate money. I love money, but I hate money at the same time. I hate asking for money.
Ryan Goodman:
Sure.
Will Nobles:
I hated invoicing. Literally, nothing in business terrifies me more than sitting down and looking at QuickBooks and invoicing. Immediately, that’s the first thing I did. It’s like, “Here, take it.” I don’t want anything to do with it. Besides, I want to look at the P&L and balance sheet and everything. That collection stuff, not me. I knew that wasn’t me, so I hired for it, and we have very little collection issues within our company.
Ryan Goodman:
Sure. That’s awesome. Anything that as a primary message you’d want to get across to peers listening today? Anything that you feel like if there’s one thing they take away from this that’s going to help them in their business, what’s a piece of advice that you want to impart to others that are listening today?
Will Nobles:
Get out and communicate your message. Don’t be scared. I could easily talk to you now. I do a lot of TV, movies, speeches, and stuff like that.
Ryan Goodman:
That’s awesome.
Will Nobles:
That’s helped me. I’m not perfect. I’m an engineer. I’m a network engineer. My two degrees are engineering. I should not be on podcast and doing TV segments and stuff like that. I’m supposed to be the guy in the dark room, right? Get out of your comfort zone. Do things that you’re not comfortable with, and tell your message because you’re not going to grow your business by being in the back room and scared to be out in front of a client. At the same time, sometimes, scared to tell the client what they should be doing and not what they want to do.
Will Nobles:
That’s the biggest challenge even we have today is people are scared to lose a client because they want to do something that is not security related or whatever. It might not cost them anything, but it might just be something they’re not educated in and they’re scared to make a decision. You have to educate and you have to stand your ground, because as the MSP, you’re on the line when it comes to your client’s technology.
Ryan Goodman:
I’d like to unbox a little bit on… You had mentioned you’d be the last person however long ago that would be on TV, public speaking, being on a video podcast. Are there any specific things that you had done to break out of that shell and be more intentional with being public with your brand and with your company?
Will Nobles:
I think it goes back from doing things that you’re not comfortable with. I started with a speech coach. I started with a training on things that are not IT related. Then getting the opportunity, speaking in front of your BNI group or your chamber, speaking in front of those guys most times five, 10 minutes. Perfecting that, cutting out the things like ums and ands. I’m still not perfect with that, but it happens. No one is. I’m not a big, giant public speaker either.
Will Nobles:
It went from there to I’ve done Nasdaq. Last week, I was at West Point speaking about cybersecurity at West Point. I had me and some of other MSPs, we were in a cybersecurity movie called Cyber Crime, not a question of if but when. It will premiere. We were in Hollywood for the big red carpet premiere last week. From there, it’ll hit Amazon prime probably July.
Ryan Goodman:
Very cool.
Will Nobles:
They’re all local premiers in our local areas and stuff. For me to be in a movie, and one of the cool things, and this is where you finally made it. I wouldn’t say I’ve made it, but you finally say, “Hmm, this is pretty cool.” Went to Hollywood and me and my wife rented a Lamborghini for 24 hours.
Ryan Goodman:
That’s awesome.
Will Nobles:
We drove it to the premiere and everything. A $310,000 car was always my dream to own. I still don’t own one, but just to drive it and have it for 24 hours, a dream come true. That’s something I couldn’t fathom 11 years ago, even renting one, more or less owning it. Those things like that don’t come overnight, and you have to work on it, work on it, work on it. You’ll get in front of people. You’ll freeze up. You’ll [inaudible 00:24:11] death. You will forget your speech, and you’ll get off topic.
Will Nobles:
It’s repetitively doing it. Just like when you’re on the computer and you’re programming a firewall or a router or whatever, it’s that constantly doing over and over again where you become better at it.
Ryan Goodman:
Just get out and start. It doesn’t have to be perfect. Is that good advice to tell those that are in their shell right now? Just go and start to do and make mistakes.
Will Nobles:
Oh yes. Yes. You’re going to make mistakes. It’s just like when you’re working on technology, you’re gonna make a mistake until you figure it out. Get out. Do it. It’s going to be out of your comfort zone. You’re going to be pouring down sweat. You’re going to be scared to death. Coming out, your voice is going to be all crackly. It’s fine. Just do it. More you do it, the better you’re going to get.
Ryan Goodman:
That’s awesome. It’s true. It’s true. Just be ready for the pressure. Work through it. It gets better after that, right? It gets better.
Will Nobles:
Yup.
Ryan Goodman:
That’s great. I spent a chunk of time on your site. I’m just wanting to get the lay of the land of your organization. I noticed, you spent a significant amount of time on core values, mission and vision, which I myself personally, I’m a huge fan as it helps direct the company. Was that something that you had taken direction on right away in that initial business plan, 2007, 2008, or is that something that came in the mix of growing the business? How does that affect how you run your business?
Will Nobles:
Yes. When I started a company, I’m a visionary type person, and so I went ahead and put a mission, vision, and core values. Now, those have been tweaked since then. Probably about two years ago, my management team came together and said, “Okay, how do we perceive ourself and how has our client perceive ourselves in the marketplace, and what do we want to represent, and how do we represent the day?” We actually join EOS if you’ve ever read about traction.
Ryan Goodman:
I love it.
Will Nobles:
We do EOS. We actually changed a lot of that. It wasn’t that we changed it. It was tweaking our core values and our core mission, and to where really aligns with where we want to be and where we want to go. To me, I mean, our core values are so important is every ticket that we do, we use [inaudible 00:26:50] for a survey tool. When they click on it, did this tech meet the core values on this ticket? Our five core value is up there every single time. When we’re in meetings or when we get challenged by a client for something or a vendor, are we doing this based on our core value? It’s a very big topic constantly within our company.
Ryan Goodman:
That’s awesome. I think it just helps to reduce complexity and decisions. There’s plenty of things to worry about in business, and if you have that core foundation to rally around, it does help simplify decisions inside of the organization.
Will Nobles:
It does.
Ryan Goodman:
Excellent. Well, Will, anything else that you’d like to share with us as we wind down our interview?
Will Nobles:
No, I don’t think so. Hopefully, I answered all your questions the way you needed and everything.
Ryan Goodman:
I’ll tell you what, it’s hilarious because I always come into these things with this laid out agenda. I didn’t even ask you half this stuff because number one, you covered so much of it really well, but I love to just dig in and flex and flow with where the answers are going. This was a lot of fun. I, again, appreciate the time. Thanks for taking time out of your schedule to spend with us and adding value to the overall channel and [inaudible 00:28:17]. I appreciate that and I know all of our listeners appreciate that as well.
Will Nobles:
No, I appreciate it. You can cut this part out, but one of the things, we’re part of Robin Robins. I do Robin Robins. I’m actually a coach for Robin Robins as well. I got 10 MSPs that are under me that I coach on a weekly basis. To me, everybody’s like, “Why do you want to share all your secrets with your competitors?” I’m okay with that because I believe in myself, and either those competitors are going to take my knowledge and what I can teach them and run with it and be successful their self or they’re not.
Will Nobles:
I might as well influence as much as I can and give back, because I’ve had a lot of people give to me, so I want to give back and help people out as well.
Ryan Goodman:
No, that’s awesome. Obviously, a winning philosophy help others get what they want. Ultimately, you end up getting what you wanted. Life certainly seems to work like that for me anyway. I don’t think anyone’s gonna argue that advice.
Will Nobles:
That’s very true. Very true.
Ryan Goodman:
Cool. Well, thank you very much. That was awesome, man. I hope you enjoyed yourself.
Will Nobles:
No. As you tell, I’m doing this stuff a lot already. Check that movie out. It’s cybercrimemovies.com. It will hit Amazon prime I think in July, August. We did the premiere in Hollywood. I know one of the guys is doing his premiere in Connecticut. I’m doing four premieres, one in each of my locations of clients and everything, and so we’re doing that, but I think it’s going to be July or August, it will hit Amazon prime. It’s actually pretty good. I was surprised you got nine tech guys like me own it. The producer actually made us look good.
Ryan Goodman:
That’s awesome. Let us know when that comes out, because from a ConnectBooster social perspective, we’d love to help just promote that out to the world, if there’s anything that we can do to help. From the podcast perspective, we will also let you know when we release that and get it public. A lot of times, our MSPs that come on like to use that for their own promotion as well, prospects and on their social network.
Will Nobles:
Definitely. Let me know on that.
Ryan Goodman:
We’ll keep you in the loop.
Will Nobles:
Okay. Aaron appreciate it in the back.
Ryan Goodman:
Aaron’s the man. He’s the one that’s going to make this all work. He’s like, “Brian, stay on the script.” Absolutely not. I’m not staying on the script.
Will Nobles:
Not at all. Not at all. Well, I appreciate it. You guys have a good one.
Ryan Goodman:
All right. Will, take care.
Welcome to the Confessions of an IT Business Owner Podcast where we believe that healthy cashflow is critical for your IT business, automation is paramount, and building trust with your clients by looking professional will help you grow your business. I’m your host, Ryan Goodman, and today we’re going to venture into the peer group territory. You’ll learn about some profound struggles related to owning and growing an IT business from the perspective of a peer group and how Steve Alexander, CEO of MSP-Ignite, helps his members overcome them.
Steve Alexander:
I didn’t think selling the company was going to be as emotional as it was, even though you kept telling me, but I certainly didn’t think stepping out of a peer group among friends was going to be as emotional as it was, and now I don’t know what to do with myself.
Ryan Goodman:
Here’s the podcast with Steve. Well, Steve. Steve Alexander, thank you for spending some time with us today here on Confessions of an IT Business Owner Podcast. Again, Steve Alexander with MSP-Ignite, and to kick off the call, let’s dig right in. I’d love to have you tell us a little bit about your business as well as where people can find you online.
Steve Alexander:
Sure. Thanks Ryan. My pleasure being here. Thanks for having me. My business is really all about helping manage service providers, or IT service providers, achieve their business goals. I was in IT. I was an MSP owner twice. I was successful to certain levels both times, and I’d say I suffered from every challenge every MSP owner suffers through now, and has since the industry’s been involved, or since the industry has been around. My goal in providing a peer group is to bring business owners together to share in the successes and the challenges together, and to provide the coaching where necessary, the guidance where necessary, and give them a platform for helping each other as well, to grow their companies to whatever level of success they’re looking for.
Ryan Goodman:
Right. Right.
Steve Alexander:
We can be found online at msp-ignite.com, and via email at [email protected]
Ryan Goodman:
Awesome.
Steve Alexander:
If anyone’s looking to learn more about our groups and what we do.
Ryan Goodman:
Steve and I, we’ve been working together for the last two, three years, and highly, highly recommended from my perspective. Just a highly engaged group of IT service and MSP professionals looking to grow their businesses. And so, if you are looking to take your IT service provider or MSP to the next level, Steve is a guy that you absolutely need to reach out to and have a conversation.
Ryan Goodman:
Now, as a business owner, oftentimes we get inside of our own heads, right? It can be lonely at the top. If you don’t have individuals to talk to and talk through those challenges, it can be very difficult. I think the point to this question, prior to me asking is, you meet people in their business no matter where they’re at. Right? Can you describe to me some of the situations as well as is there a perfect time for someone to be joining a peer group, or do they just need to get involved?
Steve Alexander:
Great, great question. We can now talk the next hour just on that question if you wanted to. We meet business owners at every level of business, and in a variety of different places, right? So, the levels of business, whether we meet somebody that has 120 employees and is looking for the exit strategy, or to turn it into an employee owned company or what have you, the questions you would be at at that size company. Or, you meet someone that’s a solopreneur, and trying to figure out how to get some free time on their hands and grow their business.
Steve Alexander:
I think it’s critical to find a place that you’re comfortable, no matter what level you’re at, no matter where your business is at, you are successful. Some people at the smaller level feel like, I’m embarrassed talking about my business. It’s barely a business. I’m paying my bills some months. Those types of things. And, you get people in larger companies that say, “I don’t want to share trade secrets with other people.”
Ryan Goodman:
Sure. Right.
Steve Alexander:
Right? What I’ll say is, no matter what level you are at in your business, you have achieved a level of success, and have answers for questions that other people may have. And, no matter what you think about your business, there are very few trade secrets in business, right? It’s more how you implement is the key, and I think that’s where peer groups help, is that they keep business owners accountable to implement on the good ideas they have.
Ryan Goodman:
Well, and who else is going to hold you accountable at the level where you’re owning and running your own business. There are very few people, let alone your organization, your life, that are going to hold you accountable to your dreams, goals, visions of the future inside of your business.
Steve Alexander:
I meet a lot of business owners that say that their significant other is very successful, and therefore they guide them. “I go home, I talk about my business.” And, that may be true. There are people out there that are married to very successful owners, or managers of people, but they have their own vested interest when they give advice. They want you home more. Maybe they want you home less. But, they either way they’re driven by their agenda, right? They want you to spend more time with your children. They want you to be able to go on a vacation and not be on your phone all day long. They have their own agenda. So, when you talk about an opportunity, let’s say, to acquire a competitor, and therefore spend more time while you go through that, they’re going, “Well, that’s a great idea, but how much is it really going to impact our bottom line, and that just means you’re going to be busier.”
Ryan Goodman:
Right. Given that true third party, third eye, inside of the business, I think, that’s not so vested on the home front, it’s a really good point. Really good point.
Steve Alexander:
Correct. Correct. The other thing about peer groups is nobody has an agenda but your agenda in that moment, right? If I’m recommending ConnectBooster to somebody, I’m not recommending it for any reason other than I think it would be good for your business. Right? There’s no other reason. I’m not a salesperson. I’m not commissioned. I’m none of those things. And in peer group, now when we talk about vendor tools, for example, or different solutions, we’re going to get the down and dirty on why they’re good, why they’re challenging to work with, whatever it may be with no other agenda.
Ryan Goodman:
You’re getting the good, bad, and ugly, and really an unbiased, not a financial incentive associated with that opinion. Right?
Steve Alexander:
Correct.
Ryan Goodman:
No, I think that’s good. Obviously, very healthy in terms of making decision as well. That really leads me. I’m going to switch it up. Just kind of with that lead in, there are other peer group communities that are very tool specific, whether that’s accounting, whether that’s PSA. Are you guys agnostic? Do you guys focus on a certain PSA or accounting package?
Steve Alexander:
We pride ourselves on being vendor agnostic.
Ryan Goodman:
Yeah. Awesome.
Steve Alexander:
Now, that’s really easy to say. Not always so easy to do. So, for example, I am a certified consultant on a specific PSA Autotask. Frequently people come to us because of that. But, the truth of the matter is we spend very little time talking about the nuts and bolts of your PSA in our group, and the conversations we do have are relevant, no matter which PSA you use. The only difference is if you’re using a PSA that that one of the facilitators has experience with, we might be able to help you get there.
Steve Alexander:
But in group conversations, I don’t care what PSA you’re talking about, I don’t care what RMM tool you’re talking about, the conversations are the same no matter what. We do have vendor sponsors, and even in those, we tell the vendors, “When you come to peer group, we are not letting you come to a sales pitch. You’re coming to deliver value on something that is related to what you do. And, then if our members want to talk to you, they’ll talk to you offline.”
Ryan Goodman:
Right. Yeah, I think that’s a great approach. So, a new member engages with you guys. They say they’re going to come onboard. What can that new member expect in their first meeting and in their… like implementing technology, I always say there’s going to be 90 days of pain in anything, right, when it’s new. What does that look like for a new member coming on board with you?
Steve Alexander:
What a good question. I think in some ways, we talk about drinking from a fire hose when we we’re taking in too much information. And, I’m not sure how to turn that around. Nobody understands how much they are going to open up and share about their business until they attend their first face to face in person meeting. We meet both face to face and virtually, depending, a couple of times a year we get together. Or, two or three times a year. And, until you get to a point where you’re sitting at a table for two full days with a bunch of other business owners, you do not understand how much you are going to share.
Ryan Goodman:
That’s awesome.
Steve Alexander:
I may have a vague idea on how much you’re going to gather from other people, but the actual sharing part, and how much you open up. And, to that light, I will tell you that we’ve had situations where you had business owners, I had two partners in in my very first peer group meeting when I opened up, that they were together for 22 years as business partners. If you didn’t know any better, you would think they were a married couple, husband and wife, a male and female in this group. And, we quickly decided having them both in the same group was not going to happen.
Ryan Goodman:
Interesting.
Steve Alexander:
And, at the time we only had one group, so the only option was to decide which one of them was going to stay. And, the more dominant of the two was the one that… he didn’t mix well with the group of people I had. And, he would have mixed well fine in another group eventually, but not that group. So, even though he was the one that wanted to stay, I had to tell them, “Well, to tell you the truth, I think she’s a better fit for the personalities.”
Steve Alexander:
She comes to our very next meeting. She’s on a couple of calls without him. And then, the very next face to face meeting, she proceeds to use a more colorful language than I’m comfortable using on this webinar to describe how she, not only is fed up with him, but has to figure out how to get out of the business.
Ryan Goodman:
Wow. That is interesting, right?
Steve Alexander:
And now, over the next roughly 12 months, we are guiding her in an exit strategy for having him buy her out. She was at that stage of her life, she didn’t want the business herself, and she didn’t want to be a partner with him anymore. And, she wanted to move on and go do something different, but negotiate a buyout and her peer group helped her do that.
Ryan Goodman:
That’s incredible.
Steve Alexander:
You get to a pretty deep level of conversation, right?
Ryan Goodman:
Yeah. And think about that. I mean, even focusing on her, he is also receiving a huge benefit by getting all of the cards out on the table and that’ll allow him to operate the way he wants operate. Can you imagine the amount of friction inside of a business where things are at that point? I mean, it’s not only her benefiting, it’s also just the overall organization benefiting at that point.
Steve Alexander:
I have a couple of members who are business partners. They’re in two separate groups. They also happen to be a consulting client of mine. So, they talk to me together every week. And then separately, once a month, in two different groups. And, I believe as a business consultant, I have to talk to them about what makes sense even when it comes to their relationship with me. And I say, “Maybe we should change the consulting relationship, instead of talking every week.” And they said, “Here’s the way we see it. In peer group, you guide us as individuals towards some of the challenges we have together as business owners. And then, in our consulting calls, you act as a mediator at while we fight through those issues. So no, we’re not changing anything. We need all of this.”
Steve Alexander:
And, by the way, they’re a successful partnership. They’re not at odds. They do see things the same way, but they do say, “Hey, we come about every single problem differently. That’s why we have struggled to grow to the level we want to. And that’s why now, after a couple of years doing this with you, we are getting to that level.” They’re looking for acquisitions, they’re looking to grow, they’re looking to spread their wings geographically, all the things that they struggled with before.
Ryan Goodman:
And, I think that’s really important. I mean, as in any relationship, right, whether you talk about a marriage, a friendship, it’s just going to be work. Even a good business relationship, there’s going to be work, and like you had said, having that third party or that mediator on working through… oh man, it can avoid so many problems, right? We’ve had those in our own business relationships with me and my partners where it’s such a valuable thing to get engaged with that outside party, that there’s no bias. There’s no internal… they don’t know the internal things that can set the other off and now they’re not talking about them. Right? And so, you’re uncovering all of that stuff and bringing it out so they can work through the issues.
Steve Alexander:
I mentioned to you offline before we started that I recently went through an exercise with one of my groups asking them, what is a peer group to you? And, to go to what you just pointed out, every single one of them at some point in their description of what a peer group is, now that they’re in one, mentioned therapy group. They mentioned therapy for business owners. And, it’s because most of us as business owners, we don’t think we need therapy. So, it’s a surprise when we realize how much we actually do. Right? And, it’s not marriage counseling. It’s not addiction counseling. It’s business counseling.
Ryan Goodman:
Yeah, absolutely.
Steve Alexander:
But, there’s a personal level to it as a small business owner
Ryan Goodman:
For sure. Well, and there’s a mental toughness that just needs to be acquired, and having those with same focus allows you to push you through because it’s not all unicorns crapping Skittles. Right? I mean it’s-
Steve Alexander:
No, unfortunately-
Ryan Goodman:
There’s tough stuff to do.
Steve Alexander:
… it’s not, right?
Ryan Goodman:
Yeah. I hear you. I hear you. So, on the financial side of the business, how much time are you guys focused on the finance side versus operations? Or, can it vary depending on the group?
Steve Alexander:
Well, it definitely varies, but every member is responsible for sharing their financials with the group. So, when we’re together face to face, we’ll do an analysis of the previous quarter’s P&L, and where you’re at related to your goals. And, we always tell everybody that when we page through your P&L, two things will happen. Number one, there will be numbers that you see that you say, “Ooh, I need to explain this number.” Those are the easy ones because you’re understanding where the numbers coming from and you’re understanding that there’s something about it that needs explanation.
Steve Alexander:
But then, there’s other numbers that come up where members will be looking at your financials and say, “Hey, wait a minute. Stop right here. We need to talk about this. Why is your cost of goods sold on services as high as it is? Let’s analyze that. What are you paying? Let’s talk about your salaries. Let’s talk about your staff. Are you overstaffed because you’re positioned for growth? Or, are you overstaffed because you lost some key clients and you don’t want to let anyone go? What’s the reasoning? And, let’s talk about the rationale for continuing this way, and what it’s going to mean to your future as we go.”
Ryan Goodman:
Yeah. Yeah. Powerful.
Steve Alexander:
So, we definitely spend quite a bit of time on the financials, but that always leads the conversation right into the operations portion. And, I find that’s a healthier way to talk about operations than the business owner that comes in and goes, “We’re just screwing up. We don’t know where we’re screwing up, but we are. Our customers aren’t happy.” Or, “Our tickets are open too long.” Or, “Our SLA’s aren’t being met.” Whatever it is. That’s a harder way to come into the conversation than coming into it through your financials because everything starts to make sense when you look at numbers.
Ryan Goodman:
At what point with a new member, are they getting that deep with you guys where they’re starting to share financial information? Is that meeting one? Where does that fall in line?
Steve Alexander:
We counsel members to share right away, to share instantly. We send out a form that they fill out every month with the previous month’s numbers so that they get shared. But, what we also find is everyone has their own baggage they’re bringing to the table. Some people are more than willing to say, “Yeah, I’m an open book. Let me share it all. Hit me, beat me up. It’s okay. I’m willing to take it.” Other members are not as open. Sometimes they think they’re viewed as being very successful. They’ve been in business a long time, but they know there’s some smoke and mirrors around the numbers.
Steve Alexander:
Other times they’re just nervous because they don’t know how they compare, and the one thing that we really pride ourselves on is we encourage, we don’t demand. If you don’t want to share your financials, we will tell you that you probably won’t benefit from being in the group longterm. We’ll guide you towards the fact that this probably isn’t going to work for you long term, and you probably won’t get the level of help you should be getting. But we won’t say, “Hey, if you don’t share these numbers, you’re out of the group.”
Steve Alexander:
We won’t say if your chart of accounts isn’t set up like this, you can’t be in the group, we can’t help you. In a similar fashion to, we don’t say if you don’t have this PSA and this RMM, we can’t help you. And, we find that’s one of the differences between our group and some of the others out there that… I don’t want to say anything disparaging way. There are a lot of experts in our industry that all had MSP’s at one point in time and all sold them. There are many, many, many of them that are extremely talented and provide a wealth of information, but I think we all need to understand something. The mass majority of us, and I built and sold two MSP’s, the mass majority of us were not as successful as we wanted to be when we sold those businesses or we probably wouldn’t be doing this.
Steve Alexander:
Now I love what I’m doing. I’ve never been happier doing what I’m doing. But, if I was independently wealthy, I can probably think of some other things I might enjoy also to do. So, we try really hard to say we understand the metrics that some of the acknowledged experts in this industry spit out and tell you you need to manage your business by. What we don’t do is tell you that you have to fit into that box to be successful. You may have some very good reasons not to fit into their box 100%, and we’ll be able to help you understand where putting one leg into that box would help you, and where maybe designing your own box might be a better way to go, and let’s look at your numbers that way. And, that’s one of the keys to our success as a peer group facilitation company.
Ryan Goodman:
I like that and I think it does depend on the phase of business that they’re in, and what’s their end goal, right? Are they gearing up for exit? Well, you’re going to operate much differently than gearing up for growth. You know what I mean? And, you’re going to be focused on top line versus bottom line for awhile. And the inverse, certain situations you’re going to be very focused on fattening up that bottom line versus top line revenue in preparation for a specific event. Right?
Steve Alexander:
We have people looking to sell at some point in time and we want to help them with that. Let’s do it the right way with the three to five year focus on positioning your company to sell. We have other people that are forced to a position where they have to sell and we don’t have that luxury to help them shape it. We have some that really want a legacy, they want some of their children or employees to take over and run the company. Well, our focus on your numbers might be different then in how we want it to look, and how we want it to function as you change your role in your own company.
Ryan Goodman:
Yeah. Hey guys, Ryan Goodman here, President at ConnectBooster, and your host for this fine podcast. We want to take a quick break from our episode and thank you for listening. We wouldn’t do this if it weren’t for you, so thank you for sticking with us on this adventure. We also want to thank Steve for joining us on today’s episode. You can find more about Steve and MSP-Ignite at www.msp-ignite.com. Steve has given us a lot of fantastic information about peer groups. And there’s a lot more coming after this break. If you want to learn more about MSP-Ignite and their services, make sure to give them a call. Send them an email. Heck, throw them a carrier pigeon if you have to. They want to help you out.
Ryan Goodman:
Before we get back to the episode, we want to let you know all the ways you can find us online, starting with connectbooster.com/podcast. That’s where all of our new episodes go up first, so if you want to listen right away, again, check us out at connectbooster.com/podcast. All of our episodes are also available on iTunes, Spotify, as well as Google. So, find us on your favorite podcast platform and they’ll let you know when new episodes are ready to listen to. Lastly, if you want to connect with us, or be a guest on this podcast, email us at [email protected], or send us a message via Facebook or Twitter, and we’ll make sure to point you in the right direction. If you like the podcast, tweet about it using the hashtag, #itconfessions. Thanks again for listening to the Confessions of an IT Business Owner. We’ll get back to the podcast and talk to you soon.
Ryan Goodman:
Shifting gears a little bit. We’ve talked about some of these, but are there any specific members’ stories that you can share, excluding names, excluding companies, anything that really sticks out with you over the last few years?
Steve Alexander:
There’s several, of course, and I won’t share any names. But, one of my favorites, and it just came to fruition, is two peer group members that knew each other before they joined the peer group, in the same area of the country. One decided that he wanted to pursue his passion, which was actually outside of running a managed service company. But, company was 10, 11 years old, fairly successful, wanted to supplemental income of the company, but didn’t want the responsibility anymore.
Steve Alexander:
And, the two owners came to me independently and said, “We want to merge our companies and we want you to help us do it.” And I said, “Well, I’ll do it through the peer group. So, each of you is going to talk about the situation throughout your peer group meetings, and I’ll act as a facilitator for your merger. But, understand it’s not a merger. One company’s buying the other, and the role of the one owner that is being sold is going to change. And, we need to consult on all of that.” And, on April 1st that merger happened, if you will, or that acquisition happened.
Ryan Goodman:
That’s exciting.
Steve Alexander:
And, the one member had to leave the peer group because he’s not a business owner and he’s not a service manager, and those are the two areas we focus on. And, my favorite part of this whole story, first of all, it’s going very well. It’s still early in the game, but it’s going very well. They are listening and taking heed to some of the messages of, go slow, you don’t need to change things just because you’re one company. Let the clients keep experiencing the benefits that they had before, working with the same people they’ve worked with, and you can change that slowly over time.
Steve Alexander:
But, the best part is I received two emails from two different people right after it happened. One was from one of the members from the group that the owner had to step away from, and he copied me on an email to that member, saying how much he was going to miss the members’ input and how proud he was to have been a part of helping him achieve one of his goals.
Steve Alexander:
The other was from the member that sold his company to me personally, and he said, “I didn’t think selling the company was going to be as emotional as it was, even though you kept telling me. But, I certainly didn’t think stepping out of a peer group among friends was going to be as emotional as it was. And now, I don’t know what to do with myself.” And then, we joked about it-
Ryan Goodman:
That’s awesome.
Steve Alexander:
… about him coming back as a speaker and this and that. And honestly, it’s one of my favorite stories because it’s not what we expect in peer group. That merger of two companies is not what we expect in the peer group.
Steve Alexander:
I’ve got another one on the opposite end of the spectrum. Somebody that has several of his children working in the company, is of that age where he’s starting to say, “I want to pass it along to my children.” And, he’s starting to talk about the numbers and this and that. And, someone in the peer group said, “I have one question.” And, by the way, this came up a year ago, and now it’s finally being addressed. But the question was, “Is this what your children want?” And the guy really stopped and said, “Well, of course it is. They work in my company.”
Steve Alexander:
It wasn’t until recently that he started to have the conversation with them. They’ve never worked for anybody else. They’ve never experienced what it’s like to go work for someone else. They’ve never worked outside the industry, or inside the industry for anyone else. And, one of the peer group members said, “At least one of your children needs to move down by me for six months and work for my company.”
Ryan Goodman:
Sure. Boy, what an interesting outcome there.
Steve Alexander:
Yeah. And, I don’t know where it’s going to go yet. It remains to be seen, but the owner and the father, he said, “It was very hard for me to hear people that don’t know my family challenge that I’m maybe not doing the right thing on behalf of my kids. And, it’s taken me a year of revisiting that question to realize they have my kid’s best interest at heart. They actually do when they asked the question.” So, those are two of my favorites of recent note as far as that goes.
Ryan Goodman:
Oh, that’s great. And, I liked in the second one where it’s breaking that tunnel vision that we can get as entrepreneurs inside of our own business. And, just the value of being in that group to lay out some of those tough subjects that other people are going to see that you may not see inside of your own business, but could very well set yourself up for a problem down the road. Assumptions, right? Just assumptions that you’re making.
Steve Alexander:
Well, we all make it. And, you’ve grown a company and you’ve seen this happen, and I’ve been a part of several companies that are at different levels and growing. And, the one thing that is common is we all get to a point where a longstanding trusted employee/confidant in the company is actually not the right person to take a leadership role as we make the next growth leap. That’s a tough thing to have happen-
Ryan Goodman:
Very.
Steve Alexander:
… but the fact of the matter is, as business owners, we are not always the right one to become a CEO of a larger company. And, if we’re not the right one to be the CEO, maybe our service manager’s not the right one to become our director of operations, or something along those lines as we grow. So, we see it, whether it’s family or not, we see this pretty commonly happen.
Ryan Goodman:
Right. And, I think that just really drives home the value of having those peers working with you on a regular basis. Not only holding you accountable, but again, that third set of eyes looking in and helping you break what you see as norms, or just those assumptions inside of business. Wow, that’s great. That’s great.
Steve Alexander:
I want to give you one more that popped into my head because I think-
Ryan Goodman:
Yeah, yeah, let’s do this.
Steve Alexander:
… it shows the dynamic. I think it shows the dynamic. We’ve got several peer group members that we work with where the owner is in an owner’s group, and their service manager is in one of our service manager groups. Now, I don’t run the service manager groups. We have someone that has much more experience on the operations side that runs those, but I monitor the chatter in those groups because if there’s anything I can give as input on, I want to be able to give it.
Steve Alexander:
I was in a face to face meeting, winding down the end of the meeting, the last day of the meeting, when a service manager whose owner was in that meeting chimed to into his group about a major issue with somebody that they were elevating to a management role underneath him. He actually was going to operations and this guy was going to be service manager. And when I saw it, I chatted him privately and they asked if the boss knew about this. And, he responded, “No. Right or wrong, I made the decision that he’s at his peer group meeting and needs to focus on what he’s doing there, and that there’s nothing that’s going to happen today that he needs to really know about. I’m handling it.”
Steve Alexander:
So, now I’m reading this and I’m going, “He’s not wrong.” However, I know this particular owner very well, and he’s in the very place he needs to be when he hears what’s going on so that he doesn’t blow up because he now has his peers around him to go, “Hey, wait a minute, did you think of this? Did you think of that?” So, now I’m stuck in between, right? Going, “Well, I’m not going to force this.” But, I reached back out to the operations manager and said, “I know where you’re coming from and I don’t necessarily disagree except I think it would be better for this situation if he heard about it while he’s sitting here, what do you think?”
Steve Alexander:
And he responded, “I’m going to trust your guidance. I’m sending him an email right now. You can let him know to look at his email whenever you want because we don’t look at email while we’re in meetings.” And, on the break I told him. And I said, “Hey, I know we’re almost done, but I think you need to read your email on the break.” And, he came back, and of course, talked about it. We talked through it and they successfully navigated what was a very awkward position, at least partially, because they shared with their peers-
Ryan Goodman:
Absolutely.
Steve Alexander:
… at the time which made me feel good because I also did challenge someone to do something different than he wanted to. I encouraged a member to share something he didn’t have time to digest. He literally heard about it right then and went, “I don’t know if I want to talk about this.” And I of course went, “Well, I think you should, but it’s your choice.” So, that’s again, the way peer groups can help people.
Ryan Goodman:
No, I love that. And the demand, I think it’s really interesting as people understand the need inside of their business for this accountability. We had talked a little bit down at CCF, what, this was a couple months ago-
Steve Alexander:
Two months ago.
Ryan Goodman:
… down in Chicago. We got to sit down and just have a bit of a chat. I found it very interesting inside of your business. You had talked about, “Okay, I’m going to start my peer groups.” And, all of a sudden, you’re blowing up out of… you don’t even know if you wanted it. And then, all of a sudden, you’re like, “All right. Well, we’re here now. Let’s do this thing.” You know, I’d love to have our listeners learn about your story and your growth over the last couple of years and really just the demand that’s now come into your organization.
Steve Alexander:
I think you’re putting me on the therapy couch now, but yes.
Ryan Goodman:
Sorry.
Steve Alexander:
When I know…
Ryan Goodman:
Hey, a little therapy never hurt anybody, right?
Steve Alexander:
It’s all good. And you’re right, this was part of the conversation you and I had sitting outside of CCF in Chicago. When I sold my last business, my accountant came to me. I had a three quarter of a million dollar SBA loan on my desk ready, approved. Ready for me to sign and take the company to the next level. That’s what I was using it for. We had already had a similar loan. I knew the details. I hadn’t signed it yet. And, he came to my office and said, “Is that the paperwork?” Anyone that’s ever seen one of these loans, it’s about 600 pages. He said, “Is that the SBA paperwork?” I said, “Yep, I’m going to sit down over the weekend, just want to read through the high points, and I’ll sign it and we’ll be done. We’ll move on.”
Steve Alexander:
And he goes, “I have a better idea.” And he picks it up, walks around my desk, and drops the entire stack in the trash. And he says, “I think you’re making some pretty big changes in your life. You’re at a stage where you should really pursue something that you’re passionate about and good at, and that’s running,” he called it a business advisory group because we were in one together. And he said, “You’re so good at it. You love doing it. You bought this company to flip it one day. Why don’t we sell it for cash? Take the cash discount. No retention based. I don’t want you involved one day more than you have to be and go do this.”
Steve Alexander:
And in my mind, I was going to put together three, four, maybe five peer groups, run them, and do that until I was ready to retire. That was it. And then we started going and some of the contraction in the industry started happening on the vendor side, and we got backing and we got following and we said, “Well, I guess we’re going to grow this.” And, that means all the things I didn’t necessarily love as a business owner, like managing people and hiring people that I had to be responsible for and all of those things, started happening. And, the best part is, I hired a director of operations who says to me every single day, “My job is to find ways for you to continue to do the stuff you’re good at and love. And I take everything else.”
Ryan Goodman:
That’s awesome.
Steve Alexander:
So, it’s a fun way to go. We’re up to 10 groups right now, and we expect to double in the next 12 months.
Ryan Goodman:
That’s incredible. So, you’re embracing it man. You’re going after the chaos, but you’re setting that structure in place to do what you love and able to leverage what you don’t love.
Steve Alexander:
I would tell you that I probably have a better business plan and a better structure to grow this business than I ever did in my previous businesses. We have a lineup of facilitators. We have a program for training them. We have a program for deciding how much input I have into groups that I’m not facilitating. Just because I have a lot of business experience to share, but so do all my other facilitators. And that’s the fun part. We have a monthly facilitator’s training call where we all collaborate on what’s working for us, where we’re challenged. We actually review tapes and recordings, if you will, of other people’s meetings that they’ve run to see what they’re doing differently so that we can ask them about it. I’m having a lot of fun, and more importantly, I think we’re helping a lot of people.
Ryan Goodman:
No, that’s awesome. Steve, thank you for all of the insight and being so transparent and, not only talking about peer groups, but even talking about some of your own journey in your past businesses as well as where you’re at now, and your aspirations for growth over the next few years and on into the future. If you could leave our listeners today with one final piece of advice, what would it be?
Steve Alexander:
I’m going to give a piece of advice and an offering to your listeners. So, the piece of advice is if you are not in a formal peer group, or business advisory group, focused on this industry, not outside the industry, you 100% owe it to yourself, to your family, to your clients, and to your employees to get involved with one. Now, clearly I think MSP-Ignite’s the one everyone should be in. But, there are others out there and look into one. But, most importantly join one.
Steve Alexander:
And, to make it easier, we haven’t publicized this yet, but so I’ll do it here first. To make it easier, I’m so convinced that if someone just gives a peer group a try, they’ll realize that they need to be in one now forever. That, for your listeners, if they want to join, just tell us they heard about us through ConnectBooster. We’ll give them a money back guarantee so they can join, try it out, dip a toe in the water, spend three months in a peer group and learn. And, if they come back and for any reason feel, hey, this isn’t for me, we will just refund them the money they paid for membership.
Ryan Goodman:
Well, I love that. Talk about confidence as well as understanding that the system works, the process works, right?
Steve Alexander:
It does. And listen, I’ll be saddened if I have to write any of those checks, but not because I’m refunding money. Because it’s not working for somebody. But, I’m willing to put the money there for that to happen.
Ryan Goodman:
Well, I don’t think you’ll need to keep a pen on your desk. Don’t worry about that.
Steve Alexander:
Thanks Ryan. Thanks for having me.
Ryan Goodman:
Yeah, thanks. This was great. Looking forward to the next conversation, the next time we get to meet face to face, and hey, I feel like we’ll probably get some questions and you and I should probably do a follow up at some point as well.
Steve Alexander:
Happy to do it. Thanks again.
Ryan Goodman:
All right. Take care, buddy.
Welcome to the Confessions of an IT Business Owner podcast, where we believe that healthy cash flow is critical for your IT business. Automation is paramount and building trust with your clients by looking professional will help grow your business. I’m your host, Ryan Goodman, and today, we’re going to break from our normal theme and talk with Rick Murphy from Cogent Growth Partners about his experience with mergers and acquisitions related to IT service providers and MSPs.
Rick Murphy:
If you’re going to go buy a company, what matters most to you is return on your cash. If I spend this money on this business, the most important thing you’re concerned about is return on that cash. When am I going to break-even on my investment? There’s a period of time, that’s reasonable and there’s a period of time, both short and long, that’s unreasonable.
Ryan Goodman:
Here’s the podcast with Rick. Rick, thanks for being on the call. Thanks for being on the podcast. I appreciate you spending the time with us. I know entrepreneurs and guys like you and me are busy and I’ll tell you what. I do appreciate you spending the time with us here at ConnectBooster today.
Rick Murphy:
Thanks a lot. I really appreciate being here. I’m looking forward to it.
Ryan Goodman:
Cool. Let’s get some of the basics out of the way. Tell us about your business or really, where people can find you guys, find more details about your company and services and possibly, even engage you in a discussion.
Rick Murphy:
Shameless self-promotion. Well, thank you. I appreciate that. Our website is growth, cogentmergers.com. We just had to relaunch this website just recently so you can find lots of interesting information up there. Lots of different opportunities to contact somebody in the company through the website so I encourage you to go visit that. We’re coming up on our ninth anniversary.
Rick Murphy:
We’ll be nine years old in February and sometime before the end of this month, we will have closed deal 100.
Ryan Goodman:
Dude, that’s a milestone. That’s incredible.
Rick Murphy:
Yeah, it’s a good one. Thank you.
Ryan Goodman:
Very cool and the site looks great by the way. I was playing around on it and poking around. You’re doing some cool, cool innovations with industry and channel partners that are relevant to everyone listening today as well.
Rick Murphy:
Yeah, I appreciate that. We want to make sure people can … We can help the community connect with each other and be connected to the community and what’s our … Being a buy-side advisor in the space that we also are looking for candidate companies and communicate with candidate companies so the website now has a lot of better information in it relative to potential candidates.
Rick Murphy:
We’re curious about potentially maybe selling the company someday along some more products and services and our team and off the testimonials of people who worked with us before so it should be very helpful for anybody that’s interested in learning a little bit more about us.
Ryan Goodman:
No, that’s great and I recommend it. Go check the site out, guys. Now, to drive into a couple of questions, a big broad one here so how did you get involved in mergers and acquisitions and also, what’s your background in managed services because you guys are focused on this space as well?
Rick Murphy:
Yeah, so we are exclusively focused on the IT services space so all of the transactions we accomplished today have been IT services companies buying and merging with other IT services companies of pick the acronym of your choice, MSSP, MSP, CSP and so on, so on. Now, of course, everything is a service and jumping into service in IoT and what have you.
Rick Murphy:
Everybody in the company comes from the IT services background. Actually, except for myself. I actually come out of a technology background in the internet space and long before that, in the production space. We were using a technology as a network dash in the ’80s, in the ’90s before the internet was the internet.
Rick Murphy:
Using technology to make television and motion pictures. Buying and selling a lot of companies back in the day. Did a lot of that after the turn of the century as weird as that sounds to say out loud. Doing a lot of that in the 2000s there, the 2000s in the screening space so broadband streaming media, the dawn of broadband streaming media.
Rick Murphy:
I was right in the middle of that. The company I founded back in ’99 and did acquisitions for those companies. I really like and understood the … One of my skillsets is being able to work with business owners and help realize the benefit of teaming together and pooling the resources and realizing the growth opportunities around synergies and integration opportunities and so forth.
Rick Murphy:
That’s not something exclusive only to that key space but applying that to the IT services space, I don’t think had been really done. There’s still plenty of brokers on the sell-side out there.
Ryan Goodman:
Right.
Rick Murphy:
Other industries and lots of different spaces and of course, interested in the IT services space and there’s certainly lots of companies out there who want to buy so back about 11 years ago, I decided to actually go to work with what became our first client.
Ryan Goodman:
Okay.
Rick Murphy:
I worked with him here in Atlanta exclusively for about a year and we did two acquisitions in the space. As I was researching those acquisitions, I discovered how interesting the IT services market was and how fragmented it was. There’s so many companies doing this. Each doing it their own way and also doing it in a common way which is a tremendous opportunity for companies who build management teams and talent pools with vertical expertise. All those things that you do when you’re looking to put two companies together.
Ryan Goodman:
Sure. Sure. No, that’s great. Thanks for the info and interesting and I think people are interested in learning about the birth as well as the background. What got you here today? All right. I’m going to shift gears a minute here on you. I’m going to play a scenario. Let’s play out a scenario here together. Imagine I’m an MSP IT service provider and I’m seriously planning to exit my business in the next five years.
Ryan Goodman:
What are the top three things that I need to be focused on? What are those steps that I should be taking?
Rick Murphy:
First thing and I can explain more about this and certainly if you want. Give us a call. I can explain it in graphic and gory detail but you want to start running your company right now if you’re going to sell it tomorrow so you have a track record of running your company successfully when you are ready to sell so just run it like you’re going to sell it today.
Rick Murphy:
It’s a theme and that’s the first thing I’d start doing. There’s lots of things to do in that theme. First and foremost is accounting systems and how you do and book you sales and revenue and so forth like getting good revenue recognition and good accounting practices in place especially early on, well before you’re ready to sell, allow you to be responsive to due diligence requests that would come from any potential suitor.
Ryan Goodman:
Right.
Rick Murphy:
Just from a purely financial reporting perspective, that ties back into all your books and records, not just financial books and records but also customer agreements and vendor agreements and a lot of people say, “I have contacts.” They physically have them but they’re not all signed in where you can find them.
Ryan Goodman:
Sure.
Rick Murphy:
That’s a good thing to have. Even some of the better run companies, you’d be surprised. They’re actually surprised when they discover it. Right? While you’re running a PSA system, maybe Connectwise or what have you and different people do different things with PSAs in their own way. It’s integrated with your accounting systems.
Rick Murphy:
How does the pay, work function flow through that so a lot of times, the agreement might, let’s say, “live in Connectwise” or in an Autotask or pick whatever PSA but it’s not really a signed contract that actually is on record. It’s in SoW or something like that, right?
Rick Murphy:
It’s not necessarily signed, sealed and put away some place so again, a big part of actually selling your company is being able to demonstrate good business acumen, good business practices so regardless of what you’re doing now, perhaps having somebody come in and take a look at that, a third-party to give you a health checkup if you will.
Ryan Goodman:
Sure.
Rick Murphy:
It can be us or anybody that can tell you what you look like now and what you might need to work on.
Ryan Goodman:
That makes a lot of sense so if someone … Again, we’re playing out a scenario. Let’s say this is me. I should be engaging early and obtaining advice on what I need to do to get to market. That makes sense.
Rick Murphy:
Yeah, it’s not … That should be with a peer group. A lot of people are members of various peer groups and those are wonderful things to have. There’s lots of different peer groups out there. Obviously, people would know perhaps about HTG and Vistage Group. There’s lots of interesting peer groups. SLI and so forth, service leadership.
Rick Murphy:
You’re looking at how peer group might be able to help you self-analyze. It’s another good thing to do. Another way to do that is having a third-party look at you. That’s a little more intense, a little more … A consistent reporting because you get together quarterly and so forth as opposed to they might come in and take a one month lookie-loo at your company.
Rick Murphy:
It’s a little bit different commitment. Again, so first thing is start acting like … Run it now like you’re going to sell it now. Start doing that. There’s, again, a lot of pieces to make that happen. The other thing is make a profit.
Ryan Goodman:
Yeah.
Rick Murphy:
I hear a lot of companies that are investing for “growth”, right? There’s two ways to look at that. If you are really truly invested in growth, I would want to hear somebody tell me, “Well, I went out and made the sale and I made the sale. In order to fulfill that sale, I need to either hire or purchase a tool or purchase something to make that sale functional or maybe all of the above.”
Rick Murphy:
That’s investing in your business whereas I’m going to go hire some salespeople. I’m going to go ahead and buy the tool. I’m going to go ahead and make this investment in maybe some data center infrastructure, something like that. That’s actually speculation, right? You’re speculating and that’s the difference is really understanding the difference between investment and speculation in your business and being clear with yourself about that.
Rick Murphy:
Again, a third-party can help you with that because if you’re just spending money hoping the sales will come, whether it’s even just spending on sales activities even, that’s actually speculating as opposed to investing in your business so getting clear about actually investing in your business for growth. Also, being able to make money so that you can actually still make money while you’re investing for growth because a lot of companies that we ran into, well, I’m in growth mode.
Ryan Goodman:
Right. What does that mean?
Rick Murphy:
That means they’re not making any money. Right. That’s what it really means is they’re not making any money. They’re trying to tell me, “We’re not really making a lot of money right now because we’re investing in growth.” Okay. That sounds good-
Ryan Goodman:
It’s a cute way to package it up.
Rick Murphy:
It’s a nice way to package it in your mind but what you should be able to do is hey, look, I make a solid free cash flow number which we can talk more about differences between even and free cash flow but even for those that are more familiar with that term, also thought making money so the bottom line, net profit, net cash.
Ryan Goodman:
Yeah.
Rick Murphy:
Your business should make net cash and still be able to invest in growth. You shouldn’t do one or the other. You should be doing both all the time.
Ryan Goodman:
Right. I like that approach. One of the things in our pre-call that we had talked about was multiple, multiple, multiple. Multiple gets thrown out all the time and oftentimes, that’s a function of looking at a sale in the rearview mirror. It’s easy to create a multiple based on what’s happened in the past and I’d love to have you talk to our listeners about what multiple means to you and the way that you guys look at businesses on the both buy and sell side as a value play versus just a flat out multiple based on revenue.
Rick Murphy:
Every first call I have with anybody, just lots of conversation. People focus on hey, where are the multiples at? Rick, what do you think about the market? What’s the multiple? Yeah, if I told you I was making this much money, what multiple could I expect from my business? It’s a tremendously loaded question and it’s based on all kinds of stuff that’s such a moving target.
Rick Murphy:
That I try my best to not answer the question directly. Not to be evasive but to really explain what a buyer is looking for from a buyer’s perspective. Put yourself in a buyer’s shoes. I often tell even candidate companies, actually almost always tell even a candidate company, just think like a buyer, right? If you’re going to go buy a company, what matters most to you is return on your cash.
Ryan Goodman:
Right.
Rick Murphy:
If I spend this money on this business, if we’re getting structure for it in terms of how I pay for the business, but even if you write a check for the business, day one, you own the business the next day, the most important thing you’re concerned about is return on that cash. When am I going to break-even on my investment?
Ryan Goodman:
Right.
Rick Murphy:
There’s a previous time, that’s reasonable and there’s a previous time, both short and long, that’s unreasonable. It would be unreasonable for anybody. I don’t know if you would but if I said, “Hey, give me a million dollars,” and 10 years from now, you have broken even on your million dollars and you’re making you first dollar profit.
Rick Murphy:
Is that something you would do over, let’s say, hey, give me a million dollars and in three years, you’re going to break even and you’re going to start seeing profit. Which one of those is better for the buyer?
Ryan Goodman:
I can tell you.
Rick Murphy:
Right. What would you do?
Ryan Goodman:
Right. I want a turn faster then.
Rick Murphy:
Yeah. Would you wait 10 years to get your money back?
Ryan Goodman:
No, because there’s lots of places to do that, right?
Rick Murphy:
That’s right, so you hear a lot of people talking about 10 times multiples and nine times multiples and five times multiples. Let’s just go to 10 times multiple. What you’re really saying is based on your opinion of what a 10 times multiple is that those people are prepared to wait 10 years to get their money back and that’s just not true.
Rick Murphy:
What is true, right? It’s just not true. What is true is they saw something in your business. If you in fact got 10 times multiple for your business or somebody offer you 10 times multiple on your trailing … Free cash flow. Let’s just go there for a second.
Ryan Goodman:
Sure.
Rick Murphy:
Not forward. Trailing because that’s something we know about, right? We know what happened in the past so if you said, “Okay, I got 10 times my trailing. Free cash flow for my business. I just got the bill yesterday and they gave me a check.” There’s something that you did wonderfully or that you don’t know about that they’re going to do with your business to make sure that they can get paid back in a shorter timeframe so they’re either going to be cutting heads.
Rick Murphy:
They’re going to be consolidating facilities. Somebody believes in an interesting hockey stick sales ramp maybe. Maybe it’s believable. Maybe it’s not. It could be constructed out of unobtanium perhaps.
Ryan Goodman:
Sure, sure.
Rick Murphy:
For some reason though, that business saw enough in that business whether it’s true or not to make them write that check for that 10 times multiple because there’s no way they’re going to wait 10 years without getting their money back. Most buyers, again, if you’re a buyer, you’re working on trying to get a recoupment somewhere between 48 and 60 months.
Ryan Goodman:
Sure.
Rick Murphy:
It might go a little longer than that. If you do any shorter than that, you’re looking for bargains and bargains might be out there. There’s fixer-uppers out there and things like that that aren’t worth as much money as a more refined business that’s got a track record of making good free cash flow returns. It really comes down to … Multiple is this jargon that’s been invented years ago.
Rick Murphy:
I didn’t invent it. That for people to talk with each other in shorthand can have a thumbnail discussion about generalities that has somehow morphed into this sacrosanct list of what is actually true based on like an index. There’s no such thing. There’s no multiple index.
Ryan Goodman:
Right.
Rick Murphy:
Right? That’s one way to look at that. The truth is from our buyers’ experience and we’ve represented lots and lots of clients over the years and still represent a lot of them today. Private equity investors, professional investors, large corporations, small ones, really small ones. Everybody pretty much thinks the same way.
Rick Murphy:
By the way, it’s not invented just because of the IT space. It’s a universal truth throughout the world and anybody, it’s over blood and soul just about anything that’s trying to create value, is you got to break-even three to six years.
Ryan Goodman:
Right. Yeah. No.
Rick Murphy:
Right? You’re just not going to invest your money anywhere else. Why would you do it? Otherwise, it’s stupid.
Ryan Goodman:
I think the point is really concise in the fact that guys, it’s not about a multiple based on where you’re sitting today and taking a look at your overall revenue. There is a whole value proposition.
Rick Murphy:
Yeah.
Ryan Goodman:
That is baked into making this happen.
Rick Murphy:
Yeah, so the amount of money that your company makes is one thing. By the way, that’s called free cash flow. That is a GAAP turn. Free cash flow, free cash flow is a known, generally accepted accounting principle. GAAP, according to GAAP. When you hear according to GAAP, right? EBITDA, unbeknownst to many people, is not a GAAP principle. Those are either CPAs in the audience. You’re going to stand up and, yay.
Ryan Goodman:
Just drop the tears bomb. Just drop the tear bomb.
Rick Murphy:
That’s right. You can look it up. You can look it up. Even is not GAAP. It’s a made up, again, jargon. It’s actually jargon that was made up eons ago to communicate a proxy for free cash flow especially in the absence of debt and anything on the balance sheet that might be a cash flow related item because many business owners don’t run their business on a cash flow sheet which is the other second thing you should start doing by the way.
Ryan Goodman:
Okay.
Rick Murphy:
If you want to run a good company is you should be using a cash flow sheet. Not your P&L. Paying attention to your balance sheet is a good idea too. Paying attention to your P&L is important but it’s cash flow. Creating free cash flow is the thing you can multiply, right?
Ryan Goodman:
Sure, yeah.
Rick Murphy:
Right, so you got something. A multiple on a company that doesn’t make any money is still none.
Ryan Goodman:
Right, yeah, yeah. Yeah.
Rick Murphy:
Your company is still valuable, right? That’s another example of how multiple, even if it just doesn’t work.
Ryan Goodman:
Right, right, right.
Rick Murphy:
There’s still value in that company, right? How you unlock that value is what we like to call opportunity so we have a couple things that we … You’ll see our website. We talk about the Opportunity-Delta. We talk about a theory of opportunity first and money last when you try to do a deal because when you’re looking at your transaction, why should I do this should be the first question you talk about.
Ryan Goodman:
Right.
Rick Murphy:
Why? Why do we want to do this? What makes our two businesses better together? Why should we work together? Most people start with the money. My business is this big. I have an EBITDA on this, right? Go ahead.
Ryan Goodman:
No. I want to double in the next year. Well, what does that mean? Double in what? Double in cash flow, double in staff, double in cost like what do you want to double?
Rick Murphy:
Exactly. A lot of people are focused on employees. They’re focused on top line. We call that top line disease because you’re infected usually with a staff infection so you got a lot of staff and you’re busy worried about your top line when you should be worried about your bottom line and how much profits you’re making and paying attention to your cash flow on a daily basis so that you’re making money.
Rick Murphy:
You can widely actually invest instead of speculate or speculate if you wish to and hopefully, that will pan out as you run your business and grow your business, right? Again, the peer groups are really good help and people do that. We can certainly help people do that too in a different way. We’re not a peer group. We don’t run peer groups.
Ryan Goodman:
Right.
Rick Murphy:
We highly recommend the peer groups by the way. Mr. Dipple and the rest of the other peer groups that do a great job, but when it comes to understanding the value of your company, you can’t just multiply. You put a factor against revenue for example.
Ryan Goodman:
Right.
Rick Murphy:
A really good way to think about so that’s along the line of what we were just talking about here, right? You got a million-dollar free cash flow company. Let’s call it a million dollar EBITDA coming because they have no debt.
Ryan Goodman:
Sure.
Rick Murphy:
They do 60% gross margin on their sales and let’s say all things are even. In terms of cost, you got another million-dollar company that is doing 30% gross margin.
Ryan Goodman:
Right.
Rick Murphy:
We call her SG&A being equal.
Ryan Goodman:
Right.
Rick Murphy:
Which one’s more valuable?
Ryan Goodman:
Absolutely, yeah. You’re-
Rick Murphy:
Right, so the one that’s making more money, gross margin is more valuable than the one that’s not so if you just said, “Hey, a million dollars.” Let’s say it’s all MRR, right? Let’s say every nickel of their revenue is MRR.
Ryan Goodman:
You can’t give them the same multiple.
Rick Murphy:
Yeah. Exactly.
Ryan Goodman:
The multiple is a function of what they sowed for, not what’s going into the value proposition of the body.
Rick Murphy:
Right. You can’t assume that this MRR because it’s MRR, has some factor value. It’s how much money does it create? Are you doing it wisely? That’s just one instance. An important item in terms of running your business is if you’re making money, you’re making money so you don’t have to sell your business. You’re doing well. You and your partners or your business partners and your staff, you’re doing well as a company.
Rick Murphy:
It means that you can be very thoughtful when it comes the time to sell the business. You’re not under the gun. There’s no urgency to sell. It means you can be a more discerning seller when it comes time to do that. It puts money in the pocket too.
Ryan Goodman:
Yeah, that makes a lot of sense.
Ryan Goodman:
Hey guys, Ryan Goodman here. President at ConnectBooster and your host for this fine podcast. We want to take a quick break from our episode and thank you for listening. We wouldn’t do this if it weren’t for you so thank you for sticking with us on this adventure. We also want to thank Rick for joining us on today’s episode. You can find more about Rick and Cogent at cogentgrowthpartners.com. Rick has given us a lot of great information about mergers and acquisitions that you can’t get anywhere else. There’s a lot more coming after this break. If you want to learn more about Cogent and their services, give them a call. Send an email. Heck, through a carrier pigeon if you have to. They want to help you out.
Before we get back to the episode, we want to let you know all the ways you can find us online, starting with connectbooster.com/podcast. That’s where all our new episodes go up first so if you want to listen right away, connectbooster.com/podcast. All of our episodes are available on iTunes, Spotify, and Google as well. So find us on your favorite podcast platform and they’ll let you know when new episodes are ready to listen to.
Now, lastly, if you want to connect with us or be a guest on the podcast, make sure to email us at [email protected] or send us a message on Facebook, Twitter and we’ll point you in the right direction. Thanks again for listening to the Confessions of an IT Business Owner. We’ll get back to the podcast and talk to you soon.
Ryan Goodman:
This is good stuff. I’ve skipped around my little script but there’s this is flowing really good so this is … It’s real. This is the stuff that-
Rick Murphy:
We’re in the trenches, partner?
Ryan Goodman:
This is the real. This isn’t like I read some report on whatever blog and I’m going to ramp up in 2019 to add 30%. 30% of what? What does that mean? Did you just add 30% more revenue and you lost money? You’re profitable in 20? These are the things that people are surprised by, when it comes down to it, and they’re not giving themselves enough time to figure it out, right?
Ryan Goodman:
You got to be thinking about this now and the means to an end. Everybody’s going to exit their business one day, right? Whether they die or on an exit or they lose their business. Not all these scenarios are pretty so we all want to have-
Rick Murphy:
Time is up. There’s things that happen. People get sick. People get pissed off with each other. People get divorced and all of the above, I suppose and also, you get bored. I’m done. I’ve been doing this for 25 years or hey, I’m 55 years old or I’m 60 years old or 65 years old and what’s going to happen next in … A lot of business owners have an overinflated sense of what their company is worth because the interweb says so.
Rick Murphy:
The old adage, again, I didn’t invent this. It’s a hacking phrase and I’m trying not to use it too often, but the idea that your business is worth what somebody will pay for it is the truth. It’s a universal truth. Finding the right company to be a suitor is an effort. That’s one of the things we specialize in. Obviously, it’s trying to put suitors with candidates and help them all understand why they should do it and assume that all works out properly.
Rick Murphy:
We can usually get the money right as long as people can be reasonable on both sides which is my personal favorite word, reasonable.
Ryan Goodman:
Right.
Rick Murphy:
It’s when people are unreasonable on one side or the other that things don’t happen. Unreasonable is my God, I want 20 times my forward revenue for my company is unreasonable and hey, I want to buy this company, get my payback in two years is unreasonable.
Ryan Goodman:
Right.
Rick Murphy:
Yeah. Yeah, we try to hit it on the screws as they say in golf. They used to say it in golf anyway. No screws anymore, right? We try to balance both sides to be reasonable. We try to act as intermediaries as much as possible. It’s really what we do for a living and helping our buyers understand what the value is. I’m paying a reasonable price for the business to get it done.
Rick Murphy:
They can benefit from the opportunity and oftentimes, the selling is actually … In participating, it’s still going to be part of the company. A new role in the company. There’s the third thing if you want to bring the third thing around is argue and make yourself employable or make yourself replaceable.
Ryan Goodman:
Sure.
Rick Murphy:
Right? Because in your own business, if you’re irreplaceable, how do I buy it? You have to come along and then you might … Right. You might not be employable. I will admit. I am not employable. I like having my own business. I do. Many entrepreneurs like having their own business and there’s a lot of things when we look at this.
Rick Murphy:
This is one of the biggest issues we have that’s almost a universal issue especially if the business owner is not ready to retire tomorrow which is most often the truth actually is, golly gee whiz, I got to come to work for you tomorrow. I haven’t done that in 25 years and I haven’t had a resume in … I can’t even think of how many years I haven’t had a resume personally. They haven’t either. Yeah, do you have a resume? I don’t know.
Ryan Goodman:
I’m just thinking about that. I’m like if it’s you or me sitting down self-evaluating or if it’s anyone listening, how many of us would be our own worst nightmare?
Rick Murphy:
Of course, right? Then perhaps some of the business partners are probably the same way and then they all have roles or responsibilities in their company that they do well at or think they do well at, that’s sometimes the truth too. How’s that fit in with the suitor’s company and vice versa? Do the corporate cultures fit together?
Rick Murphy:
Do the job roles and responsibilities fit together? Do you sell the same way or do you augment or help each other sell better way which can work too? Our logo for those that have seen our logo or if you put our logo up, it means one plus one equals four. It’s semaphore. Right? The idea there is we do a transaction and you got the color code.
Rick Murphy:
There’s the Copper Core company with a green go deal equals a pot of gold if you stare at the logo long enough. The method there though is you want the Y to add up to a whole bunch more than just some of the parts, right? Doing a good integration, a good consolidation, assimilation. There’s lots of different words you can use which is we’re putting these companies together.
Rick Murphy:
It takes a little time, a little bit of effort and you want to learn how to be good at it. That’s one thing that speaks out with our buyers and our clients is make sure they’re going to be good suitors and good buyers and that they’re going to be successful at it and they can do it time and again. Most of our clients are repeat buyers, serial buyers or we turn them into one. We help them become one.
Ryan Goodman:
Right.
Rick Murphy:
Selfish and altruistic at the same time and they all know that.
Ryan Goodman:
Yeah, it serves everyone’s interest in that case, right?
Rick Murphy:
It does. It does. Then what happens is you got the ability then to … When you think about that is again, running like you’re going to sell, think like a buyer. All of those things should be in your head as you’re thinking about moving forward someday selling. I’m going to sell someday. You never know when somebody’s going to call like us. We say, “Hey, we got a suitor that would like to buy your company tomorrow or soon.”
Ryan Goodman:
Right.
Rick Murphy:
You’re like, “Geez, I’m not ready.” We hear that a lot actually. Well, we hear all kinds of but coming back to the employment thing. Part of the I’m not ready, they’re going, “Geez, I’m going to need a job after this. What am I going to do?” We had a transaction recently where I’m pretty sure the wife looked at the husband right in the eyes. Look, buddy, you’re not employable. You can’t do this.
Ryan Goodman:
You’re not staying home.
Rick Murphy:
That happens a lot. You’re not staying home. That’s right, and you can’t just go up like off every day, so just look at yourself in the mirror and say, “Okay. I want to sell so what am I going to do when I sell? What else am I going to do after I sell?” You need to think about that. Don’t think you’re going to go play golf all day, that’s not true. What you are going to do most likely is wait out your … You’re going to wait out your noncompete. You’re going to go do it again. That’s usually what happens by the way.
Ryan Goodman:
Right. Entrepreneurs are looking for purpose no matter what. It’s hard to turn that off and-
Rick Murphy:
Yeah, you’re going to do something. You’re going to be self or you might find out that joining a company is a good thing. Again, a lot of times, the business owners are terrified. I’m going to have to punch a clock. I can take my kid to the doctors today if I need to and I’m just going to ask anybody. Again, like senior executive level management, when I came in, this is purchased.
Rick Murphy:
Usually, they’re going to try to turn the X owner into some sort of a salary man type, punch the clock kind of person. Again, you’re on your own recognizance, and yeah, you might actually be given more responsibility than when you sold or maybe less which can be a lot of fun for people which is another reason people actually do like to sometimes join another team is they can do a little less than they’re used to.
Ryan Goodman:
Sure.
Rick Murphy:
Being able to know what you’re going to do next, being able to think about that. Can I be employed by another company? How would that work? Those are the things that are going to come up. In the romance stage which we like to ensure dating process as opposed to a property purchasing process.
Ryan Goodman:
Sure.
Rick Murphy:
It’s not a war. It’s not supposed to be a war. During the dating process, hey, what am I going to do every day for you, guys? Does that fit? Why? Why are we doing this, right? It always comes back to why. That’s a big part of that.
Ryan Goodman:
A lot of this talk about the principal owner, the person who’s selling, rolling up into the new entity. It actually really leads me to another question that I think a lot of us are going to be interested in hearing your take on. Employees, employees inside of the business and you as an owner, preparing to sell. I think we kicked this off as you advising me if I’m going to sell my MSP in five years.
Ryan Goodman:
What are the things I need to do? From an employee standpoint, the team that I built, when do I involve my staff in this process? Do I involve key players? Do I talk about this broadly? Is there a specific time like how do I deal with my team inside of this process?
Rick Murphy:
That’s a super good question. There’s a lot of different answers to that, okay? Again, I try to be the truth teller here so in terms of running your business again so that you can sell it when it comes the time to sell it, whether it’s now or later, you start doing it now. It’s having good employment agreements in place, good noncompete, non-solicited agreements in place.
Rick Murphy:
It’s really not about noncompete really. We’re just making sure that you’re not going to …There’s really a non-solicited agreement with a tiny bit of noncompete in it. That’s what we believe in anyway. You should be able to go work wherever you want to go work. Again, but having an employee under proper paperwork, a spirit employee with good job description where you have a really good idea what that employee does every day.
Rick Murphy:
Whether they do a lot of different things or just a few things, making sure that’s well-documented so that you’re doing your regular employee reviews, seller reviews, you got that all documented. Then, there’s a history of that employee that you can tell to somebody else later on. You walk through all of your employees and sit down with somebody tomorrow again.
Rick Murphy:
Say, “Hey, Bob does this. He does this really well. Here’s the pros and cons with Bob. We have him do it now. We like Bob a lot and we think he’s a real keeper and here’s how his role would fit with you,” so you can actually then use that information to discuss why we’re doing this and how he fits. The new side guys.
Rick Murphy:
Then, part of that in terms of, must be the core, you’ll have an idea of where you are with the places you can communicate that information to a potential buyer. Typically, to come back to other party in question. Typically, only the top three people of any potential seller should actually know that you’re actually trying to sell.
Ryan Goodman:
Okay.
Rick Murphy:
The main reason being is that it’s impossible to share with everybody on the team who the suitor is and why this is a good idea because you haven’t fully developed the idea yet. Right? It’s not a fully baked idea. I’m not completely sure I’m ready to sell yet until potentially on the other side of a letter of intent or an indication of interest.
Rick Murphy:
Then it’s not a slam dunk that you’re actually going to get the deal done although we have a high batting average post-LOI in terms of Cogent and our ability to get deals done but it’s not fair to complete so until the deal is closed, nothing has happened. If you spin up all employees or a big chunk of the employees, they’re just going to worry.
Rick Murphy:
They’re not going to be able to result and they’re not going to be able to understand why and you’re not going to have time. Mostly because you’re not going to have time to explain it to him and they won’t have met the new guys. You got to trust that you have a good relationship with your employees where they trust you.
Rick Murphy:
That you’re doing the right thing on their behalf. We focus tremendously. That’s a big, huge part of getting a deal done is making sure all the employees are going to make the trip and be happy and well-fed and properly insured. No GAAPs in their benefits and so forth and so on. What you see on TV and all the movies you see, while that is done on some level and really big corporate deals.
Rick Murphy:
Deals like this, that’s not the drill. I couldn’t possibly service all of the new customers who are buying with our existing team. It’s not possible. This is the norm. That’s the norm, right? Again, explaining that to a staff early on, they’re not going to … They’re going to put their resume out is what they’re going to do. They’re going to be worried.
Ryan Goodman:
You have unintended consequences by trying to foster that.
Rick Murphy:
That’s right.
Ryan Goodman:
Yeah. That makes sense.
Rick Murphy:
If in fact you have fostered a wonderful relationship with your employees and they know you’re going to look out for them and you know that about yourself as an owner, we are going to do our best to make sure that everybody’s got a home, that this is a … That’s the merger part, right? It’s the merging of the teams.
Rick Murphy:
It’s the merging of the customer base. It’s the merging of the systems. All of those things are the merger part so the acquisition part is really around the money and who’s buying who. The merger part is how you do it after that. Everybody that we work with, most people I know that do this for a living, they care deeply about making sure that that works properly.
Rick Murphy:
That’s really, the business owners do and that’s one of the very first things the business owner is talking about so for those of you that are employees, that aren’t business owners listening to us, you shouldn’t sweat a deal. If you’re good at what you do and you like what you’re doing, you’re going to have a home at the new company.
Ryan Goodman:
I think that’s really valuable and I think that’s some really good insight baseball for those listening that aren’t principal owners is this isn’t something necessary that you should fear and coming from you Rick and in being involved in a lot of deals in this space, you’re seeing those principles. Their employees are a primary factor, making sure that everything is good there as they’re looking to do a deal which is good for, again, the staff.
Rick Murphy:
Good employees are hard to find.
Ryan Goodman:
Right.
Rick Murphy:
They’re employed so one of the best ways to grow a company by the way is to buy another company that has a bunch of good employees. That’s how it really works. That’s the truth.
Ryan Goodman:
That’s great. I love that. I’m going to change it up on you again here a little bit. What is your-
Rick Murphy:
My bat out.
Ryan Goodman:
Yeah, sure. Are you ready for this?
Rick Murphy:
I was like, I got a bat right here. I’m holding my bat as we speak.
Ryan Goodman:
I really like you. I hope I don’t get … I don’t know if I get the wrong end of that one. I don’t owe you money, do I?
Rick Murphy:
Not to the best of my knowledge.
Ryan Goodman:
Okay, good. We’re clear. We’re clear, my man. What is your opinion on the current buying and selling market? Just in general. Just broad, 100,000 ft. view.
Rick Murphy:
The current selling market is pretty white-hot.
Ryan Goodman:
Okay.
Rick Murphy:
There are way more buyers than there are sellers which is what a market is all about. It’s caused a lot of interesting things to happen in the market so one of the symptoms of a white-hot market is a lot of what’s called retrading especially on auction deals where there’s brokers involved. We’re not a broker. We don’t do any sell-side work so we don’t do … We don’t run auctions.
Rick Murphy:
We don’t do that work. There’s plenty of brokers out there that do that and some do it really well but regardless of how well they do it, when you’re running an auction process, you’re trying to gin up interests in buyers and those buyers … Now, it’s a practice, a common practice. Not everybody does it of hey, this is the information you gave me.
Rick Murphy:
Thanks for the CIM, a confidential information memorandum is what a CIM is. Brokers build CIMs on their companies so they can put that material out to potential buyers.
Ryan Goodman:
Sure.
Rick Murphy:
Buyers look at teasers. Buyers look at these CIMs and often, they’re asked to put forward an indication of interest so they can whittle down interested parties. Obviously, an indication of interest, what they’re looking for is who’s paying the most money with the best structure.
Rick Murphy:
Because all I’ve seen is these materials you’ve given me, I haven’t been able to do any other due diligence. That’s universal of any buyer that would be looking at that stuff. Some buyers will just go ahead and say, “Yup, I’ll pay you whatever you want. Here, boom,” so that they could do what’s called a lock-up which is in any IOI or LOI.
Rick Murphy:
You just dance with me and then they finally get a look, a chance to look at the actual due diligence behind the information memorandum, the teasers. It may or may not tell the same story as the teaser does or the information memorandum does and often doesn’t. Sometimes, that material is polished.
Ryan Goodman:
Right.
Rick Murphy:
Right, and so then, there’s a game that’s being played now where and especially in auction deals and sometimes, when a seller is trying auctioning themselves, they’re not really running a process that is what is called running a process with a broker but they might be doing a little bit of on their own and talking to different buyers on their own.
Rick Murphy:
One of them could be talking to us for example and while they’re talking to other people which is fine. You can date other people while you’re dating us. At some point, you want to be serious, right? How do I know you’re taking me seriously? It’s really that letter of intent and the retaining game, we get you to sign and lock-up on an indication of interest or a letter of intent.
Rick Murphy:
Then once we dig in, sometimes, the members aren’t exactly as they’re advertised and then I’m going to have to change the prize. I’m going to have to change the structure. It’s not going to be the same as what we originally promised you. Then sometimes, those deals get done after a lot of hard fought negotiation. The only time I used the word fight ever since with regard to M&A.
Ryan Goodman:
Right.
Rick Murphy:
Then there’s this war that happens and then sometimes, there’s attrition in that war and sometimes, those deals get done so that’s a symptom of a white-hot market. The other symptom is my companies work too much. I’m a potential seller and I’m convinced that my companies work way more than it’s actually worth based on the reality of what numbers say and what the actual opportunity is.
Ryan Goodman:
Right.
Rick Murphy:
We’re going to try to find every square inch opportunity to try to make a transaction happen if we can but again, there’s reasonableness and reality, two R words that are super important. You got to be reasonable and you got to be realist on what you really do here. In the white-hot market, what a potential seller often does, they’re like, “Well, I’m doing well. I’m doing really well so I’m just going to like wait.
Rick Murphy:
“I’m going to keep earning money, keep growing my company and then someone can buy me later.” While that may happen and it’s certainly possible that could work for you, who’s to say it’s going to always be a white-hot market? There’s a lot of noise in that right now in the financial markets, going back and forth and up and down.
Rick Murphy:
Our political climate here in the United States is a little whacky. I’m not going to be political but it’s just all over the place. Polarize might be a really good word.
Ryan Goodman:
That is a good word.
Rick Murphy:
You look at the bond markets right now. There’s a chance of maybe an inversion happening and while every recession, every … Inversion doesn’t portend a recession. It is a fact by the way so the facts that I’ve read on the interweb and other lines that every recession fact that proceeded by an inversion at some point. Like invest an interesting factoid.
Ryan Goodman:
Yeah, absolutely.
Rick Murphy:
You never know where the world is going to be from day-to-day and when you have an opportunity in front of you, you need to seriously consider whether it’s a great time to put some money in your pocket or not.
Ryan Goodman:
Right.
Rick Murphy:
Is it a worthwhile deal? You need to be rationale. It’s another great word, another great R word, and so that you can decide. What is reasonable and not reasonable as you look through a potential opportunity?
Ryan Goodman:
You really cued out something that I had written down here that I was curious about but I think you actually explained it while we’re … The question was what changes you expect in the S&P marker of the next two to five years and I think what you’ve clearly stated is one thing we can guarantee on is things just don’t always stay the same.
Ryan Goodman:
At some point, it will change and get your house in order now because the best practices that you’ve talked about are not just best practices for selling. They are best practices to operate your MSP, right? They’re just best practices, right?
Rick Murphy:
Make money and put money in your pocket, absolutely so you have some money. There’s nothing wrong with running for-profit businesses. In some businesses we look at and you would swear, they’re philanthropies.
Ryan Goodman:
Right.
Rick Murphy:
It’s like they’re running a for-profit business as a philanthropy and that’s not really a great idea. You’re employing a lot of people and you’re generating a bunch of revenue and you’re making a bunch of other people a lot of money. I’m not sure if the owners are able to pay yourselves well too. Why the heck are you doing that? For what it’s worth.
Ryan Goodman:
I think it’s a good gut check. It’s a good gut check.
Rick Murphy:
It is so sanity around being able to realistically take an introspective look, get your own business. We do have a product for that. If somebody wants to go on our website, you look for a Market Value Analysis project. There’s some shameless self-promotion there.
Ryan Goodman:
Hey. That’s great. Hey. No, it’s valuable though. This is valuable. That’s what we’re talking about. This is valuable.
Rick Murphy:
The Market Value Analysis is a way to see what you look like in the eyes of a buyer, a generic buyer or what you look like to them. Then using that as a template forward to understand the reality of where the market is right now and your business right now. You pull out about a lot of different things you can learn about your own business.
Rick Murphy:
What you can do differently, better or stop doing or hey, you were doing it great. We just need to do more of it. There’s lots of different ways that can go and see, doing the expensive product we’ve developed around our transaction analysis modeling that we do for our clients. It’s basically the same product and it allows someone interested, where am I right now?
Rick Murphy:
Where am I going to be? It’s something we can do. You can find it on our website and link in with us. Whether you did with us or not, being able to have your CPA look at stuff is an interesting thing to do but they don’t really know the buyer market and somebody help someone touch that because when it comes down to financials, I just don’t want to go backwards.
Rick Murphy:
The way you do your books and records out of financial books and records, right? The way you do cost allocation against your revenue is really important and everybody does it a little bit different way so just … The CPA took me on that tangent because you’re talking about working with the CPA, with a public accountant, their accounting practices or accounting practices, it’s good to have good revenue recognition, good counting practice, but putting your charter accounts right so that your cost to goods sold.
Rick Murphy:
The way you treat labor as cost to goods sold or not is different with almost everybody, right? Everybody does it a little bit differently. Again, if you’re part of a peer group, a likelihood is you’re going to do it better. I think the peer groups teach a really good cost recognition but if you’re not part of a peer group, you need to figure out how to work with your accounting company to make sure or just internally with your own accountancy people that work for you directly to properly allocate labor cost against revenue.
Rick Murphy:
It shows up as a cog or a portion of it shows up as a cost to goods sold. It’s not just all showering.
Ryan Goodman:
Sure.
Rick Murphy:
Any good buyer is going to want to line that up so you start doing that now. As a potential seller someday, you’re going to have good history practices behind you and it’s going to help you later on.
Ryan Goodman:
That makes a lot of sense. Rick, this was awesome. This is really good. I think-
Rick Murphy:
I could go on for hours.
Ryan Goodman:
I know and I think that that’s the thing like I love it and I have personally just enjoyed it because it was excellent knowledge for me and I do. I just appreciate you spending the time and sending out all this value to the community and I guess what this sums it up to is what key message would you like to drive home with those that are going to listen to this podcast here?
Rick Murphy:
Be represented whether it’s with us or somebody else.
Ryan Goodman:
Right.
Rick Murphy:
When you introduce thing and get a third-party as soon as you can. Not really just from how do you sell stuff and how do you productize and all the other things. There’s lots of different, all the different kinds of advice we can bring you. Just somebody to give you a measuring sticks that you can use now to figure out where you want to be later. You just can’t do it all by yourself
Ryan Goodman:
Well, and bringing on that experienced advisor as well, right? I think there’s a difference between someone that’s done one deal and done a 100 so I appreciate you spending your time, doing 100 deals and sharing with all of us the wealth of knowledge that you’ve accumulated through, like you said, being in the trenches now.
Rick Murphy:
Right. All right. This has been a pleasure. I appreciate you having me and it’s awesome. We can do it any time you want.
Welcome to the Confessions of an IT Business Owner Podcast, where we believe that healthy cashflow is critical for your IT business, automation is paramount, and building trust with your clients by looking professional will help grow your business. I’m your host, Ryan Goodman and today we’re going to actually break from our normal theme and talk with Mike Harvath from Revenue Rocket about his experience with mergers and acquisitions related to IT service providers and MSPs.
Mike Harvath:
It’s not really about should we put it in the market or should we put it in small tech firms. There’s a lot more probably to do with their expectations around return and they’re able to take more risk. So then they come to our area of the market, which particularly with a high percentage of recurring revenue, they see as a pretty safe bet.
Ryan Goodman:
Here’s the podcast with Mike.
All right. Well, Mike thanks for joining us on the call and on the show today. I appreciate you taking the time to speak with us today.
Mike Harvath:
You bet.
Ryan Goodman:
Awesome. Well let’s get a couple of basics out of the way. Tell us a little bit about your business and also where people can find more details about your company and services and where they can engage in a discussion with you, whether that’s website, online forums, social media.
Mike Harvath:
You bet. Thanks Ryan. Appreciate it. As you mentioned, I’m Mike Harvath, I’m the founder and CEO of Revenue Rocket. The audience certainly can find more information about us that to revenuerocket.com.
We are a growth strategy consultancy and M&A advisor for IT services companies and in general a tech partners. So folks that are partners of the major vendors that implement their software and tools. We really do two things. We help them grow through help them optimize the business to best in class and we facilitate both buy side and sell side M&A transactions for them.
Ryan Goodman:
Sure. So how did you get started in the business? What was your background related to technology and then merger and acquisitions?
Mike Harvath:
I started in the business in the early 80s. I worked for Apple. I helped them design a little computer called the Macintosh.
Ryan Goodman:
No kidding.
Mike Harvath:
And then later went on to work for a major distributor, a company in Tempe, Arizona, MicroAge. We help them grow pretty aggressively while I was there. I was there about seven years. Helped them get through their public offering and scale the business to about $6 billion in revenue. And then determine that I really wanted to spend time as a channel partner in a services business really. I then successfully started and sold several IT services companies prior to starting Revenue Rocket really in late 2000.
Ryan Goodman:
Okay. So you’ve been in this technology space for several, several years prior to getting involved in the consultancy side of the business. And that’s a really interesting tidbit that you were involved with the Apple Macintosh. That’s incredible.
Mike Harvath:
Yeah. There’s not too many of us still around. At least we’re getting farther into our career. But yeah, I certainly, having a background as an electrical engineer and then later going to business school and happened to get a sociology degree along the way. So kind of a crazy combination of education, but it’s all worked out at the end.
Ryan Goodman:
I was going to say, it sounds like it’s working out for you. Maybe there’s some notes everybody should be taking on that. So I have a couple of scenarios here. This is specifically related to M&A, and I want to play out a scenario. Let’s say I’m an MSP IT service provider. I’m thinking about exiting my business sometime over the next five years or so. What are some of the top things I should be focusing on and what steps do I need to be making right now for that five years in the future?
Mike Harvath:
Sure. So there’s a few things. There’s certainly a lot of this information you can find on our website or if you’re a Microsoft partner, you can find it also on the Microsoft partner network sites. The primary thing is to drive profit and consistent growth. So the value in all managed services businesses is derived from really consistent and growing profitability. And the same for top line.
Generally when multiples are reported you hear about a multiple of revenue or a multiple of recurring revenue more commonly. And both of those metrics are simply a way to report a ratio or a metric on the transaction. The real way to add value in the business is to increase your profitability to best in class. And for most managed service providers, those numbers are somewhere north of 12 to 15% EBITDA. And if you can get above those numbers consistently and continue to scale and grow the business, that’s the best way to build value on a end of the business.
Ryan Goodman:
So when people are seeing these valuations and they’re seeing a multiple based on the revenue side, there’s a whole lot underneath that that maybe they’re not getting by just seeing that number on the surface.
Mike Harvath:
Yeah, sure. And there’s a writing other things that I would recommend. You need to be able to have sort of a transferable business if your goal is to sell out. If your goal is to sell in, which many owners do, they want to be a part of something bigger, then that becomes a little less important. But certainly being able to build repeatable processes, be able to drive efficiency, be able to have a strong sort of sales and marketing function that drives both top line and bottom line profit. And then of course the obvious which is to increase your kind of recurring billable percentage all are things that will ultimately drive value.
Ryan Goodman:
Sure. Now inside of a business we have the owner’s side and planning on an exit at some point, whether it’s a sell out or sell in like you had mentioned, but there’s also employees in the business of course. So what have you seen or do you have any recommendations around which employees or business associates should be involved in these processes or when should you let key staff members know you’re thinking about this type of an exit strategy?
Mike Harvath:
Well, I think it’s important to not have distractions in the business. And M&A is certainly a distraction.
Ryan Goodman:
Sure.
Mike Harvath:
And I think what’s best is to bring the employees, key employees, into the conversation closer to the end of the process. Certainly folks in finance may need to be brought into the process and the last one to two months of the process while final due diligence as being done. And they may be participating in that.
Usually we recommend our clients have those individuals sign a nondisclosure agreement, swear them to secrecy because certainly no deal is done or over until it’s over. And I don’t know that you want to be able to or have a situation where your employees think you’re selling out and then ultimately that deal doesn’t happen or selling in even for that matter. And ultimately there’s something that causes a snag and the deal doesn’t happen then people wonder, well, are you really here for us? Do you ever back?
I think what all owners of IT services companies, managed service providers need to know is that your team is there because of you. And if you’re looking at changing up your relationship with the business, even if you’re selling in, that can be unsettling for them and you want to make sure that the is going to transact before you begin to bring employees into the conversation.
Ryan Goodman:
That makes a lot of sense. So to piggyback on that question, at what point does a company like you, what point do you guys come in to the conversation within that five year span and really then what role do you play once you’re involved?
Mike Harvath:
Well, it depends. If someone’s looking to prepare to sell within a five year period, certainly there’s benefit in engaging us in a strategy sort of optimization engagement. We have a model called SVP, we call it specialized verticalized productize, which really focuses on aligning around your core offering then aligning it to a vertical market or small subset of vertical markets. And then building more process based and technology based IP that you could deploy against those markets.
And by implementing that model effectively you can accelerate growth and profit. We’ve done over 200 of those engagements successfully with clients of ours. And certainly they’ve had remarkable performance over the years. You do that ahead of a transaction, certainly that makes you not only more marketable but more valuable. And we could then, when the time is right, take you to market.
Now there are times, I’ll just add that we have plenty of firms that will contact us and say we’re thinking about selling. And we’ll engage and look at the business and then bring them to market as appropriate. Sometimes when we do that and engage in that way, our recommendation is for them to not sell now, optimize the business first and then sell.
Ryan Goodman:
Absolutely. So what’s the best way for an MSP owner to let prospective buyers know I’m planning my exit? Or how do they even go about that? I’m ready to sell while trying to keep employees from being up in arms about something that may or may not happen, how do they start getting to market, getting interest?
Mike Harvath:
Well, the best way to do that is to hire an advisor. It’s been often said that a merger, an acquisition, combination of businesses is the most unnatural active business. And as a matter of fact, a very small percentage of transactions that are not represented by the advisor actually get done. It’s less than 1%.
Ryan Goodman:
Oh Wow.
Mike Harvath:
So I’ve met many business owners that feel that it’s on their own, that they’ve negotiated a lot of transactions, they know a lot of people in the industry. However, there’s hundreds and hundreds of things that need to get done and/or negotiated to successfully get one of these deals done. And while you’re running the business is not the time to try to do that on your own. Not to mention the fact that most people, even if you’re a business owner, may only participate in a handful of M&A transactions in their career, even if they’re very experienced.
So when you looked at a firm like ours, Revenue Rocket, we’ve done 170 transactions or facilitated those transactions over the years. You certainly learn a lot of things on every deal on what to do and what not to do and how to optimize deal a transaction. And we think the best way to go to market if you’re considering a sale or if you’re considering acquiring a firm for that matter is to a hire a qualified advisor to help you.
Ryan Goodman:
Yeah. No, that makes a lot of sense. I mean, you want your chances of home runs to be someone who’s hit five or 200, you know?
Hey guys, Ryan Goodman here, president at Connect Booster and your host for this fine podcast. We want to take a quick break from an episode and thank you for listening. We wouldn’t do this if it weren’t for you, so thank you for sticking with us on this adventure. We also want to thank Mike for joining us on today’s episode. You can find out more about Mike and Revenue Rocket revenuerocket.com.
Mike has given us a lot of fantastic information about mergers and acquisitions and there’s a lot more coming after this break. If you want to learn more about Revenue Rocket and their services, give them a call, send an email, throw a carrier pigeon if you have to. They want to help you out.
Before we get back to the episode, we want to let you know all the ways you can find us online, starting with connectbooster.com/podcast. That’s where all our new episodes go up first so if you want to listen right away, connectbooster.com/podcast. All of our episodes are available on iTunes, Spotify, and Google as well. So find us on your favorite podcast platform and they’ll let you know when new episodes are ready to listen to.
Now, lastly, if you want to connect with us or be a guest on the podcast, make sure to email us at [email protected] or send us a message on Facebook, Twitter and we’ll point you in the right direction. Thanks again for listening to the Confessions of an IT Business Owner. We’ll get back to the podcast and talk to you soon.
So I have another scenario that I want to throw at you here. Let’s say we have an emergency situation. I’m an MSP owner, IT service provider, whether it’s an illness or death in the family, whatever life throws at us, such as a curveball and I need to sell in a year or less. What are the most important things that I need to be doing in that case?
Mike Harvath:
Well, I think the sooner you can bring, again, I don’t want to sound like a broken record here, but the sooner you can bring an advisor into the conversation, the better because you can determine value right away and then talk about options. We’ve certainly participated at a lot of those such scenarios where either the business was in trouble and needed to combine with someone to survive or they had a health issue and they had to exit. Or there was a divorce in one case and a variety of other things.
So certainly there’s a scenarios that come up, but I think the best thing you can do is first quickly learn how much your business is worth and then discuss your options with a qualified advisor that can take you to market. And then beyond that, I think you have to look at fortifying your management team because if you’re going to be gone then it makes sense that you can transition management to folks that are there.
I think as a side note that’s a business continuity planning exercise that all business owners that own manage service providers should be doing anyway. If you get hit by the proverbial bus, who’s running the business, have you put it in a position to have enough capitalization to grow, aka do have key man insurance? What someone would do should there be a scenario like that.
And what many of our clients do is they have a transition plan should the unforeseen happen to someone. They keep it in the desk drawer and have their key staff understanding where it is and if for whatever reason they have a bad diagnosis or heaven forbid have an accident or something happened, they can then turn to the transition plan.
Ryan Goodman:
That makes sense. I mean, what I’m hearing is early preparation is paramount and key. Assume it is going to happen at some point and be ready for it.
Mike Harvath:
I think the thing to keep in mind is that we’re all kind of on a one way trip, right? We’re not going to live forever.
Ryan Goodman:
It’s true.
Mike Harvath:
And if the business is core to you and you’re critical that our business operation, I think you’re doing yourself a disservice by not having a multi scenario, laden transition plan. What do we do if we get a bad diagnosis, what do we do if we die suddenly in a car wreck or something? What if you have a head injury or what if you’re disabled or variety of scenarios? And I think it’s appropriate to think through those transition planning scenarios, make sure your senior team knows kind of were all that information is and how to access it and then how to execute against the plan as needed.
Ryan Goodman:
Great advice. So I’m going to shift gears on you a little bit here. What’s your opinion on the current buying/selling market as it stands today?
Mike Harvath:
Well, it’s for sure a very frothy market. It’s probably the best market we’ve seen in IT services and consulting managed services ever. And so I think, I don’t know how long it’ll last. There’s a lot of questions, when I mentioned that people ask well, how long do you think the market will be so good?
Ryan Goodman:
You’re taking my questions away Mike.
Mike Harvath:
Yeah, I know. It’s hard to anticipate that. I think the new tax regulations and the states have certainly probably given that market some legs. And if I had to predict, I’d say we probably have a seller’s market continuing for another year or so. We do see some indications that the market is topping, that we’re kind of getting to a peak from volume and valuations if you sort of look at all the analysts, it’s sort of coming to that point. No one has gone so far as to say that the market is topping, but we sort of see some indications that that’s the case.
Now, certainly whether you’re a buyer or a seller obviously it’s a good time for a seller. There’s been a shift to more cash close over the last 18 months or so. Again, which is an indication of sort of frothy topping market if you will.
But it doesn’t mean that it’s a bad market for buyers either. And we’ve seen and transacted a lot of interesting transactions on behalf of buyers. Because I think when you look at a transaction, a lot of people get wrapped around the axle on multiples of a bit of, compared to multiples when the actual metric that you should be measuring has much more to do with internal rate of return if you’re a buyer and synergies around the offer and how that will work for your business. I have plenty of examples where people have, “paid a premium” on a multiple spaces, but still were able to get their all of their money back within a period of less than three years. And we think that that is a pretty good return.
Ryan Goodman:
Yeah, that’s incredible. Are you guys, are a lot of people making these decisions based on where do I put my money versus the market versus acquisition? Is that one of the major decision factors that you find as you’re having conversations?
Mike Harvath:
It sorta depends on the kind of buyer, right? So strategic buyers are typically people who are acquiring firms that are smaller but like them that may give them access to a geography or vertical market that they may not be in. There are certainly buyers that buy adjacency businesses or businesses that are complementary. We helped a manage service provider buy a web marketing company, for example, one that focused on their vertical. And that was a great adjacency for them and worked really well for them. So there’s those types of acquisitions that look a lot more like strategic deals, but they’re what we call adjacencies.
And then there’s financial buyers who are really looking at simply the financial transaction. And we’ve seen the multiples that financial buyers pay come up to almost meet those of a strategic. Usually financial buyers buy a couple ticks, I’d say a couple times lower than a strategic on a multiple spaces. But certainly that gap has been narrowing in the last year or so, year and a half as more and more of these financial buyers have to put money to work.
So kind of a long winded an answer to the question, but I think it’s not really about should we put it in the market or should we put it in, if you’re a financial buyer in small tech firms. That’s a lot more probably to do with their expectations around return and they’re able to take more risk. So then they come to our area of the market, which particularly with the high percentage of recurring revenue they see as a pretty safe bet.
Ryan Goodman:
No, that’s a great answer. How about the elections? We have midterms coming up here and we’re midterm of a presidency. What’s your gut say about the effect on the market with the election year? Or have you see something, I guess maybe a better question is, have you seen something historically over your tenure in this business around midterm and presidential elections?
Mike Harvath:
Yeah. That’s a good question. I don’t know that it is is aligned to the elections, the market is as aligned to the elections as many pontificate. I think there’s a more broader trend in the cyclical nature of the market. Is it impacted on a micro basis during and around? Yeah, it’s more of a macro view. I take more of a macro view. But do you see it impacted on a micro basis based on who’s elected? Yeah, certainly. I mean, we’ll see some ups and downs around election, especially based on if the House changes control. There’s a variety of factors that could come into play on that. But I don’t think on a macro basis it will impact the market.
I do think that, the one that we can say with a lot of certainty is that the market will take a downturn. We don’t know quite when that will be, but it will happen. The last time that happened, obviously in 2008, we had a pretty big impact on the economy. It certainly froze the market from an M&A perspective for at least a year. Very few transactions occurred while we were in financial turmoil.
I’d like to think that the trigger, if you will, for the economic downturn will not be the financial crisis of 2008. It certainly will most likely be something else that none of us can predict. But we do know that it will happen and I think smart business owners are fortifying their balance sheets and retiring debt while they can and certainly are looking at … And all that builds value in the business if they want to do a transaction.
Ryan Goodman:
Right. Right. No, that’s great advice. So to wrap things up here, what key message would you like to drive home with those listening to our show today? That’s a broad question.
Mike Harvath:
That’s a broad question, yeah. I think my argument would be for you to, as a business owner, be somewhat introspective about your strategy and what you want to do in the business long term and then make the appropriate changes as needed. We see a lot of business owners, particularly ones that are realizing relatively low profit vis a vie what’s possible. and I would consider to be single digit EBITDA profit, not making the changes that they need to be moved into double digit EBITDA profit.
And the old adage, definition of insanity is doing the same thing over and over and expecting a different outcome. I think being able to look honestly at your business and say we really want to optimize it for health and optimize it for a future transaction is really what you need to be doing right now while we’re still in a rising tide environment. Because if you’re single digit profit and we get to a downturn and you don’t have a fortified strategy or a strong balance sheet the the last downturn, the financial downturn, took 30% of what will be the audience for this podcast out of business. So we certainly won’t want to see a repeat performance on that. We don’t want you to be in those numbers.
Ryan Goodman:
Great. No, that’s great advice. And also a dose of reality based on history, right?
Mike Harvath:
You bet.
Ryan Goodman:
Well, Mike, thank you so much. I appreciate your time today. This was great. I know everyone listening appreciates your insight combined with your expertise.
Mike Harvath:
Yeah, you bet. Thanks a lot. You guys need to reach me, you certainly can do so on our website at [email protected]. I’m copied on that email as is our team. And we’d be happy to respond to any questions that have come out of the podcast.
Welcome to the Confessions of an IT Business Owner podcast where we believe that healthy cashflow is critical for your IT business, automation is paramount, and building trust with your clients be looking professional will help grow your business. I am your host, Ryan Goodman, and today you’ll learn about some profound struggles related to owning and growing an IT business and how Barb Paluszkiewicz from CDN Technologies overcame them.
Barb Paluszkiewicz:
I was unable to look at a screen. I was unable to read. I had my eye patched up. I couldn’t do anything. And all I thought was, “Who’s going to do payroll?”
Ryan Goodman:
Here’s the podcast with Barb.
Ryan Goodman:
Well, Barb, thank you for spending the time and taking time out of your busy day. I know as fellow entrepreneurs that is not always an easy thing to ask for, so I appreciate you being on the podcast with us. As we kick off, let’s get some of the basics out of the way. So I want you to … Could you tell us a little bit about your business and then also where people can find you and find your business online?
Barb Paluszkiewicz:
Okay, well, I think that I’ll start off with one of my favorite quotes and that is one from Albert Einstein and that is, “If I had an hour to solve a problem, I’d spend 55 minutes defining it and five minutes solving it.” Where you can find me is www.CDNTechnologies.com. And my name is Barb Paluszkiewicz, and for those of you who are taking notes Paluszkiewicz is spelled the exact way it sounds, Paluszkiewicz.
Ryan Goodman:
That is a funny joke because I don’t think I phonetically spelled it, so I tried to get it right. That’s great tongue in cheek right there. I love it.
Barb Paluszkiewicz:
Me too.
Ryan Goodman:
That’s great. So tell me about how did you get started in technology? What was the incubator for you?
Barb Paluszkiewicz:
Actually, me being in technology is a total fluke to be perfectly honest. I went to university for chemistry and physics. I have a double degree. And I actually got hired as a pharmaceutical sales rep.
Ryan Goodman:
Wow.
Barb Paluszkiewicz:
Yes. I was on the path to greatness. And then, this was back in the ’90s and then fen-phen and Redux got taken off the market. And what happened was there was a hiring freeze. So essentially I got offered a package. I accepted everything. I sent it all back in by fax. And then I called to follow up [inaudible] they called back and told me we need to talk to you, we’re going to have to put your start date on hold because fen-phen and Redux, as you know, got taken off the market. And I was just like, “Oh, okay.” So what happened was is I had this time on my hands. And I went on vacation. I met people while I was on vacation. And they ask what you do for a living and so on and so forth, so I shared with them my story. And this person just said, “Yeah, I can see you in sales.” And then it was just like, “You know what? We should be in touch.” So it’s like, “Okay.” So sure enough, I got back from vacation, checked my email, and they said that there was opportunity at their company and I should apply. So I did. I sent in my resume. They told me my resume was shit, and they tweaked it a little bit. I was just out of university. It was all geared for the pharmaceutical industry. They tweaked it. I got called in. I think I had maybe about six interviews. And I was hired as an IT sales rep, and what I was doing was selling IT training courses. It’s very similar to DeVry type of thing. So if any of our listeners have been to DeVry, they’ll know that they went in and they had to meet with the person. They did an assessment. They talked to them about their future and their goals and what it was that they wanted to do. And they signed up for the classes, and then life went on. That person that they spoke with, that consultative person, that was a sales person. So that was me. So I did that for the longest time. It was great. I loved it. It was in the ’90s, and then much like all other IT professionals in the ’90s when the .com bubble burst, I was impacted. And when I was impacted, that’s a story in itself because my company had been purchased by an American company. They changed the compensation package. I tried to negotiate like any really good salesperson does. And it wasn’t working. I saw the writing on the walls because I was a full commission based salesperson. And now they were moving it to a salaried position. I was like, “Oh, this is a big financial hit.” So I remember it was April 2nd, it was the day after April Fools, and essentially I went into work with a banker’s box and that was the day I was going to hand in my notice. And I remember sitting in my office thinking, “Okay, I’m going to do this because …” But I was chicken. I was truly chicken. What was I going to do next? I’m going to have a little bit of time on my hands. There’s so many things that I can do. What do I want to do? That’s how my job started and ended as an IT sales rep. And then what happened was is my current partner, Jason, he was hunting for technicians because his business at the time, it was growing, it was expanding, and he needed to hire people. And essentially through the grapevine, he was like, someone said to him, “Call this girl, Barbara P. She knows people. She knows everybody. She’ll be able to help you out with finding a tech.” So he did, and then afterwards, he said, “Would you come work for me?” And I was like, “No, you work in your basement. You fix computers. No. I’m corporate. I’m on a path to success. I’m rocking it. I am a salesperson. Who do you sell to?” So sure enough, he bugged me and bugged me and bugged me. And then eventually I just said, “Okay.” I got a package and he was like, “Good.” And then just started to doing selling for … At the time it was JP Consulting. And then things changed, and it’s now CDN Technologies. And our business just grew that way, so that’s how I ended up coming into the role of CDN Technologies.
Ryan Goodman:
That is awesome. That’s literally from basement to today at this point.
Barb Paluszkiewicz:
Yes.
Ryan Goodman:
Cool.
Barb Paluszkiewicz:
So we’ve grown quite a bit. I attribute our growth to our growth through acquisitions campaign and having focus and the ability to understand that crazy tech talk language.
Ryan Goodman:
Right, which really segues into you also do a podcast called No Tech Talk, which I was just really intrigued when I was looking. I snooped on you. I’m sorry. I will admit it live.
Barb Paluszkiewicz:
Good.
Ryan Goodman:
Why don’t you talk to us a little bit about that and why you podcast yourself?
Barb Paluszkiewicz:
Well, I podcast because it’s all about solving problems and understanding what’s going on for the business community that’s out there here in Mississauga and the GTA and through all our clients throughout North America as well. When I go and I’m on the front lines and I talk to people, it’s all about solving a problem that they’re having. But oftentimes, they have no idea what their problem is. They feel frustrated. They’re anxious. They are confused. They know they gotta do something, but they don’t know what it is and they don’t know what the best way it is to do it. So my job is to figure out what it is that they want to achieve. So when I talk to these people, I don’t talk tech language at all. And then when I go back to my vendors and I’m adding to my technology stack, I’m asking questions like, “What is the thing that you do for my customers? What is the best service that you provide that will help my customers out? Can you help my customers out with this?” Sometimes the vendors can answer the questions, sometimes they can’t. Now, they’ll begin to talk techie and things like that, and I understand what it is that they’re trying to say, but then I’ll just say, “I need other words.”
Ryan Goodman:
Right. Doesn’t translate.
Barb Paluszkiewicz:
That’s exactly it. Because I can’t confuse the customer even more. So the whole purpose of doing the podcast was to ask my vendors directly what the questions that my customers are asking me one-on-one when I go on sales calls and when I’m doing one-to-many selling. Because you get a lot of questions, and people are asking … And they’re not asking technical questions. For the most part, when you’re dealing with someone, it’s not a technical question. So the questions that they ask me, I just reiterate those back to the vendor. So it gives the vendor an opportunity to get their message direct to the consumer. And it also supports me as well because when I deal with channel only partners, the consumer can’t go to the vendor direct and get things. And if they do, my relationship has been established with the vendor and they’re just like, “Oh, okay. You’ve worked with Barb. Yeah, happy to help you out. Let’s give her a shout. And you know where I can go reach her at,” so on and so forth. So I’m establishing my relationships with the vendor, with the customer. I’m bringing us all together, so it’s all transparent. It’s out on the table. And it’s all about making sure that the consumer, that the buyer, knows what’s happening and knows that we’re solving the problem, that we’ve figured it out, and we’ve found the best possible actions to help them achieve their goals, which is to keep their information safe, to keep it confidential, and to be able to have access to their backups when they need it.
Ryan Goodman:
I love the strategy.
Barb Paluszkiewicz:
Okay.
Ryan Goodman:
I love that strategy. I think it’s brilliant. It’s the first time I’ve ever heard that. That’s just really, really valuable. So thank you for sharing that.
Barb Paluszkiewicz:
Oh, no problem.
Ryan Goodman:
Hey, guys. Ryan Goodman here, president at Connect Booster, and your host for this fine podcast. We want to take a quick break from our episode and thank you for listening. We wouldn’t do this if it weren’t for you, so thank you for sticking with us on this adventure. We also want to thank Barb for joining us on today’s episode. You can find out more about Barb and CDN Technologies at CDNTechnologies.com. Barb has told us a lot about the struggles she’s endured and overcome, and there’s a lot more coming after this break. If you want to learn more about CDN Technologies and their services, give them a call, send an email, throw a carrier pigeon if you have to. They want to help you out. Before we get back to the episode, we want to let you know all the ways you can find us online starting with ConnectBooster.com/podcast. That’s where all our new episodes go up first, so if you want to listen right away ConnectBooster.com/podcast is where to find them. All of our episodes are available on iTunes, Spotify, and Google as well, so find us on your favorite podcast platform, and they’ll let you know when new episodes are ready to listen to. Now lastly, if you want to connect with us or be a guest on the podcast, make sure to email us at [email protected] or send us a message on Facebook, Twitter, and we’ll point you in the right direction. Thanks again for listening to The Confessions of an IT Business Owner. We’ll get back to the podcast and talk to you soon. So I would, at least in my mind, I consider that a huge win just in the business and the approach and the effectiveness of that strategy. What are some of the other wins that you’ve been able to celebrate inside of your business?
Barb Paluszkiewicz:
You know what? I’d have to say my Growth Through Acquisition campaign, my marketing campaign. That’s my favorite because I address it through two aspects. So when I’m selling one-on-one and I’m dealing with people and I deal with business clients and I’m able to help them out by letting them know that they are exposing themselves to serious risks that are unnecessary and that there are solutions. And it doesn’t have to be that way. So acquiring great sales, so that’s one part of my Growth Through Acquisitions. But my other part through Growth Through Acquisitions is just helping out small MSPs. Lots of MSPs, they’re just like a one man band or a two man band, and they got into the tech side of things or they got into this tech business because they understood the tech side. But they quickly get in over their head because they don’t understand the business side of things or the business side of things is like nails on chalkboard. Understanding cashflow, seeing receivables, making sales, understanding credit, it’s usually not until they are at their line of credit from the ones that I’ve seen or that they got receivables only in the 90 days and they say, “Well, I’m making sales.” Then I’ll be just like, “You’re not collecting, so you really got shit.” So they’re great techs and everything like that, but they get into trouble and it begins to affect the quality of service that they deliver and it spirals out of control fast. So the first business that we acquired and then the second business and third, it was one of the things that I saw. So I love my Growth Through Acquisition campaign because it enables me to help other small MSPs run their business. We can run their business for them and they can do what it is that they want to do whether it’s to retire, whether it is to focus on their niche. So it’s winning for everybody. Everyone’s happy.
Ryan Goodman:
That’s cool. That’s cool.
Barb Paluszkiewicz:
Thanks.
Ryan Goodman:
That is a very hot topic inside of our channel, merger and acquisition. What are some of the challenges that you’ve run across as you work through that? What are some of the lessons that you’ve learned and what are some of the gotchas that you look for now when bringing another company into the fold? It’s almost like you’re an incubator.
Barb Paluszkiewicz:
You know what? And I hate to say it, but it’s true. So what happens is, is they don’t understand the numbers. Top line revenues are for vanity and bottom line are for sanity and in-between you have like operational costs that are fixed and variable. So you have to think about how profitable are you at the end of the month? So sometimes you’ll have an MSP, they’re all excited that they’re earning $30K a month in monthly recurring revenue. But then out of that $30K a month, they have $25,000 in monthly expenses. And then they only have $5,000 a month left over, and they’re actually only doing like $60,000 a year in profit. So all of a sudden, this person thinks that they won a million dollars for their business because they have this huge list and this huge opportunity, but the numbers aren’t there. And then there’s the other person that’s making $10,000 a month in monthly recurring revenue, and they’re working from home or they’re working in someone’s office at the side, and they only have $1,000 a month in expenses and they’re making $9,000 a month profit. At the end of the day, they’re pulling in $108K a year. So one’s more profitable than the other, and sometimes it’s hard to let these people know that these are what your numbers are. Let’s look at your invoices. And they’ll be just like, “Well, I only do invoices at the end of the month or the first of the month.” Helping businesses know how cashflow impacts them and helping them know how to calculate their profit, that’s the hardest part. Because these people, they got into the business because they’re techies and they truly love what it is that they do, and it wasn’t until that they actually got into the business that they realized, “Uh oh. This is great. I got this referral, but now I have to balance and I have to manage too.” So I’d have to say that managing the numbers has always been a big challenge that I’ve seen for the MSP that went from a techie to an owner/operator and there’s nothing worse than having a woman sit across the table from you and say, “Listen. Let me tell you how it is. But buddy, as cool as you are, you got nothing here.” So I’d have to say that that’s the hardest part for me.
Ryan Goodman:
I get that. And I think … Tell me if I’m wrong, I’m certainly open to the conversation, but first time entrepreneurs, and I’m guilty of this myself, that’s why I feel like I know it, is if you’re in a service based business, you don’t realize that you’re also a bank and a collection agency. That’s a very non profitable part of your business if you don’t figure out how to work through those challenges. And I think sometimes that’s where a lot of the surprise comes too. You can be as good as you are in any capacity of the business, but if you are going to ignore those two portions of your business, you’re going to have huge problems.
Barb Paluszkiewicz:
You’re right because when a small owner/operator decides to sell, whether they want to retire or whether they just want out because they’re tired of doing it, I think that what they need to understand that the purchaser is buying a cashflow. So you have to make certain that the cashflow is consistent as they move forward. And in addition, it’s going to be there even if the person who originally established the monthly recurring revenue is not. Is the business going to survive after the person sells? And that’s the part that they don’t see. And that’s always the hardest part. It’s managing the monies.
Ryan Goodman:
So not really to shift gears, but this really falls in line, managing that bottom line. I love the quote, “Top line revenue for vanity. Bottom line for sanity,” essentially. But automation is a huge part of making that bottom line a reality. What are some of the things that you focus on in your business to ensure the bottom line is healthy?
Barb Paluszkiewicz:
Automation, okay. Fully supportive of the automation because the automation will be there even if the person isn’t. I’m fully supportive of documentation and SOPs. I have a perfect story. It has to do with me. Last year, this is going to sound a little bit funny, but it’s really not. But I lost an eye.
Ryan Goodman:
No way.
Barb Paluszkiewicz:
Yes, I’m blind in my left eye.
Ryan Goodman:
Oh my gosh.
Barb Paluszkiewicz:
It’s brutal. It happened because I was rubbing my eyes. I’ve had allergies. I’m the type of person who has allergies ever since they were a little kid. And if you go to any doctor, they’ll always say, “Don’t rub your eyes. Don’t rub your eyes.” And I just remembered, I finished a presentation. I was back in the office. I was recapping everything. And I was just going to town, reading reports, going through emails, just rubbing my left eye. And then the next day when I went to go put makeup on, I didn’t see my right eye as I was applying eyeliner. And I was like, “Oh, that’s weird.” So I tell my husband, and he’s just like, “You really are working too hard. Stop looking at all those screens. You should really take a break.” I was like, “No, no, I’m in the zone. I’m having a good run here. I got all this done.” And sure enough, what ended up happening is long story short, I went to the hospital, I went to the ophthalmologist and the next thing you know it, I’m having my retina reattached to my left eye. So that’s exactly it. So where automation comes into place is I just finished automating our sales process. I just finished putting together all of the SOPs in a beautiful binder so that anybody could come in and as long as they could read, they could follow it. So I had this folder on whatever drive it is that I assigned to work in. And I remember I was overnight I was out of work. I was unable to look at a screen. I was unable to read. I had my eye patched up. I couldn’t do anything. And all I thought was, “Who’s going to do payroll?”
Ryan Goodman:
Right.
Barb Paluszkiewicz:
“Who’s going to do payroll? Who’s going to make sure that all of the numbers are in for month end?” There was this sheer panic. And I remember saying to my business partner and to the team, “I had surgery. I can’t do this.” And you can tell there was a big pause in the office. And I was just like, “Don’t worry. Go to this area. Print two copies out of everything. Send one home. Keep one in the office. It has everything in here. It is a bible on how to run the administrative processes for CDN Technologies. Everything with respect to answering the phone, how to deal with mail, how everybody gets paid, HR policies, what to tip.” The whole kit and caboodle was all there because as I was building CDN Technologies, I just documented the shit out of everything, so that in the event I were to drop dead that the business could still go on. Because I have children. Yes, I have techs and things like that, but techs are really good at techie things and knowing what to say when you have to collect money and knowing how to check who owes you money and knowing how to make a sale and closing a deal and finding out what’s important and engaging in that type of conversation, for techies that’s like nails on a chalkboard for them. But they can print it out, and they can read the script.
Ryan Goodman:
Absolutely.
Barb Paluszkiewicz:
And it says here, “If you feel uncomfortable, tell the customer, ‘I’m so sorry. This is not my rule. Do you mind if I just follow our procedures and processes to get through this?'”
Ryan Goodman:
I love it.
Barb Paluszkiewicz:
And that was it.
Ryan Goodman:
And the fact is life is not going to wait for everyone or anyone. Things are going to happen. The only real question is are you prepared for when it does?
Barb Paluszkiewicz:
That’s exactly it. And what I learned from that moving forward, the biggest challenge was is I had to cancel speaking engagements. So as the CEO, the primary sales person, that’s one-to-many selling. None of my techs were getting up on stage in front of an audience of a couple of hundred people and they’re going to read PowerPoint slides. They weren’t doing that at all. And once you start getting into that speaking role, it’s very challenging to … I shouldn’t say it’s challenging, it pisses a lot of people off if you gotta cancel.
Ryan Goodman:
Right.
Barb Paluszkiewicz:
Because they’re expecting you and essentially-
Ryan Goodman:
Plans.
Barb Paluszkiewicz:
That’s exactly it. Where do you find a speaker on short notice? That’s how I got all my gigs. “I’m available. I’m here. If something happens, by all means, I’m ready to go. Just call and I’ll be there within the hour.” So that’s just like, okay, the shining light is I’m paying it forward for someone else, but it hurts. So with that in mind, I was like, “You know what? I think I gotta do more webinars because at least those could be pre recorded and go.” And that’s how kids are learning these days. There’s not, even when you go to schools and things like that, there’s a lecture happening, but it’s all done through a screen. And when I’m buying things from my vendors, that’s how things are being done these days. It’s all being done by looking through a screen. I was just like, okay, I need to get some of these webinars that sell underneath my belt and get that automated process come into play. So I am fully onboard and in tune with the whole automation process. I know that everyone talks about the automation process with techs and tickets and balancing and things like that. And that’s all fine and wonderful, and we have that too. I think that what separates us is the fact that we’ve automated our sales process, which is what I love because it keeps the techs safe and secure. And everybody knows that it’s going to be okay if there isn’t a bum in the seat.
Ryan Goodman:
That’s beautiful.
Barb Paluszkiewicz:
Thank you.
Ryan Goodman:
Great advice. Love that. So to shift gears, if you could talk to your younger self, seeing all that you’ve accomplished today in the tech space basement to success, what wisdom would you impart upon your younger self?
Barb Paluszkiewicz:
You know what? I would have to repeat the mantra my mother and my grandmother gave me over and over again. And I am so thankful that neither of them are around to hear me say it. And that is don’t worry about what everyone else thinks or is doing, just worry about yourself. And it took me a while to realize that that was all about getting rid of distractions and being focused and staying in the zone.
Ryan Goodman:
That’s awesome.
Barb Paluszkiewicz:
Thanks.
Ryan Goodman:
How about a lasting message? If there’s one point to peers listening to this podcast, now this is going to be really tough. I’m pondering this question myself as I’m about to ask it. I’m like, oh man, there are so many great tidbits throughout this conversation, but what’s the one message you really want to drive home to any of your peers?
Barb Paluszkiewicz:
Figure out what you’re good at and be the best you could be. And then once you figure that out, figure out the best possible actions to get you there. Like what are you trying to do? What’s stopping you? And what’s the problem? Keep moving and keep going forward.
Ryan Goodman:
Man, what a pleasure. Thank you so much for joining us today. And again, thanks for your time. I had a blast. I love the relaxed conversation. I truly, truly appreciate that.
Barb Paluszkiewicz:
Oh, it was my pleasure. I had a lot of fun too. You’re doing great.
Ryan Goodman:
Well, I appreciate you. Thank you so much for the time.
Barb Paluszkiewicz:
Thank you.Ryan Goodman: Welcome to the Confessions of an IT Business Owner Podcast where we believe that healthy cashflow is critical for your IT business, automation is paramount, and building trust with your clients by looking professional will help grow your business. I’m your host, Ryan Goodman, and today, we’re going to venture into a new territory. You’ll learn about some profound struggles related to owning and growing an IT business from the perspective of a peer group, and how Dennis O’Connell, Vice President of Taylor Business Group, helps their members overcome those challenges. Dennis O’Connell: I don’t think my business is ready for a peer group. Well, it’s actually the peer group helps your business get ready, right? You don’t have to get your business ready for the peer group. Just come as you are. Ryan Goodman: Here’s the podcast with Dennis. Ryan Goodman: Well, Dennis, thanks for joining us on the call and on the interview and on the podcast today. Appreciate you taking the time out to chat with us over here at ConnectBooster. Dennis O’Connell: Oh, you’re quite welcome. I’m a good talker, so I love doing this type of stuff. Ryan Goodman: You’re going to keep me busy. Dennis O’Connell: Well, it’s inherent, right? If you have sales in your genes, even if it’s part of them, you have to be able to carry on a conversation. Ryan Goodman: Absolutely. So, Dennis, and to give everyone listening here today just a little bit of background, Dennis is with the Taylor Business Group. And we’re gonna be doing a series with peer groups inside of the channel and inside of the community. And so, to kick things off, I’d love to have you tell us a little bit about your community and also where our listeners can find you online, whether that’s web or social media? Dennis O’Connell: So, you can find us online at www.taylorbusinessgroup.com and then, we also are on LinkedIn. Ryan Goodman: Awesome. Dennis O’Connell: A little bit about our peer groups, we started in 2001 and have been running peer groups since then. We run peer groups for owners, for service managers, and for COOs. We find that there’s a need for all those. Our peer groups are typically made up of 10 to 12 businesses who are not competitors, so there’s no geographic overlap for them. Ryan Goodman: Sure. Dennis O’Connell: We found that that’s important because if we’re going to share financials and share what’s going good and bad, we don’t want to be doing that with the person down the street. Our peer groups typically meet two or three times a year. They move around the United States and typically meet near one of our members, so a member is a host most times. Ryan Goodman: Sure. Dennis O’Connell: In between the peer group meetings, we have a conference call in the other months. We find that that’s important for accountability and for ensuring that the goals that are set … We use SMART goals, SMART being strategic, measurable, attainable, relevant, and time-bound. Ryan Goodman: Okay. Dennis O’Connell: And so, we want to have the accountability of, “Hey, you’re going to set your SMART goals every quarter. How’re you doing? Do you have any challenges?” And so, that’s what the calls are typically about. A peer group meeting is typically a day and a half or two days. We start off … We have a heavy focus on financials and so, the morning of the first day is typically a review of the financials. We have a proprietary financial reporting and modeling tool called Roadmap to Profitability, which we’ve been using for over 10 years. It is part of the peer groups. That’s also a standalone tool that you can use with us. But what it does is it allows the import of the P&L and the balance sheet on a monthly basis into the tool and then, when you go to the peer group, we create charts for a little bit over 30 key performance indicators. Ryan Goodman: Sure. Dennis O’Connell: Stuff like net operating income, service profitability, service agreement profitability, those types of things. And in that chart, we compare them to each other, the people in the peer group, but we also have two sets of benchmarks. So, the first set of benchmarks is an average benchmark that we have coming across for all of our members. And then, the second one is what we call the profit masters and that’s the top quartile. Ryan Goodman: Okay. Dennis O’Connell: So, as an example of the differences between those, net operating income or profitability for our base, our target is 10.67%. For our profit masters, it’s just a little bit over 21%. Ryan Goodman: Okay. Dennis O’Connell: So, the objective is, hey, let’s meet the regular benchmarks and then, when you start exceeding them, we have another set that you can target against and then, consider yourself one of the best. Ryan Goodman: So, that’s really interesting, that two-tier piece, and I’m interested … Let’s say a prospective member is looking at you guys. You’re having some early conversations. There must be two different situations in my mind, a few different situations I guess as they’re engaging with you guys and you’re talking through this process. So, I mean are a lot of these guys when they first talk to you, are they new in business, or are they looking to improve operations, sales, or have they hit a wall? And then, you’re taking them through, “Okay, let’s get you to healthy and then let’s taking you to rocket fuel after that.” I mean what’s the typical initial conversation with these guys when they start engaging with you? Dennis O’Connell: The typical initial conversation is that they’ve been in business for five or 10 years. They have gone to shows like DattoCon or Continuum Navigate or IT Nation or ASCII, whatever it was. And they’ve talked with people and they have some really good conversation and it’s over dinner or adult beverages and then, they realize that, hey, it doesn’t get to the depth that they want. They’ll also run into one of our members and the member will say something about “Hey, I’ve been doing this for a while and it really changed my life.” Dennis O’Connell: And so, we’ll start to have those conversations and that’s typically when they’ve hit some type of ceiling, right? They have been at the sales volume for two years and they can’t figure out how to grow sales or they’re struggling with hiring a sales person or they’re struggling with their management team. It can be a bunch of different ceilings that they’re hitting, but the advantage of coming into the peer group is that they get to share with people who are typically their size who have been through that. Dennis O’Connell: What I tell people when I’m talking to them is that you do things well and you struggle with other things. And the things that you struggle with, there’s at least one other person in your peer group that’s doing it well. And then on the flip side, the things that you’re doing well, there’s at least one other person in the peer group who’s struggling with that and you can be a support to them. I always use the adage that a rising tide will lift all ships. And so, the purpose of the peer groups is we’re all going to help each other and we’re all going to get better. Dennis O’Connell: So, that’s the initial conversation that I have. I would tell you that the biggest challenge I have is not that they go to a different peer group, it’s that they choose to do nothing, right? Ryan Goodman: Sure. Dennis O’Connell: That’s my biggest competitor is nothing. They’ll feel like they don’t have enough time and really, it’s counterintuitive, a peer group, you invest some time into it, but it really does save you time because a lot of the things that you would need to do on your own, you can ask your group for. Dennis O’Connell: A second one is I don’t think my business is ready for a peer group. Well, it’s actually the peer group helps your business get ready, right? You don’t have to get your business ready for the peer group. Just come as you are- Ryan Goodman: Right. Dennis O’Connell: … and we will help you get better. Dennis O’Connell: Then a third one and it’s very uncommon, but there’s still a few people that the cost and we’re not that expensive. None of the peer groups that I’m aware of are that expensive. What we tell people is that we will help increase your bottom line over the first two years by 4 percentage points. Historically, we’ve done that. It doesn’t seem like much, but if you’re a million dollar business, that’s $40,000 to the bottom line. Ryan Goodman: Right. Dennis O’Connell: And that’s a 10 time ROI for us, right, so that’s not one of our problems. Ryan Goodman: The value proposition I think is very, very clearly defined, the rising tide helps all ships rise, I think that just really encompasses two heads are better than one, 10 heads are better than one. Dennis O’Connell: Yeah. Ryan Goodman: Don’t walk through the swamp if you don’t have to- Dennis O’Connell: Yeah. Ryan Goodman: … type of a scenario. When a new member comes into a group, what can they expect? What does that first 90 days look like for them? Dennis O’Connell: For us, it’s a few things. The very first thing we get them doing is uploading their financials into the Roadmap to Profitability building. So, what we do is we have a person on staff. We work with them to map their chart of accounts into our standardized chart of accounts. And then we upload their first months’ P&L and balance sheet and we make sure that everything balances between what we uploaded and what they’ve provided us. Then we work with them to upload the rest of their financials. Dennis O’Connell: Our tool will provide 24-month trending and so, if they want to go back and load up 24 months’ worth of data, they can get instant trending. We really do encourage people, if somebody were to start today, I would encourage them to go back and load their financials from the beginning of 2017 so 18 months’ worth. Ryan Goodman: Sure. Dennis O’Connell: It gives them great historical perspective on where they’re going. Dennis O’Connell: Next thing we do is I typically do a one-on-one onboarding call. It’s about three hours where we go through what our culture is, what they can expect. I actually do a demo of the Roadmap to Profitability so they can see what it is and get an idea of what they need to do. We’ll talk a lot, our chart of accounts. We’ll talk about what a meeting looks like so that they’re prepared and they know what they should be expecting. We talk about … Dennis O’Connell: One of the facilitators that I knew, he always said that if you came to a peer group meeting and you left without having at least one uncomfortable moment, it wasn’t a very successful peer group meeting, right? Ryan Goodman: I think that’s like going to the gym and if you don’t sweat, you didn’t get any value. Dennis O’Connell: Exactly, but that uncomfortable moment doesn’t have to be on you. It could be where somebody asked you a hard question, right? It can also be where you ask somebody else the hard question. Ryan Goodman: Sure. Dennis O’Connell: Everybody’s dancing around, they’re talking, but nobody’s willing to ask me, “Hey, Dennis, are you paying yourself?” And it’s like, “No, I haven’t paid myself in three months.” Well, that was the hard question, that was the awkward moment because once we get to that point now, the dam is broken and now I’m going to be very open. And that’s kind of a watershed moment for a lot of our members when they have something like that and the group dynamics will change because everybody’s now wearing their heart on their sleeve as opposed to trying to keep it hidden behind a cloak and then- Ryan Goodman: Right. You could start fixing. Dennis O’Connell: Yeah. Then the other part of getting on board it is introduction to the facilitator, getting them scheduled for their first meeting and for their first call. Ryan Goodman: When you guys, you bring the numbers in, you run them through your tool, you get a picture of the business, you start to set goals. Are you guys finding that is the approach usually cost cutting, operational efficiency, increasing in sales? What are some of the primary objectives that you guys are driving to then work on the business to start hitting those standardized KPIs? Dennis O’Connell: Within managed service providers, the place that you’re making your profitability is on the service side of the organization. What we have found from the numbers that people put in, most people lose money on products, right? If you’re selling something at a 17% markup, you’re still losing money because there’s administrative overhead and sales overhead and when you add that all in, you lose money on every dollar you sell. So, you have to be- Ryan Goodman: That’s very interesting. Dennis O’Connell: Yeah. So, you have to be very focused on the services side. And so, what we find is that a lot of the numbers will point to areas on the services side and where they’re not being as efficient or profitable as they could be. Most business owners will spend the first year internally focused looking at how to become more operationally efficient, how to drive those numbers up. And then year 2, they start looking at, “Okay, now that I understand the numbers, I understand what they mean to my business, I understand how to manipulate them so that I’m driving the right solution for my business.” Year 2, they start looking at, “Okay, now how do I become better? How do I grow? How do I drive growth and get to where I want to be?” So, it’s really like the first year is more understanding and inward focused and then, we start moving outward a little bit. Ryan Goodman: How about what member success stories? Is there anything that can be shared? Dennis O’Connell: I can share some member success stories. We had one member who fairly new to Taylor and was struggling with how to acquire somebody. So, in other words, he had two of his competitors come up to him almost simultaneously and say, “I’m ready to get out of the business. Can I give you my customers because I know you will treat them well?” Dennis O’Connell: And so, having no experience around doing that, he was able to reach out to his group and say, “Hey, this is what’s happening. What should I do? Should I as an asset sale or do I just take on the clients? How do I pay the guy? The one guy wants to come work for me for a while. He’s tired of running the business, but he’s a really good engineer. He just doesn’t want to … What’s your experience?” There were people who were able to share that experience with him. Dennis O’Connell: Coming through that, he had his own things that worked well and didn’t work well. Kind of funny, about two months ago, one of the people in his peer group who was even newer than him and hadn’t been part of his original discussion asked the same question and now, he’s an expert. Ryan Goodman: Right. Yeah. Dennis O’Connell: There’s that. Dennis O’Connell: We had one member came into a peer group meeting and goes, “Three weeks ago, I laid off one of my engineers. A little back story on the engineer, he worked for me for about eight months. WE always struggled with him.” He goes, “And so when we let him go, we typically take an engineer’s laptop and we just wipe it clean and start again. We give it to the next engineer who comes along.” He goes, “This one, we did a little bit of diagnostics on and what we found was he had some of our clients’ information,” their clients’ information, “on his machine and it was personal information.” And he goes, “That was very difficult.” His first call was to his lawyer, then the police, then his insurance person. It has been an ongoing battle, had been an ongoing battle from the time it happened for three weeks until he got this peer group meeting. Dennis O’Connell: And so, the peer groups was two things, one, shell shocked that this happened and really wanted to understand and learn what was going on. So, they changed the whole agenda of their meeting, right, so that they could spend almost an hour or two unloading on other people, right, “This is what I’ve done.” For him, it was a way to get a burden off his shoulder that he couldn’t share with other people that he knew these people were … He’d been in this peer group for four or five years, so These were his friends. These are his compatriots. They’ve been through a lot together and he knew that he could trust them with this story. Ryan Goodman: Right. Dennis O’Connell: Then they provided advice back, but then they became a place for him as he left the peer group meeting, they all said, “Hey, if you need somebody to talk to, we’re here.” Ryan Goodman: That’s powerful. Dennis O’Connell: Yeah. There’s all kinds of stories like that, but those are really two areas that kind of further out than most people would think a peer group would help you with, right? Ryan Goodman: Right. Dennis O’Connell: But here they were. Ryan Goodman: What I’m picking up on is the numbers are important and there’s lots of metrics to be judged by and will help you define success through those KPIs, but running a business is also hard. It’s also an emotional thing, right? Dennis O’Connell: Yeah. Ryan Goodman: It’s also lonely at the top and it’s providing a place for people to work through those things that inevitably as an entrepreneur, you’re going to run into. How else do you deal with it ’cause not a lot of people are going to understand, not many people will understand what you’re dealing with? Dennis O’Connell: Well, even if you are in a local peer group where there’s one IT person and one banker and one lawyer, they get some of it, but they don’t understand truly what you’re going through. Sometimes, I always jokingly said that you could really have a good conversation with a banker. As soon as you start talking about RMM this and back up and all that kind of good stuff, you need to hold onto his shoulders ’cause his eyes start to roll in the back and say he’s going to fall over and hurt himself if he’s not careful. Dennis O’Connell: The same is true for him. When the banker starts talking to you about derivatives and interest rates and all that kind of stuff, you don’t have that same depth of knowledge. And so, the peer group there is to provide that depth of knowledge and the things that are unique to the managed services business. Ryan Goodman: So, I’m going to shift gears on you a little bit. You talked a little bit about merger and acquisition. It’s something that’s come up in a lot of our podcast episodes. If an MSP’s goal is to have his or her company be acquired down the line whether that’s six months, a year, five years down the road, what are the metrics that they should focus on to improve their valuation and also influence those prospective buyer’s decisions? Dennis O’Connell: The metrics that most people look at are top line revenue, net operating income or EBITDA, earnings before interest, depreciation, taxes and amortization. Then size matters. A $2 million MSP will have a lower multiple than a $20 million MSP. Clean books, that’s one of the nice things about our Roadmap to Profitability tool is it allows you to understand and have clean books. Ryan Goodman: Sure. Dennis O’Connell: So, that when somebody comes into acquire you and you can present your books clean, they have a different view of you when somebody comes in and looks at it and says, “What are you doing?” You go, “Oh, yeah, I just use an napkin,” right. It’s like going on an interview. If I come in in torn blue jeans and tennis shoes versus I come in in a suit and tie, you will have a different perspective of me just based on the first visual. The financials are the first visual that people really get to see. Dennis O’Connell: How you allocate money is important. So, we talk about above the line so as the owner, you get a salary, but you also get an earn out, right? If you’re an S corp, everything goes to you at the end of the year, but where are you allocating that? So, you need to understand what should be above the line and what should be below the line so that when you go to sell it, there’s not a lot of write-downs, right? So, if I’m paying myself $250,000 and my real salary should be 125, you get hit on the 125. So, it’s about making sure that you have a good understanding of where you’re going. Dennis O’Connell: So, I’m not a merger and acquisitions specialist, but those are the things that are really relevant is top line revenue, profitability, monthly recurring revenue, and then another one is are you the sales engine? As the business owner, if you’re the sales engine and you want out, then the sales goes away. So, it’s important to have an independent sales organization that can stay around and continue to drive the growth that you were showing. Ryan Goodman: That’s a really good point and I don’t know if that’s something that’s thought about a lot is I find in our line of work that a lot of MSPs do struggle in that sales engine area where a lot of the business comes in through referrals and through relationship sales, but there’s not a separate sales engine that is turned on whether that business owner is there or not, it’s still operating. So, it’s really unique that you bring that up and also something that MSPs and IT service providers need to be thinking about to make all of those years of work culminate to the best exit possible. Dennis O’Connell: Yeah. And one of the things that we all have to realize is we will all exit our business. Ryan Goodman: Right. Dennis O’Connell: None of us are going to live to be a million years old, right, so there is a time when we all exit. One of the things that I preach is that you should run your business as if you’re going to sell it tomorrow and if you do that and you run your organization properly and you do your financials properly and you create that sales engine, no matter when the time is right, you will be able to exit. Ryan Goodman: Are you finding challenges inside of the peer group with that mindset because some of it can just be so counter to what … at least from my perspective and I have a pretty narrow scope as well, but is that a big hurdle inside of those peer group meetings? Dennis O’Connell: That doesn’t get discussed much, but there’s a lot of people that I talk to that I say, “Hey,” I’ll run into our members at different events and we’ll get to talking about that and they go, “Well, I’m not ready to sell. I’m looking to run my business for another 20 years.” Well, that’s great, but what happens if you have a stroke? Ryan Goodman: Right, life circumstances change, yeah. Dennis O’Connell: Right? Yeah. Ryan Goodman: That’s a pretty personal one with your crew. Dennis O’Connell: Yeah, that is and so, you just never know, right. So, you need to run your business like you need to sell it tomorrow and if you want to stay in it for 20 years, that’s awesome, right, but if you’re running it like you’re ready to sell it, you will make different decisions along the way that will keep your business more profitable ’cause there are lots of places over the course of 10 or 15, 20 years where there’s decisions that come up that you can go down the A path, the B path or the C path, but if you’re looking to say, “Hey, I’m going to run my business like I’m going to sell it tomorrow,” one of those is the better path. And so, you could make different decisions along the way if you’re living with that motto. Ryan Goodman: Well, I think that was gold there. That’s some great advice, Dennis. Dennis O’Connell: Thanks. Ryan Goodman: In wrapping up, it’s hard to top that. I don’t even want to ask you any other questions. I don’t want to screw that up. There’s no better direction I can take this at this point, man. I’m like we need to stop ’cause that was really good. Is there anything else you’d like to leave our listeners with today? Dennis O’Connell: I’ll leave them with one thing, join a peer group and I don’t care whether it’s mine or whether it’s the others that’ll be part of this podcast, but join a peer group. The best … If you go to a conference and you look around and go, “Man, I’d like to be like this guy or I’d like to be like that guy,” you’ll find in 90% of those guys are in peer groups and so, I don’t care. I’d love to have you in Taylor Business Group. I’d think we will treat you well and you would do well, but if it’s not Taylor Business Group, you need to be in a peer group. Ryan Goodman: Dennis, that was awesome, just chock-full of value. Dennis O’Connell: Well, thanks. Ryan Goodman: Again, I want to thank you, Dennis and Taylor Business Group as an entity for joining us today and spending the time. And I love doing this because I just pick up so much stuff myself. I don’t know if it’s adding value to the community. I’m selfish where I feel like man, I’m getting all the value out of doing this. That was awesome though. Yeah, that was really good. Dennis O’Connell: Ryan, I’m glad I could be here for you. I enjoy doing this so anytime you want somebody to talk, just let me know. Ryan Goodman: Thanks again for joining us today on the Confessions of an IT Business Owner Podcast where we believe that healthy cashflow is critical for your IT business, automation is paramount, and building trust with your clients by looking professional will help you grow your business. Ryan Goodman: A special thanks again to Dennis O’Connell from Taylor Business Group. Taylor Business Group can be found online at www.taylorbusinessgroup.com and also on LinkedIn. And to download the full podcast or listen to some of our previous episodes online, check us out at connectbooster.com/podcast. Ryan Goodman: Thanks again for joining us today on the Confessions of an IT Business Owner Podcast. We’ll talk to you soon. Read Transcript
Ryan Goodman: Welcome to The Confessions of an IT Business Owner Podcast, where we believe that healthy cash flow is critical for your IT business, automation is paramount, and building trust with your clients by looking professional will help grow your business. I’m your host, Ryan Goodman, and today you’ll learn about some profound struggles related to owning and growing an IT business, and how Scott Wittstock, from Fidelis Inc., overcame them. Scott Wittstock: Remember, your service is worth something. Don’t undervalue yourself by giving away free or gimmicky things. The free network assessment seems like a good idea, but is it really? That’s a lot of work. Ryan Goodman: Here’s the podcast with Scott. Ryan Goodman: Well, Scott, welcome to the call. Thanks for joining us on our podcast here today. I have a whole list of questions for you, so I hope you’re ready for the interrogation. Again, thanks for joining us. To get the basics out of the way, why don’t you give us your business name, and where people can find the business, and you, online. Scott Wittstock: Thanks for having me. The business is Fidelis, Inc., and that comes from Semper Fidelis, from my Marine Corps roots. You can find us on fidelisnw.com. Ryan Goodman: Awesome. Now, as I did … I did a little bit of research on your company, as I always do before I jump into these interviews, and you have a whole bunch of interesting things that I found about your business. I always have this stack of questions that I use to uncover and learn things about the individuals that I’m talking to, but just in your intro, you made a reference as a Marine, and your business name tying back to your military service. I’d love, first of all, to thank you for your service to all of us, and all of us listening, but also that’s obviously had an impact on your business, and I’d love to learn how the military service … Did it get you started in technology or is there a tie-in there, or did you trip upon this business by accident? Scott Wittstock: It did not get me started. It started in high school. I worked for a neighbor’s company, started out in the warehouse of a telecom company. That was starting around 15. I’ve always been a serial entrepreneurial person. I’m always tracking money, trying to figure out how to make more. I think it’s always been the chase that’s been exciting. I went through the steps of understanding what they were doing. It was really interesting. The next year, next summer, I worked for them again, starting pulling cable. Scott Wittstock: Shortly after that, I realized I didn’t want to go straight to a college. The plan was always to go to college after serving the country. I wanted to be really challenged, come from some deep sports wrestling roots, and things like that. I really loved the physical aspect of what the Marine Corps was going to bring to the table. I then added in, I wanted to do some level of communications. As a young punk, I didn’t really know what that meant, when signing up for the Marine Corps. That could be the guy that yells and screams at others. That could be the guy that communicates, “Your order’s up.” It’s a very general term. Scott Wittstock: Through a series of events and trainings and other opportunities, I ended up in, started off, as a field radio operator. I finished top of my class, and they had a couple slots for the next level, so then I went to a multichannel equipment radio operator, dealt with microwave signals and basically early days of military PRIs. We were sending data across these [pipes, inaudible 00:04:14]. I did my four years of that and got out, got a job immediately back in the industry in the telecom side, and then it went from there. Ryan Goodman: At what point did you start your business? Scott Wittstock: I started my business officially in 2008. Ryan Goodman: Was that a prompt from dissatisfaction with an existing job, or is that just the natural progression of your serial entrepreneur nature? Scott Wittstock: When I got out of the Marine Corps in the late ’90s, I joined one company that then again became another company, then again got assumed by another company. Ryan Goodman: Right. Scott Wittstock: My position and my job didn’t change, but my business card kept changing. It was right around the last acquisition. We got taken over this time by a bigger, well not bigger, but hostile … It was hostile. Ryan Goodman: Sure. Scott Wittstock: I lasted for about six months before I made up my mind that I’m going to go do something different. I had no idea what that meant at the time. I had contract opportunities left and right, so that’s what I thought I was going to do. Then, somewhere along the line, I became an MSP. Ryan Goodman: Sure, and I think that evolution will resonate with a lot of individuals’ dissatisfaction maybe with their current state. They’re good at what they do. Lots of opportunity thrown at them, and the next thing you know, you have a business on your hands, and now what, right? Scott Wittstock: Yeah, and I’ve had businesses before, always side things. I’ve done everything from flipping homes to, even when I had that other job, I started working on personal computing side of business, home residential stuff, little flyers, things like that, just to make a little extra money, but I don’t know if it was ever really about the money. I think it just fed this constant challenge, and I really enjoyed that. That’s how I got my start. Scott Wittstock: Even though I was telecom, I did large PBX. I didn’t get out of bed for anything that didn’t have a thousand phones. I had unified messaging. I went all the way back to Windows NT, XP. I’ve been through all those evolutions, as we were doing early days of unified messaging. We were doing early days of data backup, tapes, things like that. There was a lot of things just put on us, as telecom professionals. I did more colleges, airlines, hospitals. Those are the customers that came over with my new company. That’s what happened. Ryan Goodman: As those customers rolled into the newly found managed service business, what were some of the surprises that you encountered? Were you taking on more work now for those individual clients, and was some of it unexpected, or was it pretty much the status quo of what you had handled for them previously? Scott Wittstock: I believe most of it was unexpected. Ryan Goodman: Right. Scott Wittstock: One of the surprises I had into the more information technology, the IT side of the world is how I felt it was very undisciplined. A lot of people have a different idea of how to do it versus what I came from, definitely my Marine Corps roots, or definitely how I came from the telecom roots. Telecom’s been around a long time. There’s color codes. The standards are a lot more tight, right? This industry, I saw that one person had an idea, and generally they were a technician. They’d never really ran a sizable project, where they had to do these large deployments and large communications, constant … I’ve always said, and probably back to my Marine Corps roots, “In the fog of war, those that communicate win.” Scott Wittstock: I just went that approach, and one thing led to another, that someday an airline called me and said, “Hey, can you take on this Windows 7 upgrade and run the whole project for us. It started more on a PMing side, I think, as a project management side, and then, before I know it, they have full-time Fidelis employees out on their sites. It just … We have a dedicated service group. It’s something that we offer with our MSP plans. We can have dedicated there 40 hours a week. We have some plans that that’s one day a week, half days, just a pattern. Scott Wittstock: I really like standards, because it really makes it easier. That’s what I think I brought to the table for some of these organizations. You hear, a lot of times, the virtual CIO. I really think we are playing that, but we’re not virtual. We’re actually being contracted to be the CIOs and technicians. There’s different levels. I think it’s become a little cliché or unfair to call everyone a virtual CIO, because what experience does a technician have? It’s really the technology. Does that make them good at writing HR policies and those type of things? I think it’s an unfair term these days that people are using. Ryan Goodman: I hear you, and I think the model is really interesting, how it evolved, and the way that those employees and those resources literally do become even an onsite extension, like you had mentioned, of that business, pushing your clients initiatives forward. Scott Wittstock: Yep. Ryan Goodman: That sounds like a huge win. When you had mentioned that the airline had called up, it started this project management and then evolved into more, I’d really like to build on that. What are some of the other wins that you’ve celebrated inside of the business? Scott Wittstock: You know how everyone says, “What’s your vertical?” Ryan Goodman: Right. Scott Wittstock: Mine is like, “Do you have a project?” Some of my wins have been hospitals. We’ve done everything from large scale cable projects to DAS deployments, distributed antenna system deployments. Sometimes we’re the provider of the equipment and the installer, or sometimes we’re just the project management team. We’ve gotten that. Scott Wittstock: One that we just completed up is the Seattle Monorail. This is a pretty big Seattle icon. It’s one of the only functioning monorails in the country. They weren’t able to take credit cards on either end. They came to us and said, “What’s your solution? Do you have any?” Scott Wittstock: We ended up taking our team and running fiber down the line, an end-to-end solution to help them build it all out, address security, those type of concerns we had. We just wrapped that one up. We have a couple school districts that we help service around the area. It’s just a really interesting mix. Scott Wittstock: Some of our customers are IT customers. Some of them are just a local digital cabling group. Some just are our voice. We do our business telephone systems. Then, our favorite customers are the ones that it’s all three. It really helps us. We’re not all the same technicians, the same planners, the same project managers. It’s really ran as three different entities inside Fidelis. Ryan Goodman: Sure, that makes sense. We’re set up very similar in our structure in our organization, too, so I definitely understand that. Now, how are you acquiring your customers? A couple questions around that: Are you doing anything specific for marketing, because you said you’re not really focused in a vertical? Do you feel like it’s your marketing, or is it a byproduct of the standardization and the model that you’ve created that’s helping attract people to you? Is that word of mouth, or is it being very intentional through outward marketing of your process that’s bringing these deals in for you? Scott Wittstock: Number one, excellent question. I ask myself this very question. It’s like, “How do we keep doing it?” Marketing is … I’ve tried. I’m not great at it. It’s not what I do. What we do is I think we approach it as treat the customer as a human being. The technology is just a tool that they use. You don’t- Ryan Goodman: You’re right. Scott Wittstock: I think it’s just really, honestly, a word of mouth. We do a lot of functions. We’re plugged into the area. We support local fundraising, nonprofits. We attend their events, and always, if they’re a customer, we always try to give back, and those things are helpful to us, but it’s just something we do. I don’t think … It’s not with a motive, and I think that just resonates with all of our clients. Scott Wittstock: I built my entire organization around caring for each other, and I think it just trickles out. I would love to learn how to get my message out there more, but then there’s the reality of, if we get too many clients, can we actually service our excellent clients we already have. If we still have to grow … I want growth. Don’t get me wrong, but I want intelligent growth. I don’t want to have to just throw a bunch of bodies at it, and then not deliver a quality product. I think those are just things … In a nutshell, it’s been word of mouth over the years. It started with one phone call, one connection, one person that knew I could do it or knew one of my team members could do it, and it just keeps on … It’s one giant Fidelis snowball around Seattle right now. Ryan Goodman: That’s awesome, man. Well, keep it rocking. It’s a great answer, and I think everybody’s going to appreciate that insight. I think there’s a lot of ways to skin the cat, so to speak. Ew, that sounded kind of rough, but- Scott Wittstock: I get it, though. No, it’s true. It’s just like any … In this industry, there’s just so many different ways to approach it. It’s fine and not … Most of them are correct. Some of them are just, it’s just an idea. It’s okay to have the ideas, but I think one of the best ways to approach some of these things is just simply know what you don’t know and to go, “I need to hire professionals to be” … I understand how plumbing works. It does not mean I know how to plumb. I get what a roof does, but I’m not going to be up on my roof, roofing it. Scott Wittstock: It’s just like how we use partners like ConnectBooster. I mean, I realize that I’m not good at that. I don’t know how to process a credit card. I don’t know how to process this stuff. I’m not trying to be my [knock, inaudible 00:15:43]. I’m going to contract those services out. It’s just something that started to make sense and, over time, these are things that I started to implement as like, if you can hire it, it’s probably a better deal. Ryan Goodman: Right, and I think what you’ve just described is the difference between a self-employed person and a business entrepreneur that’s working to build systems, right? There can be a big difference between that, and a lot of times people need to cross that threshold if they want, and if that’s inside of what they’re trying to accomplish inside of their building. Being self-employed is a lot different than being a business systems owner and building out the systems as an entrepreneur, and you need to leverage yourself. Obviously, it’s worked well for you guys, that model. Scott Wittstock: Yeah, I definitely feel like it has worked really well. I honestly could step away from my business right now, and my business would run. I’ve been building that since day one. I’m in it because I enjoy it. It’s still really fun. I love the … It’s so great to be in this type of industry that just keeps on changing and growing, changing and growing. It’s fun to be a part of that. I like that. I feed off of that. Ryan Goodman: We’d like to take a quick break to highlight our sponsors and some of the things they’d like to offer our listeners. 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That’s 5stepmarketing.com/audit. Ryan Goodman: Our second sponsor for today’s show is BVoIP. BVoIP is the perfect channel-only offering for your IT firm and MSP business. BVoIP works with businesses around the globe to incorporate cloud communications into your big picture telecom strategy. Their program is built for MSPs, IT firms, and cloud service providers, and BVoIP happens to be the VoIP provider for your friends here at ConnectBooster, and ConnectBooster’s parent company, BNG. Check them out on the web at bvoip.com. Ryan Goodman: Now, back to the show. Ryan Goodman: We have alluded a little bit to business growth. One of the things I noticed, as I was doing a little research, was you’ve made some acquisitions, and M&A is happening like mad in our space right now. Internally, we encounter it all the time, when we have two different partners that use ConnectBooster that are merging up into one, or one gets sold. I’d love to learn just a little bit more about how you’d come across these deals. What was awesome? Also, what was a struggle, and what have you learned through each one of these? Scott Wittstock: We’ve done it three times, officially. There’s been a couple others, just by hiring someone that you kind of acquired their business. What I’ve seen on these is generally it’s when someone wants to step back and just go back to their own roots of, “Hey, I really like the technical end of this,” or, “I really like being the sales guy,” or whatever role, where they realize that, “Hey, I can’t get past this next step. I’ve plateaued.” It’s hard to get past it. You can’t be the only guy that answers the phone. You can’t be the only guy that can do it. Scott Wittstock: Some people struggle getting past that point, so what I’ve realized is they’re out there. When there’s the smaller shops that want health benefits, that want 401(k)s, want company vehicles … Frankly, one of the hardest parts of our industry is all that back office work, the HR components, the billing, the payroll. That’s hard. That’s hard for us. That was what … When you go, “Hey, I’m going to go start a business in IT, because I know it’s a well” … What we all forget is all businesses have that stuff. That is where my learning curves were, and I got past that. Scott Wittstock: I think I find those people that are just … They’ve already partnered with us on other deals, and then they realize, “Hey, this isn’t so bad over here, to join this team and just to go back to my basics of, hey, I get a paycheck, but I have great benefits, and now I get to take some time off. I actually get to build a retirement,” because the problem is, as these business owners go through, they’re going to hit … A lot of these guys, I think, are going to hit 60 and go, “Oh, my gosh, my business really isn’t worth what I thought it was.” Scott Wittstock: That’s what I think they all run into, or could, that it’s just … The value is not what you made on the top line. It’s honestly what’s going to come in the next five years from your … Your bottom line in the next five years is what’s interesting to these acquisitions. I’m getting pinged left and right on it, too. People are trying to acquire us. My response to them is, “Nope, I’m in the buying business, not in the selling business, at this point,” because I’m not done. What am I going to do? I’m 41 years old. I have a lot of time. I don’t know what I would do. I would just start another business, so I’m good. Ryan Goodman: Right. Scott Wittstock: Challenges, number one, I would say, culture is probably your biggest … People being able to let go of being in charge is hard. Ryan Goodman: Sure. Scott Wittstock: I used to be able to just show up and do what I did, charge my credit card how I want, all those things. Those are always the hard parts for the former owners, because they got to do that before. Negotiating the deal is also very challenging, because you have to be the guy to break it to that potential business owner their business isn’t worth as much as they think. That’s hard. That’s a hard conversation to have with someone. I stopped having it, truthfully, and I told them to … I recommend three or four M&A companies and say, “Go get a real estate agent that’s for a bigger business. Get a partner that this is what they do.” It’s like, “Don’t make me decide what your company’s worth. I don’t know. Let me know when you have a price tag on that.” Scott Wittstock: I do shake a lot of them that are interested in doing this, at that point, because there’s a lot of legwork to that, and they realize that it’s generally, “Well, I made $600,000 this year, top line,” but what did you make bottom line, and how much of it is recurring revenue. I mean, if you quit tomorrow, would you still have a business, or were you the business? What am I acquiring here? I’m not buying people. Those are always things that are interesting conversations to have around people. Scott Wittstock: We like to structure our deals around the actual profit a client brings in, because sometimes on paper things look great. That does not mean that company is not going to fold or get purchased themselves. I can tell you that, unfortunately, that clients are lost just simply because some new player got hired, and they have their own idea. I can’t guarantee those prices. That’s how we do it. We structure it based of, “Hey, we’re going to give you a job, and then we’re also going to pay you for everything your recognized organization is going to bring in, and we’re going to bring over your best employees, as well, and anyone you want us to bring on,” because that’s the other thing. I cared so deeply about my employees. If I was going to be acquired, I was going to make sure that I was going to protect them, because I would be nowhere without these people. Does that help? Ryan Goodman: That’s really good insight, not only from a process, but also for people to understand. As they’re building their business, they need to be thinking about exit, and they need to be thinking about what are my sources of revenue? What does my leverage look like? Because without leverage, and without that recurring revenue element, you’re right. There’s not a lot there. If you’re exiting the business, and there’s not an employment opportunity, they’re not buying you, right? I mean, they can’t buy potential future revenue. We’re hoping to have locked in, contract, recurring revenue. Scott Wittstock: Yeah, yeah, and I started working myself … My entire mission has been to work myself out of my own job each level. Right now, I do a lot of the work with our blog and website. I can’t wait to hand those things off, you know? I don’t know what I would do next, but I’ll just move onto the next mission. Throughout the years, I love jumping back in on project management. That’s one I always like getting back to, because it’s just fun. It can really prove your value, and I just will pick the larger projects. Scott Wittstock: I love doing training now. That’s one of my favorite components of what I do, is going and sitting down with … I normally hold … For executives or senior management only, I will hold training for cybersecurity, best practices on things like Outlook and things like that, but I really reserve it to the senior management and decision makers. For me, that’s a practice I like. I’m not saying I’m above any user, but I need to really talk to them about what these things actually look like and, by not putting BitLocker on a computer that, when their car gets stolen … It’s really important for executives to hear their exposure, because what ends up happening is executives in these organizations, yes, with their big fat salaries also comes the responsibility, when that goes south, that you’re the one that’s fired. Scott Wittstock: You can only plead so much ignorance on these type of things. I love getting in front of them and talking in a more business sense, less about the technology and more about the HR policy, the handbook policy, those things. I really like that. I really do. That’s been really fun for me. We try to hold those in our local community events in our city. We try to just stay focused, as close as we can, to the business, just for … It’s better for everyone. We’re right down the road. Scott Wittstock: We hold those, and we try to get people to attend those. The best part I like about it is I’m never really selling them. I’m just really telling them what I believe in. Sometimes it feels maybe sales-y, but it’s not. It’s really like … I’ll talk about password security. “I love LastPass.” I have nothing to do with LastPass, other than I’m a user. It’s just I like those type of things. They’re really exciting, and I’ve always liked that. Scott Wittstock: I’ve always been a coach. I’ve been coaching, for 20 years, a wrestling team. I love coaching. I love building up the wrestlers over the years. I’ve done that in the Marine Corps, too. I just love building not only an organization. I really like building people. I really like elevating people. Ryan Goodman: Well, I think, at least for me, you’ve really helped unlock the key to your success in your business and in life by the way that you’re approaching these things and investing the time into people and process. I think that’s really valuable information here that you’re sharing with all of us. I appreciate that. Ryan Goodman: I am going to shift gears a little bit. If you could talk to your younger self, after seeing what you’ve accomplished, all the successes, struggles, that you’ve been through, what type of wisdom would you try to impart onto your younger self? Scott Wittstock: Not all customers are good customers. You can’t be all things to all people. I really would go back, and I think in a couple scenarios I really should’ve went with my gut. My gut was not wrong, but I didn’t want to let others down, and so eventually I got to the point where I had to make that hiring or firing decision, either a customer or employee, business partner, whatever it was, where my gut, in the early phases of that, was right, and I let it go, go, go, because I thought I could make it work, or in the end I just didn’t want to hurt someone. Scott Wittstock: What I ended up doing instead is hurting everyone else that worked really hard, or us, unfortunately, my wife that has to hear all of my monologues that I go on. Those type of things, the stresses. Really, in the end, we get to the same place anyway. I really wish the whole adage of hire slowly, fire quickly … I wish I would go back and, on a couple of those cases, I probably would not have as much gray hair. Ryan Goodman: Right, easy in theory, tough to practice. Scott Wittstock: Oh, yeah. I’ve done better at it, but then it’s a fine balance, though, too. It’s like you don’t want to become a cold person either. Ryan Goodman: Right. Scott Wittstock: That was definitely some things. Oh, that, and I wish I would’ve started it 10 years earlier. Ryan Goodman: Right. Scott Wittstock: I had the tools and the abilities. I’m sure it happened for a reason. Also, 2008 was an interesting year to choose to start a business. Ryan Goodman: Start up, yeah. Scott Wittstock: I can tell you, we’re really frugal because of it, though. Ryan Goodman: I bet. Scott Wittstock: We’re really careful with money, and I think it’s that you got scared. At least I didn’t have to … Other businesses had to lay off people and deal with things there. I was starting to build a business in that, and if I earned a customer, I tried to keep them, because I didn’t know where our next paycheck was going to come from. That was scary times. We got through it pretty quickly. In 2010, things started really shifting around. Ryan Goodman: That’s awesome. From what I remember right, that also marked the year of one of your first acquisitions. Is that correct? Scott Wittstock: It is, yeah. I would’ve done that one a little differently. That was my first one. That was one that I was already partners with them. I was prepared to just go in there and go, “I’m done. I can’t handle you guys.” Scott Wittstock: I was polite, and they said, “Hey, we want to speak first.” Scott Wittstock: I’m like, “Oh, okay, go for it. What do you need?” Scott Wittstock: “Well, we want you to take us over.” Scott Wittstock: “What?” I was dumbfounded, and that’s what ended up happening. One or two of their employees are still with me to this day and most of their customers. The end result was great. How I handled it … I needed it to learn, though. I would not discredit that. Ryan Goodman: Unfortunately, growth does not come without pain, right? Scott Wittstock: No. Now you see people that win the lottery are broke, right? Something that’s just handed to you … If you do not go through the disciplines of the bumps and bruises, I don’t know if you can really … I don’t know if humans work like that. We can’t just be simply handed … We desire achievement, but I think it’s better to have a pat on the back for the hard work than it is just handed to us. That’s at least what I believe now. Ryan Goodman: Agreed. It’s empty without paying the price. I think that’s encouragement to everybody that’s an entrepreneur listening to this, that maybe isn’t to the point where Scott is at yet. Keep working. Don’t give up. Scott Wittstock: Yeah, definitely. We joke. It’s just, “Open that door. Hard work inside.” I mean, that’s what it does take. We all see those success stories, companies that just grew overnight. In the service industry, can you really do that? I don’t think we can, unless we’re creating a product that just catches on, that’s a viral product or a solution, an inventive side of things that creates something. Scott Wittstock: In the service industry, it’s disciplined. It’s earned. It takes longer to build some traction. Stick to it, anyone that’s doing it. If you like it, there’s plenty of business in all of these regions. Frankly, more people need to be out there helping us. We are going to be overwhelmed with security needs here in the future. Ryan Goodman: Agreed. That trend is blowing up. Scott Wittstock: It’s a trend forced on us. We’re not choosing to be these targets, but it’s there. From small to big, it’s going to need experts to help fix it when it happens and help prevent it. I think it’s more of a team effort here. That’s where this … There’s a level for all of us, and I think everyone should search for their vertical, their niche. Just try to find it. Don’t … If you’re listening to me and then go, “Oh, you can do an airline, and you could do that.” I don’t know. I don’t know if I would tell anyone that they could stumble upon it that way. If you get really good at one thing, stick to that. If it’s one product, one type of customer, just be really good at that. It works. Ryan Goodman: Sure, awesome advice. To wrap things up here, what would be the number one point you want to drive home to other peers that you have listening to the podcast? Scott Wittstock: Remember, your service is worth something. Don’t undervalue yourself by giving away free or gimmicky things. Don’t … The free network assessment seems like a good idea, but is it really? That’s a lot of work. Value your work. An engineer or an architect doesn’t give away the floor plans without someone becoming their client first. I think there’s a fine line between doing something that’s … Understanding that to try to earn a customer, earn the customer. Don’t buy the customer. Scott Wittstock: I think that would be one thing that I wish I would see out there a little bit more, because you run up against these providers that, “Oh, we do this free, free, free, free.” There’s nothing free. We all should know that by now. There’s just simply nothing for free. It is … If we’re going to just run a tool, that’s fine. Call it what it is. Scott Wittstock: That’s something I would recommend is just really search for customers that want to use technology to enhance their business and don’t view it as a burden to their business. Find people that base it off of value, not price. Ryan Goodman: There are lots of businesses out there that know they need help to scale. Scott Wittstock: Yeah, every one of these businesses now have a computer, and every one of them needs help. Whether they believe that or not is a different story. That is something that I … Just don’t undervalue what you can bring to the table. I’m not saying go out there and charge millions of dollars for running a network assessment tool, but I find that’s something … “Well, this company’s going to give a free network assessment.” Scott Wittstock: “Okay, great. What does that mean?” That’s what we’re seeing out there now. Our competition’s a little different than it used to be, even a few years ago. We have … I mean, now if you look at it, every copier company’s an MSP, every telecom company. Even the big players, like CenturyLink and those guys, are offering MSP services. They sell Office 365 now. You’ve got cable companies and every former equipment dealer, or phone system equipment dealer, now says MSP on their website. Scott Wittstock: We have a lot of new competition, as well as a lot of opportunity for everyone, but I hope we’re not going down to a race to zero kind of game, where it’s going to be a commodity, not a value that we’re going to bring to customers. The more people that are out there going, “Hey, we should stop doing this, because our business has a value. Our engineering and our skills have a value” … I think it’s something to be very cautious about. I know it’s hard, as you’re growing your business. You just fight for every scrap you can get, at some point, but I don’t know how to get past that. I think you should just set your sights on getting past that. Ryan Goodman: Right, and I think that’s the point of how you’ve grown the business is, yes, we all have to reach that next level. It’s not easy, and oftentimes there’s not shortcuts, but those are also the opportunities that you’ve looked for in growing your business and acquiring those. You’re ready to embrace the chaos, so just be ready to get through it. Scott Wittstock: Yeah, yeah, I know it’s hard. Like I said at the beginning that wars that are won during the fog of war are those that communicate. Just keep it up. That’s what we try to do. We’d never say we were perfect at anything, but we keep striving to be. Ryan Goodman: Well, Scott, it was awesome having the conversation. Lots of great information and wisdom, and I want to thank you for joining us. Hey, hopefully we can do this again. Maybe we’ll talk about the next acquisition in the future. Scott Wittstock: I would love it. Thank you very much for having me. I really appreciate it. I enjoy every podcast you send out. It’s nice to hear what other people are doing. I enjoy it. Thank you. Ryan Goodman: Before we end today’s episode, we’d like to thank our sponsors, 5 Step Marketing and BVoIP. Don’t forget to take advantage of your free one-hour marketing strategy session with Josh and his team. That link, again, is 5stepmarketing.com/audit. That’s the number 5, 5stepmarketing.com/audit. Check out BVoIP if you’re looking to improve your telecom strategy. You can find BVoIP online at BVoIP.com. Ryan Goodman: Thanks again for joining us today on The Confessions of an IT Business Owner podcast, where we believe that healthy cash flow is critical for your IT business, automation is paramount, and building trust with your clients by looking professional will help grow your business. A special thanks, again, to Scott Wittstock from Fidelis, Inc. Fidelis, Inc. can be found online at www.fidelisnw.com. To download the full podcast or listen to some of our previous episodes online, check us out at connectbooster.com/podcast. Ryan Goodman: Thanks again for joining us today on The Confessions of an IT Business Owner podcast. We’ll talk to you soon.