Episode 11 – Dennis O’Connell – Taylor Business Group

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Episode 11 – Dennis O’Connell – Taylor Business Group

Welcome to the Confessions of an IT Business Owner podcast. In this episode, you’ll learn about some profound struggles related to owning and growing an IT business from the perspective of a Peer Group with Dennis O’Connell, Vice President of taylorbusinessgroup.com.

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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.

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