The journey of a CEO with special guest Dennis O’Connell. We’ll take you through the various stages of building and exiting a business. Learn how to navigate owner changes, personnel changes, sales strategy migration, financial evolution, the process of maturity, and how clients are viewed throughout the process.
Hartland Ross: So welcome to today’s session.
I have the pleasure of introducing you to Dennis O’Connell with Taylor Business Group and Dennis is joining us from Nebraska, right?
Dennis O’Connell: You bet. Omaha.
Hartland: That’s what I thought. So excellent! And I really appreciate you joining us today. Dennis has got a topic here that…we’ve done quite a few sessions now over the last number of months and this is one that is really quite a departure I suppose from some of the other topics that we’ve talked about. So I’m excited to learn from Dennis and our own kind of comments and sharing. So a CEO’s journey from inception to exit and I’ll turn it over to Dennis. He can introduce himself and talk to you a little bit more about Taylor Business Group and then we’ll jump into the session. So thanks Dennis. Take it away.
Dennis: Hartland, hey, thanks for the opportunity to do this webinar with you today. I’m Dennis O’Connell with Taylor Business Group. I’ve been here for just about four years now. I’ve been in the IT business in one form or another since I joined the Air Force and was an Applications Programmer. I did a stint with the Air Force. I worked for a company called Tandem Computers that got bought by Compact Computers that got bought by Hewlett-Packard. So I’ve worked with very large companies and I worked for a very small MSP for a number of years. So I understand we all have been and I’ve essentially been in the MSP channel for about the last nine years. So I enjoy working with small business owners.
I enjoy hearing your story. It’s fun to do that. So this presentation is really a story of the different areas that an MSP owner needs to be. We’ll see as they grow.
So we’ll look at it from inception, you’re a one-person company and now you’re going to go all the way and look at these different areas within your business as you grow and mature.
So you will change, your personnel will change your sales, will change your financial maturity will change, the clients that you’re looking for will change and how you grow will change over time. So we’ll look at each one of those separately. And it’s a lot of fun hopefully and as we go along if you have questions go ahead and type them into the chat.
I think Hartland is going to monitor the chatbox and he’ll interrupt me with questions and we’ll go from there.
So let’s talk a little bit about the owner when you started your business. Most of the people in IT today started their business because they were working for somebody else and they felt “Hey! I can do it better” and so you go off and you start doing it yourself and you start to grow and pretty soon you have a business, right?
The first thing you got to do is you’re successful and you’re going like crazy and you don’t have enough time and then all of a sudden you got to hire somebody and now your world changes, right? So how do you learn to hire people? How do you learn to get the right person to understand the process of hiring?
So you have to do all that type of work to grow and the people that you’re hiring have their own needs and so you need to learn to do that as you’re hiring people eventually you’re going to decide where you hire your first manager and I think the hardest part about hiring managers to learn how to delegate you have to…when you delegate that’s something that’s from the heart and from up here is being able to to do that, showing them how to do it and then they’re going to do it differently than you. As long as they get to the endpoint that’s okay and sometimes they’re going to make mistakes and fail and that’s okay. You can use it as a learning moment and then your job is to coach them along. Don’t hold their hands. Have them always come in and ask you “Hey! I need some help.” Ask that question, “Well, what do you think the right answer is?” and then kind of talk through it from there as you create a management team, do you hire from outside or do you promote within.
That’s a hard decision because a lot of people will take their lead technician and hire him up to be a service manager and that person’s really not good at managing people. He’s a great technician and so, you need to evaluate the people constantly, and then as you hire and you build up your management team, you need to become a real president, a real CEO where you now have your management team that’s running your business and you’ve stepped away.
If you look at how this goes from a sizing perspective you know typically hiring your first manager, you’re 6 to 10 employees because you need the service manager when you start creating your management team, you’re somewhere between 10 and 25 employees and then you becoming a real president is a little later, after that and I think I have that in another slide here.
So let’s talk about the personnel that you have. When you’re small you need uh technicians who are well-rounded right? If you have only one or two technicians you need them to be able to help you, do the BDR type stuff, do security, do RMM, be in the PSA, take calls, all those types of things. So you need somebody who’s very well-rounded and you’re going to need as you grow one two, three, four five, six of those. At some point in time, you have enough of them and you’re managing them. That’s like…we talked about…I was hiring your first service manager and really that’s a key hire. With a good service manager, your employees will be better because the service manager will be able to focus on the services side while you can go over and then start focusing on running the business.
As you grow, you will need to start having specialization within your staff. So you know when you have 10 techs you don’t need them all to be special generalists. You typically have now grown to where maybe you have one or two people that are focused maybe on just doing projects you might have somebody who’s just focused on keeping your tool set up to date. So making sure and applying patches to whatever the toolset went, what could be whether it’s Auto Task or Lion Gard or ID Agent or IT Glue or you know ConnectWise Manage whatever it happens to be you need to have somebody that’s focused on that and what you’ll find is that sometimes the folks that you had at the beginning who are generalists don’t want to be specialists and that’s where that statement is. Maybe the people who got you here are not the people that will get you their means.
So you need to constantly evaluate your business and your employees so that the right person is on the right seat of the bus. A gentleman who I respect very much and I worked for for a number of years who owned his own MSP who grew it from…he was employee no. 5 and you know they were up to 15 million when he left as their president, used to say that every 18 to 24 months he needed to re-envision and re-imagine his business. So he needed to take a look at all his people. He needed to take a look at – Were they the right people? Did the roles change? those types of things and so it was important for him that he had in his mindset that he had to do that regularly and as you grow and as you run your business you probably need to do the same thing.
And even in today’s world even if you’re not growing, you need to reimagine your people because two, three years ago security was a small piece of business and now security is becoming more and more important. And so do you have the right people on your staff to be able to handle today’s challenges?
Hartland: Dennis, a commenter question here. I was just thinking about…recently we have an MSP client and he’s very profitable yet he is basically frankly sort of running around with his head cut off, wearing a lot of hats and very much involved in the business. And so i just wondered and maybe you’re going to get there and if you are I’ll let you keep going but I guess my question is that to the extent that some of these delegation process happens and the owner’s time is freed up and you talked about not working in the last slide was the with the day-to-day operation. So what um what might a CEO be choosing to work on that or what should they be working on that’s more sort of on your business versus in the business and as I say maybe you’ll get there.
Dennis: I’ll get there but I’ll answer your question now. As you grow, the owner really needs to be the catalyst for growth. So that means that they need to be the catalyst for sales and how do you create a sales engine and that’s really the next slide here.
They will spend more time driving growth, driving efficiencies, holding their employees accountable, working on and creating the strategy, the vision to move forward where they want to go, evaluating the landscape. So as a business owner, especially in IT, even if you had your head in the sand you would know that security has become important right? So you need to go back and say, “Okay, now what does that mean to my business? What does it mean to my clients? What does that mean to the agreements that I have in place? What does it mean to…what’s on my website right?” You know so much. I’ve read where there was a ransomware attack and you know one of the people sued him because on his website he had “We have your security needs covered”, right? And he didn’t have security needs, the government he wanted to go back to his agreement and the agreement said in so many words “We have your security needs covered”. And so you need to start being very specific. I mean it’s just something very minor Hartland, having that on your Website. Well, people believe it, right? But then you go “Well…”
In today’s world, you should know a, b and c from “I should have sold you a, b, c”… well you didn’t tell me that” or “You have it I just assume because I see that, so I don’t know what your thoughts are there.
Hartland: Yeah, well look that’s a that’s a really interesting point and I think that’s something that we need to be mindful of as well, of course in terms of writing content for a lot of the client projects that we work on but there’s this this discussion that I’ve had many times where at least as it pertains to security and and frankly I expose other things like backup as well, where there’s a discussion of of “Hey, the MSP has the capability of providing those services.” That doesn’t necessarily mean that the customer has taken advantage of those services or taken advantage of those services to the extent that they need to be sort of fully protected. If you like whether it be as they say, backup or security or other instances. So that’s an interesting point and of course, then it becomes incumbent upon the MSP to demonstrate that “No, we actually brought this up to you” and we had the discussion and you declined, that level of service or those recommendations. So that’s a very interesting point.
Dennis: Yeah, so those are the types of things that as you start working on your business versus in your business you need to think about. Again that was just one example. There are many more. So hopefully that answers your question. And I’ll probably touch on it in another place as we move along.
So flipping back to the presentation we’re talking about sales, what changes as you move along in sales, right?
Most owners don’t realize that they are the salesperson for the company. They get to a million and a half, two million dollars and they’ve just done it naturally right? It’s people who refer to them, they have an air and a presence about themselves that when they go in they talk to a client, the client goes, “I believe you”. They’re selling naturally but at some point in time, there’s not enough time for the sale, for the owner to be in the business and selling, right?
As you probably know Hartland as you’ve grown your business. When it’s just you, there’s lots of time to sell and then you know you’re fixing things at some point in time, you’ve grown big enough that there’s enough fixing things to keep you busy all the time. So the sales stagnate.
And so that’s when we talk about creating a sales engine you have to figure out how to keep the back engine going and answering the questions and the automation all that while you continue to grow and if you’re over on this side of the business. You can’t be over on this side of the business because there’s only so much time. So that’s when we talk about hiring sales help, right? Getting somebody to help with the marketing right? I am and have been doing sales for over 20 years but I’m not a marketing person, right? I know when I see good marketing and you know I can have a conversation with you, Hartland, and talk about what I like and what I think I want but still it takes somebody with that mentality to help.
I’ve done cold calling. I just don’t like it but I do it, right? [Laughs] And if you ask most donors they would highlight that and read like “I don’t want that” but you know the other way to help with sales is through client account managers, or other people use other names. I’ve heard them be called VCIOs, technical account managers but whatever you call it this is the person who manages your existing clients and allows you how to sell to move forward and continue to sell and bring in new clients. There are the people who do your QBRS, they’re the people who you put a quota on to sell additional projects to, maybe they’re just doing your basic plan for IT support while if you guys, if your company also sells a voice over IP solution, you want to try to introduce them to that and so how do you grow you know the objective of the client account manager is to take an existing client and increase their revenue to you? So they’re often helping to grow your base while you’re over here being able to grow and add clients and as you do that and as you bring in other people to help with, you have to take and create processes.
And we as owners in the IT space have created processes on the service side. When we install a server, we do it the same way, whether it’s a physical server or it’s in the Cloud. When we do a desktop we have a standard image we put on it. In the sales world most owners do it intrinsically, right? They go out, they sell, and there’s no real process to it. So when they go hire somebody, they say “go, sell” these people don’t have the checklist to follow. So they need to work through that. You also need to learn to be a sales manager. So how do you manage these people? They think differently than engineers, right? So you need to think and understand and go that way. You need to invest your time in there and all this process will create that sales engine
Hartland: And I think Dennis I mean this is a good point I’ve heard time and time again about groups that have hired salespeople and are frustrated because six months later there’s nothing to be really shown for the efforts and the salary that they’ve paid you know to that point and so they end up terminating a relationship and you know that’s a common structure and the question of course is well, it’s not my job to get into it but I certainly wonder “what support that person was given?” So is there a process around their sales efforts, right? Because certainly if you’re having success and if you’ve had success as an owner to try to replicate that and put a process around it so that you can share that with whoever you hire but obviously there are groups like yourself and general outside of MSP space, groups that are provide sales training and whatnot but to have a process around that I think is key to have them win, right?
Dennis: Yep, very much so. And a lot of people when they hire whether it’s an inside salesperson that’s doing the calling or a client account manager or somebody who’s going to go out and look for new clients, they’ll hire them and say “Go, sell”, right? And you know in reality you as the owner need to invest up to 50% of your time in working with them to teach them your way and lots of times need to provide the pipeline, right? And the pipeline then brings back into the marketing piece of “I’m hiring a salesperson” and say “Go, sell”. “Well, who do you want me to sell to?”
Hartland: I was just going to say there’s very much of a difference between the internal or inside sales kind of mindset and the hustler that’s generating leads. So absolutely critical piece and we’re on the other side of the fence here providing leads but not deciding who gets those leads and you know how they’re divvied up and how many and is it keeping the sales team busy and whatnot. But I mean these are important drivers because I think it’s a huge expectation mismatched, there is often the case where the understanding that the salesperson is going to be handed leads by the house and yet the house is really not doing a whole lot to help the salesperson succeed and they’re kind of left to cold call and fend for themselves and with that in conjunction with a lack of process, they fail.
Dennis: Yeah. The other thing that…you know I’ve worked with a couple of larger MSPs and I’ll say they’ve got two or three outside salespeople so you know they’re up in the 40-50 employee size and their experience has been when they hire a salesperson, it takes them 12 to 18 months to be fully engaged in and really covering and meeting the objectives that the company wants. So they’ll keep them on…it’s like the first three months you don’t expect anything because they’re understanding who you are. There are lots of times you’re not hiring somebody who’s in the IT space. So it takes some time to time to ramp up. You as an owner can realize fairly quickly whether that salesperson is going to be successful if he has the right mentality but lots of times it takes longer for them. Then the owner believes it’s not like a technician who you bring in and you expect them to be functional in 30 days, 2 weeks, something like that.
Hartland: and we see this you know similarly from a marketing perspective we see this on the other side where there’s a campaign of one sort. I mean SEO is probably the easiest and most common example where someone wants to invest in their organic search and then has unrealistic expectations in terms of what’s involved and then sort of aborts the process maybe 3 months, maybe 6 months down the road and really it probably didn’t make sense to start in the first place. So similarly why are you going to go through the process of hiring someone training them and then sort of letting them go before you can actually reap the benefits or the fruits of those efforts?
Dennis: Yeah. I worked for an MSP and one of the first things after I was hired, the owner comes up and goes “Hey, glad to have you on board. Just to let you know I hate salespeople. Go, be successful!” [Laughs] And I was like “Oh okay”. As I was there longer I said, “So why do you hate salespeople?” He said, “I don’t know. They come, they go. I like you but in general I hate salespeople.”
Hartland: Well, I mean this speaks to a bigger issue right, of support from above and chances are that and we see it whether it’s marketing frankly or sales that it’s kind of a little bit oil and water with a lot of MSP owners who oftentimes are more sort of technical and may not like the “sold to” but at the same time, this is going to be crucial for the success of their business. And whether they like salespeople or not, it’s going to be critical and they need to wrap their head around that and support these people. It’s in their own vested interests.
Dennis: Yep, and that’s where the owner needs to learn to be a sales manager. He needs to at least think like them and be able to manage them
Harland: …or hire somebody, I mean if you can get to that point.
Dennis: But yeah making the next step, talking about financial evolution of a business as it grows.
Most business owners start from a financial perspective of just cash. They may or may not have a chart of accounts that makes sense and at the end of every month, they know they’re doing well when they still have money in the checking account, right? And you know eventually, that’s the maturity, you move to a standardized chart of accounts within that and this has an MSP focus and we have one and we’re willing to share with anybody at no cost. And you’re welcome to reach out to me and I’ll share with you.
Hartland: That’d be great, Dennis. We can accompany the presentation deck with that potential.
Dennis: Okay. I’ll send it over to you and as part of the standardized chart of accounts we also have a column next to a particular line item that says, “This is what goes here”. So sometimes, you read the title and you say, “What does this mean, right?” You can go over and we have a half a dozen examples of these types of things. Go here so that you can start to look at your numbers and get a feel for them. Then that’s getting to know what good looks like and so you need to understand what good benchmarks are, right? So, for example and we have a whole another presentation on benchmarks but you know an example of one is that service salaries should be 33% of your services revenue for you to drive the profitability that we think you should have, which is about 11%. So as you mature you start to realize “Okay, how am I doing against the community? and “Am I putting money in the bank?” and “Am I being able to be profitable at the end of it?” So it talks about how profitability changes as you grow. So your highest profitability is when you are 10 employees and lower because you have no management overhead. As you start adding management, your profitability will go down because that manager is typically not fully leveraged. So for example, I have 5 techs and I hire a service manager. That service manager can really manage 10 texts so until you get to 10 texts he’s not fully leveraged, right? His salary is across five people where it could be across 10 people. So your profitability is not as much and as you continue to add layers of management, an administrator, a bookkeeper, a sales manager.
As you add those types of resources, your profitability will go down and you know from our perspective we typically see almost…you know you’ll be going along and then you’ll come down, there’ll be a U and you’ll come back up and then you’ll keep on going and once you get to 25, 30 employees your profitability will go back up again because all of your management overhead is fully leveraged against the resources they are managing. So through time, don’t be surprised as you add people and as you start adding managers your profitability goes down. So that’s why you need to be looking at when it’s just you with no management you should be doing 20, 25% profitability because when you start to add that overhead, you’re going to go down to 10,11% and then you’ll come back up again and then the final point around financial evolution is you know and I’ll talk about it a little bit on the side.
We will all exit our business card. I’m not going to live to be 1025, right? I can promise you that. At some point in time we will all exit. Some of us on our own terms others on God’s terms, right? So you should start to run your businesses if you’re going to sell tomorrow and I tell people that, and they go “I want to keep it for 25 years and I go, “What’s great right? Run it like it you’re going to sell tomorrow even though you’re going to run it for 25 years because you never know, somebody might come along and make you an offer you can’t refuse, and if your books are clean and your accounting practices are good you’re going to get top dollars.”
Hartland: And I guess I would say I completely agree with all these points. I would also say that running your businesses if you’re going to sell tomorrow creates a mindset, it’s a mindset to kind of clean house clean operations, question everything and then as you said certainly it always gives you the option but I think it allows you to run a cleaner business and expenses that you may be paying subscription fees and whatnot that you’re not really fully utilizing and you don’t need.
So there’s kind of a cost savings to be realized there. So I think it’s a worthwhile process to go through regardless, for a variety of reasons
Dennis: Yeah. One of the things that you mentioned there is every MSP should pick a date January 1st, June 22nd and that date every year should be on their calendar and it should be to review all subscriptions and just everything I’m paying on a monthly basis, that I just pay automatically. Go back and look at every one of those and say, “Am I still using it, and do I need it? And you’d be surprised that you can save thousands of dollars a month by doing that.
Hartland: Yeah, absolutely.
Dennis: So yeah, great point. So then you know we’ll talk a little bit about process maturity and I touched on this earlier.
This is when you’re kind of doing it ad hoc and you get a couple other people and you’re doing an ad hoc but once you start to get you know two, three technicians you need to make sure that you’re doing everything consistent, that you start having repeatable processes, that there should be documentation, whether you’re doing using ( to do your documentation. Whenever something comes along and you go to the playbook and it’s not there, you should create the playbook for that, right? So you don’t have to build, you don’t have to sit down and write the playbook in 60 days. You write a piece of the playbook every day and eventually your playbook goes from here to here. As you grow, this will reduce maintenance. That way, if I go install something and Hartland, you come along and have to fix it, you know that it’s done the same way that you would have done it, so you know where to look and do that kind of stuff. So it saves time and ultimately will make you more profitable. You need to invest in tools but not all tools, right? A lot of the members have Johnny Tool Syndrome, right? And so everything that comes along, “I’ll take one of those”, “I’ll take two of those”, right? And so you need to make sure that you only get the tools that help you be profitable.
Any thoughts on that, Hartland?
Hartland: Well, I do…the one that comes to mind is duplication where you’ve got two tools that are seemingly doing the same thing and of course this happens in an acquisition scenario where there may need to be some consolidation but in terms of supporting and it’s not just tools it’s also on the tech stack too, whether it’s a disaster recovery backup solution that you’re supporting or other third-party tools where your team now has to be skilled and stay on top of multiple tools. This is a real drag on their time and efficiency
Dennis: Yep. 300% there. Then the final point here is escalations. You need to have, you typically have level one level, two level, three and you can’t let issues sit at a level one for two hours that should have been escalated at 15 minutes and could have been solved in 15 minutes by level two or level three tech. So you need to have clear escalation pass so that you can get to closure faster, right? And ultimately that allows and makes happier clients,
So you know as we’re talking about clients, your client mix will change over time right?
So, you know anything about when you get started, you know all revenue is good revenue when you get started.
Hartland: I like that acronym, I haven’t seen that before. Maybe I have been hiding in a cave but it makes sense.
Dennis: You can steal it if you want to. I did make it up. [Laughs]
What you were just talking about is when you get started and I’m willing to take on this dental company in this manufacturing company, I might end up with four or five or six backup solutions because it’s revenue, right? But over time, you need to shed those four or five backup solutions and you need to get down to one, maybe two because it provides efficiency, right? There’s less time solving a problem because people know that solution in detail, alright? You don’t have to…if I need to have two people trained on Datto and two people trained on another solution and a third solution, pretty soon I have all these people trained on and I’m spending a lot of time and energy, and money in training them so that I can support them. So you will start to wean your clients down to particular solutions and so you are becoming more mature.
And then finally you will get to a position where you have a standardized solution and you will go out to market and you’ll be talking to a manufacturing company, “You do a lot of manufacturing and I support these types of things” and he goes, “Well, I’ll only go with you if I can have HP laptops and you go, “No, we do Dell and we only do Dell” and he goes “Well, if it’s not HP laptops, then the deal is off” and you go, “Okay. The deal’s off.” You walk away because you know Dell, right? Or you know Lenovo. Wherever it is, it doesn’t make any difference, right? You know them and that’s who your people are and so you will be able to command a higher price because you are much more efficient. You will be much more profitable that way also.
And through time, you also learn and refine who your ideal client is. We call it the tailored client profile. So when I ask, when I talk to a lot of MSPs, they will say, “Yeah, I want anybody with 10 to 100 seats,” right? Over time, you’ll find that you really want people with 30 to 50 seats.
Dennis: Say that your client the SMB says, “I value IT and I have a budget line item for it. I want to grow. In other words, so I’m going to get somebody that’s got 30 seats that maybe in five years has 100 seats, right? So your ideal client will become much more strategic.
Hartland: What is your position on industry, Dennis in terms of focusing on industry, generalist, focused on industry, how many industries? What are your thoughts there?
Dennis: Yeah, that’s an interesting question. We work with MSPs across the United States and Canada. We have members of New York City and people who are in New York City can be very focused, just finance, if they’re not in the financial services they’re not in the financial services business, we’re not interested in, right? You get to somebody who is in Omaha, which is typically considered a tertiary city, right? You can’t focus just on financial services people because there might only be four companies.
Dennis: So the answer is – it depends on where you are and what you want to do. I’ll give you an example. We had a client in Florida who specialized in a specific type of medical practice and he had gotten to the point
where his part of Florida he had dropped it out. He was out of capacity. So he had two choices and
he went through a process, like a SWOT (43:34), whatever, and his choices were, I can move to a different vertical i can, I can go higher, I can go buy a competitor in my city or another city that allows me to provide diversity or I can change my market. Instead of just being in part of Florida, I can go and chase this very specific vertical across the state of Florida, right?
Dennis: And so it kind of depends on where you want to go and where your expertise is. So to answer your question Hartland each company is different in answering that question based on the skill set of their people and their geographic location and what’s available to them.
Hartland: And I think the other interesting thing that you know that we’ve certainly seen with Covid is groups that…for instance, remember speaking with an MSP at one point that was focused on the gaming space and casinos in particular. And so with Covid, that’s obviously not been the most ideal target group and similarly groups that are focused on hospitality, we’ve also seen it with energy, right? Texas Oil and Gas in Canada. A province of Alberta with oil and gas but then you want to ride that up and down and up and down, so there’s that sort of implications there as well with to some degree sort of that all your eggs in one basket discussion.
Dennis: Yeah and we have a couple of members who focus strictly on dental, right? 80% of their practice was dental. Well, they had three miserable months but you know what? As they were allowed to open them back up, the demand went off the charts and so they are back to where they are now and actually ahead because all that pent up demand hit.
Dennis: Yeah. Right. A lot like we’re seeing with houses now, the price of wood, kind of this is a tangent but the price of wood used to be in a house was ten used to be 10,000 dollars. The price of wood in the house is about 40,000 dollars now. So it will come back if you’re focusing.
So the next area to look at is how do you grow?
There’s different ways to grow mergers and acquisitions. We hear a lot about mergers and acquisitions. This is the 249th M&A for 2021. In 2020 we had x number of M&As. As you see, the big ones the PE companies want to come in. They want to buy people up. Well, the PE companies and the big companies want to buy people who are putting 20 points to the bottom line and are bigger than 7 to 10 million, right? So until you get there, you’re not going to get bought by a PE company. But there’s an opportunity for growth as if you go to any conference Hartland, you will see that there’s a lot of people who have the same haircut as i do or they have gray hair and a lot of these people are starting to age out and they’re looking to figure out – How do I sell my business? And they might be 1 or 2 or 3 or 4 or 5 employees, right? So you can grow by buying small businesses. You start small, you get used to it. I have…one of our members has bought three small companies. Two of them went awesome and one of them was the worst he’s ever done, right? So each one has its own unique benefits to it but growth, if you’re going to drive growth, you should do it through MNA or organically.
Hartland: Well, Dennis I mean as we’re involved in both of these areas and so this is close to my discussion, close to my heart as to the implications for both and we’ve done a lot of sessions in the past and written content on this topic. So I won’t take a tangent and go into that here too much but one of the things that I think will be interesting…you talked your haircut at conferences but I also interested to see whether Covid is fast-tracking some groups’ plans for whether it be retirement or perhaps just doing something different and then also the implications of security and the risk. I’ve talked to some MSPs who are a little bit concerned I suppose about the responsibilities that they hold in that regard and the ability to sleep at night and the risk that brings and we talked earlier in the session about a group suing an MSP over a ransomware attack. So I guess I’m curious to see how this plays out. I felt that Covid would be a bit of a catalyst for groups to potentially sell but I don’t have any data points on that and I was expecting that you know that would sort of play out in 2021.
Dennis: Yeah. We haven’t. Within our membership we always have one or two members buying and selling. We didn’t see any difference in…we have seen that our members have grown because they’re taking it away from those who perform poorly in 2020 right?
Dennis: So what happened was 2020 put a spotlight. You could be an okay MSP but when work from home happened and stuff hit the fan and you had two months…if you weren’t good it was very obvious you weren’t good and so that put a lot of stress on those types of people and it has been easier for our members to displace those types of MSPs, right? So it will put pressure on them.
Dennis: We also see a lot. We’ve seen a few more instances of owners, not part of our membership who are saying “I’m just tired of running the business. I just want a job for a while, I mean I’ve been doing this for 20 years. Can I sell it, get some money, and then I just won’t keep working. So you buy my clients and hire me as an employee.” And sometimes that works and sometimes it doesn’t because when they stop being the owner and become an employee they still think they’re the owner, right? So that’s on a that’s a case-by-case scenario and I’m probably sure you see that on your side when you’re doing M&A.
Hartland: Absolutely. It’s a consideration, can that person make that transition, and then many times they feel they can. Whether they can or can’t remains to be seen.
Dennis: So I think it’s important that a whole other road again, another session another day but yeah, how to mitigate those types of issues, yeah but we’re trying again here, we’re just trying to touch base and provide the different things that happen over time within the business.
And then the last one is really around exiting the business.
A lot of people will say, “Okay. I want to sell…what does that mean?” This too Hartland, it can take… if I said today, “I want to sell and I haven’t been running my business as if I’m going to sell it tomorrow, it might take me three years to get my business ready to sell, right? And then after I contact somebody to say “I want to sell” and maybe another 6 to 12 months to close the deal.
So, if I don’t run my business as if I’m going to sell it tomorrow and then I choose to sell, there maybe 3 to 5 years before I can get top dollar right? I can always sell it at some price but if I want to maximize my return, then I have things I need to do to get it going.
Hartland: Yeah, absolutely.
Dennis: So, there’s the whole “find a buyer due diligence” and you know one thing to remember is the value of your business is based on one thing and that is what the buyer is willing to pay, right? You may think it’s worth a million or 2 million or 5 million, whatever, but the buyer is only willing to pay 2 and a half million, it’s worth 2 and a half million. Damn. There might be other buyers who will pay more.
Hartland: But I was just going to say I think the interesting thing is there’s this question about doing evaluation, having a third party group do evaluation and what does that mean? And my view is that it’s certainly a good data point to have it’s maybe a benchmark to compare against but the reality is that it’s only worth what the market’s going to pay for it and that there is considerable variation in my experience between what one buyer will pay and another will pay simply because of what’s important to one group versus another. And there may be some synergies or whatnot. As a strategic buyer, that makes sense and can justify a higher price.
Hartland: It’s a very interesting kind of process and to have these discussions and see what’s important to different groups.
Dennis: So this is the end of the presentation. I just have a couple of slides on Taylor Business Group. Are there any questions out there, Hartland?
Hartland: I’m not seeing any right now.So, I had my own questions and had a bit of a dialogue here. So I think this is a really good overview of the process and probably one that a lot of groups haven’t had an opportunity to take a step back, I guess and look at their business through this sort of a lens, from start to finish and then do a bit of a drill down on each one of these. So even for those who say, “Well, I’ve looked at these types of discussions before” but to take another kind of deep dive on it and see what improvements that you can make and sort of where you’re at in the process and understand what your options are.
Devin: Dennis, I did have one question for you, if you don’t mind and it’s going back to a little bit earlier in the presentation when you were talking about some of the challenges in regards to hiring various job titles, whether it’s dispatcher service manager or salespeople, etc. I was curious for those different types of job titles – are there any that are particularly challenging for MSP owners? I’m wondering for instance if it’s easier for them to make technical hires than it is the other varieties.
Dennis: Right now, all hires are hard. A lot of our members have moved to a position where they’re constantly in a hire. They’ll put multiple job descriptions out there so they’ll be looking to hire level one, level two, and level three and when somebody comes in to interview thinking and applying for level two, they’ll talk to them and they’ll go “you fit more of our level one or a level three” and so they’ll maybe move them around but I would say that there’s two things that our members…these you would ask them – What are the two hardest things that they would like to have solved? One is “I want more clients, I want more prospects that I can go have a good conversation with, I want some sales and the other one is talent, right?
Hartland: Dennis, I mean just piggybacking on Devin’s question because I think that that question can be addressed from a few different perspectives, I mean one is that is the market, the hiring market and of course, that’s going to vary from geography to geography in terms of how difficult that is but in the competition I guess the other aspect is the owners preferences around what their competencies are. So, if I’m particularly technical I might have no issue with wanting to hire and hiring good technical people but because I’m not good at sales or I’m not good at marketing, hiring salespeople might not be something I’m overly comfortable with. I just wonder – do you get involved in helping your clients to make sales to do a vetting process, be part of the interviewing and screening process to identify what characteristics, what skill sets, etc. the candidates should bring? That whole piece of the puzzle I suppose
Dennis: We do in a couple of very narrow areas. So you may know what disc is.
Dennis: It changes. Now it’s called selling for success but we have a profile, a disk profile for service managers and we have a disc profile for people. So if somebody is looking for a service manager, they can reach out to us, rule you know standard disc, do an hour’s worth of coaching with them, walk through our…what we think, whether they’re high IC (59:01). Remember they should be DC or whatever. It should be…and we’ll walk through that process with them and so when the candidates come in they get down to one or two, we can do that with them, right? I’m more welcome to do that. We’ll do recruiting for service managers, we’ll run through the whole process of job description putting it out on the boards, taking the resumes as they come in saying “Hey, we think these are your top three guys.” We’ll sit in on the interviews with them and then go through the process of bringing them in. So we’ll do that for service managers. We can do that for salespeople too.
Hartland: Interesting. Okay, yeah I imagine that a lot of groups would benefit from that type of support. Dennis. I’ve just noticed we’re at the end of our hour here. You want to talk just about Taylor Business Group a bit and then we should probably wrap up.
Dennis: Yep. So you know just real quick about us
What we try to do is help MSPs grow and be profitable and create value. We have members ranging in size from about 400K to over 25 million. So it’s a very broad breadth of revenue and we run business improvement groups for owners, sales, CEOs, service managers and project managers. And we always say, “So what’s the proof in the pudding?” and people can say “Hey, we’re going to help you grow and we’re going to make you more profitable.”
So what we did was we looked at 32 companies that started December 1st of 2019 through September and this is what their total revenue looked like and you’re going, “Dennis, so this looks crappy.” Revenue’s gone, they’ve been with you for 18, 19 months and revenue’s going down you go yeah “Okay, but you know what’s interesting is they don’t drive you know golf axiom, you drive for show and you putt for dough, right? So if you look at that revenues went down but you know in over here, in 2019 they never got above 000 combined in total Net Operating Income, go over to 2020 and this is Covid, right? March, April, May, June this is all Covid, their profitability is up above 400,000, five out of six months
Hartland: And presumably there’s some customer cleanup in there as well to get rid of some of the revenue but actually it aids in profitability.
Dennis: Yeah. And really the big change is really around here, these guys’ services revenue is what’s profitable, right? And so they started off not below 50% in services revenue, they’re ending up at close to 80% in services revenue is what’s profitable. So they were focusing on the right part of their business and this goes back to that whole adage of doing and understanding what good looks like and where you want to go, you know good financials good benchmarks
Dennis: And then you know to kind of wrap it up here, if you want to reach out to me, here’s my contact information.
Join today and change your trajectory for $300 per month!
When you do reach out, we’ll waive the $950 onboarding fee and would just love to have you as part of Taylor Business Group.
Hartland: Excellent! Well, look and I also can speak from experience that Dennis publishes a regular set of webinars in his communication as well. So lots of great topics. So, I encourage you if you have any questions and are looking for some support in ways that we can’t, Dennis’ group does everything that we don’t do. So I think it’s a great great compliment and that’s why we wanted to have Dennis in our session today. So Dennis, I really appreciate it. Thank you very much. We worked together in the past and thank you for your time, thank you for your knowledge and we very much appreciate it.
Dennis: Well, I’m honored to be here, and thank you very much.