Webinar: A Conversation with Dave Sobel

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Hartland and Devin are joined by Dave Sobel of MSP Radio for an engaging discussion about trends in managed services.

Webinar Transcription

Hartland: Good morning.  Good afternoon, everybody. Welcome to today’s session. I’m super excited to be joined by Dave Sobel. I’m going to let Dave introduce himself. For those of you who are not familiar, you’re in for a treat. He is, one of a kind. I think, the interesting thing that I really like about Dave is his, kind of ability to ask the hard questions and to not hold back in feedback and responses and to touch questions that, may have some sensitivity with respect to the industry and, vendors and whatnot.

The Host Broker

Hartland: So, I’m going to do a quick introduction hereof, myself and us. For the most part, you probably are familiar with us if you’re receiving, this on our mailings already and therefore attending today’s session. But I’m, Hartland Ross. I’m the President of eBridge Marketing. We own and operate thehostbroker.com, which is our M&A practice focused on IT services firms, including managed service providers, web hosting companies, infrastructure providers, data center operators, and service providers, or if you prefer, ISPs to the industry. And the other side of our business is, eBridge Marketing, which is our, marketing division headed up by Devin. I’ll let him do a quick intro there, but from an M&A perspective, we focus on, as, I said, the It services firm. And you can find out more information by going to our site, thehostbroker.com. So, I’ll turn over, Devin, to you to talk quickly about what we do from a marketing perspective.

eBridge Marketing Solutions

Devin: Thanks, Hartland. So, eBridge Marketing Solutions is a full-service boutique marketing agency, serving very similar industries to the host broker, including MSPs, web host, data centers, It service firms, ISPs, vendors, really, you name it. We were established in 2001 and by Hartland and over that time have grown to offer a broader range of services to a broader range of companies. And if you are interested in discussing marketing, you can reach out to us through our website, ebridgemarketingsolutions.com. You’ll probably reach me and I’ll get back to you as soon as I can.

Hartland: Excellent. So, Dave, I’ll, let you introduce yourself.

Dave Sobel Introduction

Dave: Sure. So, I’m just a down home guy. Like long walks on the beach. Right. Where do you start these introductions, right? So the way I always started by saying is, I swear, I’m an engineer. I started there. I have a degree in computer science. And I’m always proud of that fact that if you ask College version of me what I’d be doing today, I would have thought I’d be developing software and products and that kind of stuff.  Yeah, that’s not how it all worked out. Because after doing some consulting in the early odds in the late 90s, I, wrote a couple of startups into the wall, where the leadership, went into the wall and I said, I can run a company into the wall just as easily as these morons, but I can keep my job because, I’m the owner. So crazily. I started out my own managed services firm, and I started right around 2002. And before we called the managed services, I did manage services.  And I ran that business for about a decade. And it was a long version of that story. Grew the business, bought a company, became heavily involved with education and enablement and peer groups and all that kind of stuff. And then I sold that business right around going into 2012. And I said, well, you know, what I want to do is I want to learn more about how this works.  And I went and worked for a company called Level Platforms, which was a remote monitoring management solution. Worked there about two years. We sold that business to ABG, and then I hopped over to a company called GFI. We became Logic now, and then we sold it to a company no one’s heard of anymore. Like Solar Winds. You may have heard of them. They’re never in the news. So, in 2016, we sold that business to SolarWinds, and I was there for another three years and I was laughing. Now, the timing of my departure is like a couple of days before they were hacked, so I had nothing to do with it. But I was at Solar Winds, and my whole time on the vendor side was around enablement and helping MSPs build their businesses.  And I left in 2019 to do what I’m doing now, which is independent journalism and analysis of the IT services space via podcasts and now YouTube videos and such that I do to be like kind of the guy who sticks up for solution providers. So, I laugh. I have an opinion on just about everything. I don’t claim they’re all right. I just have to be right a whole lot more often than I’m wrong. And if you disagree with me, that’s awesome, because that means you have an opinion.

Hartland: And I love the word independent. Right. I think, that’s a, key piece here that’s, interesting and unique. Dave, I think that you’ve got to be one of the most, if not the most extroverted, computer science grads. Certainly that, I bring into. So I love it.

Dave: Which is why I always like, I swear, I’m technical. You would think I’m a total sales guy. No, I swear. I’m an engineer.

Hartland: Well, it’s unique. It’s unique. Absolutely.

General Industry Trends

Hartland: Well, look, we put, together, Devin and I, some questions for you Dave today. Things, that either in some cases have been asked of us or things that we wonder about and we have reached into the space and we have our own opinions, but, we’re not necessarily. Well, certainly it’s nice to share, perspectives, I guess. And also, in some cases, frankly, we might not, be in the trenches enough to have a real decent response.

Where do you see an MSP as we know them now in 10 years? In 20 years?

Hartland: Just moving into our first question here, we’ve been wondering and we’ve asked this question of others as well, candidly. But where do you see the MSP space being in, let’s say, ten or 20 years from now? And I’ll provide some context around that. So, we’ve been operating, in the hosting industry for a long time. It’s kind of where, we cut our teeth, I guess. And in that space, we’ve seen a ton of consolidation. Right.  It was very fragmented and still is a very fragmented market. It really took nothing for someone to spin up a server and have a dedicated server that they’re leasing from a provider. Throw some customers on it. Throw a few more customers. Hello and behold, you’ve now filled the server. Well, I guess I’ll get a second one. And hello and behold, five years later, I’ve now got this thriving business. Oh, and by the way, I’m only 21 years old. This was, back in 15-20 years ago. But in any event, there was a lot of that that was going on, and it ended up, that there were a lot of groups that were interested in this.  Hey, these are real businesses and it attracted private equity. And so that has floated into the space a lot of kind of, roll up activity. The nice thing about, hosting is a lot of it’s virtual, not all of it, but as such, attracts buyers from all over the world. And certainly, the customers can be served all over the world as well. So, if we look at the MSP space, it’s also similarly very fragmented. We’ve got tens of thousands of operators in the US alone. We’ve got growing in lots of other markets, certainly very active in the Western markets, but also moving into other parts of the world. What does this look like? If we fast forward, are we, going to have kind of like the telcos? Hey, we’ve got you could pick between AT&T and CenturyLink, the different telcos kind of thing where there’s really, let’s say half a dozen real operators, or are we going to see the same sort of fragmented space in that time and any other changes?

Dave: Your analogy, the data center is really interesting, right. Because I ran racks of servers, too. Right. Like, even in my medical service provider, there was a time where that’s what we did. And you can still do that today.  There are people that are doing that. Right. But do we consider them where the market really is now? That’s not to dis on that business. Right.  Like, there’s some people making money on that business. So, your question is sort of like the MSP in ten years? Yeah. There’s going to be some doing exactly what they’re doing now, but that isn’t necessarily the default. And I like to actually really separate this idea of the MSP from what I actually think the core value is.  And we’ve got a little wrapped up in this whole managed services thing. And MSP, I believe in the core value of delivering IT services in the SMB is going to be incredibly valuable for a very long time. Why? Because there will be small customers of all sides who need help with technology. That core value is not going away for the same reason that there are some small law offices that are delivering great value dental practices. All of these different small organizations serving up your CPAs, all your business services, they’re all still incredibly relevant. But manage services, like the way we try and put it into all of these buckets of gold, silver, bronze, it must be your standardized stack and all that stuff like, oh, yeah, I think that stuff in your 10 and 20 year time frame will get completely redefined because although there will still be people doing it the old way. Why? Because there’s always that in every market. Now, what I always look at this and say is like, which part of the core value are you most interested in? If it’s that I deliver IT services in the SMB, you’re going to be totally relevant. Now, I think you need to be moving a whole lot more into the business process layer and doing business work. But your core value isn’t going away, although the way you do it is going to be totally different.

Hartland: What I’m hearing is that you still see that there’s going to be these kind of small time operators. But do, you see that there are going to be some, kind of David and Goliath, the behemoth that have got tens of thousands, or more, hundreds, of thousands of small businesses, that they’re servicing through a call center type structure.

Dave: I think it’s going to be super symbiotic, more than like a competition. So, I look at it and say again, back to my core conceit there you a small provider, are going to be able to add a lot of value to your customers. But I don’t get so hung up on what you’re deploying.  Who really wants to do Helpdesk service? Really? Do you really want that to be your core value? It probably was never the bit you like. I never wanted to build a business around. So, do I think that big players will be able to deliver helpless services? Yeah, I think it’s going to go a whole lot better. I also think the endpoints are continuing to get so much more simple. If we think about the average endpoint, how much maintenance does it really need? Don’t get me wrong. There’s some patches, like the patching stuff, and I want to make sure it’s backed up. But if I go back and I look at the old literature from managed services from 15 years ago. How many of us are really worrying about how much disk space we’ve got? Really, if I think about the when I sold my early managed services, like, I’m going to make sure your temp files are cleaned up, and we’re going to make sure your disk help. It’s like, who worries about that stuff anymore?  They’re solid state drives. They’re really big. I just get a new one every so often, and it’s just massively bigger. And I don’t worry about any of that stuff. So, like, the core bits just bubble up, and I go, nobody gets into this business because I want to be in the help desk business. I just don’t, that stuff will roll up, but there’s pieces of the value that will because pulling these systems together and making them valuable in a business, that’s really hard. And that’s the high value stuff. That’s the stuff we’ll make money off of. That, I think will still be done by small companies for small companies, mid-market size companies for mid-market companies, and large companies for large companies. Size meet size is a pretty universal thing.

Hartland: Yeah. It’s an interesting way to look at it, actually. Okay, excellent.

What is your position on specialization by industry or application? What’s the most esoteric specialization you’ve seen succeed?

Hartland: All right. well, let’s move on. This is kind of an age-old question. It’s an age-old question for it doesn’t matter what industry you’re in, but is the concept of specialization. Right. So, I mean, if you look at us as an example, we started off as a marketing firm, and it wasn’t, hey, we’ll just market for anybody, and we’re working with local restaurants down the street, and we’re working with a car dealership. And, oh, by the way, we have a managed service provider, and that’s not what we do immediately.  We focused on, although, it wasn’t quite as clear as it, is now admittedly, but, it was still focused on technology, ecommerce type businesses, and hosting was absolutely in the crosshairs of that. If we fast forward to today, we’re really an IT services focused firm in both respects. And so, there’s this question of specialization. Should MSPs be vertically specialized? I know that many of them just kind of basically take whatever they get, and they’re all over the place.  I know that others have a sprinkling of sort of specialization, or we’ve got a handful of governments, we’ve got, a handful of education or something. But it’s almost like it’s happened sort of by accident in some ways, and they got some traction, and then they may be a little bit more down that path or they’ve gotten referrals as a result. But I don’t know if it’s necessarily so deliberate. And so I’m curious, and then the other question that we threw in there as a curveball, but just what the most esoteric specialization is something that’s really funky. That would be.

Dave: That’s a good one. I can ponder that. What’s my take on it? It’s all fine. I have this sort of very pragmatic way of doing it.  Look, I always sort of said, I’m in the business of making money. I really am. I don’t do this. If this was a charity or this was just a volunteer effort, that would be a completely different thing. I have projects that I do that are entirely because I want to do them for fun. But I’m in this because I like making money. Right. It happens to be that I enjoy it, too. Right. But I don’t build businesses to not make money.  And what I’ve learned is that the harder it is, the more money I make. Right. And so, it completely aligns to your statement of, like, specializing. Well, that’s hard. That means by doing things that are hard, I make more money, I can charge better rates, I can command a better position.  And the more specialized I am, the more of a Ninja that I am, the higher my rate. if I’m one of a handful of people on the planet that can do something, I am very much valuable. Right. And I look at it that way and I say, I’ll have to go. How many people understand the managed services market and can completely describe those in human relatable terms that might actually be entertaining to listen to and who can go really deep on a technique like, the more specialized you get, the higher rates you can command. So, my statement on this is what’s my position is like. Getting really Ninja good at stuff drives the value that you can deliver and the rates you can command. Right. So I like to go as deep and as specialized as possible, but I also know that’s hard. Right.  And you iterate over time on that. The reason most people start out is because they start out with a specialization that’s like, well, I’m going to be good at this technical thing, which is for many of us that have been doing this a while. Okay. I’m good at network engineering. I, will tell you my background in consulting.  My little specialization was I was a person who could code and build servers, which was rare. Right. There were people that built servers, and there were people that could write code. And I always laugh. And though the reason I did both was I wasn’t always a great programmer, but I could make up for my sloppy code by making the equipment I ran on more efficient.  Well, I didn’t necessarily have to be the best coder, but I could tweak the database to make my code run a little bit better, and I could make up for my own fault. But that also meant that there weren’t a ton of people that could walk in and say, Well, I can understand the whole thing. And that was a value, and I learned it that way. So my statement on your pieces is what’s my position? Yeah, I love it because I love becoming better at something.  And the more boring it sounds like, the better it is. The guys that are really, really good at handling medical record transfers in a secure and optimized environment to make sure that the data is never let. That sounds so intensely boring. And I know how hard it is and it commands really great rates.

Hartland: You know, I think it’s a great point.  And I’d like to bring it back to at least our wheelhouse one from a marketing perspective that it makes it a lot easier to market a business when it’s clear on what you do and who you do it for and the value that you provide. And so, from whether it’s an SEO perspective and optimizing around keywords for Google or to convey, the value proposition and put together the materials that are needed to as part of, the sales pitch, it becomes a lot easier. I think that’s a great point. It’s no different than any other industry. But the other piece that’s interesting here as well, of course, is from the M&A perspective that with specialization, with expertise comes, as you said, the higher price.  But with the higher price, presumably it most likely will come with better margins. And better margins, result in better valuation.

Dave: And that’s exactly what I mean to the whole stack. The more unique you are, the more you command value, the harder to find you are, the higher value you are. And value through the whole bit, right. Both the pricing and the margin and the profitability and the value on the sale. That’s what I mean. When I talk about value, I’m talking about the whole stack.

Hartland: I don’t almost argue you talk about how that’s harder, but I’d almost argue that it’s harder in the beginning. But once you get traction, it almost makes it easier in some ways because, first of all, when you’re going up against other people and you have the expertise for government, for education, for applications, hey, we only service accounting firms of this size or whatever it is, then your competition kind of goes away because they really can’t stand on a solid footing relative, to you.  Of course, they can stand on a lower footing from a price perspective. And so, their edge may be on that basis, so that makes it easier. And then the other thing is, well, now I know where to, market so I can market to certain industries, conferences, publications, associations, and things like that. And so you end up being known as the kind of go to for the space.

Dave: Well, it’s exactly.  Everyone’s got this experience in their life, right? I always laugh at you. My family members will ask me to fix something on their computer. Like, I walk in and I hit the button and I fix it right, like it’s a quick two clicks and I’m done. And they’re like, well, that looks easy.  And I go, well, yeah, except you’re being dismissive of the 30 years of study that I’ve done that allows me to walk in and know exactly what it is. Right. You don’t pay me for the two minutes of time it took me to do it. You paid for the 30 year of knowledge that I’m carrying around that lets me do it in a couple of moments.

Hartland: Well, I’m not going to be able to put my finger on it, but there’s a very good saying or quote or something that is coming to my mind around this. But the other thing that’s I think, important is you’re also knowing what not to do. It’s the downside that’s being prevented. Hey, yes, it only took me 30 seconds, but because I know what I’m doing and I’m doing it right. Whether it be a security vulnerability, ransomware type exposure situation, or if you take it to a different industry, as a financial planner, broker, stockbroker, whatever you want to call them, it’s picking the right stocks, right. It’s like, well, that only took you 2 seconds to tell me I should invest 100 grand and whatever.

Dave: Right.

Hartland: But it’s all that research to have the perspective on the market, to know what to do. And so I think that’s relevant.

Dave: I knew one person who is really good at celebrity IT support. Built like a whole white and it was all white glove service. It was the perfect white glove service. I know how to handle very large egoed. People that want their stuff to work and have massive piles of money and want their home environment to look cool and be cool, but have the latest tech, and it all just work. And she commanded, like, a huge premium for this because the market allowed for that. Like, these people were just like, I just want it to all happen. And I have piles of money. Right.  And these are big A list celebrities. And what they valued was it worked and the Privacy of the service and the white club, she would pick up her cell phone and answer and know them by name and know exactly what they wanted. And it was a very esoteric, like, sliver a little bit. You’ll look and go like, that’s not a huge market.  Exactly. but to go super deep in that market, potentially the only person on the planet that good at handling that market or from a competitive perspective, what a handful of people. A handful that can handle the egos and the technical and offer the white glove service, that’s a pretty cool esoteric specialization.

Hartland: You know what?  I was interested to see what you’re going to come up with, but, I really liked that one. That’s pretty cool. and I think the other thing is it’s not just the technical piece, but it’s like the counselor. They’re advancing around, the egos. And because you know that, hey, if something goes wrong, these people have very high expectations as well.  And so if you’re doing well and also, their circles are more of those same A-list people, and they wouldn’t be viewed as competitors. So, hey, look, here’s who I use. And that’s a pretty cool.

Dave: It was, definitely a cool one. Plus again, then the next question is, well, who do you work for?  Well, I can’t say that because the Privacy is part of it.

Hartland: No testimonials for that one day.

Dave: No, but that’s the best kind. Right. Because they’re doing only referrals in that little network, and that’s the way that it allows other engagements, too. So it was cool.

Devin: I have a thought on the slide too, kind of picking up from what you guys were saying. But I think managed services is an industry where there’s not a great number of barriers to entry. And people usually start off break fix and, work in their own network. So generally speaking, with business, strategy, if you’re in an industry, if a lot of barriers entry, you need a specialization.  And if you’re not specializing geographically, which many MSPs do, you almost surely need a specialization by industry or application.

Dave: Yeah. Although I think I’d make an argument. I have a YouTube video literally called Don’t Start an MSP, because we talk, about it being a low barrier to entry industry, but that’s changing an awful lot. I started my managed services provider in 2002. The biggest thing screw up that I was probably going to have happened was if I screwed up something, I’d have to do a long data restore. That was really the biggest risk that I guess I could screw up the backups. Right. That would be the biggest risk. But really the biggest risk was the users and my own execution.  Now, with regulation and cyber securitycurity and with insurance requirements changing and ratcheting up and the business regulation and the landscape, it’s like this is just a way harder industry. Oh, and by the way, I can do a whole rant and I cover on my show all the time. Like the stuff around regulation, literally, we’re getting into we may be a regulated market in the not too distant future. We say it’s easy, it’s a low barrier entry. It’s getting harder.  Like right now, it’s just way harder. And it’s about to tip into more. And so, I want to dispel the like, it’s, not as easy as it used to be by a lot. And I’m not sure I want to call it an easy to get into industry anymore because the skills you got to have are so widespread now.

Hartland: Well, and then part of the barrier to entry is a function of the incumbents and, their sort of penetration into the market.  Right. The way that new entrants are going to be able to compete is unless there’s something truly new or revolutionary, very specific. Talking about what we’re talking about here, it ends up being a price exercise. Hey, I can do what they can do, but I’ll do it for half the price. And that’s not a winning strategy.

Dave: Yeah, although I, will say I think there’s room for innovation. I think the managed services space has, got some room for disruption. It’s one of my 2021 predictions. I think this space can be disrupted. It’s got all the signs, right?  Like super, mature players, particularly on the software vendor side, like a couple of mature players that have kind of stagnant their own innovation. The industry, like the way people are delivering the services, kind of looks the same as it’s, like the last ten years and factors shifting, and then we, of course, have the disruptor. We added a little pandemic on top of all things, just to accelerate all trends. I think there’s some room for disruption here. It just feels to me like there’s room for something to really change. Somebody could make a real move here and do it differently.

Hartland: Yeah. Interesting.

What is your position on servicing COVID impacted businesses and industries? Back away, get them at a higher price, or pick up what others don’t want?

Hartland: All right, we’ll move on. this is, an interesting one. It’s still kind of early, days here. We’re still obviously involved in the pandemic. It’s February, 26th today, and we’re not out of the woods yet. So I haven’t seen a lot of, activities, certainly more discussions. But we’re in the process right now of selling one MSP that’s got some exposure, to hospitality space.  Right. And although the revenues, from that the customer base there, first of all, it’s not 100% hospitality, but the revenues have been fairly consistent. but there was no, ability to upsell them, certainly. And any kind of discretionary, spending mainly around hardware upgrades and whatnot was curtailed entirely last year. So the, question is, what do you think about this space going forward? And so I put, three options right back away. So that’s like run for the hills. Devin, you can queue in Iron Maiden, here or get them at a higher price. Right. Well, I’ll take you on, but I’m not going to because of the risk of maybe bad debt issues.  You’re not paying us, paying us late. And then also, of course, the risk that, if I decide to sell at some point, a buyer might view those as riskier, so they’re not going to attribute value. So, if I’m going to go down that road, I’m going to want to have more compensation for it, or, hey, this is the land of opportunity, people are running away from these businesses, and there’s less competition all around. And maybe I should be, picking these businesses up. What are your thoughts?

Dave: Yes, like all of strategies, because one size doesn’t fit all in this. But let me tell you where my heads on it because I make a couple of statements about the approach to the pandemic. Right.  The first is and I’ve been screaming this since this all started in March is that you always focus on your basic business execution, your own business. You’d better run a tight ship, because when things are down is when you better be running a tight ship. I’ve been very pleased with the business execution that we’ve seen coming through this. The data says the solution providers are doing that did correct. In that March, April May time frame of last year.  They took advantage of programs. Things are better than I thought they would be. Cool. I like being wrong when it’s that one. I will laugh and go, but maybe it’s because I was screaming.  Right. But business execution still matters. So, you’ve got to manage that. You’ve got to take care of your own shop first, because, by the way, you can’t help others if you go out of business. Right. So, start there. The second bit is the lesson of this time is you need to understand not just your customers, but your customer’s customer, because you’ve got to understand who they’re serving in order to make these predictions around the markets. So, for example, if you told me prepandemic, I serve lawyers like I serve the legal profession, I would have thought I had enough information. Now I’ve learned no, I don’t have enough information because if you serve lawyers that serve hospitality, that’s all other market.  And so I think the lesson here is you need to understand your customer’s customer. By the way, it’s an argument for specialization. Right. Because if I’m needing to go a second level of understanding, I can simplify my own problem by specializing.  But we’ve had that conversation. So now my third piece is, by the way, I freely admit, I was down on distribution in the way that we think about all of this prepandemic. Here’s the lesson that I have taken away. You are not the bank for your customers. That is what distribution is for.  And that’s what they bring as a huge value. You can work with distributors. What I say is you can get in here on this space, but just don’t play the bank. Bring your distributor in, let them take on some of the risk from a payment perspective, and then you can service them and everybody in the chain gets value. Why should any services company ever play the bank?  That’s not your business. And by the way, I look to the classic example that I always cite when people say is I look at Google. Google’s Ad business for all of us that leverage it. They take my credit card and they charge me on the front end. And last I checked, Google is sitting on a giant pile of money, right. If anybody could take a risk on customers, it would be Google.  And they don’t. So why would me, my smaller services practice. Ever consider taking the risk? No. Let other people play the bank.  So, my answer to you here is, sure. Go after it. Just have an offering that leverages those components so the risk of the financial payment isn’t on your side. Go for it. Just insulate yourself through proper business operations.

Hartland: Could you insulate with a higher price, though, as an argument? Because I think it’s a pretty big business shift as well, to have the service providers, the vendors, assume some of that risk because you’re going to have a, portion of your customer base that’s working under one model and a portion of the customer base working under a different model. Right.

Dave: But maybe it’s just a different collection model. I’m still running the same services business. I sell my services on a contractual engagement. All I’m doing is, in some cases, if I think they need to be financed, I’m using a financing group because I am not the bank. And by the way, because I’ve always advocated, of course you get paid upfront. What do you mean you bill later?  No, I get paid up front. So, if you can pay me up front for my services, great. If you are in one of these areas where you can’t, I have financing options, problem solved. I don’t need to over complicate this. I just go, of course I get paid up front.  Why? I’m not a bank.

Devin: So, I was just thinking what you were saying about having to understand not only the customer, but the customer’s customer. And we do channel marketing programs for vendors who are looking to, market through MSPs. And it starts getting pretty meta when you’re doing a channel marketing program and you normally have to understand the MSP and their customers, but your own products, from the marketing agency’s perspective, it’s even another layer where we have to understand, like the vendor of the MSP and the MSP client. So, it’s pretty crazy this space is unique in that way in regard to how many stakeholders there are.

Dave: Funny, in that complexity, there’d be money in mystery. There is margin. Like, there’s a reason why everybody does this. Right? Because it’s complicated. Because I was going to say mystery. There is margin. Right. If it was easy, everybody would just be doing it and slamming it out. And I wouldn’t command interesting prices.

Devin: Yeah, exactly.

What do you make of the myriad of ISVs (vendors) all vying for their slice of the MSP’s customer base? Will we continue to see this proliferation or will this settle down?

Hartland: Excellent. Yeah. I really like the understanding of your customers. Okay, so, one of the things that we’ve seen, and we’ve seen this in the hosting space, certainly seen it in the managed services space. And it, doesn’t take going to too many conferences to recognize that there’s just a kind of plethora, of vendors of ISPs. And it seems like everybody and their brother has decided that, hey, I’m going to solve some kind of a problem. And by, the way I’m just going to align myself with these distributors, these managed service providers. And, on the channel side, it doesn’t matter what industry is.  It’s sort of I’ll sit back and basically count the cash. Right? All these guys will sell my services for me. And the reality is that it’s like an iceberg. I mean, there are just so many small vendors providing services. In some cases, they’re, very niche. In other cases, they’re probably just up and coming and they are disruptive and they are going to be the next big thing. But I just wonder, whether this pace can continue. We’re having conversations with, one of the large, distributors, and, they’ve, got the ecosystem of the ISPs the vendors. And so many of them want to partner with them, whether it’s Synnex or Connect Wise, Ingram, and, they’ve got to put some parameters around, well, who can play in our sandbox here?  Because there’s so many of them and they all want help and they all are kind of grasping, at straws here. And most of them don’t have much in the way of a kind of a budget to work with. And I know that you work with a number of different vendors, and that’s kind of the space that you’ve also had experience in your past, in your career. So, I just wonder, where do we see this? Is it still going to explode?  Are we going to get some consolidation? If you look at the martech, I think it’s like 8000.  Every year they produce the graphic with all the different Martech Tags. And it’s huge now. So I just kind of wonder, what are your thoughts here?

Dave: Blood in the water. Isn’t it great?  So, it’s all about who I’m worried about. Your question. Right. These, days I spend my time worrying about, the MSP, the IT services provider. Right. And so for me, the real bit that I think about, worry about and comment on is I want to make sure that solution providers are making smart analysis about what the money means and the way it’s being spent and what it means for the strategies of those vendors. Because we come from, if you think about the It channel historically. Right. Originally, we had. They were literally just resellers.  Right. Computer resellers. Then they became value added resellers, then they became managed services providers. Now we’re even moving into this more abstracting, like, I was talking about this business services delivery system. Right.  Each step actually separates them further from the vendor, if you really think this through. Right. In the original bit, when they were just a Reseller, they were 100% dependent on the vendors they sold. And each step has, actually distanced them from the vendor, while at the same time, in many ways, the vendors are more desperate for attention from the solution providers. Right, right.  That’s kind of where we go. The solution providers actually have a whole lot more power than they think they do. But they need to be way smarter about analyzing the financial motivations of the people that they’re doing business with. Because the one Achilles heal for service providers is that I think of them more like assemblers versus creators. And what I mean by this is, this is creators are the people that are creating the technology itself.  Assemblers are the ones that are taking those components and putting it together. Now, you can be both. Right. So, for example, I think of like an Apple as both a creator and an assembler, because they are putting together components to create stuff. But as an IT services company, you are generally an assembler.  Right. You take these bits off the shelf and you put them together to make something for your customers. But the problem is you need constant new things to assemble to keep moving forward with the technology. You’ve got to make sure you’ve got the right mix of vendors that you’re working with who are motivated to create those things based on their own financial incentives. Right.  Because as we know, you guys know from the M&A perspective or thinking about investors, there are kind of different motivations for that. I have this kind of grid I look on them from. And I like to think about the way investors are working. Either their focus kind of slanted towards building fundamentals or they’re slanted towards building momentum. And what I mean by that is, if you’re a fundamentals business investor, you’re trying to take something that you think is a good idea, and you might want to make it more and more efficient, like build the fundamentals of the business so it can succeed.  Or you’re an investor that says, oh, they’ve got something and they’re running in a way. And what I want to do is supercharge it and have it accelerate out. Right. And you can move back and forth on the spectrum. And it’s a spectrum.  Right.  It’s more like a balance. You can be oftentimes, like, several of the large PE companies are very focused on the fundamentals. Right. They just want to supercharge something that’s going make it super efficient, squeeze efficiency out of it, make it more profitable, squeeze it, versus, like an earlier kind of investor who might say, I’m here to take this fundamental idea and put some structure around it and help it grow.  That’s a balance. You’ve got to have a mix of both as a service provider, in the companies that you work with. But everything I’ve just described about thinking like an investor and understanding how this is not a skill set that many small entrepreneurs come with, particularly if they’ve been in the technical space and they came up through the technical ranks. So, for me, what do I make of it? We have to get a lot smarter about this analysis.  For me, it’s the reaction. The way I’m describing it now is this emotional reaction every single time a vendor gets bought. That’s your instinct trying to wrap around the strategy and you recognize the shift. But you don’t understand why, right? You don’t understand the why things might have changed. Somebody gets bought and they’re like, oh, that company is going to get ruined. No, they’re not going to get ruined. The strategy is just shifting because of the way the balance is done. I just need to understand that and potentially reallocate the vendors that I’m working with to make sure that I have the right mix.  

Hartland: And I think it’s interesting the way you talk about essentially being in the kind of the driver’s seat there. And I guess that makes sense so long as the solutions are not presented to the customers in, a transparent way. In other words, if you’re selling, VMware or, you’re selling that’s, part of your value proposition is the vendor that you’re representing, then it would be more difficult to make changes. And of course, most, of them aren’t doing that.

Dave: This is why I always say, because most customers don’t care. They don’t, they really don’t care. If I talk to let’s put them all in a bar in the infinite. They were allowed to do this again, right? And I give everyone a beer and I go, Tell me what you worry about. They’re going to say.  I just need my technology to work.  I need it to solve my business problem. They don’t care about all the components that we talk about. If you talk to most people that own technology think you’re a laptop, right?  They don’t care about the specs.  The only people that care about the specs are those of us in technology. Everyone else just goes, I need a laptop that works. That is literally their definition.

Hartland: Well, and I guess that does speak to instances where the stakeholder or one of the stakeholders is an internal IT Department that’s outsourcing. And they may have specific, preferences around companies that are supporting certain, facts. Right?

Dave: Sure. But that comes, from a business that comes from a business decision place. And I know they will make a change if there is a business case to be made about it. Right. I know that we could walk into, any customer and we could change their platform. If we can show them the why, they will make more money or cut their costs significantly, they will throw that stuff out and make a change. If I can solve those business problems.

Hartland: Yeah. Okay.

How do most MSPs go about evaluating vendors? Do they have criteria? How do margins rank relative to best of breed?

Hartland: Interesting. Okay, well, look, you touched on this next question already, and it’s just a really fundamental question around choosing vendors and whether the vendors are chosen as best of breed or whether there’s a margin aspect to it. So how, do MSPs go about choosing their vendors? They go to the, IT nation or something, and they’re walking around and they’re talking to, different groups, but ultimately, they have to make a decision. In some cases, they might support more than one competing solution.  That’s certainly possible. But I’m just curious and sort of generally, do you know how most of these, most MSPs are making their decision?

Dave: Yeah, badly.

Hartland: Using what, what’s their process?

Dave: Stick your finger in the air. My sense is often, a little too badly. Right. They often focus on sort of the wrong bits. They’re either focused on the technology too much or they fall for the like, well, you’ll make a ton of money here. I want you to actually start with the problem you’re solving for your customers and then work backwards versus oftentimes they look at all these vendors and go, oh, I can go sell that. But there are 400 things that I could go walk around. I could go Google them. I could go to their booths in virtual time, either virtual or physical. I can go do any of those things. And you know what?  I’m reasonably confident I could probably build a business around just about any of them. What I really need to do is I need to go back to what we were talking about earlier and understand, which customers am I talking to and what kind of problem do I want to solve, and how do I want to solve that problem for them and then build out my stack that’s much more? The way that I think it needs to be done is how does it fit? Because ultimately, you can’t go deep with more than a handful of vendors. Not really.  It’s just too much, particularly for the average IT services company. So, again, the average It services company is less than $5 million in revenue. That’s like 93% of the market. You’re not going to have a line card of 50 vendors that you have deep relationships with. No, you’re going to have four or five that you have deep relationships with.  So what core problem am I solving? And I picked my vendors based on that.  

Hartland: Well, and of course, that impacts profitability. It impacts the ability to, from a pricing perspective, and efficiency, because now you’ve got all these different solutions that you’re supporting and needing expertise on it. You don’t have better pricing because you’ve distributed, that across your customer base. So, there’s a whole other series of implications for it. But, I think the key that I’m hearing here is just looking at this more strategically and saying, okay, who are my customers? What do they want? What are their business challenges? What problems am I trying to solve? And then going and finding the tech that’s going to solve that?

Dave: We, as an industry, need to spend so much more time in our customers heads than in our own. We spend so much time debating the toolkit where it’s like, why don’t instead we go run around in the industries that we serve. I can go really understand those industries a lot better. That I think would be where we spend our time better.

Hartland: Well, I mean, this is the classic I’m selling features, not benefits. It’s the same sort of thing. And of course, you’re not interested in all these features and all the things how we can solve it. Technically, you’re right. And it’s not what they care about. All they care about is that it’s solved. And the benefits to them or to the business.

Do you see an appetite for a North American equivalent to GDPR? If so, how would that impact MSPs?

Hartland: Okay, good. Well, let’s move along.  So, last question we have for you here, is just, what your thoughts? a little bit. I’m sorry. Second and last question, actually, is the question around GDPR and, some of the regulatory issues that we’re seeing, that have creeped in. They’re continuing to creep in some of, the government, as you said, you said earlier in another, point around increasing regulation in the space.  So, I guess I just sort of open up the questions, to how do you see MSPs. Being sort of impacted, by regulation and including.

Dave: Oh, it’s so coming because here’s my pitch, right. I got two versions of it for you, and I believe I am right on both of them. The first version of it is, let’s take a moment and think about the cyber insurance space.  Right. Because this is all going to come, because of cyber. The first is everyone. The insurance companies are paying out more and more for breaches. Right. Losing data. There’s more. Do we actually think the insurance company is just going to let that keep happening? Are we actually believing that we don’t think that they’re going to actually start looking at what’s happening from a service delivery perspective to minimize their risk? I talk to providers all the time.  They’re telling me, oh, you know, we’re getting really crazy questions on these audits now. Like, they’re asking, is this stuff on premises? They’re asking all these questions about it. Yeah, that’s called regulation. It just happens to be being done by private companies that insure you.  But that’s how it happens, right? It’s really easy to see that the bar is going to rise because you’re not going to be able to get insurance for your general business if you’re in technology or your customers are going to have demands on insurance that they’re going to need to prove for their own stuff. I totally see it coming because the insurance company companies don’t want to keep writing checks. So that’s the first bit. The second bit is let’s take a quick moment and think about cybercrime.  And I like to just remind everybody of think for a moment, if I were to describe a cyber, crime in the physical world, gangs of criminals are breaking into businesses and taking hostages. Everything I just said is completely true. Right. It just happens in cyber. Do we actually think business owners are going to let this go on. If this was happening physically, there are calls to the government to put police forces in place, protect us. You need to help us. So, you know, the easiest way, regardless of your political affiliation as a politician, to run to help small businesses is to enforce against cybercrime. How obvious is this? I want to run for office. I’m pro business. I’m going to fight cybercrime, and I’m going to bring regulation to fix this market. And you know how I know I’m right? Because it’s already happening. That’s what happened in Louisiana.  The stuff that we covered down there, that’s a red state Republican Secretary of state who pushed for that law. And by his own admission, he’s like, I didn’t really want to step in and regulate this, but the industry didn’t do anything.

Devin: So, I had to correct me if I’m wrong. The Louisiana legislation that applied to MSPs working with government specifically.

Dave: If I’m not mistaken, it totally is. Do we actually think it ends there? Come on. I’ve seen this movie before. I pay attention. Of course, this is fear. And by the way, this is how government flexes muscles, right? Is that they put a requirement in that to do business with them, it must meet the standard. And then industry goes, oh, well, if I want to do that, that’s how it falls in, because then you can see how insurance companies will go, well, I want you to do the same thing that the government’s imposing, and that’s how this all comes together. So, I look at it and say, your question kind of is, do I see an appetite?  Oh, yeah, I totally see it because I see it on the other side. I see it from the customers who are screaming about the problem. I see it from the insurance companies. I see it from the government impacts to this. And I sit here covering the space for you guys.  I listened to the congressional hearings, the Senate and the House call on that. Oh, I can totally hear all of the regulation coming around, reporting around data Privacy. You can just hear it in the questions coming. At least on the US side, obviously, there’ll be the Canadian Parliament version, too, in a North American statement. But I can totally hear it. You can completely hear them talking about breach notifications and data privacy. It’s coming. The appetite is totally there. So how is it going to impact MSPs? Well, we’re going to have to manage it. That’s going to be the new barrier to entry.

Hartland: I think the interesting thing here is an actual factor, double-edged sword because on the one hand, there’s the regulation for MSPs, which, is going to impact them and cause friction, red tape, et cetera. So, there’s a hassle factor associated with that and the cost of doing, business and whatnot. But there’s also the other side, which is, well, all these customers are going to require, the insurance companies are going to say, look, you’re in this business, you need to have a cybersecurity policy and you need to have these processes in place.  What do you have? Oh, we don’t have anything. We better, go find somebody. So now the MSPs are going to be the beneficiaries of that?

Dave: I’ll highlight that. I always, say, here what I think. This is a problem that solution writers, MSPs need to take on themselves. They can’t wait for the vendors to do it. They can’t wait for it. They have to get involved because I’m actually not worried about regulation. I’m worried about bad regulation. I’m worried about regulation written by non-experts, because IT services providers are not involved in the process. You can totally see how well-meaning a well-intended set of people, because they are working on a problem that they’ve seen, they’ve identified their constituents want, they’ll work on the problem. And if we’re not at the table participating in this and helping write the regulation, I don’t worry about solution providers being able to take advantage of it. Either you’re going to be good enough and ahead of this. Right? Or you need the guidance. What I worry about is bad regulation, because that then means we’re going to spend all of our time dealing with things that aren’t the way it’s supposed to be or a bunch of extra pieces that slow the industry down. If we’re a regulated industry, last I checked, that commands higher value. Right? And let’s take a quick observation and look at our friends over in the medical profession and in the legal profession. How did they solve this? They came together, at state level organizations. They wrote their own rules, particularly the lawyers. They write their own. That’s what the bar does, right? They wrote their own certifications, and then government put a stamp on it. I think they’re doing pretty well. I’d like to command doctor and lawyer rates.

Devin: Dave and Hartland, sorry. I know we have one question left when you have four minutes. And this last question was a quick audible we called to add before the presentation because it’s a good topic. So, I want to make sure that we have time for that. So, I’ll advance the slide here.

What role does/should ecommerce play for Managed Services?

Hartland: Yeah. So Devin said we were chatting and we had some things that Debbie and I put together here for today’s, session. And then we added this one in a conversation. So, I guess the question here with a few minutes left, Dave, but is related to ecommerce. And, Devin and I have had this conversation, before around the concept of a calculator for MSPs so that customers, can, kind of quickly figure out what might, this cost me for my type of business. And so, putting in some kind of a configurator there. And we have seen it. By no means is it even anywhere close to commonplace. And certainly, there are some challenges, with it. But the idea of a customer provisioning the services without having to speak to somebody is kind of the Holy grail of any business where you can simply put a credit card in and away you go. Maybe you provide that help desk support we were talking about earlier, but that might be the first time you talk to them. And wouldn’t that be great? But you’re an advocate of this. And what are your thoughts?

Dave: Well, quick, plug my YouTube channel. I got eleven minutes of me talking, about this particular topic. Right. So you can catch it at youtube.com/MSPradio. That’s the fun. But I think our discussion around the way sales and marketing is done is from a previous generation. Right. I can go out right now.  We could open up a bank account so we could have our banking relationship. We could go order insurance. We could go buy a multimillion-dollar house. I could go buy a car, have it ready for delivery. I can get my legal services. I can get all my business service. I can provision all of that stuff on, websites right now. And why? Because the buyer is so much more empowered with information. And then I go talk to MSPs and solution providers, and all of them say, well, this is such an educational sale, and I have to sit down and talk to them, and I have to meet with every single one, and I have to educate them. I’m like, no, you don’t. We have proven that you can do all of these things very complicated. Sales can be completely done online. I’m not saying this is an or, I’m saying it’s an and you add this as another channel.  And the reason why I don’t get to pick how people buy. They pick how they want to buy. And buyers now are super smart. They go do research. It used to be when you bought a car, right?  The only way to do that was to go to the dealership and talk to somebody. Now, people buy very expensive things because they’ve done the research themselves. That’s part of the ecommerce funnel. And you can do all the way through to provisioning. Now, does that mean everybody does that? No. Does that remove human touch? Of course not. It’s another channel. But I look around on what we’re doing, and I say, we are just woefully behind in IT services. Do we think we’re a special flower? Come on, we’re behind. And so that means this is a huge opportunity. Anybody who moves on this can make a huge difference. Why are we so reluctant?

Hartland: Yeah, well, I think the interesting thing here is from a marketing perspective, the tenant is sell how people want to buy. Right? And so, if you provide your chat service for some people, you provide your phone number for other people. You provide the ecommerce site for other people and then maybe you have a storefront potentially as well. Right. and you’re going to speak to different people. And over time, that’s, of course, shifting and there’s more comfort and trust and people are willing to accept these types of things. So, I think that this is really like, a paradigm shift almost, here around. I mean, it’s a paradigm shift for the MSPs, Potentially.  Probably even less so for the buyers themselves. It’s probably more, on the MSPs, as you say. Hey, I need to tell them about my products. I need to educate them and whatnot yes, there’s some information that needs to be gathered, but there seems to me to be some kind of an entry point here around how to at least get a customer engaged at some level.

Dave: Plus, we’re overthinking a lot of it. I want to tell some solution writers, like, why did you just list buy my best Laptop? You know what? I’m telling you a laptop that works, I promise it will work. It will have these pieces of software that you need, and I guarantee out of the box it will perform correctly for three Years. Sold better Premium. The customer just wants to buy that, Right? Why can’t I just buy that if you’ve done all the homework on your favorite Laptop, right. Or, you know, the way it is and maybe it changes a little Bit. They don’t care about the Specifics. I need a laptop. You promise me it’s the best One? Yes. Will you support It? Cool. Buy it, ship it done.

Hartland: Yeah. Look. Hey, listen, I’m going to listen to the podcast you just released on this topic because it’s definitely an interesting one and it’s timely for, conversations that Devin have had internally. So, look, Dave, we’re at the top of the hour here, and it’s been, a pleasure. I think it’s, been super, interesting. And I’m sure, we could come up with another hour easily of Questions, to talk about.

Dave: We’ll do it again sometimes. Thanks for having fun.

Hartland: You’re welcome. And I would love to take you up on that. So, Devin you have anything closing remarks?

Devin: No, just likewise. Thanks a lot, Dave. And I’ll be sure to include a link to your YouTube channel in the video description. So, if anyone wants to find it, they can click down and go over to your channel directly.

Dave: And you can find all my Podcasts. The business of tech is Daily. It’s on all the podcasters and then links, are at Businessof.tech, so you can find the daily version of the podcast for auto, so that helps everybody find it.

Hartland: Excellent. Thanks a lot. Thanks very much, everybody. Have a great rest of your day. Thanks. Bye now and happy weekend.