Build vs. Buy: A Deep Dive into MSP Growth Strategies

Transcript

Steve: [00:00:00] All right, well, hey, uh, today, I’m excited. We’ve got Bill Tyndall. He is the, uh, what, what would you say the, the appropriate way to say this is? Former founding executive of Electric AI. Yeah, sure. Okay, and then he’s also the founder and CEO of Tynrose, and uh, this, this guy, he’s done good things.

We were just talking about college sports, I know everyone loves college sports, right? He, he was a big, uh, uh, offensive linebacker, right?

Bill: Offensive linebacker. Yeah, yeah.

Steve: So, so yeah.

Baxter: For UC Berkeley, big, big time program, big time program, and electric AI raised, what, a couple hundred million, Bill? Um, yeah, so massive, massive platform, really focused on the IT space, uh, and ITSM space have scaled tremendously, you know, since then Bill left and started 10 rows, [00:01:00] uh, whereby he’s acquired one MSP, uh, since, since inception has two additional MSPs under LOI.

And, you know, as I think a lot of people on this call know, or don’t know. You know, I come from the investor MSP, M& A landscape as well. Uh, and, you know, we’re so excited for Bill to join and educate us because I think he comes at the M& A market from a very different approach than a typical, call it, private equity backed acquirer of MSPs.

Um, and today You know, he’s gonna walk you through the approach and really walk you through kind of two different components to the approach. You know, one is the traditional approach that I think everybody hears about in the market, right? We want to acquire more MSPs. All right, Steve, we want to acquire this, we want to acquire that, we want to acquire this.

Um, but, you know, really that’s not, that’s not his strategy. Um, I think that’s not, I think that’s a misnomer a little bit. [00:02:00] That’s not a lot of people’s strategy. Um, and, you know, we are excited to kick this off and, and start talking more about m and a from FP and a, uh, and as our first guest obviously introduce, uh, bill Tyndall.

Bill: Oh, well, it’s great to be here. I, uh, I mean, just give you guys a little plug, obviously, like I’m a big fan and supporter of everything you guys are doing over there, and I think just when you guys, uh, asked me to do this, we talked about the, uh. Really, the need, the reality is, is people are buying things, people are trying to merge with friends, and I think that being able to just talk to people about things to be thinking about, ways that that happens, is, uh, is a very fun topic.

I obviously spend a lot of time in it these days, so it should be, it should be fun to go through, and I look forward to Q& A at the end and seeing what questions come up for people.

Baxter: Steve, anything we missed before we want to jump into? I think maybe to kick things off, Bill, I think we’d love to [00:03:00] just hear maybe a little background.

Thank you. You know, how you would tell your story as to, you know, what is the founding story of Ten Rows and how do you approach the market in a little bit of different way, and then, you know, would obviously love to get into. You know, your thoughts around buy vs. build and what that means to you, and how you think about the market more generally within the M& A landscape is obviously, you know, it’s freaking nuts.

I mean, it’s just changing constantly, and the number of transactions that are occurring, you know, almost feel like they’re daily, and the number of MSPs that we speak to, you know, who are talking about M& A is also just countless, countless groups.

Bill: Yeah, for sure. Well, so, just, uh, just to start, so, for, for ways of background for everybody, I have spent the vast majority of the last decade looking at opportunities [00:04:00] to build automation into repetitive manual tasks for professional service companies.

So, accounting, IT support, which is my last company, and, uh, and I started to realize something As we, as we scaled electric, which part of this as well, we’re going to talk a little bit about organic growth strategy. We actually, we scaled electric from two of us in an office to over 500 employees and 50 million of revenue in, uh, in about five years by just having a really strong organic growth strategy.

And so we built that business up, we scaled it and then, yeah, I personally exited out in 2020 and took some time off when I started to realize that. One of the really big issues that I was seeing in the market is Just really this, this inconsistency of experience for our clients, the small to medium sized businesses as we think about like the three components of, [00:05:00] of what it is that we do here.

And, uh, I think a lot of people actually fail to understand what a managed service provider’s full responsibility really is, but how we explain it to people is our, our duties, so to say, is the, as the technology shepherds for our clients is really being responsible for what we think of as digital transformation.

And, uh, and what falls into that is the assessment of infrastructure, so technology, email, all that stuff, the deployment of that, and then the management of it. And, uh, and you see a lot of MSPs going out there, and we’re doing a lot of components about that, but when you start to look, even across this room, I’d venture to guess a lot of people listening to this right now are MSPs across the country.

Reality is, is there’s 40 people in this room, and what I like to say is, if you’ve met one MSP, you’ve met one MSP. Different process, different ideologies, different technology stacks, and so what we really wanted to create inside of TinRose is, [00:06:00] how do we just generate An incredible experience delivered consistently at scale across markets, across client types that we choose to work with.

And, and for me, a big component outside of obviously growing organically is where are there opportunities in times where it actually makes more sense to just buy a business. and buy a team and buy a level of expertise versus just organically expanding and building it yourself. Because the reality is, and some of you may be buying businesses today, some of you guys have maybe tried, reality is it’s actually more cost effective, may take longer, but it’s more cost effective just to grow a business organically.

Simpler. Um, but there are times depending on the strategy, the, the ambitiousness, et cetera, where it does make sense to, to acquire things. And a big piece of that conversation is really getting an understanding of when [00:07:00] and why and what you should be thinking about if you’re going to go for it. So lots of, uh, lots of, of things to talk about for sure.

Baxter: It’s, um, sorry, go for it, Steve.

Steve: I was just going to say that, and everyone here understands what Bill means when he’s talking about like organic versus inorganic, right?

Bill: Yeah, well, we’ll actually talk through that in a second. I’ll just go in. Um, uh, are you guys able to see my screen right now? Yes, sir. Sweet. Um, so a couple of things that we’ll go through in this, and the next screen is, will actually be about organic versus inorganic and all this good stuff. But to start out, just what we were just talking about, I want to walk through a little bit about what the differences between organic and inorganic growth strategies are.

Um, some of the nuanced details, and I’m, after this, if anybody wants to reach out and chat about either category, I’m obviously more than happy to do that. [00:08:00] Um, for those who do decide that they want to go into the world of inorganic, maybe you’re thinking about merging with another MSP in town, or

Bill,

Baxter: can, can, before you jump in here, can, can I ask you an, uh, an impossible question?

Bill: Sure.

Baxter: You said it before, right? So, inorganic strategies or M& A, uh, can supplement the needs of a business or the potential expansion opportunities of a business. and can do so at a, at a premium. Um, do you really only think about it as [00:09:00] a acceleration of time from an acquisition perspective?

Like, hey, I operate in the Northeast, I could obviously build organically in the Southeast, but if I acquire this business, I’m going to pay up, you know, I’m going to pay more money for this business, and I’m going to be able to accelerate that from a time perspective, or are there other considerations?

Within that regard.

Bill: Well, there’s a lot of considerations going in, but at the end of the day, fundamentally. You are, you’re buying time. At the end of the, I mean, a great example of this is a lot of, a lot of people are trying to get into security right now. So a lot of people are thinking about, okay, well, how do I expand that?

And the reality is, is you can either go and find people who have gone down that path, maybe you’ve built a program inside of an MSSP, and you can just hire them. And start selling a security product yourself, or you could go and look to [00:10:00] acquire a bucket of talent that already has a pre existing client base.

To be able to, to scale into. So really M& A is just an accelerator. I mean, you’re buying revenue and you’re buying talent, so you’re buying logos and talent when you’re going. And maybe not really in our world that much, but theoretically you could also be buying IP and automation and some of these other things that, that may come into other businesses over time, but really at the end of the day, you’re buying scope, serviceable addressable market or a serviceable addressable market.

So the expansion of. Your ability to service clients in new ways. And then you might be buying a new market in itself. So you’re expanding your business’s capability into Dallas instead of Austin and some of these other things. But at the end of the day, you could do any of those things yourself. You could take one of your employees.

I guess

Steve: I’ve always thought of it as, yeah, you know, sure you can buy into a different market, [00:11:00] but maybe you want to acquire. Knowledge or, or skills?

Bill: Expertise. Yeah. Talent. So what is the, if once again, going back into the idea of security, if you want to move into the world of security, you can either acquire the talent that already has it, or you can train somebody up on your team, or you can just hire people to be able to do that.

And so, I think where a lot of people, M& A is a really sexy concept in itself, it’s really fun thinking about buying a business, but when you actually start doing the math often times, so let’s just say that I want to expand into Dallas, and so you start looking at all these businesses, maybe you have a friend down there, Well, maybe you find an MSP that you can buy, and it’s going to cost you, they’re doing a few million bucks in revenue, and it’s going to cost you a few million bucks to buy them.

Well, the question is, is whether or not that makes sense, or whether it would just be better for you to start trying to sell into that [00:12:00] market, hire a field rep out there, so that you can actually do implementations and these types of things, and then just buy it. It may take you a couple of years to get to 2 million in that, in that market, but you’ve now kept more or less all the value that you’ve created off of that.

And so I think a lot of people go in thinking about M& A is, Oh my gosh, multiple arbitrage, it’s a really sexy thought. I’m going to combine with a bunch of other people and then we can sell for 20 times to ever make a ton of money. Yeah. And usually those don’t work. Usually that does not work like people think it does, and there’s a bunch of reasons for that.

Not to say it can’t, and it is a great strategy if executed well. But at the end of the day, I think where a lot of people get tainted in this world is forgetting why it is that they’re considering the expansion. And anytime I think and I talk to founders in MSP land, in tech land, it really comes down to, well, what is it that we’re trying to achieve here for this [00:13:00] business?

Am I just trying to sell out? I don’t want to run this anymore, and I’m trying to get the most money I can out of it. Therefore, I’m going to partner with Baxter, who has another MSP, and together we’re going to have a high enough level of more or less revenue in EBITDA to get me to the number that I was looking to.

And I’m going to have Baxter run it through transaction and go. Or am I looking to scale? And am I looking to build an MSP that’s two times larger, three times larger, four times larger than I am today? And so a lot of these conversations come down to, well, who really do I want to be when I grow up? And a lot of that educates the strategy between organic versus inorganic.

In my mind, like you should always be thinking about where are we trying to go with this business versus get rich quick. Get rich quick is something that does not exist, uh, in a lot of things. Oh, these are polls. Nice.

Baxter: When, um, but before we jump in as well, Bill, when do you think is the right time to [00:14:00] consider M& A?

Um, is, is there a right time? Is it like, you know, hey, I feel like my operations have normalized. I can service my clients. I have a little bit of a sales function that’s running and running, um, or, or is, you know, should we always be kind of considering M& A as another growth lever to our businesses?

Bill: Yeah, well, so, and we’ll, we’ll talk about this in a little bit, but the reality is, is there’s always appropriate times to start looking at M& A.

Because M& A isn’t always this big, sexy thing. Like, sometimes it’s as simple as what’s referred to as like an acqui hire. So, Baxter and Steve are two people in New York. I’m three people down in Austin. And I have established that there’s talent gaps on my team, whether it’s from a leadership perspective, from a talent perspective.

And so there’s a world where we just merge the two companies together [00:15:00] and we say, Hey, we’re now this thing where we’re now filling these pieces that we were missing in each other. And now we can scale this MSP. So I think about it less of, I think about it less in terms of a level of importance of scale and more of understanding, well, what is the need that I’m trying to fill here?

And oftentimes, even what I just explained, that’s scope. Like, if I don’t have certain levels of expertise on my team that I need to be able to accomplish the goals of my clients, reality is, is I either need to figure out how to hire those people, or a really effective way of doing that is if you have a friend who, has an MSP that’s roughly about the same size that has some of that pockets of talent.

Like, you can actually, in those types of worlds, merge together. Now, there’s a bunch of things that need to be considered, and we’ll talk about those later in integration. Like, who’s now the King Kahuna, and is the CEO of this new combined thing. But the reality is, is I don’t [00:16:00] think that there’s ever a time that’s too early to be thinking about mergers, acquisitions, acqui hires.

But you have to know why. And also, you have to have a really good understanding of where you’re really strong and where you’re not. Too many people, I think, try to buy businesses without understanding a lot of their core flaws that they have, and so they try to force More or less an integration and already bad process where both teams have bad process and next thing You know, you just have this 2x issue of bad And so you have to understand why are we buying this group or why are we merging with these people?

How is this good for our clients? How is this good for our team? And how does this help us scale? Or like the big things that I think about when, when buying businesses.

Baxter: Cool. No, that’s, that’s great context. Let’s um, sorry for hijacking. Uh, let’s uh, let’s let it rip.

Bill: [00:17:00] No, no, this is, this is great. And we’ll go, we’ll go back and forth.

I’m so, I hate presentations and all this stuff. So back and forth is always, is always great. But so just to go back and reset the stage in this. So we’ll talk a little bit about organic growth strategies. To me, this is everything that we’re just naturally doing in the business today, sales, marketing, events, client advocacy, strategic partnerships, all the things that we’re just naturally doing on our own that are more or less like paid acquisition channels.

Um, mergers and acquisitions are the other side of this. There’s a bunch of different flavors of this, but everything from the mergers, which are the combinations of two companies together into a singular entity, acquisitions, where one, I call it planets and moons, where a planet gets a new moon that’s absorbing around it and spins.

There’s a bunch of different ways to do these things, and we’ll talk through. But, and there’s a lot of factors that go into these different types of strategies, and neither of them are free. Organic growth costs money, mergers and acquisitions cost money. [00:18:00] They’re very, very different profiles of that, but we’ll talk a little bit through some of the nuances and also really creative ways that people are actually transacting.

In this space that don’t involve you needing to take out a personal guarantee on an SBA loan or work with one of these big private equity groups that are going to take all of your ownership. So lots to go into. Um, cool. Organic growth strategy. We’ll riff through this for a little while. I could spend all day on this.

This is the bread and butter of what we do. I’m a big believer in just so everyone has an understanding about how we think about the world inside of Tin Rose. We organically expand our business about 20 to 25 percent year over year. We could do it faster, but there’s a lot of constraints around organic growth.

Um, and this, we’ll talk about some of the reasons why inorganic starts to get interesting as well. But the reality is, is you can only expand revenue [00:19:00] at the rate of which you can service the revenue. And so, what that means is, I can spend all the money in the world on sales, but if I don’t have the ability to acquire the talent to implement those new clients, to service those new clients, it leads to service degradation, service degradation leads to unhappy clients, unhappy clients leads to churn.

And this is why you see so many MSPs really plateauing at that, like, 5 million to 10 million mark. Where you really have to understand what that looks like. And obviously, hiring, cultivating, and retaining talent is a really, really big thing that we see in this space that a lot of MSPs really struggle with.

And so these are one of those areas where the idea of M& A starts to get really interesting, of being able to say, okay, well, hey, if I can buy 2 million of revenue for 2 million, I’m going to be able to buy 2 million of revenue for 2 million. And I can just get the team already built in servicing that 2 million of revenue.[00:20:00]

Well, that just, once again, just saved me all this time. And so you see a lot of people starting to see as they’re playing with these growth strategies, it’s like, all right, well, I can either figure out how to hire salespeople, go through that path.

So we’re going to start by talking about what are the different ways for us to organically grow revenue. So one of the first things that I talk to MSPs about before they even start going down on the path of trying to think about buying other MSPs. is, well, what could you be doing today to just change the fundamentals of your business?

How can you be thinking about ways to increase average revenue per user without having to linearly scale your headcount? And so, bunch of different ways on this, but everything from new tools that you’re putting inside of packaging, there’s a bunch of different things that you guys are probably reselling today, but Security is a big one of these.

How can I take my, my client from getting in and paying me anywhere from, [00:21:00] I don’t know, some of you are maybe charging 100 a user, maybe even less, all the way up to 200, but how can I get a client in with that average revenue per user of, let’s just say for the simple math, simple example here of 100 a user, And how, over time, can I actually increase that average revenue per user from 100 to 120, or 130, or 140, 150?

Um, this is one of the simplest things that we have inside of this business. Obviously, a lot of our clients are going to continue to add headcount. We naturally have this organic, more or less, headcount expansion as our clients continue to stay with us and we onboard that. But the question is, is over time, how do we actually think about, uh, more or less a revenue expansion in ways where we don’t have to hire 10 more people to be able to service that new revenue?

As you’re able to do that, that’s going to go on?

Baxter: No, I was just going to say, to double click on that, I think what’s, what’s, what’s interesting, right, is that the, typically the [00:22:00] cost to expand within an account and cross sell new opportunities is significantly less. Than the cost to acquire a net new customer.

Yeah. So now obviously from an organic growth strategy, you need both. Typically, um, at least if you want to grow 25, 30% a year. But you know, how do you get to the right kind of tipping point or balancing act between having a higher a CV average contract value with the right client base while providing the right service?

And I think that’s the kind of holy grail that all MSPs and MSSPs are trying to figure out. And that’s why, you know, understanding your profitability by contract or your profitability by customer is absolutely critical. Because that profitability then goes back into your business machine [00:23:00] of how can you scale top line revenue and how you can scale your business.

Bill: Not 100%. I mean, and we’ve, Baxter, you and I have obviously talked about this a lot over time. We, uh, we run our businesses very similar to, we, we think of all companies like data companies. And so to us, we could tell you we run a pretty sophisticated Power BI instance that’s fully integrated to ConnectWise and a few other systems.

But I could tell you profitability of every single one of our clients. By technician that touched that client, by ticket that technician did for that client in any, in any given minute, day, week, month. And that educates a lot. But at the end of the day, going back to your question of, well, how do you figure out what that expansion path really looks like?

The biggest thing, and one of, I think, the largest misses that I see inside of a lot of MSPs that I talk with is, they don’t spend enough time talking to their clients, [00:24:00] In the form of what I like to think of as product feedback surveys. So we, we have, we have quarterly business reviews for some MSPs. Some MSPs don’t, we take on our feedback surveys from crew, who, whatever it might be, but they neglect to do the most simple thing that they could be doing for any of their clients, which is, which is going through each of the pieces of what it is that they’re delivering for their clients, asking about experience, asking about tools that they’re using internally.

And continuing to look at more or less like, what is the ecosystem of my client base look like and how are they using and interacting with that technology? We then take that data, as well as being that we ingest all this data from our clients on tools that they’re using internally. So what percentage of our clients are, Apple and Google in comparison to, to Windows and Microsoft.

What are the other subsections of tools that they’re using? And so one of the big [00:25:00] pieces that we’ll talk about in here is strategic partnerships. All this related work. As we think about increasing average revenue per user, like it’s pretty straightforward to look at. It’s, it’s what are your, what’s your client data telling you if, if 60% of your clients are using, uh.

are using Google as an example, and you’re purchasing Google through, uh, through, um, PAX 8 as an example. Well, hey, how, how can we think about actually getting more of a rev share out of this? Does it actually make more sense for us to go direct to Google as an example? Small scale now, but at what point do those things start to make sense to move over?

Where should we have direct relationships versus use products like that? What products could we be reselling into our clients because we have these gaps? So a lot of people are doing this right now with phishing tools. Security tools, SaaS monitoring tools, and it’s just little small things here and there.

It’s an extra 3 a user, extra 4 a user of these tools that we don’t have to touch. And so a [00:26:00] lot of it just comes down to talking with your clients, understanding where they’re at in terms of risk profile for security, understanding who your client base is in terms of their own compliance and regulation.

And then you can start to think about creatively, how can I do that expansionary revenue? But at the end of the day, such a huge focus to me. Because your clients, most MSPs naturally have about 10 percent more or less revenue expansion just based on new hires coming inside of clients, etc. Like that’s what we see on average and we’ve talked to hundreds of MSPs.

New logo growth is actually the place where a lot of people really struggle. It’s how do I invest a dollar and get two dollars out of this? Um, and I see it time and time again, a lot of MSPs, they’ll hire a couple of account executives. Founders been doing pretty well at growing 15, 18 percent year over year.

You hire a couple of people in, they can’t seem to get it. You now waste a couple hundred thousand dollars. You fire them, you go back to the starting stone, you wait a [00:27:00] year, you try it again. But

Baxter: that’s exactly why M& A continues to come up as like a main driver of growth, right? And so, you know, we talked about the organic component, the cross sell, the up sell, the expansion, and I think that’s generally what a lot of MSPs do well.

And the reason why they do it well, from my perspective, is that there’s a lot of opportunity. Right, there’s a lot of opportunity to increase into cyber, increase into phishing, increase into specific project based work, you know, one off, you know, as those companies are growing. Uh, the challenge is new logo expansion, and, and I think a lot of people try it, a lot of people have challenging times on the sales side, and then they default to M& A because they can’t quite figure out the new logo component.

for that.

Bill: Yeah, [00:28:00] well, so you’re totally right about that, but one of the problems with that as well is one of the reasons why businesses in general struggle with organic growth and to go to take a step back before building electric, before 10 rows, I build sales models for people for a living. I’ve probably built 15, 16 sales models for venture backed companies.

VCs used to bring me in all the time. So like, this is kind of my, my world. The reality is, is that, and this is going to be a hot take for probably a lot of people in here that have probably experienced and felt this pain. But the reality is, is people struggle with organic growth because they don’t know who they are yet as a business.

They don’t understand the pure value that it is that they are bringing to their current client base in a way that they can articulate to other people experiencing the catalysts that get people to wake up in the morning and say, wow, I actually need an MSP today. [00:29:00] And so, to take a step back, and if any, once again, if anybody wants to talk about organic growth in depth, the, the single biggest place is, is people just start sending outbound emails.

And usually, they’re very direct. And the reality is, is there’s so much noise today, and there’s so few catalysts that actually have people thinking about IT and cyber. And to give you guys some perspective of things that I do, every week I actually interview, I don’t even think about them as prospective clients, I interview executives at businesses ranging between 200, er, 20 and 200 employees, and I ask very simple questions.

Like, when I ask you about your IT budget for 2025, what do you know? What do you know about that? What are some of the initiatives? I’m constantly asking the theoretical buyers of our [00:30:00] product how they view IT and their organizations. How involved they are. What are the things that do keep them up at night about it?

What do they end up getting escalated into? Because all of those things educate how my sales team approaches its content and its approach to those people. And so a lot of people go and just start putting together content and they’re pretty much like a page long email of all this value that they think that they’re bringing.

But the reality is, like, there’s a bunch of basic things inside of sales that, that stand true, whether it’s 10 years ago or today. Emails can’t be more than 5 cent, or 5 lines long. They have to be very short. They have to be, uh, interesting enough to get you to read it, and have a good call to action to get you to actually action into it.

And so, just to give you guys as an example, for anybody listening and interested in organic growth, the single best email that I’ve ever written, from a [00:31:00] performance basis, inside of the MSP spaces, is Hey, I heard your team might be looking into solutions for IT, cyber, whatever it is. Not sure if you’ve heard about us, but we work with clients like, boom, boom, boom.

I’d love to schedule time just to get to know you guys and see if we might be able to help. Hey, person, heard this. Not sure if you’ve heard about us. Would love to chat. Bill. Five lines. And it outperforms all the time. So I think that a lot of people try to go and they try to, they try to cheat. They’ll try to get these outsourced SDR teams, which I hope nobody in here is an outsourced SDR team because I’m going to bash on it for a second.

I’ve never seen one work. It’s really tough to do it. If it’s tough for you to do it for yourself, it’s going to be tough for somebody else to do it for 30 other people. is what I’ll tell you. And so, just back in, like, the biggest thing is, before you start trying to figure out how to buy other people [00:32:00] doing other stuff, it’s really important just to understand who you are and who you are to your clients.

And if you take the time to think about that, both organic and your ability to execute on inorganic are going to exponentially increase. But I think far too many people start trying to figure out how to get into the world without taking the time to really get real with themselves about who we are to our clients.

Are we, are we the premium product? Are we the bottom of the barrel? Are we straight down the middle? Because who you then think about buying is also going to impact that. Like you can’t merge the bottom of the barrel with the Rolls Royce premium product and expect those cultures to work together. It just doesn’t work.

And so. I think that a lot of people really fail to do that. And a lot of people think, but going back into this really quick, because I want to, I want to make sure and be respectful of time that we don’t stick on this too [00:33:00] far and we get into some of the M& A. But sales and marketing doesn’t have to be expensive.

And to be honest, the single largest thing that, that is successful for us in organic growth, is just remembering that we’re all humans. We believe in experiential marketing. We do not do Google AdWords. You’re never going to see us in your city buying Google AdWords of your company’s name to be able to index higher than you.

It’s just, to me, that’s just a waste of time. Where we spend money is getting people together. Events, dinners, uh, and we ask people for help. We ask people for feedback. We ask people for how they’re thinking about this world, how they’re thinking about this market. Do they know people? It doesn’t have to be rocket science to go through.

And then, it’s all just about being able to manage the funnel. Not all of us are great salespeople. Find somebody that can do it. They don’t have to be expensive to go through. But, um, once again, there’s also a bunch of different technology that you guys can leverage now to build out some of this content and cadences.[00:34:00]

I challenge everybody in here right now that’s interested in organic, just go inside of ChatGPT, tell, and then tell it to more or less reference against your website and build really, really simple to understand sequence, sales sequences. And you would be surprised. How good you can get with, with building some of the stuff out for yourself.

Last piece in this, I’ll just go back into in understanding who you are. You cannot be everything to everybody. Figure out who you can sell to really, really well. Understand them. It’s going to build brand credibility. It’s also going to make you more valuable as you understand, as if you guys eventually think about transacting, it’s really important to understand who you are the best in the business for.

Are you the best in the business for digital advertising agencies that run off of MacBook Pros and NG Suite? Who are you the best in the business for? Because, once again, going back into inorganic, as you think about those [00:35:00] areas where you want to start to expand, you can start to say, okay, hey, we are the best in this, and now, we want to expand our serviceable addressable market by becoming the best in this.

And as a result, I’m going to buy this business that does that really well, and they’re going to be the specialists in that.

Um, just to go in, M& A opportunities, why to do it, we’ve already talked about a few of those different reasons. Uh, I think about expansion opportunities really in terms of service delivery. So once again, hey, I’m the best.

I want to be expanding into new ways to be able to support, how can we start to do that? New market opportunities, as an example, we’re expanding into Dallas right now, um, inorganically as a, as a way of going through. And then once again, just figuring out complementary skills. Also, [00:36:00] sometimes. When you’re starting to look at, at M& A, and this is the goal, the goal is not to buy a business that has complete redundancy, because if you merge with a friend and you guys have complete overlap, somebody’s going to get fired in there, because you have two heads of delivery, whatever it might be.

So like, once again, there’s a lot of considerations that have to come in, but what you’ll see in really, really beautiful versions of M& A, especially when it’s, um, business to business and not private equity grouped, um, to MSP, is being able to say, hey, you guys have a really strong head of delivery. We have an incredible head of project or project management and delivery, but we just had our head of service delivery leave because they moved or whatever it might be.

And so us coming together, like, you guys don’t have this, we have this. There’s a really, really good synergistic overlap in terms of [00:37:00] more or less the executive and the management talent that we have inside of these businesses. And so M& A is a great way to be able to acquire some incredible talent that fills gaps inside, and we always look at that.

We are not a business, once again, we’re not a private equity group. I have no interest in buying a business to fire 50 percent of its staff to just harvest it like you see so often happening right now. If we’re going to buy a business, I need all three of these things. It’s got to bring me into a new market.

It’s got to expand my current support in some way, and there has to be complementary skills that fill for us. If I don’t have those things, it just doesn’t make sense for us to go, and I might as well just try to organically do it. Um, issues, integration is by far and away the hardest piece of this whole thing.

For anybody that’s gone through it, they know this. But integration isn’t just Who’s PSA are we taking? Whose benefits are we going to take? All the systems and the [00:38:00] technology. It’s also culture. What is the culture of my business and team? If you have one group that has their quarterly meeting internally, where the first question they’re asked is, well, how could we be doing things differently?

That business can’t merge with

https: www. youtube. com.

com https: www. youtube. com. com And so when I think about M& A for us, um, for anybody who may have even talked to me, because I, I talk to MSPs all the time, people always ask, like, don’t, don’t you want to know about the math? And I’m like, the math, the math is the math. The math will work itself out. Like, I need to understand [00:39:00] who you are and how you think about building and running this team.

Because to me, that’s everything. I can fix the math, regardless of what it looks like. But to us, cultural integration issues are the single largest failure points for these businesses.

Steve: Uh, that makes a lot of sense. Um, and, you know, the, I, I think, uh, a lot of the people, if not everyone here on this call can even relate to that because, you know, even in the channel, there might be a vendor, a really big vendor who’s acquired another big vendor and culturally one was great and one maybe wasn’t.

But the one that wasn’t was the bigger one that did the acquisition. And, and we have seen firsthand what happens, uh, to a company that has a great culture, uh, but unfortunately [00:40:00] the poor culture is what wins out. So, that’s Something that I think, uh, you, as an MSP, if you’re going to make acquisitions, you should probably make sure your culture doesn’t suck first.

Because if it does, yeah.

Bill: Yeah, well, and vice versa, you should really be thinking about who you’re potentially getting in bed with, so to say. Because I’ve also seen deals, and we looked at a deal actually that we pulled out of, we were looking at two MSPs that were thinking about merging together, And, uh, one of the founders was one of the most incredible men I’ve ever met in my life.

I am still an incredibly close friend with this guy today. We ended up not doing the deal. And, uh, we killed the deal because the person that, that they had been trying to merge with, the other founder actually, [00:41:00] in a triangulated way, was trying to screw the other founder, uh, the other business.

Steve: That sucks.

Bill: And, uh, and trying to do this backdoor deal with us. And I said, I said, Hey, like you have a phenomenal business, you’ve built it. But if this is, if this is how you’re talking to me about this person that you’ve known for a decade, there’s probably a lot inside of your business that I’m going to find that I’m not going to like, and we’re not going to do this.

And so it’s really, really important to take the time to understand who you’re working with, because that can be make it or break it. I’ve seen MSPs merge with one of a good, somebody who’s a good friend of theirs, cultural’s RIF, and end up shedding 80 percent of their staff, which as you guys know, also means shedding 80 percent of your clients.

And if you ended up financing that, which talking about financial risks, if you end up taking debt on that business, and you’re now in breach of covenants, Which is more or less, there’s a, there’s a ratio of your [00:42:00] ability to service debt in comparison to the debt outstanding, etc. If you’re on breach of that, the bank can take your business.

Force you to sell it for asset for more or less parts. And I’ve also seen that happen now a few times. And that is tragic. Great business, great team. Something happened, there was a rift, they lost a chunk of clients and they decided to take debt on getting that deal. And next thing you know, now they have to figure out how to fire sale so that they don’t get their house taken because they had a personal guarantee.

Like those are the things that I see and why I’m on here right now. Once again, we obviously buy businesses. We’d love to talk with anybody out there, but we have no investment mandate. We may buy a company a year, we might buy two companies a year, we might buy no companies a year and organically grow. To me, this is so much more about helping people to understand the pros and cons and the risks.

Because that’s something, that story I just told you, we’re helping somebody through, not to buy them, but to help them actually sell to the right type of [00:43:00] person at the, towards the end of last year. That just happened. So, these are things that are super, super important to think about when you’re actually going to go through.

Steve: So, is there a, is there a magical way to do this with limited to no risk?

Bill: I don’t know. There’s no, there’s absolutely no world where you can do M& A with no risk. I mean, there’s a reason It’s like all things, you make investments and sometimes they work, sometimes they don’t. There’s, there’s a great book for anybody interested in, in M& A, uh, it was referred to me by a dear friend of mine who, um, was in a business that does a lot of M& A.

It’s called Deals from Hell. I will, uh, I will send it to, uh, to Steve and Baxter after this to be able to share with people. And it’s a case study of more or less large scale M& A throughout the last couple of decades Thanks [00:44:00] There’s a lot of deals in there that you, you will remember over the last 20 years and you’ll think to yourself, Oh my gosh, that was, that was a really incredible M& A like thing that happened.

I remember reading about that, but it was actually the worst transaction that happened in that time period for that category by like magnitudes. Is T Mobile

Steve: and Sprint on that list?

Bill: There’s also a bunch of AOL and some other groups. It’s a great one. But

Steve: the

Bill: point, the point is, is that M& A is really complex.

Thank you And if you’re going to be buying a business, maybe you’re doing SBA loans, maybe you’re working with a sponsor to be able to do it. Um, there’s also things called rural investment funds that are really, really cool ways actually of leveraging debt that have different covenant structures. Uh, it’s really about job creation instead of just thinking about the scale of the business.

But the reality is, is there’s real risks associated with taking debt, with taking on a financial partner [00:45:00] and understanding what you’re getting into and with who. And understanding, well, what are the risks? Like, what’s the likelihood that this business that we’re buying throws a total mutiny on the other side and, and ends up causing issues?

Because, once again, these all go in. But there’s a lot of ways to de risk acquisitions. And the biggest ones, and this is actually funny, but we actually talk about marital family counseling in M& A. Yeah, I don’t need that. Clear communication with stakeholders is everything. Um, I think that, I think that understanding and learning how to communicate together is really important.

I think that having a clear understanding of, of why somebody else is doing this with you and not just the, the fluffy version of it, but why are we talking about doing this together? Standardization of process and technologies and, and understanding if there’s really strong overlap before [00:46:00] looking to get a deal done.

Or does one team have better documentation and training than the other? Uh, question that I ask everybody, where does this blow up on us? Where does you and I working together, where do our teams working together, where does this blow up? And really thinking through, like, hey, what are the pitfalls of this?

And then the last piece in this is, is understanding what strong leadership guidance What’s the willingness looks like between two teams coming together, and is there willingness for the leadership of two different teams to come together to actually lean into the change that’s going to happen? Because both teams change in M& A, and what’s the willingness for those leaders to come and do that together?

And there’s also can be a lot of conflict in that. And so really just understanding, hey, who’s in charge? Who’s overseeing what? Do we [00:47:00] have an understanding of that? Do people feel like they’re learning and growing? And is there a fit? Because if you have two people who feel like they should be doing the same job, reality is you’re going to have to get rid of one of those people because it’s going to cause issues.

And so these are all things that have to be factored in. One of the

Baxter: things, just quickly, Bill, that you mentioned that I think is fascinating and could not be more clear is Everybody focuses on the numbers, right? Everybody’s like, oh, what did your MSP trade for? Oh, you know, how much money did you make?

And Bill said this, I think, very, very precisely at the beginning, like, the numbers are the numbers. And if you’re in the M& A game, you can make any numbers work. Like, the numbers are the numbers, and you can finagle, and you can adjust the numbers in a multitude of different ways. What is so critical about M& A and bringing businesses together is the cultural, strategic lens that [00:48:00] is much more subtle.

Not many people talk about, uh, and not many people spend a lot of time on, but I think the most sophisticated players in the space Spend much more time on the cultural dynamic because that’s really what’s going to make or break the company, right? I mean, and we can all look at our own businesses and say, well, why is sales successful?

Or why is customer success successful? Or why is your product and engineering team successful? Or why is your marketing team successful? Nine times out of 10, it comes down to leadership, work ethic, and the cultural within that organization that’s really able to execute, as opposed to Oh, like how much are you spending on these people or, you know, what the actual financial component is?

Bill: 100%. Yeah. Once again, the math is the math. So much of this comes down to the culture, the ideology, uh, the mentality of that [00:49:00] business, and that is exponentially more valuable than what you’re telling me you’re adjusted EBITDA is, which is usually not correct anyway. And so, like, we end up, we restate books for almost every single business that, that we chat with.

Um, and it’s a big thing. And so just to go into, like, risk management, how to, how to de risk as much as possible if you are going to go down this path. One, you have to do financial due diligence, and you can’t just take somebody at their word. Like, I’ll give you a great example, even in our own business.

Um, everybody asks for the top ten client list. When they’re doing M& A, you guys have probably, if you’ve gone through a process, you know this is a thing. When we got inside of our business that we operationally run today, we had a top 10 client list. When we actually went in and started running our own financial [00:50:00] analysis using Power BI, which once again, client profitability by technician by ticket, our top 10 clients were actually our top worst clients.

Our top 10 client was actually a negative 16 percent gross margin due to ticket volume in comparison to solve time and all of this stuff in comparison to the rate that we were paying.

Steve: Okay.

Bill: We were charging. And so, and we had, we had, in our opinion, our, our stuff really well together. And so things always get through.

And was that a problem? No. Like, we, we know how to, like, run the playbook to, to fix a lot of this. Once again, math is math. You can figure out a reset a lot of those things. But financial due diligence is everything. And making sure that, like, you’re actually taking the time to understand how do they run their business?

How do they look through it? Working through integration challenges. So, what systems do we both use? Are we both using ConnectWise? Is one of us using JSM, as an example? [00:51:00] Who’s got, what should we going to use? Are we going to use both? Are we actually just going to keep everybody separate? Working through all of the, the ifs.

Buts and breaking points of integration is incredibly important. Not just for success, but also seeing how people work together.

Baxter: Mm-hmm .

Bill: Any market overlap, competitive risks. Um, and then the one that I just told you guys about, which is leverage and debt management. I mean, this is something that is crushing a lot of people who are going out and trying to do the bootstrap version of M& A right now.

There are banks that will lend to you. There are private investors that will lend to you. But you really have to understand, can the business that I’m buying right now, plus me, can we actually service the debt? If something goes wrong, if we lose 20 percent of our client base when they hear that we just bought them, do we [00:52:00] still have enough to cover?

And you

Steve: have to, and you have to project, you know, good, bad, ugly, when it comes to acquisitions, you, you actually have to assume that there’s going to be, uh, some amount of, uh, attrition. Right? Whether it’s employees or clients, both.

Bill: Yeah, and sometimes it is. Luckily, I’m very blessed to be able to say this, but we have experienced up until today zero voluntary churn from clients, which is incredible.

Like, we had an incredible culture going in. We continue to scale that both internal with our own team members as well as our clients. And one of the big reasons is we’re so thoughtful around the people that we, that we work with, how we think about M& A. But the reality is you have to factor in any time that we do a deal, we factor in about a 20 percent reduction [00:53:00] in both headcount as well as clients.

And not clients because we reduced headcount, but because you just don’t know. You don’t know the full experience of your neighbor MSP. You just don’t know until you get in. And it’s a huge thing. Regulatory compliance. I think that this is going to be a big

Baxter: Bill, Bill, sorry to interrupt quickly. We had just one question that came up, which was, how do you make yourself, you know, from the other side of this, and I want to be responsible of time as well, but how do you make yourself irresistible from a buying perspective?

Uh, I’d love to hear your response or thoughts on that, because I suspect you’ll have an interesting take.

Steve: Irresistible, Bill.

Bill: No, I think it’s actually really funny and I can give you guys some great examples of this. But the reality is, is we all want the thing that we can’t have. And so don’t take the M& A, or don’t take the M& A calls.

Say, I am heads down building my dominant MSP in [00:54:00] my dominant market. And if you ever end up out here, we can get together for coffee. Um, but like we’re, we’re heads down building right now. We don’t have any interest in being, in being purchased. That’s step number one, is just don’t come straight to the table, don’t take the calls.

Um, but then two, a lot of this comes down to actually being able to show, like once again, math is math. You have to be able to show that you can execute. There’s a million MSPs, there’s actually 100, 000 MSPs, but there’s tons of MSPs out there for these acquirers to go buy. So the, the question that you need to be able to ask yourself is, why us?

Who am I the best MSP for? Do I have a clear way to articulate that to where I can then acquire those clients? Am I showing that I can organically grow with new logos and not just this, this build of the revenue base that I have? [00:55:00] Or maybe I’ve been able to show that I can successfully buy other MSPs and integrate those together, but the question is, what MSP acquirers are looking for is stability.

Who are these people? Who are their clients? Do they have process in place to be able to scale, um, and do we think that the culture is going to align with whatever it is that we have? And so a lot of this comes down to, yes, math is super important. You guys should be constantly looking about how to improve gross margin, expand EBITDA.

Those are, those are kind of the basics of how this, this industry goes. But where you are going to get an abnormally large valuation in comparison to your competitor is if, one, you can show that you can execute, two, you show that you’re not just trying to disappear and go off to some other place, but like you are dedicated [00:56:00] to expanding your business.

If you can have a business that’s growing 20 percent year over year in this space, And you can show margin expansion through average revenue per user increase, et cetera, therefore leading to EBITDA expansion. So you fixed your capacity model, starting to look at data, et cetera. If you can show that you’re a data driven business that understands who your client is and you understand how to acquire them, you will get a higher multiple than your neighbor.

It’s just straightforward. Steve?

Steve: It is 4. 59. Do you, do you want to make one more point before we wrap?

Bill: Um, no, I just say to just to end with that, it’s know yourself, know your clients, know your team, and that’ll educate you on whether you think you’re ready or not per, per man, er, to do some M& A related work.

Don’t get in over your head. Continue to do the things that you’ve been doing. You can’t let it consume you and stop growing your [00:57:00] own business. Reality is you need to focus on your team. You need to focus on executing. M& A is just one of many ways to be able to do it. And taking a hybrid approach can also be a really incredible way.

If you can grow your business 20 percent year over year, and then maybe do a deal or two, like you are going to have a very attractive MSP to be able to sell.

Steve: Very good. Well, Bill, thank you so much for hopping on here and having this conversation. I’m, I’m sure that this could have easily been a three hour conversation and you still would have only scratched the surface.

And I’m also certain that you and Baxter would have been the only two people happy to have this conversation for three hours. I don’t

Baxter: know. I could talk about this for a while though. I love this topic.

Steve: That’s what I’m saying. That’s what I’m saying. My, my eyes started to roll into the back of my head. Uh, so

But no, this was really [00:58:00] great, man. I really appreciate it. I can’t wait to have you back to have more conversations about this. Uh, folks, uh, thank you so much for attending. If you have any questions, you want to reach out to Bill, um, you can find him on LinkedIn. You can find him on Twitter.

Bill: Yeah, probably Twitter.

I use no social media these days, so really LinkedIn’s the best place to find me. I think, I think I have a Twitter, but uh, I do not use it at all. So if you want to find me, find me on LinkedIn.

Steve: You’ll be on TikTok doing dances?

Bill: Sometimes. Sometimes.

Steve: All right. Thanks so much, everybody. You all have a great rest of your day.

Build vs. Buy: A Deep Dive into MSP Growth Strategies

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