Episode 181: MSPs: Have you worked out your hourly profit per client?

Episode 181 • May 01, 2023 • 00:47:58
Episode 181: MSPs: Have you worked out your hourly profit per client?
Paul Green's MSP Marketing Podcast
Episode 181: MSPs: Have you worked out your hourly profit per client?

May 01 2023 | 00:47:58

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Hosted By

Paul Green

Show Notes

Episode 181

Welcome to the MSP Marketing Podcast with me, Paul Green. This is THE show if you want to grow your MSP. This week's show includes:

Featured guest:

Thank you to Justin Esgar, CEO of Virtua Consulting Group, for joining me to talk about growing his business by acquisition.

Justin Esgar runs Virtua Computers, one of the top-ranked Apple-focused tech consultancies in the country. With 20 years of tech industry experience under his belt, Justin helps small-mid-sized businesses and non-profits analyze, design and install technology solutions to help their operations run more efficiently and protect them from disruptive and (sometimes catastrophic) scams and crises. 

Connect with Justin on LinkedIn: https://www.linkedin.com/in/justinesgar/

Extra show notes:

Transcription:

Voiceover: Fresh every Tuesday for MSPs around the world. It's around the world. This is Paul Green's MSP Marketing Podcast. Paul Green: Hello, greetings, and welcome to episode 181. Here's what we got in store for you this week. Justin Esgar: What's up everybody? I'm Justin Esgar from the Virtua Consulting Group and we talk about how a small business like yours can acquire other MSPs. Paul Green: So on top of that interview with Justin, we are finishing off something we started in last week's show; your clients aren't terrified of cybercrime. Why is that? Let's find out and what you can do about it. Voiceover: Paul Green's MSP Marketing Podcast. Paul Green: A couple of weeks ago I sat down with my accountant, my CPA, for our annual catch up and just looking at things. And we always end up talking about everything but the business and definitely anything but the figures. In fact, we spent more of that time talking about my accountant's business than we did my business, which might seem weird to you, but I've worked with my accountant for 15 years. We've been literally through the highs and lows together. He helped me to sell my last business back in 2016, and he's just generally one of those guys that looks after you. When you're in his gang, he looks after you. And I always look forward to sitting down with him, talking about business and what's going on. And it's really interesting because he has recently been through a process of firing some of his bottom clients. So we're talking the bottom 20% of the bottom 20% of his client list. And what triggered that was something which you'd think as an accountant he would be on top of a regular basis, but he hadn't done it for many years. It's something that I should be doing, you should be doing, in fact, everyone should be doing this. It is sitting down and working out what profit you are making per hour on each of your clients. Let me say that again so it's completely clear. You sit down and you figure out how much profit per hour am I making for each of my clients? So my accountant, Rob, has a range of clients, he's got really big businesses, we're talking multimillion turnover businesses, he's got some in the middle, which is where I am with my business, and then he's got a bunch of much smaller businesses. And some of those businesses don't cause him any grief at all. They use the software, they ask a question once and they write down the reply. So they're fairly low-impact clients. They might not be high revenue, but they're low-impact clients. But conversely, he still has some heritage clients, clients he's had for years and years and years. And we're talking that the trader that walks in with a box full of paper, receipts of physical paperwork, and will dump that on his desk three days before all the stats are due, due to be sent off to the tax authority. And they'll say to him, "Here you go, here's a year's worth of records." And so Rob sat down because that's a distress thing for him, it's not a fun thing. So he sat down and he said, "Right, for all of these clients, how much profit per hour are they making me?" So if we took, let's say, the smaller business that doesn't pay him a lot of money but doesn't bother him a lot, they were actually quite profitable per hour because any client has a certain number of hours that has to be invested. Let's say the average client for an accountant, at the bottom end, is five hours per year of work. So if he's getting paid, let's say, £1,000 or $1,000 a year for five hours, that works out £200 pounds an hour. And for an accountancy business, typically it's mostly every extra client that comes on is mostly more margin because they don't really have to buy anything, do they? It's just time, it's just people's time, and he's already got the staff to do it. So £200 an hour profit, he's happy with that. Obviously he'd rather that was a £10,000 a year client, but £1,000 that'll do it, £200 an hour profit. And then you take Mr. Shoebox coming in with all his paper receipts. And as you can imagine, when he realized how many hours of his staff's time, so if it took a junior member of his team, let's say, another five hours to input all of those bits of paper and scan them and turn them into something that his digital accounting software can use, now, okay, you wouldn't charge that person's timeout at £50 pounds an hour, but there's still a cost of doing that. In fact, it's more an opportunity cost, isn't it? If an admin person is tied up for five or six hours, which is a day, let's be honest, that's a day's work, then that admin person can't do something else. So the actual profit per hour of that client, who might be paying the same amount of money, that same £1,000, but their profit was, well, he was telling me some figures that it was down, really down, embarrassingly low. So he fired that client. Actually he gave them an option, he said to them, "Look, you cost me more to services a client than you actually bring in revenue. So we've got an option for you with two choices, or rather a choice with two options, which is number one, you go and find another accountant, or number two, you pay me £3,000 a year." And Rob has now set himself a kind of, what's the opposite of a ceiling? It's a floor I guess, isn't it? It's been a long day. It's a floor that if a client routinely, we're talking across a number of years, if a client routinely doesn't deliver a certain amount of profit per hour across the year or across a number of years, then either the price has to go up or that client has to go and find themselves a new CPA. And I think this is a very smart thing for MSPs because you will have a similar kind of thing. You might have two identical clients. They look the same on the surface, similar number of users, similar amount of services they buy from you, but one of them doesn't ring the help desk very often. They don't seem to have many problems, maybe because you have suggested a project to them and a whole series of services to keep them protected. And they have gone with those things. So they've bought the project, they've done the work, they have taken the services, so they have less hassles, they have less risks, less chance of a breach, and they are generally less hassle for you as a business. But then you might have conversely a identical client, similar setup, similar number of users, similar services, but they didn't buy the big upgrade project, they didn't take all of your security advice. So they have more problems, they have slower computers, they are more likely to ring up the help desk. Now it's obvious, which of those two clients is more profitable? Well, obviously, it's going to be the one that calls you less. Isn't that really the dream? Isn't that what every MSP wants? To get clients who don't call you? I know you want to stay in touch with them and you want to keep the customer service levels high, but actually if they're not calling you, it's because you've proactively stopped the problems from interrupting them. And I appreciate that the less they call you, the harder it becomes for you to justify the cost of what you do because they don't see the background work, do they? I understand that. I suppose you want kind of a balance of a little bit of cause. But obviously, there's a certain amount of profit there. Now, I don't know which PSA you use, and let's not use this as an excuse to start discussing different PSAs in different reporting. But wouldn't it be cool if you could work out for each client, how much profit are we making per hour? Now, unlike my accountant friend, you have more options to you. So you can go to a client and you can say, "Hey," and I would be honest with them and say, "Hey, we've, we've done some sums, we love working with you. Going to be honest, we've been working with you for a number of years. Even though our prices have gone up, we've calculated that we don't make a lot of profit working with you. And we wanted to talk you through our thinking on this. You see, at this point you have a choice to make. You have three options. Option number one, if you don't want to invest in your business, if you don't want to pay more, please go and find yourself a new IT support partner." In fact, you could give them the website address of your most hated competitor. That might be a fun thing to do. Actually, you only do that with the hassle clients really. So that's option number one is they leave. Option number two is you say to them, "Currently you're paying £1,000 a month, we need to put that up to £1,200, £1,300," whatever, whatever the price is per month, so that essentially there is a price rise, but it's a big jump because it puts them back into the profitability area. Or for you, and this is a third option you have that my CPA didn't have is you could say to them, "We need to upgrade your technology to reduce the amount of support that you need." So we need to invest into whether it's a migration or better computing, computing powers, laptops, more services, whatever it is, whatever it is that you know. You sell them a project at this, it's a fixed cost, it's a capital expenditure, but you know that when they've got that in place and all of that work is done on that project, that they are going to be less of a support burden for you going forward. Now, you may be scared of having that conversation with a client. And certainly, if you're in your first few years as an MSP, this perhaps isn't a conversation you'd want to have. But if you are a more mature business, you've been going a number of years, and especially if you've got clients who have been with you for years, maybe it would just be something to do, just a fun report to try to figure out how much profit are you making per hour for each of your clients? And you will, at some point, set a floor. What is the floor? What's the basic per profit hour that we need to earn per client? Because if we don't, then they're going to have to make that difficult choice from one of those three options. Voiceover: Here's this week's clever idea. Paul Green: This is the second part of something that I started in last week's show. If you haven't listened to or watched that on YouTube yet, head on back to episode 180 and go and watch the first part of this because we're talking about why the ordinary business owners and managers that you look after so well, why aren't they terrified of cybercrime? And we're exploring that and what you can do about it. So last week we talked about the way the ordinary people think and how their brains aren't as exposed to the horrors of cybercrime as yours are. And then we talked about the three Rs, Rs, I could say that like a pirate, couldn't I? The three Rs, I'll never do ever do that again, the three Rs to wake them up. And those Rs were we need to make it relevant to them, we need to repeat the message again and again and we need to remove choice from them. And that's what we're going to explore in more detail right now, right now. I can roll my Rs as well as do the pirate thing. As I said, will never do that again. So first of all, how do we make cybersecurity more relevant to ordinary people? As I said last week, it's just not on their radar the way it is for you. You see breaches all day, every day, if not with your clients because obviously you don't see those very often, you certainly don't want to, but you read about them, you get alerts about them, you're in forums, you see breach, breach, breach, breach. Malware, ransomware, attack, it's everywhere. So it must be for you what it's like to be a police officer. So police officers see crime all the time. So when they go home, do they lock their door with 10 locks? I guess they do, right? Because they know what crime there is around all the time and it's no different for you. But for the ordinary clients, the ordinary business owners and managers, it's just not relevant to them. So what we need to do is we need to hack their reticular activating system. Now, you may remember me talking about this. This is the part of our brain which acts as a relevant filter. So if, well, some sensory information comes into the brain, if the reticular activating system, the RAS, if it decides that that information is not relevant to the person, then they will not perceive it. Essentially, it blocks it, it doesn't pass it onto the conscious brain. So what we need to do is we need to make cybercrime seem more relevant. We need to wake up the reticular activating system. So there's a couple of different ways that you could do this. For example, you could start monitoring them on the dark web. And I'm conscious there are lots of great services out there to do that. It makes very good sense to go and sign up to one of those. It's an investment, it's an investment into marketing, it's not a cost in any way. Dark web monitoring is great. You could do dark web monitoring and you imagine saying to your client, "Hey, what's your personal email address? Da-da-da-da-da-da-da. I've just put that in and look, there are 217 results that have come out. And in fact your email address has been compromised on this occasion, this occasion, this occasion," et cetera, et cetera. And you do this in a way which doesn't cause them embarrassment. But instantly, it makes them aware that, well, let's be honest, some of them don't even know that the dart web exists, right? They have no idea. They wouldn't know how to access it. In fact, they'd be scared to go on there even if they did know it existed. So this is a great way of showing them that not only does it exist and it's real and it's huge, but their email address is for sale on the dark web that is going to wake up their reticular activating system. The other thing you could do is go to something, if you didn't want to go through a proper dark web monitoring service, you could just go to Have I Been Pwned?, put their email address in there. And again, you could just do a screenshot of the results that come up. You could also do an element of show and tell. If you have a laptop that has been compromised in a ransomware attack, pull out the wifi card. I just said something technical, did you see that there? I snuck that one in. They don't do wifi cards anymore. Is it a chip? I don't know. Hit the wifi thing with a hammer so that laptop can never connect to wifi and keep that laptop to show them what ransomware actually looks like. Because imagine going and sitting down with a client, doing the strategic review, and then saying to them, "Blah, blah, blah, blah, blah, ransomware attack." And they say, "What? Ransom what?" And you say, "Let me show you what it looks like." And you say, "This is a real laptop that used to belong to one of our clients and we've disabled its connectivity so it cannot connect to anything and spread the malware, the ransomware that's on here, but look," and you open it up and there's the red screen that says, "You are screwed, please pay Bitcoin." And then you can explain to them, so this was the owner's laptop and they came in on a Tuesday morning and this was the red screen and it was the red screen on their assistant's laptop and everyone's computers. And then they discovered that it was the data was gone from the server and all the backups have been corrupted, and you can actually start to talk it through. Just showing them the laptop makes it real. That's the goal of this. To make something relevant, we've got to make it feel very real to them. So that's one of the things or a number of things that we can do to make it relevant to them. Now, I think once you've done that once, you've got to keep doing it again because the next R is repeat, repeat, repeat. You've got to keep repeating things to them. When I was a radio presenter back in the mid to late nineties and early noughties, one of the things my boss, my bosses kept saying to me is that if you want listeners, if you want people to take in something that you're saying, you've got to keep repeating yourself because people often they need to hear the same thing again and again and again and again for it to go in. So once you've figured out a way of getting past the gatekeeper that is their reticular activating system, you've got to keep repeating the message. If a client chooses not to buy more cybersecurity services from you today, doesn't mean you never ask them again. In fact, in the next time you do a strategic review, you bring it up again and you say to them, "Well, we sat down six months ago, nine months ago, whatever it was, and you declined X, Y, Z service, whatever it is. And do you know what? I just want to talk you through that again because now, 84.3% of our clients are using this service," nice bit of social proof there, "they're using this service because it keeps them safe, it makes everything less stressful for everyone, and I'd urge you to reconsider." And you keep mentioning it and keep mentioning it because you never know, you never know when the day's going to come, when the day's going to come when they are ready to buy that from you. Well, if someone doesn't buy something the first time, we mustn't be scared of mentioning it again and again and again. And at the point that you are sick yourself of mentioning something, that's the point you double down. And again, looking back in my radio days, as a radio presenter sitting doing a four-hour show every single day or often six days a week, you repeat yourself quite a lot. And my boss used to say to me, "At the point to which you are sick to death of talking about something, whatever it is thing is we want them to know about, the listeners are only just starting to twig that something's happening." And it's exactly the same for you. So you might sit down and do 100 strategic reviews across a three or four or five-month period. So you said the same thing a hundred times, but each of the clients has heard it once or twice. And that's the mistake we make. We mistake the repetition in our brain as everyone who is listening has heard it 100 times and they haven't, they've heard it once or twice. I do loads of webinars and this podcast and videos and I write articles, I pretty much do 99% of our business' content myself. And often I'll find myself, like now, coming onto a podcast thinking, "Right, okay, I'm going to be talking about this. I've talked about this so many times." And yeah, I have, but I've not done it on the podcast. I've perhaps done it in a video and I've written about it in an article and I've done it in a live webinar and I've done it in a prerecorded video as an interview and maybe... You get the idea. So I've repeated it a number of different times, but you're just hearing it for the first time now. Someone reading an article I wrote on my website six months ago is just reading it for the first time now, so you've got to keep repeating it. So the first one was to make it relevant to them to get past their gatekeeper of their brain, the second way to make this real to them is to keep repeating the message, and then the third part, and this is the hardcore thing to do, I believe you need to remove their choice. Now, this is slightly controversial, and I would love to get your views on this, but I believe there comes a point as an MSP, and remember, I am not an MSP, I never have been, I'm not technical, but I am a reasonably good business operator and I know how important it is what you do, I know how critical it is what you do, and how important you are to your clients, but I also know that sometimes they don't help themselves. So I think when we're talking about removing choice, I think, and you'll do this on a case-by-case basis, but there has to come a point where you say to them, "You need to buy this service or do this upgrade or do this project or whatever it is, because if you do not, we are soon going to get to a point where you are going to be breached." And you could, depending on how brave you're feeling, you could say to your client, "I require you now please to buy this service. Of course you have the choice to decline it, but if you do, I need you to sign this disclaimer." And the disclaimer, it's not really there for a legal point of view because if you asked a lawyer, depending on which country you're in, I mean, in the UK it would be a four-page document, in the US it would be a 42-page document that the lawyers will put together for you and charge you $10,000 to put that together. So that what we're talking about here with this disclaimer has no legal bearing really. I'm sure it could be helpful, but this isn't legal advice, this is marketing advice. The disclaimer says, "I've declined to buy the things that have been offered," and then you list what's been offered, "I understand that my chances of a breach go up every day when I don't use these services. I also understand that in the event of a breach, this is not covered by our regular technology support agreement and I will have to pay $200 per hour for all and any cleanup actions." And that $200 might be $300 or $400, whatever, it's a painful price. So that actually, if and when, I guess when really, when they do get breached, you're going to have a bit of a payday to rescue them. Now, that's not profiteering, that's not cashing in, that's a punishment tax, that's an idiot tax because if the client won't protect themselves and invest a couple of hundred bucks a month or whatever it is to invest to protect themselves, then when they get breached, not only should they have to go through the 10 days of hell, they should have to pay a ton of cash as well. And that's to you to fix that problem. And believe me, they will take you more seriously if they're paying you $300 or $400 per hour to fix a massive problem than if they're paying you $50 an hour. So don't be afraid to charge that high amount. But also here, the real purpose of that disclaimer is to make them just pause and say to themselves, "Hey, maybe we should look at this more seriously. Maybe, just maybe, we should revisit this." In fact, when you are saying to someone, "I want you to sign this," which it admits that you will be in the wrong if bad things happen and it's going to cost you a ton of cash, the whole point of this is to get them to just pause and go, "Yeah, hang on, maybe just tell me about that again." And that's really what a disclaimer is. So when we talk about removing choice, we're kind of removing choice, but we're, what we are really doing is pushing them in the right direction because let's be honest, you and I know that they're going to be much better protected if they buy from you, whatever it is you want them to buy. If you do that, by the way, if you're in that removing choice situation, make sure you sell them everything they need at that point. Even if it means they're adding on $1,000 or $2,000 per month, whatever they're spending. It's better to do that. If you're going to remove that choice, sell them everything in one go than selling them one solution now and then be back again in three months time with another solution. That will make you feel like a persistent salesperson. And no one likes persistent salespeople, but what they do like is being protected by their strategic advisor. And that's you. Voiceover: Paul's blatant plug. Paul Green: That disclaimer that I just mentioned in the last bit, we actually give one of those to our MSP Marketing Edge members. So we give them a whole bunch of different tools to sell cybersecurity. There's some templates, there's some videos. In fact, we've got a cool set of videos. It shows what happens when a ransomware attack unfolds. They're terrifying to watch. We paid a white hat, an ethical hacker who is an MSP, we paid them to hack a machine for us and we screen videoed it, screen recorded it, and we've turned it into an educational video that you can show to your clients. In fact, there are different versions. There's one that can go on your website and there's one that you can use and talk through yourself what's happening. Plus, there's that disclaimer. You see, the MSP Marketing Edge, it's not just about social media and it's not just about educational guides and emails and videos and blogs and LinkedIn content, it's also a whole set of very smart tools to help you sell more to your existing client. Here's the important thing, we only sell this to one MSP per area. The reason we do that is so you never have any clash with any of your competitors. So you need to go and see if your area is still available. You can do this at mspmarketingedge.com. If your area is available, please do start your free 30-day trial, because afterwards, there's no contract and you can cancel any time. Have a look, at mspmarketingedge.com. Voiceover: The big interview. Justin Esgar: What's up everybody? I'm Justin Esgar, three-time guest of the Paul Green MSP Marketing Podcast, owner of the Virtua Consulting Group. Got a lot of things going on, I'm really looking forward to talking to Paul today. Let's do this. Paul Green: And I was about to say, I think you actually qualify as the most frequent guest on the podcast. So is this your third time or is this your fourth time? I've kind of lost track. Justin Esgar: This is I think my third. I do say that if I make it to five, you owe me one of those five-timer robes like they have on Saturday Night Live. Paul Green: Okay. Okay, right. I've I've never seen Saturday Night Live because they don't show it here in the UK. But yeah, okay, we'll go with one of those. In fact, I will come to New York especially to give that to you in person, Justin. That's the promise if you are on for the fifth time. So thank you again. You have been an incredible guest in the past. In fact, from memory, you still feature in what is our most listened to episode, which is when you and a couple of buddies came on and you answered some marketing questions that other MSPs had pitched in. So thank you so much for that. And let's see if we can get you to be the second. Wouldn't that be awesome? If you had the top three slots of the three most listened to episodes, that would be pretty cool. Justin Esgar: What you didn't realize is that I've been slowly trying to take over and I'm going to make it that Justin Esgar MSP Podcast. You just don't realize that it's happening yet. Paul Green: Maybe this is the point we should make public the conversation we were having last summer when I said I was going on vacation and you actually wanted to come and do the podcast for a couple of weeks. I'm still toying with that idea. Maybe we'll do a takeover, maybe not. I know producer James, his eye twitches a bit and he gets a bit of a funny look at the thought of someone else coming in. But I think you're a better professional than I am. Anyway, we're not here to talk about us. What we're here to talk about is acquiring another MSP because that's something that you have done in the most recent past. And I want to talk to you today about how you find another MSP to acquire, what it's actually like to buy one, how you value it and what it's like to integrate it with your operations, all of that. Before we talk about that, let's just establish who you are. So for those people who are listening that don't actually know you, Justin, just tell us a little bit about you and your MSP. Justin Esgar: I own Virtua Consulting Group and our primary piece of that is called Virtua Computers. I started that in 2008. We're an Apple consultant, so we're an Apple-focused MSP, taking care of small to medium business, 5 to 50, as long as they have Apple products. Every now and then, the bookkeeper has a PC, we'll say, "Sure." Handling Macs, iOS, Apple TVs, anything like that. And then since then, since starting in 2008, I've grown a couple of other companies and in 2017, we merged all in. So we have a software hardware arm and we have a conferencing department, and I do business consulting for other IT professionals. And then most recently, the acquisition, and we'll talk about this later, of two companies we acquired this past year in 2022, My Mac Mentor, which is a training company and Gravity, which was an Apple Authorized Service Provider allowing us to legally exchange and do warranty repairs on Apple products, which is a big thing for us. So all of that falls under the guise of what is Virtua Consulting. Paul Green: Okay. So those two acquisitions then, and by the way, you've got such a wide variety of things you do, I remember us talking about this before, it's really exciting talking to you because there's always another angle, there's always another new thing or another opportunity that you spotted, these two acquisitions, these sound like strategic acquisitions. So it sounds like you've identified opportunities to sell more to your existing clients or to new clients, but you didn't have the ability to service those. Hence, you've gone out and you've looked for someone to buy. Justin Esgar: Yeah, so the My Mac Mentor is more B2C, that's a lot more residential clients, but we are working on creating that product, the training section of it, and making it a B2B pay for a product so we can now train our existing customers on how to maximize your Zoom or how to use SquadCast, for example, and host your own podcast, or things like that. And so we're building that out for the next upcoming year. So we acquired them for a couple of pieces. One is we wanted to tap a little bit of residential, sprawl out a little bit there. Because I know we talk a lot, MSPs don't only doing a lot of residential people, but there are a lot of MSPs that are very successful only doing residential, and I'm friends with a lot of them. So we wanted to start get in a little bit there, as well as buying that pre-established learning management system that came with the company and all the benefits of the pre-existing classes and her already monetized YouTube channel and all of these things. So we acquired all of that in what we call an asset purchase, and were able to expand that way. For the one in Gravity, their company's based in Columbia, Missouri, it was symbiotic because they had a little bit of going on of MSP. So we were able now to increase their MSP abilities by giving them all the tools that we already had pre-established, like our ticketing system, our RMM, things like that. And we gained the added benefit of now being an Apple Authorized Service Provider, which you cannot really get on your own. And now, all of our pre-existing customers from Virtua Computers, and of course now My Mac Mentor, if we have a hardware problem, we just ship it to our own place in Columbia, Missouri and ship it back out. And Apple pays us for warranty repair. So if I have a client in New York who's got a broken machine, our Columbia office ships them a pre-made, ready-to-go loaner machine with the majority of their data on it and enough to get by for the next couple of days. They put their broken machine in the box, ship it back to Columbia, Columbia fixes it and ships it back to them and they ship back the loaner. This way, our clients are never without their computers, they're never without their data, and we're able to take care of the entire thing from the top down. So we're offering now consultative services, training services, and hardware services, which is the trifecta for any MSP. Paul Green: Yeah, no, it sounds it. So I can see how there is lots of cross-selling opportunity, there's lots of new markets that that opens up for you. So these were, as I thought they were, strategic acquisitions. So take us back 15, 18 months. And were these opportunities that landed on your plate or was this your mind saying, "Right, we want to get bigger, we want to do more of these things. How do we do that? Do we start it ourselves? Do go out and to acquire?" What was your mindset as you threw yourself into that growth? Justin Esgar: All of the acquisitions we've done so far, because this is now our third in two years, have kind of landed on our plate, but only through other things. And I'll get there. So this is where I'm going to call out producer James, he can fix my quote if I get it wrong and cut in and do a TikTok shot. Apparently there's a quote, it says, "Luck is what happens when preparation meets opportunity." Something like that, right? Paul Green: Yeah. Yeah, it's Richard Branson I think said that. Justin Esgar: That would make sense, no wonder I like it. So the idea here is that we cause those opportunities and the way we were able to do that was actually by hosting the ACES Conference, which is our business-related IT conference, which you were a part of last year, and we thank you so much for being a part of. Paul Green: Thank you. Justin Esgar: And the people, everyone that we've acquired have been to the ACES Conference. They got to meet me, they got to see what I'm doing, and they came to me with, "Hey, I have an opportunity." Now, there have been plenty of people who come to me and said, "Hey, I heard you bought so-and-so, would you buy me also?" And those were fluff numbers. "I'll tell you my contact list for a three times multiplier." But none of that really landed. But these three came to me, they knew me. In fact, the woman who owned My Mac Mentor, she was at the First ACES Conference in New Orleans in 2015. And I remember her just so distinctly because I remember, and I'm sorry for embarrassing her, she lost her phone. And so she came to me and was like, "I lost my phone." And I stopped everything and we found her phone. And we created a friendship over that. And after seven years, she came to me and was like, "I'm thinking about selling my business. You're the first person I'm telling." And so that opportunity would've never come to me had I not been risky enough to have the conference and meet these people. And now, that's just me. I'm not telling everyone to start a conference. In fact, it don't start a conference, they're horrible. But there are opportunities out there that you need to take advantage of. There are steps you could do. There are networking events, there are other groups you can go and meet people, find out what they're doing. In the case of Gravity, our one in Columbia, Missouri, like I said earlier, his MSP part, the guy who owned it was coming to me asking me all these questions about the MSP side of things. And we were having a Zoom call and drinking beers and going, "Wouldn't it just make more sense if you were a part of us? Because the Apple hardware thing come and go, whatever, but we can help your MSP part. We already have everything pre-established." And it made sense. And then we looked at the numbers, which is always the important part, and just it worked, it worked out. We were able to come to an agreement on the numbers. And now, I added four full-time staff and four part-timers. He's now our director of customer experience because he's really good at talking to clients, and allows me to free up my time to do awesome podcasts like this one. Paul Green: Yeah, no, that's amazing. And I've got some questions for you on the actual acquisition activity. Let me just ask a curveball question, was if you didn't know these people and well, let's say, there was another business that you had your eye on, and you thought, "Oh, that would be a great strategic fit for what we're doing," but you didn't know that person, how would you go about getting their attention and seeing if this was the right time for them to sell their business? Justin Esgar: It's not so much a curveball because I kind of done this. If I didn't know them, getting that relationship is the most important part because anything when it comes to businesses is relationships. If you're not good at making relationships, you can't run a business. And that's true for all pieces. My relationship with you allows me to be on this show, my relationship with my clients allows them to pay me, my relationship with other Apple consultants allows me to sell them on things like my conference or joining our company and things like that. But you have to establish that relationship. So one is go in groups that they're a part of, meet with them, offer them something that they're not offering. When I first started in this industry in 2008, on my own, I had worked for a company for a couple of years and I broke off, did my own thing, I didn't have any clients, I had four clients. The way I got more clients was in the Apple industry we have a thing called Apple Consultants Network and we used to have meetings. And so I would go to the meetings every month, they were at Tekserve, rest in peace, and I would offer my services to the other Apple consultants because at 28 years old, I was really egotistical and I was like, "I know more than everyone else does." And so I would offer my services for doing the things they couldn't do. I was really well versed in MacOS server AD integrations, which, thank God, is long dead. But when my colleagues, my other Apple consultant friends were there and they had a client that had that and they couldn't figure it out, they would turn to me. And so I established a relationship with those other consultants. Fast-forward that when I started my conference, I immediately hit all of those people up, going, "Hey, come to this. I know you need this." And they did. So you build that relationship with people, then they got to trust you, then you can talk about buying. I've had plenty of other conversations with consultants who I'm friendly with, but I don't necessarily want to acquire them, or maybe I do. What I'll do is I'll just be like, "Hey, I really want to get on a Zoom and talk to you and get to learn a little bit more about your business." Paul Green: Yeah. Justin Esgar: One of my best friends in this industry is a guy named Brian Best, oddly enough. Love that guy to death, Kansas City, shout out Chiefs. I've talked to him multiple times about acquiring him, and he goes, and he keeps telling me for profoundly no, and I'll keep knocking on that door in a jokey kind of way, in a serious kind of way. It doesn't matter, he's still my friend first. That's what matters. Paul Green: Yeah. Justin Esgar: So build those relationships, then start asking questions. "Hey, what can I do to help you?" Offer, be the one to be the one providing for them. That's going to allow them to think, "Oh, Paul's got an edge on this thing, I want to talk to Paul more." And then you come in and you say, "Hey, listen, not only can I do this, but I can do 45 other things that you're not doing. Maybe it makes sense because I like the way you talk or work or think or act or project manage, or whatever, and I'm lacking that skill. Maybe it makes sense we partner up." And then that's how you start those conversations. Paul Green: Yeah, relationships. I absolutely love this. It's funny, I was talking to an MSP here in the UK just earlier today, and he said not a week goes by where he doesn't get a letter from a business broker saying, "Hey, do you want to sell your business?" And those letters always go in the bin. And then a couple of weeks ago, he got a letter from another MSP the next town along. It wasn't quite handwritten, but he'd written his name at the top and signed it at the bottom and it just said, "Hi, I'm Dave. I run so-and-so IT just up the road. I'm hoping to expand into this town. If ever you were thinking of selling, just give me a call on this number." And he's not thinking of selling, but that stood out to him because it's a more real approach than, "I'm a business broker and your business is worth 10 times this," which obviously is always nonsense, the brokers always exaggerate the figures. But I think you're right. If he was going to go and sell to that guy, the first thing they would do is they'd go and have a beer or a coffee, they'd get to know each other. When I sold my business back in 2016, I went for the middle offer. I had an okay offer, a good offer and a great offer. And I went for the good offer because I'd built a relationship up with the guy that went on to buy it. So let's talk about the actual structure of deals. You mentioned earlier something called an asset purchase, which is different to something called a share purchase. And so talk to us about what the difference is between a share purchase and an asset purchase and why you would favor one over the other. Justin Esgar: I'm not even sure what a share purchase is. I can tell you what I do know. And again, asterisks on this, I'm not a lawyer, despite what my mother wanted me to be in life. From the way I've looked at things and the way I always explained things, you either buy just the assets or you buy the assets and liabilities. And the difference between those two is if you're buying liabilities, you're buying loans that that company still owes, you're buying all the negative stuff. And you never want to do that. You don't want to acquire someone who owes $100,000 to some big daddy corp because then that becomes your $100,000 bill, and what are you getting for it? So many at a time, we do what's called an asset purchase. We only buy the good stuff. So in an asset purchase, we're buying the things that actually have value to the company. So what does that include? Contracts with clients, intellectual property, physical property, hardware, things like that. And so those are really the two. I think in a share, you're buying shares of the company, but the companies we're buying are so small, basically what we're doing is we're dissolving their companies and creating, we're just buying all the goods, we're not buying their name. Paul Green: Yeah. Justin Esgar: We're dissolving their name, shutting down their company basically. And then we're creating a DBA, doing business as, or there's a couple other ways to explain that one, and adding that to our company. So Virtua Consulting Group has a DBA of Gravity, and we've established a presence under the name Gravity, even though the company we bought was Gravity, Gravity LLC no longer exists in a registrar with the agencies that are involved. So we bought all of the stuff that's involved. So in this case, for Gravity, we bought all of the hardware that was in the shop, we bought the van, we bought the computers that were used by the employees, we bought the bananas they have for scale, we bought the TV that was on the wall, we bought the desk chairs, we bought the tables, we bought the cameras, we bought all of that. What we didn't buy was any debt that the owner or owners still owe to other people. So that's an asset buy. Paul Green: Yeah, no, I think the term share purchase might just be a UK thing. So very similar here in the UK, you can either buy the assets of the company, all of the things you just talked about, or you buy the entire company. So the equivalent of an LLC here in the UK, it's just called a limited company. I think they're similar legal themes, but they're slightly different rules. The advantage you have of certainly here in the UK is as the person selling the business, you want to sell the whole business as a share purchase because the tax laws are so in your favor if you do that here in the UK. Whereas if you have an assets sale, you just sell the assets and you keep the company, it's not so advantageous from a tax point of view. Let's move on. I want to talk about integrating a business. Now, I've read loads of books about M&A. I find mergers and acquisitions or murders and executions as they called it in American Psycho, which is much better way of putting it, I find it just fascinating, I've been doubling in it myself for the last couple of years. I've still not got a purchase over the line yet, but we're working on something as we speak. Now, one of my favorite books, and I'm looking to see if I've got it here on my bookshelf, and it must be one of my downstairs bookshelves, but it's a book called Barbarians at the Gate, and it was about the hostile takeover of, I think it was Nabisco back in the 1980s or the 1990s. And it's one of those books that as you read it becomes less and less like reality, and yet it's completely about reality. One of the things it talks about, the hardest things of putting two companies together is clashes of culture. And certainly, that's what whatever the company was that bought Nabisco found, that they were essentially getting huge culture clashes. Now, you are talking small numbers of people here because you guys, there's not hundreds of you in your company, there's just a reasonable amount of people, and it sounds the same in the ones that you've been acquiring. What were your concerns and worries about culture clash as you were bringing people together and how did you overcome those? Justin Esgar: That's a really solid question. I want to preface with the Nabisco factory is, well, was 10 minutes from where I live now, by the way. And we saw it and then they closed recently, so now their sign is down. But you used to drive by and get the smell of cookies, which was great. Okay, culture, I'm massively huge on culture. In fact, I just did another interview with an Australian podcast all about culture. Even in a small business, culture is massively important. And here's something that I never thought of being a problem until it became a problem, is people used to make fun of me for being too New York. On a podcast, this is me, but I'm tamed down a little bit, I'm not cursing. If you hear me in a regular conversation, the F-bomb, it's literally every other word. In fact, I get in trouble all the time for cursing in front of my children. That's my way of talking. However, people in the Midwest in the United States don't take to the "New York attitude". So I have clients in Iowa, that when we first brought them on board, I was like, oh, I need to step back a little bit because their clients, bring myself to where they are culturally, and then for my staff that I integrated, I need to bring them up to what we do. And that's true between how we interact with clients, how we interact with each other, how we interact on Slack, how we write emails, how we write our proposals. Right now, our contract's New York centric because we're a New York based company. But when I'm trying to close a client in Columbia, Missouri, the rules are different there. So I have to be able to deal with that. That's all culture, on top of the personnel piece of it. Before we acquire anyone, I talk to every employee at that place. I didn't talk about part-timers here because they're college students, they're really easily moldable, but all of the full-time employees, I talk to them each individually on my own, and I interview them the same way I would interview them as if they were applying for a job with me directly, as opposed to being brought over the acquisition. Because I need to know where they stand. And people know that I do this, I asked the printer question. It's a Friday afternoon, you're the only one in the office, CEO calls, says, "Paul, I can't print. I need my keynote presentation because I'm flying to Vegas and I want to mark it up in my favorite pad. Fix it now. What do you do?" An MSP, a good consultant will know the answer to that. But I need to get that from them, I need to know where they are culturally because then I can move them in the right direction. So that's part one. Paul Green: Yeah. Justin Esgar: Part two is providing them the tools to integrate with us culturally that they never would've had they stayed on their own. So to do that, for example, we offer outsourced professional development as a courtesy benefit to anyone who works for us. We have a woman named Melanie Curtis, love her, she does professional development for everyone. You get free access to her, she'll talk to you about growing yourself professionally and personally. That helps build the culture because one, she knows who I am, I'm very good friends with her. She knows who I am, she knows what I want out of my team. And it's not that she's pushing them towards that, but she understands the ultimate goal. So again, pushing them in the right direction towards the right culture. So building all of that up. But that, at the same time, my original team needs to bend a little for the new people. For example, the new director of customer experience is bring the new tool in that we've never used before, we need to bend our culture to use that because that's actually the right tool to use. So a lot of different angles to be had there, but you have to manage it. You're the ref in the soccer game, and you have to manage everybody's tendencies and fights and whatever. Sorry, I went on a little bit of a ramble. Paul Green: No, no, no, it's good. It's great stuff and I wish we had longer and more time to spend with you. And unfortunately, we do have to stop there. Otherwise, this will become the longest podcast, and you then get another record for being the longest interviewed guest on the podcast. Justin, you've been very generous with your time, as always. Just tell us how we can get in touch with you. Whether you're an MSP looking to exit an Apple-based business, or whether you just think, "Hey, this is an interesting guy. I want to be connected to this guy." Justin Esgar: Yeah, head over to virtuaconsulting.com or find me on LinkedIn under Justin Esgar. Pretty much all the socials under my name. But best place is probably virtuaconsulting.com. Paul Green: Paul Green's MSP Marketing Podcast. This week's recommended book. Ian Luckett: Hi there, it's Ian Luckett. Stuart Warwick: And Stuart Warwick from the MSP Growth Hub. Our book recommendation is The Alchemist by Paulo Coelho. It's an amazing book, it's not your usual read. And if you want to be the hero in your journey, in your business, in your MSP over the coming year, this story will ignite your imagination about who you can become to take your business where you want to take it. Paul Green: Coming up next week. Leahanne Hobson: Hi, I'm Leahanne Hobson, CEO and founder of Alinea Partners, and I will be on the show next week to talk to you about how many MSPs don't pick up the phone and lose prospects. Paul Green: Whichever platform you are listening to or watching this podcast right now, please subscribe. And if there's one of those little notification bells, you get it on YouTube, I think you get it on Spotify as well, do go for the notification so you never miss an episode because on top of that interview next week, we're going to be talking about emergency lead generation. If you absolutely need new leads in your MSP superfast, I've got three options for you next week that you can put into place really, really quickly. We've also got between now and then a ton of content for you at youtube.com/mspmarketing. Join me next Tuesday and have a very profitable week in your MSP. Voiceover: Made in the UK for MSPs around the world, Paul Green's MSP Marketing Podcast.
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