Episode 215: SPECIAL: The SECRETS to grow your MSP to $40m revenue

Episode 215 December 26, 2023 00:43:30
Episode 215: SPECIAL: The SECRETS to grow your MSP to $40m revenue
Paul Green's MSP Marketing Podcast
Episode 215: SPECIAL: The SECRETS to grow your MSP to $40m revenue

Dec 26 2023 | 00:43:30

/

Hosted By

Paul Green

Show Notes

Episode 215

Welcome to a special episode of the MSP Marketing Podcast with me, Paul Green. This is THE show if you want to grow your MSP.
In the first of our series of Special Episodes heading into 2024, I'm joined by Intelligent Technical Solutions CEO Tom Andrulis.
Tom and I discuss the hot topic of mergers & acquisitions. Tom also shares some of the stories and secrets, and tells the tale of how he grew his business from nothing to having $40 million in revenue in just 20 years.

Featured guest:

Tom Andrulis is the Chief Executive Officer of Intelligent Technical Solutions and has been at the helm for nearly two decades. A hands-on CEO, Tom directs the operational aspects of ITS and is involved in its day-to-day business decisions. He is also primarily responsible for top-down value alignment, as well as steering the company towards its vision.   Tom founded ITS back in 2003, after working and finding success with several business owners who had issues with their technology. He knew right then and there that he wanted to help businesses improve their efficiencies. As a business owner himself, he understood well enough that technology is a critical component to his clients’ success.  Tom has a genuine passion not just for working with new and innovative technologies, but also with many kinds of people. Perhaps it’s no surprise that ITS is a people-oriented organization. Tom is driven by the fact that he can make a difference in people’s lives, including entrepreneurs who need help in solving their problems.   Despite his dedication and zeal for his role, Tom is a family man first. He loves spending time with his family, especially watching his son play soccer. He also enjoys sports and the great outdoors: He loves working out, snowboarding, and mountain biking.   Connect with Tom on LinkedIn: https://www.linkedin.com/in/tomandrulis/

Extra show notes:

Transcription:

NB this transcription has been generated by an AI tool and provided as-is. [00:00:00] Speaker A: You. [00:00:00] Speaker B: Merry Christmas. I hope you had a fantastic day yesterday. But today I have a real Boxing Day treat for you. I'm going to introduce you to a guy who grew his business from a one man band in 2003. Just 20 years later, he's doing $40 million in revenue. And today he's going to tell you how he did it and how you can use what he's learned to grow your paul. [00:00:26] Speaker A: Paul. [00:00:26] Speaker B: Paul. Paul greens, MSP marketing. [00:00:32] Speaker A: Podcast. My name is Tom Andrulis. I'm the CEO of Intelligent Technical Solutions. [00:00:37] Speaker B: And thank you so much for joining me on this podcast. Tom. You have a fascinating story of how you have grown your MSP and come together with a number of other MSPs. It's a story we're going to explore on today's podcast. And we're also going to look at a very hot topic right now, which we know is going to continue to be an even hotter topic next year, and that is M. A mergers and acquisitions. Something that you are involved with right now and something I think most MSPs can see is becoming a bigger and bigger, bigger thing. So let's start at the very beginning. Take us back to the very start of your business, Tom. What did you start? When did you start it? Tell us the early days of your story. [00:01:15] Speaker A: Yeah, so if we go way back, I used to work at EA Sports as a network engineer, and they closed our studio in Las Vegas. And I was trying to figure out what I was going to do, either move to La, work for EA Sports again, or do something different. I decided to stay in Las Vegas, and through a couple of friends of mine, I got basically introduced to It Consulting. And so I went through and consulted with a few different businesses, realized that I loved helping people, I loved fixing technology. I just loved everything about it. So in 2003, I started Intelligent Technical Solutions. So as a one man band, basically back then, in 2003, had to figure out everything. I think technically I felt like I knew what I was doing, but I didn't know how to do accounting. I didn't know how to do HR, marketing, sales, any of that, and actually much less manage people either. So it's been an adventure. And I went through and figured out through trial and error and a lot of books that I've read, just better ways to do things, continually improving the process along the way. We had some success in 2013. We ended up doubling more than doubling the company. And a couple of years later, I had a friend of mine in one of our peer groups ask me if we could partner up somehow, because he really wanted to focus on client account management. And he said, hey, maybe you guys can run operations and accounting and all that stuff on the back end. So we figured out a way to partner up and that was the catalyst of really what has skyrocketed its in the last few years. So back when we did that, it was 2016. We integrated for a while, for about a year or so and realized like, this is working really well. He's able to focus on what he loves to do, we were able to do what we did well, and we said, we got to do this again. So we end up doing additional partnerships. 2018 1920 obviously COVID hit, so things kind of slowed down a bit, but then we end up doing a big merger with a couple more MSPs in 2021. So at that point we put together about eight MSPs, all organically, no cash out of our pockets, just really kind of bootstrapped it and got real creative with bringing the companies together. We got to a size though, that I'm sure everybody's getting private equity calls every day, every week, emails all the time. We were getting those same things and we said, is it the right time for us to become a platform company, a company that a private equity company would invest in to then allow us to roll up or add additional MSPs to us to get to a bigger size and eventually grow the value of the company? So we sort of went back and forth on the idea and we were either going to keep doing it ourselves or try to get private equity. We had five more MSPs that we were looking to merge in and partner with. One of them wanted to get cashed out completely. So we had to make a decision internally of like, hey, do we want to scrape together all the funds that we had by that MSP or do we bring private equity in and use their funding to buy the MSP and to buy the additional ones? So we ended up going down the PE route, brought private equity on in May of 2022 last year, and completed all five sales or all five purchases or partnerships with the MSPs since then. And we've even added one more after that and then another one's an Loi right now. So it's been a crazy journey. Yeah, it's been an insane ride, honestly, over the last 20 years or so. [00:05:03] Speaker B: Well, you've just given me so much to unpack there talk about when I do these interviews and people sort of tell me their story and in my head I'm mentally tracking where I want to go and what I want to talk about. And you've given me at least 30 things I want to talk about there, so I'll try not to forget them. Let's go right back. And that is an insane journey and in just 20 years as well. And I definitely want to explore, and we will explore later on how you start to put two or three MSPs together when you don't have lots of cash. I definitely want to explore the PE and obviously the future. I think its clearly you're positioning yourselves for a very big acquisitive. Is that the word? Acquisitive future. So we'll come on to all of that. Let's go back 20 years. First of all, so EA moves away. Was it Vegas to La is about 3 hours. I think I know this because I drove it the other way around. I drove from La to Vegas 4 hours exactly. Yes. It's not a commutable distance. You definitely have to move there. So were you a technician or were you involved in the software side when you had that decision? [00:06:07] Speaker A: Yeah, I was an engineer, network engineer. So I helped run gaming servers and the network, the rendering servers. So in day to day support we dealt with all kinds of things there. Kind of like what I do now honestly. Or what its does now. [00:06:26] Speaker B: Yes. Just perhaps at a slightly different MSPs. A lot of MSP owners, they start their business because they have what's known as the entrepreneurial seizure. And you said yourself that you've read loads of books. You've probably read The Myth Revisited, which is the Michael Gerber classic from I think it's like 1984. And he says that once that idea is in your head that you should start your own business, it's very hard to just carry on working for someone else. And I think the most miserable people in the world are those who've had that seizure and you haven't yet acted on it. So it sounds like you had a slightly different origin story and that you weren't the one that was driving it. Was it the case that that opportunity was there and you thought, you know what, I don't want to move, I'm going to go and try this myself? Or was it sat there at the back of your head and EA relocating was just the catalyst that made it happen? [00:07:15] Speaker A: Yeah, I think deep down I always wanted to have my own business and it was just a matter of trying to figure it out. One of the challenges I had at EA was that it was an easy job. It was so easy. I was complacent and I'd roll in and everything was kind of working the way it should be working. We had budget to buy equipment and make sure everything's up to date. It was a fun place, a lot of creative people, super fun atmosphere. And it was hard to quit that job and say I'm going to go do something on my own because it was just so satisfying. And so when they shut the studio down in Las Vegas, then I had to make a decision and they know you can go to La, you got a job there or you can take a severance package, know, do whatever. So I thought all is this is the moment I got to figure out what I'm going to do. I know I don't want to go to La. Or I didn't at the time. And I said, all right, give me the severance package. Let's see what happens. And even at that point, I didn't know what I was going to do. It wasn't until probably a few months later trying to figure it out to where I kind of fell into this whole It consulting business. [00:08:29] Speaker B: And that must have been quite a culture shock for you to go from being part of I mean, even 20 years ago, EA was a massive, massive company. It certainly is today. And to then suddenly being this one man band sole It contractor, lots of people listening to this podcast often listen, and they discover it at the start of their journey. So I think it's fascinating to hear from someone who 20 years on from that. How did you cope in those early days? How did you make that transition from being part of something, a part of a big team that was part of something even bigger, to just being you? [00:09:04] Speaker A: The interesting thing was that EA owned a studio called Westwood Studios, and that was the studio I worked at in Las Vegas. And in our studio, we had about probably the height of it was like 300 employees, which it's a fair amount of employees I joined, I think, when it was 90. So there's a lot of got to figure it out, got to do it yourself. We did have a team of people in the It department, but I ended up touching a lot of different technologies, and I had a good understanding of a lot of different things. So when I got out of there, it was a little scary. Right. Walk into a network, there's no backup. There's no support, I should say, of how's this thing laid out, who designed it, what's the equipment, all that. It's just, hey, I got a client that's saying, this thing's broken. Now I got to figure it out. So, yeah, that was a little nerve wracking until I went through probably ten different clients, and it kind of got to be like, okay, this is kind of the similar stuff that's happening, and now I have a good understanding of how I could help these people. [00:10:06] Speaker B: Yeah, I can imagine. And how long did it take you to get your first member of staff? Because I think that point at which you actually take someone on, there's a big difference from going from one person to two and then obviously two very quickly leads onto three or can lead quickly onto three. What was your kind of progression through to getting staff and actually starting to build it into let's be honest, what is a proper business when you've got a team? [00:10:30] Speaker A: Yeah, I think I got lucky. So initially I had five clients, and I had a friend of mine that had these clients, and he couldn't figure out all the problems. So we went and fixed all this stuff and we said, okay, we start working with these five clients. Then joined a bunch of different leads groups, trying to figure out how do I get more business, how does this things scale, how do I pay my bills? Right? That was the biggest issue then. How do I make it consistent so I can rely on the money that's coming in? But I think I got to a point where my schedule was filling up. I had some additional requests, and I said, okay, I need to bring another person on. So I had a friend of mine who also worked at EA, also decided to stay in Las Vegas. I think he was doing some It consulting on the side as, hey, you know, maybe we could partner up somehow. I can just pay you to go do some of these jobs, and we can work together in that way. And then we got more and more clients and more business to the point where I said, okay, why don't we just hire you on and then we can just work under its I think it was about a year into it where I would consider myself pretty lucky, actually. One of the guys that worked at EA got a job at a big architectural firm out here in Las Vegas. And when he got the job, he was there for two months, and he's like, this place is such a disaster. We got to fix it. He reached out to me to help him out, and so that became one of our biggest clients. It was definitely our biggest client back then. It's still one of our larger clients now, 20 years later. But that one year of just building, having maybe a part time person here, a part time admin to help with invoicing answering the phone, that kind of thing turned into probably two or three people after the first year. And it's a bit of a culture shock. If you're not used to managing people, how do you manage somebody? And I've learned a lot of things along the way, but, yeah, it's a different scenario, for sure. [00:12:32] Speaker B: Yeah, I did it. 2005 was when I started my first business. I'm getting so old now, I can't remember when it was. And that first employee, which was about nine months in, for me, it was a culture shock because actually that meant an office as well, and it meant doing things properly. And suddenly you need to do HR and you need to do payroll, and that means you have all these extra expenses which just come out of nowhere. But it is, it's the only way to turn what is otherwise a well paid or badly paid job into a proper business. Okay, so I think you said you were scaling up for about ten years before you did your first merger. I think it was roundabout, those numbers. So tell us, what was your path of organic growth? So tell us the marketing stuff that you did that worked the best for you in that first decade? [00:13:20] Speaker A: Yeah, the first decade. I would say some of the leads groups initially were decent. It was something we don't do the same leads groups that I did back then now, but when I was just starting out, every dollar mattered so much that anything was good. Then I got to the point where I had some extra money and I was able to do some direct mail campaigns or advertise in the phone book back then. That was the thing. Right. Of course, you got the little website that didn't really produce much, but it was a lot of just who do I know? Who knows me? I did actually get a few calls out of the phone book, oddly enough, and then some of the direct mail worked quite well back then. It was pretty effective as far as getting some decent leads in. Of course, 99% of it probably was just thrown in the trash, but that 1% that responded was valuable. [00:14:16] Speaker B: Yeah. And sometimes you have to just sort of edge your way through it, don't you, and just try some things. And people sometimes say to me, what's the best marketing I can use right now? And it's like, right, I've got 200 things you could use. And this seems to be working really well for a bunch of MSPs. But you do have differences. And I work with lots of MSPs in different parts of the world. And what might work in Nevada las Vegas is Nevada, isn't it? [00:14:39] Speaker A: Yes. [00:14:40] Speaker B: See, I've got that right. Probably wouldn't work in Montana because they're completely different. They might be physically part of the same country, but they're completely different areas, completely different people, different businesses. And I think trying different things and seeing what works for you in your area is often a really smart plan. So you said you were part of a peer group with another MSP. Talk us through then. How does that conversation get broached where two people look at putting their business together? [00:15:10] Speaker A: I think that maybe they had an idea that they were going to move away from La. Was our first partnership they were going to move from. So, you know, they were thinking that, hey, how do I keep this business going? How do I sustain this thing if I'm not in? Like, who could help know, I'm making a lot of assumptions there, but that's what it seemed because it seemed to transpire that way. So when this part of ours approached me and said, hey, is there some way we could partner up? I thought, all right, well, this is a good opportunity. I think it's a matter of at least in the peer group, showing that I don't know, maybe having dedication to the business, showing success over time. It builds a lot of confidence. I mean, obviously internally for us, but also with other people. So they look at us and say, all right, well, hey, Tom and its they seem to know what they're doing over. You know, if they were in a position where they were either going to knowingly move out of the area or they're burned out or they just wanted to not do every job under the sun right. In the business, that would be the kind of broaching the conversation. That would be the catalyst to getting that conversation going. Yeah. [00:16:22] Speaker B: So it's almost like I'm speculating now, but you were someone else's exit plan. Essentially you were their exit strategy because did they stay in the business when the two of you came together? [00:16:35] Speaker A: Yeah, they stayed in the business. The interesting thing was they stayed in the business and then six months later they ended up moving across the country to Connecticut. So they moved their family to Connecticut. And that was a big shock for me because I didn't know that was going to, you know, I was like, all right, well, we're going to make the best of know, kind of just figuring things like being a creator is one of our core values. So we just look at things as challenges like, okay, how do we overcome this? What do we have to do? And we just kept it going. And even though he was in Connecticut, he was still involved in the business, still involved with the clients. He'd fly back on a regular basis and our teams just came together to make it happen. And that worked for years and years and years. So it turned out to be okay. [00:17:19] Speaker B: Yeah, no, that sounds fantastic. And then what was the route that sort of brought in some of those other MSPs? Just give us a little bit more detail on the story you were telling us earlier. [00:17:28] Speaker A: Sure, yeah. So the second partnership that we did was an MSP that the first partner knew in Orange County. And this guy, he loved technology. He had about three people in his company. One of the people had a severe illness, had to quit. The other one had the I think they were on a visa or something that ended. They had to leave the country. So this three person company was condensed down into a one person company. And that guy, while he loved technology, he didn't want to work 20 hours a day trying to make up for the other two people. He's like, I don't really need to work this hard. I just want to keep kind of stay in the game a little bit. And that was his catalyst to wanting to join us, is, hey, you guys do all the stuff that I don't have time for and I'll just keep working with the clients that I really love. So that was the second deal, right? The month after that, while we were trying to find another partnership, we were looking into Phoenix, Arizona, and so we sent out some direct mails. We called some different people, and somebody responded and said, hey, I'm interested. I'm looking to have a partner, and what can we work out? So that month, it was February 2018, we did the third partnership out in Phoenix, Arizona. So they had a company. I think the catalyst for them, if I had to just guess, was they were sick of running the company alone and they wanted to have someone they could bounce ideas off of. Interestingly enough, he wasn't in any peer group, so he didn't really have that same forum of people to bounce ideas off of and use as a sounding board. So he was looking for a partner to come in and be that person for him. So he had about, I want to say five employees, five or six employees at the time. And that worked out pretty well because we were able to share information, experience, and it allowed us to expand into the Phoenix, Arizona market. [00:19:28] Speaker B: So what you're describing there, which obviously worked for you because it's led on to bigger and better things, there is a parallel universe somewhere where you've got a bunch of companies coming together where the owners stay in the business and they don't get on. They have different ideas, different ways of operating. They can't agree on a PSA, they can't agree on standard things that you would need to standardize as you start to bring together lots of different companies. Did you have an element of that where there was conflict, or did you manage to work around that? Because in my eyes, putting a bunch of business owners together and then taking away let's be honest, the best thing about being a business owner is full autonomy, right? We can do exactly what we want to do, whether it's the right thing or not. And then suddenly when we have a business partner of any kind, there's a limit placed on that. So was that ever an issue or did it just sort of seem to work itself out or did you just assume that the natural leadership position? [00:20:23] Speaker A: I think initially because we built out a leadership team on our end, and before the first partnership, I think we were running about four or 5 million in revenue. And so we had a sales manager, we had a service manager controller. I'm not sure we had an HR manager at the point, but we had some bit of HR department going on and so we had these different roles sort of already built out. So when people looked at our company, we're like, oh well, hey, I'm doing everything myself. You guys have a team of people that can help out. So they just naturally just came into the company and just assumed most of the tools and processes that we had now, definitely we didn't have it all figured out. I don't think we have it figured out 100% now even. We're still continuously improving every day, every month. But the foundation that we had was pretty solid, and we were able to bring people on, say, okay, hey, we're using the ConnectWise PSA, or we're using Kaseya RMM or whatever it was, right. And most people were using a similar tool set. It was either going to be on Kaseya or Automate, or you're going to be on likewise Manage or you're on Autotask. And the tools are familiar enough to similar enough I should say to one another that it didn't really matter, and it was just like, okay, hey, what's the platform? All right, great. I'll come in. There is a huge integration process. Our integration process is about nine to twelve months, and it goes through hundreds and hundreds of tasks. And in part, some of those tasks are, hey, we got to move from your RMM over to our RMM, or your ticketing system to our ticketing system. So there's still a lot of moving parts people like, to your point, your question, how do you get people to all agree? Some of it is sort of like, okay, hey, we believe ConnectWise manages a decent ticketing system. Great, we'll use that. Or we're good with automate. Great, we'll use that. And if we need to change it, we can change it. Initially we would say, hey, just use the stuff that we have right now, and then we can modify it later. But the biggest thing was actually getting the integration going and getting on the same platform so the team could be working together. [00:22:37] Speaker B: Got it. So as those people were sort of coming in, then I guess it became easier and easier with each integration because you could say to them, well, this is how we run things. This is the stack we use. This is the direction we're going with that. And obviously if you've already got those resources sorted out, that's easier. You make an interesting point there about that. As a business, you still haven't got it perfect. Is there anything such as a perfect business? Does it even exist? I don't think it does, because at the point you think you've got things figured out, something else is breaking, right? [00:23:07] Speaker A: Yeah, totally. The perfect business. Somebody joked around. It was like, the perfect business is one that you don't have any clients and no employees, and then somehow the money just flows in. You're like, this is magic. Yeah. So I wanted to kind of go back on my point about where we had this foundation of tools. I think that worked really well, I guess tools and processes that worked really well for smaller MSPs that were joining when we got to 2021, and we merged three MSPs together. So we had Intibix out of San Francisco and we had PC Miracles out of Detroit, and then we had Its, which had four locations at the time from different MSPs that joined Its, PC Miracles and Tivix. We all merged together in 2021, and that was probably the biggest bit of complexity to deal with because each MSP was sizable in its own right. And we all had our processes and our way of doing things and things that worked well to get us past the 5 million mark, the 7 million mark, the 10 million mark. And so bringing those companies together, there was a lot of conversations. It was sort of, okay, let's take a step back. What are you doing? How's it working? Is it working for you? Is it not okay? What are we doing? What does that look like? Which one do we want to go with? What process do we want to use? And even now, two years later, a lot of that's been worked out. But there's still some things that are still being worked out between those companies that came together to make sure that we're providing the most value we can to our clients. [00:24:44] Speaker B: So if you don't mind, can we just touch on the money side? So I think I remember you saying right at the beginning that those early mergers were done pretty much without cash, huge amounts of cash changing hands. Now, everyone always feels a bit awkward. Well, I'm British, but the British are the most awkward in the world at asking about money. But how did you do those early mergers? Was it a case of everyone sort of took new ownership stakes? How did that change as you brought new players in? And how far did that get you to the point you realized, like you said earlier, that we were going to need some kind of private equity to continue doing bigger and bigger deals. [00:25:19] Speaker A: Yeah, so I'll start with the easier, more simplistic to the more complex. So the most simple way was to just say, hey, listen, let's create a promissory note and I'm going to buy your business for X amount of dollars and I'll pay you over a certain amount of time, or I'll pay you a certain percentage of the revenue that's coming in. So if the clients stay, you get paid. If they don't, hey, there's no risk to me as the buyer that worked for a couple of deals. Next step up that's a little bit easier to understand would be just straight merger. Hey, your company is worth X amount of dollars. Ours is worth another Y amount of dollars. We put them together. Now we have z amount of dollars, let's say. And that's just some way to come together without actually spending money. The third way, which is more complex, that we did basically three different times, was a very unique partnership structure where we had our corporation and they had their corporation, but we formed another third corporation together and let's say it was just 50 50. And in that corporation they had put all their clients from their original one into the new entity. And that entity would give them sort of a preference or think of it as like. A promise or not necessarily a promissory note, but like a promise to pay the value of those clients when we go and sell this entire thing. So let's say that you and I were going to go into partnership. We'd form another company. You and I are 50 50. You put the clients in that company. Let's say they're worth a million dollars. You'd have a promise. For a million dollars you get the first million dollars payment if and when we sell everything together. And then anything that is above and beyond that million dollars, we just split 50 50 based on our ownership levels. Now day to day we would just split the profits 50 50 and there'd be also another payment from that company back to our company. Its to do all the service. So we would hire all the employees as well from the original company. So their company kind of turned into this shell investor based company. The third company really just contained the clients and brought in the revenue and paid expenses. And then its became the place where we housed all the employees. We had all the processes and tool sets internally. So definitely more complex than most people have probably ever heard of. That worked well for us because it allowed people to say, okay, hey, you're going to give me a million dollars. The first million dollars somewhere down the road when this thing sells. Up until then we're still getting cash distributions based on our ownership level. Our goal was to put a bunch of companies together to become more valuable so that that million dollars is worth 1.52 million, 3 million and so forth. If that happens then let's say me or its would get some payout. But if it doesn't happen then they get all the money in the end. So it kind of worked on multiple levels. Even though it's really complex, I tend to have to explain it and draw it out. If I had a whiteboard here I could draw out the thing and make more sense. But that way worked pretty well. People go, I get it, I like it and I want to join based on that. [00:28:52] Speaker B: Yeah, you've clearly kept a lot of lawyers very busy over the years coming up with very complex schemes, which is not a bad thing. So let's talk about that private equity money. So remind us again what size you were at and how many MSPs you'd pulled together when you made that decision to go off in a different direction. And what was it that sent you off instead of doing these clever deal structures? Which, ultimately, I guess, that you're taking on all the risk and you're sort of spreading your resources every time you do one. What made you decide to go in that different direction? [00:29:24] Speaker A: Yeah, so when we took private equity on last year, we were running about 22 million revenue and maybe about 4.3 million EBITDA or net profit that size, like four or 5 million. EBITDA is about the size that private equity companies want to look at to create a platform company that they can invest in. We were doing these different partnerships that were working pretty well. We had about eight of them at the time. Before we took private equity, we had five more MSPs that we had signed Lois with at that time as well. And so we had to make a decision. The first MSP that we had to sign Loi on was to purchase one based in Phoenix. That owner had his business for 32 years. He's like, hey, I had a good run. I just want to do something different. So we said, all right, how are we going to come up with the money? I think it was like it was a few million dollars. So how are we going to come up with a few million dollars to purchase this business? And collectively, inside we were saying, okay, well, we could probably pull some funds together, and we were doing $4 million in net profit, but a lot of us were getting distributions off that as well. So sort of, how do we make this work? Then we were talking to private equity for that entire time as well, and they know we came in. We could buy the company, obviously, and you could use our funding, our debt providers. We could try to go get a debt provider on our own, which we did. Look at that. It's funny. Chase is our main banking relationship. And Chase came in and said, hey, I like what you guys are doing. I think we can help you. The only problem is we only do deals that are more than $5 million in value. And our deal was like, call it $3 million or whatever. It was lower than the 5 million. So we're like, that's weird, right? This bank only wants to give us $5 million or more. So we went to another one, another company that provides a lot of debt funding in this market. And they said, we can only do $8 million deals and above. This is crazy, right? So how do you get the money for less than 5 million or less than 8 million and you can get SBA loans? We didn't want to leverage our entire lives to do that. So we were trying to figure it out and kind of got to the point I was like, okay, if we go private equity, we could definitely get this deal done quickly and efficiently. The other four deals behind that, they could help out with as well. And then at that point in time, we could also take some money off the table. As private equity comes in, the owners basically are selling a portion of the business to the private equity firm and then in turn taking the cash off the table or getting some value out of the business. So I think that Liquidity Event was helpful. We looked at and said, okay, well, Liquidity Event would be great. Being able to use their funding would be great. I thought the culture of the private equity firm seemed very similar to our culture internally. So we said, okay, could we work with these people? How would it look? And then also to get the other deals done, they had a deal team. They had a team of people that all they do is work on deals. So they do all the analysis, they do the financials and the due diligence, they do the whole thing. So that took a lot of pressure off of us. So we felt at the time that going down the private equity road was our best bet. And as we went down that private equity road, I think it was beneficial because the four deals that we did afterwards, a couple of them were pretty smooth. It wouldn't have been an issue, but there were one or two that were more complex based on their corporate structure, rather than being like an LLC or an S Corp. And that would have caused us some issues. So the private equity firm helped out greatly in that. [00:33:17] Speaker B: Yeah, yeah, no, I can imagine. And it clearly sounds like you found a good partner. If they have a similar culture to you, then you can see that that would be a good thing going forward. On the subject of culture, actually, I'll come back to that in 2 seconds. You mentioned something called Loi earlier, which stands for Letter of Intent. I just want to explain that for our listeners. In case you wondered what an Loi was, it's where you essentially signed something saying, I'm going to buy your business. We're talking about culture. What do you do now? Because the business has obviously exploded completely. It's obviously totally different. It was different in 2013 than it was when you started it in 2003. But what you've got today, you could probably argue, is so vastly different to what you had ten years ago. You've got all these different companies that have come together. We've all read that mergers are very difficult to make work, and you've brought lots of different things together. As the leader, what do you do to try to keep the cultures of the various units working as they were? Do you keep them as separate units? Do you have local managers? What's your sort of approach to that? [00:34:21] Speaker A: Yeah, I think there's a philosophical, maybe difference or approach to it. So for us, we wanted to have one team which gave us one culture and one group of people to rely on. And so we decided early on, let's integrate everything. Let's have one brand name, let's have one platform of Ticketing and RMM and all these things. Let's have it all on the same table. It's not always done like that. There's a lot of different ways that private equity firms come in and say, hey, we'll bind your company. Just keep your name, keep everything. We're just going to own a portion of it and just keep doing your thing. And there's other ones that are sort of hybrid where you say, well, keep your name, keep doing your thing, but we're going to take over the accounting side so we can kind of keep track of all the money. And then our method up to this point has been, hey, let's integrate everything because we want to be one company. And I think from a culture standpoint, that's the best. I mean, obviously, that's the road that we chose to go down. We tend to keep the culture up by leaning on our core values. So we talk about our core values all the time. Every single day in our daily huddle, we talk about core values. One thing early on, when I was learning about core values, I'm reading these books. I'm like, oh, what's core value? I got to come up with this thing. We all have core values. Whether we have defined them or not is the question. And so when we took a step back and said, okay, well, what are our core values? And we wrote a list of ten, and we felt all great about it, right? It was amazing. And then a couple of months later, we were on our daily huddle, and I was like, hey, guys, so who could name off all ten core values? Nobody could do it. Not at all, right? And then I came in the next day. I was like, I got $100 for somebody that could read off all the core values, and somebody got eight out of ten. I was like, okay, well, we're still not there. It got me thinking that it was just too much. And so we pared it down to five, and we had five for a while, and then I got to the point of, like, some of these are a little bit similar. Can we pare it down more? Can we simplify it even more? And so now we've simplified it to three core values, and we talk about them every day. We encourage people to tell a core value story in our daily huddle. So that's the way that we figured out how to get people to remember the core value. So if I was in a situation where I had some challenge I had overcome, or say, Paul, you're in a situation where you overcame a challenge, and I saw that and noticed it, I wanted to highlight you in the daily huddle and say, hey, Paul was really being a creator because he overcame XYZ scenario that was in front of him. That was an awesome thing to do. Or maybe doing the right thing is another one of our core values used to be integrity. People used to say, well, they kind of get confused with integrity. We just distilled it down to doing the right thing, which is what's the right thing for you as a person and the client and the company? And so imagine there's a Venn diagram where you're overlapping those three different interests. The center of that is the right thing. And we tell people, hey, we're not going to be there every second of the day. We don't want to micromanage people, right? We need to rely on you to make a decision. So just weigh it out. Like, what's the right thing for this client, for you, the company, its what is it? And just make a decision. If it's a mistake, great. We learned something, right? We learned something new. But if it's not, then we all moved on, and we saved a lot of time. So then the third core value is having an open mind. Because I think in this business, we tend to deal with problems all the time. It's just a problem based business, right? Clients are calling, this is broken, that's broken. This is know, whatever. And so it's easy to kind of get into this negative mindset. And while people love to get positive feedback, if I say, hey, Paul, you're doing a great know, keep it up, that's great. You love to hear that. But how do you react when I say, hey, Paul, I got a problem, you didn't fix the problem, or you worked on this, but you made something worse. How do we react to that? And having an open mind is all about really, how do I deal with the negative feedback that's coming in? Can I unwrap the negativity from it, see what the message is, and then learn and grow from that message? And so if we stay open and have an open mind, then we're actually going to help ourselves. We'll help the client as well, but we'll grow as a person or as a team because of it. [00:38:46] Speaker B: I love that. [00:38:47] Speaker A: I love it. [00:38:48] Speaker B: And I love the fact that you've just made it as simple as you can. I think far too often we overcomplicate things. We as business leaders, we have all these things that we want to do and all these directions we want to go in, and so we end up overcomplicating. And for you to go down from ten to three is absolutely perfect. Okay, Tom, final question. I'm going to ask you to put your crystal ball or get your crystal ball out and use your future sightseeing skills. We're right on the verge of 2024 right now. Now, you're quite heavily involved, obviously, in M and A, mergers and acquisitions. What do you think is going to happen? And this is obviously just pure speculation because no one really knows, but we're seeing loads of M and A within the channel. Obviously, we've seen the massive vendors. There's been huge amounts of M A there in the last couple of years. We're now starting to see more companies like yours come together. It's happening here in the UK. I know it's happening in other countries as well as in the US. What do you think is going to happen in the MSP M A world in the next two to three years? [00:39:47] Speaker A: I think it's going to keep going, so it's heating up. I think it's going to continue. I see from all the conferences that I go to, that M A is one of the hottest topics. We're either talking about M A or we're talking about cybersecurity. That's just the only two things people want to talk about at these conferences, it seems like. And so individual MSP owners are trying to figure out, how do I do this? How do I do this to grow my business? We all know how difficult it is to grow organically, figure out how to market and sell properly. That's a challenge in its own right. But then could I grow my company 50%, 100% or even more through mergers and acquisitions? That's the question that people are really contending with right now. And I've seen a bunch of different MSPs go down that road and have some success. It's not always successful, right? There's a lot of complexity to it to try to figure out. I've also seen a ton of MSPs say, hey, I've grown to a certain size, I'd rather sell to a private equity firm, get some money off the table, and then keep growing the business through M and A. So 2024, I think it's just going to keep going, even with the market being kind of crazy and interest rates rising, it puts pressure on doing different deals, but I don't think that's going to slow down in this industry. [00:41:06] Speaker B: Yeah, I guess a lot of it depends on the hunger that the private equity brings in, because I used to work in do marketing for veterinarians in the UK, and that was probably about ten years ago when this huge wash of money came into the sector. And in fact, it was actually a lot of it was driven from the US, and the money was relatively cheap and it allowed some very, very big groups to be very aggressive with their acquisition and go and buy lots and lots of different veterinarian practices and build a set of groups. And then Mars came in and sort of bought up some of those. And it was fascinating to watch because the whole thing was being driven by essentially cheap money, money that was coming from big investors. And it was being used to consolidate on the hope, of course, that there would be a lot more money to be made down the line. So, yeah, I think I agree with you. I think we're going to see more and more. It would be fascinating, Tom, to get you back on the podcast. Perhaps next year or the year, sure. You know, your business will continue to acquire and will continue to go on to other things, and it'd be lovely to fascinating to track your progress and also to see what's happening in the M A world as we go forward. For anyone that's listening to this today and wants to get in touch with you, just perhaps have a pick your brains on something or just have a chat about their MSP, what's the best way to get in touch with you? [00:42:24] Speaker A: Yeah, probably LinkedIn is the easiest. So my LinkedIn profile name is Tom Andrews. So T-O-M-A-N-D-R-U-L-I-S so just short and sweet. Tom Andrulis. Reach out via LinkedIn. I guess you could also email me too, if you like it's [email protected]. So either of those two methods would work. [00:42:47] Speaker B: Coming up next week we've never done anything like this before, so it's a bit of an experiment. I am taking you out on a walk. I want to help you make a link between the things that you do on a daily basis and the results that you get. In fact, more than just the results you get, the lifestyle you get. And that is going to be a truly inspirational way for us to start 2024. So join me next Tuesday and have a very profitable week in your MSP. Made in the UK for MSPs around the world. Paul Greens, MSP Marketing Podcast. Podcast.
View Full Transcript

Episode Transcript

[00:00:00] Speaker A: You. [00:00:00] Speaker B: Merry Christmas. I hope you had a fantastic day yesterday. But today I have a real Boxing Day treat for you. I'm going to introduce you to a guy who grew his business from a one man band in 2003. Just 20 years later, he's doing $40 million in revenue. And today he's going to tell you how he did it and how you can use what he's learned to grow your paul. [00:00:26] Speaker A: Paul. [00:00:26] Speaker B: Paul. Paul greens, MSP marketing. [00:00:32] Speaker A: Podcast. My name is tom andrews. I'm the CEO of Intelligent Technical Solutions. [00:00:37] Speaker B: And thank you so much for joining me on this podcast. Tom. You have a fascinating story of how you have grown your MSP and come together with a number of other MSPs. It's a story we're going to explore on today's podcast. And we're also going to look at a very hot topic right now, which we know is going to continue to be an even hotter topic next year, and that is M. A mergers and acquisitions. Something that you are involved with right now and something I think most MSPs can see is becoming a bigger and bigger, bigger thing. So let's start at the very beginning. Take us back to the very start of your business, Tom. What did you start? When did you start it? Tell us the early days of your story. [00:01:15] Speaker A: Yeah, so if we go way back, I used to work at EA Sports as a network engineer, and they closed our studio in Las Vegas. And I was trying to figure out what I was going to do, either move to La, work for EA Sports again, or do something different. I decided to stay in Las Vegas, and through a couple of friends of mine, I got basically introduced to It Consulting. And so I went through and consulted with a few different businesses, realized that I loved helping people, I loved fixing technology. I just loved everything about it. So in 2003, I started Intelligent Technical Solutions. So as a one man band, basically back then, in 2003, had to figure out everything. I think technically I felt like I knew what I was doing, but I didn't know how to do accounting. I didn't know how to do HR, marketing, sales, any of that, and actually much less manage people either. So it's been an adventure. And I went through and figured out through trial and error and a lot of books that I've read, just better ways to do things, continually improving the process along the way. We had some success in 2013. We ended up doubling more than doubling the company. And a couple of years later, I had a friend of mine in one of our peer groups ask me if we could partner up somehow, because he really wanted to focus on client account management. And he said, hey, maybe you guys can run operations and accounting and all that stuff on the back end. So we figured out a way to partner up and that was the catalyst of really what has skyrocketed its in the last few years. So back when we did that, it was 2016. We integrated for a while, for about a year or so and realized like, this is working really well. He's able to focus on what he loves to do, we were able to do what we did well, and we said, we got to do this again. So we end up doing additional partnerships. 2018 1920 obviously COVID hit, so things kind of slowed down a bit, but then we end up doing a big merger with a couple more MSPs in 2021. So at that point we put together about eight MSPs, all organically, no cash out of our pockets, just really kind of bootstrapped it and got real creative with bringing the companies together. We got to a size though, that I'm sure everybody's getting private equity calls every day, every week, emails all the time. We were getting those same things and we said, is it the right time for us to become a platform company, a company that a private equity company would invest in to then allow us to roll up or add additional MSPs to us to get to a bigger size and eventually grow the value of the company? So we sort of went back and forth on the idea and we were either going to keep doing it ourselves or try to get private equity. We had five more MSPs that we were looking to merge in and partner with. One of them wanted to get cashed out completely. So we had to make a decision internally of like, hey, do we want to scrape together all the funds that we had by that MSP or do we bring private equity in and use their funding to buy the MSP and to buy the additional ones? So we ended up going down the PE route, brought private equity on in May of 2022 last year, and completed all five sales or all five purchases or partnerships with the MSPs since then. And we've even added one more after that and then another one's an Loi right now. So it's been a crazy journey. Yeah, it's been an insane ride, honestly, over the last 20 years or so. [00:05:03] Speaker B: Well, you've just given me so much to unpack there talk about when I do these interviews and people sort of tell me their story and in my head I'm mentally tracking where I want to go and what I want to talk about. And you've given me at least 30 things I want to talk about there, so I'll try not to forget them. Let's go right back. And that is an insane journey and in just 20 years as well. And I definitely want to explore, and we will explore later on how you start to put two or three MSPs together when you don't have lots of cash. I definitely want to explore the PE and obviously the future. I think its clearly you're positioning yourselves for a very big acquisitive. Is that the word? Acquisitive future. So we'll come on to all of that. Let's go back 20 years. First of all, so EA moves away. Was it Vegas to La is about 3 hours. I think I know this because I drove it the other way around. I drove from La to Vegas 4 hours exactly. Yes. It's not a commutable distance. You definitely have to move there. So were you a technician or were you involved in the software side when you had that decision? [00:06:07] Speaker A: Yeah, I was an engineer, network engineer. So I helped run gaming servers and the network, the rendering servers. So in day to day support we dealt with all kinds of things there. Kind of like what I do now honestly. Or what its does now. [00:06:26] Speaker B: Yes. Just perhaps at a slightly different MSPs. A lot of MSP owners, they start their business because they have what's known as the entrepreneurial seizure. And you said yourself that you've read loads of books. You've probably read The Myth Revisited, which is the Michael Gerber classic from I think it's like 1984. And he says that once that idea is in your head that you should start your own business, it's very hard to just carry on working for someone else. And I think the most miserable people in the world are those who've had that seizure and you haven't yet acted on it. So it sounds like you had a slightly different origin story and that you weren't the one that was driving it. Was it the case that that opportunity was there and you thought, you know what, I don't want to move, I'm going to go and try this myself? Or was it sat there at the back of your head and EA relocating was just the catalyst that made it happen? [00:07:15] Speaker A: Yeah, I think deep down I always wanted to have my own business and it was just a matter of trying to figure it out. One of the challenges I had at EA was that it was an easy job. It was so easy. I was complacent and I'd roll in and everything was kind of working the way it should be working. We had budget to buy equipment and make sure everything's up to date. It was a fun place, a lot of creative people, super fun atmosphere. And it was hard to quit that job and say I'm going to go do something on my own because it was just so satisfying. And so when they shut the studio down in Las Vegas, then I had to make a decision and they know you can go to La, you got a job there or you can take a severance package, know, do whatever. So I thought all is this is the moment I got to figure out what I'm going to do. I know I don't want to go to La. Or I didn't at the time. And I said, all right, give me the severance package. Let's see what happens. And even at that point, I didn't know what I was going to do. It wasn't until probably a few months later trying to figure it out to where I kind of fell into this whole It consulting business. [00:08:29] Speaker B: And that must have been quite a culture shock for you to go from being part of I mean, even 20 years ago, EA was a massive, massive company. It certainly is today. And to then suddenly being this one man band sole It contractor, lots of people listening to this podcast often listen, and they discover it at the start of their journey. So I think it's fascinating to hear from someone who 20 years on from that. How did you cope in those early days? How did you make that transition from being part of something, a part of a big team that was part of something even bigger, to just being you? [00:09:04] Speaker A: The interesting thing was that EA owned a studio called Westwood Studios, and that was the studio I worked at in Las Vegas. And in our studio, we had about probably the height of it was like 300 employees, which it's a fair amount of employees I joined, I think, when it was 90. So there's a lot of got to figure it out, got to do it yourself. We did have a team of people in the It department, but I ended up touching a lot of different technologies, and I had a good understanding of a lot of different things. So when I got out of there, it was a little scary. Right. Walk into a network, there's no backup. There's no support, I should say, of how's this thing laid out, who designed it, what's the equipment, all that. It's just, hey, I got a client that's saying, this thing's broken. Now I got to figure it out. So, yeah, that was a little nerve wracking until I went through probably ten different clients, and it kind of got to be like, okay, this is kind of the similar stuff that's happening, and now I have a good understanding of how I could help these people. [00:10:06] Speaker B: Yeah, I can imagine. And how long did it take you to get your first member of staff? Because I think that point at which you actually take someone on, there's a big difference from going from one person to two and then obviously two very quickly leads onto three or can lead quickly onto three. What was your kind of progression through to getting staff and actually starting to build it into let's be honest, what is a proper business when you've got a team? [00:10:30] Speaker A: Yeah, I think I got lucky. So initially I had five clients, and I had a friend of mine that had these clients, and he couldn't figure out all the problems. So we went and fixed all this stuff and we said, okay, we start working with these five clients. Then joined a bunch of different leads groups, trying to figure out how do I get more business, how does this things scale, how do I pay my bills? Right? That was the biggest issue then. How do I make it consistent so I can rely on the money that's coming in? But I think I got to a point where my schedule was filling up. I had some additional requests, and I said, okay, I need to bring another person on. So I had a friend of mine who also worked at EA, also decided to stay in Las Vegas. I think he was doing some It consulting on the side as, hey, you know, maybe we could partner up somehow. I can just pay you to go do some of these jobs, and we can work together in that way. And then we got more and more clients and more business to the point where I said, okay, why don't we just hire you on and then we can just work under its I think it was about a year into it where I would consider myself pretty lucky, actually. One of the guys that worked at EA got a job at a big architectural firm out here in Las Vegas. And when he got the job, he was there for two months, and he's like, this place is such a disaster. We got to fix it. He reached out to me to help him out, and so that became one of our biggest clients. It was definitely our biggest client back then. It's still one of our larger clients now, 20 years later. But that one year of just building, having maybe a part time person here, a part time admin to help with invoicing answering the phone, that kind of thing turned into probably two or three people after the first year. And it's a bit of a culture shock. If you're not used to managing people, how do you manage somebody? And I've learned a lot of things along the way, but, yeah, it's a different scenario, for sure. [00:12:32] Speaker B: Yeah, I did it. 2005 was when I started my first business. I'm getting so old now, I can't remember when it was. And that first employee, which was about nine months in, for me, it was a culture shock because actually that meant an office as well, and it meant doing things properly. And suddenly you need to do HR and you need to do payroll, and that means you have all these extra expenses which just come out of nowhere. But it is, it's the only way to turn what is otherwise a well paid or badly paid job into a proper business. Okay, so I think you said you were scaling up for about ten years before you did your first merger. I think it was roundabout, those numbers. So tell us, what was your path of organic growth? So tell us the marketing stuff that you did that worked the best for you in that first decade? [00:13:20] Speaker A: Yeah, the first decade. I would say some of the leads groups initially were decent. It was something we don't do the same leads groups that I did back then now, but when I was just starting out, every dollar mattered so much that anything was good. Then I got to the point where I had some extra money and I was able to do some direct mail campaigns or advertise in the phone book back then. That was the thing. Right. Of course, you got the little website that didn't really produce much, but it was a lot of just who do I know? Who knows me? I did actually get a few calls out of the phone book, oddly enough, and then some of the direct mail worked quite well back then. It was pretty effective as far as getting some decent leads in. Of course, 99% of it probably was just thrown in the trash, but that 1% that responded was valuable. [00:14:16] Speaker B: Yeah. And sometimes you have to just sort of edge your way through it, don't you, and just try some things. And people sometimes say to me, what's the best marketing I can use right now? And it's like, right, I've got 200 things you could use. And this seems to be working really well for a bunch of MSPs. But you do have differences. And I work with lots of MSPs in different parts of the world. And what might work in Nevada las Vegas is Nevada, isn't it? [00:14:39] Speaker A: Yes. [00:14:40] Speaker B: See, I've got that right. Probably wouldn't work in Montana because they're completely different. They might be physically part of the same country, but they're completely different areas, completely different people, different businesses. And I think trying different things and seeing what works for you in your area is often a really smart plan. So you said you were part of a peer group with another MSP. Talk us through then. How does that conversation get broached where two people look at putting their business together? [00:15:10] Speaker A: I think that maybe they had an idea that they were going to move away from La. Was our first partnership they were going to move from. So, you know, they were thinking that, hey, how do I keep this business going? How do I sustain this thing if I'm not in? Like, who could help know, I'm making a lot of assumptions there, but that's what it seemed because it seemed to transpire that way. So when this part of ours approached me and said, hey, is there some way we could partner up? I thought, all right, well, this is a good opportunity. I think it's a matter of at least in the peer group, showing that I don't know, maybe having dedication to the business, showing success over time. It builds a lot of confidence. I mean, obviously internally for us, but also with other people. So they look at us and say, all right, well, hey, Tom and its they seem to know what they're doing over. You know, if they were in a position where they were either going to knowingly move out of the area or they're burned out or they just wanted to not do every job under the sun right. In the business, that would be the kind of broaching the conversation. That would be the catalyst to getting that conversation going. Yeah. [00:16:22] Speaker B: So it's almost like I'm speculating now, but you were someone else's exit plan. Essentially you were their exit strategy because did they stay in the business when the two of you came together? [00:16:35] Speaker A: Yeah, they stayed in the business. The interesting thing was they stayed in the business and then six months later they ended up moving across the country to Connecticut. So they moved their family to Connecticut. And that was a big shock for me because I didn't know that was going to, you know, I was like, all right, well, we're going to make the best of know, kind of just figuring things like being a creator is one of our core values. So we just look at things as challenges like, okay, how do we overcome this? What do we have to do? And we just kept it going. And even though he was in Connecticut, he was still involved in the business, still involved with the clients. He'd fly back on a regular basis and our teams just came together to make it happen. And that worked for years and years and years. So it turned out to be okay. [00:17:19] Speaker B: Yeah, no, that sounds fantastic. And then what was the route that sort of brought in some of those other MSPs? Just give us a little bit more detail on the story you were telling us earlier. [00:17:28] Speaker A: Sure, yeah. So the second partnership that we did was an MSP that the first partner knew in Orange County. And this guy, he loved technology. He had about three people in his company. One of the people had a severe illness, had to quit. The other one had the I think they were on a visa or something that ended. They had to leave the country. So this three person company was condensed down into a one person company. And that guy, while he loved technology, he didn't want to work 20 hours a day trying to make up for the other two people. He's like, I don't really need to work this hard. I just want to keep kind of stay in the game a little bit. And that was his catalyst to wanting to join us, is, hey, you guys do all the stuff that I don't have time for and I'll just keep working with the clients that I really love. So that was the second deal, right? The month after that, while we were trying to find another partnership, we were looking into Phoenix, Arizona, and so we sent out some direct mails. We called some different people, and somebody responded and said, hey, I'm interested. I'm looking to have a partner, and what can we work out? So that month, it was February 2018, we did the third partnership out in Phoenix, Arizona. So they had a company. I think the catalyst for them, if I had to just guess, was they were sick of running the company alone and they wanted to have someone they could bounce ideas off of. Interestingly enough, he wasn't in any peer group, so he didn't really have that same forum of people to bounce ideas off of and use as a sounding board. So he was looking for a partner to come in and be that person for him. So he had about, I want to say five employees, five or six employees at the time. And that worked out pretty well because we were able to share information, experience, and it allowed us to expand into the Phoenix, Arizona market. [00:19:28] Speaker B: So what you're describing there, which obviously worked for you because it's led on to bigger and better things, there is a parallel universe somewhere where you've got a bunch of companies coming together where the owners stay in the business and they don't get on. They have different ideas, different ways of operating. They can't agree on a PSA, they can't agree on standard things that you would need to standardize as you start to bring together lots of different companies. Did you have an element of that where there was conflict, or did you manage to work around that? Because in my eyes, putting a bunch of business owners together and then taking away let's be honest, the best thing about being a business owner is full autonomy, right? We can do exactly what we want to do, whether it's the right thing or not. And then suddenly when we have a business partner of any kind, there's a limit placed on that. So was that ever an issue or did it just sort of seem to work itself out or did you just assume that the natural leadership position? [00:20:23] Speaker A: I think initially because we built out a leadership team on our end, and before the first partnership, I think we were running about four or 5 million in revenue. And so we had a sales manager, we had a service manager controller. I'm not sure we had an HR manager at the point, but we had some bit of HR department going on and so we had these different roles sort of already built out. So when people looked at our company, we're like, oh well, hey, I'm doing everything myself. You guys have a team of people that can help out. So they just naturally just came into the company and just assumed most of the tools and processes that we had now, definitely we didn't have it all figured out. I don't think we have it figured out 100% now even. We're still continuously improving every day, every month. But the foundation that we had was pretty solid, and we were able to bring people on, say, okay, hey, we're using the ConnectWise PSA, or we're using Kaseya RMM or whatever it was, right. And most people were using a similar tool set. It was either going to be on Kaseya or Automate, or you're going to be on likewise Manage or you're on Autotask. And the tools are familiar enough to similar enough I should say to one another that it didn't really matter, and it was just like, okay, hey, what's the platform? All right, great. I'll come in. There is a huge integration process. Our integration process is about nine to twelve months, and it goes through hundreds and hundreds of tasks. And in part, some of those tasks are, hey, we got to move from your RMM over to our RMM, or your ticketing system to our ticketing system. So there's still a lot of moving parts people like, to your point, your question, how do you get people to all agree? Some of it is sort of like, okay, hey, we believe ConnectWise manages a decent ticketing system. Great, we'll use that. Or we're good with automate. Great, we'll use that. And if we need to change it, we can change it. Initially we would say, hey, just use the stuff that we have right now, and then we can modify it later. But the biggest thing was actually getting the integration going and getting on the same platform so the team could be working together. [00:22:37] Speaker B: Got it. So as those people were sort of coming in, then I guess it became easier and easier with each integration because you could say to them, well, this is how we run things. This is the stack we use. This is the direction we're going with that. And obviously if you've already got those resources sorted out, that's easier. You make an interesting point there about that. As a business, you still haven't got it perfect. Is there anything such as a perfect business? Does it even exist? I don't think it does, because at the point you think you've got things figured out, something else is breaking, right? [00:23:07] Speaker A: Yeah, totally. The perfect business. Somebody joked around. It was like, the perfect business is one that you don't have any clients and no employees, and then somehow the money just flows in. You're like, this is magic. Yeah. So I wanted to kind of go back on my point about where we had this foundation of tools. I think that worked really well, I guess tools and processes that worked really well for smaller MSPs that were joining when we got to 2021, and we merged three MSPs together. So we had Intibix out of San Francisco and we had PC Miracles out of Detroit, and then we had Its, which had four locations at the time from different MSPs that joined Its, PC Miracles and Tivix. We all merged together in 2021, and that was probably the biggest bit of complexity to deal with because each MSP was sizable in its own right. And we all had our processes and our way of doing things and things that worked well to get us past the 5 million mark, the 7 million mark, the 10 million mark. And so bringing those companies together, there was a lot of conversations. It was sort of, okay, let's take a step back. What are you doing? How's it working? Is it working for you? Is it not okay? What are we doing? What does that look like? Which one do we want to go with? What process do we want to use? And even now, two years later, a lot of that's been worked out. But there's still some things that are still being worked out between those companies that came together to make sure that we're providing the most value we can to our clients. [00:24:44] Speaker B: So if you don't mind, can we just touch on the money side? So I think I remember you saying right at the beginning that those early mergers were done pretty much without cash, huge amounts of cash changing hands. Now, everyone always feels a bit awkward. Well, I'm British, but the British are the most awkward in the world at asking about money. But how did you do those early mergers? Was it a case of everyone sort of took new ownership stakes? How did that change as you brought new players in? And how far did that get you to the point you realized, like you said earlier, that we were going to need some kind of private equity to continue doing bigger and bigger deals. [00:25:19] Speaker A: Yeah, so I'll start with the easier, more simplistic to the more complex. So the most simple way was to just say, hey, listen, let's create a promissory note and I'm going to buy your business for X amount of dollars and I'll pay you over a certain amount of time, or I'll pay you a certain percentage of the revenue that's coming in. So if the clients stay, you get paid. If they don't, hey, there's no risk to me as the buyer that worked for a couple of deals. Next step up that's a little bit easier to understand would be just straight merger. Hey, your company is worth X amount of dollars. Ours is worth another Y amount of dollars. We put them together. Now we have z amount of dollars, let's say. And that's just some way to come together without actually spending money. The third way, which is more complex, that we did basically three different times, was a very unique partnership structure where we had our corporation and they had their corporation, but we formed another third corporation together and let's say it was just 50 50. And in that corporation they had put all their clients from their original one into the new entity. And that entity would give them sort of a preference or think of it as like. A promise or not necessarily a promissory note, but like a promise to pay the value of those clients when we go and sell this entire thing. So let's say that you and I were going to go into partnership. We'd form another company. You and I are 50 50. You put the clients in that company. Let's say they're worth a million dollars. You'd have a promise. For a million dollars you get the first million dollars payment if and when we sell everything together. And then anything that is above and beyond that million dollars, we just split 50 50 based on our ownership levels. Now day to day we would just split the profits 50 50 and there'd be also another payment from that company back to our company. Its to do all the service. So we would hire all the employees as well from the original company. So their company kind of turned into this shell investor based company. The third company really just contained the clients and brought in the revenue and paid expenses. And then its became the place where we housed all the employees. We had all the processes and tool sets internally. So definitely more complex than most people have probably ever heard of. That worked well for us because it allowed people to say, okay, hey, you're going to give me a million dollars. The first million dollars somewhere down the road when this thing sells. Up until then we're still getting cash distributions based on our ownership level. Our goal was to put a bunch of companies together to become more valuable so that that million dollars is worth 1.52 million, 3 million and so forth. If that happens then let's say me or its would get some payout. But if it doesn't happen then they get all the money in the end. So it kind of worked on multiple levels. Even though it's really complex, I tend to have to explain it and draw it out. If I had a whiteboard here I could draw out the thing and make more sense. But that way worked pretty well. People go, I get it, I like it and I want to join based on that. [00:28:52] Speaker B: Yeah, you've clearly kept a lot of lawyers very busy over the years coming up with very complex schemes, which is not a bad thing. So let's talk about that private equity money. So remind us again what size you were at and how many MSPs you'd pulled together when you made that decision to go off in a different direction. And what was it that sent you off instead of doing these clever deal structures? Which, ultimately, I guess, that you're taking on all the risk and you're sort of spreading your resources every time you do one. What made you decide to go in that different direction? [00:29:24] Speaker A: Yeah, so when we took private equity on last year, we were running about 22 million revenue and maybe about 4.3 million EBITDA or net profit that size, like four or 5 million. EBITDA is about the size that private equity companies want to look at to create a platform company that they can invest in. We were doing these different partnerships that were working pretty well. We had about eight of them at the time. Before we took private equity, we had five more MSPs that we had signed Lois with at that time as well. And so we had to make a decision. The first MSP that we had to sign Loi on was to purchase one based in Phoenix. That owner had his business for 32 years. He's like, hey, I had a good run. I just want to do something different. So we said, all right, how are we going to come up with the money? I think it was like it was a few million dollars. So how are we going to come up with a few million dollars to purchase this business? And collectively, inside we were saying, okay, well, we could probably pull some funds together, and we were doing $4 million in net profit, but a lot of us were getting distributions off that as well. So sort of, how do we make this work? Then we were talking to private equity for that entire time as well, and they know we came in. We could buy the company, obviously, and you could use our funding, our debt providers. We could try to go get a debt provider on our own, which we did. Look at that. It's funny. Chase is our main banking relationship. And Chase came in and said, hey, I like what you guys are doing. I think we can help you. The only problem is we only do deals that are more than $5 million in value. And our deal was like, call it $3 million or whatever. It was lower than the 5 million. So we're like, that's weird, right? This bank only wants to give us $5 million or more. So we went to another one, another company that provides a lot of debt funding in this market. And they said, we can only do $8 million deals and above. This is crazy, right? So how do you get the money for less than 5 million or less than 8 million and you can get SBA loans? We didn't want to leverage our entire lives to do that. So we were trying to figure it out and kind of got to the point I was like, okay, if we go private equity, we could definitely get this deal done quickly and efficiently. The other four deals behind that, they could help out with as well. And then at that point in time, we could also take some money off the table. As private equity comes in, the owners basically are selling a portion of the business to the private equity firm and then in turn taking the cash off the table or getting some value out of the business. So I think that Liquidity Event was helpful. We looked at and said, okay, well, Liquidity Event would be great. Being able to use their funding would be great. I thought the culture of the private equity firm seemed very similar to our culture internally. So we said, okay, could we work with these people? How would it look? And then also to get the other deals done, they had a deal team. They had a team of people that all they do is work on deals. So they do all the analysis, they do the financials and the due diligence, they do the whole thing. So that took a lot of pressure off of us. So we felt at the time that going down the private equity road was our best bet. And as we went down that private equity road, I think it was beneficial because the four deals that we did afterwards, a couple of them were pretty smooth. It wouldn't have been an issue, but there were one or two that were more complex based on their corporate structure, rather than being like an LLC or an S Corp. And that would have caused us some issues. So the private equity firm helped out greatly in that. [00:33:17] Speaker B: Yeah, yeah, no, I can imagine. And it clearly sounds like you found a good partner. If they have a similar culture to you, then you can see that that would be a good thing going forward. On the subject of culture, actually, I'll come back to that in 2 seconds. You mentioned something called Loi earlier, which stands for Letter of Intent. I just want to explain that for our listeners. In case you wondered what an Loi was, it's where you essentially signed something saying, I'm going to buy your business. We're talking about culture. What do you do now? Because the business has obviously exploded completely. It's obviously totally different. It was different in 2013 than it was when you started it in 2003. But what you've got today, you could probably argue, is so vastly different to what you had ten years ago. You've got all these different companies that have come together. We've all read that mergers are very difficult to make work, and you've brought lots of different things together. As the leader, what do you do to try to keep the cultures of the various units working as they were? Do you keep them as separate units? Do you have local managers? What's your sort of approach to that? [00:34:21] Speaker A: Yeah, I think there's a philosophical, maybe difference or approach to it. So for us, we wanted to have one team which gave us one culture and one group of people to rely on. And so we decided early on, let's integrate everything. Let's have one brand name, let's have one platform of Ticketing and RMM and all these things. Let's have it all on the same table. It's not always done like that. There's a lot of different ways that private equity firms come in and say, hey, we'll bind your company. Just keep your name, keep everything. We're just going to own a portion of it and just keep doing your thing. And there's other ones that are sort of hybrid where you say, well, keep your name, keep doing your thing, but we're going to take over the accounting side so we can kind of keep track of all the money. And then our method up to this point has been, hey, let's integrate everything because we want to be one company. And I think from a culture standpoint, that's the best. I mean, obviously, that's the road that we chose to go down. We tend to keep the culture up by leaning on our core values. So we talk about our core values all the time. Every single day in our daily huddle, we talk about core values. One thing early on, when I was learning about core values, I'm reading these books. I'm like, oh, what's core value? I got to come up with this thing. We all have core values. Whether we have defined them or not is the question. And so when we took a step back and said, okay, well, what are our core values? And we wrote a list of ten, and we felt all great about it, right? It was amazing. And then a couple of months later, we were on our daily huddle, and I was like, hey, guys, so who could name off all ten core values? Nobody could do it. Not at all, right? And then I came in the next day. I was like, I got $100 for somebody that could read off all the core values, and somebody got eight out of ten. I was like, okay, well, we're still not there. It got me thinking that it was just too much. And so we pared it down to five, and we had five for a while, and then I got to the point of, like, some of these are a little bit similar. Can we pare it down more? Can we simplify it even more? And so now we've simplified it to three core values, and we talk about them every day. We encourage people to tell a core value story in our daily huddle. So that's the way that we figured out how to get people to remember the core value. So if I was in a situation where I had some challenge I had overcome, or say, Paul, you're in a situation where you overcame a challenge, and I saw that and noticed it, I wanted to highlight you in the daily huddle and say, hey, Paul was really being a creator because he overcame XYZ scenario that was in front of him. That was an awesome thing to do. Or maybe doing the right thing is another one of our core values used to be integrity. People used to say, well, they kind of get confused with integrity. We just distilled it down to doing the right thing, which is what's the right thing for you as a person and the client and the company? And so imagine there's a Venn diagram where you're overlapping those three different interests. The center of that is the right thing. And we tell people, hey, we're not going to be there every second of the day. We don't want to micromanage people, right? We need to rely on you to make a decision. So just weigh it out. Like, what's the right thing for this client, for you, the company, its what is it? And just make a decision. If it's a mistake, great. We learned something, right? We learned something new. But if it's not, then we all moved on, and we saved a lot of time. So then the third core value is having an open mind. Because I think in this business, we tend to deal with problems all the time. It's just a problem based business, right? Clients are calling, this is broken, that's broken. This is know, whatever. And so it's easy to kind of get into this negative mindset. And while people love to get positive feedback, if I say, hey, Paul, you're doing a great know, keep it up, that's great. You love to hear that. But how do you react when I say, hey, Paul, I got a problem, you didn't fix the problem, or you worked on this, but you made something worse. How do we react to that? And having an open mind is all about really, how do I deal with the negative feedback that's coming in? Can I unwrap the negativity from it, see what the message is, and then learn and grow from that message? And so if we stay open and have an open mind, then we're actually going to help ourselves. We'll help the client as well, but we'll grow as a person or as a team because of it. [00:38:46] Speaker B: I love that. [00:38:47] Speaker A: I love it. [00:38:48] Speaker B: And I love the fact that you've just made it as simple as you can. I think far too often we overcomplicate things. We as business leaders, we have all these things that we want to do and all these directions we want to go in, and so we end up overcomplicating. And for you to go down from ten to three is absolutely perfect. Okay, Tom, final question. I'm going to ask you to put your crystal ball or get your crystal ball out and use your future sightseeing skills. We're right on the verge of 2024 right now. Now, you're quite heavily involved, obviously, in M and A, mergers and acquisitions. What do you think is going to happen? And this is obviously just pure speculation because no one really knows, but we're seeing loads of M and A within the channel. Obviously, we've seen the massive vendors. There's been huge amounts of M A there in the last couple of years. We're now starting to see more companies like yours come together. It's happening here in the UK. I know it's happening in other countries as well as in the US. What do you think is going to happen in the MSP M A world in the next two to three years? [00:39:47] Speaker A: I think it's going to keep going, so it's heating up. I think it's going to continue. I see from all the conferences that I go to, that M A is one of the hottest topics. We're either talking about M A or we're talking about cybersecurity. That's just the only two things people want to talk about at these conferences, it seems like. And so individual MSP owners are trying to figure out, how do I do this? How do I do this to grow my business? We all know how difficult it is to grow organically, figure out how to market and sell properly. That's a challenge in its own right. But then could I grow my company 50%, 100% or even more through mergers and acquisitions? That's the question that people are really contending with right now. And I've seen a bunch of different MSPs go down that road and have some success. It's not always successful, right? There's a lot of complexity to it to try to figure out. I've also seen a ton of MSPs say, hey, I've grown to a certain size, I'd rather sell to a private equity firm, get some money off the table, and then keep growing the business through M and A. So 2024, I think it's just going to keep going, even with the market being kind of crazy and interest rates rising, it puts pressure on doing different deals, but I don't think that's going to slow down in this industry. [00:41:06] Speaker B: Yeah, I guess a lot of it depends on the hunger that the private equity brings in, because I used to work in do marketing for veterinarians in the UK, and that was probably about ten years ago when this huge wash of money came into the sector. And in fact, it was actually a lot of it was driven from the US, and the money was relatively cheap and it allowed some very, very big groups to be very aggressive with their acquisition and go and buy lots and lots of different veterinarian practices and build a set of groups. And then Mars came in and sort of bought up some of those. And it was fascinating to watch because the whole thing was being driven by essentially cheap money, money that was coming from big investors. And it was being used to consolidate on the hope, of course, that there would be a lot more money to be made down the line. So, yeah, I think I agree with you. I think we're going to see more and more. It would be fascinating, Tom, to get you back on the podcast. Perhaps next year or the year, sure. You know, your business will continue to acquire and will continue to go on to other things, and it'd be lovely to fascinating to track your progress and also to see what's happening in the M A world as we go forward. For anyone that's listening to this today and wants to get in touch with you, just perhaps have a pick your brains on something or just have a chat about their MSP, what's the best way to get in touch with you? [00:42:24] Speaker A: Yeah, probably LinkedIn is the easiest. So my LinkedIn profile name is Tom Andrews. So T-O-A-N-D-R-U-L-I-S so just short and sweet. Tom Andrews. Reach out via LinkedIn. I guess you could also email me too, if you like it's tom [email protected]. So either of those two methods would work. [00:42:47] Speaker B: Coming up next week we've never done anything like this before, so it's a bit of an experiment. I am taking you out on a walk. I want to help you make a link between the things that you do on a daily basis and the results that you get. In fact, more than just the results you get, the lifestyle you get. And that is going to be a truly inspirational way for us to start 2024. So join me next Tuesday and have a very profitable week in your MSP. Made in the UK for MSPs around the world. Paul Greens, MSP Marketing Podcast. Podcast.

Other Episodes

Episode 31

June 15, 2020 01:08:31
Episode Cover

Episode 31: SPECIAL: Get new clients deep dive

In this week’s special episode Unless you’ve reached capacity, I bet you’d love more new clients. If this is something you struggle with (most...

Listen

Episode 29

June 02, 2020 00:31:10
Episode Cover

Episode 29: Should your MSP have its own podcast?

In this week's episode Google are not really in the search business, they're in the experience business. Paul's joined by an SEO expert (who...

Listen

Episode 120

March 01, 2022 00:30:43
Episode Cover

Episode 120: Your MSP’s one page marketing plan

Episode 120 includes the next stage in creating your 1 page marketing plan, how to check if your marketing will work and a phishing...

Listen