How Vertical Focus Unlocks Premium MSP Pricing w/ Dave Cava

Welcome to the $10 Million MSP Podcast. This podcast is where I dive into the real stories of MSP leaders who have gone beyond $10 million in revenue, how they built their teams, created scalable systems, and turned their businesses into valuable wealth-building assets. I'm Brian Hoppe, strategic coach to MSPs. I work with MSPs generally in the $5 to $50 million in revenue range. In each episode, I sit down with leaders who have built MSPs beyond $10 million in revenue to unpack the inflection points that truly matter. From the personal stories behind their journeys to the fundamentals like culture, operational maturity, and driving profitability. This isn't another MSP podcast about tools and tech. On the $10 Million MSP Podcast, you'll get behind-the-scenes conversations with leaders who've built thriving MSPs, their biggest wins, their toughest lessons, and the practical takeaways that you can take back and use right now. If you're an MSP owner who knows that growth starts from within, that mindset, leadership, and strategy align to create both wealth and meaning, then this show is for you. New episodes are released every other week. So let's jump in. Welcome back to the $10 Million MSP Podcast. Today I'm joined by Dave Cava. I've gotten to know Dave over the last few years, and every time we talk, we have a great conversation. Dave also is the only person that I've randomly run into at an airport in the middle of the Caribbean that I had no expectation to run into. So Dave, really excited to have you on and have a great conversation today.

I'm excited about it too, because every time we talk, I'm like, wow, this could be a great webcast. So now I'll actually get to do it.

There you go. Yeah. Yeah. So, yeah. So just to kind of jump right in with a question. So a lot of MSPs are like, yeah, I really want to scale. Um, but not many leaders are willing to change how they lead, I feel like. So, and if, as you think about your experience, what do you think is the real difference between, uh, those MSPs that tend to scale cleanly and the ones that tend to stall?

Yeah. Uh, well, first of all, I love the name of your webcast. I did a presentation 4 or 5 years ago called The Road to $10 Million. And I'm going to answer your question with kind of the final slide of that presentation, which talks about all the different jobs an owner does. In an MSP when it's small, and there's like 30 of them on there, you know.

Yep.

Marketing person, you're the salesperson, you're the billing person, you sometimes you're the engineer, sometimes you're the help desk person, you are the HR person. You— there, I, I literally came up with, with 30 jobs that an owner does in a 5-person MSP, and the ones that are really able to scale The owner sheds just about every single one of those roles. And when they get stuck, it's usually because the owner continues to do jobs that they should not be doing. That will stall an MSP every time.

Yeah, 100%. And, and I find that to be the case, especially where folks are like, man, we're, you know, we, we're getting some clients and then, you know, and then we, we tend to, We tend to grow and then we tend to lose and then it just feels like things aren't clean. And a lot of the time it is because the owner is the center of the business still, right? And everything runs through them, every decision, every, you know, in all of the little jobs. And so it's like there's this bottleneck effect. And so that tends to ring true, especially like on the road to like $5 million. And if you want to go past that, and definitely if you want to go to 10 and beyond, yeah, it's definitely something where you've got to be willing to let go, right?

Yeah, we know there's identified plateaus in this business. And I think they're a little less tied to revenue than they used to be because of some of the advancement of the industry. But those plateaus are still the same. And a lot of it has to do with how you manage people and if your organization is set up to scale. You know, what I've called for years the 10 guys in an owner business, you know, usually caps out around $2.5, $3 million. You know, they can now, they can get a little bigger than that. But I've run into businesses that are $8 or $9 million that are just in constant turmoil. And there's so much strain on them because it's still functional. Like the 10 guys and an owner business, just with a lot more people. Um, you, you— And that's what you're talking about, that kind of that leap from 3 to 5 is when you want to, uh, move on from the whole business revolving around the owner, the owner being involved in all the decisions and all the sales and all the— everything that is going on, you know, is, is Is that it's the hub and spoke problem, right? All the spokes lead up to the owner. The owner is the hub of the business and that needs to die. And some owners don't realize it and some owners just can't let go. For some, it's a, it's a combination. But, but yeah, that'll stall a business every single time. And it's not necessarily that they can't continue to grow. It's that their growth will stall and get more and more painful. Instead of growing 20% a year, they'll grow 6% a year. And And there's resources constantly tugging on each other. And there's no leadership in the business that really feels empowered to make decisions without somebody second-guessing them or looking over their shoulder. It just gets messy. You know, we've both worked with those kinds of companies and seen it again and again. It definitely is a pattern.

Absolutely. Yep. And this is why I used to tell my team, Um, and, and other people, my goal was always to make myself as absolutely irrelevant to the day-to-day operations of the business as possible.

Yep.

Right. And if you can, if you could do that, then it's like, well, I mean, there's a whole, whole lot of other things that come from that as far as empowering your team, um, pushing decision-making down to the organization and a lot of other things. But, um, but if you could do that, it's, um, uh, well, and it just makes your business more valuable as well because it's not dependent on you. Right.

Part of the beauty of this business is that The things you need to do to make your life easier if you hold on to the business are pretty much the same things you need to do if you want to have a good exit. You know, like it's, it's all the same path.

Uh-huh.

You know?

Yeah. Yep. And then it just makes it more profitable and more fun, in my opinion, along the way. Um, if you, if you actually do those things. So, um, awesome, man. So that, that's a, I feel like that's a great way to jump in. Um, I want to give you a chance to just kind of, you know, give, give some of your background, like where, walk us through your journey. Where did you come from? Um, uh, you know, you, you owned an MSP, now you don't own an MSP. So like, uh, where, you know, kind of walk us through, through the journey.

Uh, had a career change in my, in my mid-20s when I, and that's when I got into technology. Um, I did not go to school for it. Almost nobody that worked with me went to school for it. And I came up through the dot-coms in New York City. So it was fast, it was long hours, it was fun, it was crazy. I learned the ins and outs of a software development business and how to burn through a lot of money. Kind of hopped around between dot-coms because they kept going out of business. They get funding, they get bought, they go out of business. You know, it was a crazy time. I worked for the worst performing IPO of, uh, 1999. You know, I had my $15 stock options that were at 50 cents by the end of the year. That was great.

Oh man.

Um, but eventually I went to work for a consulting company that was right in the shadow of the World Trade Center. Um, and I went to work for it right after 9/11. So about, about 9 months after 9/11. New York City was dead in terms of project work, and they were a very project-focused company, a little more mid-market. They were doing cable designs and moves, adds, and changes for companies like Reuters, a lot of mid-sized financial companies in New York City. And after 9/11, like, all the project work just stopped. Everyone was just holding their breath, trying to stay in business, trying, trying to, uh, uh, Mm-hmm. play defense and avoid running out of money and just waiting for things to heal and kind of see what would happen. And the company I worked for kept installing cable infrastructure for buildings and businesses and the way they said it back then, they kept asking, can you guys do the network too? Will you support the computers and whatnot? And they said, no, we don't know how to do that. When all the project work dried up, they just started saying, yeah, sure, because they didn't know what else they were going to do. They had no work going. So they created this group, which, you know, was the kind of pre-MSP MSP, you know, that we called Virtual MIS, VMIS at the time.

Oh.

And without knowing anything about business, they put me in charge of it. And, uh, they said, we have these 4 clients and, you know, just give them what they need, support them day to day. And they gave me 2 staff. And, and I figured out about a month in, I said, there's 3 of us and there's 4 little clients. Like, if we don't find a way to figure out a way to make money for this company, they're just gonna fire us all. Um, and that's when I, I started to focus on sales and trying to learn the business side of things. And long story short, after 4 and a half years, we had 30 clients. We were more than half the company's revenue. We'd grown the business to about $1.7 million, that side of the business. And incredible dysfunction in the company. I just decided to leave. I decided I was going to start Um, a tech support company. I invited my boss to come with me. I just said, we work, we work, we work great together. I'm doing this whether you come or not, but there's nothing left for us here. You know, this place is such utter chaos. Um, you know, and after a day or two, he said, you know, sure, uh, you're right, there's nothing left here. Let's give it a go.

Okay.

And it was crazy. Because what we didn't realize is people really liked us. They liked working with us. They didn't like the guy that owned the company. And so there was just this crush of work when, you know, we left. We started that business with no notice, no employees, no— we didn't even have business cards. We literally walked around to our clients with, with a photocopied proof of a business card and just said, you know, Yeah. We're no longer with that other company. You know, if you want, if you ever want to get in touch with us, this is our information and just left, you know, didn't do any sales, didn't do any, any, anything and just waited for people to chase us around.

And they did.

Uh, we did, um, $1.2 million in our first 8 months. We were—

Wow.

We were 12 people after 8 months. Um, we had an anchor client that You know, 6 months in, we were billing them $100,000 a month. So it was just like total, you know, the intention was to find the right RMM and find the right PSA, get everything configured right, get our processes in order and slowly build the business. And we just got crushed with work and kind of never looked back. So I always use the saying, you know, trying to Fixing MSP is like trying to repair a moving train. And it was like that for us. And that train was in Acela. You know, we built a $10 million company with no acquisitions in 11 years. And it was pretty chaotic for a lot of that time. A lot of what I'd learned, I learned everything I could the easy way. And I learned a lot the hard way. And, uh, and then after I got out and I learned it's a lot easier to, um, to understand what other people need to do in their businesses and give them advice than it is to actually do it yourself sometimes. The execution part is, is the hard part.

Uh, yep, there you go. Okay.

So yeah, that was— I sold in 2019.

Okay.

I was out of the industry for a couple of years, I had a sick family member who passed away, as you know. And after a couple of years, I thought, what do I want to do with the rest of my life? You know, I had sold a business, lost a daughter, and experienced COVID like everybody else, all in a 14-month period. And it was very much like, I don't know what life 2.0 looks like.

Mm-hmm.

And I just decided that I love the MSP industry. I love entrepreneurship in general, but I knew this industry. I know a lot of people in it, and I look at it as an American dream machine. You know, it's a lot of hardworking middle-class people that if they follow the blueprint and work hard, uh, will become wealthy. You know, it is an American dream machine, and just about anybody can do it if they can overcome themselves.

Yeah.

Usually it's the owner holding themselves back. So I got into doing a little coaching, a little peer group facilitation, and I started a little recruiting operation. And as I did these things, I really decided that the recruiting was how I wanted to have an income and make a living. It's a way to help people and help companies scale and maintain the flexibility in my, in my schedule and be able to work from anywhere. Yeah.

Yeah.

It was a real appeal to me. Um, yeah. I don't know if you want me to just keep going.

I love it. No, no. So, so a couple of questions in there, um, which, which might be interesting. So you started, so when did you, uh, break off and start the business?

Uh, 2007.

'07. And then when did you sell?

2019.

2019. Okay, so over 12— so 12 years-ish. And, um, and, and where did you guys, uh, get to as a kind of revenue-wise at that point?

Uh, $10 million.

Yeah. $10 million of revenue. Awesome. Over, over about 12 years. So—

That last year when we knew we were selling, we're like, oh, I hope we can get past that, that $10 million mark because we knew it was going to be close. And we, we barely— we've barely crossed it. You know, so that now I can do your podcast because the $10 million.

There you go. Right. Yes. Yes. Well, and $10 million back then was, is a little bit different than now. Right. I mean, that'd probably be, I don't know what the numbers are, but, you know, $13 or $15 million equivalent today with all the, you know, everything that's been going on the last, what is that, 8 years since then? So awesome. Okay. So what, and on the road there, because I know you guys kind of specialized within hedge funds or financial services type of companies. Is that right?

Yeah, we were about 80— we were 80-something percent hedge funds and private equity by— if you go by, you know, client roster, and a little over 90% if you go by revenue. So that really was the overwhelming majority of our business. We were very locked in vertically.

Gotcha. Gotcha. Okay. That's great. And I know, I mean, that's a difficult space to break into, right? I mean, that's not like, oh, yeah, let's just go get some.

Very difficult. That's a good story in and of itself because we hadn't been there. The company we worked for previously had bought a small tech support company that had 7 clients in the hedge fund space. And, you know, so we got to know some people there, some connections. Everything in the hedge fund space flows through the prime brokerages. The prime brokerages are the sections of companies like JPMorgan and Goldman Sachs and that launch the hedge funds. And basically they say, Hey, you know, you've come to us with this proposal. You've been a very successful trader. You've got some money of your own to invest. We'll put you on our back office platform. We'll give you a little of our money to invest, and we'll help you find the right lawyers and the right tech people. And you can use our hedge fund hotel space to get going. And basically, they help hedge funds to launch when they find somebody they believe in who has a good Track record. So, if you can get in with the prime brokerages, it can lead to a lot of easy sales, viral sales, right in the— with the kinds of clients that you want. It's just very hard to get in with those prime brokerages.

Yes.

You can't bribe them. You can't just say, hey, give us a try. You really do need an in there. And the thing that most people don't realize, or at least didn't realize back then, is that hedge funds in particular is a very difficult thing to dabble in. You can't be a generalist MSP and really do it well because there's so much compliance. You have to build the technology in a certain way that is strictly focused on the compliance angle.

Mm-hmm.

If you don't do that all day long, you're probably not going to charge enough and you're probably not going to do it well. There's enough complexity that you're probably not even going to make money. So you kind of have to go all in or at least most in to do it well. And there's a pretty small handful of companies that are known in the boutique financial services industry. Everybody uses the same 5 or 6 guys for the most part. They probably have 80 or 90% market share.

Right, right. Yeah. Well, and I had a vertical MSP as well, which was more in the banking credit union industry. But I'm a big advocate of, hey, if you can specialize and as much as you can specialize, it's going to make a lot of things easier for you as you grow and scale. So if you're vertically focused, not only is it— well, it's easier to message, it's easier to market to that specific vertical. It's easier to charge more because you know more about their industry. And therefore, well, and it's easier to service because all of your people know all of the software and all of the other stuff that they're using. And so how— so I guess how much would you attribute your growth and success to choosing that vertical and really hitting it hard?

Absolutely key, you know, and it was, it was a debate between my partner and I in, in the early days. We were scared of getting pigeonholed. You know, we were experiencing the financial crisis of, of 2008, 2009. Um, you know, we, like I said, we came out of that flying out of the gates and then—

Mm-hmm.

We've had a pretty decent concentration in financial services even in the beginning and right away, You know, one of our biggest clients was in mortgage-backed securities, you know.

Oh my God.

So we were kind of really scared to put all our eggs in that basket.

Yeah.

And, and we hesitated to do it and we didn't do it for a while. And then we started seeing, uh, the general MSPs around us that were really successful, really trying hard to break into that vertical and failing. And we're like, we're already in this vertical. We have a reputation. We know the right people. Like, why are they trying so hard to the point where, you know, these are big companies and the owner's going on every single sales call like that? You know, like, maybe we're— maybe we have something here.

And yeah.

And the decision to kind of hang out the shingle and say, this is what we do, this is what we specialize in, we're, we're basically— our entire company is designed to deliver service to hedge funds. We could still sell to other people, but we didn't back away from that at all. We'd go into— we had a law firm or 2, we had a big PR company, but we'd always say, we are built to service hedge funds. That means a few things. It means that rock-solid reliability, good remote access. We're really good at the needy leadership people who have 4 houses and want everything synced up and working, whether they're in Aspen, the Hamptons, or they're in New York City condo, you know.

Yeah.

And we're good with the compliance stuff. And we go into those other verticals and just say, this is who we are. We don't drop our prices. We're not learning your line of business software. You know, you fired your last 3 MSPs because they can't handle your president. We can. Hire us if you want, you know. And it worked, you know. And it was a great way of— we didn't change to fit prospects. We went out there and said, this is who we are. If that's a fit for you, hire us and pay our fees. You know, at the end, our all-on-seat price average, including other verticals and stuff, was, was $365, and anything we'd brought on in the last 2 or 3 years, the, the, uh, was $395 to $495. I mean, we— and this is again 6, 8 years ago, um, to prove the point, you know, when you're, when you're vertically focused and you're competing against 4 or 5 other companies instead of 200 other companies. Changes everything.

Wow. Okay, so we got to pause there. We got to call a timeout because I sit in rooms, even with large MSPs that are, you know, $30, $40 million in revenue. And they're like, we just can't charge any more than $150 a user. It's like, the competition's too much. It's just not possible to do for us. You're back in 2015, 2016, 2017 charging almost $400 a user. How do you think about that? How do you reconcile that in your mind?

I would be remiss if I didn't talk about a lot of it was the vertical. You can definitely charge more in hedge funds for sure. But that wasn't the entire thing because those companies still had other options that were significantly cheaper. We talk about selling on value versus selling on price. And the reason all those hedge funds were willing to pay more money is because they knew they needed somebody who understood hedge funds and understood how needy they were and could deliver on it, and they expected to pay more for that. They knew, you know, we knew that if, if, uh, uh, if the hedge fund manager's printer broke, you know, that was an emergency, not something you get to do in a day or two, you know.

Right.

We knew that if the hedge fund's manager was having trouble with his email sorting and, and getting duplicates, like, that wasn't, uh, something that, you know, you've You want to figure out it's a real problem after 4 tickets have been submitted. You know, the, the— a lot of it was that, um, these businesses were willing to pay significantly more money because they felt like somebody really understood their businesses and their needs and could deliver.

Sure.

And they had a lot at stake. And a lot of it really does come down to the the vertical specialization. You know, if I own a business and I know that my needs are going to get met to 60% of what I need if I hire a generic MSP or 90% of what I need if I hire somebody that really understands my vertical, I'm going to spend the extra money and get that 90% so I'm not constantly pulling my hair out.

Right.

And at that point, money becomes a secondary concern.

Yeah, absolutely. And I think that proves a lot of my thinking and a lot of the, I guess, high-level advice that I hear in the industry, right? So, I mean, it starts with your value creation model and all of that, but then that's the reason that target client profile plays such a huge role in the growth of your MSP, right? So if you, if you know, hey, I want to be able to charge a premium price. And so that I can, you know, I can pay my people well, I can, I can earn a best-in-class profit and all of that. Well, I've got to, I've got to select my, my target client profile really well. And there's probably more hedge fund managers or CEOs in the private equity space that are strategically thinking about their IT that say, hey, if I find the right person, I'm willing to pay that premium price in order to get the best possible service because I can't afford to be down. And sticking to that, and you sticking to that 90%, I would imagine, you know, that, well, it just makes things easier because you've got that, you know, your people know exactly what they're dealing with. And there's just so many downstream effects from picking the TCP and sticking with the TCP over a long period of time.

Yeah. You know, in, as you know, wrote a book, the Pumpkin Plan for MSPs, right? And we talk about, uh, we talk about how important it is to develop a reputation as being the best at something, you know. And that can be a technology, but it works better if it's, if it's, uh, a business line, a vertical. Um, the I probably do at least half my shopping, grocery shopping, at the little grocery store next to my gym. I'm paying 30% more for everything in that store, you know, but it's next to my gym and they have great meat, they have great fruit and vegetables, and, and it's, and it's convenient. So, I'm okay with paying more. You know, the— and I, and I never wait on line when I go to check out. I check out with a human being. You know, it's not that different in, in tech. Uh, the, the— at its most foundational, the principle is you don't— if you say we can't afford to because there's too much competition, you know, you, you've identified that you're playing in a game that comes down to lowest common denominator. You know, like that you're, you're playing in the commodity space. It really is, how do I avoid selling commoditized services? And if I'm already selling commoditized services, how do I break out of that?

Oh yeah, absolutely. So, so that— so this reminds me, um, you know, so, so one of the, um, definitions that I've heard of strategy You know, if you've got vision, all of that, you absolutely need that. One of the definitions of strategy is picking the game that you're going to play and making it a game that you and only you can win. What, like, right? Yeah. So like that, when I, when I heard that, I was like, oh my goodness, because— and that reminded me of exactly what you were saying. Is like, is if you're playing the same game that every other MSP in your market is playing, you're playing the wrong game. Create a new game that you can win and only you can win. And well, and then you're going to be, you're going to be in the place that you want to be.

Yeah, I did a call with one of these MSP software-focused venture capital companies the other day. And they were saying, you know, we only focus on tertiary markets. All of VC money in, in the States is mostly in, uh, San Francisco, Austin, New York. Like, and, you know, there's 10 other secondary markets where you've got a tenth of the competition For deals.

Yeah.

And some really interesting things going on. You know, it really is about finding that, that, uh, blue ocean. And I think what keeps a lot of MSPs from doing that is essentially fear. You know, they are afraid to, uh, pigeonhole themselves. They're afraid to turn down any sales, any kind of revenue. They say, my, my town isn't big enough. You know, the And their fear of limiting their sales focus leads them to keep trying to do everything for everyone. And they're never able to find a lane, which leads to commoditized services, which leads to ineffective marketing. You know, you're marketing to the ocean, you know, like marketing to everyone is marketing to no one. And that's what you see a lot of these companies marketing, you know, does your antivirus do this? Well, it should, you know, and nobody in any other kind of business is going, you know, I really wonder if I'm using the right antivirus. You know, they're worried about business. They're worried about the things their business does all day, you know.

Yes.

It's ineffective. You know, you want to market to business people, um, around their business needs. And it's hard to do that when you're marketing to every kind of business.

Yeah, absolutely. Absolutely. And, and I want to hit on something that you just mentioned there because, because I think, um, a lot of MSP owners tend to use, um, you know, well, they tend to make excuses for why they can't be best in class. Right. And so it's, it could, it's like, maybe, well, yeah, I'm in a small market, or there's too much competition in my area, or we just don't have the team we need, or, you know, a myriad of different reasons. But at the end of the day, really, it's actually the skill of the leadership team that determines the MSP success. And I was having a conversation with a, with an MSP owner just yesterday or the day before, who's in a market of 1,600 people.

Mm-hmm.

This is, this is their town that they're in, very rural market, 1,600 people. They're doing $15 million in revenue. And they're best in class profitability. So don't tell me that you're in too small of a market because guess what? These guys are doing it and they're absolutely killing it. And I used to get mad, you know, when people would tell me things like that of like, well, it's really just your level of skill and your ability to actually, you know, to actually execute. It's not all of these other excuses that you want to make. So that's what that reminded me of when you were, when you were talking about that.

Yeah, no, you know, the service leadership guys have been good to me and I got to review their full report last year. I'm probably one of the only people that read all 450 pages of it or whatever it was.

And you wrote some articles on it.

Yeah. But they studied it from every angle they possibly could to say, is it better to be rural, suburban, or in a city in terms of best in class. And they looked at it from every angle they could and just determined like, it really doesn't matter. There are great companies in small towns that are, are growing and very profitable. And there are lousy companies in big cities, you know, that, that where there's unlimited pie for them to, to eat. And it just, it didn't matter. You're absolutely right. It came down to the, the execution.

Absolutely. Yeah. And, and the interesting thing is, it's like, well, actually, there's a playbook. And so many people have done this before. So like, A, don't try to figure it out all on your own. And B, actually do what people who have done it before tell you to do. And you're probably going to be in a pretty good spot.

Yeah, I mean, the— I know you See, everybody should have a coach, everybody should have a peer group, and, and I, I would agree. Um, you're not— you want to find ways to, to be, uh, present creatively and uniquely and, and kind of find your own niche in the world. But as far as the, the mechanics of the business, like very— it changes a lot slower than the technology does. There's best practices for just about everything. If you go looking for them, they're not, they're not real hidden. And yet one of the things that drives me up the wall about the MSP industry is that most of the owners, most of the conference content is still focused on technology and tools. Because that's what makes, uh, the people who are sponsoring the conferences money. That's what the owners were interested in when they choose to get— chose to get involved in this kind of, of business.

Yep.

And, you know, you can have the greatest toolset and know the most about small business technology of anyone out there and, and, and run a business into the ground very easily. You know, it's, it's the least important thing. I talk about how really when it comes to running a successful MSP, the most important things are the business side of things, the people side of things, and then the tech side of things. And most MSPs flip that on its, on its head.

Mm-hmm.

Um, and It's like I said, there's— it's not like, uh, you know, it's the old Kung Fu Panda thing. There is, there is no— there's no big secrets here. Nobody's trying to hide the, hide the ball. You just really need to focus on the right things and, and potentially grow as a person, uh, and do some things that you're uncomfortable with.

Yeah.

Very few MSP CEOs start out, you know, with CEO capabilities. You know, they work really hard on themselves to get there, usually with a lot of help from somebody like you.

Yeah, yeah. And that's, uh, yeah, definitely, I definitely want to hit on that. Um, and, and I do, so I want to go back to, to, so you said, um, the business aspect of things, the people aspect of things, and then last is the tech aspect of things. So, so obviously you've gotten into in the people side of things. And I'm assuming that's because it was a meaningful piece of the growth that you experienced. So how would you characterize the importance of the people aspect of things in the growth of an MSP?

Right. Well, I'll take a half a step back and say absolutely the reason I got into that, that, you know, there's a story there. My MSP would just kind of really struggling to kind of make that. We were around $6, $7 million probably. We were kind of still in that growing out of the everything revolving around the owners. You know, when we were around 22 people, just about everybody in the company reported to me. And I knew about those MSP plateaus. And I said, well, we were long past that 10 guys and an owner plateau. And then it dawned on me that all we were We're the 10 guys in an owner company with 2 owners. Everything still boiled up to me or my partner and we hadn't really put any effective middle management in place. We really didn't have any kind of mature processes and we just said, all this needs to change or we're going to totally burn out. We were totally well on our way there.

Yeah.

We had a group of 7 employees who all came on the first 18 months of the company who had been around a long time and they were just used to doing things with muscle and feel, elbow grease.

Uh-huh.

And they didn't want to follow and they didn't want to lead. And we said, these people need to change or we're going to manage them out of the company. They have to be willing to be accountable to a manager. They have to be willing to work with evolving processes. And 5 of them were gone in a year. 2 we salvaged. And that's probably about the average on those things.

Yeah.

And between that and continued rapid growth and some unrelated churn, we hired 15 people in a year. You know, wow, at like $7 million.

Yeah.

Spent a ton of money on recruiters, mixed results. And, and at the same time, I was studying other MSPs and I was specifically studying MSPs that I knew or knew of. Some of them I just chased down and introduced myself to that were growing as fast as we were, but were a lot more profitable. And I wasn't trying to find anything out about personnel or team building per se. Um, I was really just trying to figure out what they were doing differently that they were able to grow at the same pace we were but drive 20, 25, 30 points to the bottom line when we were driving 6, you know.

Mm-hmm.

And the common denominator that I found between those companies that I studied, and they were very gracious with me after I was aggressively hunting them down and trying to learn from them. Was that they hired people very differently. They built teams very differently. They'd all gotten in and they, they all were doing some of the same things. And this is years ago now, so some of these things have become more common, but back then they really weren't. They were very focused on entry-level hiring. They had career roadmaps for everybody that came into the company. They had structured mentoring systems. They'd gotten the owners and managers out of the early stages of the hiring process. They were all using aptitude assessments before they were popular or en vogue. The— and I started seeing these things over and over again in these companies. And the way I put it now is that most MSPs hire to plug the dam, and the best ones are building armies. These people who are building armies, and the effect there is that you wind up having a much more consistent labor force that's also less expensive.

Yeah.

Because you get real loyalty from people, your retention goes up. When people are able to move through an organization and make more money, you're a lot more likely to retain them. They know your way of doing things, they've been trained in your system, it's just much better than going out to the free agent market, uh, where there are not a lot of experienced MSP resources. And if they are there, they've been trained by other people, probably in some bad habits. Um, it's just— it's a long-term play, but these companies wound up having a significant advantage because they put the work in and, and played that long-term play. And I just said we're going to try these These things, we've got nothing to lose. I just spent $152,000 in 12 months on recruiters, pretty much adults, you know, had people leaving after 6 months that I'd paid $14,000 to bring on or whatever.

Yeah.

And, and, uh, I hired a woman who was 25 years old, you know. I didn't want an experienced recruiter. I wanted somebody that was open-minded and, and who could represent the company well and, and, and had, you know, kind of that cheerleader personality. And I said to her, explain to her what I just explained to you. This is what I've been learning about. I want to, I want to take pieces from here and there and develop a process, and, and I want you to do it with me, and then, and then you're gonna try it. Are you game?

Yeah.

And, uh, and she said yes. And, you know, long story short, we were able to bring our service desk salary average service desk salary down by 17% in a year while improving all of our service metrics on the desk. We were able to cut our time to hire on all positions by 50%. And after a year or 2, we started to see more and more of that internal promotion where we were filling probably less than half of higher-level roles Uh, by outside hires. So it was just a tremendous success. And when I sold my business, I said, you know, what, what did I figure out that would really help MSPs that, you know, I got uniquely good at? And that's what stood out. And I just said, every growing MSP is either going to figure a lot of these things out or they're going to be hampered or get stuck because they don't. And I can help bridge the gap there. And what really excited me about the business was like, I was just like, if there was a company that did what I want to do with this company, you know, and they came to us when we were $5, $6, $7 million, like I would hire them in a second, pay them a bunch of money and feel like it was incredible value and just be tickled pink about the whole relationship. And we're on a little bit of a different model in terms of we're not looking for transactional work. We're consultative in what we do. We want to work with the same people over and over again. I tell people we really function more like an outsourced internal recruiting department than the headhunters that you're used to working with. We don't shop candidates around. In no instance do we go to 3 different companies and give them the same resume.

Right.

That's not how we function. We see ourselves as an arm of the MSPs that we work with, and we don't want to compete with those MSPs or anyone else in terms of landing resources. We want to take it off of them and serve them and have them thrilled with it. So they have to trust us, which is the biggest, probably the hardest part of the whole thing, is they need to let go.

Right.

And trust that we're going to do a better job than they would. And, uh, and that usually happens when it's somebody I know or somebody who's desperate because they've already failed several times. And, uh, or someone that, you know, gets a really good recommendation from, from somebody else. It definitely is a high-trust sale, but it's going very well.

Makes sense.

So Back to your question. The, the, what I find is that MSPs are continually in a place where just about everybody with any kind of leadership role in the company is at a place where they're further down the road in terms of responsibilities and the size of the company. than they've ever been before. Every MSP owner, 95% of them, 95% of their service managers, 95% of their COOs are in the highest level job they've ever been in. They're in uncharted territory all the time. They haven't done it 3 times before. And, and so they are prone to make mistakes. They're in over their head all the time. And, and that, you know, building a scalable team is no exception. In fact, most of them have never even asked the question, how do I build a scalable team? How do I structure this team so that, that, that it's going to get me to a place where we're 50% bigger than we are today? Most of them never even asked that question. And if they did ask it, they probably wouldn't know how to answer it.

Right.

So that's, that's where we can come in and help Or a normal recruiting company wouldn't. But the, the, the reason I asked to look at org charts with a lot of the MSPs we work with is a lot of them still have a lot of dotted lines where this person kind of reports to that one, but then they report to this other one when it comes to these things. Um, they usually, uh, have the owner is still sitting in boxes they should not being in terms of owners doing level 3 tech work, or the owner is, is, uh, is doing the project management, or the— you know, I tell, I tell companies, I say, this is going to sound crazy to you if you weren't told it early on, but by the time you're 10 people, you know, the owner should basically be focused on, on the financial aspect of the business and sales.

Mm-hmm.

And have nothing to do with service delivery. And they go, oh, that's crazy. I'm like, it's not crazy if you've thought about it in advance and structured the company that way. There you go. 6 to 10 are the most important hires in your business. And if you don't get hires 6 to 10 right, you're going to be, you're going to be trying to fix it for years.

Yeah, yeah, yeah. So, so I'm, so I'm curious also, when you Well, so as I'm talking to owners or CEOs that are larger, and by larger, I mean $100 million even and more, we hear about things like— well, what they don't talk about is, like we were saying earlier, tech and tools and all of those things. The biggest things we talk about are those kind of more fluffy concepts that some people tend to think about, or they tend to think of them as fluffy. So, we think about leadership, we think about identity of the leader, we think about the people, and then we think about culture. And so, what I'm kind of getting at is, what do you see as the role of culture in Making sure that the people that, if you bring on the right people, that they're successful within the MSP?

Indispensable, you know, your company needs to have an identity, you know, and whether you talk about it in terms of culture or core values, those things are pretty inseparable. The people need to fit and they need to understand who we are and, and what we're doing. That will increase retention, uh, with employees. It'll also increase retention with sales, and it kind of gives you a North Star in terms of the way you operate your business and in terms of the way that you hire. Um, every time you hire somebody that doesn't fit your core values, um, or isn't a culture fit, you know, you just essentially got a, a time bomb or a slow-growing cancer, whatever metaphor you want to use, in your business. If you're lucky, that person will not work out and be out of the business in a year or two. If you're not lucky, it will fester and metastasize, or that time bomb will blow up.

Yeah. And poison, poison the culture, right?

Yeah.

The company.

Yeah. The something I talk about again and again is every MSP should have a culture where people are building each other up and helping each other inside of it. And I tell people, everybody, everybody without exception, who is in a significant leadership position in your MSP should have a mentor's mindset. How do I make the people around me better? You know, I'm doing this now. Who can I drag? Who can I drag into my office or drag out to the client site? You know, because this is the next step in their, in their growth process. And if you have those people in at the top tier of your company, a lot of other things are just going to fall into place. It's going to increase client retention. It's going to lead to internal promotion. It's going to prevent toxic situations. When you have the people at the top pulling for the people beneath them and helping them out, it transforms everything. And I say all that to say this: what happens a lot is that the best engineer winds up getting appointed the manager, or the best engineer winds up being— becoming the de facto superhero of the business. who half of what they do only this person knows. And every time they run into a situation that involves something only this person knows, he goes, just get out of my way, you know.

No.

And that is absolutely toxic to an MSP. MSPs that get past that point Usually wait far too long to deal with that situation, which usually involves moving on from that person. And inevitably, when it eventually happens, the whole company, including the owner, goes, wow, should have done this 2 years ago.

Yeah.

And, and, and the people on the ground are going, what took you too long? And everyone else steps up and it's just fine.

Yep, absolutely. Yep. For sure. So yeah, and, you know, I think kind of as we're starting to wrap up here, I want to touch back on something you mentioned earlier, which is, and I talk about this a lot, is the identity of the owner. It's a requirement for the identity of the owner to change as the company scales.

Yeah.

And especially, you know, at those big inflection points and and especially going beyond $10 million, because what we tend to do is we tend to look at it as our baby or that kind of a thing. And I kind of use the analogy of when you're driving, right? You actually take on the identity of the car. So, if you're driving down the road and somebody cuts you off, well, they cut me off. If somebody almost hits you, you say, they almost hit me. If you're going to find a parking spot, I can't fit in that parking spot, right? It's not you, it's the car. But you take on the identity of the car. And no one drives 15 miles an hour in a sports car, you know? Yeah, exactly, right? But then once you get out of the car, and if you got in an accident or something like that, you'd be like, oh, my car is totaled. You don't say I'm totaled, you say my car is totaled, right? So you dissociate from that identity. And I think that's a requirement in some ways in order for owners to do things like shed being the bottleneck of the company and those kinds of things. So I'm curious for you, did you find those things as you were growing your company true for yourself as well as, you know, as you're working with other MSPs?

Yeah. You know, the, If you were to speak to me on these things today, I would sound very eloquent and confident and perhaps even arrogant on them, you know, when I— which, because I don't have to worry about it anymore. When you're the guy, it's a lot harder, you know, like the—

Yeah.

I learned a lot of that the hard way in my business. I had a guy in one of my peer groups. who came to be a mentor of sorts, who at some point said to me, Dave, you got to realize that, um, the owner has a split personality.

Yeah.

Uh, and I told you at some point, sometime soon, I'm gonna write a blog called, called Owner Is Not a Job, you know. There's the owner, that is the person who the business belongs to, who has all the stock, who sees dividends and distributions from the company. But there's people that do all those things that have absolutely nothing to do with the business. The guy that buys a laundromat and never ever sets foot in it, you know.

Mm-hmm.

So owner is not that laundromat owner's Right. MSP owner is, is not a job. You're the person that— who owns a business. Then there's the owner who is the resource who works in the business, you know, and, and that's a totally different thing, you know. That is— that's something that necessarily happens in, in every business.

Yeah.

So the You can be a successful business owner in terms of the shareholder and be a pretty lousy owner in terms of the guy who works in the business.

Yeah.

And if you mature well, the owner who works in the business learns to serve the owner who holds the stock, who owns the company. And, and say, what should I really be doing in this business? Because your job description should be, uh, different at $1 million, at $3 million, at $5 million, at $10 million. You know, it cracks me up when I see an $800,000 MSP and a business card says CEO on it.

Right.

And the owner should be challenged to write their job description, uh, at least once a year. You know, what is it that you do in the business? What should an owner be doing in the business at, at your size? You know, that it's, it's, it is a, uh, it's a, it's a confrontation in, in, in some ways, an intervention. You know, like, uh, the CEOs don't pour over timesheets and, and make sure the billing Is, is right. CEOs don't jump in and, and fix the server. And there's a whole bunch of things that CEOs do do. And if you're doing those other things, you're not doing that. Your business doesn't have a CEO. It doesn't matter what's on your business card. And, and there's iterations of that story all the way through scaling and MSP. Back to the first thing I talked about. You know, if you want to scale, you know, you start out as an MSP owner, $300,000 MSP, you've got 30 different jobs. You know, by the, by the time you are at $10 or $12 million, that should be down to 1 or 2 and they should be the right 1 or 2.

Yeah. Yeah. And, and, and I tend to boil that down to 3 things. Um, you know, the numbers, like you talked about, kind of running the financial side of things. The people and the culture.

Yeah.

And I mean, ultimately, that, that's your— that's the CEO-level responsibility at scale. And there's, you know, some other things if you have a board and a few other things like that, but, but you boil it down, it could be those few things. So, okay, so one more question here. As you look back, when, during your time as an MSP owner, What would you say is the biggest mistake that you made?

Oh, gosh.

I know there's too many to count, but what do you think?

There really are too many to count. I would boil it down to holding on to things too long, whether those things were people who I knew needed to be out of the business And I didn't want to deal with the headache or the confrontation or the finding the replacement or things that I kept doing that I knew someone else should be doing. You know, I had, I definitely had a, my business partner did too. I think most business owners do that. I'm going to, I'm just going to keep doing this because no one can do it as good as me and I'm afraid to let them try. You know, like, I had a lot of those things. And don't get me wrong, I eventually did most of the hard things that needed doing, whether it was getting rid of people or letting go of things that I was doing. But it took, you know, most of the time it was 2 or 3 years after it should have happened. Mm-hmm.

Gotcha. Yeah, yeah, that totally makes sense. And I think that's a common experience for sure.

So, um, okay, so I'd say just, you know, also just driving growth over profitability. Guilty of that for, for almost the entire time of the business.

Yeah, yeah. And they're not mutually exclusive, right? You don't have to, you don't have to sacrifice profit.

But now you tell me.

Oh, dang it.

When I was working with Encore, you know, one of the mantras was profit grow, exit. And it was in that order, order, uh, very intentionally, you know, like MSP owners don't realize the, the whole notion of, well, I'm just going to grow it and then I'll, I'll tweak it and get it profitable. It just doesn't work that way at all.

Yeah.

It's ineffective. You know, I, I would just say it's a bad strategy because 95% of the time it doesn't happen. You know, like the figure out how to run your business profitably, figure— get the— get all the right guardrails in place, get the pricing right, know the numbers to look out, understand your, your gross margin and things like that, and your, your labor costs, and then scale it up from there.

Yep, yep. And, and that goes back to the, as you mentioned, service leadership stuff. It's, it's Fix the profit model and then grow. Yeah, fix the profit model and then grow.

It sure doesn't get easier to fix it after you grow. I mean, that's—

It only becomes more difficult and more complex, right? Oh man.

Okay, so train's going 100 miles an hour instead of 15, you know, by that time.

Yeah, yeah, it's even more difficult, right? Um, okay, so, so we've— so I like to do a little rapid-fire round here at the end. So this is just like, what's the first thing that comes to mind Quick, quick answers. So, okay, so—

This is where I get myself in trouble.

Yeah, exactly. Okay, so, so what's a belief or a view that you've changed your mind about in the last few years?

Oh, wow. Um, I wish I had this one in advance, but I guess that's the, that's the idea of, of, uh— That's rapid, rapid, rapid.

First thing that comes to mind.

Rapid fire. Um, you know, I would say I've struggled with imposter syndrome my whole life. You know, one of the reasons I don't love doing what you do is that I feel like I gotta have the answer for everything. And I've figured out that I can really help people without having the answer for, for everything, you know, like—

Yeah.

You know, you, you don't have to be the grand poobah master of everything that could possibly come up to help a company. Uh, get better. And everyone should be trying to help the people around them, you know, whether, whether you do it for money or, or not. I feel a lot— I, I've released myself from a lot of pressure in terms of, I can probably help somehow, let me see how I can help, instead of being like, oh my God, they're paying me money, I have to be a guru and know the answer for everything, come up with a 10-point plan. And, you know, I'm—

Yeah.

I, uh, so that's— that may be an odd answer to that because it's not an industry observation. Um, no, but that's—

It doesn't need to be.

Yeah.

So yeah, and these are just you, man. So, so then, so next thing is, what is something that you've been curious about lately?

Oh, I have been— I'm working on a secret project that, uh, Involves MSP M&A. So I've really been curious about seeing things from the large buyer perspective, from the private equity perspective, wanting to understand how they look at things completely differently from Uh, you know, they're on the— they're up in the sky looking down, you know, and we, we tend to be on the ground looking, looking up. And private equity was involved when I sold my business, but things have evolved, uh, a lot. And significantly, they are, you know, they've got most— any of them that are worth their salt in terms of these MSP acquisitions and roll-ups, you know, have a pretty good playbook on what they look at. And it's relatively new in terms of it's not the same things they were looking at 3 or 4 years ago. It's a lot more sophisticated.

Yeah.

And like anything else, it's like when you go to sell your house. If you know what people are going to care about and what they're going to be looking for, you can fix it up. You can present it right. So that's a lot of what I've been working on lately.

Okay, cool. Love it. Okay, so, and then what's one thing that you can't live without in your daily routine?

For me, every day I am in the gym 7 days a week and I do a variety of things. few chapters of the Bible on audio on the way to the gym and on the way home.

Awesome.

That for me is my— losing a daughter, I went through a lot. I didn't start going to the gym because I wanted to look good or even get in shape. I started going to the gym when she was sick. I hadn't been in a gym since college. I started going to the gym when my daughter was sick. Because it was a mental reset for me. And, and, and, uh, you know, I said, if all your anxiety and, and worry is like— if you can imagine all of it getting put on a whiteboard, when I go to the gym, the whiteboard gets erased.

Yeah.

And then it fills up throughout the day and you worry about other things again. You go back the next day, just wipe it all out. You know, for me, that is very much my My mental reset gives me energy, takes away my anxiety, and allows me to work effectively and do life effectively.

Awesome, awesome, man. I love it. And then last but not least, what's one book or idea or piece of advice that has shaped you the most?

Certainly, E-Myth is still at the foundation. You know, the idea that knowing how to do something is not the same as knowing how to run a business that does that thing. You know, that was foundational for me in my business. And like I said, you know, a lot of it I learned the hard way and learned while we were doing it. And a lot of things crystallized after I sold in terms of You know, you could see a lot clearer when you're not in the middle of a situation. But that concept that being good with computers does not equate being able to run a good MSP is absolutely foundational, you know.

Yeah.

The— I get really frustrated looking around these days. I just submitted a presentation, uh, for a conference called AI Won't Fix Your Crappy MSP. Um, the, the— because like I said, we're— it's pounded into people, you better keep up with the tech, you better keep up with the tools. And if you don't, if you're not focused on the business side of the business, you can keep up with the tech and the tools all you want and you're going to reach a fraction of your potential and be able to help a fraction of the people you'd be able to help. And the— you've, you've got to focus on the, on the business.

You really do.

And it's boring. You know, you can't do the same session at a conference, you know, every year for 20 years. No one will come. You know, they want a big sexy thing.

Yeah.

But the big sexy things only matters if you got the fundamentals right.

Yeah, absolutely. Love that, man. I love it. Awesome, Dave. Well, hey, man, this fantastic conversation, we could probably talk for another 2 hours and still just scratch the surface, but really appreciate it. And if somebody wants to get in touch with you or hear more about what you're up to now, I guess except for your super secret project, which I'm curious about now, where's the best place for them to find you?

LinkedIn is great. Dave Kava. My company is PeopleSharp with a P. You can go to our website. My email is dave@peoplesharp.com. LinkedIn's a good first step usually because people can find you.

Yeah, absolutely. Yeah. Well, and we're connected. We get on there all the time. So awesome, Dave. Well, thank you so much. Really appreciate your time.

Brian, I could talk to you all day. Look forward to the next time we're in the same place.

So absolutely, absolutely. Thanks. Thanks for listening to the $10 Million MSP Podcast. I'd like to encourage you to take just one insight that you heard today and put it into practice because small shifts create big momentum. If you enjoyed the episode, make sure to rate And subscribe on your favorite platform so you never miss a conversation. Thanks again for tuning in, and I'll see you in the next episode.