What $100M MSPs Do Differently w/ Steve Torres

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. All right. Well, welcome back to another episode of the $10 Million MSP Podcast. Um, I am here today with Steve Torres, and Steve has a lot of experience in the industry. He's been a part of scaling at least 3 companies over $100 million in revenue, as well as been a part of at least 20 acquisitions from our previous discussions. And so I think this is going to be a really good one. Steve, welcome to the show, man.

Oh, thank you, Brian. I appreciate it.

Yeah, I'm excited to jump in. So, so just a, just a question to start. When you look at MSPs kind of in that, you know, let's say $5 to $25 million range, what do you feel like is the biggest blind spot that they have that's kind of like Quietly destroying their enterprise value?

You know, that's a great question. And I would say the— if I had to sum it up, and I'll use 2 phrases, brute force execution versus disciplined execution. When you're growing a company up to, you know, $5 million, $20 million, $25 million, in many cases, you're just brute forcing that growth. And the organization is just following. And then you get to that breaking point where you didn't put the processes in place, you didn't put the people in place, and things start breaking down. The bruises are getting bigger to where the functions just aren't working the way they used to.

Yeah, no, that totally makes sense. Yeah. And it's kind of, in some ways, it's like your growth outpaces your maturity, right? And so it's like you're kind of jamming it. Maybe you're doing it just by muscle and feel, or you just have a really strong leader and, and, and that, that person is kind of doing everything on their own. And, and there comes a time when, uh, well, that doesn't work anymore, right?

Yeah, absolutely. Well, I, I think the, the, the comment maturity will come up a few times today.

I'm sure it will. I'm sure it will. Awesome, man. Well, yeah, I always like to start with a, with a good question and, and, and that was, that was good. I want to give you a chance to introduce yourself. So, um, you know, I kind of gave you a quick plug at the beginning, but Maybe you just give a little bit of your background and kind of what you've been a part of scaling over time.

Yeah. So, I'll start with the past because I think it really provides why I'm here today and what I'm doing. So, I was fortunate enough to be part of 3 IT service companies that were able to grow past, you know, the smallest one grew past $130 million and 2 of them started well below $20 million. And so, These are stories of scaling. And the thing that I saw, and the one thing you'll hear today, there's going to be some success stories, but every success story had just a tremendous number of failures that ultimately led to that success. And so when I think about that experience and then looking at a lot of deals to do about 20 acquisitions in this space, I've developed this thesis that Most MSPs, you know, really where they, they have the greatest challenge is primarily what you said earlier, maturity, operational maturity.

Mm-hmm.

And some don't even know what it looks like. And so because I was the, the president at the largest company I was with, and I was a COO at, at another company, and I was a CFO at a third, I, I bring this broad lens of both operational and financial expertise. And so, today, what am I doing? I'm the president of a company called CFO for IT. And we are very focused. We only provide fractional CFO services for IT service companies. And we were very deliberate about doing that. And here's why. I feel as though I can go to many companies and provide really good strategic advice to help them increase enterprise value. I can do that in month 1 with IT service companies.

Right.

And it's not because, you know, oh, Steve has the, the, the perfect recipe or the panacea. No, I just happen to experience every failure that every MSP trying to get there is going to go through. And so the, the value I bring is hopefully some failures that they can avoid by learning from mine and being able to navigate through those a little bit more effectively than, than possibly what, uh, I was in, in the past with the teams I've Yeah, yeah, that totally makes sense.

And I'm sure that we'll get into some of those things and kind of the lessons that are there to learn. So, and thanks for that intro. I think it gives good context because you've obviously, you've worked at scale and you've built from, you know, small to, you know, to very large in this space. And so, Um, so when, when you look at businesses, um, and specifically MSPs, um, what, what do you, what would you say is what separates, uh, the ones that can scale to $100 million versus the ones that can't?

The, uh, I actually, and this is what we were talking about when we first started, when we were juxtaposing 2 of our, 2 of our white papers. To me, there's 6 specific things. So all 3 of the, um, the companies that I mentioned, they had 6 attributes in common and they did it very differently. Each company, we did it in a very, very different way, but there were 6 things that were common. The first one was having a strategy execution framework like EOS, OKR. The second one is really being a metric-driven organization. And, and it goes almost beyond just being metric-driven, like neurotically driven by the metrics. Not necessarily by theory. The third is CRM discipline. You know, everybody struggles with that and everybody makes an excuse as to why they can't do it. Do it. The fourth is probably the one that most people don't realize. It is both a tremendous value growth opportunity as well as a margin expansion opportunity, and that's standardizing your offerings. And then the The 5th is something that you really touched on in your article, and I call it decisiveness with agile velocity. Instead of getting stuck in indecision because you don't have perfect data, decide and feel comfortable that you're just going to fail your way to success quickly versus doing nothing. And then the last one seems a little bit more like a finance plug, but it's not. And that's budgeting and forecasting. And, and the reason why I say that is most companies don't have enough over-the-horizon visibility in terms of where they're going. What are some of the opportunities? What are some of the obstacles they're gonna encounter? And more importantly, it's the rolling forecast that really helps you determine, you know what, I, I had the wrong data, my assumptions were off, let me pivot.

Mm-hmm.

And so, the combination of those 6 things, all 3 of the companies that I was with, They had those. They executed them in a very different way, but those were the common attributes, and that's where I see most companies failing. And in particular, I've met with three CEOs. They're all new clients of mine, and I asked the CEOs, "I'm like, how many people on your executive team knows what your strategy is?" It was scary.

Yeah, zero.

And and you know, I just. My response was, well, if they don't know where they're going, how do they know when they get there?

Right.

And so, you know, it, it, and that seems like, Steve, that's so obvious. And it is. But so many companies with this brute force, they're constantly in the grind every day. They don't think about stepping back and working on the business instead of just really on the front lines of the business.

Yeah. Yeah. I, I, I hear that and, well, and I experience it right with my clients as well. You know, working, I'm working with multiple where it's like, you know, because part of my onboarding, I interview, you know, all the different leaders in the company and that kind of a thing. And, and yeah, I'm shocked when it's like, okay, so what are the company's priorities? And everybody has a different answer, you know, well, we want to grow and we want to, you know, do better service for our clients and, and all that. But, but yeah, if you're, if nobody knows what you're aiming at, well, you're, you're, you're in a world of trouble. So, you know, I had some ideas about where to, where to take this, but I think we, I think we can just kind of walk through. I think if we walk through those 6 things in some more detail, I think that this, that, that'll give a tremendous amount of value to those listening. So, so I think strategy execution framework, I talk about this a lot, but, you know, and it's one of my top 3 things that I, you know, when I looked back, I said, okay, what were the things that really made a difference? One was getting a peer group. 2 was getting EOS implemented, and 3 was having an executive coach. And, um, and that's the reason I do what, what I do today. But, uh, but, but talk, let's talk a little bit more about that for, for those that may not be as familiar. Um, I'm sure everybody's heard of something like EOS or, or that kind of a thing, but what do you think it is about that that makes it, um, that makes it so key? Uh, it's such a key aspect for, for people who are, you know, who are trying to grow an MSP.

So, there's multiple things, but I'll hit on the top 2. And it's going to be clarity alignment. And what I've seen is, I'm sure you've seen this, without clarity, people don't know exactly where they're going. They're focused on their departmental strategies and they're all in different directions. And so, what you have is a bunch of really smart, hardworking individuals rowing as hard as they can, but they're in a round boat. And you know what happens when you're rowing really hard in a round boat? You're going nowhere.

Right.

Then you take that and you provide clarity as to what are the top rocks. I'm going to use the EOS example, top rocks or objectives, however the strategy framework calls them, most important goal. Well, what you do is you narrow that aperture. And instead of people going north, east, south, and west, they're all going due north. And due north is where you're, you're probably your 3 biggest rocks should lie.

Right.

And then it gets everybody focused and aligned in terms of we are going due north. These are the top priorities. They're gonna be prioritized in case there's any conflict. You know what, you know what number one is, and everybody needs to drop what they're doing if number one is in jeopardy. And so, you know, the, the, the strategy framework, it seems so simple, but it's just amazing how people really don't understand the power of clarity and alignment. Because once you remove, you get rid of just so much noise, that, that noise is occupying, you know, brainpower. It's, it's taking, you know, the, it's taking people's time away from where they could be focused on in terms of delivering value and delivering customer sat.

Yeah, 100%. And so, so I think that's, you know, that's important and something that keeps coming to mind as you're talking about this, because literally everybody in every company wants to know the answer to 5 questions. And my first coach taught me this. He called it 5-question clarity. First one is, what are we trying to accomplish? And if they don't know that, it's like, well, okay. Second question is, where do I fit in? Third question is, what are my boundaries and resources? Fourth question is, what's in it for me, right? So, what's my comp, that kind of a thing. And the fifth question, which a lot of companies don't do a good job of, is how am I doing? Most employees in your company, if I ask them how, if they, like, how do you know you're doing a good job? They'll say, well, I still have a job. I guess I'm doing okay, right? And so, like, But that all points back to the first question, which is, what are we trying to accomplish? And most companies, most people in most companies don't have an answer to that question. And, you know, we're trying to grow, like, that's probably about as good as it's going to get or as aligned as it's going to get in most companies. And so I felt, I felt like I should share that because it just, it keeps coming to my head and it's like, I think it's so core for Um, you know, for what we do, if you can hit those 5 questions with each of your team members, um, yeah, I mean, I don't know, it'll have a significant productivity, um, increase. I was going to try and put a number on it, but I think it would, I think it would be a game changer for most people, even if you just answered those 5 questions for each of your team members.

Yeah, I completely agree. And, um, one, the, you know, it's interesting when you brought up the, the, the coaching, I've always had a coach. And, and, and I've always thought it was just so valuable because no matter what, you just don't know everything. And sometimes you just need a great sounding board to tell you the obvious or just to, you know, quite honestly, uh, hold you accountable for certain things. And so, and you're—

Or hit your blind spots. Like, you don't know what your blind spots are by definition, right?

And I would say this, almost every, every good coach I've seen always recommends Put in place a strategy framework.

Absolutely. Absolutely. Yeah. Yeah. So, okay. So, so that's, I mean, I think that covers like, um, you know, I mean, for, for those that are listening that you're not yet doing something like that, I mean, get in touch with somebody there. There's so many resources for, for implementing a business, business operating system out there or a strategy framework. Um, what, you know, it's, it's like, hey, this is a good step one. And You know, the time that it takes and the dollars that it takes, I feel like, I mean, it pays for itself well more than you get the ROI for sure. So number 2 is actually also part of EOS, for example, which is your metrics. So that's, I mean, obviously it's very important because you separated it out into its own thing. So let's talk about that and what you You know, what you see as, you know, I mean, what does it look like to have good metrics?

Well, the one thing it doesn't look like is a ton of metrics. So I'm gonna share a story about a gentleman named Jeff Rumberg. He owns a company called MetricNet. And what his company does is it gets service delivery to world-class levels. And, you know, this is 15 years ago, and obviously I'm a metric-driven guy, so I told him I want 15 metrics. And he's like, no. And I, I said, Jeff, you know, I'm, I'm paying you a lot of money. I want 15 metrics. And he said, no. He goes, what you're paying me is to get you to world-class and get you there in the most efficient way. And he said, 15 metrics is not the most efficient way. I'm here to make your job easier. I'm gonna get, I think it was 6. He's like, I'm gonna give you 6.

Wow.

And, and I, I, you know, I was arguing with him a little bit and then he highlighted You know what? You only need to drop into a few of those remaining 9 if one of the 6 are off. And I tell you what, it was just like this epiphany I had. He was right. If I focused on those 6 metrics in service delivery, rarely did I have to drill down on more than one key metric, right?

Mm-hmm.

Where I then had to look at maybe the second or third. Underpinning metric. And so the first thing is really from an executive perspective, limit it to no more, I would say 10 to 15, 15 possibly maybe too much. You're going to have more in your organization, but that's where your directors and your managers should be owning those. And you should be able to just cleanly, clearly see the things that are going to be driving employee satisfaction, Uh, client satisfaction, and you can use ENPS or NPS for both of those. And then obviously revenue, profitability, those things will then, you know, those things will then give you a great dashboard of what's happening in your business and where you potentially need to go in and, or drill down if something's off.

Okay. Okay. So, so I can imagine people being like, okay, so what should I track? Like, what are, what are my, what should the 6 metrics be? And I, you know, I can hear this, this question coming up and, uh, you know, whenever anybody asks me that, I'm like, well, it's different for you than it is for somebody else, right? Just depending on where you're at in your growth, what's most important, all of that. But, but can you kind of give some thoughts as to, okay, so, so where should I start? Like if I'm, if I'm an MSP thinking about metrics and I've really got nothing, what do I do?

You know, I'm going to start, and I shared this with one of my boards about 15 years ago, and they didn't really like it because it was a sponsored— it was a, you know, we had a sponsor. And so, you had a bunch of private equity guys, and I threw out the top 2 metrics. And the first one was ENPS. The second one was NPS. And then, the third was growth, and the fourth was profitability. And the way I articulated it to them was, guys, if we get the people engaged, not happy, engaged, which is what eNPS does, then they're gonna do a great job in terms of keeping our clients engaged. If we have our employees engaged and our clients are engaged, both are gonna grow with us, which means we're gonna grow and we're gonna become more profitable. That's at least my, my thesis at the time. And it actually worked because I used to track eNPS. As a leading indicator to growth, and it literally was. Our growth followed this trajectory, and the the the the the spike of growth followed the direct to the trajectory of EMPS. Now, some of the other metrics I would say because you're in the MSP space, these are all key metrics that private equity groups look at. They're going to be looking at your recurring revenue. They're going to be looking at your gross margins. EBITDA margins are really important. Most people don't know what a good EBITDA margin looks like in the MSP world. Your, your, I think I said this already, recurring revenue, client concentration, those are going to be, those are going to be your big ones to focus on. Then when you drill down and maybe not drill down far, but realization, utilization, your cost per ticket, ticket per tech, those are going to be the metrics that really help you understand your business. Now, what I typically do is I show those are secondary. I would say part of the top 15, but the first things I show, those are gonna be the leading indicators. Leading indicators would be the eNPS, the NPS, as well as pipeline backlog and remaining contract value. Those are gonna tell you where your business is going, and those should be the first ones you look at.

Okay. Awesome. Awesome. So, and I know you have kind of like, You know, an exercise that people could run through to determine it for their company. So like maybe just real quick, what would that look like?

So I actually have a value calculator and what it does is it helps companies understand what their multiple would be. Now, they don't have to be ready to sell. What it does, it gives them almost an indication in terms of their maturity level. If your multiple's low, know this, you're not very mature. If your multiple's high, know this, you have enough things that are mature in your business that's allowing you to deliver results at a level that's beyond certain benchmarks. And so, on my website, people can go out there, they can drop in their information, and it's going to give them, and it's going to be pretty accurate. This is something that I built, but I built with the private equity sponsors I was with for the last 25 years. And I also shared it with investment bankers as well as private equity firms that are actively in this space, just to see if I got it right. And for the most part, everybody agrees it's a pretty reflective tool. But the one other thing in terms of metrics that I'm going to encourage everybody, and this is where, with the exception of one client, all my clients have been surprised by how they compare their KPIs or what they compare their KPIs against. In many cases, they're just comparing it against themselves instead of benchmarks.

Right.

And so if somebody's growing at 10%, they're like, that's great. Well, if the industry grew 15%, it's not great.

Right, right, right, right. So benchmarking is another— that's one of the tools that I use extensively. Um, with my clients. Um, Service Leadership is, is, uh, you know, great organization for that in, in specifically in the MSP industry. Uh, I think the largest sample of, um, you know, of benchmarking data out there. And yeah, I mean, it helps, you know, like, hey, if I want to be best in class, where do my numbers need to be? And that is, uh, you know, that, that was a, that was a breakthrough kind of thing for me, um, when I was growing my MSP of like, oh, okay, well, I can do Way better here. You know, service gross margin, you know, EBITDA margin, all of those kind of numbers that it's like, well, yeah, if you're, you know, best in class usually sits somewhere around 20%, you know, adjusted EBITDA. If you're not there, you got room for improvement. And many companies go way beyond that, right? So, so, so having that data to understand where you stack up as opposed to just comparing to yourself can make a really huge difference. So. Super helpful. Uh, okay. So, and I'd imagine like if they, if people went and checked out your, your, uh, valuation tool there, then they'd probably see like, hey, here are the main factors that are going to affect valuation. So these are probably some pretty good things to track.

Yeah. And what we do is we actually share, we'll be able to identify where, where their score was impacting their multiple the most. And we'll send them a specific article. So that they can attack that first. Because one of the things I'm going to encourage, and you'll hear this at the end, don't try to do all 6 of these disciplines at once.

Right.

Pick one, get started, watch it, you know, watch the success, and then start with the next one.

Yeah. Okay. Gotcha. Okay. So, so the next one, you know, after the, after metrics is, is one that I don't hear a ton about, talked about. And so There must be some really good reasons why CRM discipline is, is such a key factor. So maybe you can talk about that a little bit, like, but a lot of people are probably like, eh, you know, it's a CRM, it's a tool, right? Is, is it really that big of a deal? But, but there's gotta be something else below that that makes you think, man, yeah, this is huge.

Well, one, I'd love to take a lot of credit for this, but I can't because I only, I only ran sales for one year in my career. And, um, It was, I just happened to be with some phenomenal sales leaders in, in my career. And the one thing all 3 of them had in common, it was non-negotiable.

Mhmm.

You get in the CRM and you, you use it, you leverage it, you leverage the marketing automation system. And here's why. Because without that, they couldn't figure out where they were having issues. If bookings were declining and they, they didn't have good data, They couldn't tell, was it top of the funnel? Was it, was it conversion? Was it, was it sales effectiveness? Was it sales training? When they have that information, they can then pinpoint where the problem is. You know what? It's sales effectiveness.

Yeah.

It's sales training. It's marketing qualified leads. We're just not getting enough. The conversion rate's going down. It, then it allows the organization to pinpoint This is where we need to fix. And, and it's interesting, I have a client right now that, you know, we went through, we went through his sales process, actually 2, and it's, it's so obvious. It's not sales effectiveness. His, his sales organization is pretty effective.

Mm-hmm.

But they don't have anything coming in at the top. And, and so for him, he was spending a lot of time on the sales side and not enough time on, you know, top of the funnel activities. To really feed his sales organization, you know, enough opportunities where they can start generating some bookings.

Right, right. Okay. Okay. So in, in what's, I mean, what would you say like are, so, so I think it's when I hear that, I'm, I'm hearing discipline. So it's like you've gotta have the data in there. It's gotta be accurate. It's gotta be like very well maintained. Um, what, um, what are the other things that people should be thinking about as far as CRM discipline goes?

Here's one thing everybody's gonna hear, or everybody's gonna say the same thing. You know what? My top guy won't do it, or my sales organization won't do it. I'm gonna answer both those. Top guy, if, if they're producing that much GP, get 'em a sales assistant. Have the sales assistant do, you know, put the data in the system. Everybody else, if they don't do it, they're not part of your team.

Mm-hmm.

And I know that sounds harsh, but, you know, learning what You know, what my former colleagues did, they just had the instruments at their fingertips that enabled them to react very quickly regardless of what the situation was, whether we were growing super fast or we weren't growing as fast as what we expected. They could tweak the dials because they knew what dials to tweak.

Yeah, that makes a lot of sense. Yeah. And it's, I mean, obviously, The marketing machine is going to be a big part of driving profitability or, you know, and driving growth and profitability both. And so, that's what makes it, I mean, such a key thing for growth over time. Okay, so the next one on your list here was standardized offerings. And, you know, I will, you know, I'll preach this from the mountaintops, like, hey, if you're not standardized, you're I mean, you know, if you have, you have 50 different clients and 50 different service offerings, it's going to be chaos, right? And you're going to require higher-paid technicians in order to do the work. You can't— it's really difficult to follow process. You probably can't charge as much. I mean, there's a lot of downstream effects to not having standardized offerings. But what did you— I mean, what would you say you learned? And, you know, some of the biggest things that you learned as far as standardization. As you've, as you've scaled these companies?

So I'm gonna, I'm gonna share a couple big failures here because I, you know, I hope they resonate with people. But the first thing I'll say to everybody, and this is something I didn't remember, everybody that's in the IT service space that's listening to this video or you're coaching, their team will always be better than their best customer's team. And they need to remember that. Because what happens is the excitement or the fear of losing a deal causes companies to adjust their standard offerings. Now, my first company, we transitioned from a VAR to an MSP. And so the allure of recurring revenue was so incredibly strong that we had one customer that wanted to color code its, you know, its P1, P2, P3, P4s, and we agreed to it. Then we had another customer that wanted to call them something different, and our techs, they couldn't remember all the time. All right, how do I manage this effectively?

Yeah.

The, you know, the second thing, because we allowed our customers early on to customize their offerings, we couldn't deliver them effectively, and we saw our customers Dictate what the offering was at the end of the day.

Right.

And our largest customer, we had a customer, it was, they were generating over, I wanna say, $1.3 million in ARR. It was costing us $1.8 million to deliver the service. And, and so—

Wow.

And by the way, that was on my watch. So I'd love to say, you know, it was somebody else, but, you know, that was, that was me and I had to take responsibility for that. And so, you know, that's one of those things where, Know this. If you're an IT service company, you, you are the experts. You dictate how you're going to deliver the outcomes to your customers. Your customers are looking for an outcome. They're not looking for a full customized offering. They're looking for a desired outcome. And the best way you can deliver that is if you sell your standard offerings. Now, it doesn't mean you, you can't, you know, you can't configure your offerings a little bit differently. You know, there could— they need to be standard components that can turn into a unique set of, uh, of components that are the offering, but they need to be standardized, um, underneath that, just so your team knows how to deliver the service effectively and the most efficient as possible.

Mm-hmm.

The other thing that, uh, TSIA did this study and, um, they— most people think that this is just a margin improvement. And a delivery improvement. The statistics on the front end are even more impressive. Companies that have standardized offerings, they will have— their sales cycle will be a third of companies that don't. So, think about this. If it takes you 3 months, your sales cycle's 3 months, it goes to 1. Now, people are going to ask, how can that be? Here's how. You're not giving your sales guys a lot of creative freedom to figure out what the offering is. And a lot of sales guys are not very technical, so they struggle. Instead, you are giving them a well-defined book of offerings. Sell these. It accelerates the sales cycle. And margins, your, your margins are probably gonna be 50%. You know, in the same TSIA study, margins are 50% better for those companies that standardize versus those that don't. Mm-hmm.

Yep. Which, which has downstream effects right into profitability and valuation and everything else. And so, and that's what we find when we look at operational maturity as well, is that the, the offering standardized, the, you know, the tech stack is standardized, right? Like the, the, the most disciplined MSPs have every client is using the same gear and they have the same firewalls, network equipment, servers, workstations, all of that kind of stuff. Because, well, it just makes sense. It's, it's kind of like, hey, I'm, you know, if you're corporate IT, you're not going to have each location running whatever the heck they want. You're going to set a strategy from, from the, you know, from, from corporate and say, hey, here's what we're deploying across all of our locations. And to your point, you're the expert. They are not the expert. So if the right client is going to, is going to, well, you're going to have to convince them that you are That you are smart, that you're strategic, that you know what they need. And if you can do that, then you can also say, hey, here's what we actually have to implement in order to be able to support you, as opposed to, yeah, we'll take on this backup solution and we'll pull in that firewall. And sure, you can keep your antivirus that you like and your— well, not antivirus anymore, but you know what I mean. And so, So it's, it's really getting that, that standardized, um, you know, environment in each of your clients because then, A, your margin's better. You can support them with lower level of, of technicians, right? Because it's not like they're having to learn 87 different environments. They gotta learn one and it's the same everywhere, right? And so it drives service costs down, it drives margin up. It's just better overall in pretty much every way. So, that's, you know, I have a whole soapbox about that. But yeah, I mean, and that's a, once again, that's a key component of operational maturity. Anything else you'd add to that?

Well, I would say, you know, my evidence comes with my, you know, all my clients. My best-performing client is so standardized that they're trying to determine, is it impeding their growth? Now, they've grown 43% on a compounded annual basis over the last 3 years.

Wow!

They are growing and their margins are the best margins. So, they're 20% margins. They're well past $50 million in revenue. All recurring revenue. And the main point there is people are gonna say, well, the customer won't sign. Guess what they're offering is this. You can have any color you want as long as it's black.

Right.

And, and they don't give their clients option at all. They're like, you want these outcomes? We will, we will give you those outcomes, but this is how it's going to be delivered. And this is what you need to do to help us give you those outcomes. And too many companies, they, you know, they feel as though they're not gonna win the business and they have to accept, you know, onboarding, you know, out-of-service equipment that breaks down at a high rate. Mm-hmm. And it's almost impossible to bring back up online unless you have a SWAT team of engineers, you know, all assembled to fix this.

Yep.

And so, um, my least profitable client, guess what? They allow, they accepted, you know, out of service, out of service technology. And they're like, oh, we wouldn't win the deal. I'm like, I have never lost a deal, maybe one deal in 25 years because of that. And I would say the, that deal that I think I remember, we wanted to lose it because it would've, it would've been very unprofitable.

Right. Yeah. Well, and, and that's part of also how you assess The risk of the client to your business, right? Is, are they willing to listen to your recommendations? Because every— everybody out there who's listened to this has that client or has had that client that it's like, they never do anything we tell them to do. They don't want to spend any money. You know, it's like, well, yeah, they're, they're not the right client. Right. And so that, if that's like a gate for who actually gets let in, right? If I can be, if I can be like, oh, I'm only going to take the people that are actually willing to listen to me and get on the right equipment, standardized stack, all of those kinds of things, you're gonna have a less risky business, you're gonna have better clients, and they're gonna be happier, and you're gonna be more profitable there. I mean, the only downside is that you could potentially, you know, not sign as many clients, but those, that's like actually saving you from lower profitability by Having those clients not sign with you.

Absolutely. Well, I told you the example. We saved, we saved half a million dollars by firing one of our largest customers.

By firing them, right? Uh, well, and I'd say you told me another story, um, where, which, and this is, this is kind of somewhat of a tangent, but, um, but around like assessing client profitability. And, um, and there was another story about one that you lost, but in retrospect you shouldn't have.

Yeah. So client profitability, this goes back to, uh, the metrics.

Mm-hmm.

Um, client profitability, if you're not doing it, make sure you're doing it. And, and this was a Fortune 500 company, uh, we had as a client, a, a really big client for us. And, uh, at the beginning of COVID they asked us for a concession and it wasn't a, it wasn't a huge concession. And I left it up to our, our VP to, uh, make the decision. And he made the decision. Now we're not going to give you a concession. Literally that month, we were just finalizing our client profitability. That client, we were—I think it was over 85% gross margins. It was high risk. You know, it was high-end networking, managed networking. But there weren't very many tickets, and the profitability was significant. We could have cut it in half and still and still had a. Pretty reasonable margin. And so, you know, that was, you know, the important lesson with client profitability. It works both ways.

Yeah. Yeah. And, and so, so you ended up, uh, well, ended up not giving them the concession and they left, but you didn't know, oh, I could have given them plenty of concession and, and they would've stayed. And this was a multimillion dollar a year deal, right? And they just walked out the door because you didn't have all the information, right? And so this is one of the first things that I recommend people do. It's like, you gotta figure out, okay, what are, you know, for each client, What all is going in as hard costs, right? And then what's our, how many, how many hours, how many people, how much people time and, and how much, how much people cost is going into that and see what you're actually making on a per client basis. Because oftentimes it's like what you think is your best client is actually your worst client. It's costing you money to, to your previous example. And sometimes it's like, well, you know, these guys, we could have, we could have afforded to give them a significant discount and still, and still come out way ahead. But without the right information, that's problematic. So, okay. So decisiveness and agile velocity. Talk to me about that one.

So this one, this one's a philosophy that, you know, I termed it and I, it took me a while to kind of come up with this in terms of, you know, how we operated as an organization in each one of the companies. None of us. And nobody's ever— you'll be lucky if you get 2 great data points before you can make a decision. In many cases, you have 1 and maybe just a little bit of, you know, like a foggy 2 or 3. But the key there is get started. You know, do as much as you need to do to make sure you're not making a reckless decision, but get started. Because here's the one thing we all know, success is not going to be in a straight line. And you and I talked about this. It's going to be ugly and messy. There's gonna be a lot of jagged edges, and that's where the second one comes into play. Be comfortable that you're gonna exercise agile velocity where you will, you will take a decision, you'll make a decision and you'll go left. And then next week, guess what? You got better data and it says, oh, you should have taken a right, move right.

Yeah.

And yeah, it's gonna look a little bit bipolar, but the, the, the closer you can stay to that straight line, the lower your cost of failure is.

Right.

And if your cost of failure is low, you can fail more frequently, meaning you can just, you know, in, in almost a, a sawtooth way, move your way up that straight line and, and do it in a way where you're kind of failing your way to success. And so too many companies, they, they really try to beat out every ounce of risk, and they wait and they wait and they wait and they wait before they get started. And, and I think we're seeing it right now with AI. There are a lot of MSPs that are just sitting back and, and, I would say at an alarming rate right now where they're not, they're not jumping in to figure out AI or in particular how they can help their clients with AI. Because I think it's a tremendous revenue-driving opportunity as well as an operational excellence opportunity.

Yeah. Yeah. 100%. And, and I, I think, I mean, the way that I like to put it is it's better to make a wrong decision and, you know, to make a decision and be wrong than to sit and make no decision.

Totally, totally right.

I mean, as long as you're moving, I mean, it's much better to make a wrong decision. And I think we're, we, you know, as, as business owners, executives, we, you know, we're afraid of making the wrong decision when, when really it's like, okay, I'm going to, you know, I have 70% confidence that this is going to be the right decision. So I'm just, let's move in that direction. Let's take a shot at it and see. And if we're wrong, we'll know, and then we can always change. Right. But, but the worst is, is is just sitting, um, and, and doing nothing. Um, and so that, you know, and, and I think that that's kind of what speaks to the agile velocity is saying, okay, like we can even set gates. Like, here's how we'll know if this is a wrong decision. And at that point it's like, okay, let's, let's do a month of this and see how it works. Let's absolutely reassess. The problem is that a lot of times people don't, don't take that time to actually reassess and realize they made the wrong decision. And then, so, so all that to say, it's like, yeah, just, just decide. Um, move forward and then you can always pivot.

Yeah. Well, the, the key to, the key to the, the agile velocity is having people that are okay with failing. Mm-hmm. And when you hear me say failing, these aren't catastrophic, catastrophic failures. These are mistakes or small failures because if you can't admit failure, the cost of failure grows exponentially. And it's interesting, every interview I've had for the last, I would say 15 years, maybe 12 years. This is one question I ask every executive. Tell me about your greatest failure. And I do it very deliberately. And I tell them there's a purpose behind this question. And if they pause and they can't come up with one thing, I will not hire them because what it tells me is they're unwilling to recognize that they made a failure. I want people to say, man, I argued the hell out of this last week and you guys listened to me. Guess what?

I was wrong. Yeah.

Let's go back the other way. Right. And I would much rather have that because, you know, I just so firmly believe in, and I think it was Edison who said, you know, I failed my way to success. I so believe in that principle.

Yeah. Yeah. I love that. I love that. And, and, you know, well, Well, we'll get to more of the failure stuff because that's— well, if you've listened to the podcast, we talk about failure every time. And so, okay, so let's cover the last thing. And I could geek out over financial stuff for like a full hour, but budgeting discipline sounds kind of boring, right? A little bit. But You know, I don't, I don't know of any $100 million companies that don't have a budget, uh, set before the year starts, right? So, so talk to us about what is that, what that means. Um, you know, I mean, having budgeting discipline, what does that look like?

So I'm, I'm actually going to go back to something you, you made reference to a few times, service leadership. If you look at their last annual report, they said one of the biggest, um, attributes or one of the most glaring attributes, and I can't remember the exact words they used between companies that had a high degree of operational maturity versus those that don't, was budgeting discipline. And so, you know, what essentially I'm saying by that is not, I don't want CEOs to drown themselves in financial budgets. The budget's going to be dead literally the day you prepare it. The day it's done, it's, it's dead. But here's what it gives you. It gives you kind of that over-the-horizon view as to what the goal and what the objective is.

Right.

It gives you a little bit more clarity when you think about your rocks. Well, okay, what does success look like if we, if we execute on those 3 rocks?

Mm-hmm.

You do it based on financial numbers where revenue, and let's call it revenue and EBITDA margin. I like those 2 'cause they're, they're, they're easy. It directionally tells you that is where we're going. And regardless of what happens, because we know now that it's done, the environment's changing. The assumptions, some of the assumptions were wrong. And we're just going to keep pivoting until we find a way to get to that number, top line, as well as from an EBITDA margin perspective. So, the budget gives you that early on. The rolling forecast. You know, quarterly rolling forecasts, some clients do it monthly, quarterly rolling forecasts, that's where the value is because it helps you agile velocity. It helps you say, you know what, you're going off and you got to make a different decision because your numbers are significantly off compared to where you budgeted. And so that's where the rolling forecast just gives you more near-time visibility over the horizon. Still far over the horizon, but not as far as what you would have when you do the budget. And so you're constantly recalibrating in terms of this over-the-horizon view, in terms of how are we performing? Are we hitting those success measures? If not, what should we be doing to make sure we can get back on track? And that cadence and that discipline is incredibly important. You know, in particular, when you're, when you're growing rapidly, you just need something to anchor on.

Yeah. Yeah, absolutely. And, and, uh, you know, I'm a, I'm a huge fan of, uh, you know, of, of the rolling forecast as well. I think, you know, when I look at it, I look at it as, well, it should all, you know, the budget is, should actually be driven by your value creation plan, right? So we're going to, you know, we have a 5-year or 10-year value creation plan. Well, where do we have to be at the end of this year in order to hit that in 10 years? Right. And so the budget. And that builds on top of shareholder goals and all of that. But, but the budget should be what drives everything about how the company performs in a given year. And all of your executives should be, you know, their compensation should be weighted heavily towards hitting budget. Right. And it has to be set before the beginning of the year. And if you do that, then it's like, and everybody's in alignment on that and they're all looking at, we've got to hit budget, otherwise I'm not going to get paid by, you know, as much as I can get paid. It drives that behavior and all of that. And, and I'm a, and I'm also a big fan of the forecast because it's like, you know, budget's set in stone, but things change, right? And so, so the budget stays, the forecast is what changes. And if you do the rolling forecast, it's kind of like by the time budgeting season comes around next year, you're like 70% there already because you've already been doing it, uh, uh, you know, throughout the year. And it doesn't make it this giant, you know, this huge, uh, you know, heavy lift event. Um, it becomes just more of part of, part of how we manage the business financially. And, um, and, and that can be like magical, I feel like. So, uh, yeah, I get excited about budgets. I don't know why. What's, what's wrong with me?

All right. You, you and I may be the only two that get excited about budgeting and forecasting.

Right. Yeah. Yeah. So, but, but realistically, I mean, it really should drive everything. And I think of it, you know, I mean, revenue obviously Monthly recurring revenue, the especially you know what drives the most profitability in MSPs services gross margin that's like a huge piece of it. You know your SG&A cost and all that all the way down to all the way down to your EBITDA from there. And so so yeah I think we can't overstate the importance of budget and and the the correlation between People who budget, their operational maturity, their profitability, and higher valuation. It's like, it's all there in the data, right? So like, if you're not doing a budget and you're not as profitable as you want to be, that might be why.

Yeah. Well, there's, you know, there's, there's 2 things that are really important in terms of the, the budgeting and forecasting. One, from a forecasting perspective, don't overcomplicate it. I, I, I watch so many companies and You know, early on, some of the companies that are my— today are my clients that had this in place. They spent an exhaustive amount of time trying to get the forecasting. And this, this should not be something that takes that much time. You're over-engineering it. You're overthinking about it. You can get a forecast done in, in a couple days. If you're, if you're really managing your business with metrics, you should be able to get a, a, a forecast done in a couple days and it shouldn't take weeks. Yeah. And if it is taking you weeks, you're over-engineering it. The second thing I would say is, and this is where I got blindsided one time, is sometimes you're going to throw the long ball. And I call that StratEx. So strategic expense. What I recommend is you drop that into its own bucket where you have strategic revenue and strategic expense. That stays down below because in some cases it may be a long ball where there's not going to be a return for 2 years. Some cases you'll have it. You know what? It's just, you know, a 15-yard pass down the, you know, down the field.

Right.

And guess what? You'll get a return this year. But keep that separate because the one thing you want to do is you want to make sure your core business is delivering the results it should be delivering. And when I say I got blindsided, we, we had a couple strategic, big strategic initiatives, some that were a couple of years, Some that were all within the year, some that we were going to get a return within a quarter. And I kept looking at the numbers and I'm like, you know, yeah, these are— it's— the numbers are lower because it's all the StratEx we have. But I didn't break it out. I finally broke it out. And here's what I found. The core business was doing poorly.

Oh.

The StratEx was actually not too far off from what I forecasted. The core business was not doing so well. And so, guess what? We had a quick pivot as soon as we realized That it was the core business, not these initiatives that were driving the lower level of profitability.

Yeah. Yeah. Yeah. Well, and yeah, tracking those kind of, you know, the J-curve investments, right? It's like, okay, let's make sure that those are front and center and we're actually, we're not investing if it's not actually going to make that return in the long run. Right. So, man, Steve, I feel like we could, like, I Could have a hundred more questions for you, but you know, yeah. So I want to kind of start to wrap up. But I think one of the you know one of the things that you were mentioning earlier was failure, right? And so this is actually one of the final questions that I ask everyone. But what do you think that your biggest mistake as a leader has been?

I would say. Probably the biggest mistake as a leader I've made was hiring people purely based on intelligence. I hired two of the smartest people I've ever met in my entire life, C-level executives. And we were at both companies, we were pretty big, and I had to let them both go within 4 months. And they had the resumes that were just probably the most impressive resumes. And to this day, they still are 2 of the smartest guys I've ever met. One of them is still the smartest person I've ever met my entire life.

Wow.

But the challenge they had, and it goes back to agile velocity, they couldn't admit that they were failing. And I'm just watching the cost of failure grow and grow and grow. And they just couldn't admit or even have— they couldn't conceptualize that they were making such a big mistake. And so, you know, that was probably one of the biggest mistakes, you know, I would say I've made in my career is purely hiring people based on their intellect.

Wow. Yeah. Yeah. There's, there's definitely a lot more that goes into it for sure. Okay. So like we've touched on a lot here. What, what's something that maybe we haven't touched on that you think it would be really good for everybody to hear?

I would say you and I have a lot of overlap in our approaches. And I would say the one thing that everybody may not realize, it's easier than what you think. Pick one, just get started. Pick one and get started because you will get the taste of success and then it becomes addicting. You know what, whether it's putting the strategy framework in place or metrics, You're going to see a different result in your organization, and you'll see it fairly quickly. Then you'll jump onto the second. Then you'll jump onto the third. And so the the concepts—they're not hard. Sometimes it's hard to kind of get your arms around how to how to effectuate it. But you know, everybody on this call or any IT service company—they should realize some of this stuff is a little bit easier than than what you and I may portray. And I think we're portraying it being. pretty easy to begin with, but, um, the, the ultimate thing to do is just get started.

Yeah. Yeah. Do well. Once again, do something, make a decision and move forward. Awesome. Um, yeah. And, and, and I would agree. I mean, it's, uh, you know, taking action is, uh, is by far the most, one of the most important things we can do. And that's why, you know, every episode ends with like, hey, pick one thing that you learned in this episode and do it. Right? Just like if you do that, your business will change, right? So, um, awesome, man. So I like to, I like to end with a rapid-fire round of questions. So, um, so one, you know, well, whatever, uh, comes to mind first and, uh, you know, quick answers, right? So, um, so first question is what's a belief that you've changed your mind about in the last few years?

What's the belief that I changed my mind about? That, um, Layer 1 services is a bad business to be in. So cabling.

Okay.

I thought it was blue collar.

Oh, okay.

Not good business. Very profitable business.

Okay. Okay. Very interesting. All right. What's something that you've been curious about lately?

What have I been curious about? Um, I would say why— and this is so true when I, when I talk to MSPs at the various events— why more MSPs aren't following what you're talking about, what I'm talking about. Again, it's not rocket science. I just don't understand why they're not putting, you know, at least one thing in place.

Yeah. Yep. What's one thing that you can't live without in your daily routine?

Discipline.

Okay. All right.

I mean, to the point where I'm a boring— I'm just a boring guy.

You're not boring to me anyways. Okay. And what's your go-to way to unwind?

Cycling.

Cycling. Okay, awesome. Very fun. And then last but not least, what is a book or an idea or a piece of advice that has shaped you the most?

I would say, um, I'm gonna go with a book and it's called The Hard Thing About Hard Things. It's by Ben Horowitz from Andreessen Horowitz, and it really helps guide people through some tough decisions as they scale their business.

Okay. Okay. Very cool. Yes. I've, I've heard of that. I haven't read it myself. I'm gonna add it to my list and order it after this. So, Awesome. Awesome, Steve. Yeah. And, you know, and just back to one of the things that you said in your rapid fire, which is like, hey, uh, the, the tools and the resources are out there, right? Like we're way more than we had back when I was running my MSP in like 2012, 2013, you know, um, though, like there's so many more resources, so many more people who know what they're doing that can help you. And there's no reason to not get help. Right? It's like, the cost of it versus what you gain in the long term, it's crazy. So like, if nothing else, put in place a business operating system, get in a peer group, find a coach. Like, it doesn't have to be me, it doesn't have to be Steve, but go get some help, right? Like, that's probably what I would leave folks with as they're listening here.

I'd strongly encourage them to do that as well. Right.

Yeah. So awesome, man. Well, so Steve, I, you know, so one, we've talked a lot about, and I think you have like a white paper that with all the things that we talked about. And I thought it was worth, you know, kind of going through it in detail. That was a pivot here at the end, but I know they have, if somebody wanted to get a copy of that or get in touch with you, how, you know, what would be the best way to reach you?

Yeah, just have them reach me at steve.torres@cfoforit.com.

Awesome. Okay. And I assume they can hit you on LinkedIn, hit your website, all of that. But yeah.

And I'll send it to you as well. So if any, if any of, you know, any of your clients or anybody that's watching the podcast, if they want it, I'll send it to you and you can certainly send it to them as well.

Awesome. Awesome. Yeah, Steve. And I know I love the— I love your content and the stuff you're putting out. Um, this will show up on LinkedIn and, and all of that as well. And so Steve, really, really appreciate the conversation. Um, this has been really fun. I could do it for, you know, we could, we could keep going for a long time, I'm sure. And, and, and maybe we can do this again sometime soon.

Absolutely, Brian. Thank you for having me. I really enjoyed it.

Thanks so much, Steve.

All right. Bye-bye. 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 enjoy 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.