Episode 113: Chatbot Doom Loop — MSP Chat

And 3, 2, 1, blast off! Ladies and gentlemen, welcome to another episode of the MSP Chat Podcast, your weekly visit with two talking heads talking with you about the services, strategies, and success tips you need to make it big in managed services. My name is Rich Freeman. I'm Chief Analyst at Channelmaster, the organization responsible for this podcast. I am joined virtually, although we've spent part of this week together in person, by your other co-host, our CEO and Chief Strategist at Channelmaster. His name is Eric Simpson. Eric, how goes it?

It goes well, Rich, back at home in sunny Southern California. Uh, just, you know, shoutouts to all of our listeners who are dealing with bad weather and the East Coast and things like that. Um, yeah, I grew up in New York, Rich, for the first probably 13 years of my life, and, uh, I know what it's like to have to deal with severe weather, but not like what the folks are experiencing like this year. It's insane. How you doing?

I'm doing great. Thank you very much. Um, yeah, we both flew home, uh, from an event we were attending in New Orleans earlier this week. Got back kind of late last night. But yeah, yet, you know, um, you raise a good point. Um, it could have been a much harder, longer trip, uh, if I had not been flying New Orleans to Seattle. So, uh, yeah, I'm grateful for having managed all week basically, and for multiple weeks, to have dodged some of this weather that a lot of folks in our audience have been dealing with. Like you said, all winter.

Yeah. And the best part of flying back, uh, home from New Orleans is you know, we both gain some time back. So that works out well too.

Absolutely. Well, let's dive into our story of the week, which is going to borrow a little bit from this conference that we attended this week in New Orleans and also from a conference I attended last week in Oceanside near San Diego. That was the Global Technology Distribution Council event, big annual gathering of the major distributors out there. I wrote all about my impressions from that event in ChannelHolic, my blog, which you can get to at channelholic.news. I'm going to use one little observation made by somebody at that conference to kind of set us up for what I really want to talk about. And I was speaking with Jason Beal. He's the Americas president at Exclusive Networks, one of those distributors there. I was talking with everybody I interviewed at that event about AI, naturally, as one does. These days. And Jason was talking about the importance, in his view, for distributors of balancing AI with what he called AIR, which is an acronym he invented for authentic interpersonal relationships. Basically, in the age of AI, you want to be providing tools to people that are going to help them be more efficient. You want to take advantage of everything AI can do for you, but you also want to be investing in relationships because if you are a distributor, your partners still value that. As, as Jason said, they, they want to know that they can pick up the phone and talk to somebody now and again. I think the exact same thing is true, um, for MSPs out there in our audience right now. You, um, completely and totally need to be investing in everything that AI can do for you internally inside the four walls of your business to make you more efficient and more profitable. You need to be investing in researching, gaining skills in using tools like that in solutions for your customers that are going to be valuable for them and sticky for you as well. And you also need to be using some of the employee bandwidth that these AI automation tools free up for you to invest in relationships, customer success, better relationships with your customers, What I want to try to do here a little bit, Eric, is complicate that picture just a little bit, because we were at this event in New Orleans earlier in the week here, and we were joined by our mutual friend Corey Kirkendall of 5K Technical Services, a managed service provider in the Dallas area. Corey is very successful as an MSP. He's also a widely recognized thought leader in the managed services world. And he was talking about some of the very sophisticated ways that his company is using AI right now, including in fielding calls from customers. And basically, they have AI answering calls from customers. They are very transparent about that when it happens. The client who is calling in knows they're talking to AI. And they are given the option of saying, nope, don't want to talk to a machine, put me on with a human. And basically what Corey told us is, and he was saying this in jest, but it kind of directionally is probably true. If somebody's 67 years of age or older and calls in, they will usually want to talk to a human. Everybody else is more or less content to talk to the AI unless they can't get an answer they need and something needs to escalate. And so I guess the point I want to make here for the MSPs in our audience, if you are feeling like your competitive edge in relation to larger MSPs out there, or MSPs who are a little bit more forward-thinking about AI, is your relationship power, your ability to create and sustain relationships, the fact that you have these personal connections with your customers, I would just encourage you to think about the possibility that that is not as unique or as sustainable an advantage as you might think it is. Because Corey and his company, they've got great relationships with their customers too. And some of that relationship is actually strengthened for him and delivered for him by AI. My point here being, AI, relationships, these are not mutually exclusive things. And so you need to be looking at ways to use AI to create relationship value with your customers. And you need to make sure that you're not making the mistake, slipping into the mistake of thinking relationships matter to customers. I'm good at relationships. I'm going to be okay regardless of what my competitors are doing with AI right now. Because the clients in your customer base right now, 67 years or older, you're going to have fewer and fewer of those over time. And the people apparently who are 66 and younger don't actually mind having that relationship or that conversation with AI right now. So these are not mutually exclusive things. It's not an either/or. You need to be doing both of those. Eric, your thoughts?

Yes. Well, thank goodness that MSPs are leading the charge here with AI. I think it's a delicate balance that we need to strike and giving the client the opportunity to say, oh yeah, I'll work through the AI. I mean, I think everybody will try it once. And depending upon that experience, they'll be more likely or less likely to use it the next time, just based on how it works. I think it's, it's, I think where MSPs can take a note is from every other business that we engage in. Everyone else is doing this. Everyone is moving in this direction of having an AI, an autonomous, you know, virtual person answer those calls and route those calls. And so if MSPs aren't leading the charge and moving in that direction, you're right, Rich, the folks that are open to that and see that as a fast way to get answers, you know, if the solution is crafted in such a way to deliver an experience that, you know, with outside of it being a human interacting that delivers the same outcome in a very efficient manner and people get used to it, I think we'll adopt it. If it doesn't and gives a poorer experience, then folks are going to hate it. I'll give you a great example. I was on vacation last week and I had to extend my rental car. you know, by a few hours. We weren't going to get to the airport. We were going to do some other things. And so I called the rental car company and I got an AI virtual assistant and it asked me what I wanted. And I said, oh great, I'm going to tell it I need to extend my rental experience. And Rich, I got stuck in a loop. That made me so angry that I just, I couldn't figure out how to get out of this loop with this agent because it said, oh, you know, I can't, it couldn't complete my request. And what made it worse, to add insult to injury, on the, the first thing I tried to do was just do it on the app on my phone. And I said, look, extend. It had the capability of doing it and it kept erroring out. And I'm like, Oh, that made me angry. Then I got my laptop open, same thing, different browser, same thing. Then I said, the last thing I want to do is call and talk to somebody to get this done. Something so simple, right? And I call and I get the AI thing and it gave me this endless loop. I finally got through to somebody and this poor, you know, uh, employee, I had to let them know. Hey, I just want to let you know, I went through all of these things and I couldn't get this solved. And it was so difficult to get to you. And of course, you know, they have no power and I kind of felt bad. It's like, well, you know, I'm kind of dumping on this person, but I said, hey, if you could just escalate that experience to someone in your, on your team that could address it, like the website. Now, none of this stuff works. Right. So I'm giving you the extreme of when all that AI stuff and automation fails. I got a very bad experience from it. Right. So MSPs have the opportunity, Rich, to turn this around because we know that MSPs are going to test. They're going to, you know, they're going to pressure test it. They're going to, you know, implement. They're going to try to go through the experience themselves as we do as MSPs to make sure that we're providing an experience that doesn't get somebody caught in some weird, you know, matrix time loop of AI interaction. AI is supposed to make things better for us. And, you know, those MSPs that are out there thinking about deploying something like this, please, please, please sandbox this, test it, beta it with a few clients, as I know folks like Corey do. To deliver that experience.

And I'll just say, don't let Eric's story there scare you away from doing this at all. I mean, I would, you know, realistically, the kind of painful experience you had with the rental car company there, Eric, is much more apt to happen with AI right now because the technology just really isn't completely mature yet. But end users have bad experiences with human beings at MSPs all the time. There are good experiences and bad experiences that do and do not involve AI. And, you know, before you introduce AI into the mix, you want to make sure that you are confident you're going to be able to deliver a good experience. But I would just say that when the AI works from the end user's point of view, there fundamentally is no difference in terms of how, you know, how I feel about my managed service provider by virtue of the fact that I was talking to the AI instead of a human. Again, assuming I can get to a human if and when I want one right now. So, yeah, you know, the real moral of the story here is you need to be mindful of and doing everything in your power to optimize great experiences of all kinds with and without AI for your customers. And you need to be especially sensitive around that with something new like AI, given that it's not a fully mature technology.

Yeah, just, you know, test, move slowly, beta test with a couple of clients to work out all the kinks and bugs. It is a valuable technology when used properly and dialed in. And I didn't, I didn't even care that it didn't sound like a human that much. I just wanted it to do what it did, but it kept wanting, it wanted to help me so much, Rich, that when I kept asking for a human, it said, oh, it kept going like, oh, well, the fastest way to get you support is to let me help you. So, and they kept asking me the same 3 questions and I'm like, I need to speak to you. I said, you are not helping me. It wasn't even intelligent enough to understand sentiment, right? Because I know Corey is also managing sentiment. And his deployments and things like that. It's very, very interesting stuff. So yeah, there's a lot of potential there. With great AI power comes great responsibility.

So we are talking— this is actually kind of a nice segue to your tip of the week, Eric, because we're talking a little bit about what you do as an MSP in terms of utilizing AI and doing it in a safe, tested, and responsible way. But also to the point of doing it in a safe, tested, and responsible way, how you do what you do. And that's a little bit about what you want to talk about this week.

Absolutely. And, and Rich, you know, the tip of the week this week is all about, you know, valuation, right? So, you know, you know, every, every few episodes I come back to kind of, you know, a tip around making sure that MSPs are doing everything that they possibly can to make sure that when they're ready to exit their, you know, and sell their company, lots of M&A going on as we've talked about before, they can command the highest offers or the highest valuation. So, you know, if you think about it, Rich, there are different ways to increase valuation. Of course, the first thing that a buyer is going to look at is EBITDA. That's your net profit at the end of the year. right? And what percentage of that, of your total revenue does that represent? We're talking about, you know, double, you know, high double, you know, I'm going to say, you know, 18%, 20%, really, really good EBITDA. But once we get past that initial, you know, measurement, what else can add more multiples or value to an organization from a buyer's perspective? A couple of things we've talked about in the past, Rich, is, Nobody wants to buy a job, right? The organization has to operate independently of the seller. That adds more value. We want to buy an operating business, not parts and pieces of something that we need to fix. Now, I will say, Rich, that, you know, some buyers are looking for organizations where the seller has taken it as far as they can take it, and they know with a little bit of their extra you know, 13 or 14 ingredients, they can really turn that company around relatively quickly and maximize value. So there's some of that there, but at the end of the day, nobody wants to, you know, sit behind a desk in day-to-day operational mode. These buyers want to grow businesses. They may be acquiring multiple businesses. So, you know, owner dependency is probably one of the key factors here. Another thing is processes and documentation, right? I'm going back to like this 101 type of a conversation. We always talk as MSPs at every conference we go to and webinars we watch, and we're always talking about making sure that our processes are truly documented. Well, are they really, really documented to the point that you could onboard a new technician or engineer, and they can quickly be onboarded and learn your documentation platform, your integrations and things like that, and begin delivering service much more quickly. I remember the days when I was an MSP, Rich, and we had to ride shotgun. Every one of our technicians and engineers rode shotgun for like 6 weeks with another technician and engineer before we felt like, okay, We'll give them a few tickets and see how they do. That doesn't work these days, right? We've got the technology. We've got the ability to do this. If we are relying on a small set of dragon-slaying engineers and technicians that have all of our institutional knowledge in their brains that operate the business, that's also considered a risk by buyers and will lower offers when you're ready to sell. And how well are we automating the noise, right? How are we looking at AI to help us simplify and automate some of the day-to-day noise that technicians and engineers have to deal with? This is another area where AI has such promise when used properly. And just regardless of AI, how many platforms do we have? I'm talking about sprawl now. Do we need all those platforms? How well integrated are they to give us the business this intelligence that we need? And then how can we leverage AI to even elevate that ability to understand the data and the intelligence to help us make smarter decisions, to help us create better relationships with our clients? I mean, some things that we can ask AI, you know, to identify top 10 clients with potential gaps in their portfolio of services that we deliver to them. Things like that, right? So there's lots of ways to think about this, but think about modernizing your, your MSP practice in a way that makes it super attractive to a potential buyer that can elevate that offer at the end of the day and make you stand out among all the other folks that they're considering investing in and pay you more for your company.

Yeah, and you know, I mean, a few thoughts on that. You were kind of talking about some of the 101-level stuff that might seem really obvious, but absolutely factors into the price you're going to command. And you were kind of talking about documentation and so on. Super important, all of them. We've spoken in the not-so-distant past on the show here about another one that I'll just sort of remind people of, which is just this idea that no acquirer wants to inherit chaos, basically. So, Some of this goes to what you were saying in terms of the tool stack and right-sizing and rationalizing and integrating that. Some of it also goes to security basics and just get your security house in order because no one's going to want to pay you for a business where they know going in the first thing they're going to have to do is clean all of that up. On the AI front, it's interesting. So, and this is something that we were talking about a little bit at this event we attended earlier in the week here. I know for a fact, speaking with the CEOs of some of these very large private equity-backed MSPs that do a lot of acquiring right now, that the more sophisticated you are in AI, the better a price that you are going to get. This is something that they're looking for. And it's not just that you're using the tools. You know, the more you're using them to do something customer-facing, something kind of sophisticated, the closer you come to intellectual property around AI. The more valuable you're going to be. That said, and this gets to something else you were kind of talking about a little bit there, Eric, it's not as if you cannot sell the business if you don't have that kind of AI expertise in-house. You are not going to get the kind of price maybe that you want. But I also, when I have these conversations with the CEOs of these big MSP roll-ups, one of the things that they will say is, we're sophisticated with AI. And so we know if we buy a company, an MSP that is pretty good in every area, but a little inefficient operationally, if we bring our AI to this acquisition, we'll increase the operational efficiency and the profit. So they're quite often in the market for an MSP that is inefficient, not using AI effectively, but for you as the seller on the sell side of that deal, you're not going to be happy with the way that comes out.

Absolutely right, Rich. And let's talk about the other side of the coin where you may not be, you know, your next phase of growth may not be, or your next phase may not be selling your company. Your next phase might be growing through acquisition. So the more AI forward you are and the more that you've got your, you know, AI leading your operations and you maybe even productized it now and are delivering AI services and consulting services to your clients. This is a way for you now to look at other MSPs that may be not quite as sophisticated that way, just like you said, Rich, and you can offer them a, you know, a fair market value price for their organization. But then by rolling out your secret sauce, like you just mentioned, Rich, it dramatically increases the value to the buyer after the fact.

All right, so with that, we are going to take a quick break, ladies and gentlemen. When we come back, we're going to be joined by Chris Day. Chris today spends most of his time as the CEO of Scalepad, vendor you might be familiar with. Chris is a longtime MSP, built a very large managed services practice and exited that. You might know him as the founder, former CEO of IT Glue. He's part of a team at TopDown Ventures, which invests in vendors who create products for MSPs. This is a guy with deep roots in the managed services world, a very, very interesting person with very relevant opinions. What we're going to talk principally about with him, though, is some research that Scalepad recently did around trends in the managed services landscape. Lots of good stuff for us to get in there that hopefully will include some good actionable insights for you. So stick around. We'll be back with Chris Day in just a moment. And welcome back to part 2 of this episode of the MSP Chat podcast, where we are very pleased to be joined by Chris Day. He is the CEO of Scalepad and yet a whole lot more, both today and in the past. We'll learn more about that in a moment. But Chris, welcome to the show.

Thank you, Rich. Thanks for having me.

So for folks in the audience who don't know you, don't know about Scalepad, don't know about what you've done in the past prior to being CEO of Scalepad, tell folks a little about yourself.

Sure. Yeah. I mean, I've been, I've been a veteran, I guess, of this MSP industry for just over 20 years now. I think probably a very similar story to a lot of folks that started, started my MSP in 2002. Just me, built that up over the years and sold that, like, you know, it was a very accelerated story, but sold that in the last piece of that in 2021 to the largest telco in Canada called TELUS. At that point, we were like 500 employees. And then through that period, in 2013, started IT Glue, which many people know. And then a few years after that, co-founded a company at that time called Scalepad. At that time it was called WarrantyMaster, now it's called Scalepad. And actually had someone many people know as well, Dan Wensley was the CEO of Scalepad for 5 years from 2019 through the end of 2024. And then I just stepped in as CEO to sort of shepherd us through the next chapter at the end of 2024. So, and then on the other side of the house, we obviously have a venture capital firm top-down where, where we've been investing in early-stage SaaS companies in the MSP ecosystem. Uh, myself, Joel Abramson, uh, Mark Scott, both, well, we're all involved in Fully Managed. Mark Scott was the founder of Enable, uh, and then Joel ran, ran Fully Managed when I was, uh, busy with documentation. Uh, so, uh, very connected and, and yeah, very active in, in on that side as well. Uh, although my day job at Scalepad, Jason, can you close this?

And worth noting, Mark and Joel were guests of ours on the show in an earlier episode, which was a great conversation. So we know them and our audience knows them too. Now, like I said, what we most want to talk about with you here is this new MSP Trends report that Scalepad published within the last few weeks now. Tons and tons of really interesting data points in there, and we're going to kind of zero in on a few of our favorites and get your thoughts on them. Here's one where I want to begin with. The report says that smaller MSPs are less likely to have grown MRR in the last year than larger ones. Is this kind of business as usual in the managed services world? Smaller MSPs are smaller for a reason, or does it reflect in any way at all this kind of shift in the landscape we're seeing where there are some much bigger MSPs out there than there used to be?

Yeah, it's an interesting question. And anytime we like, this is why I love this trends report because you, you know, you have a lot of preconceived notions of what's going on and then you get data back and some of those things kind of make you scratch your head a little. You, and there's several of those in there. I'm sure we'll talk about a few that were surprising to me. And usually I feel like, hey, I know this thing. I know everything about this industry. No, nothing can surprise me. I would say that one surprised me a little. But, but yeah, I mean, we see it as well. Like one of the trends that I don't know the detail, how much detail was in there, but as an example, the number of assets that MSPs are managing, so like devices effectively, is, is going down, like it's actually declining over time. However, the number of clients that MSPs are managing is going up at almost inverse amounts. So, you know, let's call it roughly, you know, 10% decline in assets and roughly a 10% increase in the number of clients being managed. This is from Scalepad data. So that, that's really interesting to me. So, you know, I think it does speak to the large aggregators that are picking up bulk numbers of clients at a time. As well. But I don't know that that number, just to answer your question directly, would've been much different, you know, 10 years ago. I think it was always harder to grow when you were smaller and it got a little bit easier as you got larger, were able to go up market. So, you know, that one in particular, I'm not sure that there's any alarm lights, alarm bells going off for me on that one.

I do want to very quickly follow up on something interesting you said there that I don't think it was in the report, or I glossed right over it, that the device count being down, but the client count being up by roughly the same 10% figure. I presume businesses are not using fewer devices than they used to. So does that kind of, in your mind, reflect a shift, a trend in the marketplace in terms of what end users want from an MSP? It's like the we'll handle the devices, thank you. Yeah, with all this other stuff that, um, is harder for us to do alone.

Yeah, I think partly, I think, um, you know, if you think back to the, the traditional office environment where everybody had a desktop and a laptop, um, that, that's, you know, that's certainly one area where, where we've seen, um, you know, where we'd see a reduction in devices. I think the other obvious one is, is in, you know, the last 15 years or so of migration to the cloud, which on the infrastructure side, less devices on that side. And then I do think definitely people with sort of work from home scenarios, fully web-enabled, thin client, web-based apps, not all those devices are managed anymore. So I think it's becoming more about managing the apps and more about managing the users and probably a lot less about the devices. And hopefully that trend continues.

[Speaker:SHAWN] Yeah, it's interesting. I was just thinking, Chris, that, you know, could co-managed IT be a factor here where the internal IT department is managing some of that day-to-day user device stuff and the MSPs or the MSSPs are managing more high-value strategic services and security and AI and things like that.

Yeah, it's not a bad trend, right? If you don't bill based on devices, then something's going in the right direction. You know, value-based pricing, I don't care if you've got 100 or 200 devices, it's sort of based on, you know, what are we accountable and responsible for? So yeah, I think that's a very positive trend. And hopefully there's zero devices for us to manage, you know, in 20 years.

Right, yeah. So the commodity stuff goes away and it's all apps and connectivity and BI and all that.

Yeah, we've got more, like tons to do on the app side, to be honest. There's like more than enough work to be done on that side and securing applications that if we don't have to take a screwdriver to a machine again, I think we'll all be happy.

We won't be carrying, you know, graphic cards and RAM and stuff in our trunks anymore. Toolkits, remember those days? Yeah. Hard drives. Oh my goodness. So, you know, a couple other interesting stats in the report. 58% of MSPs track MRR, probably the most, you know, popular metric to track. But only 35% track client churn and 23% track EBITDA. What can you tell us about, you know, those numbers? What's your insight there?

Yeah, that's, I mean, to me, that was definitely one in the category of surprising metrics. I was on stage at a couple of different events, most recently at the Lyra event. And then before that, I'm trying to think which event it was, but In line with this, it was like a question about net dollar retention. And obviously this has a, you know, the addressing net dollar retention is all about retention and growth from existing clients. And most of the room didn't know what net dollar retention was. This wasn't at the Lyre event, but they definitely know what net dollar retention is there. But most of the room didn't know what net dollar retention was and almost nobody was tracking it. So they didn't know if they were growing from existing customers or if they were growing going from new customers. They tell you I grew 10% last year, but they didn't know the source. So, you know, the MRR, I don't understand that one for sure. I mean, I feel like that's table stakes to manage monthly recurring revenue. But the one that I think, you know, this industry needs to keep a closer eye on is the net dollar retention. And as the big money comes into the space, It's like, not only can you retain your revenue, but can you grow that revenue without adding a single new client? And I think those are the outlier MSPs that we're seeing now are, are developing programs that allow them to put new services and offerings at scale in front of their customer base. And as a result, they can grow without new customer acquisition, which is the holy grail of a recurring revenue business. So I think that's the, that's the biggest unlock, um, I, I think for the next 5 years is the MSPs that can figure that out.

And a follow-on thought, right? Because that's really what buyers are interested in is EBITDA and net revenue retention. NRR is also, um, you know, it's called that retention. So, you know, these are mature kind of metrics that MSPs should be measuring. Yeah, the 58% on MRR, like it's MRR, it's EBITDA, and now we're seeing NRR or net dollar retention, net revenue retention, really being like the drivers. Because there's so many MSPs nowadays, Chris, not like when we started our MSPs 20 years ago or whatever, right? There's a lot more and mature MSPs now that are being, you know, um, let's just say, you know, fielding lots and lots of inquiries. Interested buyers. And when you're looking at, you know, two MSPs that look about the same, the folks that are really, you know, that really understand NRR and EBITDA and the percentage of MRR that makes that, you know, very attractive business are the ones that are going to succeed, right?

Yeah, totally. I mean, I remember for me going in and I don't know, this would have been 15, plus years ago, but going into the service leadership groups with Paul Dippel and get really getting into those metrics. And we had a pretty big MSP at that time. And some of those concepts at that time were still pretty new. And, but, you know, we, we sort of built a discipline around those numbers and gross margin was always my favorite. And it feels like that, that was a really good one because that you, you were optimizing your service delivery and, you know, making sure you charged the right amount and, and had, you know, enough automation and, and different, different things in place. But we never really looked at those numbers like growth from existing customers. You know, we always talked about share of wallet, but it was never like defined in a financial metric. It was like, are you increasing share of wallet? I think so. So yeah, that's just, I think another level of discipline that's coming to this industry. And I think that big money has sort of pushed that envelope.

And I think that these buyers that, you know, are looking at managed services at our industry for the first time, they're traditionally buying other types of businesses and things like that. They've, I think they've brought more of that focus on things like NRR and EBITDA and those things. And I think it's having a positive impact for MSPs that are starting to track those metrics more diligently now.

Yeah, it's interesting too. The other, the other one that I've just from our data that I find fascinating is, you know, like in a SaaS or MSP, there's a lot of parallels, like the financial model works very much the same way, you know, cost of goods, revenue, and all that stuff. But there's like a real lack of focus on what drives the gross margin. And I think it's, it's like a same transformation that happened in SaaS and it's trying to figure out what, what are the levers we can pull to make a difference there. The thing that I've noticed that's most interesting is that the gross retention in the MSP industry is far better than in SaaS that sells to SMB. So like a typical SaaS company that sells SaaS, like software to an SMB, if you're in the, you know, high 80s of gross dollar retention, you're like, fine, like don't put any more effort in there 'cause you're never gonna change that number is kind of the mindset. MSPs are typically like in the 90s and it's a recurring revenue model. So I think that's why there's a lot of interest from investors there is because, hey, you guys have built a really resilient business. We all know difficult to, you know, as a buyer of an MSP service, it's difficult to churn 'cause you don't, it's painful and nobody wants to do it. And so, that's a really sticky business. And so I think there's a lot of hope that there's a way to convert that other part where we can actually get the growth. Because if you can retain 90 plus, 95%, I've talked to a bunch of the large players are 93, 94% gross retention, which is phenomenal. So if you can figure out how to grow 10, 15%, just by with your existing base, and then you can add 10 or 15% with, with organic growth or M&A or whatever. You're now starting to get a really, really interesting business that can sort of look more like these rule-of-40 SaaS companies and probably the valuations can kind of follow. So I think that's where I think there's a lot of hope for that.

Chris, there's some really interesting data in the report around compliance, which is one of those end-user needs that everyone acknowledges is important and widely shared, But a lot of MSPs are, for various reasons, reluctant to do anything about. They're a little scared off by offering compliance services to their customers. In the report, though, so a reflection of that, the report says only 12% of the MSPs you spoke to are making over 25% of their revenue in compliance. I mean, it's, it's a relatively small source of revenue for MSPs out there. And yet the MSPs we spoke to who said that they think compliance will be extremely important or somewhat important in the next 3 years are all MSPs with higher revenue, higher average revenue per user, higher recurring revenue. It's like the, the more invested in compliance, the more importance you attach to it, the faster you appear to be growing, or at least there appears to be a correlation of that kind. What's your thinking on the correspondence between doing compliance within, for your customers and just being a successful MSP?

Yeah, I mean, my perspective is that this is this, like, outside of, out of AI, and I think we'll probably get there, but there's a lot of opportunity there, obviously, moving forward. But outside of AI, if I were starting an MSP today, I would be heavily, heavily over-rotated on, on compliance-related services because It's much easier to establish value on a risk management program than it is with sort of the table stakes of managing IT as we did, you know, for 20 years. And most importantly, those compliance projects, and I think why you're seeing the growth is the companies that, so by like jumping in and saying, I want to move the needle on risk management and compliance is one of the ways to get there or the most important way to get there. It drives all the decisions that SMBs typically don't want to make because you're doing it with a framework and you're doing it with a scoring system that's widely accepted. So you're basically saying, if you're okay being a 3 out of 10, great, we can stay there. If you want to become a 6, 7, 8 out of 10 in terms of your ability to support risk, then these are the steps that need to happen. And the steps that need to happen typically result in the SMB doing all the things that you know they need to do. Anyways. And so I think that's like the magic of compliance, plus the external pressure, the rise of CMMC. You've probably seen some of those stats of like where that's expected to go over the next several years and the mandates and regulations associated with that. There is nothing but margin in that, and it's like it's being mandated essentially. So Yeah, my perspective is, you know, is compliance should be table stakes, or should and probably will be table stakes at, you know, when will that be exactly TBD, but I think within the next 5 years, and no MSP is immune from that. Because whether you have, you know, 20 customers or 4,000, there's a segment of those that have that requirement. And that segment are going to be your, your probably your best customers, because they're going to do all the mature things that are provided for by, by a risk management program. And the MSPs that we're seeing that are doing those types of services, whether it's like vCISO or compliance as a service, or however you want to name it, those compliance-related services are operating with different margins than helpdesk by far, like, more like software margins. They're higher value services, they're higher margin services. They put you in the boardroom where some of the other, you know, services you're not getting the right people to show up for a QBR. And so I think it's like the single biggest opportunity and guess what? It's also linked with AI. Like if you want to go do anything, you know, more than surface level AI, table stakes will be compliance because otherwise your data is going where?

Yeah, Chris, that's interesting. I always say that, you know, everything's going to, everything's going to be regulated at some point. But for right now, I think the most opportunistic topic is, you know, cybersecurity insurance policies, right? You've got to help your clients comply to what's in those policies. So that's like the first step. So I think that kind of opens the door for, you know, this moving, like you were saying, moving the conversation from the server room to the boardroom, being more strategically relevant to your clients, right?

Yeah, I've seen that. And, you know, these sort of like the MSPs that I've talked to that are having early traction on AI are leading it in that same way. There's like, oh, you know, we want to do an AI readiness assessment. You say you're ready, you're very excited to do AI. Here's what the situation is, and we need to correct these 10 things before we're ready to embark on that project. And so AI is another good wedge for compliance. I love it because it's much more interesting for the CEO of a mid-sized accounting firm to talk about how AI can help them move their firm forward and be more profitable and take on more clients and all those things. And then have, you know, compliance or infrastructure be a sort of prerequisite for that rather than leading with, I'd love you to have faster, newer, shinier, secure, more secure stuff. It's just not that interesting. So that's why I feel like AI's a good wedge for this stuff as well. And the end result will be, hey, your stuff's locked down and secure and fast.

Yeah.

It's an accelerant for sure. Let's, let's pivot a second to like more of the kind of table stakes, uh, services that MSPs deliver to their customers today. You know, before I started my MSP, I was in the enterprise and I built out service desks and call centers, right? For Fortune 1000 organizations. And we were tracking KPIs, you know, on the service desk, on the call centers down to like, you know, you know, resolution time, you know, first touch close, you know, hold times, all kinds of different things. The survey or the analysis, the report that you put out indicated that only 48% of MSPs are tracking average resolution time. That kind of blew me away. And only 45% track average first response time. And only 38% track utilization rates of their technicians. It's a little nutty to me. What are your thoughts?

Yeah, I think, I think it's interesting because you have this, it's this, it's this ecosystem, right? You have such, such varied maturity, you know, and even fragmentation, even, even within the platform players that are aggregating a bunch of MSPs, you know, that answer would not be always everywhere. It would be like sometimes Somewhere, someplace, some places, sometimes. And so I think it's really interesting just to, I mean, those metrics, I'm sure, you know, you guys track those diligently. We were, I feel like we were, you know, 10 years ago, pretty diligent on most of those things. We had, you know, first call resolution, you know, we had response and resolution time. Then we also had complete, Yeah, total elapsed time, which we found was another one that drove churn and unhappiness. So, you know, our SLA was intact, but it also took 3 weeks because we're waiting on the customer and those type of things. So yeah, I don't know. To me, that says that, you know, folks have adopted, purchased a bunch of tools, but haven't operationalized them and haven't brought it into the management process and haven't you know, created quarterly objectives to make improvements in those areas. But yeah, it's a little bit alarming. Either that or nobody cares and there's no tickets anymore, which I don't think that's the case. I haven't been running an MSP for a few years, but I'm pretty sure all those things still matter.

Yeah, it's maybe it ties back to that we're not even tracking EBITDA. So how do we know that we can improve our, you know, gross, you know, net profit at the end of the day by enforcing some of this stuff and measuring some of that and expecting our technicians to close hopefully 5 tickets a day. That just, it blows me away.

That's, and it's still really hard. Like utilization, you know, I still don't think we've cracked the code on that necessarily. You can have, you know, engineers with full days, but then like exposing what, you know, what there was 8 hours in there. What like, First of all, was it all real? And then second of all, within the real, was that happening at the most efficient, in the most efficient way that it should? And I think there's a lot more questions than answers in many cases. So I think as we get into, I mean, a lot of these startups now working on level 1 automation, triage, you know, resolution without an engineer, I think obviously we have a ways to go until until we trust AI to do a lot of those things or until AI has a lot of the capabilities necessary to do a lot of those things. But I think that will be a forcing function to kind of look at, look at some of these things and kind of reimagine what's possible because, you know, it's getting a lot easier, but it's, it's still not quite there.

It's a, it's a perfect segue to something I wanted to ask about, actually. So you asked MSPs in the, in the report What is the least efficient area of your business? And the number one response, um, given to you by 34% of the sample was sales and marketing. Not a surprise. Historically, this is not an area of confidence, um, for most MSPs. But the second highest, uh, most frequent answer at 31%, not way behind sales and marketing, was help desk services. Um, and, you know, I mean, so, uh, TopDown Ventures, um, one of the things you're involved in, um, invested in a company called Zofic, which is one of these AI automation tools for MSPs recently acquired by ConnectWise. I mean, you clearly have some thoughts about the impact that AI can have. So talk a little bit about what that result tells you about the, the upside potential for, for both for vendors and for MSPs in applying AI and automation to the help desk.

Yeah, I think, I think for me, first of all, on the sales and marketing, I I chuckle because that, you know, that's been the same for 20 years. I think my perspective over the last several years has changed on that as I was kind of talking about, you know, net dollar retention and thinking about growth in a different way. I think there's a lot of money left on the table, a lot of growth left on the table, you know, that can be achieved without sales and marketing, especially looking at like, you know, just how bad some of those numbers are. But yes, on the help desk and automation side, I think there are huge gains to be had there. I think not dissimilar from almost any sort of AI, any agents, I guess, that are coming to market right now. We're seeing a really good ability to get to, to getting better at getting context, giving good suggestions and, uh, and, and categorization and putting things in the right buckets, scheduling. There's a bunch of those areas that are, that are very strong. I think, um, taking action is still the one that it, that the chasm to be crossed, I guess, you know, the ability to actually rely upon an action being taken by an agent, which I think is going to be the true unlock to remove labor. And until these agents can A, be trusted, and B, be capable to be able to go out and actually perform a function, do you actually trust it to reset the password? Do you actually want it to reboot the server? It's going to be a little bit of time until we get comfortable with that piece. But that being said, there is like, and I talked about this in the IT Glue days, there's an infinite amount of waste still going on researching solutions, trying to find information, trying to, even if you're just purely engineer-based and pure human labor, just to lay up possible solutions that are highly probable to be correct. That's a huge, there's a huge amount of opportunity just in that. And you think about the margin profile of the business, I think MSPs need this. Like if we want to grow to be profitable, like, you know, mid-size accounting firms, we want 30, you know, percent EBITDA or above, 40% EBITDA. These type, like we've gotta get, there's a ton of waste that we can cut out before even, We worry about, you know, robots automating and doing tasks. So I think anything that can cut down 10 minutes out of every service request or 20 minutes out of many service requests or take care of the time entry, take care of the documentation in the ticket, take care of the feedback loop with the customer, like these are all huge unlocks. And so I think we're going to see a bunch of companies, you know, hopefully a bunch of cool innovations. Zofiq was one. That was really, I was very impressed. I think that was one of the only investments. So 95% of the investments we made were inbound in, in, in TopDown. And that was the only one where we actually reached out to Lee and Zilfick and said we wanted, we wanted to be a part of it because we saw that they were doing things different. I would say they, they kind of had like a Silicon Valley approach to the tech. And I, and we are seeing that we're seeing, different types of entrepreneurs and innovators coming into the space and sort of thinking more like, you know, California big tech. And it's not all just former MSP founders starting stuff. So there's some real brainpower coming into the space. I think that's going to be really, really good as we know some of these solutions are very complex.

Yeah. Something that was also interesting to us, Chris, in the report There was analysis that indicated that employees are saying that they use AI less than executives say it's being used. And they're also more likely to see their AI use as somewhat effective while executives are saying it's very effective. So what's the disconnect there, you think?

Yeah, it's funny. We had a similar experience just in Scalepad. We had our management team offsite and we kind of were trying trying to assess like how AI was being used throughout the organization. And I felt the same, like I feel like I'm growing almost every day and having a new epiphany almost every day with AI, whether that's like, you know, Claude Code or Lovable or Replit or, you know, you name it, Codex. There's my use of that stuff. And then you have this sort of assumption that people are very effective in the tools that have been provided, like, you know, ChatGPT or Copilot as an example. But you realize that most folks, like, have not been skilled up in this stuff. And there's, like, we have an education problem because I don't think most people know what you can do with a chat, you know, with an AI chat interface, let alone, you know, how to pipe systems together with AI and connect some APIs together. So I think that's a common issue. I think, you know, we're dealing with the people side of that now as well. I think there's a natural element of people not wanting to use AI because they feel like if they do, someone will notice and then that job may not exist. But I think we're still working our way through that. That, like, I never, I actually don't think that's an actual problem. I think it's just a fear that's natural for humans going through this big change. But like, if the perspective can flip into, you know, I can do the work of more people, therefore we can grow as a company faster and we're, you know, we're not struggling to hire because we can scale. I mean, that's always been the dream. You know, it was never implement documentation, You know, save 25% of your tech team's time back and then, you know, fire 25% of your people. But that's just like human nature to think that if we get more efficient, we're just going to need less people. The reality is all these companies are generally growing. And so you're just slowing down the hiring. And so I think that's just an extreme version of that, that we're kind of going through now. And certainly like, you know, software is way worse. Like the, the automation that you could do in a software business, product development, product management, UI/UX, like these areas are dramatically changing at like at a, at a ridiculous pace, much more so than many other industries, like, like the MSP industry, that's, it's not as easy to, to, to automate these things. You're going to try to automate the user experience for your help desk. Uh, it's not quite the same.

Rich and I recently heard from a group of MSPs about how their, their clients and their end users, you know, try Copilot, for instance, and then they kind of just cancel it and try something else. And they're jumping around to these different AI platforms. So, you know, go tie this back to kind of that boardroom to the server room opportunity for MSPs. What can MSPs do about it? And, you know, help their customers and help themselves as they guide them through this, you know, AI journey. There's governance, there's, you know, give us some insight from where you're sitting on what the opportunity, what can MSPs do about it?

Yeah, I think there's a huge opportunity that we're seeing some startups coming now. There's a few in the MSP channel already, you know, related to, sort of orchestration of AI. I think next, like we've seen this with the, with the Microsoft 365 stack, like observability, compliance, like these, there aren't a lot of tools that exist for this yet. So I think there's going to be a whole new set of management responsibilities that MSPs are going to have to handle, whether you're the one that's going to go automate their sales intake process and hook it up to their ERP and, you know, like that type of work, true integration work, it is TBD. I think it would be akin to saying that you're going to help, you know, the sales team create their decks, your customer, help your customer VP of sales create decks. Like that never happened, that's never going to happen. But I think there's a, yeah, there's a new level of And this is not here yet, but it's coming. It's like observability and orchestration of this stuff is where I think software companies are going to be built up and made. There's a whole bunch of these guys that have built really big businesses, you know them all, around just managing Microsoft. The same will apply for AI. So I'm excited to see where that goes. I think if we can pivot you know, help desk into AI orchestration, charge the same amount, hopefully, but, but, you know, instead of making 40%, make 70% margin on those services, I think everybody would, would take that job. It's not dissimilar to, you know, moving Exchange servers to, to the cloud, right? That— remember that fear that came, came with that time? It was like, oh, but, but my whole job is managing Exchange servers. Now it's just as hard to manage all that stuff as it was before.

It's probably harder. And you bring it back memories. Like one of our core competencies was very complex multi-server Exchange deployments and things like that back in the day. But we sold our MSP before all this moved to the cloud stuff. So, you know, there's good and bad about that whole story too. Probably sold too soon, but anyway.

Yeah.

You know, and I, I gotta say, Chris, I just last week attended this big distribution conference. And when you were talking about software companies coming into the market to help MSPs on orchestration, I keep wondering when and if the distributors are going to step into that role, because it's a very logical role for them to play. I'm sourcing all my AI from one of these companies. And I'm doing the billing and a lot of that stuff with them already. Can they kind of help me orchestrate that, that AI swarm of agents, that stack for the end users?

I, I definitely think so. I, I think there's, um, you know, that it, it's really interesting because they're sort of like the agentic orchestration stuff. Um, you know, all, all the big players, uh, you know, Salesforce, Microsoft, ServiceNow, they all, you know, have their own sort of agents that are very smart and very capable within their platforms. And then you're going to have the sort of general purpose, you know, the OpenAIs, the Anthropics, the Geminis, et cetera. And like there's some missing connective tissue still for all of this. These are, you know, for myself, even individually, I just have 3 different things. I use them all. I have, in some cases, I have a personal and a work one. And like, this is pretty much shadow AI at this point, right? And that's really what's going on. And I think that's like a really interesting, like getting our arms around shadow AI, I think will make a ton of sense. I don't know what the delivery mechanism will be, if it'll be, you know, hooking up to each customer's tenants and managing that, managing agents that they've got running, monetizing agents that you create that is your IP. I think there's lots of things to be figured out here. And certainly there are players that are sort of like platforming that as well in the space. But yeah, I think the very logical spot for the sort of cloud marketplace providers to sit there because you're sort of at the intersection of the billing and the execution and you have all the access that you need. But at the same time, they're going to need to become software companies to be able to kind of create the sort of experience and the technologies needed to do orchestration. So it's going to be interesting to watch that.

Um, a little bit of a pivot, but I can't help myself here. So the— our interview guest on the last episode of the show was Kunal Ormaji, the CEO of Lexful. We were talking about Zofiq before, a top-down portfolio company. Um, you've exited, uh, obviously to ConnectWise there, but you are invested in Lexful. Um, and one of the many, many, uh, interesting things about Lexful is that you are connected to it given, um, your role in the past around IT Glue. And so I, I guess it's kind of a two-part question because documentation really is just sort of where Lexflow is beginning. But I'm super curious to know, um, what the fact that you have invested in that company that is doing AI-based documentation says about your thinking on the opportunity in documentation for MSP. It, it feels probably to a lot of people like this is a solved problem now. Apparently not so much to you. So I'm curious to get your feel for the opportunity around AI and documentation. And then also just a few words around the larger opportunity you see for Lexful with MSPs.

Yeah, I think so. It's become clear to me, and I'm, as I mentioned, like pretty, pretty active in, in sort of prototyping a lot of the, a lot of the new solutions and technologies that were, that were developing at Scalepad. And so as you go through these exercises, you realize the, and companies like Zofiq popping up and many others that are doing similar, you sort of realize the need for true context. And so it's like what's always been like a system of record, I guess, since the IT Glue days as an example, hasn't really been built up in a way that is queryable by an agent. And so I think that's the job to be done is to solve like true context of what's going on. You know, if it was possible, I would almost say that modern documentation should be AI as UX. So it's literally like there's, there's not even a web interface. You just ask questions, you get answers, and they're perfect, right? So I think that's really the, the big opportunity there because they, I think that unlocks, uh, all the other ecosystem tools, everything that we're trying to do with, you know, automating the service desk. Think about it, what Sylvik had to do, it's like, to be able to answer, a ticket came in, I need context. I need to give, uh, a good idea of how I might solve this thing. And the current, uh, ecosystem requires me to just basically archive, ingest, process, and hope for the best. Um, whereas I think that the, the real answer is real-time, like knowledge graph type access to what's going on. What is the right way for me to do this for this client? And you just get 2 sentences and it's always right. So that's the, that's the, the delta between sort of like what I would say would be like legacy documentation and what would be sort of next gen. Is that awareness, the ability to self-heal, automate, like not scripts to rewrite articles, but like every article is current and updated real time with almost no interaction and learns from other things that are going on within, within your MSP. So I think that's the future for Lexful. And I also think the bigger opportunity is on, on the SMB side, which is not something we ever took too far back in the IT Glue days. But the same thing, I mean, the SMBs are running Copilot. They have questions. They want to reset, they want to reset a password, they want to create a new user account. And to be able to take all that knowledge and put it out in a Teams chat at the edge, or where it never even became a ticket. And that value was provided by the MSP, I think that's where we start to see really, it's not a client portal, it's an answer. Right. So I think that's really the direction where that where that needs to go. And it's doable, but it's hard.

Chris, it sounded to me that like there that you had just confirmed another future technology prediction that started with the original Star Trek: The Original Series, where you're just speaking to the computer or the AI, and it has got connected to every system in the ship. And it comes back to you with actionable intelligence, but, uh, you know, I digress. So many things can be tied back to things that were imagined back in the late '60s with that show.

Um, but anyway, imagine being able to just chat and be like, you know what, just go ahead and close that ticket and it just happens and puts the proper notes in it. Like you're just, you're just chatting. You do this all on your phone. Um, it won't be too long.

No doubt. Or on a wearable device that, you know, other companies are trying to bring. Yeah.

Or the Star Trek one, right?

Exactly. The communicator.

Communicator. That's it. Yeah.

Yeah. So, uh, the, the comm badge. Um, so jumping back to kind of, you know, uh, the report, there was indication there that MSPs with the highest utilization those folks that are tracking it, tend to use 16 to 20 or maybe even more apps, while those with lower utilization rely on fewer solutions. But high utilization is also correlated with high churn risk. So how do you explain that? Is it having too many tools? Increasing efficiency, great for the MSP, but not great for customer sat?

Yeah, I mean, you've probably heard this. I mean, there's definitely vendor fatigue. I think that's, that's one of, that's one of the areas where I think we'll see some, some outliers appear. I hope Scalepad is one of them. Where, where there's like, there's, there's, I say this a lot, but there's many, many let's call them companies that are really maybe a product, or maybe it's not quite a product and it's just a feature. And I think that's what we've become victim to in the MSP industry is, is, you know, you get started, you get your PSA set up, you get your RMM set up, and then you add 48 things on top. And I think that there's a big appetite to start kind of bringing that down. And I think that, you know, we gotta push ourselves as software providers in this space to bring that value. I'm not talking about, you know, trying to break down any businesses that exist, but I'm saying, you know, there's room to aggregate some of these things in the best interest of the customer. And I think, you know, if, the experience that a typical SMB has with an MSP is still, like, there's exemptions, but it's still pretty archaic. Like, it's like I got an email with a ticket and like the ticket looks weird and the email's got a bunch of stuff in it and it's sort of like reimagining what that experience should look like as a buyer. And I mean, I was talking about that 10 years ago and it's still an issue. So I think, You know, my perspective is focusing on that last mile, like focusing on the customer experience is something our industry has not put enough effort into. We're, we've been kind of solving for MSP optimization, MSP workflow, MSP efficiency. But, you know, did we consider what pops up on a client's machine and how we engage with them to solve their issue with like no ticket. Like, so I think that's part of it is there's like a lot of different things. There's, you know, we're emailing out quotes, we're sending out spreadsheets, we're sending email tickets, we're texting maybe now, we got an AI chatbot inbound, we got an AI voice bot inbound, and then you're just like, what am I, what kind of experience am I curating here? So I think that's the next thing is like really rethinking like how do you engage, right? And what is that customer's experience engaging with you? I know the biggest reason for churn probably was the same in your time as it was in mine, Eric, but you know, if you can keep the lights on, your support's decent, and the customer feels like they have some form of a plan, like some sort of a strategic plan that they can refer to for the next year, 2, or more, uh, generally they're happy. And if, like, in the absence of a plan, they feel like your service is a commodity and they're just gonna take the next quote that's $5 less. So I think that's the, that, that's really what's driving this. I mean, I, I told a story, it's in, it's in the, in a book of mine that's coming out later in the fall. But our private equity partner of, of ours, so talking about an MSP that they work with, 300+ employee MSP, which I didn't know at the time. And I just like having a board dinner. and I said, hey, how's it going? I know you guys work with an MSP. How's that going? And he goes, eh, we think we're going to make a change. And I like, why? And he's like, ah, well, um, we just like, we have no idea like where we're headed. We have no plan. We want to invest, but like we haven't had any of those conversations. I said, you don't have a roadmap? You don't have any kind of structure? Like, no, no, we've never had anything like that. And so it's like, The fact that we haven't been able to get that piece done, and by the way, that absence of that plan is exactly why net dollar retention is low.

Yeah.

You'd, they are ready to spend money. They do not feel like they have a plan. If they had a plan, you'd have a forecast with 4 quarters of spending that they, then they'd be happier. They're going to spend more money with you and be happier. And so I think that's the age-old problem. I mean, I experienced that in my MSP that The customers that spent the most were the happiest. And generally the ones that had a plan in front of them. So yeah, I think that's largely what's going on is we're trying to optimize, optimize helpdesk, and we're not optimizing for, for strategy.

Yeah, I agree.

Well, Chris, really, really interesting conversation, really interesting report. For the folks in the audience, we will link to the MSP Trends report from Scalepad in the show notes. Here and encourage you to check it out because trust me, there's a lot more than we've gotten into here. Chris, for folks in the audience who want to get in touch with you, get in touch with Scalepad, learn more about either one, where should they go?

Yeah, just probably best is LinkedIn. Hit me on LinkedIn, Chris Day, and happy to connect. Love to connect. I'm there every day.

All right. Well, Chris, Dave, Scalepad, thank you for joining us on the show, folks. Eric and I are going to take a quick break right now. When we come back on the other side, we're going to chat a little bit about this interesting conversation with Chris, have a little fun, wrap up the show. Stick around. We're going to be right back. And welcome back, part 3 of this episode of the MSP Chat podcast. One last thank you to Chris Day for taking some time aside to talk to us about the MSP Trends Report and some other things going on in the industry. And in his world. You know, it's interesting, Eric, a lot we could follow up with, but it was striking to me. I knew going into this interview that it would be striking to you as well how many MSPs there are that are just not doing some of this really fundamental stuff. We were talking about 101-level stuff earlier on in the episode here and tracking utilization, some of these really basic metrics that you constantly push your clients when you're consulting with MSPs to do. There are a lot of MSPs who are not doing that. So that was kind of eye-opening. And then it was also interesting talking to Chris about opportunities in areas like compliance and so on. And you really sort of got the sense for the possibility of what economists will sometimes refer to as a, you know, like a K-shaped economy. You can kind of see a future for managed services where there are the people who are doing all the 101-level stuff right. They're investing in these new areas like compliance. They're on the pointed up and to the right side of that K-shaped arc. And then there are all those people out there who are not getting the fundamentals right, competing with the people who are and who are also investing in more advanced services. And they're on the wrong end of that K-shaped future. And so, Food for thought there, both in a positive way and in a less positive way for folks in our audience.

Yeah, Rich, I really appreciate you kind of, you know, illustrating it as kind of this K-shaped phenomenon with MSPs, just like any other business or even consumer. It's very interesting that there were so such— there was such a high percentage of MSPs that aren't even doing like the most basic measurement. I mean, even from an IT, you know, if anyone with any IT experience in the enterprise knows that there are metrics that we need to measure. So, you know, I would love to ask more questions about, you know, the set of partners, like the demographics of the folks. that, that took this, how long they've been in, in business. I mean, what questions that we don't normally ask, like, where did you come from? And I think that's what surprised— that's why this surprised us so much, Rich, because like most other surveys that we see don't ask these kinds of questions. Like, I've not seen that reflected, like, hey, you know, do you measure this KPI and things like that? So that was really striking for me. Um, as well. And, you know, just Chris having that wealth of experience and expertise in the channel— I mean, we could have talked to him for days. Like, I could have geeked out with him for hours, uh, you know, just about, you know, his journey and what we've seen in the channel and shared experiences and things like that. Uh, but one thing that, that really came out for me was, you know, he just— his love for MSP channel just like we love it and him, you know, giving back.

We will include a link to the MSP Trends survey in the show notes for this episode. I really do encourage you to go there. There are a number of things aside from the fact that there's a lot of data and some of which we've talked about here, a number of things that really do make it worth your time. First of all, the depth of information, the the breadth of information that they collected is very impressive. As somebody who reads a lot of these reports, I was impressed by the, just the number of different topics that they got into. And then the other thing that I was really impressed with, because I get a lot of these research reports from across the industry, and they're almost always just basically a static PDF file. And that's fine. I can read the PDF. But The Scalepad guys actually did the work to create this interactive site. And you were kind of talking, Eric, about wanting to get deeper into the data in some places. They didn't do this everywhere. It was only in a few places. But there are some questions in that survey that you can go to through the link we've got in the show notes where you can kind of move some sliders around and see, okay, well, what about the smaller MSPs? What do they say here? So it's, it truly, if you have any interest in any of this at all, I really do encourage you to click through and play around in that site, benchmark yourself a little bit against the, the people who participated in this study. It's super interesting stuff. And that leaves us with time for just one last thing, ladies and gentlemen. And, you know, we've been talking about AI and ways to use AI to create a more effective organization, creative new uses for AI. Well, I came across an interesting new use of AI that may or may not be something that folks in our audience want to consider doing at their company. This is something that they are actually doing with AI at Uber, and they have created what they are calling Dara AI. Dara Khosrowshahi, I hope I'm saying that right. He is the CEO of Uber. There is now a virtual AI-powered version of him. And if you know that you're going to be sitting down with him in a meeting, you're going to be presenting to him, you cannot just rehearse what you're going to be saying. You can do it with an AI-powered virtual version of him and get some sort of feel for what questions he's going to ask, the mood he might be in as he listens to what you're telling him. And apparently this is actually proven to be very useful for folks. So, you know, maybe, maybe you create an AI-powered version of yourself that you're your technicians can spend some time with before a performance review, that kind of a thing. I think there's something here.

Yeah, it's a very interesting article that we'll share in the show notes, Rich. And I had a different take on it, actually. I thought, wouldn't it be great if you could create a virtual AI avatar of the decision makers in each of your client relationships? And then you could, you know, again, just like, hey, if I know enough about them and feed intelligence into this AI from all the conversations and the calls and the virtual meetings and all that and how they respond, that would be interesting. And then you could say, okay, well, how, what, how could I best present this next solution? How, you know, how, what is interesting? What should I bring to the QBR? What really motivates or drives this decision maker? Because everybody's a little bit different, right, Rich? We know that from behavioral profiling and we have to kind of assume, right, where they align and then we adapt our behavior to align with their behavior. That's just kind of, you know, move, you know, taking advantage of just connecting better with someone. For instance, you know, if there's somebody that just wants data very, very quickly and they want to make decisions fast, The worst thing that you can do is just be the talkative, you know, you know, salesperson that just never shuts up. And that's going to be a disconnect. But if you know that that person needs data quickly to make quick decisions, then I'm going to adapt my behavior. If I'm the extrovert, I'm going to be very, very concise, specific, give them exactly what they need so they can make that decision. The opposite. You know, I don't want to be the engineer that just speaks in, you know, engineer speak. You get a quick decision if they're somebody that is more of a people person and wants to talk and things like that, right? Imagine if we had the ability somehow, I think we do, especially over time, to create some, you know, AIs or representative virtual people that represent each of our clients and then test pitching and test strategy with them, things like that. So that's what I thought.

Yeah. And honestly, we are not very far from that at all right now, Eric. I mean, already there are tools out there that utilize AI to help prep you for a call with a customer, basically, and just kind of pull together information about things you've discussed in the past and maybe tickets that are— and, you know, just get you ready. What you all you really need to do is marry up that sort of historical record about the end user with voice and video AI to create this avatar of the customer. And yeah, you could absolutely practice that meeting with a customer before a very important meeting in advance. So coming soon, folks, to you will be this kind of capability.

Yeah, Rich, I mean, even think about letting the AI loose on all that person's social media, everything about them on the web, internet, where they've been. And then you can bring up, hey, you know, how was your vacation last week? And things like that to icebreak the— I mean, it's a brave new world, Rich.

Indeed it is. And folks, we're going to let you get right back to it now here as we wrap up the show. We thank you so much for joining us on this episode of the show. Eric and I are going to be back with you in a week's time. With another episode. Until then, I will simply remind you that this is both a video and an audio podcast, which means if you're watching us right now but you're into audio podcasts, go to wherever it is you get those— Spotify, Google, Apple— look up MSP Chat. If you are listening to us on an audio version of the podcast but you want to check us out on video, go to YouTube, look up MSP Chat there. You're going to find us as well. And wherever, however it is you find us, please subscribe, rate, review. It's going to help other people find and enjoy the show just like you do. This show is produced by the great Riley Simpson. Uh, he is part of the team with us here at Channel Mastered, where we work with vendors that have or would like to have a thriving MSP channel. You can learn more about the full suite of services we offer at www.channelmastered.com. Channel Mastered has a sister organization called MSP Mastered. That's Eric working one-on-one with MSPs to help them grow and optimize their business. You can learn more about that at www.mspmastery.com. Once again, we thank you for joining us. We'll see you in a week, folks. Until then, please remember, you simply can't spell channel without MSP.