MSP Confidential with ScalePad Founder Chris Day

Welcome everybody to MSP Confidential. It's Friday, November 3rd. We're here every Friday at noon Pacific, 3 PM Eastern, bringing you guests from around the MSP industry and beyond to talk about interesting topics, things that have helped their journey, and hopefully giving you some of those confidential insights into how their businesses grew and success was deployed. So to speak. I'd like to welcome our guest for today, Skillpad founder Chris Day. Chris, how are you, man? Good to have you.

Thank you, Luis. Great to be had. Thanks for, uh, putting us together.

Of course. Yeah, it's always great to get a chance to do one of these jam sessions because, uh, they're always so insightful. It's interesting to, to take some of this stuff, the hindsight of some of the things that you may have learned throughout the years, um, how you've applied some of the things from the SaaS industry now And so that's kind of what we're going to dig into today. Now, you know, just for a little bit of background, you had started your own MSP back in the early 2000s, if I recall.

Yeah, in, in '02. So I don't, I don't think they were called MSPs back then. But the, the forefather of MSPs.

And yeah, fair enough.

VAR consultant scenario.

It's still a lot of office equipment manufacturing, that kind of stuff was kind of where a lot of the IT services got started. Too. I don't know that you ever sold copiers, but, you know, certainly you got started with IT services. And so digging into a bit of that early start, I know that when I merged my company with Fully Managed in 2011, this is already 10 years later, and a lot of stuff had changed by then. And so I was curious to sort of dig into some of these early decisions or frameworks or things that you started to see as giving you the opportunity to grow the business and drive through that successful managed services transition. I don't know how long you did break-fix, for example, but, you know, how was that transition for you?

Yeah, you know, the, the break-fix— I mean, I think, um, I was very interested in recurring revenue, uh, like from day one. And I think what was, what was absent at that time was really any pre-existing model to, to do that other than maybe "Can I get 10 hours a month for $1,500?" Or that was the extent of recurring revenue. But yeah, I think even early, early days coming out of working my first big tech job, working for F5, Cisco competitor, high-end enterprise load balancing equipment at that time was the focus and I believe still is. I found these little opportunities for, okay, so people need VPNs between their offices and people need email hosted and things like this. And I was like, okay, well, any $50 a month service that I could capture that wasn't tied to hours, I was all about that. And it was, you know, as you know, super slow at the beginning, especially when your contracts could be $50 or $100 a month landing these VPN contracts. But at the end of the day, I think it led to what, you know, what we've all figured out today, which is to be able to pay the bills on the first of the month is, is really the model and allows you to scale and build this service behind it.

So yeah, there's an interesting transition that even I went through of reaching that point where like all your costs are covered on day one of the month. And it's an exhilarating sort of pivotal point. But you're right, we get there through some small changes like selling E5 and E10 connections back in the day with a 5% margin. And I think there's a lot of that maybe reseller mentality that has, you know, continued on through the years because that's how a lot of MSPs, you know, or IT providers back then got started, was just reselling whatever they could get their hands on. Um, yeah, but it sounds like you've sort of made that early pivot to just true play managed services or services recurring revenue only. And I'm curious to sort of dive into what was the thing that helped you framework this out inside of the business.

Yeah, I mean, I think it really was, you know, it was the typical, you know, acquire logos, get customers, and then, you know, put a stack on them and then grow that stack of offerings that I had. And it was all those, you know, those silly things that we would bundle like X hours, a lot of hours that you might get someone to commit to and maybe they don't use. And then you were happy because it still resets next month because it was up to a certain number of hours. But, you know, yeah, we started to quickly look for opportunities where obviously it was not a consulting engagement and would almost like shy away from those opportunities. Big projects and then some small amount of recurring was the focus back in those days.

Well, and you've been involved also with EO for a long time. Vern Harnish, who founded Young Entrepreneurs Organization at the time, and I know his teachings or his frameworks have had some influence on you. I remember you talking a lot about the book Scaling Up. And so, you know, was there any early learnings from some of that stuff or what kind of gave you some of the, you know, guidance or north stars early in the journey?

Yeah, there was a lot of things in there like the The book is Scaling Up. It was actually the Rockefeller Habits was the first one. And that was, you know, all of these things like having a big hairy audacious goal, BHAG, having, you know, essentially what we have distilled now down to KPIs and OKRs and actually setting tangible goals for the business, which I mean, I think a lot of I think people are much better now with the rise of SaaS and the rise of managed services to do that. But we, and I remember like our plan was, it was literally like from this amount of MRR to this amount of MRR by this date. And then we would do the SaaS things and okay, how many accounts of what size do we need? And so then how do we support that with a marketing funnel? And then what does a sales funnel look like? And then what's the conversion rate? And ultimately how do we hit that? And so I think it was, you know, at least I found we typically would miss those dream numbers that we would put down there. And I think that's pretty common for people with goal setting, even to this day. You know, we sometimes set a little bit too lofty goals. But at least you would end up, you know, you're shooting for the stars and land on the moon kind of scenario. And, you know, we can sometimes be hard on ourselves for missing the big, goal, but then you look back and you say, actually, we did accomplish quite a bit and we are growing faster than the industry grows on average. And I think that was my experience. And I think we went through doing that and a bunch of other things, we were able to kind of, I would say, scale the MSP business or the IT service provider business faster than the average. And so, you know, that led to going from, you know, 1 to 2 to 5 to 10 to 25 to 50 employees, like I feel like we hit that trajectory quite a bit faster, but as we learned through that journey, all growth is not equal. And sometimes, I think one of the things you did in your businesses were very, on the IT services side, were very methodical about the type of clients and almost like a two-way evaluation. Is it a value fit? Obviously the revenue has to fit. You know, ultimately I think understanding that revenue and customer satisfaction are not always mutually exclusive or are often mutually exclusive, I should say. And so I think we learned some of those lessons the hard way of like a big contract that's a crappy contract. And then yes, we grow and we have the scale, but maybe we don't have the margin or or we grow and we scale and then maybe the customer's not that happy even though they're paying a large amount. We're unhappy with that contract, they're unhappy with that contract, our team's unhappy with that contract and you're just sort of sitting in this like zero-sum game. So I think those were the things and the rise of all the peer groups and the likes of Service Leadership, HTG back in those days, True Methods, you know, all those things were essential and provided different nuggets, I guess, as far as how do we, how do we continue to grow? How do we fix the base that we have? Some of those, as you probably have experienced, are very challenging. Like if you have a client that doesn't fit your margin profile, like it can be very difficult. We can say, oh, do a QBR and that'll solve everything. But at the end of the day, if you're going and you realize like, oh, actually in order to support this customer, I need them to spend double and I need them to do a massive infrastructure project and they're currently unhappy with us. They try to get, like they try to even book the meeting. you know, in that scenario.

Well, let me, let me double-click on that for a second. And by the way, I'm not sure if you remember this, but when I, when we merged my business with Fully Managed at the time, you were going into my calendar to cancel my break-fix appointments, uh, at the time, uh, because they weren't the client profile, right? And, you know, I remember feeling, you know, this on one of your LinkedIn posts the other day. I commented how a lot of MSPs go through a bit of a Stockholm syndrome, and I felt like, you know, what was this thing that I was kind of disappointing my clients? And, but that was a necessary transition, and I think sometimes you need the help of another individual that has a little bit of that removed self from your own situation to help you see the clarity at the end of that tunnel. But I think one of the interesting challenges MSPs go through is a bit of that clarity on how to get from point A to point B, because when you're in the thick of it and you're running a primarily reactive business, it's tough to see or have the patience to make an action, take an action and wait for the results. So there's an expression I use all the time, which is impatience with action, patience with results. But I know that you were always just very, very north star driven on this.

Yeah, probably overly pragmatic, right? I think Paul Dippel has probably in the friendliest way he could say, he's a very pragmatic guy, Chris. And that was because I was willing to make some pretty painful decisions. And one of them was, I think he's referenced it in multiple speaking engagements that I've seen where he says, "Oh, there's this guy and, you know, he had— we did analysis of the quartile of his clients and the ones that are in the bottom that didn't want to move and he just, like, fired them all one day." And then he's like, "That is awesome, but, you know, that takes some courage and probably I'm a little bit less patient." You know, there's probably a middle ground. That I might do differently today than I did then. But, you know, we did those decisions. We did it on, you know, talk, everybody talks about standardization. I think a lot of those concepts are now more prevalent and more understood and more executed, I guess. But we, you know, we had the typical thing with 17 different backup vendors. And, you know, I go to a service leadership meeting, leave that meeting, come back and say, like I'm ordering 200 backup units and I don't care if I have to pay for it, just like delete all this nonsense and let's just go deploy this at our own expense. And so I think some of those bigger moves allowed us to free up capacity. I think there's a lot of that that we do, and this has nothing to do with MSP. This is just in our regular lives where we, you know, it's fall, the trees, are shedding their leaves. And so we get home and then we like sweep the leaves off the driveway only to come back tomorrow and it's the same scenario again. So, you know, if the solution is remove the tree, I think I was really leaning towards removing the trees and, or wait until the right time and do it all at once. So I think that there's a lot of that that is nuanced and difficult to, you know, know when to make the right big moves.

Well, there's an interesting value discussion as well, because for the clients or the trees you decided to keep, there was, um, I think you had a, a unique, um, way to show up for those clients in that, hey, yeah, we need your agreement to double, uh, and you would literally just place it like that in front of them, be like, hey, in order for us to stay in a relationship together, we need this agreement to be at, at this. And it was kind of this mindset of 'Assuming the close, and do you have any— let me know if you have any problems with that, period.' You know, moving on to the next email. And surprisingly, clients did not, you know, balk at it because I think sometimes they realize that they're in an advantageous position and they finally have been found out. And then, you know, they don't want to make us think about it. But other times, there's maybe a few of those clients had something to say. But what was your experience sort of making that mindset transition?

Yeah, I think what I would be, I would probably thank gaining a higher understanding of financials to the success of that and sort of understanding those levers. So, you know, we had these bottom quartile clients, not profitable, you know, and we break that down into financial metrics. And so like the gross revenue and the gross margins just didn't, didn't work out, there were too much labor required to service that customer. So the way that we got success with those was building a model that we could present that was super transparent. And by the way, we didn't present those to the customers that were super high margin, but the ones that were super low margin, we would take this snapshot, show them like this is the top line, This is the breakdown. Like, you know, we made an estimate on what it would cost to support this based on, you know, you know, figure in the air, whatever technique, or some spreadsheet that punched out an MRR number. And it turns out we were wrong. And here's, here's why we're wrong. Look, look at this. And we would literally expose in that scenario, which we normally wouldn't in managed services, like the exact time and cost of the resources and everything. And they would just look at this and go, That makes sense. Like, so we either have to raise the agreement and, um, by itself, or we can raise the agreement and fix it and then lower it later. And, and just getting on the same page with clients that we can charge less, but we need to get this environment to a point where, uh, we can't— we can't, because at this point it is what it is. You haven't pulled the trigger. And so here's the new price.

Right. Well, and then that's all fine and great until you decide to do a merger or integration with another MSP that's exactly the same size, suddenly doubling your revenue. I believe this was early 2011. And, uh, and so that comes with its own set of challenges because, you know, the other MSP may not be conducting business the same way, uh, and there's a lot of learning to happen, you know, to be had there.

Yeah, I mean, we did— I mean, over the years, I think I've probably been involved in, um, 25 to 30 maybe, maybe more M&A transactions, probably at least 15 of those in the MSP space. I know there's people that have done a lot more, small ones, medium ones, and big ones. The one, you know, I think you're thinking of was sort of when effectively we took the company from around 35, 40 employees to 80 employees overnight by merging with HIT Business Solutions out of Edmonton back back in those days. And we had built up similar size businesses that, you know, financially kind of looked similar as far as revenue, number of customers, number of staff, but, and sort of built out this merger plan, which was like, it looks so amazing on paper. And plus we're gonna have 2 locations now, which is just awesome. And then the reality being, you know, I think in the 3 years following that, merger probably churned out like all the customers in one location, less, you know, a handful, and churned out many of the staff in both locations and had to rebuild all that. So while it did, it allowed us to kind of leap over a stage, like get us from, you know, from $5 to $10 million or in that range more quickly. It was, you know, this gray hair up here is largely in part to transactions like that where, you know, you're shedding clients, shedding staff, you know, at the expense of making progress, of course. So, yeah, I'm still a strong believer in M&A. I think we've learned a lot over the years now of, and in terms of slowing it down. And if I were to do that deal again, I think we could have been much more successful just by, just relax. You got the deal done. These businesses were running separately up until now. So, you know, let's not rush it and lob all calls from both cities into one call center where half the customers have no idea, they're talking to someone who has no idea what's going on there. So again, some of those things led to some of the products that IT Glue, for example, and launching that, that was sort of one of the ways we realized we need to, when someone calls in, they need to be able to get a consistent experience. And so, yeah, technology, there were technology challenges as well as people challenges as well as client challenges.

Yeah, some of the aggregators in the industry are seemingly finding this out. New Charter is, I think, a good example where a lot of their MO is to just leave MSPs to run on their own immediately after the acquisition. And that's kind of part of the, the whole strategy is leave that branding, that go-to-market motion that they have alone and focus on integrating or synergizing some of the back-of-house things where there are much more effective synergies to be had, whether it's accounting, finance, sales and marketing, that kind of thing. But it seems like the service component is often left as a last thing to be reviewed in that scenario. And of course, that's where everything falls down. If your service house is not in order, you can't even grow the share wallet with your existing customers.

Yeah, exactly.

Well, you mentioned IT Glue and you were pretty active still in fully managed at the time that you kicked off IT Glue. And ironically, we had sort of a bit of a parallel thing going because I had started MonkeyBox a year prior, my own documentation thing. That was more of a side project for me. I had branched off from Fully Managed and started my own thing again and immediately hit the pain point of sharing documentation or information with another colleague that joined the business in 2013. And so I started MonkeyBox, and that's later how we came to be together at IT Glue. But tell me a bit of that early IT Glue story. Mainly, I'm interested in hearing a bit of that educational phase because it sounds like documentation was really fresh or new to the industry at the time. Like, nobody really factored it into a critical part of the stack. If I recall.

Yeah, it's— if you think back now, it is super strange to think of that. Like, we've grown up understanding that the PSA is the heart of the business, and if it's not in there, didn't happen, and all these things. And somehow along the way, nobody contextualized like the need for very organized documentation. And, you know, the IT Glue story was, and I've seen this, and I saw this over the years, a lot of people had built homegrown ways of achieving this, whether that was, you know, a collection of documents or whether that was, you know, OneNote or whether that was spreadsheet.

Spreadsheet, literally, yeah.

But people had solutions for this, but no one had really, for whatever reason, conceived that this might make sense as an app. And then, you know, fast forward to now and it's pretty much like a standard item. If you're starting an MSP today, you're gonna buy that. So I think the, like, if I think to why I did it, I mean, I think we'd invested at that point, we had an old system called Folio that you've probably experienced in depth for a long time. And that was, a homegrown, like, buildup of things that needed to exist on top of the PSA, and a big part of that was documentation. And so at a certain point, that, again, it was out being in the industry, sitting in these boardrooms with other MSP leaders, and at some point this thing comes up and I would share my screen I would show this thing and like without fail, everyone would say, what is this thing? Like, how are you doing that? And so that, you know, from MSP to software business, that's where it began. I was fortunate enough at that point to have built a business that didn't really require me day to day. And, you know, we had the capital to invest. That was that. And since, probably since that day, I haven't really been actively involved in MSPs other than at an advisory or board level.

Well, yeah, I think the— well, there's so many topics that we had talked about, and you keep sort of dropping the hints on some of these things that it's tough not to want to jump around. But, you know, the board level, I wanted to make the comment earlier on the metrics of the big goals, the BHAG. In SaaS, this is known as the board number and the executive leadership team numbers. Sometimes those are a little bit different for a reason. You know, you want to present a reasonable, attainable number to the board. You want to shoot for the moon and— or shoot for the stars and land on the moon, uh, in other scenarios. And I think those are different perspectives. Like, when you start moving, transitioning from being an operator of whether it's fully managed or IT glue in the early days to start being a little bit more of that advisor or strategic investor, now getting into different products and solutions. Tell me a bit about that transition because not everybody can sort of make that shift between, you know, the Horizon One stuff and the Horizon Three stuff.

Yeah, I think first and foremost, it's pretty accurate to say the grass is always greener. I talked to a lot of people that, you know, are considering selling their business. I talked to a lot of people that have sold their business and then any outcome from there, like they loved it, they hated it. Somewhere in between. And so I think for entrepreneurs to be inspired, like at least my experience so far is that there's something always drawing you back in. And there's a caveat though, and I've learned this over the more recent years is working with, as you work with more professional more seasoned teams, it's more satisfying to be an advisor or a board member because you really feel like you're stepping in, you're seeing something that they missed because they're inside the bottle and can't read the label and come back a quarter later and that's like a foregone conclusion, it's solved and we're moving forward. And so I think that it's pretty rewarding to see that progress being made. But on the flip side, you can see things where there's not progress being made. And you're like, if I just was to just jump right in there, I could totally solve that item. And so that's, you know, depending on the relationship. And as you know, still participating in pretty much anywhere and everywhere in Scalepad as an example, just because, you know, it's not every day. But it could be once a month or it could be once a week where I can jump in and provide more tactical guidance in a certain area. So I think it's a difficult balance. I met with somebody yesterday, you know, who's had a tremendous career and being even further insulated. So having people that, you know, you're running a fund and then you have people in your fund and those those people are the board members. And, you know, he made the comment that like, I hate it. It's like, now I feel like I'm just like bored. And it's not a financial thing. You know, none of these people are hungry for cash. Money's always nice, but this is more about like what, you know, I can only play so much golf or tennis or, you know, watch Netflix. And what gets me excited and jazzed up. So like I did yesterday a meeting with the sales leadership at Scalepad. It was like probably the best meeting I've had in 6 months just because it was just high impact, no nonsense, no sugarcoating, and I enjoy that. But I know I can walk away and now I've left a tornado of 500 things that need to be done. So I'm happy I don't have to go do all that, but also loving, you know, hearing all the feedback and then being able to say these things, this is how we should do it.

Yeah, it's interesting. I think, you know, the, I guess the workings, the inner workings of a deal, even as you start to remove yourself from the day-to-day, you start to see things with a different lens. And then, but I also hear some of the investors that make the transition from having been an operator kind of, I guess, reiterate how much they enjoyed being part of the roll-up-your-sleeves kind of part of building a business, and they find themselves pulled back into that style of engagement. And I was curious, you know, if you still enjoy some of that rolling up your sleeves, if you kind of have made the transition to the the true investor?

Yeah, I enjoy— I'm not sure, like, if it's enjoy or maybe it is enjoy. I think so. I think in a limited capacity, I do enjoy it. I think what, you know, like, this is totally an aside, but what I love about, like, say, a 100 or 200 person company versus like a you know, 10 or 20 person company is that you do have generally people that can get the job done and it doesn't require, oh, you know, we need, we need some graphics, we need a deck done and it's just done. Uh, as opposed to like copy pasting and Google searching images and dropping them into a deck. So like that level of, you know, I, I'm not thriving in, in that environment. It's something, you know, probably we can all do, but I enjoy being able to just set the objectives, handle objections, kind of take a big goal and make it bite-sized and understand how are we gonna achieve that, whether that's, you know, NCA, cross-sell, upsell, churn, contraction, all these types of SaaS or MRR metrics that, you know, I feel like you can spend days on one of them.

And well, and yeah, even that framework that you're describing of, you know, taking some— something that's a really large goal or objective and being able to break it out into smaller things, I feel like is, is actually, you know, from a framework of understanding these things at larger scales that, uh, maybe small MSP operators don't get a chance to experience early on in their careers because, um, you're kind of just learning by, by error, um, and doing some of your own things. But You know, I imagine some of the stuff you saw at F5 as a sales engineer must have sort of, you know, planted seeds of some of that, you know, big enterprise scale type of motions for some of these things down the line.

Yeah, you know what they did well, the discipline that exists in a tech company of that scale was something that, you know, you can take a page out of that book. They're selling to enterprises, they're selling this high-end load balancing gear, they're laser-focused on, in this case, we had to fly everywhere. There was no Zoom happening back in those days. It was like, I'm in Germany at Deutsche Bank and we're with the CTO or CIO and we're saying, you need to buy this stuff. And just having, like a very consistent sales methodology, you know, things that we still now do in SaaS with like inside sales, outside sales, sales engineer, and how that meeting flowed, how the account executive presents the company, how the sales engineer presents the solution, the key value points always being hit and literally like being monitored. Like you didn't talk about scalability, you didn't talk about performance, you didn't talk about, risk. And I think there's something to be learned. Like, we, we often don't do a great job of that in SaaS, and we often don't do a great— we definitely don't often do a great job of that in, in the MSP space. Like, there's plenty of guys out there consulting, um, like our friend Chris Weiser on, you know, building a repeatable sales process. Gary Pica was all about this. Like, if you don't have that dialed, you're never going to have a predictable sales funnel. And if you, you know, and I would say as important as delivering fantastic service is doing that if your goal is to grow. And I know for you, Luis, like you didn't, that wasn't always the goal. Like you're like, this is a great business. It's relatively chill. It's very high margin. And so maybe that's the objective is not to make $10 million a year in profit. Maybe the objective is I'm happy with one. And that's awesome. And I'm sure you and I have talked to many of these MSPs where that is the case. So it's kind of funny, like when we talk about, you know, what is scaling? What does scaling mean? It doesn't always mean, you know, become a 500-person MSP. Yeah, it might be like scale my lifestyle, or scale my profit, or scale the experience that customers have. So I think that's, you know, again, repeatable process though is what drives all of that.

Sure.

And yeah.

The hindsight for me on that, by the way, is I think there is certainly a bias for action on the consistency of the process of deploying those repeatable processes that was always difficult for me because I was definitely more leaning into the side of service and customer satisfaction and not so much on the side of, you know, this big nut of a sales process that I wanted to build. That's never, you know, been my motivation, so to speak. But I do meet MSPs here and there that kind of struggle wanting to get to the part of a repeatable process, but just not sort of finding the, I guess, the techniques or the patience for the long tail of results that is required when you make those shifts. And so I'm curious to get your insight on things that you implemented in the business that just took a long time to, you know, pay dividends or results that you just knew that was the right thing to do and you had to stick with it? Because I think a lot of people lose faith during those tribulations, especially in the sales and marketing side of things.

Yeah, I mean, for me, marketing was a little bit— I mean, I don't know if you have found different, but I found marketing for MSPs to be fairly challenging back when I was doing it. I didn't find, like, I mean, I felt like there's a list out there and there's all the businesses and we should just call them. I felt like it was more outbound sales and, you know, closing reps than it would've been, you know, we're gonna get a massive amount of inbound leads. Like we would be happy with 1 or 2 customers in a month. And even when we were getting, bigger. So it wasn't like SaaS where you're like, I need, I wanna get like 200, 300 customers in a month. We're addressing a single city or two multiple cities, but you know, it's just not that much volume. The things that I think we double-clicked on was, as far as a repeatable process was literally just as simple as the sales pitch and sales methodology. So like, again, this is maybe dated stuff, but we had, we had to have a beautiful office. That was all, you probably remember that. We always had a really nice office that showed well. We always required that a prospect come to our office for a presentation. And when they got there, we had a clearly defined tour and steps that would be run through. And then when we got to the end, the presentation, that we would do was dialed and it was always, you know, the same, same deck that we built. I don't even know if like a lot of, like you probably didn't use a lot of decks, right? That wouldn't have been the mindset. It's more consultative. Like, what do you need? What do I need? And we just did that. We ran it like it was a product. And I think that was one of the things that, you know, took time to build, but created a repeatable thing that we could actually now hire people to run that process that weren't me. Weren't the senior executives. And so I think that's, you know, I see it all the time in the community, but, you know, how do I hire my first sales guy? Well, you probably can't if you don't have a process defined that he's going to run. So you better figure that one out first and then you can delegate later.

And that comes with only with time and experience. You know, I certainly didn't have a sales deck that I used in talking to prospects. And you're right, it was 100% consultative. But when we had to sort of extend the process to my first business partner, the second business partner, suddenly a deck made a lot of sense. But also, I think it was part of the evolution of the MSP gaining some understanding of its own values, of its own sort of go-to-market, what are our strengths, you know, the sentences that we wanted the market to be saying about us, like what do we want customers to feel emotionally, you know, when dealing with us in that early prospect stage. But our mutual friend Ted Garner from IT Weapons, I remember going out to Brantford, Ontario to visit him one time. And you know, that whole idea of bringing a prospect to the office, his process was even, you know, 100 steps above that because they had like a pretend office inside their big office where they would walk through with the prospect, disconnect a printer cable, and there'd be a phone call that he would get from a technician that the printer just went offline or something like that. So, it's clearly designed, you know, for the shock and awe of that, you know, very specific sales process, which obviously worked. IT Weapons grew massively and then got sold to Konica Minolta and now they're, you know, just a juggernaut of a business. But, you know, there's so much to be learned from just being repeatable there.

Yeah, I would say that's definitely a characteristic of the companies that have emerged as sort of leaders or most profitable or biggest all have that in common in one way or another. There's, you know, some large MSPs that I had met with. For example, we had, we had launched IT Glue. And then, you know, I can't remember which one it was. Can't remember the name. So forgive me on that. But essentially, he goes, this is great, this IT Glue thing you built, but let me show you this. And they were, they were so large that they had basically built something similar to IT Glue in Salesforce. And, you know, they're paying $100 a user, we're charging $39. So like, there's like, and like, probably millions of dollars of R&D into that, that Salesforce environment. I said, well, then, you know, I think they went on to be probably one of the big 5 MSPs. And so like, they understood that, that it's, it's how dialed can you be? Was going to ultimately make you, you know, one of the biggest, greatest MSPs.

Yeah. Well, one of the things that I think factors into how dialed you can end up being is a bit of this idea. It's one of the criticisms, as I call them, of building a business by design rather than by default. And by the way, you dropped another criticism earlier that I didn't have on my list, which was, you know, you're inside the bottle so you can't read the label.

Oh yeah, I forgot about that.

I put that one down. Uh, but tell me a little bit about your idea behind this, you know, by design rather than by default, because I think there's— this comes with stages too, and I think you start doing certain things a certain way, but, um, maybe there's a point where you pivot and he's like, we're not going to do any of this until we've designed this entire thing. And in my experience, a lot of that started with org chart planning, for example.

Yeah, that— so the other thing that goes, that's the opposite of like that you can make a mistake of, and I'm not going to name any names, but the the antithesis to by design rather than by default is to over-design and never execute. So like, you know, we've got scientists working on Miro and it takes 17 years to figure out what, like, what do we want to execute? So that, you know, there's definitely a happy medium. But when I use that phrase, it's usually in the context of like, we— it's very— it's actually very similar to inside the bottle, can't read the label. Like, we are in a, in a current state, and we have never zoomed back out and said, like, is this— are we doing this in a way that is part of the plan, or is this just the way we've always done it? And I think, you know, every business, uh, struggles with this. Like, it's just the way we've always done it, so we're going to continue doing it. That way. So, I think it's one of those things to say like sometimes you have to zoom out, create a plan, and then zoom back in and execute the plan. What was the example you're mentioning related to that?

Just the org chart stuff.

Oh, yeah.

You would actually, you know, and I remember a little anecdote when you were doing some org chart planning back at Fully Managed and my role was a little bit fluid. I remember you dropping a little box in the top right corner that just said Vampire. And that was my, that was my role at the time. But, but you were very intentional about org chart planning.

Yeah, it's actually to this day still, we're still doing it. And, and so, you know, we did it, you know, from 10 to 25 employees. What, you know, basically saying we're 25 today, and if we do what we think we're going to do over the next year and a half, we'll be, we'll be 50. Um, and, and kind of knowing that having that org chart already planned would help you shape, like, just even not even like heavy planning, just literally having a picture of it as you continue to hire and as you think about promoting people and as you think about maybe people that you may want to free up their future. That's another criticism, by the way. That you can see this and I found it affected the way that you would hire, the way that you would, you're kind of building for the next chapter, the next iteration, instead of like tomorrow.

Yeah.

So it's, it's a difference with like zooming to a year out or 2 years out. And, and, and actually this is quite a tactical exercise. If, if we were 100 employees instead of what, you know, 50, what would this look like? And you might find, oh, there might be a different way we might structure this. And so you can kind of work your way towards that. ScalePad still, you know, as 200 50 or whatever employees we are now, we're doing it at 500 and with full expectation that that will be the next step. And so, it allows us to see where we might have gaps or where we might want to gas up certain areas as we scale. So, things like RevOps and, you know, looking at the marketing team, sales team, finance team, and recognizing that those teams might need different things at double the size. And so, I've always found that's like a super, super helpful exercise and for the whole executive team to get behind.

And I think there is even at the wildly different numbers of, you know, a SaaS company with 250 to an average MSP of 7 people, there's still an interesting parallel to just not waiting too long to fill the gaps of some of your org chart planning because in the case of MSPs, you know, the first thing that suffers, of of course, is service. Or if you are going out and doing some kind of sales and marketing effort and succeeding, which is, you know, the best outcome potentially, you're going to overflow your capacity for onboarding your service desk team. And a lot of those things, by the way, are also siloed, as you know. You know, the onboarding team is not necessarily the service desk team as you grow the business, of course.

Yeah.

And so, so much opportunity to do some, some strategic or planning and get ahead of some of those challenges with the crunch? Because it's not only your new customer, existing customers suffering, but also your staff getting crunched to no end through that compression.

Yeah, it's one of the Achilles heel of the MSP industry, right? It is like, and something I think the only solution to is cash and investing and being able to hire in advance of the needs. And I feel like if you're thinking customer first, client-centric, you really should never be understaffed. You should always be slightly overstaffed. And I know that's just typically not the reality because people are running hot in these businesses. If, I don't remember what the percentage was, but a significant, maybe close to 50% of MSPs really don't make money. So then to say, well, let's burn money more. It's hard to do at the— but like at the expense of customer experience. So by burning some cash, do I then have greater retention? And, you know, when does that pay dividends? Is that in a year or is that 3 years? And I think that's something that we don't do often in MSPs. I think with private equity coming in, there's probably a bit more of that thoughtful planning that can happen. But I mean, if I were doing, you know, if I were starting an MSP today, I would expect to burn money for a while in order to deliver like a magical experience. And so, you know, thinking about that, maybe it is more difficult. You have to fake it till you make it, I guess. And you're gonna have to put people under pressure and they're gonna be stressed and you're gonna have employees turn out. But if that's the only way you can do it, then that's the only way you can do it. But You know, certainly when you have a little bit more tolerance for negative cash flow, you can have a more inspirational business at the expense of like, you know, not making any money.

Yeah, well, I think this is one of those ebbs and flows of when you're an owner-operator and you're used to taking a draw of a certain amount every month and suddenly you have to reinvest in the business and sacrifice, you know, that one monthly cash out. You start to question whether that's the kind of business you want to be in or not. And I think it's sort of, you meet the, you're between the rock and a hard spot because either you're that type or you're not kind of thing. But it strikes me as maybe insightful to PE firms or any kind of private equity that comes in to support an MSP deal. And there's so many different structures. Some of them come in and be like, hey, we want to help you grow your business because we see execution capability here in your leaders, in their leadership. Or other times, hey, we want to just roll you up or, you know, tuck you into this other MSP. But, but it feels like there's a rite of passage, I guess, is the point I wanted to make, where if you haven't understood some of the nuts and bolts of the business or tried to go through some of the experience, you may not even be a candidate for those conversations. And, and I'm sure, you know, you probably went through a lot of transitions and pivots during your time that gave you a bit of that insight as well. But curious on your thoughts of your journey through that?

Yeah, you know, I think we talked a little bit about the sales aspect. I think that's something that would be, if I'm an investor, would be pretty exciting to see that there is a repeatable and predictable ability to acquire new customers. I think we all know that pricing has gone through a ton of ups and downs over the years. Like, you got people saying it's $100 a user, and you've got guys saying it's $500 a user. And, uh, you know, like, I think a lot of people are left in a position that, that's, uh, challenging. I think it's, it's great to say $500, but if you can't close that, then, you know, where do we go from there? Um, you know, profitability Uh, that, that, that's a huge differentiator. I think there's more and more, I, I believe that the, the, the top quartile of MSPs are, are creating greater profits than they have in the past. Um, if you haven't figured that out yet, at least be able to model, like to be able to model that we have figured it out on the more recent customers. Uh, you know, that would be something I would look for is like, yeah, I get the, I get the legacy. Ones. And so, you know, in an investor mindset, I'd say, well, let's invest and clean those up. Looks like you've got things figured out on new, you know, you figured out what you were doing wrong before. Now you're selling at $200 a seat, you were selling at $100 a seat. So we either turn those out or upgrade them to $200 and we move on. So, you know, I think a lot of the other things that you can't learn without going through it. Financial acumen, um, I think has come way up. Maybe you would agree or disagree with that, but I feel, I feel like people are having a much stronger command of, uh, the metrics that, that drive success— gross margin, um, SG&A, uh, churn.

Yeah, it's a process for sure, you know, because I think there's still sort of this, this point of entry into the MSP industry that is still you know, an owner-operated business doing the thing on their own and trying to, you know, scale it from there. Somebody jumping out of a corporate job and doing a side hustle. And so I feel like those things are not necessarily a given, but you're right, there is, I think, a lot more of a conversation happening around these things. You know, just the M&A topic is incredible to see, very, very pervasive at all the conferences, at all the events. Every big aggregator is putting on these things to try and educate their market because one of the things they're trying to do is get MSPs to behave like companies that want to be acquired so that they have decent financials and numbers to be looked at down the road, which is an interesting position to be in, by the way, because I think, you know, there's this expression I heard a little while back: you either, you know, build your business for a sale or you die at your desk. And, uh, and it feels like some MSPs just never make that transition and they just want to do their thing and be a lifestyle business. And I think that's fine if you call it that. But yeah, your thoughts?

Yeah, definitely. I mean, I think that there's maybe a strawman argument going on there. Like the lifestyle business could be better if you just worked for a great company or like maybe you work for a SaaS company. Like your lifestyle is probably better than if you run or own an MSP. Like you could probably—

maybe you identify with that.

Yeah, you identify with that because it's like way way harder to, you know, I don't know what's charming about the idea of like not working for the man. But like, if you make less money, and you work harder, and you still can't take vacations, then what exactly is exciting about running your own business?

Well, I think there's a spectrum of that. I was just having this conversation the other day, you know, you might have had that attitude and mindset when you were in your mid-20s and you're just being a rebel and you want to stick it to the man and you want to go do your own thing. But, you know, the tides change by the time you're in your mid-40s and need to start thinking a little bit differently. But I think we dig our heels into some of these prideful mindsets or things that we've been communicating all our lives, and suddenly we can't back out of them. And so it's interesting, you know, to see people actually go through the transition and change their mindset and entirely be like, I'm a newborn person here because I was able to reassess. It's like whether you think owning a house is an investment or not. Like, there's one camp or the other camp, and I think there's many things like that in the MSP industry as well.

Yeah, less of an investment at these interest rates, potentially. Yeah. But yeah, no, I don't really— yeah, I think if I were starting an MSP today, I would definitely have the mindset of like, I'm setting this up to sell. And so I would want the margin profile. I would want the service level. The pricing would be high. That'd be the only way that I would do it. Not to be scrambling or running around like a chicken with its head cut off.

Yeah. Well, I think I love this idea of transplanting mental models from one way of thinking to another way or one industry to another industry. And I think now that the hindsight is always 20/20, you could perhaps think of some of the SaaS execution models that you have uncovered throughout your journey in SaaS and be like, you know, if we had only done that at the MSP, I think the thinking and the logic would have been a lot more different or just empowering at the time. And I'm curious if there's any things that you feel like you can impart as perhaps insight from the SaaS models that you now know so well to how you run an MSP?

Yeah, so I mean, it's, it's crazy how similar, similar but yet very different they are. So recurring revenue, yes. What cost of goods to deliver that recurring revenue, very different. So like, obviously, as an MSP, your cost of goods is whatever labor goes into the contract. As a software company, it's pretty much, you know, your Amazon or Google or Microsoft cloud costs, plus, you know, what it took to build that asset. And so, well, like, but then once you've got that running, some of the things that we do like on a really detailed basis in SaaS, like gross retention, net retention, products per account, revenue per account, these metrics that I feel are maybe undercooked often, and in hindsight were undercooked by myself in the early days. Didn't really thinking, you know, people say like, you should cross-sell more products or get, you know, increase the stack so your customers are consuming more of your products. In SaaS, it's just like a totally understood, you know, upsell, cross-sell. but it feels like in MSPs we don't really think that way. Like, like upsell. And by the way, that was one that's super easy for MSPs that often leave a lot of money on the table. In fact, there's a bunch of software solutions that have come out just to, just to help you bill correctly as an example. Uh, but that's upsell. Like they're paying you for 10 people and, uh, and they have 20 now, but you didn't change the price. Like, like that, that should be like in SaaS. Like if you add more licenses, you do price changes. But so it was like some of those things are just so undercooked. MSPs. You know, we talk about stack alignment in MSPs. Really, really all that is, is, is cross-sell. It's products that you have. There's 10 products you have. This customer consumes 2 of them. Yeah.

And by the way, that's where the camps kind of divide a bit of the, of the audience too, because you have, you know, this bronze, silver, gold plan camp, and then you also have the, you know, every product to every customer camp where You know, that's kind of the thing that you hear Paul Dippel talking about— reduce your operational complexity, every customer gets everything. Why would you offer a less secure, you know, plan to your customers when this is what the industry and the current, you know, situation of cybersecurity requires and stuff like that? So I think people are still kind of like, well, this just works okay for us, and so we're going to continue doing this way. And despite some of the, I guess, proof that is in the industry showing otherwise, but Yeah, yeah.

But if it's, yeah, like whatever it is, you've got a security training service and you've got 100 customers and only 2 of them subscribe to that. That's white space. And, and, you know, I think there's a kind of a lack of effort in what we would in SaaS, we would call it account management. You know, in, in MSP, you might call that VCIO or account management. And Like, I know this is probably preaching to the choir, but like really staff that up. Like you spend a ton of money to land a logo and then how much effort do you spend to curate and enhance that logo and get them on the full stack and get them thrilled and have a detailed strategy? So, I mean, you didn't ask me this, but as far as what's the one thing, you know, what's the one undercooked aspect of MSP today? It's the elephant in the room. Is providing dialed strategy, you know, like, whatever, VCIO, QBR, account management, customer experience, or, you know, customer success. These things are not being done except by like maybe the top 3-4% of MSPs, and even those are not doing it in a way that we would consider dialed in many cases. So Yeah, that's, that's a huge area. You know, like another difference, a SaaS company has thousands and thousands, 10,000, 100,000, million customers, you know, you can build a very large MSP with 100 to 500 customers. And so it's not as hard to manage 100 or accounts as it is to manage like a million. So like there's that opportunity, that human touch that I think maybe got lost along the way with the depersonalization of like service desk and just like ticket crushing. So yeah, I mean, it's a complex problem to solve, but Paul Dibble will talk about that, that the way you become best in class is delivering a consistent strategic service for your clients. Whatever, trusted advisor, but like execute on that, not just like I'm a trusted advisor. Like, what's your trusted advisor process look like?

Yeah, well, and even that, you know, people are now allergic to some of the terminology because stuff is overused and trusted advisor is one of the things people are like, yuck. But, but, but it is just really about the process. And we were having this conversation about the sales and marketing programs where people often complain, oh, you know, the look of the materials, I would never put that in front of my customers. But, but the people that are succeeding are just finding a path to execution through those programs. And, uh, and so there's something to be said about just applying yourself to the path of execution. So that's super insightful. Well, you know, you mentioned the, the thought around the org chart and the 500-person company and starting to think about scale pattern designing for that. And I'm curious, sort of, what are some of those levers that you feel are important to focus on as you literally are thinking about the doubling in size of the company, just from a purely 30,000-foot view?

Yeah, I mean, I think 30,000-foot view is— I mean, it comes down to people, really, at the end of the day, right? So having the people that can it can rise, you know, does a rising tide lift all boats or do some boats stay behind? And I think that's the toughest thing that can happen between 100 to 250 to 500 people. It doesn't mean that people are left behind. Maybe it's just a new boat that needs to be added that can deal with the bigger waves, I guess, carry that metaphor forward. You know, I think we've learned that, you know, you never regret making a hire that's a little bit above your pay grade. Not so far up, but a little bit up because it's very difficult for people to level up. It's very much easier for someone to say, okay, I get to roll my hands up and get a little dirtier than I'm used to here than the other way around where like, I just don't know what I'm looking at and this is crazy. I'm stressed. So I think that's a big one, hiring a level up. Again, the org chart planning at that size, would I adjust, how would I adjust, like, how would the management layer work? Would I have a director level? Would I have senior director, VP? And kind of mapping that out so that there's some sort of design to how we do that. You know, an example recently would be like, by default would be, oh, it turns out we have a sales manager with 16 direct reports or something like that. That is where we landed. And like, did we sort of back into that or was like, what happened here? And so like those types of like obvious things that you will, that will pop up when you do this type of planning. And I think the probably the biggest one and really applicable as you get to the 200-employee and above range is that the, you know, people talk about purpose, autonomy, mastery, you know, being the, what is it, the hierarchy of Maslow's hierarchy of needs. But autonomy and trust, you know, I use this example, I think, and maybe you were there for this one, Elise, but, you know, if you were to go to SpaceX and you go to their, you know, their rocket building facility, you know, these are propeller heads, PhDs, engineers, you know, how much cross-functional do we need that team working with marketing? And how much in sales, the guy who goes and deploys this Starlink dish for, you know, at a residential, like, so sort of letting people, getting to that stage as you get, especially as you get bigger, where it's like, people are the CEOs of those divisions. They don't need, we don't really need to know what's going on there. They're going to handle their business. And so I think that's a big thing. I think it applies at a smaller size too. You know, if you're micromanaging, around someone, then probably you don't have the right person there. Best to say, we agree on the objectives, go do it, and away we go. So that autonomy thing is huge. And I know it's like, it's inspiring for people to feel like they truly have the ability to make mistakes. Yeah.

It's interesting though that the, I think the knee-jerk reaction to micromanagement is probably under-management. Which is also equally destructive.

That's often, you know, that's another one of those perfect offsets. Like people say, that's my— this is kind of a modern business challenge, right? With everything that's going on in the world and, you know, sensitivities that a lot of people seem to have. But, yeah, like confusing micromanagement with under-management. Like, oh, you're micromanaging me. Well, no, I'm actually just managing you. Oh, okay. Like, and that small nuance could be like, that's not micromanagement. Like, people do— there is value to be had by having a relationship with a manager. And so I think whatever, for whatever reason, people have an adverse reaction to management now. Like, I should— I just know what I'm doing and I'm fine. And that's not quite the case. Like everybody needs a mentor along the way. And so, I'd love to get back to that. Like it's a push-pull. Like we need to be able to have management and not have it be considered micro.

I love that. My mind was literally traveling to other places thinking about some of the different ways that you can uncover opportunities for proper management that just are not happening. Especially in small growing MSPs. But man, I feel like we're going to need a part 2 of this. I don't want to keep everybody much longer today. Chris, this has been incredible. I think one of the things that I'm left with here is obviously there is so much opportunity to learn outside of your little echo chamber on things that can still impact your business, even if you think it doesn't. There was this— do you know Miles Fisher, the guy that did all the Tom Cruise deepfakes. He was interviewed by these YouTubers Colin and Samir, and I talk about this often because he gives this quote during the interview that is just so impactful. He said, you can increase the surface area of luck if you're aware of more than what immediately surrounds you. And I think to take, you know, your knowledge of MSP and then but go try and listen to people that are in the SaaS industry, in the medical industry, in whatever industry, and just understand their models and you're going to find all these interesting parallels that you can potentially apply or take ideas from. It's kind of this whole idea around peer groups, but peer groups, you know, tend to be also a bit of the same echo chamber at times. And so, thanks for giving us a few of those parallels. Super insightful. And I hope people learned something today. So, thanks again.

Thanks.

For everybody else, we're here at MSP Confidential every Friday at noon, unless we're not. Like next week, for example, we're at IT Nation and I have Brad Gross, the world's most famous MSP lawyer, coming on to do a chat. And we're trying to figure out to not conflict with his own IT Nation breakout schedule. But so we'll announce the time of the slot sometime next week. In the meantime, thanks, Chris. And thanks everybody for checking us out. And we'll see everybody soon.

Ciao. Thanks, Luis. Bye.