Episode 27: Why M&A is Still OK for MSPs

Read the Transcript

Erick and Rich discuss research from Sophos that suggests security vendor and tool consolidation are on the rise as well as the importance of keeping your messaging aligned with your target market as it evolves over time. Then they’re joined by Craig Fulton of Evergreen Services Group and Peter Melby of New Charter Technologies for a rare buy-side insider’s take on the M&A landscape for MSPs. And finally, one last thing: A story from Virginia about a lucky woman who beat odds even worse than hitting the lottery.

Discussed in this episode:

Cybersecurity Skills Shortage Is Ranked as the Biggest Risk to MSPs and Their Clients

To Rollup or Not to Rollup? That is the Question for MSPs

Fortune cookie numbers earn Va. woman $50,000 Powerball prize

Transcript:

Rich: [00:00:00] And three, two, one. 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 and manage services. My name is Rich Freeman. I am the Chief Content Officer and Channel Analyst at Channel Master, the organization responsible for this podcast.

I am joined this week, as I am every week, by your other co host, our Chief Strategist at Channel Master, Erick Simpson. Erick, do you notice anything different about me?

Erick: I do notice something different about you, Rich. You look different. You look like you’re much more relaxed and chill than than I might normally expect you to be with your amazingly busy schedule.

What’s going on?

Rich: Shrewdly observed, sir. We as our audience knows, we went dark for a week there. I am entirely to blame for that. I was on vacation spending the better part of a week on a beach in Greece, sipping cocktails and eating way too much in the evening. And yes, it was extremely relaxing and yeah, it’s good to know that that is visible here, but I am I’m super excited to be back and back at it,

Erick: Erick.

And we are super excited to have you back, Rich. Awesome. Welcome back. We’re back at it again, everybody.

Rich: All right. Thank you very much. Folks, just so you know, coming up on the show a little bit later, we speaking of super exciting things, we’ve got an interview coming up. With Craig Fulton of Evergreen Services Group, formerly of Connectwise, also Peter Melby, CEO of New Charter Technologies.

These are two extremely informed people on the topic of mergers and acquisitions for MSPs, and we’re going to have a really interesting conversation. But for now, let’s dive into our story of the week, and it comes to us from Sophos. As we are recording this, Erick, Sophos just published their 2024 MSP Perspectives Report.

It’s an annual look. At the the managed services marketplace from those folks, lots of interesting data in there, as you would expect. There was data about three particular trends going on in the MSP world that I wanted to call out here a little bit and just chat about with you, partly because some of these we’ve spoken about on the show before starting with vendor consolidation.

We have observed on this show based on data from IDC and from CompTIA that MSPs are looking to streamline, reduce the number of vendors that they work with, and there was some interesting data on that from SOPAs, 53 percent of MSPs already, so they’re reducing their vendor relationships, 53 percent already are working with one or two cybersecurity vendors, 83 percent are working with one to five.

So it’s obviously extremely rare for MSPs to be working with more than five cybersecurity vendors, and it’s going to get rarer still I think going forward another interesting data point closely related to the first one is around tool consolidation. So MSPs are reducing the number of vendor relationships that they’re managing, but they’re also looking to.

Consolidate their cybersecurity tools and not even just their cybersecurity tools, but just the tools that they rely on to serve customers. They’re looking to get more and more of those products from fewer and fewer vendors. For example even though Sophos is not in the RMM or PSA business, they asked MSPs how Are you with your RMM or PSA tool?

74 percent of MSPs who get their RMM software and their PSA software from the same supplier described themselves as very satisfied versus 43%. Of MSPs who are getting their RMM software on a standalone basis describe themselves as very satisfied. 40 percent of MSPs getting isolated PSA from a vendor.

Call themselves very satisfied. Clearly MSPs prefer to get both of those products from the same company. And there is a there’s more data in there that kind of points to the thinking behind results like that specifically in the realm of cybersecurity, when MSPs were asked to estimate how much time that they could save by consolidating all of their cybersecurity solutions onto a single platform,

Estimated that if they did that, it would save them significant time. From an efficiency standpoint, from a a satisfaction standpoint, a user satisfaction standpoint, MSPs are looking, again to consolidate tools [00:05:00] with more and more get more and more of their tools from fewer and fewer vendors.

Last but not least, and I found this kind of interesting Erick, they went out to MSPs and asked them to identify the both the MSPs and the MSPs clients. What are your biggest security related risks? And both the MSPs and their customers said number one on the list is a shortage of in house cyber security skills.

Which is interesting. Obviously there has been a skills gap in the managed services world for a long time. If you look at some of the data from CompTIA in recent months we can see that tech industry unemployment rate is actually going down a little bit. It’s getting a little bit easier for MSPs to hire.

But apparently it is still very difficult to hire specifically for cyber security, and I’m actually going to be writing a a blog post on my blog Channelholic about this. By the time people are listening to or watching this episode of the show, this will be out there. There is a massive skills gap, four million We need 4 million more people in cyber security than we have out there right now, and yet very relatively few, a very small percentage of cyber security professionals in the industry right now are women.

So it is interesting to, to see. That both MSPs and their customers identify a shortage of skills, lack of access to skilled security personnel as their single biggest risk, and yet there’s this giant pool of potential talent out there that’s being underutilized. We need to get more women into the industry.

So I threw a lot at you and at the audience there, Erick what kind of jumps out at you about any of of this data?

Erick: Holy cow, it’s so much, right? So much. So I’m trying to, I’m trying to compartmentalize each thing. So I was not surprised at the demonstration or the confirmation from the survey respondents that the MSP channel, this being a representative sample of the MSP channel are trying to reduce what I call Platform sprawl and vendor sprawl.

In fact, no, the majority of the work that I’ve been doing for a long time has been working with MSPs who look at their options in consolidating and reducing this platform sprawl. And of course, vendor sprawl and not for nothing rich, but I’ll say that, from a cybersecurity tool set. Perspective, we’ve talked about this on my show before as well.

Microsoft is definitely making inroads into creating and delivering cybersecurity focused services with their M365 and other add on licenses, very competitively priced. Some included with some of the existing licensing and some for just an additional small uplift for an additional license to give end users broader cybersecurity protection.

And so I’ve been really analyzing that and as a result have seen Microsoft making inroads and displacing other traditional cybersecurity vendors, in working with these MSPs. So I can definitely attest to that. But just in general, the other point, Rich, that. I find to be true more often than not is that MSPs, at a certain level of their maturity are all about helping, let me rephrase that.

All MSPs are all about helping their clients, but at a certain level, we may take on too much and just add it to our stack for instance, Oh, this is a great solution, it’s only a buck or two more. I’m just going to add it to my. Stack that i’m delivering to my existing clients and failing to charge for it or failing to you know in to Describe the value proposition and getting the clients to say yes.

I want that and more stuff, right? So there’s been that kind of impact on these MSPs thinking, Oh my goodness, I’ve got to control some of the sprawl, or either I’ve got to start charging more for it, or I’m looking at, all of these vendors and their solutions and what can I do to make different decisions that maybe there’s a, a vendor or two that, that can cover most of what my clients need rather than trying to go for the best of breed.

From each different vendor. Like I need the best penetration testing solution. So I’m going to go with this one. I need the best of this. I’m going to go with here. I think in that scenario, rich, what I would encourage MSPs to do is say look, you can have a good, better, best, portfolio of services where you do have the best, you have the luxury vehicle on the lot if a client wants to buy that.

And then you can charge for that. But for the majority of your folks. Maybe your standard stack that is, less [00:10:00] complex delivered through more consolidated platforms, leveraging less vendors makes more sense. And it doesn’t have to create such a big budget discussion when you go to market.

So that’s, those are the kinds of things that I was thinking about from that part of the analysis, rich. The other thing, that you really touched on is this, this dearth of. Of, of labor, these, and this number of, the gap between the opportunity for cybersecurity experts at MSPs the need and how many people we have that are ready to deliver those services keeps growing every year.

I remember, last year, the number was less than 4 million. And the year before that it was less than 3 million. So it keeps increasing. So we do have a big challenge and we do need. More folks and under representative folks, to join us. So I’m wondering, and I know that, you’ve talked before rich about, programs and things like that.

I think, CompTIA spearhead, some things like this. I think there are other vendors that spearhead. Programs to help accelerate the training and certification specifically for cybersecurity services and solutions to try to address this gap. I just don’t know if we can get there fast enough.

Rich: Yeah.

Which is a very very good question actually. And, again, that gap between the number of trained. Cyber security people we need and the number we have is at 4 million and you’re absolutely right. It, it hasn’t grown every year. But when it goes down, it doesn’t go down nearly enough for anyone to feel like, oh, this problem is going to be solved anytime soon.

So yeah, we, we. There are training and enablement programs out there. In addition to Comptia , there are other organizations that are trying to get people into the industry, get them the skills they need to fill those positions. But we also really just need to be casting the net.

wider and just working harder to pull people into this industry. And some of what I’ll be writing about in this blog post, I was hinting at and this I’m going to be writing specifically in the context of women, but it applies to men too, basically it’s helping people understand what’s involved in working in the cybersecurity industry.

I, there, there’s this image of somebody in a hoodie in a darkened basement somewhere typing obscure code and so on. And there’s a greater range of jobs in security than people realize. You don’t necessarily need to be technical to, to hold a lot of those jobs.

Some of these positions are very analytical and not very technical. We just need to create more awareness about that, work harder at that, and then yes, funnel people into into these training programs the other thing, just on the vendor consolidation, the tool consolidation, before we move on, I’ll just quickly point out, cause there are some lessons in there for MSPs and for vendors.

On the vendor consolidation side, to the extent that MSPs are working with fewer vendors they, MSPs need to keep in mind and vendors need to keep in mind. That means vendors need to have a more competitive offering for those MSPs. You’re going to be working harder. To attract and retain MSPs if they’re not maintaining relationships with as many companies as they, they did before.

So keep that in mind. It’s going to be a competitive landscape for you as a vendor. And keep that in mind as an MSP, you’ve got a little bit more leverage. To the extent that marketplace is competitive. And then on the tool side, this is maybe more for the vendors than the MSPs, but precisely because MSPs want more tools from fewer companies, you need to be thinking platform, not product, you need to be looking to dead, particularly in security, you need to be building out a wide ranging portfolio of tightly integrated solutions.

Thanks. So that you’re prepared to give MSPs what they want. Basically, which is that consolidated tool set for all the reasons you were talking about, Erick,

Erick: yeah, rich, and I will double down on the phrase you used tightly integrated, we see some vendors out there that are just making a bunch of these acquisitions and then rebranding everything and selling it as a bundle. We really want tight integration between these disparate platforms. If they’re being, acquired through purchasing other IP or companies. We want integration. We want single pane of glass. We want simplicity in analyzing and assessing everything without having to jump into a bunch of different windows.

We want. The ease of being able to invoice and bill our clients without having to do too many, backflips and somersaults, all that, and all that points to streamlining the experience for the technicians using the platforms and the MSPs that are investing in the platforms. And the ability to leverage that with reporting and adding value and not spending so much admin time and between what they call it in between time jumping from platform to platform or screen to screen [00:15:00] and then having to do a bunch of manual stuff to make it all seem like it’s a consolidated deliverable to our end user clients.

Rich: All right, let’s move on to your tip of the week for this episode Erick, and so clearly there are a lot of MSPs out there rethinking their vendor relationships and their tool stacks, but you’d like them to rethink maybe something else as well.

Erick: Yes, Rich, you are absolutely right. I want MSPs to rethink their target audience.

Is your target audience the same target audience from when you started your MSP practice? Or is it different? We know rich that, a lot has happened the last several years. We point a lot at, the pandemic and the way that everybody had to scramble, businesses, the MSPs that supported them, MSPs that found opportunity now where there was none before to do co managed IT because internal IT departments were caught kind of flat footed in supporting hybrid environments and security and all that.

And now. Is your target audience the same? Are they buying and investing in the same services and solutions? Are they in the same industries as you migrate to delivering more cybersecurity focus services, maybe compliance services. I got to believe rich that this has caused a shift in the target audience.

And I want everyone to think about. Being intentional about evaluating it. Am I, do I still want to attract a target audience that I was attracting five years ago? Or am I attracting a different target audience? And if so, maybe I’m doing that. Maybe I’ve agreed to do that, but have I, is that reflected now in my marketing, in my messaging, in my website, in my sales process, in my lead behinds?

And am I focusing more deliberately? On those target audiences, whether that is a vertical specific focus, or whether that is, a different geography or something else, or because I am now trying to fill that skills gap and opportunity by focusing more deliberately and leading with cybersecurity, which also forces me to rethink and recreate my entire messaging and website and social media and how I’m presenting myself.

And my organization to my prospects, rich.

Rich: One of the huge storylines pandemic and post pandemic has been the increased interest in managed services from larger businesses and the co managed IT opportunity and so on. There are a lot of MSPs out there that have adjusted their target audience specifically because, for those reasons but like you said, there are a whole bunch of different reasons basically why that the market various MSPs serve.

Has changed in recent years. And I think the key point that you’re calling attention to you there, that’s so important is making sure that your sales and your marketing and your messaging and your website reflects that a lot of what you’re doing day to day a lot of your processes, those have necessarily kept pace with.

You’re changing client base and what it takes to support those people, but it’s very easy to lose sight of the fact that the messaging, and the marketing programs and the marketing tactics you were using before that made perfect sense for whoever it was you were selling to previously, maybe doesn’t work for you anymore.

And so yeah, I I’m with you, Erick. I think it’s a smart thing. To, take a good hard look at who your target audience is now and periodically going forward. And just make sure that everything you are doing, sales and marketing and beyond is aligned with who you are supporting, selling and serving and supporting.

Erick: Yeah, rich. And one of the, one of the things that comes immediately to mind is. Your website, are you, is your content and copy written to attract that new or evolved or different or distinct target audience that you’re going after today? Are you optimizing for the keywords that these folks are searching?

Just simple things like that kind of get, get you thinking. So just get a checklist out and start thinking about everything that you need to review in order to make certain that The folks that are being attracted to you and you’re doing business with are actually the target audience that you want to serve.

Rich: Okay. We are going to take a quick break right now. When we come back as promised, we will be joined by Craig Fulton of Evergreen Services Group and Peter Mellaby of New Charter Technologies. These are two of the most informed people you could possibly hope to hear from about the current state of m and a and the managed services landscape.

And we will be getting into that with them in just a few moments. Stick around folks. We will be right back.[00:20:00]

All right, everybody, welcome back to part two of this episode of the MSP Chat podcast or Spotlight interview segment. And folks, Erick and I are super excited. We have got. Power panel for you here. We’re going to be talking about the merger and acquisition landscape in the world of managed services right now.

And we’ve got two people who know this about as well as anyone else in the industry out there. They are Peter Melby. He is the CEO of New Charter Technologies and Craig Fulton, who will be familiar to any ConnectWise partners out there in the audience. Former C level executive at that company for many years.

He is now an advisor at Evergreen Services Group. And we were just talking off the air. Erick and I are fortunate in that to the degree that Craig and Peter are sort of competitors looking out for, high quality MSPs. To purchase and bring on board. It’s a good thing that we are not in a crossfire era here.

If there are shots fired, we are safe from those, but not anticipating a whole lot of that. Greg let’s start with you for folks in the audience who Don’t know you. And certainly don’t know evergreen just to introduce yourself.

Craig: Yeah, I’m Craig Fulton. Like I said, long time ConnectWiser 30 years in tech now.

Did, I feel what is pretty common for a lot of. IT service owners out there. I was a tech had certifications and. At one point I thought I’ll try and do my own thing. And that’s when I met David Bellini and he had an MSP called ConnectWise in Tampa. And that’s how I got in there for two years.

I’ve worked at ConnectWise as a field engineer, network tech, and met Arnie, jumped to the software side, helped met a lot of IT service providers, helped transform into MSPs. And when my time was up with ConnectWise it just felt like the natural part of my journey was. Hey, those people that I helped is managed service providers.

Oh, let me help them with their next stage in their journey. And I met the folks from evergreen cause a friend of mine sold his business to them. So here I am now. And I just, spread the word about evergreen, what we do and going head to get against Peter as much as I can. Yeah,

Rich: I just at a quick, high level, what you guys do.

You, you are a private equity firm. You are acquiring MSPs, but a slightly different model in terms of what you do with those companies once you purchase them, correct?

Craig: Yeah. And this is great. Again, being with Peter and New Charter, our models are very similar. But I’ll just point out the differentiator.

We were a holding company at evergreen and, think Berkshire Hathaway, Warren Buffett we buy businesses and we hold them forever. We have no plans to ever sell a company. We’ve never sold a company. We think that’s, our unique advantage that gives us a longer runway on things.

But yeah, we buy MSPs. We operate in several industries, but MSPs being our biggest one we’ve gone global this year, we’re in North America , UK, ANZ, always looking for great MSPs out there. So

Rich: Peter, your turn tell folks a little bit about yourself and about new charter. Yeah. Craig, did they tell you I

was

Peter: coming?

Cause they didn’t tell me you were coming. They just showed up. I get down. No, I’m kidding. I love this. I think that so yeah, I’m the CEO of new charter technologies. I I joined the platform a number of years ago and recently took the CEO chair from our founder, Mitch Morgan, who had this idea of.

Building something that was really flew in the face of a lot of the experience that most MSPs had when they sold their businesses. And so the a lot of the assumptions, about us and as Craig pointed out, some of the differentiators were a bit more than a holding company we’re looking at how to build this from the standpoint of the customer and the employee which are Typically the two first casualties when a company gets acquired by just, a consolidated roll up in the market, the employees lose their home.

And then the customers look at it and say if my team’s not there, I’m going to go find something. And so you, you see a lot of attrition. I think we’ve all, a lot of MSPs have been party to things in the market where a competitor gets acquired and it’s great for us. We get the employees, we get the clients and it doesn’t go well, for the selling entity.

None of us wanted to sell our businesses into that fate. And so what we’re looking at doing is how do we build this platform? Which, has led, which you can trace back to, slower integration points maintaining entrepreneurial autonomy in our local markets. We operate, underneath legacy brands.

We really focus on the employees and then ultimately the client experience. And but we’re also then working really tightly together for how we deliver experience and create value at scale. It’s, definitely more purposeful than, just bringing the organizations in, but looking at it through that lens of.

the customer and then the employee.

Rich: So you [00:25:00] guys, you spend a lot more of your time looking a lot more closely at the M& A environment for managed service providers than the typical managed service provider does. I’ll give each of you a chance to comment starting with you, Craig. Big picture just to kick things off.

What is the state of the M& A market right now for MSPs? Yeah,

Craig: That’s talked about a lot, right? There’s this talk about it’s been slowing. And it could be because, and you have to remember there’s a lot of different ways to do M& A. One MSP, you can buy another one. A platform could be buying more in private equity could be buying a bunch putting them together You could have new charter buying bring them in evergreen bringing them in.

Some of that style could be slowing because interest rates go up, right? But when an msp is buying another msp, they got to go get a loan right typically a bank loan. That’s going to be expensive but When it comes to private equity backed, you typically have a lot of capital there. Certainly for evergreen it’s not slowing for us.

We’re actually doubling down, putting the pedal to the metal, increasing our team to go find more MSPs. I do feel There’s a big future and, bringing MSPs together, you get a lot of benefits out of that, as Peter was saying, you get a lot of operational maturity, right? When you have a company of this size and organization, you attract talent at another level.

It’s you’re getting MBAs, you’re getting people with big level experience and building big organizations that come in that this industry typically hasn’t seen. And I, and that, that’s, that helps the whole industry grow too, right? Cause. Now you’re getting, you’re extending that reach to more SMB businesses to provide tech support for, but then you’re also breaking into that large enterprise, which we’re seeing a lot of.

Driven primarily by cybersecurity. But yeah, that that’s where we’re seeing it right now. But I think companies like ours, we’re still going we, we don’t, we’re not challenged with getting capital to do deals. It, it’s gotten harder. I think there’s a lot of noise, right?

I get people saying to me, you’re one of 30 people that message me a day. And that’s why I’m, but I’m different. I try my best, but it is really noisy in North AmEricka, for sure. People are being bombarded and you got to figure out a way to stand out. And but there, there’s a large number of companies that are.

That are ready to sell because it’s just the demographic of the founders and known.

Peter: Yeah, I think it’s interesting because capital is not our challenge either. And finding quality companies that both are at the right time frame fit our model, and have the right investable economics is really the biggest limitation that, that we see, if we can, but any company that we find that, that matches those were, do they fit what we’re doing, are they at a time, when, it makes sense.

And, of the 25 actors. Acquisitions that we’ve done 23 of them work on the market where they weren’t for sale. The, they, we looked at this as, an early opportunity to transition into something that was more more exciting, more opportunistic. So yes, there’s a lot of noise.

Weeding through it is one of the hardest things. And the other part of it, and I think Craig, you guys experienced this too, is that One of the reasons I love companies that are not for sale is that I don’t want to, we don’t want to, bring on something that’s specifically just contorted, in order, for a moment in time to transact, with perfect economics, but the reality of the operations is really poor, we have to find success on the other side.

I think we’ve all seen the stories and heard the stories of the organizations that. We’re perfectly built, for acquisition and not for continued success. So much of the scrutiny is not even about getting people to respond to the emails or anything like that, it’s about digging through what it looks like on the surface to find out what it’s going to be like in reality.

 

Craig: Peter and that’s a great point. i’ve been involved in seven m& a deals now and in every case actively looking, right? It’s like you came along, had a good value statement and it aligned with where they were and I thought, all right let’s go through with it.

So I think you’re right. And that’s not saying they’re all that way. Think a lot of people Think that everyone’s selling is preparing and doing all this work. And that’s not the case every time.

Peter: It’s funny. I

Craig: think back,

Peter: I’ve founded an MSP over 20 years ago. That’s I’ve lived my life in this industry.

I don’t think hardly any of us came into this with the idea of enterprise value, even being on the table. Like it was, how do I have a job? Get a job in this new industry that I, you don’t need education for it. You just got to be good, and curious and all of these things. And so it’s this new, it’s this frontier.

I think most MSP owners, thanks to the experience and what’s [00:30:00] happened, and organizations like Evergreen and Neutra are significantly more aware. Of the enterprise value opportunity, in what’s been created, but they haven’t always prepared for it. They don’t always understand it.

And sometimes it gets a little bit oversold, in that too. Like the, no investor is going to invest in something that isn’t, that can be better afterwards than it was before, and so that’s one of the things that I think, when people look at to, to come back to the idea of, is it slowing down or is it speeding up?

It’s all about quality. Great people, and great organizations and all this, there will, as long as there’s still a market for this, which that’s not going away, then there’s always going to be, momentum in this space. It just might look a little bit different depending

Erick: You know, Peter, you mentioned, quality, right?

In my experience working with MSPs through, different M& A opportunities. And, I love the conversation from the recovering MSPs here that have worked with MSPs in a different kind of relationship. And now we’re helping these MSPs, either exit or grow through acquisition, right?

So the folks that we’ve been working with all these years. Are now at a point in their career where either they’re aging out, to put it politely, to put it accurately and wanting to, reap the benefits of all their hard work building their companies. And then others are like no, we’re going to try to, join a bigger organization like what you both provide or they’re doing it on their own.

So from a. From a buyer’s perspective, what are the key metrics that you both look at in terms of, making it making an offer to an MSP? What makes an MSP attractive? There’s two part question from a metrics perspective, performance metrics. And then I’ll follow that up with, okay, beyond that, what are the business qualities?

That buyers are looking for. Guys jump in. I’m making

Peter: Peter start this time. All right. That’s fine. As I was being polite, I won’t be polite anymore. The Rochambeau, but that’s what we do for companies. The obviously the biggest metric when it comes to the investment valuation, this industry, is EBITDA.

But I think that if you look at, what is most attractive and most interesting to us, the first thing for us is growth, the ability to understand how to grow organically and most MSPs, even, five, 10 million MSPs, sometimes the growth isn’t necessarily the most sophisticated, Or programmatic.

But the first part of growth is, do you matter in your market? The second part of growth is, do you have, relationships and connections in your market? And those things are hard things to replace from scratch. We can put in good, sales processes. We can, enhance things, but do they have.

The position in the market where they’re the most valuable and organic growth is, a significant, pointer there. So from a metrics standpoint is the first thing, that we’re looking at, then obviously the ability to operationalize that into a profitable business is what you’re going to get paid on.

Thing that I think from an operational perspective, we’re always looking at what the business looks like after the transaction. And that ultimately is the decision point about moving forward and what it looks like. There’s the profitability is the number, but the investment is what, what’s happening in the future.

So we always model that out. We always look at what coming into our platform will do, to enhance growth, to, create economies of scale, which parts of things We need to make sure that we don’t touch, so that, the soul of the company remains intact. All of those pieces.

So that’s, for us, it’s growth. And then just modeling out what the reality looks like once it’s done.

Craig: Yeah. For us again, similar new charter. When we buy a business, we don’t rebrand it. We don’t change the people. We don’t change customer systems. We give autonomy and power to our companies.

We, we do, leadership training and planning put in there. The reason I bring that up is there’s a, there is a set score card that we use internally, that we value a business because we’re going to be holding it forever. We know going into a deal, how long it’s going to take for us to break even and really start to get full cash out of the business.

So similar to what Peter’s saying. Valuations are driven off EBITDA, we got to really dig in and understand what are the adjustments there? What are things running through the business that won’t once a deal happens, but there’s really four key things. I feel like it’s what’s your revenue, what’s your EBITDA, what’s your percentage that’s recurring revenue.

Because that’s really what makes this industry so juicy. And then there’s the customer concentration. That’s a big one because that’s something that becomes a, is an issue in our industry because a lot of MSPs, IT service providers have grown up with customers and sometimes they grow parallel their growth and they stay similar.

And all of a sudden that one [00:35:00] customer becomes 30 percent of the revenue. That’s a high risk. That’s going to be a hard conversation to get through. We like to see businesses that are, pretty diversified and revenue across the customers. But there’s qualitative things. We want to look at the leadership team.

What’s the ten year ? Is there finance in there? And it’s what Peter was saying. Growth is an important thing. A business is very attractive when it has a growth engine. Is there a business development person there, a sales rep that’s driving growth? Because any investor is going to think how much investment might have to make in this business once I acquire it to grow it, that’s going to be hits on valuation for sure.

And then you can dig digger, dig deeper. There’s retention and that’s, gross retention, net retention, like how long are the customers sticking around? What are you cross selling into them? And contracts, it’s important to take a look at the contracts too. Like unfortunately acquiring MSPs is not as easy as going on Zillow.

Oh, cool. Three bedroom, three bed MSP. Yep. It’s so worth it. It’s not that every deal is unique, right? That’s what makes us even harder to find good quality businesses. You’re spending a lot of time digging in and yeah, there’s just, there’s so much someone has to think about, but it really, I’d say just start with those core four revenue EBITDA percentage recurring customer concentration.

And then. Growth engine is there a finance person in the business or is that a fractional or outsourced thing like that, that there’s a lot to be said here, we could be here for a day.

Erick: Yeah. So this is great feedback Craig and Peter and you’re, I think it speaks to the operational maturity level of a business.

Like some of these key points, I’d like to ask your Perspective on, we know that the probably the number one financial metric that we’re looking at is, the percentage of even that an organization generates. And then, there’s a multiple of value that’s applied to that.

But. And then there’s these kind of, business qualities that, that we add to our scorecard. What about the different revenue streams, how much of the different revenue streams impact your offer in terms of, Hey, I’m skewing, you mentioned Craig, higher percentage of MRR that’s managed service agreements.

Yeah. What about SAS? What about like break, fix labor? What about project labor? And how you look at that and how it impacts your ultimate offer, or do you have a separate kind of a evaluation that says, okay let’s break down there’s five, six primary revenue streams. And each one of these has its own multiple and some are very less valuable to us than others.

How does that figure into your valuation processes?

Craig: I’ll go first. Cause man, I’m living this right now. I, we’re like, I’m looking at financials is like a full time job. When I got in this, I didn’t think I would, but I fell in love with doing it. It’s actually really enjoyable.

Obviously you’re. It’s just straightforward managed services, very valuable, right? Like your traditional end user endpoint, cybersecurity Office 365, the cloud subscription stuff, that stuff’s great, right? Because it has a low risk. It’s, contractual and you can do some predictability on that.

Things that become tough are private data center, right? And that, and right away it’s what’s the capital expenditure on that? What’s the CapEx it’s going to cost. To keep that going. And then truthfully, what’s the longterm future for private data centers? When you see a lot of that that drives value down in a business.

But, I’d put it into three things recurring, reoccurring, and then your one time ad hoc stuff. And the reoccurring, that’s your professional services work that. The customer comes back for, it’s not recurring in nature, like on a timeline, but it’s, I know they’re going to be back two to three years.

We’re going to be in project where there’s value in that, we need to see, anybody is going to want to see that there’s something happening there that the customer stays engaged and then the ad hoc work, hopefully that’s a smaller percentage, but that’s also good to see too, because that could be a feed for future managed service customers.

Yeah, Peter, I would love to hear additional. I could keep going, but

Peter: I think the basics are very similar to it for us. We’re looking at it from the standpoint of what’s the trajectory of the services. And what’s the sustainability of them and then how do we bring that into other areas, is there opportunity to bring certain things into other areas of our markets?

And when I talk about being a platform and what we’re working to build first step is, take these businesses and, we’ve got a mantra in some of the areas where, step one is DFI you, and you can figure out what that stands for. [00:40:00] But so don’t interfere with, with what’s working.

But second, it’s then how do we take this and build more value into it? And sometimes building value across, so we don’t mess up companies that we bring, but then we can take the things that come from what, that, that are unique about one market. So if we’ve got DevOps services, if we’ve got, deep analytics and business intelligence, that can come into our other markets then there’s a lot of value creation there.

The trajectory of services that are maybe fading, public cloud, or sorry, private cloud is one of those that, we by large are not working to compete directly with Microsoft, on things there’s still a place for it. Absolutely. It’s just not what it was before Microsoft had this dominant impact.

So we’re evaluating those things that we typically are going to line item by line item and say this dollar is worth 1, 000. This much and this dollar is worth this much. It’s more of an overall profile of the business and what that modeling out, in the future is going to look like we’re in, we’re very focused on building, continually modernized it.

And so if we’re looking at a company that’s really stuck in, 2005 and this is the dirty secret that people like IT companies hate change and more than sometimes, everybody else, as much as we’re in the technology business and technology changes all the time, it sucks to reinvent your business every four years because of what’s going on in the technology world.

So there’s a lot of legacy space and a lot of places where it’s actually MSPs that are holding the customers back. From a more modernized experience, we’re working to build that. So we’re going to peg where they’re at, in their own modernization journey, as part of that process and look at the overall profile, in addition to all the individual metrics, as far as recurring and reoccurring, it’s really comes down to what, foundation we have for, to build something better for the future.

Craig: All right, Peter. I gotta ask. I gotta ask you something. And you’re right on that. I would clarify on the private data center. There are times, typically government contracts are gonna be like, it’s got to be in this, but. What’s your take on voice over IP managed Trent, are

Erick: we heading down the path of hardware resale, just pure hardware resale.

Peter: We’re we see value, we’re going to, and one of the things I think Craig that lends itself to both of our models is different markets. Are at different levels, and we, we see different things in the Midwest than we see in things like that. And so there’s different life cycles, in, in spaces.

So yeah, some of that stuff that we’re looking at has become ultra commoditized, in some ways that used to be like, if you were a VoIP expert and you could figure out quality of service issues over a DSL line, like you were golden, like that doesn’t exist as much, much anymore with big, open pipes, unless you’re in a rural area that doesn’t have, or one of the things that we look at is, There’s an imbalance between the rural areas that have, they have significant broadband access and those that don’t yet, there’s terrific business opportunities there.

So I say it’s really nuanced, but I will say that we’re not looking to invest in companies that are wholly, wholly, banking their future, these types of

Craig: And I’d love to add one more thing on that. Sorry, Ericka Rich, but you’re right, because in Australia, New Zealand, that infrastructure was behind right?

They, Azure and AWS have recently really just shown up there. So you will find businesses down there with data, private data centers, and that’s okay. It’s just what’s their trajectory? Moving off of it. But it reminds me of one funny story. I, when I was with ConnectWise, I visited an MSP North of I 90 in Chicago.

Cutting edge, high speed tech, all this stuff, seriously, two miles on South side of I 90. It’s we have a five meg internet connection. You’re right. Like there, there are those things that are just things, that you just have to be aware of. Now, eventually that’s going to change and

Peter: everybody will have, some level of, significant broadband access, and we’re already seeing that it’s definitely the minority that don’t, right now.

And, but I think that there’s, those are the things that we have to pay attention to that are going to change at a much more rapid pace, and that’s going to impact our businesses moving forward. Like these businesses have to be. Their capability for change and adaptability to the future is not typically what they’re valued on, but that’s what we’re going to live with, and that’s what we’re going to be doing.

And that’s where in, one of the big parts of our model is that you’re, we’re looking for entrepreneurs who want to continue their entrepreneur journey for a season, or longer in a different way, as part of that. So they’re actually going to bring in what they built, and adapt it to some of these, these modern pieces.

And so with that, it’s not just, okay here’s the point of business. Do with it what you want. Yeah. There’s some continuation and some of that. But yeah, it’s the fun world that we play when all these individual tech, technologies are, either over [00:45:00] time or just immediately less relevant, than they used to be a major dance around that one,

Craig: just don’t pull an Arnie at a keynote and go voiceover.

I peace, dad.

Peter: In 2008, everyone had the MSP and the traditional model was dead because we had, because cloud computing was coming.

Craig: Yeah, no, actually what he said, telecoms, dad, and we’re

Peter: about

Craig: saying that we’re not saying that folks, we love telecom businesses. Let’s just help medics first.

Peter: I think, honestly, you look at what we’re good at in the MSP space.

And then this is really what should feed future M& A, opportunity is what our opportunities are for the future. And what we should be good at is not typically what we have been good at. And that’s going to be a problem in that we have to be able to modernize our customers businesses. And we have to be able to do it with scale.

We have to be able to do it. Innovation, and investment small MSPs are not going to be able to invest the level that we can write and organizations that are to, that they’re tripping over themselves. Are, with either poor, post act resistant strategies, or, not having the right people in the right places, or not having the right level of insight, or momentum in their markets, are going to struggle, to not just be focused on themselves.

And so I think that the M& A options that still keep the customer, broker expert around it, focus on the customer, the employee, the entrepreneur it’s just a significantly different opportunity to create change into the future, not just, memorialize and recognize and value a company for what it is now.

Rich: I want to actually ask you both about private equity as the elephant in the room of M& A. But Craig you pointed out rightly, of course, another alternative for MSPs out there is to either merge with or sell to another MSP. So before we kind of transition over to private equity, what are the pros and cons of that option for an MSP to consider?

Craig: Yeah. And I’ve had a lot of experience with that being at ConnectWise and watching so many MSPs go through this. Some of the pros are, you could grow, you’re growing rapidly. And a lot of people, there’s a misconceived notion. Oh, we merged them together. We can immediately sell for this valuation.

Like you’re going to need to show some organic performance first before you get the number you may have in your mind. But yeah, the pros are, if you’ve got two great cultures, you’ve got two great businesses coming together and you have the opportunity to cross sell or share knowledge with each other, learn from each other.

Listen, the obvious con is you got to integrate two businesses together. And the number one challenge that has people I’ve been down this road. Like when I was at, again, I’ll refer back to connect wise. We, I think we went through 16 acquisitions while I was there. People are always the hardest part.

It’s, and there’s not, it’s not enough effort put on that. I just would caution people. Hey, if you’re going to go through with that, no, not a bad thing. I’m saying, I’m not saying don’t do it. Just prepare yourself for the level of people. Management, that you’re going to have to do.

This is definitely not something I don’t work itself out. You have to be extremely intentional. What’s our go forward process. Who’s the go forward teams, who’s doing this, who’s doing that. So many times when I see these mergers happen, you get the leaders in a room, they all agree upon something.

One person leaves and says, I’m not doing that. That’s not the way I’ve always done it. That’s the wrong way. And then they poison the well of employees. And you get this weird us versus them that happens. And that can take a long time to sort out. Look, we lived that when lab tech and connect wise merged, it was green versus blue, and we’re better than you, your business or tech.

And I was like, that happens in small business just as well as it happens in large business. And, and sadly the customers, you really got to put a strong focus on that. You can’t communicate enough when you’re going through a merger. With again, one MSP buying another, you have to communicate, keep the customers, hey, this change is coming.

Obviously their bill can end up looking different. That’s going to startle them. That change freaks them out. The way the emails look, the way the communications and you’ve just got to communicate that that’s a big part of it, but it’s hard. It’s hard merging companies. I don’t care if it’s two, one person companies.

It takes work just like a marriage.

Peter: Sometimes it’s harder. It’s even harder on the smaller side. Because of how personal everything is, and those organizations. And I think we often get mislabeled as an organization that doesn’t do integration, because, people see that, that we’re operating, with legacy brands or markets and things like that.

But one of the things that we’ve really focused on is what we say is integrate for value, not vanity. There are people, there are companies to integrate because that’s the investment thesis, and that’s what private equity mandates. And that’s what, But they don’t really integrate, they just change their name to be the same, and then they kind of work, [00:50:00] but they were backwards and try to figure out everything behind the scenes, behind that unified label.

And I think, if, again, you talk about the value chain of, Customer, employee, entrepreneur, you end up with something quite different. And we say, it doesn’t really work very well to get married and then go on a first date. And so the ability to actually look at the things that, that matter integration, is going to be different in any scenario.

So the key is, for us is being purposeful about it. And to a great point, being transparent, and communicating. Yeah, we’re not going to say nothing’s going to change, you get to maintain a new chart. You get to maintain entrepreneurial autonomy in a lot of areas. And in trade for that, you don’t have to worry about some of the entrepreneurial challenges.

You don’t have to worry about cash flow the way that we all did when we bootstrapped our businesses. You don’t have to worry about, the, where the foundational economics sit, some of the banking stuff, some of the, there’s there, there are pieces that get much easier but we still have to continue as entrepreneurs to do the hard work of enrolling your team.

And so sometimes that’s enrolling our teams in the change, itself, and so the private equity component of it, is, Is really based on what’s the relationship between the private equity group’s motivations and what the model looks like in the organization, and I’ve been on, I’ve talked to, rich number of times about, what I’ve learned about private equity, over time.

And it’s in the thing that’s key is that we all look at control sometimes as the ultimate thing that we need to keep. But the reality is, in my mind, control is overrated, alignment’s not. And so finding alignment between a specific, investment thesis, whether it’s private equity, whether it’s something else, if you know how everybody’s going to win moving forward and in the long term.

That’s the most critical, in it. And so private equity becomes this kind of, taboo topic or the elephant in the room or things like that. It doesn’t have to be if you have the right value thesis moving forward and, everything is aligned there.

Craig: And I’d like to just add one thing.

It’s if someone’s going to go through, Hey, I’ve got a great MSP. I want to grab, buy another one and bring it in. You. You just, you can’t be intentional enough about who’s, what’s going to be the resulting outcome. But where you see it go wrong is growth stops during that integration, right? It’s because what do you have, right?

What’s a typical MSP founder led sales. You have the founder that manages a lot of that. And when they come together, the founders are both so busy merging their companies, the growth just goes flat. Yeah. You got to just know that going into it. And I’d say, just have a plan for addressing that.

I’m not saying it’s impossible. But speaking to pros and cons, like that can be a con, but you can make it a pro coming together. If someone stays focused on that.

Rich: You’ve already partially answered this question actually, but it is when MSPs hear private equity. I think they tend to have this one kind of blanket image in mind for what that, and it’s a very roll up heavy kind of model and but new charter and evergreen are both proof that there’s actually quite a range of different alternatives out there.

So just paint a high level picture for folks in the audience here about the different options, alternatives, models out there in, in private equity that they might want to be evaluating. Yeah.

Peter: Yeah, private equity, as I said, it’s not a one size fits all thing. I think some of our perspectives on private equity come from what we’ve seen in the vendor space too.

And that’s more prevalent, it has been, money’s been in that space longer than it’s been, in, the direct MSP space. There’s the, there are a couple of things that we encourage people to look at when they, are evaluating the situations, caches and nests, capital might not be as prevalent.

Available as it was, but there’s still a lot of it out there. That’s not the issue, in these spaces it’s, and ultimately any investor, their job is to turn money into more money. And so they can do that, that through different models. And so the thing that says understand the model, but there are some private equity groups that come in and they have the playbook.

And the big private equity groups all have a playbook when they acquire a property, and they run that playbook and that playbook by and large is going to work. And there’s not a lot, on, on the massive scale. I think we’re, what hasn’t worked in some of that is we’re service businesses and we’re people businesses and playbooks that work for software organizations or, more just, Maybe more capital heavy, industries are different than ones where the product is the people, serving the people.

And so I think that the uniqueness of the new charter model centers around the fact that. There’s not a lot of private equity out there that understands that there’s obviously some, but what’s funny about Craig and I give each other a hard time. Like our leadership teams, know each [00:55:00] other, our investors know each other our success, like we will be more successful and our investors will be more successful on both sides if we’re both successful, the, and so that’s the other piece of this is that the models that are the right ones, we all want to, to see all of it work and grow.

So understanding that, some of the private equity question for me is, do they really understand what, what drives the service business and what the value chain is around that? And is there a playbook going? Is there a playbook going to apply well to that? Or are they going to invest in our playbook?

And that’s ultimately Where we are is that we built the playbook around this stuff We’re continuing to evolve that and that’s what future investment, you know looks like, you know that we’re building a company forever, and Investors, you know are people who will get money, put money in and get money out, But it’s a bit independent of The, the thesis for how we build it, move it forward, which is extremely important in this industry.

I think

Craig: I agree with you that people get this preconceived notion of what private equity is based on the vendors they work with or watching their own customers get acquired and go away. They just think that’s everybody is in. I was in the IT nation really since the beginning. And I saw this first wave of private equity come into MSPs probably a decade ago and where they’re buying them up and the founders were leaving and they’re mashing them together and then they were failing and it’s yeah, the business just left.

Exactly. What you just do. These companies weren’t mature yet, and this whole community is matured now that you’re finding more founders have good succession plans and they’ve got people. It’s not as what it was, but. I think there was a lot of learning there. And then you had companies like evergreen pop up.

I think we got our start in 2017 and said, we’re going to do a different, we’re going to buy and hold forever. We’re going to retain brand people, keep leaders if it works place leaders a lot of different options there. But I think we’re up to 80 companies now and we’ve got a mix of a whole bunch of.

Leadership scenarios. We have founders still in, we’ve got founders that have been promoted up to regional leaders. We’ve got new placed CEOs, new place, operational officers, CFOs. Like we have a whole mix of it. It’s like Peter saying, there’s so many different variations to it. So if you’re looking to sell or you’re getting contacted maybe by a buy site agent or a broker, or you’re working with someone to sell your business.

So there’s a lot of options out there. Find which one fits the best. Cause I think what none of us want to see is someone regretting that decision because the business is that’s your life and you’ve spent your life doing it. You took time away from your families to do it. I think the thing that pains me the most is when I see someone go through the deal may have regrets, they’re getting contacted by customers saying ever since you left and sold, this is not good and you have employees calling saying, They got rid of me and there’s no worse feeling.

So it’s just good to whatever fits. Are there could be somebody that’s no I’ve met people that said, no, I want to go through a part of a bigger rollup, like I want to. Have the potential to be CEO of an empire. Tipping my hat to the empire builder mode of connect wise. There’s people that want to do that.

So everybody’s got a different journey that they’re on. And I think that’s what makes this so fun. Yeah.

Peter: And the reputation piece is so important because. How many companies can you really acquire if the message gets out there that people regret doing it? That’s and you can trace that back again to it’s the same value chain, customers, employees, entrepreneurs, and we joke sometimes that, there’s two types of investors in the MSP space.

People who, don’t know how to run MSPs and people who know how who know that they don’t know how to run MSPs, and. And so there’s a different trust factor in that, in terms of, are they going to come in pretending that they know this world, or are they going to be able to add their experience, and their capital and their knowledge of all of these things to our knowledge of what it really takes to, to do this.

And to Craig’s point, that’s where it gets real fun. Yeah.

Erick: We’ve been talking in the last few minutes a lot about, things that can go sideways and how to, how to prevent or avoid regret. And, I found being certified in post merger integration that a lot of times if we don’t have all of the objectives and the goals mapped out, laid out correctly during the deal structure, Yeah.

And we fail to integrate rapidly. And I’m talking about, I’m not talking about brands and things like that. I’m talking about the core stuff where we’re looking for synergies in terms of, platforms, HR and payroll, financial systems, maybe, maybe service platforms and things like that, the stuff that doesn’t, and, and achieve some, Hit some [01:00:00] goals, early wins for the team that we tend to find more of that regret. And it has to all be delivered as you both alluded to while we’re doing business, like we cannot stop day to day operations because we are integrating either we’re acquiring someone or we’re being acquired, right?

So all of that has to work pretty effectively. To give the teams this, okay, we’re winning. We’re actually moving forward. It’s not, this this unwieldy burden that’s crushing us, that and we’re getting these success stories. And so what should MSPs ask themselves?

And potential buyers regarding that pre planning conversation. What are the goals? What are the synergies? What are the objectives that we’re trying to reach? And then how quickly can we integrate and what impact, should we expect for day to day operations? Ultimately, what we don’t want is for customers to start souring and getting fearful, the employees, number one, right?

We don’t want churn. We want to support them and. And build their confidence. That’s a good thing. And, with all these different, things that have to happen. So just this is a wide ranging question, but what should MSPs ask of themselves from their readiness perspective and desire to move forward?

And if they’re being acquired, what should they be asking the buyer in order to make sure that they’re making the right decision and hopefully not having regrets after the transaction.

Craig: I’d say deal structure. But if I’m zooming way out, like I’m a big fan of this. Simon Sinek start with why I just always tend to just let’s start with why do you want to do this?

Why do I want to be a part of this? Let’s get that on the table and make sure we’re both very clear with each other and up front what we’re doing there. But Deal structure becomes real important. Everybody does it different how much cash is there? What’s the earn out period? Is there going to be equity?

Is it just going to be all cash? What you know, there’s and outcomes like lay out all the outcomes what’s expected? What are the outcomes we hope to achieve from this when? They’re going to happen or what’s the growth we’re expecting to happen here? Man, you’re right. This could be a lot, but that, that’s where I would really start.

We can get into a million details from there, but I always start with why, and then all the expectations out there and outcomes, outcome driven decisions. For sure.

I

Peter: think for me, I would say. People should ask themselves what they want to do next, not what they don’t want to do. Sell your company because of what you want, not because of what you don’t want.

That’s going to change your outlook pretty significantly on, where, how, what path you take, things like that. It’s exhausting running an MSP, it’s stressful. If you’ve been, sometimes it feels like you’ve been on call for 20 years. There’s a lot to not want, and to look aspirationally at, a bigger opportunity and say, Oh, the grass is greener there, but you could easily be just selling short, of what the potential is or selling into the demise of what you spent so long building.

If you’re not looking at, in the identity crisis of the selling entrepreneur is very real. Yeah. And so that’s one of the easiest ways I’ve seen to understand where you’re at is that are you truly more excited about what it does mean than what it doesn’t? The thing that I think you ask, that they should be asking the organization is don’t ever fall for, this is if you’re selling to a group who’s trying to tell you that nothing’s going to change their wires and, or they have no experience in doing this.

The reality is that things change. It’s how they change that provides the value, and there’s trade offs and, we integrate financial, we have to, that’s part of our model and how we, we set up to bring value. It’s, is it a fun part of the process?

Not usually, we can’t run a 300 million company on QuickBooks, and so the there’s trade offs there, but then the benefit that comes with that is what you should be asking for. So they get to understand what changes. And make sure that you can have some really honest, psychologically honest conversations with people who have been through that with that group, and, Hey, what are the we love to air our dirty laundry, to incoming companies, because it only helps them come in differently.

Either they see a reality of it, or they see what we’ve learned through they can, you We can have those, discussion when you’re based in reality. So whatever you have to do to get the reality of what it’s going to be like in the change afterwards is critical to the point of, what is the actual impact, in terms of, timeline.

It really depends on what your thesis is and what you’re building the integrations towards, but I completely agree with you, Erick, that. Don’t dance around it and don’t tiptoe into it. Do it

Erick: Yeah, no, this is great. Great conversation and feedback peter and [01:05:00] craig. This is so valuable I just have one last question for you both and it’s that it goes back to that Introspective, you know looking at myself in the mirror as an msp That’s built something that I feel has value and deciding should I sell now or should I wait?

You know what, that’s the conundrum because, in many cases, I know you guys do this all day, every day, MSPs sometimes think that their companies are worth a lot more than they actually are, weren’t you put them through the analysis, right through the assessment. So we understand that, what are some of the things that you would share with MSPs that are thinking about when it’s the Best time for them to look, sell their companies.

Craig: I’ll tell you I’ve seen people sell their business in their thirties and their forties and their fifties and their sixties, everybody’s different. It’s. There’s the person that’s I’ve been running hard for 20 years. I’m 40 now and cybersecurity risk is too much. I’m going to take that weight off my shoulders and Im gona sell now.

There’s the people that have a financial target they have to get, right? Get to, in order to do it. There’s, The people that are going to be done when they sell, so that target becomes near important Are there’s people I want to go on and there’s a lot to it. But you know this I had to laugh because this reminds me once, you know used to say hey This is the path to success and someone asked me.

Oh, what’s success and i’m like wait I can’t tell you what that is I feel like it’s a similar question. Just know that It all shapes, sizes and flavors are out there. I’ll why someone sells.

Erick: So let me let me tweak it a little bit because what we want to make sure that we do.

In this conversation is to share with folks, you don’t want to have to sell because You weren’t prepared something because we’ve all heard horror stories, right something happened with Family or friends or health or something like that and somebody had to get out because they could not operate a business Anymore and at that point the valuation it was nowhere near what it could have been had they taken Steps to identify some of these things.

So maybe i’m giving you a more focused way to respond now But what do you think? What would you say when I say look it’s okay Don’t accidentally have to you know, just yard sale your company, right? That’s a great point and I

Peter: think that

Erick: it doesn’t

Peter: narrow it down a bit Selling your company or any transaction, it’s a step in an entrepreneurial journey, or it should be a step in an entrepreneurial journey, not the conclusion of it.

And it’s where New Charter, and Evergreen are like, we might communicate it, a little bit differently, but, at the end of the day, investors themselves need to get a return on their money and they need a mechanism to do that, whether that’s in, private equity group, outside of this Evergreen, New Charter It’s the mechanism of what we’re building that should sit above that, if we’re doing it effectively, and I think that, bootstrap MSP owners should look at it the same way that if you can have an opportunity to choose the timing.

And to Craig’s point, it’s where a thousand things line up and ultimately you make an entrepreneurial decision that, and it’s not the conclusion, it’s not the point that you get into it and just say I have no other option, I need to retire next month, give yourself the runway. For what’s next, give yourself the runway, to be able to shepherd it, into the future.

If that’s the entrepreneurial decision that that want to make, let the investors, and make sure that when you’re investing in, cause you’re investing your business in The future of that, is something that’s going to have longevity. That, that the thesis, is going to live on.

One thing that I’ll say, I say to people a lot is do not believe that the lie. A lot of us, tell ourselves that, I the initial transaction is the end of the ability to capitalize on an investment. That’s something, I think a lot of it, as we look at, reinvestment and things like that, I love the, I now have an opportunity to attach some of my reinvestment to people who have proven year over year, platform over platform that they know how to make money.

And I can shepherd my people, I can shepherd my clients that way, and I can capitalize on the fact that my value creation, has increased more rapidly, in a platform than it would have on my own, and I think sometimes that, you look at it, all that to say, it’s easy to sometimes look at the conclusion from the transactions, the conclusion of the journey, when it really should be just a step in the journey.

Erick: Peter, I love that. I love that analysis that step in the journey, not the conclusion of the journey. That makes me think differently. Craig, you want to tag back in with with anything you’d like to add? Cause I know I tweaked the question.

Craig: Yeah, [01:10:00] no, that’s great. I love what Peter said there.

I hadn’t really thought of that either. Like it’s just another step in the journey. Look at how many people sell their business and go on to be EOS coaches or. Some have moved into working with some of the big SaaS vendors in our space. Or some have said, I’m going to get focused on my family.

That’s the next part of the entrepreneurial journey is giving back to them. Yep. The personal thing. Yeah. And I think, Peter, did you ever go through one of those life plans that IT Nation Evolved does? I didn’t do it, involved, but I’ve done something similar. Yeah.

That’s something I would add, is outside of the business stuff, we’re again, we’re all people like businesses are people whatever RPA is and robots still people keep asking, where are they keeping the robots? I don’t see them. I think that life plan is a great thing to do.

It really helped me and, it will, make sure you don’t catch yourself off guard.

Rich: Guys really interesting conversation. Erick said very valuable for us and also for the audience. And thank you so much, both of you for joining us, giving us so much of your time, no blows traded.

So bonus points for that. I was

Peter: waiting

Rich: for the time

Peter: when we were checking the gloves off, I had to remind Craig that they might not be any companies and we have 25. But there’s 32 major league baseball teams and there’s a lot of minor league baseball teams I just wanted to remind craig, you know

Craig: We’ll take that up at the hotel bar at the conference And you know comes down we’ll see what happens I know that jason mcgee’s got a lot of photos of the two of us trying to It’s true.

Like trying to stir up stuff to provoke us and you’re getting into something, we’ll save it for them. Yeah. I love it.

Erick: We really appreciate you guys and your conversation. Thank you so much. Yeah. Peter, for folks who want to learn more about New

Peter: Charter, follow up with you, where should they go?

Newchartertech. com or get me on LinkedIn, or come to the hotel bar with Craig and I. We’ll rock, paper, scissors for who gets to talk to you.

Rich: So in addition to the hotel bar, Craig where should people go for, to learn more about Evergreen and get in touch with you?

Craig: Yeah, evergreen SG because it’s evergreen services group, evergreen SG.

com. Or you can email me C Fulton at evergreen SG. com. Happy to chat anytime anybody tuned in.

Rich: both so much. Folks, we’re going to take a quick break here. Erick and I will be back in just a moment with the final part of this episode of the show. We’ll trade a few final thoughts on this conversation, maybe have a little bit of fun.

Stick around. We will be right back.

Okay. And welcome back to part three of this episode of the MSP chat podcast. What fun Erick, if you’re, into managed services, generally your M and a to, to get a chance to pick the brains of those two gentlemen is is a blast and there was actually a point in the conversation for me Erick, where they were talking to each other about managed print and VoIP and so on, and I don’t know about you, but I was like sitting very still and not saying anything cause I don’t want, I just wanted to be a fly on the wall.

And really just listen to them engage in some shop talk . So just a very interesting, informative conversation about a topic that always is and always will be top of mind and rightly so for MSPs.

Erick: Yeah. Rich, you verbalize exactly how I was feeling is Oh, this is they’re just like.

This is them talking to each other and comparing notes. And you took the words right out of my mouth. It’s Oh, flies on the wall. Just listening to this kind of like inside baseball. And I love the back and forth a little bit of the, friendly sparring that, that was going on there.

But boy, oh boy, did we, get a lot of gems from that interview. And, rich, I’m sure you feel the same way I do. We could have just kept that conversation going and captured hours of valuable content. So I really appreciate them coming on and sharing their insights. But Holy cow. I think my takeaway is, did we like, I liked the biggest takeaway was the idea that an exit is just the next, just right before the next step in your entrepreneurial journey.

Not the end that we think Hey, we’re going to work. We’re going to build a company and we’re going to put in all these, years and then we’re going to exit and we’re going to retire and life’s going to be beautiful. No. That’s just it. That’s one step.

And, rich, you and I both know entrepreneurs that have done it over and over again, and just appreciate, the energy. And the excitement and, the trials and tribulations of building something new and you learn right every time you do it like you learn from your last exit, you learn for the next one.

And it seems to me that the folks that have done multiple built multiple companies and exited [01:15:00] successfully each time. Every new one is a little bit faster to market a little bit and more valuable because they’ve learned from that. So I really appreciated that part of the conversation.

Rich: Me as well. And very much appreciated their time that the two of them are are very good sports, by the way, I, part of what I was doing when I invited them onto the show was trying to reveal or call attention for our audience to the fact that don’t just think of private equity in particular as this one thing that’s a whole range of Yeah, potential acquisition partners out there.

But I honestly Erick, it did not occur to me. I just thought these are two really smart, experienced guys who will have interesting things to say. It didn’t occur to me that they’re, they have a very similar business strategy and are kind of competitors. And so I I thank them for agreeing to come on the show and being such good sports and having a good time with us and and with each other.

I again, it was a really great conversation. It was

Erick: thanks to Peter and Craig and thanks for offering to buy us drinks at the next event we see him.

Rich: Yeah. Which for me is going to be next week. So yeah, I’ll be cashing in on that. I’ve absolutely. Folks, that leaves us with time for just one last thing, and Erick, if I wanted to, I could fill this segment of the show every week with some lottery related human interest story.

They, these literally break every day if, like me, you’re poking around online for interesting stuff. To talk about on the podcast this particular one for some reason or other though just jumped out at me because it concerned somebody a a woman in virginia who Went to a restaurant got a fortune cookie There were numbers in the fortune cookie.

She played those numbers in the the power ball and won 50, 000 And I’m thinking to myself, what are the odds of winning a 50, 000 or better prize in, in, in a lottery period? And then what are the odds of winning with numbers you found? In a fortune cookie. Now, strictly speaking, I’m sure anyone who understands statistics and probabilities better than I do would say the odds are exactly the same as any other combination of random numbers that you But somehow to me, Erick, it just feels like I opened up a fortune cookie, it told me to play these numbers And I won 50, 000, a huge long shot.

Erick: You can just imagine, the headlines the next week, the, fortune cookie stocks soar through the roof as everybody goes and buy so many more fortune cookies that, restaurants are running out and ordering more and more. It is unusual. I had a very similar experience when I was younger as a child, I did not play numbers that, that I was given and those numbers hit, so I regretted that.

But, It’s, you can’t bet on that every time. Very interesting. So that woman probably. Frequents that Chinese restaurant is a Chinese restaurant or, wherever she got the fortune cookie. The interesting

Rich: thing is yeah, absolutely. But but one of the interesting things is the article does not, isn’t very specific about where she got the fortune cookie and she might be trying to corner the market, this might be her secret place to get winning Powerball numbers and she doesn’t want the rest of us to know about it.

Erick: I’ll bet you’ll see some ads for a new restaurant in that publication soon as they bank on people coming in to get the winning fortune cookie numbers from their establishment.

Rich: Okay. Folks, thank you so much for joining us on this episode of the MSP chat podcast.

That’s all the time we’ve got for you this week. We’re going to be back again next week. We are both a video and an audio deliverable. If you are listening to the audio version of the podcast, but you’d like to check us out on video, you will find us on YouTube. Just look for MSP chat or the channel mastered channel there on YouTube.

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We’re going to be back in a week with another episode of the [01:20:00] show until then. Folks, please remember you can’t spell channel without M S P.