Strategies Every MSP Needs for Growth and Profit | EP81

Eric Anthony (00:08):

Welcome back to the podcast, all Things MSP Crew. This episode has an amazing guest today, and we'll get to that in just a few minutes, but I'm actually recording this intro on the day that I'm releasing this podcast because Florida, Georgia, North Carolina and Tennessee and some neighboring states have just experienced a massive hurricane less than two weeks ago, and now Florida is about to get hit again by Milton. If you're an MSP near any of these areas, please let us know. There are almost 6,000 MSPs in this Facebook group, and I guarantee you many are willing to help in a lot of different ways for those cleaning up and rebuilding from Helene. We're with you. For those of you preparing for Milton, we pray that the storm diminishes to best case scenario for all involved. Again, let us know if there's anything we can do.

(01:02):

Before I bring up our guest today, I want to talk about a resource for any MSP who wants to make next year better than this year for their business. This is a resource that was created by one of the most respected teachers, authors, and supporters of the MSP community. And yes, I'm talking about Mr. Carl Palak. If you're not familiar with them, he's written several books on being an MSP, how to run a successful MSP, and this book, it's a little bit different because it's a workbook and I bring it up now because Q4 is the time to be preparing for next year. And this resource, this workbook, will help take you through the process from collecting the data on this year and last year all the way through to creating goals and action plans for next year, the resources called the IT Consultants Year of intention.

(01:56):

It is a workbook full of things that you can do to maximize your potential and your activity for next year. This is a lot of great information that really comes from Carl's Small Biz Thoughts Technology Community put into a format to help you learn from the past so that you can prepare for the future. This workbook is available on Amazon for 29 95. I mean, it would be worth that at twice the price, and I can't think of an easier way to get a jumpstart on 2025 then planning with this workbook. One of the things I love about this workbook is that it's for everyone. Regardless of what type of IT service business you have, this book will probably work for you. It's also perfect for the one MSP probably I would say up to the 1520 employee MSP, but specifically any MSP that does not have an annual process for planning their next year.

(03:00):

So that could be even a larger MSP. So check it out. By the way, this was not sponsored by Carl. He doesn't even know that I'm doing this. In full transparency. I am listed in the book as a resource both from the podcast, the YouTube channel, and the Facebook group, but this was not sponsored by Carl. But speaking of sponsors, have you ever wondered how much time your team spends in meetings and what the real impact was? Well, wonder no more. With produce eight's latest release, you are getting insights into meeting effectiveness and productivity metrics that will improve the way you do business. Some of the benefits are seamless integrations with leading platforms such as Google Calendar Outlook, Microsoft teams Zoom and Slack tell you streamline meetings, especially for your MSP teams. Executive dashboards help gain insights into meeting investments including salary breakdowns and resource allocation that gives you enhanced views into profitability.

(04:07):

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(05:46):

Recently there was a post, I think it was on Reddit, but it may have been on another group about offering a potential client their option of an hourly agreement, what I would probably call more of hybrid model, basically monthly billing for your stack and then hourly billing for service labor versus a managed service agreement. We'll call this option number two, door number two, whatever. And I will say that in the post they mentioned that it was going to be unlimited, which I definitely don't recommend now, and we could have a whole separate podcast on that and maybe I'll suggest that Justin and I do that in the future. But that aside, I'm going to put that piece aside. So we're just going to talk about the hybrid or the managed service agreement. First of all, I'm not opposed to doing either. I'm not opposed to doing both, right?

(06:37):

I think there is a situation where you could offer a hybrid model in addition to your managed services packages. Again, not all you can eat, okay? Now the difference here is with a hybrid model, you get into a large degree of unpredictability, and that unpredictability is risk for you as well as for the client. However, the client is accepting that risk in exchange for the opportunity to not have to pay you every month, okay? Their risk is they may have a big bill at some point because they're going to run into a big problem that you then have to fix for you, it's more of a consistent risk because you're not going to have predictable revenue and you're not going to have predictable service capacity, and those two things are going to have a major effect on your business. And so therefore, what I'm saying there is you need to compensate yourself for that risk.

(07:40):

And so there needs to be a larger profit margin in that hourly rate than the hourly rate that you would factor in to your managed services agreement and mostly here, because what I want you to do is be able to take some of that profit and put it away for those times when your clients don't need you as much. You have that cushion to maintain the payments, the payroll for your technicians because there are going to be times where those technicians are highly profitable, highly revenue generating because there's a lot of work to be done. There's also going to be a lot of times when there's not so much to be done and those techs are going to be idle, and so you need to have the extra money to be able to get you through those situations. Now, again, I think there's value in both, but there are those risks.

(08:32):

And in addition to that, when you're running a hybrid model, you run into the problem again of cyber risk because there's situations where client thinks that your stack is going to prevent all of their security problems, and we know that's not true. There's a certain amount of work that has to be done on a regular basis to keep things up to par, to keep them compliant, all of those different things. And if you're not doing those because you're on a hybrid model, then there's a potential risk to them and to you, and I'm more worried about the risk to you, right? Because they've made a decision to take on additional risk in a hybrid model. They may not understand it, but they've made the decision to do it, you understand? And I don't want you to be stuck with the added risk of them possibly taking action against you because they thought something was covered.

(09:31):

Now, there's another thing here that I want to talk about personally. I've sold both, and obviously I prefer a fully managed model. I don't think I tried to hide that at all here. It's the most reliable, it's the most predictable, both for the client and for you, which is why I think it's the best of both worlds. It's a win-win situation for you and your client, but it's one more issue with hybrid. It requires time tracking. Now, with managed services, the worst thing that's going to happen if you don't track your time is it's going to throw off your profit reporting. If you don't track your time properly in a hybrid model, it's actually going to reduce your revenue, the cash coming into your business. So a couple of things to think about. Now, let's get on with our guest. Now, unfortunately, Justin couldn't be here today, and so you just get me, but hopefully that'll be enough. In addition to that though, and really the most exciting part is that I have a guest today that is no stranger to the industry, been around a long time kind of like myself, and has a lot to say about how this industry has evolved, especially how it's evolving into an ecosystem. And so I'd like to invite Arlan Sorenson to join me today, the VP of Ecosystem Evangelism at ConnectWise. Hey, Arlan.

Arlin Sornensen (11:02):

Hey, Eric. Thanks for letting me join today.

Eric Anthony (11:05):

Oh, no problem. I mean, there are a couple of people who have really cool titles in this industry. I feel fortunate to have had one of those titles as one of the former head nerds over at SolarWinds, but yours is equally, if not even better, the VP of Ecosystem evangelism. I love that because we have evolved into an ecosystem. And so before we get started, tell everybody a little bit about yourself and what that title means to you.

Arlin Sornensen (11:37):

Sure. Well, I am actually on my farm in Iowa. That's how I started out back in 1977 when I graduated from Iowa State. Bought an Apple Plus in 1982 and started my technology trend, began a business in 85, which I ran for 27 years. So we were in the technology business before it was the thing to do. And over that period of time, we grew to seven offices across five states across the Midwest before I sold it back in 2012 to a telephone company. Along that journey, we started HTG peer groups back in 2000. And so that grew to the point, we sold it in 2018 to ConnectWise, which is where I became a part of that organization. And my title of the ecosystem Evangelism really is all about partners and the vendors that are part of this amazing community and how we need each other. And I spend my time every day helping partners be successful as we all succeed, everybody wins.

Eric Anthony (12:50):

And that's the fun part of this industry is that from vendors to other MSPs to even some outsiders, everybody's really willing to pitch in and help the people who are asking for help.

Arlin Sornensen (13:03):

Absolutely. The book, the Go-Giver really describes our industry, I think as much as anything, and just the willingness to invest in others and to realize that all ships can rise together. And that's an important part of this industry

Eric Anthony (13:21):

Because there is no shortage of clients out there, and so there's plenty of business for everybody, and there's plenty of room for everybody to help other people out. I know we wanted to talk today, and one of the things we try and do here at All Things MSP is to help people out. We really like to provide information from subject matter experts like yourself so they can take these things back and apply them to their business. And so when you reached out, you told me you wanted to talk about some of the current profitability trends that are happening in the MSP world today. So what are some of those trends that you're seeing as you're looking at the ecosystem on a daily basis?

Arlin Sornensen (14:03):

Well, I mean, we're in a kind of a unique part of this four year cycle that we call an election cycle, and the data shows us that in that fourth year pre-election, things get tough, and we're seeing that across our partner base for sure. Customers are a little slow to make decisions. They're a little bit hesitant to sign contracts. The good news is the data shows that once the election has happened, it doesn't really matter who wins, just that it's done, things get better fairly quickly. So that's been a really positive thing in some ways and certainly frustrating to partners and others because they are saying that customers are slow to decide kind of postponing things, but I think the good news from the data is it'll get better. The other factor that we've looked at is the way that the pandemic ramped up really quick, and then it kind of plateaued.

(15:06):

And growth has kind of slowed a little bit somewhat related to the election cycle, but we're in a cyclical business. And so I think that the thing that is most concerning to me as an evangelist in the industry, Eric, is that there's still between 15 and 20% of partners that report through the service leadership index. So these are folks that kind of have their act together. Almost 20% of them lost money in the last four quarters. So we aren't a terribly healthy industry. I think a lot of that goes to the fact that business owners weren't necessarily really business owners. They were really great technical folks or sales folks that haven't focused on running the business. And I think that's one of the areas that I continue to try to encourage people is to really learn how to run your business so that the fallacy that I hear over and over from people is if I get up and work hard every day for the next two or three decades, somebody's going to write me a big fat check someday to buy my company.

(16:17):

And they hear some of these stories of folks that have had a great exit to private equity or whatever, and they think they're going to get the same thing. And that's not how it works. People don't pay for hard work. They pay for companies that generate a profit, and we have to really learn to run a business well to make sure that we're not in that group that loses money because a multiple of a negative, it's not good. So you got to be profitable, you got to run a solid business, and the time to start is now not to wait until the week before you want to sell it.

Eric Anthony (16:55):

Well, and that's a great point because we are in a downturn right now, right? We're in a sluggish period if you want to call it that, because of the uncertainty. And so what are some of the things that MSPs can do right now to start doing what you're talking about turning the ship so they go from a negative profitability to a positive profitability?

Arlin Sornensen (17:17):

Well, it's not rocket science, right? Control your expenses. So when things are slow, control your expenses, become a company that saves some money. It's not the American way, but it's a really good idea to actually have a cushion that you can rely on. I think one of the struggles I see a lot in our industry is that people, business owners, because they typically came up on the technical side, really don't like sales. And from my experience, until you're 5 million ish or larger, owner led sales is really your best friend. You need to be the key salesperson and the cheerleader for your organization in the marketplace. And I talk to partners all the time that say, I really don't want to be a sales guy, so I'm going to go hire somebody and let them do the selling, and then I'll do something else. That doesn't really work until you're big enough that you can really put that in place.

(18:24):

And so I see over and over people spend a lot of money hiring salespeople, and then three to six months later, they fire 'em because they haven't really sold anything and they believe it's a salesperson's fault. I'm here to tell you it's not their fault. You don't set 'em up for success. They don't have what they need to be successful in the marketplace. And what I see often is they actually go out and sell something and come back and say, Hey, I sold customer X, this particular thing. And the founder will say, well, we don't sell that. That's not what we do. Well, we never told 'em what they should go sell. We'll figure that out on their own. We have to embrace sales. I mean, you can't grow. You can't be profitable if you don't sell things. And so you don't have to love sales. You just have to do it. And that's the number one piece of advice I would give to people that want to turn the ship around, embrace sales and go sell.

Eric Anthony (19:24):

And I agree with you along the lines of those, the owner led selling, and the way that I describe it most of the time is that hiring a full-time salesperson, you have to have two components in place, actually three. The first one is you have to have enough leads coming in to feed them, to give them enough work to produce enough results. The other thing is your service delivery has to be dialed in, and you have to have the capacity in order to fulfill what they should be generating. And if they're not generating that, then they're too expensive. Here's the third key point, and I think this really drives towards the owner led selling, is that A, nobody's going to sell better than you because you're the business owner, everything that's going on in the business. But B, until you understand that sales process, you can't manage that salesperson

Arlin Sornensen (20:22):

And managing the salespeople, that's a whole different experience for sure. But to your point, marketing collateral as an owner, you kind of make it up. But if you're hiring somebody to go out there for you, you need to provide them the tools they need in the marketplace to be able to sell and they need to be managed. I see far too often that they'll hire a salesperson, then they just throw it over the fence and say, Hey, go get them. Good luck. Lemme know how well you did. And that just doesn't work. Salespeople, even good salespeople have to be managed.

Eric Anthony (21:00):

And the other part of that also is compensation plans because you have to dial in the compensation plan correctly to get the right results.

Arlin Sornensen (21:09):

Yeah, absolutely. Absolutely. Compensation drives behavior and far more with salespeople than any other kind of people on the planet, for sure.

Eric Anthony (21:18):

Yep. My favorite expression there is that they are absolutely coin operated.

Arlin Sornensen (21:22):

Yes, so true. So true.

Eric Anthony (21:26):

So along those lines, as a business led sales person or a business owner led sales organization, what or how important is it to dial in your target client profile?

Arlin Sornensen (21:44):

It's very important, Eric. You need to know who the ideal client is that you want to serve, number one, and what does your offering actually fit? Number two, you mentioned earlier, the key of having service delivery that's stellar so that when they sell it, it actually happens. You can't deliver across a real broad base of customers effectively unless you're a large company that has got different teams to take care of those particular kind of clients. So target customer profile is a really, really important thing, somewhat easy to define. It's a lot harder to be disciplined to only sell to those people, and that's where real success comes when you know how to find leads that align to your TCP and then you actually are disciplined to go sell to those folks rather than whoever might want to write a check. Those are the folks that can dial it in and really be profitable. And so it is a very, very important part of the process.

Eric Anthony (22:47):

Now, you mentioned something that I want to dive into a little bit, and that is the product offering because once you have your target client profile, you have to align your product offering to that profile. What's your best advice for somebody who doesn't understand how to align a product offering to their target client profile?

Arlin Sornensen (23:09):

Well, you got to listen to the customer and spend time with the customer understanding the needs of that TCP customer so that you can select products that align and then you can build a team around it that can support that effectively. It all kind of goes together, and so once you know who you want to sell to, you can listen and understand the needs, identify the right products, build a team around it that can actually deliver it and drive success. You can't be held orkel with what you're going to deliver and expect any kind of delivery team to be successful with that. They need the right training. They need to understand the customer situation so they can deliver effectively. So it's a lot of listening and really dialing in the things that will really solve the problem that the customer has. At the end of the day, that's what we're trying to do is solve their particular needs. And the more we can narrow those and have the right solution, the more effective we're going to be and the longer they're going to stay a customer.

Eric Anthony (24:17):

And speaking of them, being a customer for a long time, one of the things that I've seen in terms of profitability is it's much easier to raise the profitability and raise the overall revenue on an existing client than going out and getting new ones. So how does that fit into the equation of trying to go out and get additional revenue or wallet share from existing clients?

Arlin Sornensen (24:43):

Yeah, I mean, you're certainly a hundred percent right. It's a lot easier to get more revenue, more profitability out of a current customer than to go out and get a new one. Customer acquisition cost is a significant cost, so you sure don't want to be going out and acquiring customers that aren't in your target customer profile because you're spending a lot of money to get somebody you really don't want to serve anyway. But finding, again, listening to the customer and what are the things that are changing in their environment? What are the new opportunities? What kind of growth have they had that are going to provide new ways that you can serve them better? It's a matter of really just listening and observing and understanding if the TCP is in a particular vertical, that vertical expertise that you might have is a huge value to that customer. There's lots of ways you can kind of increase the wallet share, but it does require you to be actively engaged with the customer and understanding their business. And right now with AI and automation and all the other things that are coming to market, there's a ton of opportunity to do more with our customers and increase that wallet share by understanding how these new tools might impact their businesses.

Eric Anthony (26:01):

Yeah. Well, Arlan, thank you so much for joining me today. I really do appreciate it. I hope that we get to see at IT Nation Connect this year. Are you going to be there?

Arlin Sornensen (26:10):

I'll be there. Yeah, absolutely.

Eric Anthony (26:12):

Okay. And if anybody here has not seen our offer, ConnectWise has very kindly offered a discount code for all things MSP members, and that is all things Ms. P two 50. So you get $250 off your registration to it Nation Connect for 2024. So hope to see you there. Arlan, thanks again for being here and giving us such great information on how these MSPs, especially in these sluggish times, can work to improve their profitability.

Arlin Sornensen (26:44):

Absolutely. It's great to be with you Eric. We'll see you in Orlando.

Eric Anthony (26:47):

Thanks for listening and don't forget to subscribe to us on your favorite podcast platform. You can also follow us on Facebook, but better yet, go ahead and join the Facebook group. You can also follow us on Instagram if that's your thing, and make sure you subscribe to our YouTube channel at all things MSP to catch us in all of our video glory. And last, but certainly not least, if LinkedIn is your thing, you can follow us there as well. And a special thank you to our premier sponsors Super Ops Move Bot goes into Easy DM a C and comtech, and we also want to thank our vendor sponsors. The All Things MSP podcast is a biz POW LLC production.