MSP Growth: M&A Insights, Human Capital, AI Readiness, & Business Transformation w/ Nelson Gomes

[00:00:01] Dave Semble here, reporting from IT Nation Connect with Nelson Gomes. Nelson, you are the CEO of Battaglia Group and you've got a great career history. And actually, I want to get a little bit of perspective for the audience of what you've done that brought you to this point.

[00:00:16] So, I started my business at the time, it was called Priority One Group back in 1997.

[00:00:23] And this was like an MSP IT Services company?

[00:00:25] I turned into an MSP IT Services company. At the time, there were not really that many MSPs back in 1997. So, it grew into an MSP.

[00:00:34] And my focus was really in healthcare. So, I was vertically focused in the New York metropolitan area.

[00:00:42] And then in 2019, I got acquired and merged with Medicus IT.

[00:00:48] Okay.

[00:00:48] It was a great decision for me. It was an opportunity to really grow and anchor myself with an organization that was

[00:00:55] really focused in healthcare as well from a national perspective. And that was kind of the goal for me.

[00:01:00] So, in 2019, we merged.

[00:01:03] And in 2024, in April 2024, as I kind of when I left the organization, I'm still a shareholder and proud of it.

[00:01:12] Medicus really gave me an opportunity to really not only grow as an organization, but grow as an individual in that market.

[00:01:20] Right.

[00:01:21] Kind of going upstream. It's a different animal. So, it was an amazing journey. And now I want a new one.

[00:01:27] Okay. So, I want to ask one thing about that because it's interesting. We talk a lot about the M&A market right now.

[00:01:32] Sure.

[00:01:32] There's tons of information for a provider who's looking to get ready.

[00:01:35] But what I'd actually like to get a little bit of insight into, particularly because you're five years post-acquisition.

[00:01:42] Tell me a little bit about the thesis that was on the side of the buyer here.

[00:01:48] What they were trying to get out of the acquisition and how that worked over the five years.

[00:01:53] I think, from my perspective, it had to be a good fit.

[00:01:57] And I think there's a couple of things to think about, right?

[00:01:59] One is obviously vertically focused.

[00:02:02] Two healthcare focused MSPs.

[00:02:05] So, healthcare was important.

[00:02:07] The other piece, I think it was culturally.

[00:02:09] Okay.

[00:02:09] Because there's a cultural fit between both organizations and the offerings and the stack.

[00:02:14] There was a lot of things there that we had in common, which made it a lot easier from a transition perspective.

[00:02:20] And for me, during that decision process, because I had multiple opportunities, was what's the best match for priority one?

[00:02:28] Not just for me and myself, but for my clients, more importantly, and for my team that was with me.

[00:02:36] I wanted to make sure that all had meshed well together.

[00:02:40] So, that was part of my decision process to make sure that M&A between myself and Medicus and priority one made sense.

[00:02:47] And obviously, it looks like it did.

[00:02:49] Yeah.

[00:02:49] It was a great opportunity.

[00:02:51] You know, we started off just under, I think it was around $17 million in top line revenue.

[00:02:57] By the time I left the organization, we were under just about $75 million.

[00:03:04] We recently brought on a new partner, you know, a private equity partner that now, you know, the opportunity to really grow is going to be pretty amazing.

[00:03:17] So, I'm excited to see where they're going to go with it.

[00:03:19] So, you're actually in a particularly unique position, both involved with one, but also doing some independent consulting and talking to MSPs.

[00:03:27] Give me a little bit of your sense of the lay of the land of the challenge.

[00:03:31] We're talking late 2024.

[00:03:32] Sure.

[00:03:32] As we're thinking about 2025.

[00:03:34] What are you thinking the number one and two biggest challenges that providers are going to be facing in, say, the next 12 months?

[00:03:41] I think it's, you know, I think it's going to be human capital.

[00:03:45] Okay.

[00:03:46] I think that one of the challenges that organizations have today is to find that human capital.

[00:03:54] Not only find it, but find the right one.

[00:03:55] Whether it's from a technology perspective, whether it's from an advisory perspective to advise clients, which to me, I think it's two different things.

[00:04:04] And then also from a sales perspective, if you're growing your sales team, you need to have people that are, you know, that are really focused and have that knowledge in order to do so.

[00:04:15] For me, I think capital, I think human capital is the top one.

[00:04:20] And I think it's the other pieces, you know, operational maturity.

[00:04:28] I've gone through it.

[00:04:29] I went through it.

[00:04:29] And I'm seeing other MSPs having these conversations where they hit a ceiling is, oh, I'm at $3 million.

[00:04:34] How do I get to the next, you know, to that next million or, you know, the next $5 million?

[00:04:39] And the game of managed services, you know, $3 million to, you know, you go to $5 million, it's totally different.

[00:04:47] And it has to do with the client that you're going after.

[00:04:49] Right.

[00:04:50] And I think as you mature as an organization, the way you do business for, for, with a client that's 20 users versus 100, it's totally different.

[00:04:59] The sales cycle is totally different.

[00:05:00] The expectations are totally different.

[00:05:02] So you said something in there that I really want to call out specifically because thematically you said a couple of things that we're very familiar with, like increasing your operational maturity or increasing your sales competency or, and by the way, we'll get into some of the technical people.

[00:05:15] You said something about hiring business type people.

[00:05:19] And it's interesting to hear you say that because one of my current working theories on this is that most providers are going to be leaning heavily into more business analysts and building out those teams.

[00:05:31] Tell me a little bit more about what you saw in your organization is what you're also seeing out there in terms of the demand for those business analysts.

[00:05:39] I think as you grow upscale, you need to bring in talent from a leadership perspective, from a growth perspective that have gone there and done that.

[00:05:53] As entrepreneurs and owners, you and I know this, right?

[00:05:56] We wore that hat.

[00:05:57] Right.

[00:05:57] Oh, I know how to grow.

[00:05:58] I know how to sell.

[00:05:59] I know how to lead.

[00:06:00] I think what you find as you get bigger as an organization, you have to be more specific and dedicated, developing those individuals and those teams to really be mature.

[00:06:12] I keep using that word because that's what it is.

[00:06:15] Right.

[00:06:15] We come from a side hustle.

[00:06:19] That's how I started it.

[00:06:21] Right.

[00:06:22] And we have a certain skill set.

[00:06:24] After that skill set, I don't know, right, being part of a peer group like IT, I think it's super important, right?

[00:06:33] It helps you really understand what you need to do.

[00:06:36] But as you grow and having the right people in the right spot to help you get there is going to be critical.

[00:06:43] And those business type of people are people that have already been there and done that.

[00:06:47] They're going to help you along the way.

[00:06:49] Okay.

[00:06:49] Now, as owners, sometimes we're like pushing back because we think we know it all.

[00:06:53] And I think it's important for us to be open to those types of individuals that are going to come into the organization.

[00:07:00] That makes a ton of sense.

[00:07:01] Do you think that those skills, though, when I think about a business analyst, I'm also thinking about as a service offering.

[00:07:07] Like, you know, you talk about when you go into a 100-person organization.

[00:07:11] You're not coming in there necessarily to sell routers and switches.

[00:07:14] What you're actually going in there to talk about is let me help you use technology to do a better job with business outcomes.

[00:07:21] Yes.

[00:07:21] And, you know, you're serving a 100-person organization.

[00:07:25] When you talk about an organization, even at $15, $20, $30 million, all the way up to $75, that's not you, the owner, going and doing that work.

[00:07:33] So you've got to have some people there that have business chops to be able to do that.

[00:07:39] Talk to me about the need and what those people look like and what they're doing in a successful order.

[00:07:45] I'm going to relate this to the healthcare article because it's something that I'm very familiar with.

[00:07:50] Yeah.

[00:07:51] What we found is understanding the business of healthcare is crucial.

[00:07:56] Okay.

[00:07:56] Because the business of healthcare, there are certain things that go into play as far as providing that kind of service from a technology perspective.

[00:08:08] And having someone that understands the business of healthcare and understands technology and bring that together is essential.

[00:08:15] Okay.

[00:08:15] And I think what we were very successful at Medicus in doing was really what we called VTEs, which is Virtual Technology Executives.

[00:08:24] Those folks were your VCIOs but at another level.

[00:08:29] Sure.

[00:08:29] That understood what was going on in the industry as far as healthcare with the intent of how do we improve the patient experience?

[00:08:39] It's a patient.

[00:08:40] That's the intent.

[00:08:41] And what is it that maybe today they don't have, the challenges that they have in order to get there?

[00:08:46] Because in this day and age, you have an orthopedic on this side of the block and there's another one on the other side.

[00:08:52] They have to compete for patients.

[00:08:53] But at the same time, you also have to understand how you're going to involve that patient care.

[00:08:59] And part of it has to do well.

[00:09:00] Go to Dr. Smith at Orthopedic 123 because they really know what you're doing, right?

[00:09:05] Right.

[00:09:05] And that experience was unbelievable.

[00:09:07] You have to go there.

[00:09:08] So there's that competition.

[00:09:10] So to be able to foresee that from offering what we do as a technology company is huge.

[00:09:18] Finding those individuals that understand that business is crucial.

[00:09:23] Understanding what makes that healthcare organization tick.

[00:09:27] What are the challenges that they're going through?

[00:09:29] You know, from a payer perspective, right?

[00:09:31] We know that orthopedics versus pediatrics, it's a big difference on how they deliver service, right?

[00:09:37] Also in that business, what is the reimbursement from an orthopedist to a pediatric is a big difference, right?

[00:09:45] So those are the things that I believe are valuable in an MSP to understand that the business that they're serving.

[00:09:51] It makes such sense.

[00:09:52] I want to touch then on your human capital problem because what you've just described is an incredibly sharp human resource who has to have a combination of healthcare expertise and technology expertise layered on with business expertise.

[00:10:09] Are you building these people?

[00:10:12] Are you buying these people?

[00:10:13] Is it all?

[00:10:14] Talk to me a little bit about that process because obviously you've done it a bunch.

[00:10:18] How does that process work to have and create those resources?

[00:10:22] Well, I would tell you that a lot of it comes from, in our case, managed service providers that are in healthcare.

[00:10:30] Okay.

[00:10:30] Right?

[00:10:30] So that have that experience and they've built themselves up to that point where you could nurture them to be this VTE type of individual.

[00:10:39] Okay.

[00:10:39] I think it's a challenge, you know, to find somebody outside of what you're trying to build or what you're trying to elevate to get them there.

[00:10:47] Because one, it's a unicorn.

[00:10:50] Right.

[00:10:51] You have to find somebody not only that they're technically sound and understand, you know, that role of the VTE or the VCIO, but also understands the business of healthcare.

[00:11:01] Okay.

[00:11:01] So what we've found, and I, you know, credit to the team at Medicus is they've gone to people that are more focused on the healthcare side of things than on a technology.

[00:11:12] And we can bring them up to that and elevate them to that function, you know, as being that VTE to provide that type of service.

[00:11:19] Again, you said something that's really insightful there because they focused on the healthcare skills and you augment with the technology skills where many, you know, many MSPs might start on the technical skills and think they can teach business skills.

[00:11:34] I think that's a really useful insight.

[00:11:35] And here's the way I see it.

[00:11:36] With the Gartner interview, you know, they have the run-grow transformation, right?

[00:11:40] Yeah.

[00:11:40] And grow, most of your time is spent on data.

[00:11:43] I mean, on the run side, it's block tackle, right?

[00:11:45] That's where the most of your time is being spent.

[00:11:47] Then you have grow, where grow is you're helping those clients grow.

[00:11:53] There's a return on your investment when you do grow.

[00:11:56] But when you do transformation and you can help transform that client, in our case, with that patient experience, it makes a huge difference.

[00:12:05] And I think more MSP needs to start thinking about transforming, growing.

[00:12:10] The run will come.

[00:12:12] Trust me on that.

[00:12:13] That makes a ton of sense.

[00:12:14] I want to pivot a little bit because there's another area that I've been thinking about a lot, and I think you have really great insights.

[00:12:21] Well, we've gone, you know, I keep laughing on these interviews.

[00:12:24] I've managed to go 10 or 15 minutes without mentioning AI, right?

[00:12:28] But I think we have to have a conversation about it because it is starting to change.

[00:12:32] And the area that I'd like some of your insight on is I think we can generally agree that AI is going to be a thing.

[00:12:38] And it's going to be.

[00:12:39] Absolutely.

[00:12:39] We can have debates over the timeline.

[00:12:42] But I don't think that's what's useful.

[00:12:44] What I actually think is useful is understanding the steps to be ready for it.

[00:12:48] And I want to throw out an idea, and I want to get your reaction to it.

[00:12:51] I've been thinking a lot about the fact that most organizations, and healthcare would be a great example of this, are not data ready to take advantage of this.

[00:13:01] Even if you're going to have a conversation about AI, the first step is around data governance, getting your data ready, making sure that it's tagged, organized.

[00:13:08] You've had philosophical discussions about what we're allowing, what we're not.

[00:13:12] There's compliance and legal issues.

[00:13:15] And I love that area because that's an opportunity for MSPs, regardless of AI itself, that has value in doing that work.

[00:13:24] Give me your reaction to that premise and what you think about the data governance side of that, particularly because you've got expertise in healthcare.

[00:13:31] So I think from the healthcare side, here's what we're seeing.

[00:13:34] There's a lot of investment going into AI for a lot of these EMR companies, right?

[00:13:40] They're providing that mission-critical platform for physicians to be able to work.

[00:13:46] I think on the clinical side, you're seeing some of it, but ultimately the physician needs to be able to make that last decision, right?

[00:13:55] Sure.

[00:13:56] Where we're seeing a lot of it, especially in healthcare, is on the diagnostic imaging, which is huge.

[00:14:02] So especially in mammography, I use that as an example.

[00:14:05] You go for a mammogram, they run the test, they identify some things, and then they compare that image with millions.

[00:14:14] Right.

[00:14:15] With one click.

[00:14:16] No, no, no.

[00:14:16] You can't do that.

[00:14:17] You know, when radiologists are comparing, you know, one at a time.

[00:14:21] So I think there's a huge value from that perspective.

[00:14:24] As far as making clinical decisions, I think physicians are hesitant.

[00:14:29] Now, what I do see is on the operations side where media tasks that are those, you know, for example, on the RCM side, which is the billing side of things,

[00:14:39] is that you keep doing this, where AI could be, and we're seeing it already, that we're being integrated into the EMR to be able to do this tedious task thing,

[00:14:47] to be able to kind of minimize that.

[00:14:50] Right.

[00:14:51] It's huge.

[00:14:51] So as far as healthcare is concerned, the adoption rate, you're seeing it going higher and higher because they can do more with less.

[00:14:59] Okay.

[00:14:59] On the MSP side, I think we're seeing that a little bit now is what are some of those immediate tasks from whether it's tickets,

[00:15:07] whether it's, you know, day-to-day operations.

[00:15:09] I think you're seeing more and more of it implement.

[00:15:11] I think it makes sense doing more with less more efficiently.

[00:15:17] Right.

[00:15:17] I think it's an investment that any MSP needs to think about.

[00:15:21] Got you.

[00:15:21] I think it's still a little bit young for me.

[00:15:26] Okay.

[00:15:26] I think it's important that MSPs don't dismiss it, but also don't jump into it.

[00:15:31] Right.

[00:15:32] Again, I go back to, you know, being part of these peer groups, how important it is to be able to go into your peer group and say,

[00:15:38] I'm thinking about implementing this.

[00:15:40] And then you might have, you know, those other members in that group that are like, well, here's what I did and here's what happened to me.

[00:15:46] Like that research that you would need to do for that goes away because now you have the feedback from that team.

[00:15:52] And the only reason I say that is because that's what I experienced through that process.

[00:15:55] So for me, I think AI is here to stay.

[00:15:58] I think it's a matter of how it's going to be adopted and what impact is it going to do to your clients and to the MSPs.

[00:16:05] Gotcha.

[00:16:06] So the last service, I'm kind of wrapping up.

[00:16:08] I want to get a little sense.

[00:16:09] You've been doing some interesting work to start working with MSPs and be an advisor for both some MSPs, some investors.

[00:16:16] Sure.

[00:16:17] Give me a sense of what the most interesting and exciting questions you've been asked.

[00:16:21] Like what's the ones that get you excited to dive in on?

[00:16:25] A lot of MSPs say, hey, how can I get 15x from my event, you know, from what I'm doing today?

[00:16:31] I was like, well, I need to grow your business at least, you know, at a minimum $10 million in EBITDA.

[00:16:38] What?

[00:16:38] I'm not even $10 million in revenue.

[00:16:40] Okay, let's figure out a way how to get that.

[00:16:42] So that's one of them, right?

[00:16:44] But the good news is it's the seller's market right now.

[00:16:48] That's, you know, that's what I've seen.

[00:16:49] I think, you know, everybody agrees that you're probably going to come here to IT Nation and there'll be, you know, suits.

[00:16:54] Yeah.

[00:16:55] Private equity guys say, hey, what are you doing?

[00:16:57] You know, what you're thinking about.

[00:16:58] I think that's a good thing, right?

[00:16:59] I think that we didn't have that.

[00:17:01] You go back, you know, five, ten years ago, that never existed.

[00:17:05] So I think the market's telling us that there's value in what we do.

[00:17:10] For you MSPs that are out there, you're valuable.

[00:17:13] It's just a matter of identifying how valuable you are at this point in time and what are the things that you need to be able to do to get to that next level.

[00:17:23] Sometimes people think, well, I need to, you know, to grow three more years before I go to market.

[00:17:30] Not necessarily.

[00:17:30] Because if you partner with the right person and come under an organization that can grow you faster than, you know, than if you did it on your own.

[00:17:40] At the same time, you have a multiple where you're reinvesting in that organization.

[00:17:45] I assure you that that multiple is going to come, you know, with that type of, you know, with that type of, you know, partnership that you're going to have, whether it's from an investment or another MSP.

[00:17:58] It's about getting your numbers in order.

[00:18:00] Your house in order.

[00:18:02] Right?

[00:18:02] Understanding how you're doing your business and that you always should look at, I'm going to sell tomorrow.

[00:18:08] And if I'm going to sell tomorrow, am I in the right place?

[00:18:11] Right.

[00:18:11] What is it?

[00:18:12] What are the priorities?

[00:18:13] And then think about, there's going to be a whole bunch of stuff that you're going to find out.

[00:18:16] I need to work on this.

[00:18:17] Just work on two and improve those two.

[00:18:19] And I assure you that you'll see a great result.

[00:18:23] Makes a ton of sense.

[00:18:24] Now, I know you love working with MSPs.

[00:18:25] If people are interested in getting in touch with you.

[00:18:27] Sure.

[00:18:27] What's the best way to do that?

[00:18:28] Listen, I give out my cell number.

[00:18:30] This might be dangerous.

[00:18:32] You can call me at 201-952-3748 or look me up at nelson at fortaliagroup.co.

[00:18:40] How's that for a way to get in touch?

[00:18:42] Nelson, thanks for joining me today.

[00:18:43] Thank you.

[00:18:44] Appreciate it.

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