Navigating Market Turbulence: Tariffs, AI Opportunities, and Flexible Billing for MSPs with Karl Palachuk and Jay McCall

[00:00:14] We're diving into the latest market turbulence, explaining how tariffs might delay deals, and examining whether AI could become a lifeline for businesses looking to do more with less. Plus, we'll discuss why standardization might become a liability and how flexible billing models could help providers weather the storm. Jay McCall and Karl Palachuk join me today. Welcome to the Business of Tech Lounge, the live version of the Business of Tech Podcast. It's Wednesday, April,

[00:00:44] 9th, 2025, and I'm Dave Sobel. We'll be taking questions and comments throughout the show, so make sure to put them in chat. If you have a question, we will happily respond to it. Now, I want to thank Sales Builder, our Patreon sponsor whose support makes this show possible. Focus on your IT sales workflow with the power of automation and visit them at salesbuilder.com. That's B-U-I-L-D-R dot com. A reminder, I am watching the chat and I'll keep an eye out for questions.

[00:01:14] Jay McCall is a seasoned editor and journalist with over 20 years of experience in B2B technology journalism. He's the co-founder of Managed Services Journal and Dev Pro Journal, where he provides valuable insights and guidance to IT solution providers and managed services providers. Jay, welcome to the show. Hey, thanks, Dave. Great to be here. I'm excited to have you on. We're going to mix it up today.

[00:01:39] Carl Palachuk is a distinguished author, speaker, and consultant with over 25 years of experience in the IT services industry. He's recognized as a pioneer in the managed services business model and has authored more than 20 books, including the influential Managed Services in a Month. He's also my co-host on the Killing It podcast. Carl, welcome to the live show for your first appearance here. Thank you. It is great to be here and I appreciate you inviting me.

[00:02:05] Well, I am looking to mix it up with you guys today a little bit. Now, let's set a couple of ground rules because timing really matters on what we're talking about. We are talking on Wednesday about 3 p.m. Eastern. Less than two hours ago, the tariffs that we've been talking about earlier in the week with market dips were put on a 90-day pause and the ones with China are now raised to 125%. Some of you may be listening to this recording, which is going to drop on the podcast feed in a day or two.

[00:02:35] And so things may have changed. Now, I think it's important that we're going to have a conversation broadly about the impact of tariffs because that's not something we have normally talked about in the IT channel. And Carl, I'm going to ask you first also because you've got a really interesting initial take on all market conditions that I think is advice that's worth starting. Well, thank you.

[00:02:58] I think part of what happens in any slowdown or recession or whatever, anytime there's economic uncertainty, there's a couple of things you have to remember. First of all, your clients are going to want some advice and you need to become the advisor. And the second thing is you are, as Michael Gerber says, an economy of one.

[00:03:19] So you have to focus on your clients, focus on your employees, focus on your products, your little business. No matter, it can be $20 million, but your business needs to focus on exactly what you can control because you don't control hardly anything else in the rest of the world. So, you know, I just really encourage people to double down on taking care of their employees and their clients.

[00:03:48] And to that end, I've pushed forever since day one. You should be having regular meetings with your clients. Help them get through whatever's going on, even if it just means, hey, I will listen to you. Right. Like literally on a very personal level, I will listen to you and I will help you if I can. And if things get bad, well, let's make sure that we go through this intelligently.

[00:04:12] Some clients will also have extra money to spend and they're waiting for a downturn so that they can gobble up some new technology and be ahead of their competition when the smoke clears and everybody else starts buying again. So, you know, you don't know what's going on with your clients until you sit down and ask them and have those conversations. Now, that is exactly the place that I wanted to throw to Jay a little bit here.

[00:04:39] So, Jay, I know you're doing the same sort of thing that I'm doing, which is listening and talking to providers right now over the past couple of days. What are you hearing in terms of the kinds of concerns that they've got?

[00:04:50] Well, you know, I mean, what's going on now, Dave reminds me, you know, I think back when else in our lifetimes have we seen these kind of this kind of turmoil happening, you know, and I'm reminded just, you know, five short years ago back to the pandemic and even much earlier back in 2008 with the.

[00:05:11] You know, the recession we went through with the housing market collapse and I think there's going to be, you know, several parallels, you know, this time around. Even though each one of these crises in our economy, you know, came about for different reasons, you know, with the 2008 housing market happening because of many poor loans that weren't being funded.

[00:05:39] And then, of course, you know, the pandemic with the coronavirus and now through these tariff wars. But I think the parallels are going to be that you're going to see some companies that are going to, you know, want to retract, want to, you know, maybe they had some larger scale IT projects that were in the works, but they're going to delay those. And some things will get canceled. And some things will get canceled.

[00:06:08] However, you know, like I think Carl alluded to that there will be, you know, like we saw during the pandemic, that was a time when we saw a big uptick with the digital transformation. You know, people were couldn't go into the office. So, you know, we saw a big rise in the unified communications technology spending.

[00:06:35] And I'm thinking there's going to be similar things happening this time around, perhaps with AI and we can get into that a little bit later. But those are kind of some of the things I'm starting to see right now. We're kind of early in on this particular crisis.

[00:06:55] And, you know, like you mentioned, we have a little bit of a got a little bit of a retrieve reprieve here with the 90 day pause on things. However, just, you know, like a lot of these economists have been predicting, you know, there's I'm sure they're not going to change their projections about what this means for this year. I mean, there's still a lot of uncertainty happening because of this.

[00:07:22] So I think as a result, we're going to see some parallels from the previous two crises. Well, I was with you. I'm with you exactly on that because I think it's the volatility of what's happening right now that I think is the most concerning. One of the pieces, you know, I'll note that the announcement that came less than two hours ago was that this is a pause, not a reversal, with an implication that they are still hanging out there and the markets don't like uncertainty.

[00:07:47] Carl, I know you operate, you know, you and I both operated MSPs during the 2002 downturn as well as the 2008 one. We both ran businesses through the COVID downturn. Are there particular patterns of buying behavior or strategy that you're kind of anticipating or watching for during these times of volatility?

[00:08:10] Well, you know, all the pundits want to say, you know, is there a parallel to 1987, a parallel to 2002 or whatever? I will say there's a quiet lesson that a lot of people experienced and didn't learn in the 2008, 9, 10, 11 recession. And that was this. Well, over on one site, Microsoft was introducing Server 2008, right? Launching all this kind of stuff that people are like, oh, no, we got to buy all these servers, got to buy all these servers.

[00:08:39] Skip ahead a bit. When we came out of that recession, the cloud had exploded. Everybody who was uncertain said, well, I'm not going to buy hardware. I'm going to put stuff in the cloud. And, you know, nobody really paid attention to the fact that there was resistance to the cloud for a lot of businesses, especially at the small end for 10, 15 years. And, you know, you and I preached for 10 years before that. Get to the cloud. Remember when we did that show?

[00:09:10] And then the recession happens and everybody moved to the cloud. And when it was over, Microsoft was literally announcing, well, there's just like now we're ready for Server 2011. But, you know, not that many people bought into the last product. So we're not sure what we're going to do. And I think we're going to see something very similar here.

[00:09:30] I think that we're going to see is a lot of people say, I'm unsure about how I source hardware if I can't get it from China and I can't get it from any other country because of tariffs. And everything's going to be different in that uncertainty will drive them to cloud services. And now it becomes Amazon's problem or Microsoft problem or, you know, whoever's providing cloud services. How you get me that technology becomes your problem and not my problem.

[00:09:58] So I think we're going to see another huge move. The people who aren't in the cloud already are going to put a lot more services there. I would be leery about tariffs on services, which has not gotten a lot of play yet. But that will be a specter we have to deal with at some point. Now, I want to do a follow up there before I move on to the A.I. opportunity, because I think Jay alluded to it and I think we want to go there. But I actually want to get a little bit of insight. Carl, I'm going to ask you first on this.

[00:10:26] I've been thinking a lot about the idea of standardization with prices particularly fluctuating a lot on potential tariffs here. And I think one of the things that's really interesting to me is the idea that MSPs really lean into the idea of standardization, particularly when we think about hardware. And we've kind of moved to this idea of hardware being really commoditized.

[00:10:48] Well, one vendor's choice of their supply chain may make a real difference in their end user pricing over the next 12 months. I already reported on the show that, you know, one manufacturer framework who is very consumer focused has already paused sales in particular lines because they can't make predictions about their supply chain.

[00:11:07] Are you thinking about the impact of standardization to the way MSPs deliver hardware in a world where it's not all the same anymore on a price perspective? How does that work? Right. Well, and in some ways it is. It's interesting because both the cloud and A.I. give us the opportunity to say, look, what do clients want? They want results. They want an endpoint. They want something that will make their business better.

[00:11:36] How we get them there changes over time. And I do think this is an opportunity to say, all right, let's standardize on what the outputs are, not the systems we use to get you from point A to point B. You know, clients only bought a server in whatever, 22,000 because we sold it to them. Right. They didn't want a server before that. Then we convinced them of it. Then they didn't want the cloud, but we convinced them that they need the cloud.

[00:12:03] And so it'll be a great opportunity for somebody to say, OK, what are the systems that can standardize this? What are the systems that we can develop so that MSPs have something to sell that they can rely on and that they don't have to worry that the prices are going to go up 50 percent, 25 percent, whatever. We need predictability. Unfortunately for me, I've always advocated short contracts, not three year contracts, but longer contracts help you to stabilize prices.

[00:12:34] But now we're in the era where that also might mean that the people signing the other side of the contract might be out of business and won't be able to fulfill the three year contract. So it is an opportunity for us to figure out what our opportunities and options are in the world will look different when this is over. Do not think that we're just going to go back to what we did before. You know, Jay mentioned the pandemic. Everybody talked about like, oh, we can't wait to get back to what we have. The world does not go back.

[00:13:04] The world only moves forward. So you have to think about what the next reality is and not worry about the last reality or getting back to it. It's gone. Right. It's gone. Right. We live in the new one. And Jay, it's clear you've been giving some thought to what the new one looks like. And you brought up the parallel to the pandemic. And you this idea of during that time, there was this idea of 10 years in a very short period. Yeah. Do you think there's much of like you mentioned AI? Do you think this is a parallel moment with AI?

[00:13:33] Like, is that where people may be leaning into or is there something else on your mind in terms of trends to be looking at now? Yeah. You know, there's a couple different technologies and trends that have been following. And I'm wondering if they either both or either one could become what we saw with unified communications in, you know, back in 2020.

[00:14:02] And, you know, one of those is agentic AI. And I know you've you've talked about that a little bit on your shows and covered it recently. And, you know, something it's, you know, I'm starting to hear more and more about it as you know, vendors are releasing agentic AI products. And so basically this is, you know, kind of for those that maybe it's newer to them.

[00:14:27] This is kind of like the next maybe iteration of of AI with, you know, so it was generative AI that that took the world by storm a few years ago, you know, with what we know now, you know, chat GPT and Gemini and so on that. And just had an undeniable, you know, change in all of our lives.

[00:14:47] So with agentic AI, think of like AI powered agents that can plan your next trip overseas and make all travel arrangements, you know, human like bots that act as virtual caregivers for the elderly, for example, or AI powered supply chain specialists. So in other words, it's kind of taking that what we've known as chat bots to the next level.

[00:15:10] You know, so these are these agentic AI bots can act more autonomously to achieve goals without the need for constant human guidance. You know, so that's, you know, very interesting and very promising technology. You know, one estimate that I saw recently suggests that this market it's, you know, currently, you know, was valued at a little over 5 billion last year, you know, 2024.

[00:15:37] It's expected to reach almost 200 billion by 2034. So just, you know, huge, you know, growth potential there. So it's very promising technology.

[00:15:51] However, if I could just share, you know, one story that I was working with a very large MSP recently helping them to develop some educational materials that they want to share with prospects. And I think it kind of illustrates, you know, it'll help better explain why I'm a little on the fence with this technology.

[00:16:13] So this MSP was working with a very large US city that was looking to make a major upgrade to its contact center, right? So it's 311 contact center. So 311 is all for, you know, non-emergency. Right.

[00:16:36] So this is, so they have this, you know, legacy on-prem contact center technology and, you know, their call center agents were being overwhelmed. You know, they handle, you know, they serve over 8 million residents, support 175 languages. Just to give you a sense, this is a very large operation. Sure.

[00:16:58] And this, this MSP came in with a proposed solution with a major cloud provider. It's not yet public. It's, it's going to be, it's supposed to go live here in June. So hopefully early, early teaser then for everybody. Yeah, a little teaser. Right. So they put together a proof of concept with this major cloud provider.

[00:17:22] And interestingly, another major cloud provider also, you know, wanted in on the auction. So, and they went directly, you know, wanted to work directly with this major large city.

[00:17:38] You know, long story short, this MSP, they were, they were, you know, listening to the client and put together a proposal that allowed them to use, keep their existing on-prem contact center solution. And then it worked with this cloud provider. They took a few extra steps to put guardrails in, with their AI solution.

[00:18:04] So they only looked at the, the call center database. Whereas the competitor, another major cloud provider, seemed like they just kind of opened up the system to the entire internet. Long story short, in the proof of concepts, the MSP, because they take an extra time to put in the guardrails and do things right. They got much better outcome with the, with the proof concept.

[00:18:33] Whereas the major cloud provider, and it almost, you know, it's almost mind boggling to think that this happened. They had serious issues with AI hallucinations happening. So, you know, in other words, someone would, would contact, you know, call into the center and, you know, asking for, for something about like how to get a permit to upgrade their electrical service for a business or something. And it was giving incorrect information, right?

[00:19:02] Because they, they didn't take that time to lock it down. And I think the story illustrates a couple of, of really critical things that number one, I mean, the thing that's exciting to me is that this was a scenario of a MSP winning a very large deal over $15 million deal. And even though they're, they're larger than themselves, but compared to the cloud provider, they were going against, I mean, there was several times bigger than them.

[00:19:29] But they took the time to really listen to the client, understand the needs and, and do the extra work to really get this AI under control. And then that environment, it can work and do wonderful things. Surprisingly, the much larger cloud provider didn't do that and just kind of wanted almost tried to stiff arm the end user into like, hey, we're going to, you're going to need to do a rip and replace. And we're going to go all in on the cloud. And at the end of the day, the proof of concept was filled with problems.

[00:20:00] So I guess I, I think about this in terms of agentic AI is that it's got huge potential, but it isn't a scenario where, you know, you just implement this technology and, you know, it's, it's going to do everything for the customer. There's potential huge problems.

[00:20:20] If, if MSPs don't put in the right guardrails like this MSP did, I think that's an important takeaway, especially at a time like this, where like Carl talked about, this is an opportunity where, you know, companies are going to be, you know, looking to make strategic investments like this. And, but this is also an opportunity for MSPs to really make sure that they understand these technologies rather than just implementing it and hoping for the best. Yeah.

[00:20:48] And Jay, it's really interesting because in the time of agentic AI may be a good motivating factor, a preview for those watching live. By the way, if you're watching live, throw in a question or comment into the chat, because we will definitely take it. But a preview for those of you watching live on today's news show, I actually talk about the fact that Spotify just made a big set of announcements about the way that they're going to do hiring going forward. They're only going to hire in cases where it's been proven AI can't do the job.

[00:21:16] And additionally, they're rolling AI into performance reviews of all of their employees going forward to show that the use of AI has been linked to their job descriptions. And I find this kind of really interesting to think about it. But Carl, as I sort of think about this, one of the things thematically that I keep hearing from everybody that I interview to talk about this is the fact that there's a lot of data preparation work that needs to happen before these agents and AI are ready.

[00:21:45] I know you spent a lot of time talking in your community with MSPs about this. How prepared are providers to offer like the data readiness and data governance work required to be effective to make agentic AI even work? Well, I'd say today most MSPs are not prepared or even close. And part of the problem is they're waiting for somebody to come up with the killer app.

[00:22:12] But, you know, sometimes the killer app is you have to do the work. Right. At the end of the day, the reason that we really have to separate, you know, the generative AI from agentic or analytical AI is that, you know, you can get away from the hallucinations by simply saying, look, I have a very clear job I want to do. For example, I want to analyze all of the meetings I've been in on Zoom.

[00:22:40] So I need to get those attendance reports. There's an API. There's a reporting function in Zoom. I just need to figure out how do I connect that to my internal database, get the data in and run some very specific questions. It's sort of like you could spend some time programming that in SQL or whatever, or you could do that much programming and let AI figure out how to do the right.

[00:23:06] That's a skill that's a task that's a thing that you could create and do. But you can't keep selling exactly what you've been selling for the last 10 years and expect something different to happen. You've got to go to school. You've got to get that new skill set. And you have to, you know, invest in your clients and in your personnel because your people can do all of this, but it's not going to happen by itself. You have to take the steps.

[00:23:36] And, you know, I like to say I like to remind people everybody knows this, but the best time to start was five years ago. Second best time is today. Right. So it can be done and you do have the skill set to learn much faster than your clients. And once again, it's all about have those meetings, customize solutions for your clients and for what they're doing. Just don't just keep selling the exact same stuff that you've been selling because that that will not be good for you in the next few years.

[00:24:05] Now, I'm going to ask both of you this one because I've been thinking about it a lot. I feel like we're going to be in a period of time where there's going to be a lot of uncertainty. In fact, I think there could be an argument made that for many who are implementing and managing the economy right now, the uncertainty and turbulence is a feature, not a bug. Right. And I think but for most of us in business, we like consistency and stability because it allows us to make decisions around that.

[00:24:30] One of the things that I've been thinking a lot about now, and I'd love to hear from audience if you've got thoughts, throw it in the chat. But what I've been thinking about is, is the idea of how much flexibility in business models make sense as things become more uncertain because customers, Carl, you alluded earlier, like customers maybe not would assign a three year contract. Maybe they want to sign only a year or maybe they want month to month or maybe heaven forbid some of them are going to want to do things on more of an engagement or reactive perspective.

[00:25:00] And providers may be tempted to go that way or start making changes to their models as things become uncertain. Do you have particular thoughts on how effective that might be, Carl? I'll throw it to you first. Like, you know, as you think about this, like, are there are you comfortable with that flexibility? Yes, I will say this. So, first of all, this is not the time to lower your prices and compete on price in particular because of the last thing that I was saying.

[00:25:30] Which is if you just keep selling the same thing, if you've got your three tiered price list and it is what it is and you've got your hammer and everything you look at looks like a nail. Well, that's not going to serve you well. But to the point of what Jay was talking about with the example of talking to the client in excruciating detail about exactly what they need. You can take you've got your managed services over here. That's the background. That's the basis that gets you in the door.

[00:25:57] The customized solution that actually makes the client more productive, more effective, more profitable. That is what will get you into the inner circle of that client and they will rely on you as a trusted advisor as you go through not just the technology changes, but the business changes.

[00:26:17] I think a lot of IT consultants don't really take pride in the fact that if you've been in business for five or 10 or 15 years, you know something about business and you can help your clients on that front as well. It is okay to give them advice and to dig into the business side of their business because that's where you can make tremendous changes.

[00:26:39] And once you're on that inner circle, they will rely on you and they will certainly not want to get rid of you because at some point you need to charge them an extra thousand or two thousand or five thousand. Jay, how much are you thinking about the idea of flexibility in the business models during this uncertain time? Jay Haynes Yeah, you know, to you know, I personally want to say I agree 100% with with Carl.

[00:27:03] This is not a time to so while companies do are going to want flexibility and where you can be flexible. Jay Haynes Certainly like, like I think Carl talked about earlier, like, you know, so maybe instead of like a three year agreements that you're locked quote unquote locking someone into maybe those could be shorter so you can have flexibility in some of those areas.

[00:27:25] Jay Haynes However, I agree 100% and can't emphasize this enough because I think it is a major error problem that happens during these kind of times is the pressure or the temptation for IT solution providers to lower their prices. Jay Haynes But just as we've been talking about, you know, if you do that. Jay Haynes We're not going back after that.

[00:27:52] Jay Haynes So after we come out of these difficult situations, if you've lowered your price, I mean, no one's going to come back to you and say, Oh, yeah, we expected you to raise the prices back on. Jay Haynes Once people get used to that lower price, they're going to say, Hey, you could do it then we expect you to do it now.

[00:28:06] Jay Haynes And it's just a slippery slope to the bottom, you know, I don't know who originally coined this analogy about, you know, with the managed services being like, you know, baking a cake is that, you know, when you sell a cake, you know, you're not selling the individual ingredients, you're selling the whole, the whole thing together that whole experience.

[00:28:31] Jay Haynes And that really, I think, kind of sums up what it is to be a managed services provider. Jay Haynes It isn't just about the backup and disaster recovery and the RMM and all these different components, but it's the whole experience you provide. Jay Haynes That's the value that you're providing your customers. Jay Haynes And, you know, that remains so important, especially during these times, whereas, you know, even Carl talked about earlier that customers are going to be leaning on you even more for your expertise.

[00:29:01] Jay Haynes To guide them through these difficult times. Jay Haynes Well, let me let me point out that every technology vendor that I've been talking about is talking about either raising prices or doing their best to keep them keep them constant. Jay Haynes Nobody having a conversation about dropping. Jay Haynes One of the luckiest things we ever did was in January of 2008, we raised our rates at the time to $165 an hour, which even today, a lot of people aren't charging that and they should be.

[00:29:27] Jay Haynes But you know, it's sort of like, but when the when the crash happened in October, we didn't turn around and lower them. Jay Haynes We just rode out the recession making a bunch more money. Jay Haynes And there's real math in that too. Jay Haynes Like for a lot of people that know like you can actually raise prices lose a few, lose a little bit of customers, but actually still do better with what you're going now guys. Jay Haynes I know we could go all day long and I've got one other surprise for listeners. Jay Haynes But for each of you, I want to make sure that if people have questions or follow up, where's the best way to get in touch with them. Jay Haynes Jay How can people reach out?

[00:29:57] Jay Haynes You can find me at my website is managed services journal.com or also you can find me on LinkedIn. Jay Haynes And Managed Services Journal is a great resource. I use it in the preparation of my show and Carl, how can people get in touch? Jay Haynes So I'm at smallbizthoughts.org or smallbizthoughts.com. Jay Haynes And of course, I would be very happy to connect with everybody on LinkedIn. Jay Haynes Well guys, this has been a fantastic conversation. Jay Haynes We've hopefully given some people some thoughts of stability even during the time being a little bit crazy.

[00:30:27] Jay Haynes But for listeners, I have one other set of perspectives I want to offer on this. Jay Haynes I had a chance to talk with Peter Kajawa of Service Leadership, who's known of course for their benchmarking of IT services providers. Jay Haynes Now we were talking about some other topics, but I knew we were going to talk about tariffs today. Jay Haynes And I had the chance to ask him his take on tariffs and their impacts on MSPs and VARs.

[00:30:50] Jay Haynes Now note, I talked to him yesterday, Tuesday, before the tariffs changed, but I think his perspective is broad and really continues to be meaningful on his thought about the economy in general. Jay Haynes So let's get Peter's take. Peter Kajawa I think there's a good reason to believe that the economy is going to slow down, possibly go into a recession. Jay Haynes How deep of a recession, we don't know yet. Jay Haynes The story is really unfolding as we speak.

[00:31:16] Jay Haynes So I don't think MSPs, most of the MSPs that we benchmark are 50% to 60% managed service revenue as a percentage of total revenue and another 15% to 20% of their revenue is coming from a recurring cloud. Jay Haynes Well, neither of those things are going to be affected at all by tariffs, right?

[00:31:35] Jay Haynes The only thing that will be affected by tariff will be non recurring product and, and to an extent the project labor that goes along with doing the projects tied to that hardware. Jay Haynes And so there's definitely an impact. Jay Haynes I'm not trying to mitigate or not trying to minimize it but. Jay Haynes But for MSPs, there's a reason why so much private equity money has come into the space in the past few years.

[00:32:00] Jay Haynes Amongst other reasons, one of them is that the industry has been viewed as pretty recession resistant. Jay Haynes I hear the term recession proof. Jay Haynes I don't agree with the use of that term, but I do agree with the term recession resistance. Jay Haynes Why because of the percentage of revenue that's coming in from managed services and recurring product for MSPs.

[00:32:24] Jay Haynes So first of all, I think our industry is well positioned to withstand whatever comes along, and the average MSP should be pretty well positioned to withstand it as well. Jay Haynes But that being said, in the Great Recession, we saw managed services revenue drop by about 20% for MSPs during the recession. Jay Haynes And where did that drop come from? Jay Haynes Well, it came from a few places.

[00:32:51] Jay Haynes Number one is there's definitely some of your customers that are going to go bankrupt. Jay Haynes So hard recession, deep recession, you're going to have some customers that won't survive it. Jay Haynes Those customers, 100% of their revenue will go away. Jay Haynes Number two is you're going to have some customers, regardless of how well they're doing, come in and ask for discounts. Jay Haynes And those discounts in COVID were really common.

[00:33:15] Jay Haynes A lot of times they were given on a short term basis, or maybe they were tied to a back end extension of the agreement or something in return to the MSP. Jay Haynes But definitely there's going to be some pressure to reduce pricing, at least in the short term. Jay Haynes The biggest impact, though, will be from your customers shedding jobs.

[00:33:34] Jay Haynes So if you've priced your services as an MSP on a per user basis, and most have, if your customer gets rid of 10% of their workers, well, you just lost 10% of your users. Jay Haynes And so that's where most MSPs are going to see the biggest impact. Jay Haynes Again, there's good news. Jay Haynes The good news in this is that it'll take two to three quarters for that to really hit MSPs.

[00:34:03] Jay Haynes It's not something that you wake up. Jay Haynes There's an announcement that there's a recession on on Friday, and you wake up on Monday and all of your customers have made reductions in their teams. Jay Haynes It just doesn't work that way. Jay Haynes It works over a period of time. Jay Haynes So do we think that might happen? Jay Haynes Yes, we think that that could happen, maybe 10%, 15%, 20%. Jay Haynes So if I'm an MSP, I'm going to be really focused on building my efficiency.

[00:34:31] Jay Haynes I'm going to be looking at ways that I can become even more profitable before some of those pressures come on. Jay Haynes I'm also going to be paying really close attention to whether I'm adding or losing something. Jay Haynes I'm going to be putting seats every month so that I can make quick decisions on staffing. Jay Haynes I might delay. Jay Haynes Maybe there was an FTE we were planning on adding because of growth. Jay Haynes Or maybe there was somebody that we lost that we were going to backfill.

[00:34:56] Jay Haynes Well, maybe you should hold off on that for three months and see what happens and just really be careful on adding additional costs to your organization. Jay Haynes The other the other lesson we've learned in past recessions is that these do create some opportunity for new customer growth. Jay Haynes So make sure you continue to invest in sales and marketing that you're really focused on growing. Jay Haynes Ultimately, the economy will correct itself. Jay Haynes We've seen it happen every time.

[00:35:25] Jay Haynes And if you've been doing the right things, you can maintain your profitability throughout the recession and be really well positioned to pull yourself out of it and grow out of it quickly when the recession lets up. Jay Haynes Now, Dave, I know you have some VARs who watch your show as well. Jay Haynes Those folks, it's a different message.

[00:35:44] Jay Haynes The impact on project revenue, if there's a recession or the kind of shocks that we saw recently in the stock market with the tariff announcements, those kind of announcements or recessionary pressures, those create an incentive to end customers to hold off on doing projects. Jay Haynes And they can cut a project with an email or a phone call.

[00:36:08] Jay Haynes You can't just get rid of managed services, you need it to run your business, you need to make sure you have security in place, etc. Jay Haynes But I don't need to do that project that we were going to do, I can wait on that. Jay Haynes And so the project revenue, including nonrecurring product like hardware, and the associated services revenue that does the projects that drops fast, that's typically about a 40% drop and we see that in one to two quarters.

[00:36:37] Jay Haynes So there I'd be really careful again on my staffing. Jay Haynes Do I have project engineers that are not going to be utilized for the next couple of quarters? Jay Haynes Maybe I shift them temporarily to my managed services team instead of backfilling some managed service positions I've got. Jay Haynes Maybe I need to make a reduction in that team if I think it's going to be a longer term recession.

[00:37:02] Jay Haynes But act fast, because the impact will be fast and if you wait a quarter or two to see how things shake out. Jay Haynes You're going to be taking a significant hit in the meantime. Jay Haynes Now I thought Peter's insights into projects was also relevant for MSPs, particularly because we know best in class MSPs have a portion of their business that is projects and additionally, we've been talking a lot about the idea of Windows 11 upgrades this year.

[00:37:29] Jay Haynes Now Peter will be featured in an upcoming interview discussing his solution provider compensation report from Service Leadership. Jay Haynes Look for that soon and my Patreons will get that interview early. Jay Haynes Now I want to thank Sales Builder, our Patreon sponsor whose support makes this show possible. Jay Haynes Now focus on your IT sales workflow with the power of automation and visit them at salesbuilder.com that's B-U-I-L-D-R.com. Jay Haynes And vendors you too can get your name mentioned on the live show.

[00:37:59] Jay Haynes It's a simple monthly subscription. Jay Haynes Visit patreon.com slash MSB radio to learn more. Jay Haynes And listeners here's how you can support the show like share and follow on your favorite platforms. Jay Haynes It makes a huge difference and it's the number one thing you can do if you like this kind of content. Jay Haynes And if you want to support directly on Patreon, use our give what you want model. Jay Haynes You set what you think the content is worth and you get access to my interviews and videos early.

[00:38:27] Jay Haynes If you have a question and are listening to the recording, send it in at question at MSP radio.com. Jay Haynes Thanks for joining me for the Business of Tech Lounge and I will see you next time. There it is.