From 50% Attrition to Best Place to Work, Luke's MSP Success Story

[00:00:00] It's just all about the people. I mean, you've got to have the right people. I mean, and I've done a lot in my life of hanging on to the wrong people, trying to think like, oh, I just got to develop them or whatever. It was probably 10 years where attrition was our biggest problem. We just got to the point where it's like, this costs us so much money, costs our customers so much in service. You lose an institutional knowledge. We just said, hey, we just got to figure this out.

[00:00:29] Hey guys, Damien Stevens, host of MSP Mindset. Today, I continue my mission to interview 100 of the fastest growing and most interesting MSPs on the planet. Today, I got the pleasure of interviewing Luke Downing. And I have a question. What if you lost half of your support team in one year? What if that was a common thing? What would you do?

[00:00:54] So Luke faced that issue and realized, I can't just say I want a world-class team. I really need to invest in my team like no other if I want to build a team like no other. If you want to learn how he turned 50% attrition into one of the best places to work in Virginia and turn that into one of the most profitable MSPs on the top 500 list and in Taylor Business Group,

[00:01:22] then don't miss out on our conversation today. When it came time to start a business, you know, we had, he had worked in IT in high school at the computer lab school and I primarily knew it from video games. And then, you know, when we went to college, he got a degree in management information systems, which is what it was called then.

[00:01:45] And my degree is in finance and accounting. So when we went to start this business, you know, our real goal was to help people solve business challenges because that's what we really were doing with the technology at our old job. You know, we just kind of helped build this business from the ground up using technology and process and all this kind of stuff.

[00:02:09] And so, you know, we started a business. I mean, I had, we had just graduated college. So this is May of 2002. So I was 23 and Matt was 22. And we had gotten a fairly good education about business to some degree working in our other job, but, you know, we didn't know anything really.

[00:02:35] And, you know, so I think what was really interesting the first three, four or five years is I remember sitting down and thinking, Hey, like, I didn't know I needed a degree in psychology to run a business, you know? So I think, you know, it's sort of came to me very early that this business is all about people.

[00:03:07] You know, we're a service business and that service comes from people and that service goes to people. And so that's probably, and the challenges come from the people, right? Generally speaking. I mean, we all have technology challenges, but we have a hell of a lot less of them than we did in 2002. I mean, in 2002, nothing worked. That's right.

[00:03:33] I mean, the problems that we're solving today, you know, we don't have capacitors blown out on motherboards. You know, that's just not a thing. You know, we don't really have power supplies dying and PCs hardly anymore. You know, the software is infinitely better. So it's, you know, a lot of the challenges are really around service and people and attrition and retention.

[00:03:59] And so I think early on, you know, that was a struggle for us because I think you started business and you're like, well, I don't know why people aren't just doing the thing. Yeah. And so then you get into leadership, which is much more difficult than technology ever will be. And so, yeah, it's just, it's a people thing to come back to the question.

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[00:05:23] So, can you give me an example of some of the early days of why aren't people doing what I just expect them to do? Because I can very much relate to that. Yeah, I think, I mean, simple things.

[00:05:41] You know, like we, in our second office, you know, we had five employees and, or we got to like seven employees and we had one guy that just, and we had two customer spots and he always wanted to park in the customer spot. And it's just like, you know, you can't park there. You know, it's just very simple, simple things.

[00:06:04] I mean, I remember, I mean, I had a pretty tough time with, you know, bookkeepers, you know, that was a struggle for a long time and just screwing things up so badly that it would take me months to go back. And, you know, what I think is kind of simple stuff, you know, not showing up to work, being late, you know, just what I would consider to be a good job.

[00:06:34] Sort of hygiene factors. You know, I think you just start to realize that that was a real, it was a real awakening.

[00:06:51] I mean, I experienced in my other job, but it was just like, I think when it becomes your thing, you know, and that's one of the challenges when it's your business, you take things a little more personally sometimes, which you shouldn't. But you do. And, you know, when you're, and I mean, we were working crazy hours too. I mean, we were working 70 hours a week. And then when you get back and you're like, why are these people not doing this thing? And, you know, and so, and we had great people.

[00:07:20] So it's not, you know, I don't want to say that they weren't great people, but I think it was just sort of that adjustment to, okay, like it worked, you know, and most MSPs have been there. You know, when Matt and I started, it was him and I, and then you have an employee, then you have more than one employee. And then you need a, then you need a supervisor. And that's a huge hump trying to get over that first little bit of leadership.

[00:07:49] And, you know, that's the hardest part. There's no doubt about it. And so just learning how to be a leader and, and how to work with people. Not everybody is you, you know, I think one of the hardest things for me is what that's taken me a long time to realize is that like, you know, we're the weird ones. Yeah, absolutely.

[00:08:17] You know, I think, you know, when, when you start, you're like, oh man, I'm killing myself and, you know, I'm doing all this stuff and this is easy for me. Why isn't this easy for other people? And then you get, then you foster resentment and all this kind of stuff. And just like, Hey, you got to step back and realize like, not everybody is going to have the passion for this that you do. It's not even necessarily about capability. It's just, you're super passionate about.

[00:08:41] So just adjusting to that and learning how to coach people and develop people and how to have hard conversations. I think that was something that, you know, that doesn't necessarily come naturally for me, you know, comes very naturally for some people, but, you know, having hard conversations is not something I do it, but it's not my favorite part of the job, you know? But, you know, those were the real, those were real tech challenges.

[00:09:10] And, you know, and then the other thing is just, you know, attracting the right people and retaining them. That's 90% of it. So I want to get into that, but I want to go back to the leadership. When did you first realize that you needed to change to lead differently? That took me a long time.

[00:09:38] I think, you know, I'm kind of a people pleaser. So, you know, having those tough conversations were very difficult for me. And I think what I realized around that is that I'm not helping anybody by not being candid with them. Yeah.

[00:10:03] And so in this weird way, because I'm someone who likes helping people, I had to reframe it instead of saying like, hey, I have to go have this conflict with this person. It's like, hey, I have to go help this person be better. And that comes right down to firing people, too. I mean, I've fired, oh, man, a lot of people in my life.

[00:10:27] I mean, I remember at my old job, there was a time where I had to fire like seven people in one day. Wow. And I remember sitting down at the restaurant. I was like, what is that? And I had like seven badges in my pocket. You know, I think and even in terminations, you have to recognize, hey, this person isn't successful here. And they're not happy when they're not successful.

[00:10:56] And so, you know, it's kind of getting the right person in the right seat in the bus. You know, it was like, hey, you know, I have to have this tough conversation. But I know now, like deep in my heart, like, hey, this is this person would be much happier somewhere else. Hmm. So was it a painful moment? A book you read? Mentor? I'm kind of curious to help you shift your own mindset to leading. Well, Matt's dad is an HR consultant.

[00:11:25] And he's the one that really told me around this whole termination thing. Like, hey, look, you're actually helping these people. It doesn't seem like that. So around terminations, like he really changed my attitude around that. And I think, you know, it was probably about 10 years ago. I don't think it was any particular book or anything. I just think I'd had enough experiences with having, you know, having people behave poorly or underperform.

[00:11:54] You know, you just get tired of it. I mean, I don't think there's a moment. And I think you just, at least for me in that, I think you just say, hey, you know, one of my buddies, Keith at Advantage IT in Maryland, he told me this one time, which is pretty funny. He was like, you know, they're stealing my life. You know, there are people in your life. This isn't just work. It's personal, too.

[00:12:21] But it's just, you know, sometimes there are people who you shouldn't be around, you know. And those can be tough choices sometimes. And I don't want to make it sound like this has been all our people all the time. Because I think the vast majority of the people that we've had here have been great. You know, I think those are just some of the challenges we've had to overcome. Because you can have a couple, you know, bad apple really does spoil lunch.

[00:12:47] You can have one person that's taken a whole team down or not aligned or they don't share values or whatever. You know, so those are tough choices. And that just comes back to, just to make it positive, is, you know, what we've really invested a lot of time, particularly like the pandemic was probably a moment for us in terms of looking at our overall team.

[00:13:14] You know, we went through 50% attrition during the pandemic. And so we had to take, and that was the national average. I like to think we're better than average, but we weren't in that scenario. So, you know, we had to take a long, hard look about that. You know, with people, it's, you got to find them first.

[00:13:41] You know, I mean, that's one of the biggest challenges. And then you got to work on retention. You know, we had to take a long look at our benefits during the pandemic. We had to take a long look at pay. We took a long look at staffing strategy. So, I think, you know, we pay probably above market now.

[00:14:11] In fact, I know we do. And I think our benefits are better than most large companies I know. And so, you know, there was a lot of things that we had to really take a look at and invest in. We also, another thing we did during the pandemic was we went to an N plus one model and support. You know, our customers basically judge us on, you know, was the support ticket resolved quickly?

[00:14:39] Was it solved correctly? And was it solved courteously? And the last one's real important, bringing back the people thing. It's like, how did people feel after the call? Right? That's real important to us. And, you know, with the pandemic and the attrition level and then also, you know, people would get sick and they'd be out. We said, okay, we're going to figure out how many people we need in support and then we're going to add an extra person. And then we ended up bumping that up to plus two.

[00:15:11] So, we actually have two more people at all times. And, you know, so there's strategy involved in that too. And our serve has never been better. Customer's never been happier. But we, yeah, we had to take a long, hard, hard look at that people side and building a team and building people that are aligned with our values and what we're trying to accomplish. And, you know, it's not, that's not very easy.

[00:15:41] You know, build your culture and, you know, and have folks that are motivated to be here and all that. So, how did you manage, simpler one, how did you manage to have better benefits than a bigger company? So, is there a trick or tool of the trade there that you figured out? Yeah. So, we invest quite a bit in HR for 25, 26 employees.

[00:16:08] We have a full-time HR manager that, you know, my business partner developed from sort of a coordinator all the way up to manager. And, you know, we do, we have some real, you know, basic tactics that take work, but they're, they can be implemented, right? We do, for probably 10, 12 years, we've done an annual climate survey. So, we, we do a big survey.

[00:16:37] I think we do it in August now with like 100 questions. And we tell our people to be as candid as possible about what they like and what they don't like. And then we review that every year and we take it real seriously. You know, and then we develop action items from it. Hey, what are people happy about? What are they not? And that's key.

[00:17:06] You know, we ask about leadership. We ask about comfort building in the office. We ask about, hey, you know, I mean, this whole thing, right? And then we develop action items around that, that we then roll into our annual strategic plan. You know, another thing that was really hurting us during the pandemic was we're an office culture. We don't work from home.

[00:17:28] So, a lot of people, and then the other thing that was going on in the pandemic was you had these big companies that were like throwing stupid money at people. So, you could go work remotely and make 20% more. Now, of course, those people have largely been laid off now. Okay. Or at least it seems that way. So, but, you know, that was a real challenge. So, we had to look at pay and we had to find people that wanted to be in an office culture.

[00:17:58] You know, we're problem solvers. And, you know, I'm not saying our way is the right way. So, don't take this wrong. But for us, the wrong way, but for us, what we found is proximity is important. And so, we took a long look at that and we just decided we're going to stick with an office culture. But what we ended up doing was we give everybody every other Friday off paid. So, we basically work like a 972 shift.

[00:18:28] So, people get a three-day weekend every other week. And on top of that, you know, we have really what I think is pretty solid PTO on top of that. So, people are getting, you know, whatever, 26 days a year paid off and then PTO on top of that. We increased health reimbursements or, you know, our contribution to the health up to 70%. And the biggest thing, honestly, is like staffing.

[00:18:58] You know, the biggest thing that was hurting people in our business for a while, particularly during the pandemic, was being short-staffed. And, you know, that is more stressful than anything. Right. And so, you know, that's a lot of where this N plus one, N plus two stuff came in support was people were just getting super burned out. And so, and then that causes more attrition, like attrition causes attrition.

[00:19:29] So, probably the biggest thing, I mean, I think we call it free Fridays, right? You have an every other Friday off. Like, and then for the people who are here, it's focus Friday because half the people are gone. So, you can really focus on getting stuff done, which is, you know, projects, whatever we're doing. But I think probably the biggest thing is just, you know, getting the attrition under control because people were just getting burned out.

[00:19:56] You know, a lot of MSPs just started the beast anyway and they don't have enough people. So, it's like a constant state. But we're just like, it's not worth it. So, you know, job enrichment is really about enjoying your job. Like people quit their job or their boss. So, I think that, you know, when you're have twice as much work all the time, that's not fulfilling. Yeah.

[00:20:23] So, that was a big part of our change internally was just committing to a staffing strategy and paying enough and having the right benefits to attract the people that want to stay here. I mean, for years and years and years, we couldn't get projects done. You know, like, for example, we just, you know, switched our PSA and accounting software out this year.

[00:20:48] There's no way I could have accomplished that with all the attrition. I mean, we also swapped out all of our security tools. I mean, we've done all our backup software. We've done all this stuff. And you can't move the business forward when you're constantly bailing water because of attrition. And we spent like a decade doing that. So, I think you just, you know, that was a big part of our change culturally here.

[00:21:20] So, a lot of people say it, but it's another to do because what was in plus one, I guess now is in plus two, right? You have two more FTEs than you need by maybe normal standards. You've, it sounds like you invested pretty heavily to pretty early on have an HR manager, a lot of paid time off, other benefits.

[00:21:45] What was it that convinced you that you had to do this and this would result in that change and that you could do this? Pain. I mean, you know, pain is the great motivator, right? I mean, I wish I was the kind of person that did things the easy way. But I mean, now to be fair, I mean, we're a very profitable company.

[00:22:12] So, you know, we didn't necessarily through these changes have to sacrifice profitability. I mean, now we run a fairly lean service department relative to most of our peers. And I mean, I'm peers with some of the best MSPs in the industry in my peer group. I mean, those guys make crazy money and they're successful.

[00:22:40] But in terms of our service cost margin and relative to revenue, like we're pretty efficient with it. You know, so there are some efficiencies we're gaining elsewhere. Right. But our NOI is great. Like, you know, so we didn't even necessarily have to sacrifice a bunch of NOI, although I probably would. You know what I mean?

[00:23:08] Because I think at some point the pain is great enough to where you're like, hey, I've got to get some things going on here. And, you know, in support, like we don't do N plus two everywhere either. You have to decide. And this is something that I pulled from the book Playing to Win. You have to decide what are the sort of one or two functional areas that I'm going to overinvest in. And typically those are going to be around your core competency.

[00:23:37] You know, you can't overinvest in everything. Right. By definition. Or sorry, go ahead. No, no, just by definition. You can't overinvest in everything. You'd be losing money every month. Yeah. So, yeah. So I think. But then again, right. You know, I think it just depends too. Right. Like, because there's different mindsets about it. You know, since we're talking about mindset.

[00:24:07] It's like you can look at things as a cost or an investment. So when we were talking about giving people. Because when we first started talking about this free Fridays thing. We said, well, what if we did, you know, four tens. Okay. The problem with that is, you know, if you got kids, you know, like I have a seven year old. Yeah. I can't work seven to six because I got to drop them off and pick them up. Yeah. I mean, I could work before and after that.

[00:24:35] But, and I just, I just really strongly felt that that was going to lead to burnout. I think you're just so wiped out then that your three day weekend's tough. So, so we just said, Hey, okay. Well, what if we just did every other Friday off paid and figure out an AB schedule for Friday? And it's like, Hey, I can look at how much that costs me. And it does cost money, but I can also look at is an investment.

[00:25:03] Hey, we've invested here to improve people's quality of life and reduce retention. Nothing is more expensive than attrition. There is nothing more expensive than that. And so I can sit here and I can go to our payroll reports and say, Hey, here's how much money this program has cost me. Or I can say, I haven't lost this person in support for two years. We haven't had attrition in that department in two years. And that was our highest source of attrition.

[00:25:33] Yeah. And that is the number one impact to your customers is losing people in support. You lose institutional knowledge, you lose coverage, your resolution times go up. I mean, it's the number one impact to service. Our median resolution times when somebody submits a ticket to closes it is about, you know, 0.3 hours or 0.4 hours.

[00:26:00] That's from when they sent the support request to us to, um, when we close it. And that's a real differentiator for us. So there's a lot to kind of unpack in that. Um, but our customers love it. Yes. I mean, just to, just to reframe that, it sounds like the, um, investment.

[00:26:27] And, um, 26 days off and all the other benefits, um, has been worth, uh, it to, to basically, you know, almost entirely solve or perhaps entirely solve the attrition, um, issue. Yeah. I mean, things are about ROI. I mean, it's the same thing that we talk about with our customers, right?

[00:26:55] Like, I mean, we're kind of a premier provider. So, but most of the time we're competing against cost leaders. So, you know, somebody is coming in and saying, Hey, I'm going to charge you $80 a user to do all of this stuff. And then we're coming in and our price is different because we have more value. And so what I'm telling people is, Hey, I get it. But what you're missing is all those hidden costs.

[00:27:26] You know, all of the wasted time you're going to deal with, with bad IT is going to cost you significantly more money. Now, a buyer has to have a certain mindset for that. You know, if you're a cost focused person, that argument isn't going to land. If you're more of a sort of entrepreneur type person, it is going to land. And so, you know, not, you know, that's where you got to, you know, you got to target the right people.

[00:27:54] But yeah, everything's about return on investment, you know, for sure. But yeah, those investments have been well worth it for us. And, you know, we're going to make some more investments in leadership for that same reason. You know, we, you know, we, we've done very well. We're very fortunate. And, you know, a part of this business too is, you know, money isn't everything.

[00:28:24] Right. So. So why, what led you to the N plus one and eventually the N plus two, right? Having, having two extra folks. Cause again, there's a, the cost. So there's, there must've been a pain or a challenge. I mean, honestly, that came out in the pandemic and it was because of attrition. It was because of attrition, which was causing burnout, which causes more attrition. You know?

[00:28:53] And then what happens is because, I mean, we do all kinds of cool things, right? Like we, our focus is we prevent more problems than we think most people do. Like our clients submit their, on a relative basis, our ticket per agent count is pretty low because we do a lot to prevent tickets. I mean, that's, I mean, that's our job is to prevent them. But we're judged based on the support requests themselves.

[00:29:20] So we could prevent all the things we want, but if a single ticket goes bad, like people will harbor that resentment for three years. So that's how we're judged. And so when you, when you lose people and your resolution times spike, your QA scores go down. I mean, you can just see it right in the scorecards every week. We, we would just see like, if we had a month where resolution times went up, QA went down.

[00:29:47] I mean, it's, it's perfectly negatively correlated. So, um, and then, you know, I started this business to help people and you're watching your team just be miserable. You know, we don't want to just help customers. We want to help our team. And, you know, and then it's a lot of stress. And so we just said, Hey, this isn't worth it. Yeah. That makes a ton of sense.

[00:30:16] How did you, how did you figure out how to differentiate and, and understand your values and attract the right people? Are you talking about customers or staff? Yeah. The right team. I mean, I think we're just really good at interviewing people. I mean, there are some people that slipped through. I mean, I made a terrible hire last year. I mean, I, and I just was like, what was I thinking? You know, so, but we, we have a very strong HR process for hiring.

[00:30:46] I mean, we, you know, it's kind of like measure twice, cut once. I mean, we really have, I mean, we're not Google, but I mean, we, people tell us pretty regularly when they're done with the process. They're like, wow. So I think, you know, asking the right questions. I mean, we like hard workers. You know, I always ask people in my interviews, like, Hey, well, what was the first job you ever had?

[00:31:14] And when people tell me they had a job in high school, I really liked that. You know? Um, but you know, we, we, um, we have our values on walls, you know, I mean, we, we work those pretty hard, you know, I think. Um, and that doesn't mean to say we're trying to develop a homogenous organization because I really value diversity and people in thought.

[00:31:39] I think that's healthy, but I mean, there's just some things that we feel really strongly about. We feel really strongly about customer service. We feel really strongly about how we treat each other internally. We feel strongly about working hard, you know? So we feel strongly about integrity. And so we just have to, you know, make decisions around that and around your values.

[00:32:08] Would you say the biggest change when you, when you had all the attrition, maybe you were not always hiring the right people and now you've got this rigorous process. Is it the process filtering out the wrong people? Is it values or something else attracting the right people? I mean, what, how would you characterize? So one of the things that sort of moving to N plus two allowed us to do was, um, when

[00:32:34] you're super short staffed and support, it's very difficult to take on somebody who doesn't have the professional skills out of the gate and can hit the ground running. You know, your team's overwhelmed and you need immediate help. So that makes hiring a bit more difficult because you're saying, oh, I have to find somebody with personal skills, but also somebody that has professional skills that can hit the ground running.

[00:33:01] So when we got to this N plus two mode, it was much easier for us to hire somebody who say, Hey, this person has the right values. They have the right personal skills, but they don't quite have the professional skills that we want. They have some, but they're not there. It gives you more time to take a risk on somebody because you have more, because your, your,

[00:33:29] your team's not completely overwhelmed with work. They have more time to help develop that person. When you got twice the amount of work, you don't have time to give to somebody who doesn't have all those professional skills. So one thing that we did do strategically is at least in that department, we were able to say, Hey, we're going to take an attitude, aptitude person. That's hungry, humble, and smart. You know that we're going to, we're going to, now we have the bandwidth and capacity to take on that kind of person.

[00:33:58] And that's been wildly successful for us. I love the, I love the strategy behind what seems really simple, which is wait till, wait till you're already past the point of needing somebody, which is, I think the defaults, like it hurts really bad. So I need to hire, uh, and by being, I don't know if you want to call it overstaffed, but by having more staff than is the absolute minimum, you know, you can be patient with

[00:34:24] the right aptitude and let them develop the skill. Uh, I imagine that opens up your hiring pool a little more and you're not always competing for the same folks that have the exact skill, hard skills. It does. And we don't necessarily do that in every position, but it's allowed us to, in, in every department, but it's allowed us to be more flexible and get the right people.

[00:34:53] Um, which is great because then you're giving them an opportunity too. Um, but yeah, I mean, and, and I can, I can, I, I, I'm just for, it was probably 10 years where attrition was our biggest problem. Wow. And so there, you know, we just got to the point was, was like, this costs us so much money costs our customers so much in service. You lose an institutional knowledge that you just said, Hey, we, we, it doesn't, we just

[00:35:22] got to figure this out. And I won't say no amount of money, but it's like the attrition costs so much that you have to, you have to solve it and you have to look at those things as an investment. Hmm. Um, does that change your, uh, ability to attract candidates because you have this track record and time off and benefits?

[00:35:49] Are you, are you now finding it much easier to recruit talent? A hundred percent. Yeah. I mean, and that was a big part of it was, Hey, you know, we, you, you know, we're a differentiator as a company. We're not a cost leader. So how do we differentiate ourselves in terms of hiring? Now, the weird balance is, is we don't want to hire people that want to work here because they get over the Friday off. Right. That's not a person we want.

[00:36:17] We still want somebody that's going to come in here and work really hard and work smart, but then enjoy and have time off. Yeah. Yeah. Have you figured out how to filter for the difference between those, those people? It's a lot of its conversation. I mean, we've just refined our, you know, we, we review resumes, then we do a phone screen, then we do an in-person interview.

[00:36:45] We do assessments and then we do a second. Yeah. And some of it, man, you know, some of it is process and some of it is intuition. And you, you know, we've been doing this so long. I mean, we've interviewed thousands of people over the years. So, um, you know, some of it's process and some of it's just, Hey, you, you know, you, you, you just ask questions and get to the bottom of, try to get to the bottom of who this person is.

[00:37:15] And sometimes you make a mistake, but most of the time we don't. What do you attribute to your growth as a company? You guys are growing much faster than others. I mean, we were growing at 20% for a long, long time. And, uh, you know, I think a lot of it just comes down to hard work. I mean, we're not the smartest people. I think, um,

[00:37:42] Well, you say that Luke, but there's a lot of us that work really hard and don't get anywhere. I think you, I think you have to work hard and then course correct. You know, I mean, it's, uh, it's a lot of learning, you know, and just, I think you have to get calm. I don't know who said this originally. It's not mine, but you got to get comfortable being uncomfortable. And, uh,

[00:38:13] and, and you have to learn. I can tell you that joining a peer group was one of the best things I've ever done. You know, um, there's a book called the breakthrough company that talks about that a lot. And he calls it scaffolding, but it's like, I mean, I remember when I first joined a peer group, which is, you know, just other businesses trying to do the same thing you are.

[00:38:40] And, uh, that was infinitely helpful. I'm, I like helping people. So I, I didn't price our services properly, which means we didn't have the money to afford the right people. And so one of the biggest changes to profitability, I mean, we were not profitable for a long time. Most, most of the time in our business probably, but you know, then I, when I got real about

[00:39:06] pricing that changed a lot of things because that gave us the flexibility to hire the talent that we needed. So, but I think, yeah, I think having peers and then, I mean, Matt and I are owner operators, you know, we are in the business and working hard and trying to solve problems all the time.

[00:39:32] And, um, I think we care, you know, and I don't always see that, you know, we really care deeply about our service to our customers and our people. And in this world, I think that's a differentiator. I mean, it shouldn't be, but like, you know, I, I got a, I got a cup of coffee one time and

[00:40:00] they put the coffee, you know, on the counter and I, I didn't know if it was mine or not. So I was like, I was like, Hey, is that mine? And she goes, I mean, sometimes I think we care too much. I mean, you know, everything is a spectrum. And I think the fact that we care so much has also been detrimental to some degree. Right.

[00:40:26] I mean, because you start to take things personally and you know, when, if a client leaves, you're upset. And so I think, I think there's a middle ground there, but we care a lot. I mean, if, if our customer is down, like we really care still 22 years in, I mean, we still really care. And, um, you know, I think that matters and caring a lot leads to hard work because you, you

[00:40:51] want to, you want to help these people and, and, uh, make sure they have a good experience your staff and your clients and the people in the community. I mean, it's, you know, it's, what peer groups that you're in. We've been in a Taylor business group for about 11 years. And so it is great because we're in, you know, I, I'm the kind of person, like, I want to be around people that are better than me.

[00:41:20] So, you know, we got a $30 million MSP in our group. You know, it's like, there's things that were better than them at, and there's things they're way better at us at, you know, and it's, it's really helpful. You kind of need you. Those relationships are so important because this is hard, man. Yes, it is.

[00:41:47] I mean, and it's not, you know, sometimes it devolves into talking about tools or whatever. And, and, and some of that's really good, but the, the, the biggest important thing is I think, um, um, the one, the support, you know, seeing, Hey, we're not the only ones going through this. And two, there's just some great ideas out there, you know, and you can find out, Hey, what are we great at? And what do we need work on? And the guys in the group that I'm in now are unbelievable.

[00:42:17] I mean, they're, they're great. And so it's very inspiring. What are some things you learned that opened your eyes? Oh, I would say probably the number one thing was pricing. I mean, that changed our business, you know, pricing, uh, well, we just, I don't think we had a real idea around the metrics that we were supposed to be achieving. It was just very, whatever. And we didn't make money for a long time.

[00:42:46] I mean, probably 12, 15 years, we weren't making that much money. And so I think getting our heads wrapped around like, Hey, here's some targets that we should be hitting. And it's important sometimes to just look like, Hey, when you don't know what does world class look like, it's hard to shoot for that. And so being around others, they're like, Oh man, these guys are doing something. And it gives you confidence too. Like, Oh, Hey, we did this thing.

[00:43:14] And, you know, we thought, you know, we couldn't do it, but we did it and it's fine. You know, um, but really getting our minds wrapped around, you know, service margin and cost of salaries and all that kind of stuff is super critical. And then just understanding that, Hey, you're a differentiator and your price should reflect that and you're never going to be able to deliver great service if you don't have great people. And there's a price to that. It's really that simple. And I have to have those conversations with prospects too. You know, it's like, Hey, I get it.

[00:43:43] Our price is different, but you're going to get more of our, you know? So I think pricing was a huge thing. I mean, we have probably one of the best gross profit per client calculators that I've seen and all of that came from getting real in our peer group. What kind of change did you have to make to your pricing in terms of like how big of a change was that? Oh, it was a lot.

[00:44:08] I mean, we, I mean, we probably raised our hourly rate, like 50% over two years twice. You know, and again, it's not, it's not necessarily about like, Oh, I got to make all this extra money so I can buy more Bitcoin.

[00:44:34] It's, it's, I came to this realization that like, I, I can't deliver the kind of service that I want to deliver. I'm, I refuse to deliver shitty service. Now, not all MSPs are like that, right? Like some of it's more about, I'm going to maximize NOI and buy a couple and flip them, you know? So not, not everybody's goal is having a world-class customer service. So I think it just depends.

[00:45:02] And I'm not judging that by the way. I think that's a fine approach for me. It's, I have to feel good about what I'm doing and maybe that's a character flaw, but I, you know, that stuff's important to me. Well, I think even, even so many MSPs that I meet, they say, most of them say my, our people are the difference.

[00:45:26] They're better, but some of the same MSPs are chasing the price to the bottom. And, you know, it takes, I think it takes some pain to realize I can't invest in the pay and the benefits and the number of people that I need to deliver that world-class service if I'm really going to be a world-class and charge pennies. Yeah.

[00:45:55] I mean, you, and that was tough for me because we had to, so when we first started, I mean, we would wash your car for money. I mean, we were doing everything. I remember fixing the guy's cable box, you know, cause we weren't in the neighborhood and, you know, and so we were doing retail work. And so I think it was like 2009. So we did retail work for like seven years and then we had to stop that. And that was hard because I liked all those people.

[00:46:21] Um, and then we also, um, in 2007 went to manage services. So we bought Kaseya in 2007, which was like a fortune for us at the time. And, um, and then, so we still had some hourly customers and then a couple of years later, I think also in 2009, we were like, cool, we're only worrying with you if you have some kind of MSP situation.

[00:46:49] And we had these like super tiny plans that cost almost next to nothing. Mm-hmm. And then after a while, you know, then probably five, six, seven years later, like we got rid of all that too. Cause it was like, those were so like, you got rid of what? We had these sort of like optional plans where it was like kind of centralized services, but it didn't include unlimited support and didn't include all the tool stack. And it was this kind of hybrid stuff.

[00:47:20] And, you know, I just got to this point where it just like, it, I don't think it wasn't the kind of service I wanted to deliver. And so we just said, Hey, you know, we're not going to offer these plans anymore. We feel like our values are such that to run a well done network, this is the new minimum. And that was hard because there was a lot of people there that I really liked that we had to let go of.

[00:47:48] And so you really have to determine, are you going to be a differentiator or a cost leader? And that I took from, I mean, I think Drucker talks about that in his book, but also, you know, playing to win talks about that concept is you, you have to know what are you trying to do? What space are you trying to operate in?

[00:48:11] And if I lose a deal to a client who doesn't value it or value service to a cost leader, then I don't take it personally. I mean, you shouldn't take it personally anyway, but like, I'm much more interested in learning like, Hey, this person was willing to invest and we didn't get it. And we have a lot of success getting those, but you have to understand what market you're planning. Yeah.

[00:48:37] So, uh, so many helpful things there. It feels like your desire to help people initially drove you to say yes to almost everything. And then later that drove you to realize I've got to invest in my team to deliver that service. And then if one, maybe once you started investing in that team, you realized I've got to, I've got to charge a heck of a lot more, even if that makes me uncomfortable. Yes.

[00:49:07] Um, even if I want to please those people, and I think as a people pleaser, that that can be tough because you want to please your team, you want to please your clients. And, uh, but if you don't invest in that team, like you did to deliver all the things that cost real money, then you won't deliver that service that everybody thinks they deliver, uh, or, or, or would like to think they deliver. And, um, and, you know, you have to go through the pain of saying no to some customers. Yeah.

[00:49:39] And, uh, if there are any of you that have done that increased prices significantly, you know, sometimes you get some colorful responses. Uh, yeah. I mean, we all have conflicting values, you know, I want to help people, but I want to do it the right way. Mm hmm. And so you just have to realize like, Hey, if I'm not charging enough, I'm not helping anyone. We, you know, in the last three years, we've been more profitable than we've ever been.

[00:50:10] And what do you attribute that to? And our prices are not costly to prices. Mm hmm. You know, I think, you know, one thing that, uh, John Christopherson at Taylor business, he's not there anymore, but like one thing that he, he said that really stuck with me is profit is a reflection of how good your customers think you're doing. Mm hmm.

[00:50:34] And so, you know, you know, those were some shifts for me, you know, Hey, I got to realize like cutting people deals and discounts and all this isn't the way to help people. Yeah. You know, it's, it's, it's not you. And that just means some people aren't going to be your clients and that's not a judgment. Some people want costly to their IT service and that's okay. I'm not judging them for that.

[00:51:04] That's just not what I want to do. Yeah. It's funny because when I think about some of the premium brands, they don't, they don't discount things. You know, their product is quite expensive relative to others. Yeah. And perhaps they want to help people, but it is what it is. You know what I mean? Like the price is what the price is. And if they, if they kept discounting, they probably wouldn't be able to deliver the premium

[00:51:34] quality and differentiator. Yeah. And if you want to be a cost leader, then be a cost leader. I think for us, that's not the road I wanted to go down. Mm hmm. Interesting. Because that conflicts with my values. Yeah. So what's the biggest challenge you, you see now in your business and the next kind of level that you need to face?

[00:52:03] You talked about installing leadership and team and all these levels. I think really developing our leadership team, I think is the biggest thing that we have to focus on. And also just focusing on, you know, the management above that and making sure, you know, we're very different and making sure that we're, you know, communicate well and, you know, work well with each other and the leadership team works well.

[00:52:30] And that we all develop each other. Because I think what's, what it really comes down to is effective leadership. And I think that we're still learning that. Like how, how can we be the most effective leaders that we can? You know, the fish rats from the head. Right. So I think that you, you know, developing a leadership team and making sure your management team right is like the number one focus for us right now.

[00:52:58] And that's not to say we're not good. We are, but we're just to get to the next level. You know, we really have to make sure our leadership is strong. It's somebody that seems like they think you think strategically, you think what's the end in mind. What is, what does success look like? That's a great question.

[00:53:24] Um, I met Senator Warner years ago. This was like 2006 and he was talking about Afghanistan, Senator Warner from Virginia. And, and he was talking about success. And after I was talking about what does success look like? And he said, that's a great question. Um, your political skills there. I think it's changing for me.

[00:53:53] You know, I think, I think for the last 10 years, it's been about being world-class and trying to identify what world-class looks like in all these metrics. And there are metrics that we have world-class, but that I think we've achieved world-class stuff. So, you know, I think, um, but I, you know, I'm kind of at this point less focused on that.

[00:54:22] You know, I think for me, I'm more focused on trying to enjoy my time here more. I think that achievement is great and we have achieved an awful lot, but I think that sometimes you sort of like get to this point of achieving over like doing other things that you want to, you know, or, or investing in your relationships and that kind of stuff.

[00:54:48] So I think for me, you know, we've gotten to this point where we have some, have had a lot of success and, um, you know, the last four years have been very difficult. You know, we went through a pandemic, which is very difficult. We had staffing issues. We swapped out pretty much all the software in our company. I mean, we've done some big, big projects in the last four years.

[00:55:10] And so now I think I'm more focused, less on achieving, uh, world-class objectives and, and, and trying to balance that more with, you know, just not trying to kill ourselves all the time. Cause you know, that's kind of our, that's our mindset is we, we work hard. We're killers. And I think I'm trying to balance that more with, you know, just enjoying work and not

[00:55:39] taking it way too seriously. It's sort of, um, counterintuitive, but sometimes when you take it too seriously, it becomes counterproductive. And so I'm trying to balance my life out a little bit more. How much of that is being influenced by being a father?

[00:56:01] I mean, you know, I think, uh, I think that's certainly a big part of it before, um, before my son, Max was born. I worked every Saturday for 15 years, every Saturday for 15 years. And so, you know, that certainly has, has changed things a lot for me. And I think, you know, you're, I'm also, you know, 45 now, you know, I think there just

[00:56:30] becomes a point where you're just like, okay, like I've, I mean, I've been killing it since high school, you know? Yeah. I mean, I worked full time. I worked in high school. I worked full time in college. Um, I had a full time job and a full time course load and then left that to start a business.

[00:56:53] Um, and you know, I think that there's, and then, you know, just grinding, grinding, grinding for a long time. And I think, you know, there's other things going on in life than this. And I think when you take it too seriously, it's not worth it. And so, and that's hard for me because my, my drive is to be great at things.

[00:57:19] You know, it's like, I'm the guy that sits down and I have a hundred ideas to make this place better. So that's a, that's a, that's a challenge that I'm personally working through at the moment is how do I come in here and not try to kill it every second? Yeah. And that's, uh, it's, it's not about this place. It's about me.

[00:57:45] So that's a journey that I'm going through right now is how do I, accomplishment is a big part of life, but so are doing fun things and, you know, developing positive relationships with your friends and, you know, I mean, it's like, and I think there's a lot of us in this game that are just sacrifice a lot of those other things for accomplishment. And I think that that's something that I'm, I'm working through at the moment.

[00:58:13] Don't have all the answers on it, but you know, that's, that's important. I appreciate that candor. I want to switch gears, uh, and ask what's the biggest lesson learned over all your years of building this business? Oh, it's just all about the people. I mean, you've got to have the right people.

[00:58:43] I mean, and I've done a lot in my life of hanging onto the wrong people, trying to think like, Oh, I just got to develop them or whatever, but you got to get the right people and you got to invest in them. I mean, we're in a service business. You got to find the right people and develop them and retain them so that they can serve the people that are clients. I mean, it's, we are in a people business.

[00:59:07] You know, we, we clients do not care at all what your security stack is. Right. I mean, you know, if you're doing co managed in mid market, I mean, they do, but the small business, you know, we're a service business, we're a customer service business and you know, how people feel interacting with you is so important.

[00:59:38] You know, that that's, you know, we get, we talk about tools and you know, all this other stuff. And at the end of the day, I mean, that's important. Those are hygiene factors, right? I just think that at the end of the day, we're a customer service business and we have to deliver great customer service internally. Meaning we have to work together really well and we have to deliver great customer service to, uh, to, uh, to our clients.

[01:00:04] And then I think tactically outside of that, it's like, am I a cost leader or a differentiator and how am I going to build my business around that? And because we're a differentiator, it's, you got to charge the right amount of money. Yeah. And you have to understand who your market is. I think there's so many people we haven't asked ourselves that question. That can lead to a lot of pain until you figure that answer out. Yeah. It's, and it's, it's, it's not always easy to know who you are.

[01:00:34] I mean, personally and professionally, like who are we? Yes. That can take a lot of soul searching. Absolutely. I think that's why early on I was like the core values, we'll do those later. You know, like, uh, let's make payroll. Yeah. Yeah. What's one thing if you could do over that you would love to change or do over?

[01:00:59] I probably would have, if I were to do this all over again, out of the gate, I would have started doing, I would have had my prices higher and I would have done gross profitability pricing per contract. Because that allowed us to invest in the people that we wanted.

[01:01:26] I mean, I gave a presentation on that, I don't know, four years ago, five years ago. And, uh, you know, that, that was really huge for us is you have to know how profitable each relationship you has your, each relationship you have is, you have to look at that and you have to, when you look at renewals, Hey, where are we at here?

[01:01:53] You have to look at that every single time and developing rigor around that allowed us to generate more revenue, which we then turned around and plowed back into hiring the right people. And also using enterprise tools, you know, like getting the right tools. I don't mean to minimize that. That's important, but like it allowed us to the most of it's the people part, but we also

[01:02:19] like, Hey, we're tired of using some of these like cheapo. Hey, I checked a box MSP tools. We want to go by and we want to get real quality tools. I mean, but really most of it went into the end of the people. And that, that made me think, I think it's easy to grasp that if you get the expensive enterprise tools, you have to charge more.

[01:02:45] If you have, you know, if you look at all kinds of discussion forums, it's like, Oh, well, if I buy this tool, I've got to charge more, but the real investments, the team. Oh yeah. Tool cost can be a thing because MSPs can get super tool happy. Yeah. You know, and that's another thing we try to be very judicious about. Like we're, we're not going to buy every single tool. Like it has to, does this add value?

[01:03:12] Um, and so, but it's really the people, like when we look at our, you know, tool cost is part of your profitability calculation, but it's, this is all about people. It's really about labor and how, how much labor is being utilized in this account. And are, are we profitable here?

[01:03:36] And if we're not, then we might have to charge a client above rack rate because we're investing more resources. You know, if you go to McDonald's and get a fries, you don't get two fries free. Right. And so that understanding that math and how that all works, um, is really, really important. And that can lead to hard conversations. I had a long-term client. I had to raise their price a hundred percent. It wasn't a hundred. It was 77%.

[01:04:06] Wow. And we looked at it and said, man, we looked at these ticket trends for a year and there's just no, there's no one thing. It's just, you guys use us a lot. And you know, some organizations are like that. So, you know, and then just having a trusted, like sort of a trust building. Having conversations like, Hey, you know, we're not trying to gouge you, but this is where we're at. And I can't deliver great service to you if I don't charge you this amount.

[01:04:36] Did you lose that client? No. With a 77% price increase? No, we didn't. And we had to, I mean, I had to have these conversations for like three, four or five years. These hard conversations around pricing. It's like, once we decided to get real on being a differentiator and, you know, and the truth is, is most people stayed. You have to, I mean, when you're coming from a place of integrity and honesty and you're just saying like, look, man, here's what's going on.

[01:05:04] We've tried to figure out how to simplify this and make it so there's not so much usage, but you know, when, you know, like if you go to my website, this whole business about trust. And so when people trust you, you can have those conversations, you know, and that's not everyone, you know, some people are doing fine, but you know, sometimes you do have to have those conversations.

[01:05:31] What's a myth about running an MSP that you'd like to set straight? Well, I mean, if you go on Reddit, you know, the theme is working for MSP is terrible and you only go there to cut your teeth for a couple of years and then you get some sort of cush, you know, corporate job where you can play Quake 3 all day.

[01:05:56] Um, I think we have developed an MSP that people really like working at. And, and so that's kind of unfortunate is that there's sort of a narrative out there. You know, I think sure there's the world is full of a lot of businesses that are difficult to work at, but I don't think there's anything inherent about working in an MSP that's problematic.

[01:06:21] I think when they're understaffed and have poor leadership and all that, I think, yeah, that can be difficult, but I don't think there's anything inherent about it. I actually like the variety of working in an MSP and look, working with all these different networks and customers or whatever. I would find working on one network terribly boring. Um, and that's just me. Everybody's different, but you know, I think MSP work can be very fulfilling and rewarding. Mm-hmm.

[01:06:51] What's something that you're looking forward to with all the, all the growth, all the changes, just all the things going on? I mean, I, I'm, I'm looking forward. I mean, there's a couple of things. One, we're going to sort of build out a marketing department again. We have a really sophisticated sales team, but I've kind of paused marketing for a year or so. And so we're going to rebuild that. I mean, I think just developing and working with the leadership team and really developing the relationships in here.

[01:07:18] I mean, that's, I think that is what I'm probably most excited about. And I mean, I've got some opportunities and prospects that seem really exciting that we would be super fun to work with. I get really excited, um, talking and learning about these businesses. Oh, like, man, you do cool stuff. Like I, I had an appointment this week that I was like, man, this is amazing. Like what you guys do. So I get excited about that.

[01:07:46] I mean, I get excited about helping people and developing the team and growing and then growing myself, both personally and professionally. Like I like, I like growth. Um, you know, I'm excited. We, we just did some amazing things with our new PSA and I'm excited about continuing to develop that. I mean, we've functionally automated our entire true up process, which is pretty cool.

[01:08:11] Um, and there's a lot of opportunities I think to, to develop those processes to help our clients and, and help our team internally. So there's a lot of things that I work, want to work on there. Um, yeah, I think, I think those are kind of the main things. I mean, there are some things we want to start exploring with the whole AI thing and AI readiness, which some of my peers who are do a better job at getting out in front of that, you know,

[01:08:40] so kind of developing some things around that. And yeah, so there's some, there's some exciting things out there to work on. So switching gears, if there's one book you would recommend to read, what would that be? I think the book that probably changed our business the most was traction.

[01:09:01] You know, in 2017, uh, we were having a peer group meeting and grand came in and we all in our group agreed to implement traction. And, um, you know, that really, I mean, none of those ideas are new per se, but it really

[01:09:25] helped us focus on, Hey, we got to get serious about these numbers and processes and people and all this. And that really helped us a lot. I don't think traction is particularly great at helping you decide what you want your business to be or strategy per se. But in terms of the management framework, it really changed our business a lot.

[01:09:50] And then I think now we've probably taken it too far to the point where we, we focus so much on being world-class that it's, you know, it's not as fun as it used to be. So I think, you know, there's a balance there, but it kind of goes back to the profitability discussion. You have to know, you know, and that looks pretty straightforward. Do you have the right people? Are you looking at your metrics every week and quarterly and annually?

[01:10:17] And, um, do you document that that goes back to email or your processes documented, you know, how do you evaluate your people? I mean, that, that, that's really helped us a ton. I mean, there's other books that I love, but that, that's probably the biggest one. Thank you for that. So for folks listening, um, how could they find you online connect with you, et cetera? Yeah, sure.

[01:10:41] So our website is, uh, mode five.com it's M O D E numeral five.com. Um, and, uh, certainly can reach out to us there. We have a web form and, um, if there's any MSPs that want to chat, I mean, I don't, I don't have it all figured out certainly, but, um, you know, we've been at it 22 years. So I'm certainly, I love chatting with other MSP owners and, and talking things through with them.

[01:11:11] So, um, also, uh, my, uh, uh, you can reach me, uh, uh, from the website, just go fill out the form and say, Hey, this is for Luke. You know, I'm happy to respond to any questions. I mean, not that this was interesting enough to, to bring up questions, but I think it is. I, there's more, I feel like I could ask, but I do want to be a good story to your time.

[01:11:38] This has been from my perspective, just an amazing gift to Luke. So thank you for this. Yeah. Thank you. I, I, I really can't thank you enough for having me on. I, I, I love this stuff. I love the strategy and it's just so much fun to talk about it. Thank you.