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[00:00:00] Introduction and Guest Background

[00:00:00] Carrie Richardson: Good afternoon everyone. My name is Carrie Richardson. I am your host today for win. What's important now. With me today is Michael Nelson, who's the founder of Scaled, the staff augmentation firm. Michael and I met. I want to say 12 years ago at an it nation event.

[00:00:19] Carrie Richardson: Yep, way back in the day where we're dating ourselves a little bit.

[00:00:25] Carrie Richardson: I wanted to talk to Michael today about a couple of things. 

[00:00:28] Michael's Journey into Entrepreneurship

[00:00:28] Carrie Richardson: So Michael's career did not start as an entrepreneur. Michael, what was your role in the world before you decided to start a business? 

[00:00:35] Michael Nelson: My first life, I was a school teacher. I taught middle school in an inter district, really tough school taught language arts and history, and then I ended up getting the computer lab full time in 1993, I believe.

[00:00:49] Michael Nelson: Ninety three? And that's Yeah, that's what started it was back with the old Apple, gosh, the max they, and it was a token ring [00:01:00] network. It was, I'm definitely data myself. It's before we ever got the before the Internet even existed and about a year and a half into having the lab the first browser came out and the Internet came out.

[00:01:12] Michael Nelson: I think we had a dial up and we started doing things with the, okay. And in the computer lab on the Internet, 

[00:01:19] Carrie Richardson: It's taking us all back a little ways now. 

[00:01:21] Transitioning from Teaching to Tech

[00:01:21] Carrie Richardson: So you went from teaching computers to owning a business that focused on computers. Tell us about your journey into entrepreneurship. So how did you decide to start a managed IT services company? 

[00:01:37] Michael Nelson: So it actually started before that is I started, I built a website for the school and a friend of my dad's who had a business asked me to build one for his company. It's the cheapest man I'd ever met. And when I told him how much he said, no, that's not enough.

[00:01:52] Michael Nelson: I'm going to give you more. And I thought there might be something here. 

[00:01:55] The Birth of a Web Design Firm

[00:01:55] Michael Nelson: So I actually started a business on the side doing web design. That was a [00:02:00] 95 thinking that I'd teach full time for a year. Then I could drop down to half time for a year. And then after 2 years, I might be able to full time make a go of a business as it turns out.

[00:02:11] Michael Nelson: Drop down to halftime within three months, had two employees and another two months after that and had to quit outright and built the web design firm up. That was 95 that exploded with the whole dot com. Everything was exploding back then. Did that for five and a half years until the dot bomb hit, which that's where I learned a lot of my lessons about how to be a true entrepreneur, good and bad.

[00:02:42] Carrie Richardson: The resilience buzzword comes in there, I think. 

[00:02:47] Michael Nelson: The, so many of the books that we've all read that, most strong entrepreneurs have gone bankrupt at least once. I learned a lot of things, I was young, I was, I don't know, late twenties when I started that business, I made a lot of mistakes.[00:03:00] 

[00:03:00] Carrie Richardson: You paid some entrepreneur tuition there. 

[00:03:02] Michael Nelson: Yes I did. Painful as it was, but I put that tuition to good use. 

[00:03:07] The Evolution of the MSP and Remote Work

[00:03:07] Carrie Richardson: Alright, so it's 1995, you started a web design firm, and the dot com bubble bursts, and so naturally you think it's time for me to start another business. 

[00:03:20] Michael Nelson: Actually I wish I had been that brave.

[00:03:23] Michael Nelson: I actually went back to teaching for a year and licked my wounds until a friend, a business friend took me out and said, what are you going to do next? I'm like, yeah, and I'm going to stay a teacher. No, you're not. You can't do that. Da. And by the end of dinner, it was like, okay, what could you do?

[00:03:37] Michael Nelson: The only thing I really knew how to do was computers. So scratched out a little business plan on the back of a napkin, like we all do and set up a computer support. Back then this was 2004. So back then the term MSP didn't even exist. So we started, I started doing computer repair for anybody and everybody.

[00:03:58] Michael Nelson: We did [00:04:00] small businesses, home offices teachers. We had a lot of what were called end alls, Michael's nice old ladies. Cause I was really patient and we had, and they would tell their friends, it's oh, there's this great computer guy and he doesn't make you feel stupid. So grew that up after a few years had half a dozen employees.

[00:04:22] Michael Nelson: We were still doing all, everybody, anybody and everybody, and it was just becoming a nightmare. I think we looked up and had 400 different companies or people we had touched in a year. And the problem is, and this was one of the lessons that I brought forward is, you're the old 80 20 rule. And so we went and looked at all of the business, all of the income listed out everybody.

[00:04:48] Michael Nelson: And it turns out 80 percent of our income was coming from 20 percent of our clients. And the problem is we were being distracted by those smaller companies because. It was [00:05:00] always an emergency for them. So in one fell swoop, we actually migrated out 80 percent of our business in one week, found them new homes, gave them people to work with, and then fully concentrated on doing only businesses, supporting businesses.

[00:05:16] Carrie Richardson: Changed your client roster, I imagine you changed your shorts at that point, dropping 80 percent of your business. 

[00:05:23] Michael Nelson: That was one of the scariest things I ever did and it paid dividends almost immediately. It just made. It was such a huge difference. 

[00:05:35] Carrie Richardson: And how long did you fight the idea before you did it?

[00:05:37] Carrie Richardson: I know there was a point at managed sales pros where we had to fire our largest client, they were 60 percent of our revenue. So important lesson there. Don't put all your eggs in one whale basket. But we had finally done per client profitability and realized that we were actually paying them for the privilege of being there.

[00:05:56] Carrie Richardson: It was terrifying and they event, they went to a [00:06:00] competitor and six months later they came back and paid our new rates. Yeah, happy ending, but you got to take that

[00:06:06] Michael Nelson: leap. 

[00:06:07] Michael Nelson: Absolutely. And you hit on two very important things besides the leap is that, it's one of the things that I loved about the peer group that we, that I was in for for my MSP.

[00:06:18] Michael Nelson: Is be very careful about double digit clients and you're going to get them, but make sure you're selling your way down out of it. That, that was also a valuable lesson. But yeah, basically I did the same thing as you, we looked at our effective bill rate, their PITA factor, the whole thing, put them into the four different categories, home user, small office, home office.

[00:06:39] Michael Nelson: By this point, we had already had basic MSP kind of clients that it wasn't That in the day, but it was consistent income from them. So we knew how much we were going to get fairly close on a month to month basis. So we had that income there, and that was enough to keep us [00:07:00] going and keep the doors open.

[00:07:01] Michael Nelson: I had to take the chance that I might. Be really poor for a little while, but I wasn't worried about being able to pay rent or pay the staff. So that, that gave me a little bit of comfort. And the, made it easier to take that leap. Cause it was a huge leap to fire 80 percent of your clients.

[00:07:19] Michael Nelson: That's insane. 

[00:07:21] Carrie Richardson: I know. Worked out well. I mean you also took a pretty big leap recently. I understand that you are wearing the coveted Owner role at your organization now versus owner operator. Tell us about that evolution. 

[00:07:36] The MSP is now 20 years old this year and a little over a year ago, I completely retired out of the company.

[00:07:45] Michael Nelson: That today I haven't spoken to a client in over a year. And today I only meet with the president who's running the company on a day to day. And it's really about the finances. 

[00:07:56] Carrie Richardson: Yeah, I understand that you and your ops [00:08:00] manager didn't see eye to eye on a pretty important topic, which leads us to our next discussion.

[00:08:07] Carrie Richardson: You were very against the idea of remote work. 

[00:08:11] Michael Nelson: Absolutely. I owned the building, I bought the first building when the company was, I think, four years old, and I had always Owned the buildings that we were in. So I thought that it was absolutely a requirement that everybody be in the office, that if people worked remotely, they would mess around, they wouldn't work as hard and that it would be nearly impossible to maintain the culture.

[00:08:40] Michael Nelson: Culture was super and super important in our company. And also having just those serendipity moments where when you're together, you hear things or see things. So I was really afraid. Of losing that. So staff had been after me for years to work remote. And back, starting in [00:09:00] 2014, 15, it would have been doable, but I was absolutely against it.

[00:09:03] Michael Nelson: Fast forward to the progression of me getting out of the company. I had a guy that had started as a tech, became the technical director, and then he became the operations manager in 2019 . And he shortly after the full acceptance of the job, he came to me and said, drive hiring and firing ability.

[00:09:27] Michael Nelson: Yeah. Yeah. Of course you do. Do you have veto?

[00:09:31] Michael Nelson: No, I do not. And he said, good, I'm going to be firing this employee and I'm going to be hiring two people from South Africa, my jaw dropped, but I had empowered him to be the operations manager. And there was no way I was going to tell him no, especially not that early. It's okay, he's got to learn the hard way.

[00:09:49] Michael Nelson: These. He's going to fail, going to fall flat on his face and he'll learn from it. And boy, did I get the lesson. These guys were phenomenal. [00:10:00] They just worked their tails off. Fast forward, we hired a few more. They were always on the top of the leaderboard. And the irony is by the time COVID hit and we're in California, so obviously we were one of the first ones to go home.

[00:10:14] Michael Nelson: We were already really well prepared to be able to handle that. So immediately we turned into a fully remote workforce and with the exception of a couple of guys that set up machines in the office even after COVID we've remained a hundred percent remote. 

[00:10:32] The Launch of Scaled and the Future of Staff Augmentation

[00:10:32] Carrie Richardson: And that led you to business number four.

[00:10:37] Michael Nelson: The irony of that is the guy who was completely and absolutely against all work from home ended up starting a company that provides text to other MSPs all over the U. S. and California U. S. and Canada. The irony is not lost on me for that one. 

[00:10:53] Carrie Richardson: Now, the company is called Scaled and one of the things that we talked about before the podcast was that [00:11:00] there is a misperception in the market between the terms outsourcing and augmenting.

[00:11:06] Carrie Richardson: So what is the difference between augmenting your staff versus outsourcing your staff? 

[00:11:11] Michael Nelson: So there's a lot of companies that do outsourcing and I'm friends with several owners that have companies like that do it well. Outsourcing is when they don't work full time for your company so you can outsource your help desk.

[00:11:23] Michael Nelson: You have good documentation. Calls come in. They go to the outsourced help desk, but you're not in control of who is going to be picking up the phone. You're not in control of who's going to be servicing the tickets, and it's typically a pot of people is how most companies set it up where staff augmentation you are getting a work full time for your company.

[00:11:45] Michael Nelson: Full time tech placed dedicated to your company that is working in your system at your discretion, learning your ways, your culture and doing it how you want them to do it. 

[00:11:59] Carrie Richardson: So how does that [00:12:00] work? For example, if my guy doesn't show up for work today, do I have a spare? 

[00:12:04] Michael Nelson: And so there are pros and cons to both very much with the fact that they are placed full time as staff augmentation. They're very much like any other employee. They're going to call in sick on some days. They have vacation days that they get to take.

[00:12:17] Michael Nelson: The good news is their work ethic and their skills really make it an incredible option for companies. We really like the work ethic of the South Africans that we hire. So it's really not any different, Carrie, from having a full time employee that calls out sick, or goes on vacation, or has an accident on the way into the office.

[00:12:40] Michael Nelson: People are human they're gonna have life problems from time to time. 

[00:12:44] Carrie Richardson: So is Scaled more like a PEO firm? Are you responsible for running payroll, or does the company that takes on the augmented employee have responsibility for that?

[00:12:56] Michael Nelson: Yeah we are the employer. They are our legal employee.

[00:12:59] Michael Nelson: [00:13:00] We pay them. We take care of the taxes. We become a partner with the businesses that we work with and we become their HR partner. So if there's any issues, we deal with that. We help. We coach. We truly become an extension of your companies the same way that tech support companies are an extension of their clients. 

[00:13:18] Michael Nelson: They happen to be their partners that help with the I. T. We're their partners that help with the H. R. 

[00:13:26] Carrie Richardson: Okay. So if somebody is going to start exploring staff augmentation for their I. T. business. What should they be looking for? What questions should they ask their potential provider to find out whether or not this is going to be a good relationship?

[00:13:46] Michael Nelson: Several. One of the first questions is, tell me about the relationship. How does it look ongoing? There's a lot of companies out there that will do one and done. They place them in the company and then they're done. 

[00:13:57] Michael Nelson: We wanted to build it for MSPs by [00:14:00] MSPs and really have that ethos that it's not just a one and done kind of thing. You're there to truly be a partner. How do they check in with you? How often do they check in with you? How do they support you? How do they check in and support the employee?

[00:14:14] Michael Nelson: That's going to be really important. Do they do coaching? Do they do training? And this is really important because a lot of companies get this wrong is what is the legal employment status of those employees? Are they legally employed?

[00:14:28] Michael Nelson: Are they being paid in their local currency? Are taxes being paid? Do they get to have vacation and sick time like other companies do? 

[00:14:37] Michael Nelson: We source out of South Africa. There's other companies that are doing it out of Mexico, out of the Philippines, out of India.

[00:14:44] Michael Nelson: Some of them are doing it the right way where they're actually the legal employer. There's others that are effectively brokering them and they're independent contractors. And if you've got an independent contractor where you're telling them what time to work, how to work, what [00:15:00] tool set to use, and directing their day, they're not an independent contractor, they're an employee.

[00:15:06] Michael Nelson: And you've got legal classification issues at that point. 

[00:15:10] Carrie Richardson: For those of you listening who don't know how to tell whether or not you are going to be legally on the hook for somebody's ridiculous unemployment insurance claim when you hired them as a 1099, go Google IRS 20 questions.

[00:15:26] Carrie Richardson: And if you can answer those 20 questions, you've got a contractor. And if you can't, you have an employee and you should expect there to be follow ups. 

[00:15:35] Michael Nelson: Absolutely. I am not a lawyer. Nor am I. I just, I do know in this industry, I do know there's people that do it right. And then there's others that aren't doing it the way that it should be done.

[00:15:48] Michael Nelson: We want our employees to take vacation. We want our employees to be able to have sick time. Life happens. They need to be able to have a well balanced life. And that's one of the reasons that we started looking [00:16:00] around for a company doing it the right way.

[00:16:02] Michael Nelson: Couldn't find anybody. 

[00:16:03] Michael Nelson: And that was the genesis of how this started. I went out and was trying to find people doing it the right way. I was also in a peer group where everybody was complaining that they couldn't find any good texts. COVID really messed up the tech industry for pay scales and being able to find good staff.

[00:16:20] Michael Nelson: And I had actually started getting the foot out the door and had taken a month off, scheduled a month off. To feel out what retirement would look like for me and ended up starting this business with my partner that month. So good at retiring, Michael. So good. Yeah. I figured out that, yeah, I'm never going to retire.

[00:16:39] Michael Nelson: I'm just going to be a serial entrepreneur. 

[00:16:42] Carrie Richardson: I'm convinced you're a vampire anyway. You haven't aged in 10 years. I like when you were, I was doing the math on the numbers here and I was like, no. No, he couldn't be. Yeah, 

[00:16:54] Michael Nelson: I must be. I'm actually approaching a retirement age. 

[00:16:57] Carrie Richardson: You would never know it.

[00:16:58] Carrie Richardson: So what do [00:17:00] you see in the market right now? What trends are pointing towards the success of scaled. 

[00:17:06] Michael Nelson: Ironically, it's COVID that really made the biggest difference and it was for me as well. Once everybody went home, it made, everybody had to figure out how to work remotely.

[00:17:21] Michael Nelson: Not just us, every MSP had to do it, but not just us, but in my MSP business, the law firms, the accounting firms, unless they were actually manufacturing somebody, everybody went home and they had to figure out how to run their businesses remotely. 

[00:17:35] Michael Nelson: The ability To have acceptance of remote employees just changed drastically in my MSP. 

[00:17:45] Michael Nelson: We've got 31 employees now and 11 of them are overseas early on when the 1st couple of people we had hired from South Africa, I had clients for you're outsourcing. It's no, we're not outsourcing. And I explained the difference to them, said, no, they're a [00:18:00] full time dedicated to us, they're just, they, instead of driving to the office they're logging in from South Africa. Most, very few people had problems with it. We had a couple of really conservative clients that were a little on the xenophobic and said, I can't believe you're not hiring an American.

[00:18:15] Michael Nelson: And it was a really simple response. And it was Joe, do you have any open positions in your company? Yeah, I can't fill them. Why not? Nobody, and the same problems that all of us were facing, it's and when you call to get tech support from the company, do you have any problems with our response time?

[00:18:34] Michael Nelson: No, you guys are great. Like you've always been. Yeah there's a reason for that. I couldn't find the people that we needed here. And so we had to look elsewhere. We found some really amazing resources. Are the guys taking care of you? Oh yeah, they're awesome. But I still, and that was really the I only had to do that for a few times with a few clients and I get it and, if I could find them.

[00:18:58] Michael Nelson: In America first. [00:19:00] Yeah, but we weren't able to do that. 

[00:19:01] Carrie Richardson: I think that there is a misconception that outsourcing or augmenting is going to be far more cost effective than hiring locally. And I would think that in some markets that is probably true, but it has not been my experience that people outsource or augment for the cost savings. What are they looking for?

[00:19:20] Carrie Richardson: When they're going to an organization like yours, it's not going to save them money. What is it going to do for them? 

[00:19:28] Michael Nelson: So the, the one I hear more than anything is the time involved. We have really awesome techs and they are. At a slightly lower cost than you would pay in the U. S., but that's not why people come to us.

[00:19:41] Michael Nelson: They come because we've got a bench of really qualified, really hardworking people that are available. And all of us have placed that Indeed ad, had to go through 500 resumes, you narrow it down to 100, then you narrow it down further, you make 20 phone calls, you get 10 people to talk to you. [00:20:00] Out of those 10, you narrow it down to three interviews.

[00:20:03] Michael Nelson: You schedule the three interviews. One is a no show. You interview two people. You make the job offer to one, and they use it to leverage a pay raise from their current employer. We've all gone through that hell. 

[00:20:16] Carrie Richardson: And I'm just going to cut that part of the podcast out and play it on a continuous loop.

[00:20:21] Carrie Richardson: Next time somebody asks me why they should outsource. 

[00:20:25] Michael Nelson: We've all gone through that time and time again. 

[00:20:29] Michael Nelson: It just takes so long and it's trying to find that needle in the haystack. 

[00:20:34] Michael Nelson: We've solved that. We do all of that heavy lifting and we go through a lot of resumes to get down to somebody that we're going to present.

[00:20:44] Michael Nelson: The other thing is Not only are they ready, they have a work ethic that is just absolutely incredible. So people come to us for their first one kind of saying, okay, I'll test this. [00:21:00] Then they find out how incredible it can be. We get people coming back time and time again.

[00:21:06] Michael Nelson: The other thing that's happened, and this has been very interesting, is the last several years, because it's been so hard to find people, MSPs and other businesses as well, have felt like the employees had the advantage, and they were afraid to discipline too hard, or maybe to take, hold somebody to account.

[00:21:29] Michael Nelson: Or something along those lines because they were afraid that they would lose the employee and then it would be too hard to replace them. This, gives people the ability to not have to be afraid if somebody leaves. And that's really liberating for a lot of companies. 

[00:21:48] Carrie Richardson: How do you manage so many different sets of processes and documentation?

[00:21:55] Michael Nelson: Remember the years of failure? 

[00:21:59] Carrie Richardson: Oh, [00:22:00] do I? 

[00:22:01] Michael Nelson: I, luckily I gotta say the, my MSP was doing well and it was growing. When the man who was now running the company took over as Ops Manager. My company just thrived and it was because he was fanatical about creating processes and enforcing they be followed.

[00:22:23] Michael Nelson: I'm a really good visionary. Implementer wasn't my strong suit. So I found somebody that did. Luckily in this company, we've got visionaries and we've got implementers. So we've got our departments, we've got our client success team. We've got our employee success team. We've got our sales team.

[00:22:39] Michael Nelson: We've got the HR, we've got the finance. So early on, we decided we were going to build this the right way and document it and follow the processes. 

[00:22:48] Carrie Richardson: What I was thinking was every MSP that you support must have their own processes and documentation. Do you standardize those for them when they partner with you?

[00:22:58] Carrie Richardson: Or is each [00:23:00] employee expected to follow a different set of documentation and processes? Not your internal hires, but your augments.

[00:23:07] Michael Nelson: Each employee that we place is full time at that company. So they're going to work using their tools, their directions, their SOPs. Every MSP does it differently.

[00:23:16] Michael Nelson: They all have their own way. Everybody uses a remote connection tool. They use a ticketing system, but we want. Our employee placed in there to work the way that they do it. So where we're coaching people is during the onboarding, we help our clients understand how best to be successful with a remote employee.

[00:23:37] Michael Nelson: There's tips and tricks you can do just to make sure that they come into the culture really well. The one thing that we do insist on, and we can help the client do this, but that's create a 30, 60, 90 day success plan. And that is clearly spelled out. What does this employee need to do in the first 30, 60, 90 days [00:24:00] to be successful in your organization?

[00:24:02] Michael Nelson: What do they need to learn? What skills do they need to do? Where do they need to be ticketing wise? Where, how do they be all of these things that help them understand if you do this, you will be successful in our company. It's been a little surprising how well received, not actually not surprising.

[00:24:20] Michael Nelson: It's been incredibly well received. And we've had some people are like, Oh, I need to start doing this with the Americans, too. 

[00:24:26] Carrie Richardson: It's yeah. I was just thinking this is like hiring 101. Write your job description out. Make sure all your processes are documented. Do you understand them? Can you train to them?

[00:24:38] Carrie Richardson: Have they been updated in the last five years? 

[00:24:40] Michael Nelson: Absolutely, but, carrie -. When I started my MSP, I was a kid flying by the seat of my pants. The, the urgent always overtakes the important. We grow businesses. A lot of us started off as techs and, the accidental entrepreneur, as it were 

[00:24:57] Carrie Richardson: They didn't make us take a test or anything.

[00:24:59] Carrie Richardson: I know, [00:25:00] huh? Hey you own a business now, here's your tax number. Good luck. 

[00:25:04] Michael Nelson: Yeah. There's no, there's not a test to have kids. You have to learn as you go. Yeah, exactly. So those are the kind of things that also a good partner with doing staff augmentation is going to help is to make sure that you have the best chance at success with bringing this person into your organization.

[00:25:24] Carrie Richardson: There you have it, everybody. 

[00:25:26] Conclusion and Final Thoughts

[00:25:26] Carrie Richardson: You've got some options for outsourcing or augmenting when you're having talent challenges, but I think some of this advice could be applied easily within any organization. If you are looking for talent for your business, it is essential that you document the day to day role.

[00:25:46] Carrie Richardson: and clearly outline expectations for success at those 30, 60, and 90 day marks. Michael, have you read the book, The First 90 Days? 

[00:25:56] Carrie Richardson: I don't think I have. I think it would be something you might [00:26:00] enjoy. It's it's written from the standpoint of new leaders coming into an organization and figuring out what they should do for the first 30, days of their employment.

[00:26:11] Carrie Richardson: I looked at it more from a, when I come into a group to consult for them, normally what I do is just come in and say fire everybody and start over. 

[00:26:20] Carrie Richardson: This book made me think about it a lot differently who are my allies, who are my champions, who's on my side, who do I have to win over, and then, how will I build the case for the things that I believe I need to do using historical Or legacy or, secession planning information that only these people that I'm alienating when I walk in the room by saying fire everyone that information would never come to me before.

[00:26:46] Carrie Richardson: Now I come in a lot more gently. I think it'd be a very interesting read for anybody that's considering bringing someone new into their organization. 

[00:26:58] Michael Nelson: And the one that I [00:27:00] will recommend is this book made a profound impact was "making money is killing your business" by Chuck Blakeman talks about the seven stages of business.

[00:27:10] Michael Nelson: And that's actually the book I read that started me on the process of getting out of the day to day of the MSP. And I, he says, Make a five year plan on how to do it. I actually did it and that month vacation was at the five year mark. And it gave me the freedom to be able to start this business. 

[00:27:29] Carrie Richardson: Art goals amazing? Thanks for sharing your story with us today, Michael. I really appreciate your time. There'll be some information in the show notes for anybody that wants to get in touch with Michael and learn more about Scaled and how they can augment their IT team working with competent,

[00:27:50] Carrie Richardson: hardworking, 

[00:27:52] Michael Nelson: Enthusiastic. And very enjoyable. 

[00:27:57] Carrie Richardson: If you're looking for excellent [00:28:00] employees with insane work ethics to augment your technology team right now, you should get in touch with Michael.

[00:28:08] Michael Nelson: Carrie, really appreciate you having me on. 

[00:28:10] Carrie Richardson: Always a pleasure to chat. I'm glad we got the opportunity. Have a great afternoon, Michael. 

[00:28:16] Michael Nelson: Thanks, you too.