Talk Tech with Rob Scott featuring Matt Yesbeck

"Contracts are becoming currency.” 

In our latest Talk Tech with Rob Scott, MSPX Founder Matt Yesbeck shares how he’s helping MSPs buy, sell, and scale smarter. 

Discover how MSPX turns managed service contracts into secure, tradable assets — backed by escrow, structure, and trust.

Transcript

SPEAKER_00 0:03

Welcome to Talk Tech with Rob Scott.

SPEAKER_02 0:07

Matt, welcome to the show.

SPEAKER_01 0:09

Thank you for having me, Rob.

SPEAKER_02 0:11

It's my pleasure. You and I got a chance to meet uh in Colorado this summer.

SPEAKER_01 0:16

Yep.

SPEAKER_02 0:16

And I got a chance to learn about MSPX, and I was very excited about what you and your son have built, and I wanted to bring that to our audience. So I'm glad you're here. Why don't we start by just telling the audience about uh your background and how you decided to get into the business of MSPX?

SPEAKER_01 0:39

Yeah, so I've been in the IT industry here in Richmond, Virginia for about 30 years now, uh working for MSPs small and large. Uh, spent some time working for the DOD on different military contracts of a technical nature. Um, and then in 2016, uh, ended up at an enterprise uh MSP working for a big corporation. And uh was their end-user computing architect. And I spent nine nine years in a lab architecting anything that would touch an endpoint. We would uh build and orchestrate it so that they would have a wonderful end-user experience, whether that was pushing out software updates, reclamations, uh, whatever the case may be. Um, and then my son, who would come out of college in 2017, uh, wanted to go into the IT field. So I put him in front of a CEO of a small MSP that I had befriended. And they liked him. They hired him, and uh he moved quick. I mean, he went from a green horn uh on the phone, answering basic uh tech support questions, shaking in his boots, uh, because he really had put himself through college on a full ride basketball scholarship. So sports was his thing, uh, and IT wasn't. Um so I was really shocked when he said he wanted to go into the business. But anyway, uh he moved very quick. And in four years, they had promoted him to MSP director. Um, and then the way that MSPX came about was his first project was to look at their portfolio and line up their customers, A, B, and C. And he had identified about half a dozen C level customers, whether it be low or no margin, or just a vertical they were moving away from, or just a bad fit culturally, whatever the case may be. Um, and he wanted to divest those contracts without just calling up the customer and firing them. He didn't want the bad word of mouth, he didn't want the hurt feelings, he didn't, he would like to monetize the contract on his way out, and he wanted to transition them to uh another MSP that was better suited. Uh, but he found nothing. Uh he did a whole bunch of searching, then he called me up and I started searching with him, and we we found nothing. So we just figured if there was truly a need, and and clearly we weren't the only ones, uh, that as we would later find out, why don't we build it? And so that's how MSPX uh came about was really just out of a basic need uh for something like this, and it didn't exist.

SPEAKER_02 3:10

You've gotten a lot of attention so far, which is I think much deserved. But before we jump into some of that, let's hear about what MSPX is gonna do to solve the problem of maybe monetizing some of those C customers or maybe even allowing an MSP that's looking to grow to acquire accounts versus businesses.

SPEAKER_01 3:36

Yeah, so our tagline is essentially MSPX is the internet's first marketplace for the buying and selling of managed services contracts. So it's designed for growth-minded MSPs. Uh, it enables secure structured transactions. Uh, so whether you're scaling up, pruning your portfolio, or planning a clean strategic exit, uh, MSPX is where contracts become currency. And the way that we solve for that is we wrap structure and security around a fragmented process that has been happening all across the industry for decades. But typically you see it in forums and peer groups and back channels and things of that nature that are sketchy and and uh and shaky at best. Uh, and so for us, because we're wrapping structure, uh a vetted platform, escrow back transactions, and a transition dashboard that keep the buyer and seller in lockstep as they move through, transitioning that customer from the seller to the buyer, uh, we really seek to offer a streamlined process that will make this much more unified and transparent. So, yes, you can you can divest contracts when you have found that um that they no longer suit your portfolio. It also gives smaller MSPs the option uh and ability to more quickly grow because we know that most MSPs are terrible at sales, but they're great at customer service. So they really rely heavily on referral business. And so this is just another avenue for revenue for them. Uh, and then it also uh enables the small MSPs that are ready to exit and move on to something else, but aren't quite big enough to attract an MA buyer. It allows them to divest their entire book of business on the marketplace and walk away.

SPEAKER_02 5:26

That is really cool. So walk me through the use case of the seller and the user experience with MSPX. So now I'm in the shoes of your son and I've got my C client list and I'm ready to um divest and take care of these customers in a way that shows them dignity and respect. Yes. Walk me through that process of from the time I decide, okay, I'm gonna put my accounts up on MSPX to the time that I'm making sure that the customers are transitioning. What does that process look like for the seller of the contracts?

SPEAKER_01 6:05

Yeah, so when you decide that uh you want to join our marketplace, you're gonna choose between one of two subscription models, either your generate your uh general plan or your premium first look. And premium first look essentially gives you a 36-hour first look uh above the general access uh subscribers, so that if you if an if a new contract is listed, you have 36 hours to buy it before it goes off to the general population to be bid on. So we are structured very much like an eBay. It's a bid or it's a bid or buy now uh scenario. So as a seller, you come in, you you select your tier, you go through an extensive onboarding process because we want to vet you on the way in uh to make sure that uh you are who you say you are uh and that we are attracting ethical uh MSPs into the marketplace. Um as you're doing this and as you're answering all of these questions, you're building a trust score. And that trust score is going to be um evident on your profile and on your contracts. And so that's gonna let other MSPs know how transparent you were in the amount of questions that you asked when you came into the marketplace. So that establishes that from the get-go. Later on, you will also be establishing a reputation score based on um your um future um transactions on the marketplace. So you'll have your initial trust score and then a reputation score. But you come in as a seller and you click on uh uh list contract, and you can list a single contract or bundled book of business. But let's just say, for the sake of argument, you're doing a single contract. Um, and what you would do is you would go through that intake form. It's about uh it's a nine-step process. It is a little lengthy, but again, we're doing all of this to ensure that we're giving you an accurate valuation and an accurate risk score that both you will benefit from and your uh and the buyer will benefit from. Uh so once you've you've ingested that contract and it gets listed on the marketplace, again, much like eBay, you're gonna set your minimum bid, you're gonna set your starting price. After that 36-hour first look, the bidding opens up. Uh, let's just fast forward, say that a buyer uh, you know, in a seven, 10 days, whatever the case may be, uh bids on it, wins the uh wins the bid. Uh, then we're going to start the transition dashboard where the minute that happens, uh the buyer and seller get a shared unified uh transition dashboard that also has milestones all along the way, starting with week one, week two, week three, week four, and all of the milestones that need to be met all along the way. They also have a built-in chat feature on the side so that they can communicate back and forth unrestricted, unredacted, um, to make sure that they are synchronizing and lining up everything as they should. They put things in in progress, pending, and completed. They verify one another uh that these steps are being taken care of as they should. Messaging goes out to the customer that we also provide to keep that customer confident. We don't want them churning through this process. So we want to reassure them that they're being transitioned to a better fit, better suited MSP, but their business operations will not be interrupted.

SPEAKER_02 9:28

So at the end of the- I want to double-click on that for a second, Matt, if you don't mind, because I think this is the the one area where uh some questions may arise with regard to what is the end user customer's reaction when they get that letter, you know, please be advised that um we're selling your account. And I know you're sounds like you're helping, you know, manage that uh communication and and making some suggestions about process, but yeah, what are the key components at a high level of making sure that the customer doesn't churn? And what what can someone do if in fact the customer calls the seller and is like, what the heck, man? You know, I don't feel I feel like you're selling me down the road here. I thought we had a relationship.

SPEAKER_01 10:18

Yeah, no, I mean, hey, very good question. And again, we we do know that these contracts, they always lead back to the customer, right, that has a say in in whether or not they want to go along for the ride or not. Uh, and and that is unavoidable. So we've just found that through talking to um focus groups and doing our own research, that that messaging is just going to be the key component uh to making that customer feel secure. And yes, you are going to find that there are those customers that want to take an active role in deciding who their MSP is. And and again, that's that's just unavoidable. Um, largely we find, though, that because SMBs um have engaged an outsourced IT department in the form of an MSP, it is because their business isn't IT, but they need technology to run their business. So they'd rather focus on their business and their bottom line and their daily challenges rather than jumping in the middle of something that for most uh is very mysterious. So uh we find that as long as the messaging is on point and delivered in uh a timely manner and worded in the in the right way, um, that the attrition rate can be contained. And you know, it's also to say that with a bundled book of business, you can look at that almost like a mortgage-backed security situation where you're gonna have your A, B's, and Cs all mixed into a bundle. So if you do have some churn on you, you're still gonna have enough value in the ones that stay that it was worth the purchase. Uh, it it really does become high stakes when you're dealing with individual contracts. And that's when the messaging and the timing really do come into play.

SPEAKER_02 12:09

So the principles of diversification apply at MSPX just like every market. Yes, sir. Awesome. So so one question I wanted to circle back on is now I'm the buyer and I uh bought the account, but then it churns or the customer box and says, Oh man, I you may have bought it from him, but I'm not saying I don't know you, I never hired you, and you can go to you know where. Uh what protections exist on the platform so that the buyer doesn't get burned by a scenario like that?

SPEAKER_01 12:54

So to answer that, I would say that that's the whole point of the transition dashboard, because that transition that transition dashboard, especially for an individual contract, you're looking at a 30-day transition. And what we try to do is within the first, uh believe it's within the first three to five days, messaging is going out to that customer, right? So you're not gonna get to day 30 and then all of a sudden they they decide they don't want to go anywhere, right? Uh when you send that letter out or that email or uh on day three, uh if you're not hearing anything back from a negative perspective by day seven or eight, I think we're pretty good to just keep on going, right? And that's why the money uh for the buyer, we don't put the buyer's money in escrow until week three, because it does um it does cost the buyer 2%. And this is just an escrow.com thing that we can't get around. That's just the fee that they charge to escrow money. So we don't want to have the transaction end when the when the uh when the buyer wins the bid. That we don't want the money to go into escrow immediately. We want the messaging to go out, we want a week to go by after that initial contact with the customer. We want to make sure that they are good with the transition before we request the buyer to put the money in escrow.

SPEAKER_02 14:16

Um so hypothetically, the buyer and the seller match on MSPX, the letter goes out to the customer, the customer has a heart attack, and the transaction gets canceled. Right. Okay, understood. Understood. So there's really protections for both sides. Yes. So you mentioned something that was very interesting to me on valuation. What are the key factors that go into valuing a contract that's being listed for sale on MSPX?

SPEAKER_01 14:47

Yeah, so these same factors are evident in our uh contract valuation calculator that you can find on our landing page right now. Um, and then we go into further detail when you actually intake a contract within the marketplace. And there are things like um, how long has this customer been under contract? Has this customer ever made a late payment? Um, what metro area is this customer in? Is it high metro? Is it suburban? Is it rural? What vertical is this customer in? Um so we is this customer a detractor? Is this customer a uh promoter in terms of an MPS score, right? What would you rate them at? Neutral, high, low. Um, and then we also go through uh, geez, there's there's there's probably 10 more different questions that we're asking to be very pointed uh to make sure that we're able to spit out a valuation range uh that is as accurate as it can be. And I don't have the list in front of me, but rest assured, uh we cooked it up and we kicked it around and uh we got the thumbs up across the board after a few tweaks. Um, but that is the method that we're using that has an algorithm and a formula on the back end of it so that every one of those questions plays into the multiplier, right? So that multiplier could be anywhere from if we're taking simple math, let's say a contract is a thousand uh MRR. So we know right away, simple math says that that contract is a $12,000 annual recurring revenue contract. So that's where you start. And then when you answer all of the questions that are posed to you during the intake, that is going to flavor whether that $12,000 goes lower or goes higher or stays about the same. And those questions that you answer also help to assign it a risk score. So we can do the best we can to um postulate if that customer has a higher chance of churning or not.

SPEAKER_02 16:48

So price is a function of MRR and risk score. Yes. And that price is only the recommended value that the platform gives. Exactly. But in fact, the real price will be determined by the bid now buy it now or the auction price. And now will the seller be able to set a um a minimum? Yes, sir.

SPEAKER_01 17:18

Yep.

SPEAKER_02 17:18

Okay.

SPEAKER_01 17:19

Yep, just like eBay. So we really tried to borrow from that model, right? It's like, why reinvent the wheel? Uh it it is it's a working process, people have been used to it for 20 years. Uh, we like the model. And so, yes, very much like that. So you're gonna get a valuation. And let's say on that 12,000 ARR example, let's say the the uh the valuation was from 10.5 to 13 with a uh medium risk score, right? So the seller can again list it at whatever they want. I mean, they could be completely deranged and listed for 36,000 if they want, right? Um, or they could, as I would hope they would, be somewhere within the range of what the valuation came back at, right?

SPEAKER_02 18:05

And is it fair to say that for most valuations at the thousand a month MRR are gonna range somewhere between six and eighteen thousand dollars?

SPEAKER_01 18:19

Yes. Okay, absolutely. And so again, just like uh so the buyer can choose, I'm sorry, the seller can choose to list somewhere in between that range, and they can also set a minimum. So they could they could just decide they want to list that starting bid at twelve thousand dollars, but they won't take any less or the minimum starting bid has to be 10.5, somewhere something like that. Uh, and then of course the buy now. So that's where the really that first look premium tier comes into play. Uh, because if someone posts a bundled book of business or just a really attractive single contract, if you're in that premium first look plan, um, you get to nab that with the buy now because with that premium first look, there is no bidding. It's either a buy now or let that 36 hours count down to zero. And then everybody has the ability to either buy now or bid. But as the premium first look, you can buy it or you can let that time expire and just bid with everybody else.

SPEAKER_02 19:14

Well, that's an interesting structure. I'm interested to know um the aggregate how the aggregate books of business will trade relative to what comparable MA activity would entail. Yeah. So when when does it when does a small MSP uh decide that MSPX is the right platform versus a traditional you know, listing with a broker or an MA advisor? What do you think that line will be in terms of revenue? Or uh aside from shedding the C clients, if someone's thinking about getting out of the business, yeah, what size, what size books do you think will trade on MSPX?

SPEAKER_01 20:00

Yeah, you know, it it's really hard to say because especially if you're a lifestyle MSP and you know, you may have anywhere from 10 to 20 or 25 customers that's maybe keeping you and one tech completely comfortable, right? And you've just hit that point where you're ready to just move on. Now, sometimes those MSPs will look to their number two and say, hey, would you like to buy it from me? It's not always an option, um, but I do know that that uh that we often see that and hear about that. Um, but there are a few scenarios, I would imagine. Uh, number one, we know there's a three to one ratio when it comes to MA versus just closing your doors. So for every one MSP that is attractive enough to get bought up by a larger MSP, there are three MSPs that are not, right? They and unfortunately, MSPs, especially the smaller ones, always think they're worth more in their head than they actually are on paper. And so when they go to sell, that's when the reality kind of hits them in the face. Oh my goodness, right? Uh it's just not not there. And so they're not getting any bites and they're ready to go. And the only option is if I don't have any other MSPs in my backyard that's maybe I'm willing to piecemeal off some of this stuff too, I'm just gonna have to walk away. Um, so to answer the question, I mean, that book of business, again, I imagine it could be anywhere from maybe a dozen to a few dozen uh contracts in a lifestyle MSP's book of business. Um, and this just gives them an excellent opportunity to list that on the marketplace and not have to worry about um uh being attractive enough for an actual MA process.

SPEAKER_02 21:45

And and do you think that most of the people that will trade on the site will be those lifestyle companies, or will it be the big MA, big uh PE firm uh that go out and buy a Company quickly shed its you know deadwood from it and hire a new revenue officer and the evergreen and the uh you know the big boys, that's the model, right? So will do you think that over time the large PE firms will use MSPX to shed some of the uh lower level accounts that they're not interested in keeping?

SPEAKER_01 22:24

That is our hope, quite frankly. I've I've had conversations with some of those larger uh PE backed MSPs. Uh, and again, they they love the idea because it does give them the ability to monetize those contracts rather than just do what they normally do, which is either just fire those con uh those customers or maybe hand them off to uh other MSPs that they may know about that might want to, again, pick them apart. So this is real revenue for them, but it's also paying it forward within the MSP community, right? Because those customers are under contract. Why just fire them when you've got an entire United States or North America or the world of MSPs that would love to have that business, right? And and truly appreciate it. Because again, one man's trash is another man's treasure. Uh, and just because that seven or eight cedar is no longer valuable for a five or ten million dollar MSP, that one million, two million dollar MSP would love to have that contract. And so my hope is that we see a good mix of uh bundled books of business uh through uh smaller MSPs looking to exit, uh, as well as larger MSPs wanting to cut their C customers.

SPEAKER_02 23:39

And how do you think about your target addressable market for this marketplace? I mean, what's the upside potential of MSPX in your mind? And what's your business model for how you're gonna get uh paid from the transactions?

SPEAKER_01 23:55

So in our research, we have seen that, and this is this is nothing new to anybody in the industry, that there are about 45,000 MSPs just in the United States alone. Now, when we open next month, we we have been trying to target North America, so primarily the United States and Canada, which brings in uh tens of thousands of more MSPs. But if we're just focusing on the 45,000 that exist here, uh if we just capture even uh five or 10% uh of that market, uh it would be huge. Uh the way that we hope to do that, the way that we've had to do that so far, because we are bootstrapped and customer funded, is very, very grassroots. Uh, we we haven't had any paid advertising. Um the reason that's happened to us uh um from a platform perspective is being chosen to be in the Connect Wise's uh pitch IT program this year, uh, of which I will be giving my final pitch uh day after tomorrow. Um, and hopefully we will be a finalist uh and be on the stage there in uh at IT Nations Connect in November. Um but uh so we we need to get education out. Because this business model doesn't exist anywhere, our problem isn't rising above the noise of our competition, it's educating the channel and making the channel aware that we exist and how we bring value to MSPs, both large and small. So to answer the question in terms of how do we how do we generate revenue, we do it in two ways. One is that small subscription fee up front. And we tried to be sensitive with that pricing because we we know uh that MSPs are nickel and dimed to death to build their net their tech stack and everything else. Um so we wanted to have a very low barrier to entry so that everyone could partake. Uh, and then we take a 7% commission from the seller, and that's how we uh will stay in business.

SPEAKER_02 25:55

And what services does MSPX offer to the buyers and sellers uh for that 7%? And and and to clarify, that's the seller pays the 7%, or is it a shared?

SPEAKER_01 26:08

It's it's the seller. So when that money is released from escrow, it goes to the seller minus 7% that goes to us.

SPEAKER_02 26:16

Nice. Yep. And and what services does the seller receive for uh the 7%?

SPEAKER_01 26:23

Yeah, we again we're we're structured. We've got the security in escrow. Uh our landing page has the contract valuation calculator. So that really does assist the seller when they're just coming to the landing page, even if they haven't signed up yet, and they want to see what their contracts might be worth before they decide to jump in and pay that subscription fee for the year and join the marketplace. Uh, we also have an excellent resource section where we have blogs that have been written up uh that uh help to inform the entire process. We have uh a resource kit. So we have documents for buyers and sellers as well as legal documentation, all these things to consider when you are entering into uh the marketplace and looking at divesting or acquiring contracts. So we try to uh provide as much um uh resources as we can from uh from that perspective. And then uh ultimately when the marketplace opens, we are going to have sponsors, we'll have uh vendors that uh advertise. We're trying to we're gonna keep that very distilled down and uh direct so that uh people aren't inundated by it. Um but the value there will be anybody that advertises on the marketplace will be offering uh whatever their offering is at a uh discount so that the uh the buyer and seller can both benefit from that as well. So and the and more to come, right? I mean, we're just we're trying to open the doors on September 15th. The sky's the limit. Uh, we will obviously continue to uh revamp and tweak as we move down the road.

SPEAKER_02 28:00

That's really exciting stuff. And so big uh big launch on September 15th. Walk me through your go-to-market strategy between September 15th and the end of the year.

SPEAKER_01 28:12

Yeah, so when the doors open, so up until, well, I mean, at this point, again, all grassroots, we haven't had any paid marketing until yesterday, uh, when uh we had just decided that we were gonna go ahead and actually do some paid uh advertising. Um, yeah, so we were gonna do some paid advertising out of our own pockets, uh, which again is always scary, and you don't know uh if it's going to go down a black hole or if it's gonna resonate, um, but we're certainly hoping that it will. Uh, I know by watching the traffic, we've had a great many number of impressions and clicks. Uh, so that's all very good. Uh, even if it doesn't convert to subscriptions, we're imprinting MSPs with the name and logo of MSPX. So it really is just a matter of time until any MSP is ready to buy or sell. Uh, so I really think in this instance, every MSP is our customer. If you're larger, you're probably gonna sell. If you're smaller, you're probably gonna buy. Uh, we just need to have these impressions uh in front of you. Um, so at this point, uh we've had our landing page live. This is the fourth week. We have uh 20 subscribers that have signed up. Again, all grassroots. Um, and we we would hope to have doubled that by the time we launch. Uh, it is a hefty initiative, but uh I'm I'm doing all that I can do. We thankfully just signed an agreement with ASCII. So tomorrow they will be advertising us to their entire audience um about the launch. So this is a really good announcement for us. They have a large number of MSPs, and uh we're excited about being able to uh be introduced to their audience. Um whatever that would have cost, uh thank you, ASCII, for for uh for partnering with us and uh allowing us to do that for uh the the uh simple uh payback of just having them uh on our landing page as a sponsor and uh being able to offer their uh subscribers an additional discount. Um and then the go to market we launch. Um we've had so many verbal commitments of MSPs that would like to divest. Of course, many, many more wanting to acquire, and I get that. Um it's just gonna take time for you know, opening day, let's say 6 a.m. on the 15th. Um, I wouldn't imagine the first thing on every MSP's mind is, oh, I gotta go list the contract, right? So it's not gonna be like a brick and mortar where we swing open our doors and our shelves are stocked to the gills, right? Uh it's gonna take hours, maybe days, uh, for those MSPs to start listing their contracts. Um, but the hope is that that traction will slowly build and build and build, and then that ecosystem will start to actually spin up. Uh, and as as people see activity, as people log into their account and see contracts listed, even if they're not immediately attracted to those particular ones, they're going to see activity. And I hope that that will spark continued interest and more chatter within the community.

SPEAKER_02 31:20

Well, that's really exciting, Matt. That's very exciting times. Uh, just a couple of months, uh, less than a month away from your big launch on September 15th. And as you know, you know, I have many clients that um count on us for contracts. And I think what you're doing could be a major benefit to our subscribers because I'm certain that some of our subscribers would be interested in buying and selling contracts on this platform, and that's why I asked you to join us today. So thank you so much. I'm so glad we had an opportunity to meet in person and thank you for spending the time with us today. I'll be watching carefully on the results of the Pitchett contest. As you know, Monja is a two-year alum of the Pitchett competition, and um, I think what you've developed is well worthy of consideration, and we wish you all the best in that contest as you make your way through the rest of that competition. Certainly looking forward to hope looking forward to seeing you at IT Nation in Orlando, where this podcast will be one of the featured podcasts of IT Nation, and I'll be doing a breakout session similar to the one that won me the award for best lunch and learn in the evolved community. So looking forward to seeing you there at IT Nation Pitch It. I'll definitely be there cheering you on, and I hope it goes well for you. And my attitude was I was in it twice. I never got on stage, we never got selected, but we still got tremendous value out of it. And just because you don't get selected doesn't mean you don't have a great uh solution for the community. And uh I wish you all the best and I'll be cheering for you.

SPEAKER_01 33:11

Yeah, well, thank you for that, Rob, and thank you for allowing me to speak to your audience. It was it was great, and uh yeah, looking forward to what lies ahead.

SPEAKER_02 33:18

Well, we look forward to having you back on the show in the future. Thank you, Rob. Thank you. Take care.

SPEAKER_00 33:24

You've been listening to Talk Tech with Rob Scott, brought to you by Monger. Monger is the first mover in providing contracts as a service solution specifically designed for IT managed service providers. And periodically updated to ensure that MSPs always have the latest protection legally provided.