How “Profit First” Turns Average MSPs into Best-in-Class Businesses | Bill Blaser

Boost Your MSP’s Value with Profit First 

In our latest podcast, Bill Blaser from MSP Growth Solutions shows how MSPs move from average to best in class: 

 🔹 Profit first, price correctly, track gross margin by service line. 

 🔹 Right size staffing, remove wasteful growth spend, improve cash flow. 

 🔹 Founder led selling in targeted verticals, build a repeatable process before hiring sales. 

Takeaway: Small revenue lifts can drive big profit gains.

Transcript

SPEAKER_00 0:03

Welcome to Top Tech with Rob Scott.

SPEAKER_02 0:07

Bill, welcome to the show. Thanks for having me. I am so happy you're here. Um, I deal with so many different people in the channel in this industry, but I truly think that what you guys are offering is unique. I had an opportunity to meet you because we have a client in common, and I was just so intrigued by what you're doing in this industry and wanted to bring you onto the show. So, with that said, Bill, why don't you tell the audience what it is that you're doing and why it's different than what's out there uh that's typically available in terms of consulting.

SPEAKER_01 0:42

Yeah, thanks. Yeah, our company is called MSP Growth Solutions. And our job is to take usually average or below average performing MSPs and turn them into best-in-class MSPs. There's three principles. Um, you know, we're very broad in our experiences, but one of our principals is a heavily financially oriented person, operates as the CFO of our clients. Uh, my other partner, John, he was my former business coach, actually. He operates really in the COO uh category, focusing on organizational development. And then I focus most heavily on the sales and marketing uh side of the business, you know, helping the clients to grow uh through growing the right clients, growing profitable business. So the three of us work together with our clients, and uh, you know, we're very um we are consultants, but we kind of bristle at that description because we are all very much operators. We're former business owners. All of us have built, bought, and sold businesses. We've made every mistake that a business owner could make. And I actually don't really like to acknowledge this, but between us, I think we have over a hundred years of business experience.

SPEAKER_02 1:54

Isn't it when you isn't it when you're young, you want you always aspire to talk about how much experience you have? And then when you get a lot of experience, it sounds like I'm ashamed to tell you how long I've been doing this.

SPEAKER_01 2:07

Yeah.

SPEAKER_02 2:08

Well, that's awesome. And and it almost sounds like a virtual C-suite the way you describe your team. It's almost like you've got a whole C-suite that you can come in and help your clients with. Is that pretty much how it's that's exactly right?

SPEAKER_01 2:23

If you go to our website today, you'll see that we bill us as your fractional C-suite. You know, our clients cannot afford, you know, to go and hire full-time people, nor do they need them. You know, they don't need full-time people at the caliber of the resource that we provide. So what we give them is the ability, you know, to work with and have on their team a C-suite that can help them get to where they want to go.

SPEAKER_02 2:49

And who is the typical client in terms of size? Uh, what what is it that who is the ideal client profile for MSP growth partners?

SPEAKER_01 3:00

Yeah, the ideal client for us is gonna have annual revenues somewhere around three to about $10 or $12 million. Uh, typical of most of the folks that come to us, they're generating net income that would be in the 3 to 8% range. Best in class is in the 18 to 22% net income range. And the typical MSP knows that they're not performing financially where they need to go. They also are usually keenly aware of an owner dependency problem. You know, typically when they come to us, the business is not as well run as it needs to be, very heavily dependent on them. And, you know, they're looking years out saying, hey, at some point, you know, I'm gonna have to sell this business. You know, where am I really going with this thing?

SPEAKER_02 3:46

And that's interesting because, you know, Monger has a deal room solution that's designed to really speak to that audience that's planning an exit in the future with the messaging that you can't do everything at closing. You've got to really start planning today for a future exit or to improve the business to keep it or pass it down generationally or do an Aesop. It really doesn't matter what your strategy is. Profitability and a better run business is a requirement. What are the top three things that you focus on when you get a new client to help them move the needle the quickest?

SPEAKER_01 4:26

The number one thing that we focus on is profitability. And that is, you know, we are maniacally focused on profitability. There's a myth that it's not just MSPs, but many businesses subscribe to that sales solves all problems, and they want to solve their profitability problems by growing. If we only got this much more revenue, this many new clients, you know, we would then generate profit. The experience of you know the marketplace is not that. What we focus on is making sure that we understand and can get to better profitability, build a profitable model, and then scale that model. And as you know, when it comes down to valuing a business at exit, you know, it's all about EBITDA. You know, so getting to your profitability first allows you then the patience, you know, and the ability to then focus on some of the other things down the road where you do want to grow your revenues and you know build a bigger business.

SPEAKER_02 5:27

In my experience, when you're focusing on profitability, there's two big levers to pull. One is your pricing. And I think all small businesses suffer from the disease of not raising prices uh frequently enough or uh high enough to keep up with wage inflation and other cost uh inflation, particularly when you're selling three-year or long-term contracts, particularly if they auto-renew with no price increases, you could see significant margin erosion. And so from my perspective, I'm thinking increased prices and decreased staff are probably the two biggest things you could do quickly to move the needle on profitability. I see you shaking your head. Is there anything else that you could think of other than those two that's kind of like a quick fix or at least a place to start?

SPEAKER_01 6:21

Yes. And there's always, you know, even though the journey is generally, let's call it a two to three year journey, you know, which is really pretty quick when you think about the kind of transformative change that a business can go through. But there's always, you know, some low-hanging fruit, as they say, you know, when you start to work with a client. And when we go in with the focus on profitability, that's when we can identify, you know, what are the causes of poor profitability within this business. So the first thing that we do is we go in and we do a full analysis to try and understand, you know, what is the client's profitability by service line. And you find very quickly as you start to dive in and look at clients, there's always a lack of understanding of the financial information to begin with. And that always, you know, leads to a lack of good pricing because clients don't know how to price the work that they do if they don't have an understanding of you know their financials. And the other thing that you mentioned is also true. We've never run into an MSP that had too few people. You know, we find always that MSPs in many businesses they end up getting overstaffed because they're concerned they can't meet demand and they don't realize where they are in terms of their labor utilization. And in an MSP, that's your number one expense. So if an MSP in our target category is heavy by just one or two people, you know, that can be a serious drain on profitability. So, you know, as an example, and the third thing that I'll mention is that there's a lot of MSPs that are throwing money at growth and trying to grow. And what we find a lot is that they're throwing money at things that aren't the right things. So they're spending the money, but they're not getting the uh new client acquisition that they're looking for. And that's another one of the things that we find right away that oftentimes we can just cut that spend and provide some bottom line support right away.

SPEAKER_02 8:21

Interesting. Interesting. So, so profitability is the focus, uh, and and that's how you help them uh achieve their goals. But I'm assuming there's a lot of operational and coaching that needs to go on aside from those small wins. Once you have those small wins in place, what is the work over the next year or two that you're focusing on with those customers? After you get in get them to a point of understanding their financials, you get their pricing right, you have them stop wasting money on things that aren't producing for them. Uh, now the hard work begins, I'm assuming, right?

SPEAKER_01 9:00

The work begins right at the beginning. You know, we don't get those wins without implementing our process. You know, we don't just come in and start, you know, pushing buttons because the reality is we don't know when we first walk in the door, we don't know what we don't know, and there's still time that we need in order to get to know the client, really get the information in front of us. And as I said, most of the time, the clients don't have the information in a form that's particularly usable. So the way we work with clients is we, you know, dive in first, and Kevin and his team go in right away and start, you know, working with the financials to try and reorganize them in a way that we can get to not just gross margins, but gross margins by service line, because that tells us where they are in a much clearer uh way than just an aggregate gross margin. Um, so we we go down that path with them and we do financial analysis, but parallel to that, we've got a weekly rhythm where we're meeting with the client once a week, minimally once a week. Usually it's you know, once a week with the principal, and then usually there's intermittent meetings that we have. And we use a process that's very similar to the EOS process in that we, you know, establish our rocks, our priorities, our issues. We help the client implement those sort of things in their own meetings. And we really just focus on identifying, you know, what's the next right thing that we need to work on in order to, you know, move the client down the path. And it really is a series of small wins that add up to fantastic results. You know, once in a while you stumble on something where it's just a you know, jumps out in front of you. Like, for example, our client in common, as we started working together, there was a discovery that they weren't billing for additional users that were being, you know, added at their clients and they had sort of a one-time win. You know, that's great. We love to see that. But the bigger wins come from just, you know, um realizing that when somebody left, if we think about it a little bit, we might not need to replace that person, you know, just more restraint in dealing with some of the attrition that we have. Other things happen. Yeah, on the staffing side. You know, that instead of them doing what they used to do, you know, they come to us and say, hey, this person's leaving. What should we do? And we put our heads together and we think about it and we say, Well, gee, you know, let's look at this differently than we did before. And, you know, once you really start to have the client think about profitability and you know, you bring the experience that we bring into the room, it's a different conversation and it's usually a different outcome.

SPEAKER_02 11:35

You know, uh and that's excellent. Uh, one of the things that I deal with a lot is MSPs that are interested in increasing their sales. They want to grow. They all have consultants that teach them marketing and sales, and they hire uh marketing and consulting companies, and and and in many ways, they're not successful. Um my friend Peter Kajawa at SLI says that the average cost of an MSP to acquire a new logo is about $30,000.

SPEAKER_01 12:10

Sounds about right.

SPEAKER_02 12:11

If I did that in my SaaS company, I would be out of business.

SPEAKER_01 12:15

Yeah.

SPEAKER_02 12:16

Right. And so what I see what I see with with that is a lack of differentiation. You know, every MSP sounds like every other MSP in the sales process to the customer. The customer doesn't really understand uh what it is that you're talking about. They all expect prompt service and secure environments, so those aren't selling features, those are table stakes. So, what is it that an MSP can offer to truly differentiate themselves to sell solutions to people they don't know? Like who's gonna come out of the phone?

SPEAKER_01 12:59

You're hitting the nail on the head. You know, you you uh you sound like us when you describe that. Yeah, you know, client new client acquisition in all businesses is expensive. You know, it's time consuming and it's unpredictable. You know, you need expensive lead generation, you need expensive people oftentimes to, you know, go sell the business. And as we all know, you know, sales never comes in, you know, the way that we want it to. You know, it it always seems to take longer and cost more. That's again why we focus so much on profitability first, because if we can get a client to grow just a couple of percentage points on the top line. And you know, we we deal with the expenses that we were talking about before the right way. And as a matter of fact, in our client of common, we grew year over year, since we've been working with him, 1.7%. But we've grown profit by 120%. So all of a sudden, what do we have now? We've got an MSP who's making more money, they've grown very little, they're patient. It you need to be patient when you start thinking about new client acquisitions for the things that you talked about. You know, even if you do have some differentiation that where you can demonstrate actual tangible benefit to a client for your business over another, what we find is that people do not have a means of articulating that. They've not identified their ideal client uh profile in the marketplace and do not have a list. You know, they're hitting you know a broad list of companies with a very broad message, and even when they get these people into their funnel, they don't have the ability to convert them. One of the biggest symptoms of this that you see, and we see it very frequently, is the proposal to you know, client rate. You know, using another client as an example, when we went into this client over a period of, I think it was about nine to ten months, they generated 14 new proposals. They had to direct mail telesales follow-up. It was very expensive. They had a pretty expensive salesperson that they were using for this. They closed none. So what did we do? We eliminated the telesales, we eliminated the salesperson. We got that money on the bottom line, and we're working now diligently with that client to really build out their differentiation, build out their messaging, making sure their process is good, making sure that their sales tools are good, and building a list so that they're going to a thousand targeted clients instead of going out to 20,000 untargeted clients. And you just don't do that overnight. You know, and it's you know, it's it's hard work.

SPEAKER_02 15:49

It is very hard work. And and by their nature, in my experience, MSPs are good at what they do because they're technically inclined. They're more like engineers than salespeople, and therefore some of them struggle with some of these concepts. And um I think that you're much better off growing the way you grew before. Uh, they got you to the point that you're at, which means the founder is out, you know, hustling, and then the founder builds the sales process that's repeatable, and then the founder trains and manages closely to that same process the sales uh motion that has been established as being successful. Too many MSPs say, I'm not into sales, so I'm gonna hire this one to dial the phone, and I'm gonna hire this one to do the direct mailing, and then I'm gonna hire this one to do the meetings and send the quotes. And what you find is none of those people care enough, none of those people know enough, none of those people are are gonna be as good as you. And after you build it out to the point where you've got a very you know defined sales process, then you can start building in, you know, bringing in others to execute the plan as it scales up. I think outsourcing sales in the beginning, uh, you probably find that a high percentage have stories like the one that you just described.

SPEAKER_01 17:29

Oh, always. I mean, the last step in the process is hiring an outbound salesperson, and usually that's the place where people start. You know, what you I mean, you're you're dead right in terms of, you know, it really does come from the principal or principles. Oftentimes you find in some of the um MSPs, they might have uh somebody who's maybe not the principal, but they're a very senior person and they're a subject matter expert. And and the the evolutionary step that we want to make is we really want to build the credibility and the subject matter expertise and the reputation of that owner, and then really put that person in very targeted select environments. You know, for example, if an MSP has got construction as a focus and we determine that really building out that vertical is good, you know, that MSP owner is almost guaranteed to be an expert in IT services for the construction industry and would be extremely well received, speaking to you know the various chapters, associations. You know, there's there's a huge appetite in our marketplace for people that really know their stuff to come and talk with executives because executives don't understand this technology. They don't want to understand it really.

SPEAKER_02 18:46

And especially in construction, you know, those people are building things. They're not really that, yeah, as a group, very computer focused. I'm about to try a case next month involving a business email compromise. And my client is a construction company that wired over a half a million dollars to a stone supplier, and that stone supplier's email system had been taken over by criminal actors who rerouted the money and stole it. And so I agree with you that vertical focus is very important for MSPs and getting out and speaking, meeting people, uh, going to events, conferences, networking, that one-to-one selling activity is going to beat every direct mail, every cold calling, every cold email, every public relations campaign. You know, Monger has a very sophisticated um sales and marketing engine. We spend millions of dollars on it a year. And the events, the in-person, the speaking outperforms all of them together combined by a lot.

SPEAKER_01 19:56

And, you know, what for the MSPs, and again, our client in common is just a great example for this, in that we eliminated the high-priced salesperson, eliminated the direct mail and the um telesales. Those are gone. But what we are doing there is he's got a marketing manager, a young person who is really working to develop the vertical market content, you know, working with him to develop a calendar. They're identifying um associations, trade groups, and other situations, and really doing a lot of that heavy lifting for him so that he can concentrate on the part that he wants to do, which is actually being a subject matter expert and being out there with the people and having some support. Because you know, the MSP owner can't do it all. So if you're going to make an investment, you know, better invest in a lower cost resource that actually helps you to further that objective, you know, than to, you know, try and outsource it as you described and have somebody take this problem away.

SPEAKER_02 21:02

You know, it's interesting. You know, for me in the SaaS world, everybody's racing to get out of founder-led sales, which was my goal for last year. So now I have three account executives that sell for Monger, and we just added an in-house business development rep. But that's not stuff that we're just hiring out. Like we've got SOPs, we've got metrics, we've we we know exactly what's expected and what outcomes you know should uh arise. And if you don't have that by proving it out with the founder for hundreds and hundreds of meetings, I don't think you can get there. And I think that too many of the consultants in the MSP space have people jumping to direct mail, to sale, you know, outbound callers, to salespeople when that money probably could be better spent getting the founder out in front of decision makers.

unknown 21:59

Yeah.

SPEAKER_01 22:00

Question about it. And eventually you do get to the point where you do need, you know, the outbound resources, the salespeople, and so on. And you know, what we work with our clients to do is make sure that, again, let's make sure are we pricing right? Do we have a good quarterly business review process to make sure that we're expanding our share of wallet, that we're asking for referrals, getting them, you know, get to the point where we've got some good growth and building out all of our differentiating material, our sales process, our sales materials, our list. And then by the time we get to the point where it's time to hire a salesperson, you know, we can be really specific about how who we're looking for, how we bring them in, how we train them, and then put them in a position to succeed because we know where to send them, we know what they're doing, we know how they're going to be successful, you know, versus the way it normally goes, where the salesperson is hired and the company wants the salesperson to come in and solve all their problems. And it just never works that way.

SPEAKER_02 22:59

Yeah, I've had similar experiences. Um, and and I think the best thing is um, like you said, uh focus on referrals, focus on QBRs, talking to your existing clients. You can grow through expansion revenue. New logo growth, new logo growth is not the only way to grow. And if it's cost 30,000 to get a new logo, it's not worth getting.

SPEAKER_01 23:26

Yeah.

SPEAKER_02 23:27

No, you got to figure out what your what your client acquisition costs are and calculate those carefully. And you have to figure out what your payback period is.

SPEAKER_01 23:39

No question about it. And the other thing, too, to think about is that when you do the right things, meaning that you find your niches, your vertical markets, the places where you can differentiate, and you put the founder principles in the right places, you know, and these leads are generated. What happens? Well, two big things happen. One is you're in your ideal client, you have differentiators, you've met these people at the right level, the likelihood that you're gonna close this business goes up dramatically. You know, marketing-generated leads might close at two or three or five percent. You know, these types of leads are gonna close at 35, 40, 50 percent. The other thing is they're larger transactions. You know, typically you're dealing with, you know, again, ideal client profile, you've pushed up into the higher end of the range, these people are hearing your message, they're more likely to adopt more of your services. They're gonna carry more price, they're gonna carry more margin. So I would rather have a client that gets, you know, three $12,000 to $15,000 a month, you know, uh new clients over the course of a year than gets you know six or eight, you know, two to four thousand dollar a month clients. You know, not only do you make more money at those, but you have a much simpler business when you have a smaller number of clients, you know, for whom you're really well aligned and generating a lot of profit with.

SPEAKER_02 25:09

That makes perfect sense. What are some of the other things that you've encountered along the way that um would be learning opportunities for others that are listening? Uh, for example, what's the what's the craziest thing that you've encountered in in working with your clients?

SPEAKER_01 25:27

Well, well, when you deal with small business, you run into a lot of crazy. I gotta say though, you know, I have a broad experience, you know, the the MSPs don't bring the kind of crazy that you find in some other industries. They're you know, by and large, they're uh a pretty good group. I I think the the only crazy thing that I would say is that we have a client who you know decided to grow, and you know we don't understand how they convinced themselves that they were going to have the kind of conversion rates that they had had. And you know, they went and made investments that were just over the top. You know, the rate that they were paying super high-powered salesperson, you know, the number of people and the number of third parties they had doing lead gen tenant sales and all the other stuff that you know was happening was just over the top. You know, it was it was like, wow, you know, I can't believe you're spending this kind of money, you know, going after um this type of business. And in that particular case, you know, one of the reasons we were able to close them so quickly as a client was because they went from you know reasonably profitable to definitely losing money and you know had to figure out something fast.

SPEAKER_02 26:38

Yeah, and and you know, for some businesses, and SaaS is definitely one of them, you know, we have this rule of 40 that if as long as you're growing at greater than 40 percent, you don't have to have, you know, uh a lot of profit. Uh, but I think the MSPs are a little different. I think the MSPs need to be focusing on gross margin and net margin and managing that very, very tightly and spending tons of money on growth is probably a way to get yourself in trouble. The other thing that I've seen that concerns me in that regard, Bill, among my client base, is it's suddenly become fashionable to buy businesses, which, as you know, is a fraught with all kinds of risk. And so you take a healthy business, you buy a crappy business, and now you got two crappy businesses instead of one good business. And so uh too much spend on growth, too much spend on growth through acquisition, and organically are two areas in addition to uh extra headcount uh where and and bad pricing strategy, I think, really tell the story of why uh so many MSPs. I think in the last time I heard Pete Peter talk, he said up to 30% of all MSPs make no money.

SPEAKER_01 28:09

I believe that. You know, I would say the the majority of MSPs are in that you know, three to eight percent range. And you really got to look at five percent as being break-even. You know, so a lot of MSPs, you know, they got a complicated life and they're running a business and they really just kind of own the job, if you will. So yeah, just you know, getting back to where we started, you know, we we focus on profitability. And the reason that MSPs are valued by investors is because of our, you know, recurring revenue and high retention rates, and the potential to have really good profit margins. You know, so we got to make sure that we're doing those things first. And those things come from understanding our financials, understanding our gross margins by line of business, making sure that we're priced properly, making sure that we know how to get that pricing into our client base. You know, it's a it's a project unto itself with all of our clients to teach them, you know, whether it's account managers or VCIOs or the principal, who's ever in this position of teaching them how to go to their market, their existing clients, and get their price increases because all of them think that their clients are going to run away the minute they go with a price increase. That's not the case. It rarely happens if you do it the right way. You know, and and when you really look at some of the organizations we work with, you know, some will have 25 or 30 percent, even half of their clients still in break fix pricing. You know, so you know, making these kind of moves as an organization, I mean, they simplify your life, they drive profit through the roof, your cash flow improves. And you know, when you think about it, if you take a $5,000 client that's giving you a 30% gross margin, you know, that's $1,500 worth of gross margin that's coming in. You replace that with a $4,000 client, you know, that's giving you 50% gross margin, you know, you're gonna get $2,000 in gross margin. So what does that mean? It means I reduce my revenues by 20% and I increase my gross margin by 33%. And chances are that 30% client was a problematic client. You know, so you're gonna have a much simpler business and make a lot more money if you have the right, you know, lens to look through when you go to try and fix your business.

SPEAKER_02 30:33

Simple and more profitable. That's the way to go. Bill, thank you so much for joining the show. If someone wants to get in touch with MSP Growth Solutions and continue the conversation, what's the best way for them to get in touch with you?

SPEAKER_01 30:48

Well, my cell phone number is 610-636-2720. You can just pick up the phone and call me if you like. But MSPgrowthsolutions.com is our website, and you can contact us through there.

SPEAKER_02 31:00

Awesome, Bill. Thank you for being on the show. We really appreciate it.

SPEAKER_00 31:03

Bob, thanks for having me. 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 solutions specifically designed for IT managed service providers. For more information, visit monitor.com. That's nlnjur.com.