The Next 5 Years, With Fred Voccola of Kaseya

In this special episode, Dan talks with the CEO of Kaseya - Fred Voccola.

The two experts speak candidly about the future of the MSP industry over the course of this 30-minute interview. We are thrilled to bring you this discussion on upcoming challenges, services MSPs will need to provide, and M&A. 

Connect with Fred:
https://www.linkedin.com/in/fred-voccola-a79984

Transcript

Speaker 1: 0:00

Hello, I'm Dan Thomas Shefsky and this is the connecting it podcast.[inaudible] conducting it podcast. I'm your host, Dan Tomaszewski and joining me today, we have a special guest, a CEO of Casa Freda, Nicola. Thanks for being on for us, Dan. Thanks for having me in other words, buddy. Yeah. We're excited to have you on talking today around the future of MSPs. Uh, you know, we've heard you speak at a lot of different events recently and, uh, got some cool future, uh, things that you're, you're predicting for the MSP space and want to talk to you more about that today. Great topic. Love to talk about it as always, because it's an exciting topic and it's one of the few rising trends that we'll see for the next decade in cross all business. Yes. Well, let's get into it. You know, what do you see as the biggest challenges for MSPs over the next five years and counter? That is what do you think some of the biggest areas of opportunity are? So I think anytime we think about MSPs or it and security service providers, you know, whatever terminology folks are using these days, it's important to understand the end customer what's driving this. Why is this even a topic? Well, Dan, why do you have this podcast? Why, why do we professionally exists? And there's a macro trend happening. And I think everyone's aware of it because it affects all of us, but we may not see it because we're it people what we do. We're not heroes. You know, when I T people and security people, we go to a cocktail party. We're not the one hanging out with all the super attractive people. We're the geeks in the corner, right? We've always been and we always will be however, we're the geeks of the corner that allow everything to exist. So one of the trends that's happening worldwide is small to midsize businesses. And this is companies have pick a number one employee to maybe 2000. They're making up a larger and larger percentage of the global economy, upwards of 80%. That's a real number of economic growth. Worldwide is coming from small to mid-sized businesses. That's astounding. I read somewhere that in North America and Australia, New Zealand, almost nine out of 10 new jobs are created from small to mid-sized businesses. So that's, that's a trend that's happening. And another trend is what's enabling that to happen. Compare this with maybe our parents or our grandparents generations, where big companies kind of ruled everything well, there's an equalizer that allows the small guy to compete with the big guy and that's technology across any sector. And in order for these small businesses to continue thriving, they're leveraging technology as their secret weapon to do that, whether it's factory systems, medical systems, it, you name it. And because of that, because of the, the power that technology has to allow David to compete with Goliath, to use a cheesy little analogy. What we're seeing is other fact, and that is small to midsize businesses. The increase in spend on technology is great. We're growing at about six times, the rate of GDP P growth that is astounding. And this may sound rehearse. Dan, this may sound like I'm reading off of a script, but it's not not. And this is the number one commercial transformation of our time. We saw 20 years ago in the enterprise. We saw companies like Caterpillar, Caterpillar implemented an HR M S and HR management system, sometime in the 1990 and 1994 range. And what it allowed them to do was to eliminate about a thousand HR jobs, their workforce didn't shrink. They were able to repurpose 1000 people of 150,000 first and company that's transformative for them. We're seeing the same so-so we saw in the nineties was technology changed. Enterprise companies, ERP, CRM, you know, the internet, right? Yeah. E-commerce everything changed. We're seeing the same thing happening now for small to mid-size businesses. The technologies are different, but they're able to get the same type of value on a dollar of technology investment that Citibank or Caterpillar did in the nineties. And it's literally transferred. Give me an example, Denny. So think about a dental practice, right? We're in the UK. So we go to the dentist. If this was being done in the UK, we might not be able to use this analogy, but let's talk about that dental analogy. If you think about eight years ago, the typical dental practice North American dental practice, well that dental practice might have had a PC, maybe probably in the back, probably used for the children, the dentist to come and play a video game, or maybe browse the internet. So technology wasn't important if you look at today is the modern dental practice. Everything is digital. The x-ray machine is digital. If the network isn't performing, they can't an x-ray the hygentist with their cleaning things. They're all digitally connected. They're all guided by x-ray and technology. You have your phone, you get an appointment reminder, text to you. You go, I mean, everything's automated. So 10 years ago, eight years ago, the dental practice, they didn't even think of their, it providers, anything but someone they called when their kid was having problems, playing Dungeons and dragons online today it's largest service provider costs they have is to it and service, variety and security service provider. So that changed that's what's happened. And we are living that today every day, a single business, every business has seen that. And COVID, by the way, has accelerated. It would COVID did in the last 15 months. All right. Those trends accelerated because technology now, now becomes required. If you're a gym, a local gym right down the street. Yeah. People would sign up. They, they ride a bike, they jogged they'd lift weights. They play squash. They do whatever they do. Well, the gym was closed for depending where you are in the country. Three months to 10 months, no revenue. They had to adjust. They had to start offering online classes, right at home workouts. In group sessions, all kinds of creators of restaurants had to do mass takeout and delivery. What allowed that to happen? New systems who implements those MSPs and those changes are here to stay. The gym opened back up, but they're augmenting their regular business within own classes. And now the gym is making more money than it did before the pandemic, because they were forced to embrace tech. We've seen that several times through our history post-World war II, um, post cold war. We're seeing it again now. So yeah. Challenges. I think that, mm, so, so that's an opportunity, right? All these small to mid-sized businesses get their tech primarily from MSPs. So when you think about the opportunity, there's another opportunity that's presenting itself. There's the opportunity that technology, the, the gains that small mid-sized businesses can get are so big and the technology it's so special realized that we're seeing what used to be small. It shops, right? Dan, like the bank of central. Well, Michigan, I think that's where you are in Michigan, right? Bank of central Michigan, or Northern Northwestern, Michigan, wherever you are. Um, it has three branches that has two it people, and they do everything that doesn't work anymore. COVID prove that as well. When the bank of Dan's Michigan town tried to have their 80 employees be, they couldn't do it. They struggled at the FDA. Why? Because it's not easy. And for the first time, the bank of central Michigan realizes, Oh my God, I T and technology is strategic for us. It's something that it's not our core business, but it's strategic. And what we're seeing more and more Dan is we're seeing these two to one to two, to six, to 10 to 12 person. It shops they're going away. They are actively looking for an outsourcer to either augment or completely outsource what they're doing and the MSPs that we've been servicing for the last decade and a half now have another opportunity. And it's an opportunity and a challenge. And that opportunity is these large, small businesses or these small medium businesses, right? The it shops of five, six, seven people. They're not able to deliver what their business needs anymore. COVID proved it. And they're looking to outsource and IBM and Tata, they can't do a$30,000 a month deal. But for the MSPs that are typically that, that we talk about every day, Dan, the MSPs that are on your podcast, they'd love$30,000 a month deal. Right. Right, right. So moving upstream a little bit, not doing just the 14 or 18 or 28 person insurance company or dental practice, but doing the 400 person manufacturing company that used to have four it people, but now they can't keep up. It's a challenge and an opportunity. So, you know, when we look at what's, you know, what's happening in the next five years, we're going to see a, almost doubling of the addressable market for MSPs to move up stream into that small end of the middle market and compliment, and then replace internal it, there it's a huge market MSPs have to learn how to sell differently. They have to become professional go-to market organizations. Uh, some do it companies like thrive networks. Awesome at it. Others not so much, but I think that's, that's the challenge that MSPs are going to have to figure out is how do they go to market to address the entire market that they're living in the next couple of years? And it'll be, it'll be a fun challenge because the market is it's, it's only growing. No, those are some great points. And I think, you know, we're seeing it, I mean, we saw COVID really accelerate some MSPs in their growth. And I think the areas of opportunity that you just mentioned are, are some great things for the MSPs to, to grow off of. Um, but going into that even a little bit further, you know, what will MSPs need to provide to stay competitive in the future? Um, and do you feel that most of the MSPs already have these technologies in their stack or is it going to require an investment from them? Dan I'm a CEO of a software company. Of course we were software. You're kidding me. Right. For a software company. It's a loaded question. I'm kidding. Um, you're doing a great job of being, you know, legitimately a non-biased right. Which I appreciate, I think, look, here's, here's our belief. Or if I say the word, my belief, my being cassette, right? So it's, it's our belief. I think it goes without saying security and compliance are no longer things of the future. They're things of the presence. Now security is so big. It means so many different things. It's like saying financial services, Goldman Sachs and MetLife are both financial service companies. I don't think any wouldn't stay Goldman Sachs for MetLife or vice versa. Right, right. You know, security, there's all kinds of it. But I think that the more companies depend on the benefits of technology, the more susceptible they are to the damages that bad security can. Cause let me take a step back. The more susceptible to the damages that bad actors can cause. So they need more security to secure their investment in it. That's a cheesy expression, but it's the best way in someone much smarter than me. Explain it to me that way. And I'm just stealing their idea and thank you, Yogi slaughter. Um, so security goes without saying compliance as well. We're, we're living in a world, a Western world where there's more and more regulation. I'm not saying it's good or bad. I will say, I think it's bad, but you know, we're not here to talk politics. We're here to talk about business. And I think whether we like it or not, governments around the world and large non-government institutions are exerting more and more control, and they're doing it in the form of compliant, you know, regulations that need to be complied with whether it's HIPAA in the U S or whether it's, you know, Amazon saying, we won't have any suppliers that don't demonstrate, you know, supply chain effectiveness and their software or NIST compliance. I mean, there's all kinds of stuff. Now, if you're a manufacturer of anything and Amazon shuts you out, you're kind of in trouble, right. So you're going to comply with Amazon's wishes. And the only way to do this is to prove that you are compliant. Well, I don't know about you, Dan. I'm sure as hell. I'm not an expert in compliance. No one is so small to mid-size businesses outsource that who gets that work. The, it, I don't know why the world's done that. You know, if you think about when compliance really became a big thing in the nineties, when the Enron thing happened and, and, uh, Sarbanes-Oxley came and you know, it in the big fortune 100 companies compliance became the domain of it, not legal or finance. So we went probably because the way to demonstrate compliance is to provide a lot of data. Right? And is it so same thing in the SMB space? And we have, we could say I have a pretty big compliance. Well, biggest relative. We have a compliance business. That's about 20 million recurring a year, 18 months ago. It did about a hundred thousand. And I'm not saying that to say how big or small we are. It's nothing to do with that. If we've sold roughly$20 million of recurring revenue of compliance, that means that our NSPs are probably billing about$200 million a year of compliance, managed services, um, compliance and security are close cousins. Now they're usually very related. Dan, you, you you've taught me more about this than I know. So it's kind of funny. You're asking me the question. I'm just repeating what you taught me, but, um, all kidding aside, it's those are the businesses that we think are going to explode. And if you're an MSP, what a great way to differentiate yourself because not everyone's doing it yet, you know, to put it in perspective, we might do 150 million a year in backup and disaster recovery. We do 150 of that and we do 20 or so of compliance. That means that compliance is only penetrated in one out of every seven MSP. We're the only compliance game in town. No one else does. So in backup, there's, you know, competitors like data and in a little bit of Veeam and some other folks. So I think one out of every 25 to 50 MSPs has an active compliance business, great opportunity. Those who don't have it, you're gonna struggle. It's a great point. And one of the things talking about compliance, you know, I'm probably on two phone calls a day right now with MSPs and their clients that are saying, look, we've got vendors telling us if we're not NIST compliant or CMMC compliant, we're losing business and we need to start. So your, you know, your point of they're leaning towards the managed service provider is something we're hearing on a daily basis. And I think, you know, I agree with you a hundred percent. That's one of the biggest opportunities right now, you know, for MSPs to really expand their, their overall practice. Imagine you're an MSP, Dan, what are MSPs not good at? This is by the way, everyone on the podcast, this was not a rehearsed question, right? No. Dan, what are MSPs not good at sales sales, right? They're not marketing. They're decent of more. Marketing's easy marketing for people who failed in sales. I'm kidding to my marketing team, but I'm not good at sales. Why? Because most MSPs they're it. People didn't grow up in sales. They grew up in it. They're great at technology, they suck at sales, just like most salespeople can't go and blend a firewall. I wouldn't want them setting my firewall settings because the, you know, the North Koreans would be in my stuff right away. So it's sales the discipline, it's a science. So what a great way to sell something, you know, and MMSP struggle with sales because to knock on the door of a customer and say, hi, I'm Fred's ID provider. Can we please do your it? Everyone already has someone. And unless they're off at their current vendor, it's not always easy. But if you knock on the door and you say, Hey, I'm not trying to rip out your provider, but let me ask you what, or who's filling. Who's doing your compliance work for you. Uh, well, I'll tell you what, I'm not looking to replace your relationship with your it guy. That's great for 500 bucks a month, we'll do your compliance for you. And you know what that does, that gives you an in, into that customer. That's how MSP sales are going to happen. And it's how a lot of them are doing it. And Dan you've talked to him because you talk lies guy and people make a lot of money doing it. So you're right. I think it's a huge opportunity. And, you know, I think more and more are going to be doing it. Yeah. You know, one of the other aspects of this, you know, we're talking about opportunities, we're talking about sales and technology stack and things like that, but you know what hit, you know, M and a, it's a big topic. You speak on it a lot. Um, you know, what has the pandemic done to the MNA space? And like, what do you see the outlook for M and a with the MSPs? Yeah. A couple of, couple of questions there. Dan, they're all good ones. So first off, I always like to talk about the why M and is everywhere, right? People are buying and selling and starting new MSPs every day. We've tracked over 3,200 MSP transactions in the last 18 or 24 months. I'm sorry. And we've also believe that there's been about 6,000 new MSP started. So it's not consolidation. We're seeing it's mergers and acquisitions, which is a unique thing. I've never seen an industry like that. So here's what we're seeing. And here's the why the reason we're seeing a lot of M and a activity twofold, one the fastest, let me take a step back selling in the it and security services business. AKA, the MSP business is not easy. It's not like people are Googling every day. I want an MSP, very different. So to acquire customers organically and organically, meaning without M and a it's not easy. Some people do it. Like I said, Robbie Stevenson at thrive. He's got an engine to do a great job at it. Um, Tim Conkle from the 20 teaches people how to do it. Robin Robbins does a really good job of teaching people how to do it, but you know, most are not very good at it. Even the best compared to a software company, they're average at it. It's because of the dynamic of how people buy it services. So if you want to grow your it service business at scale, like you don't want you, we want to grow more than you want to grow it, grow it. Um, you buy, you buy customers. So that means you buy other MSPs and you can centralize your service desk. You can standardize your offerings, standardize your, your, your software kit, hopefully on it complete, but you know, whatever they standardize it on. And what you find is you buy a lot of customers and you can reduce your expense ratio, five, six, 7%. That's how you grow at scale in a business service business. That's the why you see so much of it. Now, the second question is why now, why the last several years, why didn't we see this 10 years ago? And it's, I love this. This is so cool to actually talk about this and think about it. If you, so the MSP community and guys like Gerald Blackie, the founder of Kaseya, um, Arnie Bellini, the founder of ConnectWise, as much as he and I used to always battle about hating each other. Guy's a super capable smart dude. Uh, Michael George, uh, the guy from continuum, founder of continuum. He's no longer in the industry. Uh, and a whole slew of early people really fought the good fight to get away from people saying, I'll call my it person when there's a problem, too. I will sign a contract, uh, for monthly recurring revenue. So someone can take care of my it that fundamentally changed this industry, because now you have a recurring predictable revenue stream. Now that you have recurring predictable revenue. I want to get it as big as I can because it, because it's predictable. So now I can hire against it. I can borrow against it. I can invest against it because it's predictable and it's recurring and there's low churn. So the business model changed that the, you know, that the, you know, that, that Arnie and, uh, Joe Black, he really Gerald was the front of it. But these folks did allowed what we're seeing now. Now you're seeing not only, you know, it, private equity, venture money in the space, but even the, the family offices like compass technologies, they're not funded by, by external investors. It's it's family money, but it acts like an institutional investor because we have recurring revenue. You want to put more behind it and putting more behind it means go buy seven people and then standardize your services, centralized them, run them more efficiently, and you have a great business. And I think we're going to see a lot more of that. Not only the fact that the business model has been built, but the market's so good. So we're in the second inning to using the North American baseball analogy. Dan, I forgot to ask you, I'm assuming this is mostly North American people cause global people, sorry for the too many American analogies, but it's, um, it's going to continue COVID and accelerated it. I don't have COVID did much to it. It was already accelerating how COVID accelerated. It is what COVID did was accelerated the overall need for it and security services. It put a brick in giant magnifying glass on it. And relative to just about every other sector in the economy, save maybe Amazon and caséta MSPs did the best. So in the worst economy that well in the worst economic shock, that probably has been recorded globally. A global shock NSPs grew an average of like one and a half percent. Wow. So if I'm an investor I want in that business, right? You have a huge market of small businesses companies that have no it people, right? And dental dentists and lawyers and accountants. Now you have a grow another market of small it shops that whole market is now becoming available to MSPs. And you have a worldwide, almost mandate to spend more money on it, to secure your investments and to comply with the various institutions that are making you do it. It's an awesome market. Oh, easy. You know, I talked to MSPs, man. It ain't easy. Nothing's easy. It was easy if you don't do it. And then we make it hard, but it's arguably the best market to be in. And that's, that's kind of what M and A's that's happened to them. Well, this has been some really good insight. I mean, I agree with everything you're saying here about how it's expanding opportunities and you know, the, the reason behind M and a, um, as we wrap this up, you know, is there any final thoughts you want to leave our MSP listeners on a, like a final thought from Fred? Thank you. Um, no, no political correctness or that kind of crap. Um, I want to thank particularly our customers, right? So if you're not a customer of cassette, you're a good person, but for the customers of Casa, thank you. Um, it's, it's, I've been running Casa now for six years. I've got to know and love this industry. It's pretty bad. Cool, Dan, you and your job and your day job, not your, not your moonlighting job as a podcast host, you get, you have the dream job brother. You get to talk to MSPs all day long and help them grow. Yeah, that's cool. I, uh, I love this industry, man. The, um, you know, it's not that usually when I talk to MSPs, they have a few choice words for me about things we're not doing well. Uh, and that that's very helpful, but it's cool. And it's, uh, you know, I like being a part of the community because this community, I mean, we are, we are literally, or I shouldn't say we, you, the MSPs, you're freaking changing the entire economic landscape of the world and man, it's cool to see. It's cool to be a part of it. Um, just keep doing it and hopefully do more of it with Casa products. And I'm more than happy to talk to you about this. I mean, email Dan that's about it. I really appreciate. And it's, it's, it's a, a very, very grateful dude. It's pretty cool. No, I agree with you. I, this is one of the best jobs out there. I mean, to wake up, I tell everyone it's like being working at 7,000 different MSPs on a daily basis in terms of getting on the phone one day, you're helping someone sell compliance the next day. You're selling socks the next day. It's, it's one of the best jobs to watch MSP continue, continued to expand and into grow. So we appreciate you coming on and giving us all this words of wisdom and some really good insight on what's going on in the space and what we're going to see in the future. So that's it for this episode, everyone. So check us out on your favorite podcast app and look for the connecting it podcast. If you're in the iTunes store, give us a five star rating and give us a comment we'd love to hear from you. So again, thanks for being with us, Fred, and till next time everyone have a great day. Thanks.