Terry Hedden (00:00)
If you want to sell your MSP, whether it’s your employees, your family, your friends, or a venture capitalist, this session’s for you. Madhur is in the seat and he’s going to share with you secrets to maximize valuation, whether you’re five, ten, fifteen years out, or you want to sell this year. If you’re looking for some insight on what you can do to maximize valuation, this session’s for you.
Welcome to the Grow Limitless podcast. I’m so excited about today’s topic. There is such a buzz in the MSP industry about ⁓ really just exiting. The the number of people, I just saw a recent stat that 60% of managed service providers are looking to exit in the next five years. And we’re obviously aging out, and then you have this whole thing called AI coming. So it’s a very timely conversation with Madhur of Exendio, and I’m really excited to welcome him because he’s got a very pragmatic and practical approach to working with business owners that that have a dream and and and he understands the importance of working with people during their journey toward that exit stage. So welcome, thank you for joining the first of all, tell us about you and your company. Give let’s set the stage for the audience. Where’s your basis of expertise and MA come from? Sure.
Madhur Duggar (01:19)
Yeah, I’m a senior advisor ⁓ at Excendio Advisors. Excendio Advisors is an IT services focused ⁓ MA advisory firm. ⁓ we, like the name suggests, focus on IT service firms and I specifically actually focus on managed service providers for probably eighty, ninety percent of the work that I do. It was a conscious decision I made early on to really just focus on it vertically, get really good with it. ⁓ and I’ve loved the moment.
Terry Hedden (01:45)
Wow. That’s impressive. How long have you been doing that? And and why’d you pick S P? Yeah.
Madhur Duggar (01:50)
It’s a great one as well. I mean, I’ve done MA pretty much all my life. My first job out of undergrad was at League and Brothers as an investment banker. I was in their Media Telecom MA ⁓ group. And just as one gets older, one feels the need to have more and more personal connection with the people that you are that you’re dealing with and the businesses. And that’s what caused me to go more further and further to a middle market space. And I love the MSP space because every and you met one MSP, you’ve met one MSP and one MSP founder. And f for me to this day I’m excited about that when I get up and
Terry Hedden (02:23)
Yeah, that’s awesome. Yeah, I I think one of the things I love about this industry is the they’re people you want to help. Yeah. They’re people you wanna work with. Like by and large, and I mean ninety nine point nine nine percent I’ve met have just been good people, man. Yeah. And you you see them and and whether they have a dream, yeah like they’re coming to you for, Hey, I got a dream or if they’ve got ⁓ you know, issues that they need help working through, they’re the kind of people you wanna work with, ⁓ which is awesome.
Madhur Duggar (02:50)
You know what? I I don’t think MSPs give themselves enough credit for what a phenomenal job they have done getting to where they are, living the American dream, how hard that is to do for themselves and their families and for the people that they serve and for the employees whom they maintain. Yeah. To do that for 15 years, 20 years, day in, day out, without fail is absolutely incredible.
Terry Hedden (03:14)
Well, I totally agree with you. I totally agree with you. It’s and and it, you know, it’s like an industry built on change, for change, helping other people change. It’s just like it’s just an interesting place to be. And I I don’t think it’s ever been more interesting than it is right now. When you have an aging population, you have a lot of consolidation in the industry, you have this AI opportunity or threat, depending on your perspective, I guess, looming over the industry. It just seems like a great time to be there. So but one thing I I have learned about as service providers is that a minority have strong financial discipline and ⁓ and and and and knowledge. Like MA is a is a foreign concept. The the financial transaction itself is a foreign concept. So I’m I’m really thankful for people like you to come into this space and bring that expertise to help buyers and sellers navigate it. ⁓ and and so I I’m really excited about digging in there. So ⁓
You know, I really want to focus it from a an MSP perspective today. Yeah. I want I want to talk to the MSPs that that ⁓ are wanting to exit now, wanting to exit over the next five years, or want to exit one day. ⁓ regardless of what that exit looks like, I want to kind of explore what they should expect when it comes to valuation. So they can sort of start setting their their bearings, if you will. ⁓ so so talk to me a little bit about that. If I’m if I’m an MSP and I And have a number in my head. Maybe it’s four million after tax. That’s what I want to bring home. ⁓ talk to me about that. How how does the valuation work? What ⁓ what are some of the key inputs into the valuation?
Madhur Duggar (04:52)
Yeah. So thanks for asking this question. It is number in your head thing is definitely something that I get a lot from the MSPs we speak with. And like you mentioned, it is a busy market. ⁓ just in the last ⁓ three months we’ve closed the transaction and listed two. and so we’re having a ton of conversation with MSPs, really all sizes, about this topic. In the first few years of my doing this, there was a certain reluctance to talk about MA and mom standards fees. They felt as if that was a da surrender, ⁓ right. But that culture is gradually changing. People realize that this is a very viable exit option. And just going back to my initial days when we used to go to talk to a client about their strategies for valuation, we always had materials in our deck which talked about your exit valuation, regardless of whether you wanted an exit or not. Everything that you do for an MA exit, I can’t think of too many things that don’t fall into this bucket. Everything that you do for an A exit Are basically designed to improve the value of your business. So really they’re very consistent with each other. And here are three things that matter for the valuation of your business. Quality of earnings, and that’s a very big term with lots of pieces in it. We’ll get into that in a second. Quality of earnings, growth rate of your company, and the margin that you’re earning on your business. Literally, almost everything intrinsic about your business can be can be can be put into those three buckets. Then there is external factors that influence the valuation of your business.
Like what is the overall economy look like? What is the health of that economy? How many buyers and sellers are there in the market? Right. And then who are the buyers in the market? Two two different buyers can pay different valuations and we see that quite a lot for the same MSP because it fits different pieces of their solution set, right? But the things that are in an MSP’s control are really the first three pieces: the quality of earnings, the growth, and the margin.
And and I think all of those three things are also going to increase your intrinsic value of your business, right? So quality of earnings to me, there are lots of pieces that go in there, but really the way to think about it is what makes the current earnings stream that I have predictable, dependable, repeatable, right? And to me that’s about try to really manage your customer concentration. Like don’t have all of your eggs in one basket. It’s a hard thing to do. Yeah. You might start with one big client. That’s a lot of the times how it starts.
But then don’t get stuck there. Like try to try to force yourself out of that comfort zone. Okay. Second, again a hard thing to do, owner dependency. When you start initially, you don’t have too many people, you’re doing everything yourself. You s we we are such solutions solutions people, such engineers. We wanna do everything ourselves. But that doesn’t always make sense. Right. And you have to grow out of that as well. And if it in and and if you try to do it too late, you’ll find you never⁓ you know, upgrading your your your your employees beneath you to take over the role that you have. So you do have to continuously move out of that dependency thing. Buyers like to see that because buyers don’t want to take on a business where the owner is so they’re so dependent on the owner that if the owner leaves, the business is going to collapse, right? Put your put your businesses, get your businesses out of handshakes and into MSA contracts.
One year MSA contracts with some sort of termination clause included in it, I think is a very minimum if you want to get credit for repeatable business. Those are three very simple things that I think every MSB should try and work towards and get going to produce a higher quality of earnings.
Terry Hedden (08:19)
So that r that really is is about running a mature business. I mean, you can’t run handshakes versus contracts. It’s like a professional maturity thing. It’s so f so funny because you’ll hear MSPs brag about the fact that they don’t have contracts. Yes. We prove our worth every day. I’m like, true, but no one’s gonna pay for that work. Exactly. Right? It’s like exactly you might think you’re worth something, but you’re only worth what someone’s willing to pay for it. So that it’s a very interesting perspective. You you you touched on earnings, but then
Madhur Duggar (08:30)
Trying to
Terry Hedden (08:45)
dependency. So if if I hire someone to take my role, ⁓ obviously that’s going to negatively impact my earnings, but by not having a role, it positively impacts my earnings. So I think what you’re saying is you basically have to build a real business where the owner is an owner. Yes. Strategy person. Yes. And can they have a role in sales? I mean, it they just can’t be the the only breadwinner. What role does should an MSP strive to be?
Madhur Duggar (09:10)
Yeah, I mean an MSP owner, you know what I think there is you have to ask yourself, what do you enjoy doing? If you are a great salesperson and you know your business inside out and you have great connectivity inside your community, to me, that is a very valuable person who should be sitting in a sales room in some capacity, right? So a lot of the successful MSPs that I see do a great job of connecting with the centers of influence in their community. And that might not lead that might might not be a direct sales call, but that is absolutely building the sales funnel that leads to the majority of the business that’s going to come to them.
So I would say successful MSP founders should really think about how they can have more and more influence in the communities that they’re serving.
Terry Hedden (09:47)
Being like a thought leader, getting involved in the media, yeah. Being in chamber events, and yeah working machine.
Madhur Duggar (09:52)
Yes, they are they are recognized by the communities, they are rewarded in events in the communities for the work that they have done. Right. They are ingrained into the schools, the hospitals, they’re doing non profit work for their communities, you know. ⁓ they love their communities.
Terry Hedden (10:06)
So but you you start off by saying kind of what they’re good at and what they enjoy. So if I’m a if I’m a b tech business owner, but I’m more of a tech than I am a business owner, is that okay? Can I can I can I hire people to do what you just talked about because that’s not who I am and I’m I’m a I’m an I’m an engineer and I yeah I love the technology. Yeah.
Madhur Duggar (10:25)
I mean, you know, you you definitely you ca absolutely do that. And if that is your skill set, then that’s what you should do. Right. But maybe that just it’s a different role for you then, right? Maybe it’s the call where you go on with the go to the client with and their the client is asking you to explain the technology and why it makes you unique in terms of your solution set. And that’s the role you play. And there’s nothing like having the owner of the firm talking about his firm to the client directly. That like that carries a level of credibility that is incredible.
Terry Hedden (10:52)
Right.
Madhur Duggar (10:52)
So yeah, there is a there’s a role to play there as well. ⁓ Practice that, script it out, you know, even if you know it, have other people give you feedback on how you’re doing, what are the things to say, not to say, how to say it, do that.
Terry Hedden (11:05)
We you know, we we we very much advocate for owner owner led sales if the owner is able to be that. ⁓ and if they’re not, we teach them as much as we can teach them because they’re gonna play a role in sales, whether they like it or not. Either it’s coming in it from a engineering advisory capacity, or if it’s just you know, knocking on doors, cold calling kind of salesy capacity, they’re gonna be involved one way or another. So so that’s great. So what are you seeing right now in terms of valuation? You talked about the different levers.
What where you see valuations right now? How are if if I’m unemotional about calculation, how would a normal valuation occur? And then when you talked about the levers that you just mentioned, tell me about the importance of each
Madhur Duggar (11:47)
That’s a great question. So ⁓ I’m gonna give you the range. The range is like, let’s say it’s a b it’s a big range, and I’m gonna break it down into what drives what piece of that range. But to me, I’ve seen things trade as low as three times the ⁓ operating profit all the way to let’s say twelve times operating profit. And beyond as well. But that’s probably ninety five percent of the valuation sits in that three to twelve times range. Now, what makes a three multiple company traded a three multiple company?
It’s basically all the things that we pointed out that they shouldn’t be doing that they are doing. You know, they’ve got one customer that’s a very big positive earnings. They’ve got one of dependency. They don’t have contract, et cetera. They don’t have growth. Their margins are low. Basically, people are saying, All right, fine, we’ll take you out of your business at three times. You know? They solve the quality of earnings problem, which is they solved that first that first leg of the customer concentration contract stuff, et cetera. I immediately see that, even without producing any growth, I immediately see that company trading up to a five multiple.
You know, because they’ve solved those issues. now you begin to bring in what I would call the basic level of growth that you should be able to tap into without churning the ocean. That’s just tapping into the incredible current of growth that the American economy just normally generates, right? And is flowing through your community. You want to be making sure that you’re trapping that growth. That has three pieces to it. There your businesses for your current clients are growing their seats.
In the US, across the top 25 towns and cities in the in the in this in in the country, which have franchise ⁓ sports clubs in them, we looked at the seed growth at these places. It’s pretty consistent, five to six percent seed growth at small medium-sized businesses. So you should expect to see that growth organically happen in your existing client businesses. And what you should be asking yourself is, am I aware of this?
Am I having this conversation in the QBRs that I’m having with my clients? Hey, did you see your seat group? Because like we just provided those services and we’re not getting paid for it. So let’s make sure that we include those things that
Terry Hedden (13:49)
Yeah, good at billing, good at discipline at the best. Yeah, yeah. ⁓
Madhur Duggar (13:52)
And have that conversation with the client, right? That’s five, six percent growth right there. Well, another two to two and a half percent growth. I absolutely think MSD should get by building in a price accelerator. I don’t care whether you build it as a ten percent every four years or two and a half percent every year, tick, take your pick. But nobody is complaining at the clients about price increases. Nobody is. So you should be building into a two and a half percent price increase just from the fact that you’ve got inflation and you need to be taken into account. That’s seven and a half percent.
Terry Hedden (14:19)
So so you added the five. So so five percent organic natural business add in two and a half price escalation.
Madhur Duggar (14:25)
Right. And then another two and a half from new businesses being formed that were just not there before. Right? American economy creates new businesses, right? And it produces millions of applications with businesses. You could track this in the census data. But basically, if it if you dumb it all down and you look at the businesses that are at the size that you’d be interested in, you know, in in in in catering to, fifty thousand new businesses with more than ten seats in them get formed in the country every year. Fifty thousand. So with more than ten seats, yes.
Terry Hedden (14:51)
Fifty thousand with more than ten seats? Wow, that’s a big number. I didn’t know I would I would I fifty the the the the number of businesses surprise doesn’t surprise me much, but the size does.
Madhur Duggar (15:00)
Yes. 50,000 businesses. Now, here’s the thing though. There are also 50,000 MSPs in this country, right? So that means that there is one new such business per MSP in this country, and you want to make sure you get your share of that pie. A new customer, right? And so what that means is that you can get to a 10% overall growth number. And we haven’t even talked about hiring a salesperson or doing something incredibly different on your marketing side. We’re just talking about you blocking in time.
Terry Hedden (15:13)
That’s one new customer a month.
Madhur Duggar (15:28)
Yeah. Right? That’s it. That produces ten percent growth. Do that and now you’ll be trading in a seven or eight mode.
Terry Hedden (15:29)
Interesting. So so there’s just been some recent press that came out about ⁓ first first quarter of twenty twenty-six shrinkage in the industry, shrinking revenue, shrinking profit, and and it’s interesting you say sort of the what you deserve just if you just block and tackle is ten percent growth, yet more than ten percent, more than half of all MSPs are are are actually shrinking. ⁓ and and I I I I found it
Hard to understand and hard to comprehend ⁓ because it was a large survey. It wasn’t like you know asking three people and then see what they think. So to hear a 10% sort of de facto standard, ⁓ the majority of Marketopia’s clients grow more than 10% per per year. In fact, all of them are up year over year. So I’m not at all surprised by what you said. ⁓ and it feels to me like a lot of the challenge that that the industry faces is because.
They’re not doing the blocking intact. Yes, they’re not out in the community and they’re not monitoring census to make sure that they’re marketing to those new startups and they’re not ⁓ you know managing their contracts and making sure they’re billing for the work that they’re doing. It’s like the basics, if the basics are around ten percent, it should be kind of a ⁓ an understood that you’re going to be north of ten in terms of growth, right? Yeah.⁓ that’s that’s really interesting. ⁓ and how do you see that changing this year? Have you noticed the change in twenty twenty six or do your numbers hold in from your perspective?
Madhur Duggar (17:09)
This the basic ten percent thing I think should still hold as for people who do their blocking and tackling. You know I mean this ⁓ MSPs are not unique in this. I don’t know of a business where if you don’t do your blocking and tackling, you’re gonna end up with a good result. You there’s there are things that you just have to get in there and do every single day. ⁓ and this is what you get in the MSP space if you do that, right? I think you can still get that. But the thing is that, you know, in the first three, four years after COVID, we saw a huge like burst of revenue coming across MSPs because small benefits businesses were getting formed like crazy. There was a lot of home-driven revenue business, cloud, et cetera. Those tailwinds still exist, but many people will say they have crest it. And now that wave is gradually normalizing. Right, right. Right. So I think some of those people who maybe have gotten a little bit lazy on the back of that growth that are not then didn’t do some of these things are probably seeing that that that attrition happen. And look, sometimes what happens is there’s a lot of consolidation that’s going on in this space as well.
Right. So there are hypersc there are scalers in this in this in this space who are buying MSPs and now they’re in your neighborhood looking at the clients that you were serving and saying we can serve those clients as well. So there’s competition that’s certainly I think accelerated. Right. Comp competitive pressures ⁓ are definitely, you know, have always been stiff and are probably getting stiffer. I’ve seen many MSPs talk about it getting to be a commoditized marketplace and the challenge has always been how do you differentiate your product, right, ⁓ from others. You know.
And you to me, being present in the community and building a brand for yourself as a person is a great way to differentiate yourself in your
Terry Hedden (18:42)
Yeah. That it’s interesting to say that. I’m I’m gonna ask you a question on that because I I see that in the market and I and I find it almost comical that any anyone could say a man of service fighter is commoditized. And and the reason is twofold in my mind. One, by definition, each of us has different humans. Yes. So it’s hard to like say even if we both you and I both started an MSP right now. We have the same tool cat tool set, right?
We’re both ConnectWise MSPs. Yeah. Here’s our stack. Yeah. We’re all in. Yeah. You and I are different. Yeah. We come from different perspectives. So it’s fascinating to me that you can get to a commoditization, but it comes to it that to me has to be based in groupthink. Because we’re ⁓ in the same peer group, we both go to the ⁓ ConnectWise conference. We’re gonna talk and we’re both gonna like call our plans bronze, silver, gold, and platinum. Yeah. We’re both gonna charge around a hundred and twenty dollars a user.
So that that part fascinates me, but I’m cu the other part that fascinates me is it’s so easy to differentiate yourself. And and right now we’re really pushing our clients to look past cybersecurity, look past user support and cloud and infrastructure and start differentiating yourselves on AI and and and and what you’re bringing to market when it comes to AI. And and then the other category that we’re seeing a lot of MSPs jump on is is what we call growth here, which is
Instead of just having a defensive posture for your clients and and making them fearful, yeah. So therefore they invest in you, getting them excited about the future, yeah, helping them grow and bringing an AI stack, for example, to those same customers and say, I am I’m an MSP and I’m different than everybody else. I’m differentiated because unlike others, I’m gonna actually help your business grow. Yes. I want to increase revenue, I want to increase EBA, I want you to sleep at night, I want you to feel peace of mind, I want you to have the normal things that MSBs.
What are your thoughts on that?
Madhur Duggar (20:41)
I I’m I’m on board completely. Okay. And I and I think that is you pointed out to AI as an example for how you could not commoditize it, how could differentiate yourself. But deeper in it is at the point that if you think about just the tech stack, if you think about your product as the tech stack, it’s easier to get into this rut of thinking that you’re a commoditized product. If you think about somebody who’s solving your client’s problems
And now you need to understand what that client is and who their problems are. Right. You should never be a commodity service provider. Right. Because you have whoever however many, fifty clients, you should know all your clients and what their issues are and who those people are. Right. And AI is one way to go into that, into that conversation and say, I can help you improve your business. Literally. Absolutely. Right.
Terry Hedden (21:24)
What we’re we’re seeing so so we have we’re we’re pushing as hard as we can. We we see trillions of dollars that will be spent on AI and or lost when it comes to employee. Yeah. And we want the MSPs to get more than their fair share. They should be positioned, in my opinion. The only people that are positioned better than MSPs are utility companies, right? And you know, five billionaires or three billion perspective, that are kind of at the AI you know, generation, ⁓ you know, creating that capacity. MSPs are the are the are the the the conduit for the small to medium sized business market. And that’s where the money is gonna ultimately be spent. Yeah. ⁓ and and it to me it’s like MSPs have got to get in that value chain. They have to be in that conversation, but so many of them are afraid of it. Well
Madhur Duggar (22:15)
The I I feel like one of the and I might be wrong about this. I don’t think I am, but let me share what I’m thinking. Maybe they’re so focused on providing that end solution around AI right away that they’re just stuck because they don’t know what the end solution is. The truth is nobody knows what the end solution is. But you don’t need to solve for the end solution. You need to join the journey. Because you’re gonna learn a tremendous amount about your client and what the end solution should be for that client if you participate in that journey. And I guarantee you a lot of the solutions in the beginning are gonna be about data.
How do you get your client’s data ready so that it becomes AI so that it can actually use something, do something with AI. You know? So get involved there. Do pilot projects with one of your clients and learn from that and then bring it to your other clients, right? Organize webinars of your clients with or group discussions of your clients where they can discuss AI solutions. Right. These are you might not think that those are those are like real value ads, but trust me.
They are huge value ads and they will help you brand yourself as a community, as a as a community, ⁓ somebody who brings together a community and solved problem.
Terry Hedden (23:17)
I don’t disagree. What one one of the things that I I think is a moral and ethical responsibility or industry that is also an opportunity is ⁓ there are a lot of people. This reminds me remember when Box and Dropbox came out and basically the MSP is just like, my god, everyone’s creating a Dropbox account and they’re sharing their files all over the place. And then someone said, Wait a minute, those aren’t secure. You just shared your IV. You just opened your file server into the world like
Hold on. There’s there’s the same thing happening in AI. There’s so many people signing up for these free accounts that are used to train the model. And and it’s fascinating because if you start saying, What is blankety blank charge for their services? AI is starting to know that answer. yeah. Because people are uploading proposals and and and making available ⁓ IP. In other words, they’re getting value in the sense of a refining contract or an interpretation of a contract. But the reality is their customers or their employees.
Or their employees are uploading their contract into the public web in an unsecure environment. And in my opinion, the MSPs have a moral and ethical responsibility to step in and go, Whoa And I’ll there’s no such thing as free. Yes. Right?
Madhur Duggar (24:24)
It’s an opportunity for them to to monetize that service offering. there are MSPs who are up on this and they are actually offering AI training, AI security related concepts to their to their clients and clients appreciate it.
Terry Hedden (24:35)
Absolutely. Absolutely. It’s ⁓ so so so there’s there’s there’s there’s getting the data ready. Yeah, there’s for what I’m calling so security, cybersecurity almost, right? And AI, you know, make sure there’s a wall between the data of your customers and the public internet. Yeah. ⁓ and then there’s agentic AI. And you don’t have to play with COB Long to realize that cowork’s got legs, man. Yeah. That is it’s not it’s not difficult for you to say
Bank reconciliations for my finance team can easily be done by AI. And research can easily be done by AI. Like there’s a lot of what I call ⁓ superpowers that you can give your employees with an AI stack ⁓ to make them more productive, more successful, and more ⁓ I I guess ⁓
Powerful. And and the the analogy that I use is that exoskeleton, like Iron Man. It’s a normal human underneath. ⁓ but that exoskeleton makes up a superpower. I I see AI as an exoskeleton. Okay. So so if I’m if I’m trying to sell my business, it’s important that I stay up to date. It’s important that I’m offering the solutions that are not not commoditized. Yeah. Okay. It’s also important that I’m not dependent, everyone’s not dependent on me in the business. Yeah. ⁓ I’ve got to grow. Yeah.
So let’s talk about growth a little bit. How how fast you know, if I’m a if I’m a if I’m an investor and I’m looking at different MSPs, and and let’s say that an MSP over here has has an EBITDA ⁓ of single digits, and this one over here is twenty twenty percent EBITDA growth, but this one is or twenty percent EBITDA, but this one over here is growing at twenty, thirty, forty percent a year, and this one over here is flat to to you know, sick low single digits growth. Where if I’m an investor, what’s more valuable to me? Yeah. Okay.
Madhur Duggar (26:26)
That depends on the investor. Yeah. So that’s a great question. So that does depend on the investor. Think about somebody who is a platform MSP in your state. So let’s say I’m an MSP, I’m looking to exit, and there’s a local MSP, a platform MSP in my state, right? And I’m looking to exit. This MSP is gonna say, you know what? I already have an office, I already have ⁓ staff to deal with my corporate and administrative and all those things. I don’t need so much of the business of this MSP beyond the gross profit line. Because that I already have. I’m a gross profit buyer. I’m a you know, I care about this person’s revenue. I care about this person’s cost of goods sold. Beyond that, I don’t really care because I’m I’m not gonna onboard those costs. So I’m a gross profit buyer. So what becomes more important for me is the growth rate of the revenue stream. Right. And I care less about the margin. I care about the margin, but probably not as much as somebody Who says, I don’t have any presence in this area. I’m gonna need to keep this business exactly the way it is, and I care about this person’s margin. And if he has to sacrifice some growth, but maintain a good f you know, predictable margin, that’s what I’m gonna care about. So investors are different and they will value these things differently. All that being said, I would take a point of good growth over a point of margin all day. Why? Because I can fix margin and growth is hard to fix.
Terry Hedden (27:47)
Interesting. What do you growth spread effects? Time sitting next to me. Yeah. I was spread effects. I mean that I I agree with you. I agree with you. I’m disagreeing with why you think absolutely.
Madhur Duggar (27:55)
I mean that’s a question that’s lobbed at me because the kind of growth that’s beyond the ten percent growth, I feel it needs a sales funnel that has been properly set up, you know? And not everybody knows or has the patience or the persistence to set up that sales funnel. And I think that you should you really need to have good people setting up that sales funnel. So g I’ll give you an example of something like that. ⁓ MSP goes up to a buyer and the buyer gives the MSP a multiple, right? MSP says, I don’t like them all.
I’m gonna grow make myself bigger. I’ll come back to you. Goes for goes away for two years, becomes bigger, comes back to the buyer. This is a true story, by the way. Buyer gives the MSP a lower multiple. Lower multiple. MSP is flabbergasted. Like, how did that happen? Like how did I end up in a lower multiple and now I have a higher higher revenue stream? And the guy goes, Because you accumulated a bunch of stuff I don’t need. You accumulated a bunch of plans that I’m gonna have to de board the first day, right? And that’s gonna create a bunch of headache for me.
Right. So he did not know how to grow. He created a client profile that was not necessarily of any value to the buyer. Right. So you need to think of and why did that happen? Because this particular MSP hired a salesperson just on commission. Okay. And because it was just on commission, the guy just go hoovered in whatever else he could whatever he could find.
Terry Hedden (29:11)
Trouble and trouble whatever you can.
Madhur Duggar (29:13)
That’s but that’s what he needs to do to keep lights on in his house, right? If he had been more thoughtful about this, he would have hired a person with a with a better base and a and a more guidance around what would earn him that commission, he would have moved he would have gotten in better clients. You need guidance, you need coaching, you need the right pace site pre-sales person, you need a legend agent, you know, agent to do this stuff properly for you.
Terry Hedden (29:16)
Yeah. Interesting. Yeah. Unfortunately that’s the world I live in. Yeah. I ⁓ it’s interesting. It’s unfortunate because in my opinion, going back to what we talked about at the very beginning, MSPs are by and large great people. Like if you’re gonna say who deserves to become incredibly wealthy over the next five years, MSPs are not far down that list, right? And the people that are gonna get w wealthy are probably not MSPs. Yeah. And and it’s a choice. It’s literally a choice.
I I find that the industry under appreciates the importance of growth. Mm-hmm. And it’s interesting to me because so much of of the valuation tri gears that you were talking about earlier tie down to growth. You have to grow to afford people to take the role or the CEO. Yes. You have to grow to to start honing your your your your profit. You have to like reach economies of scale because it’s exhausting to run a small MSP. So they tend to get burnt out and and they don’t tend to grow. They they often get in that 750K to 1.25 K range and just slow down and become you know lifestyle businesses and and and and acquisitions that are pay paying yeah don’t really want those lifestyle businesses. They want the ones that are real and viable and growing and thriving and And expanding. So so it it it’s it’s unfortunate. Yeah. ⁓ you know, one of the things that we’re really working on ⁓ is is is helping, you know, everyone wants a guarantee. And what and what they don’t understand is that nothing is guaranteed, right? Even if I guarantee my part, correct, you can’t guarantee your part. Correct. So, you know, I I could say, I’ll guarantee you I’ll give you five prospects to buy your MSP in the next 10, 10 years. But if the buyer doesn’t close yeah it doesn’t really matter now, does it? Those those qualified appointments don’t really matter. So so to me it’s like it goes back to a word you said that’s so powerful. And I I can’t remember if you said commitment or discipline, but it’s the fortitude to stay the peace and figure it out. Understanding that that getting to the valuation goal that they have when they set up their MSP or what they have today needs to be a requirement that they work from. Yes. So Begin with the end in mind. I want to sell my business for five million dollars in five years. Yeah. I’ve got a million dollars in revenue now. What do I need to do every day, every week, every month, every quarter for the next five years to get there? Yeah. And if I do that and I’m mining my P’s and Q’s in the process, I’m working with someone like you during my journey, both learning in this webinar, but also as things get closer.
Madhur Duggar (31:59)
Yeah.
Terry Hedden (32:17)
to start engaging and say, okay, Matter, help me, you know, help me. What what do I what do I need to work on this quarter? And you’re like, well, clean up your P and L or D diversify against this one customer or take on new AI, take on growth solutions, start becoming more of a solution to your customers. You’re giving them that advice, right?
Madhur Duggar (32:34)
Guess right. We we like I like to get involved, you know, at a at a it takes me typically one year to one and a half years, sometimes a little bit longer before I put before before we could take a company to market. And I have had situations already this year where we’ve asked clients and if the client has come to us and we’ve said, I don’t think you’re ready for to for exiting.
I think you’re gonna do yourself a huge service by going back for another two years and fix these three things and come back to me and I can give you a multiple you will be proud of. Wow. So we because we are involved in the space and we do transactions regularly, we can afford to tell a client the thing that they need to hear that’s right for them. You know? but they’re but there I will also say every MSP today is getting probably seven to f seven to fifteen emails or outreaches on a weekly basis telling them how great they are.
And that the person who’s who’s contact with him is gonna wanna sell them. And but so a client actually forwarded me some of those emails to help me think through, sift through them. And I went back to him and said, you know, ⁓ I’m gonna say Jack, but Jack’s not his name. Jack, eight out of those ten emails came from people who wouldn’t know an MSP from gold in the stand. They have no idea what you know. And these two people, they’re real, but they won’t buy your MSP because I know your MSP and it’s not ready for sale yet. So talk have an advisor who you trust, who can give you good advice.
Terry Hedden (33:40)
Right, right, right.
Madhur Duggar (33:51)
⁓ on and how to think about your business. There are lots and lots of things to to to think about ⁓ in terms of that. Like for example, one of the questions that I get from people, and I know this because you and I did this ⁓ a session, you know, with your company, but I was calling up MSB, right? A lot of people say, I’m gonna grow I’m gonna I’m gonna grow till for three or five years and then exit. Right. Well, how do you know that you’re growing fast enough to make it worth your while? to continue to grow versus not growing fast enough and handing the keys to somebody else to help you grow your business, right? And there absolutely is a way to think about it. There 100% is. So there is a growth for your for your company, for your multiple, right? And for your margin, there is a growth threshold number that if you can’t meet, despite the fact that you’re doing the things you need to meet them, then yes, you should exit. Because the market is going to do a better job of your machinery than you are, and you’re better off exiting because you’re not covering your cost of capital. Right.
And so we can help we help people think through that so that they have a clear vision or idea for like what hurdles they need to keep meeting so that they can go down this chain and make good decisions for themselves. ⁓ having said all that, no fifty percent of businesses, Terry, exit in this country for reasons that have not to do with finance, but that are personal reasons. Yeah. Like the five D’s, right? The death, the disability, the duration, you know, the duress, the disagreement, divorce, et cetera. ⁓ what that means is bad things can happen.
in any year. And you have to be ready to hand over the keys to somebody if that is what it takes. And that means you have you have to have your business be in a reasonably exit ready condition all the time. It is a big save then.
Terry Hedden (35:27)
That’s a big statement.
Cause what we originally started talking about was, you know, that MSPU says I want to sell my business for five million five million in five years so that I can net, you know, four million or whatever, six million selling and netting four million so that I can secure my family, this generation at least, right and and and and and live a comfortable life. But to your point, all it takes is a stroke, a heart attack, a divorce, a partner disagreement. Yes. and and all of a sudden that timeline is accelerated quickly. Yes. So so what are some key concepts that you would tell that person who’s who’s got a a horizon that’s five years away, right? So it’s not like I’m ro engaging. Yeah, I’m five years out or more, but I also appreciate the fact that you know God has a tendency of of hum hu humoring us when we think we’re in control. So it could happen any day. What are some key things that you would would share with an MSP to be ready for that? Yeah.
Madhur Duggar (36:23)
This is ⁓ another great question. Lots of lots of things here, but I want to go back to what we first started off with, which is which is about what are the building blocks for your evaluation. Quality of earnings, margin and growth, right? Sequence this stuff in the following way. Focus on quality of earnings first, get that right. So that whatever you have today is worth everything that it can be. That’s number one. Right. Number two, get your margins right.
I don’t mean get your margins to the point that you can’t sustain it and you’re running such a hot house that people start to leave. No. Run a solid, operationally efficient business with a strong margin. Do those two things to like more or less in your control, you can do that. Right. Get to the 10% growth rate number that I was talking about before. Again, something which should be in your control. And after that, go for the additional growth. And if something bad happens and you have to exit, remember you’ve already maximized everything that you had in your business you maxim maximize all the things that are in your control. Have an exit plan for yourself. In other words, know what is it that you want to do after you exit. Right. And that might take some time to line up. So you have to, you know, going to play golf, ⁓ you know, is is not a tenable idea because if you’re not going play golf eight hours a day, your shoulder sockets are going to come out. You have to have something that keeps you engaged in in in a in a way
that does justice to the fact that you work sixty, seventy, eighty hours a week for the last fifteen years. You can’t just step off the butter right away. So you have to have something to think about there. Yeah.
Terry Hedden (37:53)
So so I I’ve gotta I’ve gotta be disciplined in how I approach my business and not keep procrastinating to a later day to do what I need to do to to run a good business. I I think a I think it’s really sound advice. I I I I I think there’s a lot of MSPs right now that are waiting for tomorrow. It’s always later. Yeah, once I get this perfect, then I’ll then I’ll go to that. Once I when I once I solve this one problem, then I’ll start focusing on EBR. What one one once I
Once I reach perfection in my service desk, then I’ll start growing. Like it’s always a procrastination. And I don’t think that’s that’s smart business. I don’t think that’s what a good leaders do. They’re trying to you’re trying to change the wheels while you’re driving the bus. You can’t just stop the bus to change the wheel or the world will pass you by. Yeah. And I don’t think it’s been ev any more of a risk, ever more of a risk than it is right now. I think AI represents the greatest opportunity in the history of our civilization.
And our industry happens to literally be at the epicenter of it. Like
Madhur Duggar (38:52)
affected by it and have in a position to affect everything by by
Terry Hedden (38:55)
So totally agree. Yeah. So I’ve done some grinding on this. And ⁓ I I think it’s very reasonable for an MSP to double their EBITDA ⁓ using AI. And then I think it’s very reasonable for an MSP to increase their EBITDA ten to a hundred times, depending on how much they succeed in AI. Right. And so you do those two things at the same time. Yeah. And also it’s like, holy smoke. Yeah.
If I’m if I have a valuation of f of of say a million and I decrease my expenses by fifty percent, now I’m worth two million. Yeah. And if I really go aggressively after AI, understanding that it’s a it’s a land grab right now, like I’ve gotta go hard right now. I’m gonna freaking go all in on this. You might go from a one million valuation before this exercise to a two hundred times valuation or a two hundred million dollar valuation. So from one million doubling to two based on improving EBITDA and then from two to two hundred, yeah, based on capturing the market share, the revenue share, the wallet share that MSPs deserve when it comes to AI. Yeah. And it just seems to me like it’s a once in the lifetime thing, if if ever, I’m not sure it’ll ever happen again. Right. It’s whole separate bourbon conversation about the impacts of AI. Yeah. But if you look backwards, like when does the average small business owner, MSP guy or girl, ever had a chance to go from a one million valuation to two hundred million dollar valuation?
What, three years? Yeah, like it’s unsafe.
Madhur Duggar (40:27)
For the gross profit margin per typical MSV, I would say, is in the forty to forty-five percent range. GPA. Yeah. Right. And the EBITDA margin per typical MSV is in the 10 to 15% range. Okay. That to me is a 30% delta, right? Between gross profit margin and EBITDA margin, which is all about expenses that are below the gross profit line. And AI can and many of those expenses are about marketing, they’re about ⁓ finance, they’re about legal expenses, things like that, which I think AI can be used to really tune down, you know? And and there’s so there’s gonna be significant improvement in your margin just from the fact that you took away those expenses. Right. Because that’s thirty percent up your revenue. Right. Right. If you if you take the make make that off, you double your IBITA margin, which was fifteen percent to begin with. Right. Right. So I agree with you. Right. And you don’t have to do everything in one day. Take a little piece, work on it, get it out.
Then take the next piece, work on it, get it out.
Terry Hedden (41:26)
I see that as is I I I believe MSPs are gonna be good at that part. I I I genuinely see the PSA, RMM vendors putting automations, they’ve always had kind of automations at their core, but they’re now leveraging AI to make those automations more productive. I see MSPs ⁓ giving their technicians tools. They love to buy tools for the technicians, right? So I can see that happening almost organically. Yeah. I I’m not I’m not as concerned about that one.
What I what I’m concerned about is if you go out so I just came out from Channel Partners. Last night I flew in and I’m on a different planet today than I was yesterday. Yesterday, it is cyber it is the everything about AI is talk. Yeah. It is just talk. And but to everyone in here, man, you go around that the the the the the Marketopia community, yeah, it’s it’s
Madhur Duggar (42:13)
Today’s getting real.
Terry Hedden (42:21)
I’m in it hardcore. I’ve got a multi-million dollar pipeline right now. Or I’ve done, I’m, I’m t I’m on step three of a six-step journey that will give me that million dollar pipeline in three months. Right. That’s where they are. Yeah. But you go back and I’m a channel partners and they’re like, yeah, I know how to spell AI. It’s big. It’s big. ⁓ man, just watch the session. It’s exciting. What are you doing today? Yeah. How how many marketing campaigns have you launched to bring AI to your customers and prospects this month? And the answer is literally always.
Madhur Duggar (42:46)
Yeah.
Terry Hedden (42:51)
None. And I’m like, they’re focused internally. They’re focused on doubling their EBITDA by incre d doubling their EBITDA by by getting rid of some of their ⁓ expenses. Yeah. Which I get. Yeah. But that’s that’s a public opportunity, not a hundred X.
Madhur Duggar (43:06)
Different thing there. And you know, to your point, digital marketing through email is tough these days. I don’t know if it’s tough everywhere. Yeah. It’s tough for me. ⁓ for sure. I I’m sure it’s tough for others as well. So you’re always looking for ways to shade your digital marketing different. Right. Right. And if you can use technology to do that for you, I’d say you gotta check it out and see what that what that does for you.
Terry Hedden (43:30)
We we’ve been baking this and and and not many people know this, so I’ll share this with you today. So we’ve been working on this for a while and ⁓ we’ve created a five AI product stack. Okay. That integrates with our CRM that we call the growth machine, that brings in intent data at a at a cost effective price point. There’s always been great stuff out there. It just was really expensive. You know? Intent data was something you might have gotten from Bombora, and that’s five grand a month. And then you you have a hub spot type technology that’s also another two, three, five grand a month, and you start assembling this best in class toolkit and it’s twenty, thirty, forty grand a month. And so we’ve been working very hard on driving that down using AI. And so we now have a five AI product stack that ⁓ is fully managed for two grand a month, including intent data, including data cleansing and data grooming, including automation around social ⁓ outreach, ⁓ email outreach, ⁓ LinkedIn outreach, like messaging kind of ⁓ which I consider a little bit different than social. But mm-hmm ⁓ that’s what we’re doing right now. And it’s two grand. Yes. Like what what w now what’s your reason? You know, yeah for for less than the cost of one mid level marketing person. Yeah you can have an all in fully automated, done for you type solution for five grand a month. And and and and that’s everything, including the marketing automation platform, including the data, including the people to run it, including customization for campaigns around AI or whatever it is you want to go after. So it doesn’t have to be expensive. And I I think that’s one thing that I think we’re just another vendor in the ecosystem, but I think a lot of vendors are are working on that. How do I make my solution leverage AI to bring down the price point, increase the ROI?
So I I I’m not as worried about that. What I wanna see is the MSPs have this epiphany and saying, Okay, while I’m overwhelmed with the day to day it’s overwhelming to run ⁓ T V just trying to keep up with cybersecurity. Yeah. And it’s about to get a lot harder with that. I I I I I look for sure. my god. Yeah. I I I had trouble sleeping at night when exchange reliability was my biggest problem. Right. But when I started thinking about nefarious actors and nation states leveraging the new version of Claude to hack into the small business owner to give a ransom demand. Yeah. I’m just like, my God, it’s gonna be
Madhur Duggar (45:56)
Yeah. It’s a I mean already video AI, you know, voice AI is becoming indistinguishable. So yes, I agree that’s that’s gonna become harder. I agree.
Terry Hedden (46:07)
Limitary. Yeah. Well, there’s gonna be lot of opportunity in this market. I think everything that’s a downside risk to the average customer represents an upside opportunity when it comes to an MSP. And and and it’s really unique. So so that’s why we’re really advocating that MSPs go all in and say instead of just talking about fear, uncertainty, and doubt and risk to your customers, talk about opportunity. Start bringing AI solutions that drive growth to their business. And an MSP is positioned to do that.
Madhur Duggar (46:23)
I agree.
Terry Hedden (46:39)
Before marketing was like this other world from a technology. Well, because of AI, they’re literally the same world. Right. And then we also want them to say, you know, I’m not just gonna give you the ability to sleep at night, because that’s what MSPs have done for 20 years. I I’m gonna actually help you grow your business and I’m gonna help you grow your EBITDA by leveraging AI to increase efficiency, productivity, ⁓ you know, success rate, ⁓ automations and and stuff like that. And I think It changes that conversation that an MSP can have. And if I’m a buyer out there and let’s say we’ve we talked about MSPs with a long distance horizon, let’s bring them closer. Let’s say I’m close. I’m close. If I’m a buyer and and let’s say let’s go back to that same, I’m very, very similar. Not we’re both at 15%, but ⁓ we’re both at a a a three million dollar run rate. and and and and let’s just say today our growth rate Is is relatively the same. Similar markets. But one has a culture of innovation. Yeah, culture of pursuing, yeah, aggressively pursuing opportunity. So they’re starting to see it, a tip in their EBITDA. They can point to and say, Hey, we’ve we’ve really been going AI. Now I have a th ⁓ I have my normal business, you know, cloud, cyber, whatever.
Madhur Duggar (47:39)
Okay.
Terry Hedden (48:03)
I’m still doing good there. Organically it’s going good. But now I have this new product set, this growth AI type solution. And it’s the b what what appears to be the beginning of a hockey stick. If I’m a buyer, how important is that? How valuable is that? In other words, we’re not talking as much about today as we are talking about the short to medium term. Is that something that a a buyer would pay for on it? Yeah, yeah
Madhur Duggar (48:27)
Buyers pay for it. That’s where we see the multiples that go past the 12 times multiple. You know, because buyers are paying out for proprietary IP that the that the MSP has developed in response to customers, you know, and and solving those problems for them. We’ve seen some of the guys who are doing roll-ups actually buy MSPs that have good AI DNA. ⁓ and th those folks actually have developed some AI, which is, you know, actually solving some niche problem for a client protocol that they particularly cater to.
Right. So it’s a legal vertical in some cases. It’s a healthcare vertical in other cases. So providing it’s providing solutions that are customized in that way, that have growth optionality built into it in the future, a hundred percent people will will take that into account. But but but you know what? I also immediately see that in the personality of the owner of the company. Then that person’s personality will be completely dynamic, he’s gonna be engaging, you know? And then you see it right away.
Terry Hedden (49:20)
Right. And that’s that’s a forward looking, right? Yeah. That’s when investor says, Okay, I your EBITDA last year was fifteen percent. That’s total you know, whatever, you know, three hundred thousand EBITDA. So you’re you know, you’re worth, you know, six times EBITDA. But now I’m gonna look go over here and I’m gonna look forward and like, wow, this this person’s starting a new hockey, yeah ⁓ growth rate, hockey stick growth rate. I’m I’m gonna I’m gonna look at his it this one over here, I’m gonna look at his forward valuation as a contuate continuation of the ten percent growth or six percent growth that he’s been enjoying and base it on that. Whereas this one over here is like, hey, next year could be a a very significant jump in profit. Therefore I’m gonna pay a premium for that.
Madhur Duggar (49:58)
There’s a corollary to this as well, Terry, which is let’s say you’re an MSP that might not have that, okay, but you are gonna exit. And you have two companies who come up to you. One is a forward-looking ⁓ MSP that is invested in the AI in the AI jeverna going forward. The other person is more of a traditional MSP. Both people have offered you a combination of cash and stock. Right. Mm-hmm. To me, you have to think about what kind of stock are you getting in both of those two companies and which stock is the higher growth potential. Right. Right. So the other way to think about this is.
I probably want to exit to a company that is off that is offering me the stock that is more better positioned to to to b benefit from the technologies of the future. Right. and that’s the way you the way you get that is I think by getting into a listing process, getting all the buyers to put their ships on the table and then choose the option that’s best for you. But there are two sides of the same fundamentally one hand, buyers are paying for companies who are futuristic. Right. you have to build out your projections and you have to show them why exactly you think your future growth is going to be lighter than your previous growth, right? Yeah. And it’s possible that they might say, I’m going to give you some credit for it today and some credit for it has gonna have to come out in an earn-out. Yeah. And you have to be comfortable with that. And there are ways to structure it to make it better than that. Right. And but so you build out the forecast, you defend it, yeah and you and then you see what you can get for it on day one and how much if you want in an earn-out. And then the other piece of it is
You can always invest in stock that’s gonna go really fast because it’s invested in AI.
Terry Hedden (51:27)
Gotcha. Matter ⁓ talk to me about professional support during this process. Like, you know, as as a as a non-sophisticated financier, I the average MSP might look at at someone like you as an expense that’s unnecessary. Right? Why would I give someone a a percentage of my sale when I can get it all? Yeah. ⁓
You know, talk to me about the value, the the cost of of a professional representation on the sell side. Yeah. Talking sell side. ⁓ cost of a professional representation and and what what are the what’s the ROI for that? Like what what would I come to ex what would I what would I expect in terms of ⁓ you know, things to offset that? Yeah.
Madhur Duggar (52:16)
question again, perfectly fair. ⁓ so let me tell you first the final answer and then I’m gonna roll back and break it out for you. But a typical listing process will i in other words, if you go through an advisor and do things the things the way he’s advising you to do and then you finally go through a listing process with that advisor, we know in the industry that it adds one to two turns of value in EBITDA turns. So if you had a five hundred thousand dollar EBITDA and you went through a listing process, it’s gonna add $500,000 to a million dollars in value over and above what you would have gotten if you had tried to do this yourself. Wow. And I’m gonna add a corollary there, you probably won’t succeed in doing it by yourself. Right. Getting it done. Right. For a variety of reasons. Right. But even if you were to get it done, so we we’ve compared things that got done with the buyer by themselves versus things that went through the listing process, and one to two turns of VivaD is what the listing process adds. Right. Right. Wow. ⁓ and what is the cost of that advisor for
Terry Hedden (52:56)
Getting it done.
Madhur Duggar (53:15)
Doing six to nine months worth of work for you. It’s a quarter point to a half a point of Vivita. Right? Now let’s say it’s even a half a point of Vibita and you added only one turn of Vibita value. That’s an ROI of you basically double the investment. Literally. Literally. In a six to nine months period. Yeah. Right. But but y these are the other things, right? I’ve seen many buyers spend lots of money over and above what they would have spent on an advisor, but trying to do this themselves, screwing it up and then coming back and trying to do it themselves. It’s not an easy job. It takes a full day’s work. It’s emotional. It’s stressful. You it you know buyers will not take you seriously because because they’re like, well, you’re just jumping around asking for your evaluation. You’re not really really serious about selling. So they won’t take you seriously. When buyers come to you, they’ll come to you one by one.
So you never are in a position where like, well, if you don’t give me this value, I’m gonna go to this person and get that value. No, that guy’s gone. You don’t have that person anymore. Right. So there are so many things. and the due diligence process. I mean, if anybody has any doubt about whether they can do this or not, ask a good advisor that you can you can reach out to me to give you an example of what a due diligence checklist looks like. And that will show you like how it works to get done.
Terry Hedden (54:29)
Yeah. No, it’s I I you know, I I’ll I I’ll tell you a story that it supports exactly what you you are. When I was selling my MSP, I’m I’m a I have an MBA. I came from working on the lake. I’m a pretty financially savvy guy and I had representation during the sale of my MSP, but I kept them at arm’s length. Right. I didn’t bring in early because I wasn’t I didn’t know I was for sale. So so I’ll defend myself on that category. Yeah. ⁓ I was the the sale of my S P came out of nowhere. But ⁓I did keep them at arm’s length. You know, hey, I’ll I’ll let you know when I have a question kind of approach. Right. And ⁓ it cost me seven figures. Yeah. Literally. I I could tell you, literally, because I ended up having a what I would say is a poorly written paragraph in a in a in the purchase contract that left enough ambiguity that a really rich person, yeah, way richer than I was, the buyer.
Madhur Duggar (55:06)
We go.
Terry Hedden (55:26)
could point to that paragraph as a way to to to you know dinosaur arm the yeah the payment. Right. Hey, well, you know, because you know it doesn’t really it’s not clear. I don’t think I’d so that cost me a seven figure reduction in my sale price. And and I look back and I’m like, man, if I would have just been willing to spend fifty grand, right? A success fee. It wasn’t like an out of pocket thing. It was a success fee oriented type thing.
It would have I would have had a an ROI of of you know, significant ROI from a fifty grand expense, hundred grand expense to a million dollar plus yeah reduction in in in what I actually got at the end of the day. And and and then I started thinking now, like what would it be nice? What would that million have been now? ‘Cause it’s not it’s a million in the transaction. I agree. It’s been, you know, thirteen years. I agree. Twelve years, thirteen years. So ⁓ it’s a lot more than a million.
Madhur Duggar (56:19)
It is the the the there are many there are many stories like this. I have I had a client who’s now actually in due diligence, got there after one and a half years, and in one of his first the first times he went into due diligence with another client, he ended the due diligence process because he got all stuck up in a clause. It was called a sandbag clause and it’s actually reasonably standard in in purchase agreements, but it’s an it’s a it’s a clause which says that if the buyer finds something
In the due diligence process that tells them that one of the reps of warranties that the client that the seller has made is not true, that the clo that this that the buyer is not obligated to disclose this to the seller. Now, we don’t love that clause. And we try to get it out there as much as possible. And ⁓ and normally you a an an MSP attorney
Who’s well established in the marketplace, who has relationships with the buyer, especially if it’s a repeat buyer who’s going to be able to talk to them to get them out or explain to the seller he shouldn’t be worried about it. But because he was trying to do this whole thing himself, he got upset, he got emotional, he stopped the process, the buyer went away. And I think those are all things that didn’t need to happen if he had just gotten the right advice, the right coaching, holding on to this whole process. And so he, you know, to that process took six months out of his time, that that time has value.
I caught causing emotional distress. That’s that’s not good. Yeah. ⁓ these are all the intangibles that are actually far more impactful than some of the tangible things that people say, we’ll help you prepare a marketing document. Absolutely. Of course. Those are tailor stakes.
Terry Hedden (57:50)
I totally agree. I think anytime you go into a conversation that’s foreign to you and helps to have someone prepare you for that. Right. Dur before the conversation, during the conversation, after it, you know. And then s some of the kick almost like, you know, one of the things I think that’s a critical skill needed during something as emotional is selling your child. Like like selling business to be is just someone to go take a deep breath. Yeah. Yeah. Don’t don’t say anything you’ll regret. Don’t do anything you’ll regret.
Sleep on it. Yeah. Let me give you three other options that you can present rather than just saying no. ⁓ I I think that’s that’s ⁓ that’s great advice and something I I think, you know, in hindsight again, I really wish I would have had by keeping it at arm’s length, I didn’t have that relationship. So he pointed to the paragraph. I mean, I knew that it wasn’t great, but but if I had a better relationship ⁓ and a deeper involvement, he probably would have found a way to get it changed enough that I didn’t come back to haunt right yeah.
Madhur Duggar (58:46)
Or see what you could’ve gotten instead of it. So this becomes a negotiation point. Okay, you’re giving this to me, okay. What are you gonna
Terry Hedden (58:51)
I want more from Yeah, absolutely.
So, you know, one of the things that I I I really respect about you, the the the focus on the industry makes it to where you you you’re more up to date. Like if if things change and there’s and there’s different things going on that affect buyers or sellers, you’re gonna be more aware. ⁓ you know, ⁓ because you know the industry so well. What what are some things that you’ve found are are are trends in the marketplace, things that we should be aware of? Yeah.
Madhur Duggar (59:19)
So you know, this is something that we’re beginning to pick up on now because up until this point, buyers were having a reasonably easy time, well, not easy time, but reasonable time finding good quality businesses with scale. And unfortunately, it feels to me like a lot of that low hanging fruit is now not there. And so they’re sort of struggling to find MSPs which have both scale and quality. So two things are happening. I am seeing buyers more willing to express their ability to buy slightly smaller MSPs, right? That’s one thing. And the second thing I’m seeing, which frankly I’m quite excited by, is MSPs coming together to form partnerships before they go to market. Yeah. And that can be either doing a merger, but it doesn’t have to be at all. It can be just having an a there are ways to do this. There are ways to skin this cat, more than one. But for example, we have a we have a a listing where we have MSPs that are partnering up together to go to market.
Together they would be over, you know, three times the size of any of the individual MSPs. and we’ve talked to buyers about, Hey, would you be willing to entertain an idea like this? And some buyers have said, No, that’s not a real merger and other people said, Yeah, we’ll enter entertain an idea like this. At least show what you’ve got. Yeah. So I think that’s a trend which I think will pick up. Yeah.
Terry Hedden (1:00:33)
I ⁓ I’ve always thought some people it’s you know, you you get into strengths, weaknesses, opportunities and threats. One of the opportunity categories and and threat categories, one of the threat categories that we r always come up to every year in annual planning is I expect one day someone like you is gonna walk up to me and go, I’ve got a buyer that wants a national footprint. Right. Can you help me aggregate all of your clients? Right. And and I I was like, it’s like an I I started this to help others. So that’s why it’s in the opportunity category. Because if I can make a difference in someone’s life at that level and create multi-generational wealth or secure their family, I’ll consider that a massive victory. But from an organizational perspective, it’s a threat. Yes. Because yes, whatever company buys it may not need someone like this. They may have their, you know, a thousand person marketing department. So yeah, it’s been a b opportunity to threat. I’d say you know, this conversation has done nothing but reinforce how I feel about ⁓ about the industry that you’re in. I I think my personal experience and just what you’ve shared today just kind of reinforces the importance of having someone like you on the team. And you know, for the audience out there, I’m going to recommend a multi-stage fat strategy with working with someone like him. Before when when when your dream, when when when selling is a dream, buying coffee, watch webinars like this, get educated, get knowledgeable, get comfortable, build those relationships.
You know, starts with a coffee, maybe continues with a beer. As you start getting closer and closer, ⁓ deepen that relationship. Go, you know, you know, have have have more strategic conversations, get real, start sharing information, like get educate yourself and enlighten yourself with the knowledge and experience that someone like him brings. And then when you start getting into that, hey, listen, man, next year is my year. You know, I’m a year out. Freaking give the man a check and have him start working for you.
And getting you ready to maximize ⁓ the payday that is to come. ⁓ if not for yourself, do it for your family, do it for your children of your children, because professional support is something as big as this is not a luxury. It’s a need to have. And I can personally tell you it’s not costly. In fact, it’s costly not to do it instead of to do it. ⁓ and and then finally, I’m gonna I’m gonna say this, man.
There’s not a lot of people in this industry that are as good as ⁓ as he is when it comes to being real and genuine and honest and and and and and ⁓ I guess his heart’s in the right place. He wants to help the MSP. You know, he’s not coming at it from, you know, how much can I I wanna maximize everything I can get on on a you I’m a leech and I’m gonna like no. He actually has a has a has a has a mission of helping other people and and to i if he can make a dollar helping someone else make make a a million, that that’s that’s that’s what I’ve seen in you. In every conversation I’ve been, every informal conversation, every speech we’ve been a part of, even this podcast, man, your heart shines through and and I commend you for that, man. I appreciate it. Yeah, no problem at all. So if you have any questions or if you want to sell your MSP, ⁓ someday, buy them a cup of coffee, give me a call, I’ll be happy to to make an introduction. ⁓ but if the time is right, you don’t have to look far.
Madhur Duggar (1:03:34)
Yeah, you’re saying that’s right.
Terry Hedden (1:03:50)
Find someone like him and engage and and and you’ll thank yourself and your children will thank you and their children and maybe even their children’s children will thank you for making that decision. I appreciate you coming in and shared it. Really sir. Thank you so much. Thanks, Terry.
