Is Fred Voccola, CEO of Kaseya, the newest shark on Shark Tank? He might just be after serving on the Shark Tank judges’ panel as the fourth “shark” alongside Robert Herjavec, Kevin O’Leary, and Daymond John at the 2023 Technology Marketing Toolkit (TMT) Sales & Marketing Boot Camp. After giving sage advice and feedback to five best-in-class MSP finalists in the TMT “Better Your Best” contest, the Sharks sat down with Robin Robins, founder and CEO of TMT, to explore the Sharks’ recommendations specific to the Managed Service Providers and Managed Security Service Providers industry for turbo-charging business growth.
Here are eight of the most impactful lessons from the Shark Tank panel:
#1 Sell Multi-Year Agreements
The number one piece of repeated advice during the panel discussion was that MSPs should be selling three-year contracts. “I want to see them lock in a contract for longer because when you lock in a contract for longer, even at a discount, it has more exit value to buyers like me,” O’Leary said. “I look at that when I look at a book of business. If it’s month to month, it’s worth a third of what a long-term contract is worth.”
Fred Voccola agreed, praising the finalists selling multi-year contracts. “The multi-year contracts ensure you will lock in recurring revenue, adding 3X to 4X to valuation,” he said.
The Sharks emphasized urgency and how significant getting three-year contracts could be. “The goal should be to build a business at a $50 million run rate at 20% margin where every single client [is] on a three-year contract,” O’Leary said. “That would be very valuable and trade somewhere between seven and eleven times. So, when you’re building a business, really focus on getting those three-year contracts, and then, if you can keep your margins at 20%, you’d be pretty rich by the time you finish. That’s a pretty good business. This industry provides crazy-good margins. The S&P doesn’t get 20%. Either this industry is going to stop growing and the margins are going to come down or you’re going to keep this productivity up for many, many more years at 15 to 20%. But there are no sectors that get 20% forever, so enjoy it while you’re getting it.”
#2 Know And Review Your Numbers Religiously
Every Shark on the panel also stressed the importance of tracking, knowing, and understanding your numbers in business, emphasizing that “if you can’t measure it, you can’t grow it.” Numbers are also critical for solving problems. “You can’t diagnose if you don’t know numbers,” Robin Robins said. “It’s blind archery. You’re just throwing darts and hoping one hits.”
Numbers allow you to scale easily. Kevin O’Leary requires every single one of his portfolio companies to report two numbers to him every single Tuesday morning: revenue and free cash flow from the previous week. “We know everything from those two numbers,” O’Leary said. “The minute we see bad news, we call and say, ‘Bad week, what happened?’ You should know your numbers. Numbers are the language of business. You should be all over them. I do this with my own business. Every single night, when the market closes, I look at the entire aggregated investment portfolio . . . If you know your numbers, you can pour gasoline on the fire. That’s what an investor like me looks for–I know if I pour this much in, I’m going to get this much out.”
Daymond John added that a company is not investable without knowing its numbers. “You don’t drive a car without a dashboard,” John said. “If we are looking at a company and they don’t have their numbers, we’re not investing in them. We don’t believe them. They are fudging something. They are irresponsible. We’ll never get our money back. It’s as simple as that.”
Robert Herjavec highlighted the need to track customer acquisition, churn rate, and average ARR to get buyout offers. “Nobody in this room is going to get bought because of the EBITDA you make. You’re going to get bought because you’re growing,” Herjavec said.
Fred Voccola emphasized the notion of measuring one’s progress. “Knowing your numbers, whether it’s financial numbers or operational KPI [key performance indicators], is critical,” Voccola said. “It’s instrumental, so you know when things are trending in the right direction. It’s not always about the absolute number, it’s about knowing whether you’re getting better or worse so you know where to invest your limited resources to address a problem.”
#3 Focus On A Narrow Industry Instead Of A Narrow Market
MSPs and MSSPs are the fastest growing silo in the computer industry, yet highly fragmented, with no brand leader. For example, Robert Herjavec started with a small MSP and now his MSSP, Cyderes, is the biggest in the world, yet still fragmented. This creates a huge opportunity where even new MSPs starting out can compete and grow.
“Undeniably, every company in the world will hire a managed service provider,” Herjavec said. “When you are really small, it’s good to focus on a narrow industry, but not from a market perspective. I used to sell to everybody, and I really struggled until I said, ‘Why don’t I just go after financial services companies, because if somebody hacks them, they’ll lose a lot of money?’ That doesn’t exist anymore, but what I do–what you all do in this room–IT services, cybersecurity, applies to everybody. You will never capture a significant part of the overall market. We are very fortunate. On a macro level, we’re all growing. The need for what we do is growing, and it’s not limited to just financial or legal anymore.”
#4 Become An Expert In Cybersecurity And Compliance
“Cybersecurity applies to every vertical today,” Herjavec said. “We create more data every three months than in the last fifty years–think about that. And on top of that, you have compliance. If you’re in this business and you’re not growing, you’re going to die, because it is super-fast, pedal to the metal.”
It’s also the perfect time to capitalize on compliance. Discussing his experience with compliance in his business, O’Leary said, “I run private equity for governments, and what’s happened there is you must go through an RFP process. What they care about more than anything else is compliance. Can you show them a platform that is 100% compliant that you’re managing right now? That’s more important than returns in some cases because everybody must be compliant now. That’s the fastest cost I have in my business. I’m constantly paying for more tools to have transparency in how we’re investing the Treasury’s money or the state’s money or whatever it is. Everything is compliant, and that’s expensive. You should start focusing on that, even for smaller businesses. Anybody that’s got anything to do with the government or servicing them. This is a huge opportunity. It won’t get any better than this–it’s too good.”
#5 Jump Into The Mid-Market With Both Feet
A major business opportunity for MSPs facing small to medium-sized businesses is to target companies of 2,000 people or less that have between one and six IT people on staff. It’s important to note that you must market differently to this group. “By the end of the decade, about 95% of IT will either be co managed or fully outsourced to MSPs,” Voccola said.
“If you’re going after a 2,000-person company that has a professional purchasing group, you’re not dealing with the owner of the business, you’re dealing with a director of IT or a CIO. It’s a completely different go-to-market approach than going into the local chamber of commerce and getting your dentists and doctors and lawyers, etc. I would highly recommend everyone thinks about that in their business and the impacts that can have,” continued Voccola. “If you choose to go into that business, go with both feet in. It’s a monster market. We see it because we have internal IT people that use our platform. Those very small IT shops are like internal MSPs. They are getting slaughtered, and they are looking for external service providers to augment their work but don’t know that communities like this [referring to the TMT community of MSPs at Boot Camp] exist. They are thinking about calling people like Robert Herjavec. But Robert’s not going to talk to someone for $10,000 per month. He can’t make money doing that. Neither can IBM. That is the number one market people should think about, because it’s so underserved and it’s so in demand.”
#6 Find Opportunities To Partner With Excellent People
There are entrepreneurs such as Daymond John who want to focus on what they do best and outsource everything else so they don’t have to grow their team of employees. He recommended finding opportunities to connect with creatives who are passionate in their respective fields and merging that with people who have knowledge and finances to grow a business.
“I don’t want to deal with the labor laws and various things and the talent,” he said. “I want to be Disney. I want to create Mickey Mouse as much as I can, and I want to be able to say, ‘if I handle this and you handle all of this other stuff and we come back with a 20% EBITDA and you’re going to give me 12% or 8% on a license, and I have no problems and no capital at risk, that’s what I want to do.'”
“There are opportunities to find other people that are really good at what they do. We’re at a time when a lot of people are in control of a lot of levers in life, and they have the distribution and the finance, but they are a little bit out of what’s going on. And you also have a lot of creatives. If you can merge that world–because the ones with the knowledge and the finance–they need what you have. That’s what I like to do. I don’t want to grow my company and hire an HR person for every 50 people.” John adds that his IT manager monitors his outsourced IT. “I have IT people that know if you suck to get rid of you. If you do great, they know, do more with you. It’s as simple as that.”
#7 Get More Aggressive About Sales
Don’t limit yourself. Hire more salespeople and go where the business is. “Be more aggressive,” Herjavec said. “Growth and sales cure all ills. If you wait for the perfect moment to grow, it’s going to pass you by, so get going.”
“A lot of the time, people are dying to give you the money,” John said. “They are standing in line, and they say, ‘I’ll come back later’ because there is no register available . . . If you have a viable product, go out and have more registers.”
#8 Educate People To Grow
Many people currently do not know how much they need an MSP to manage their IT because they don’t understand the threat and compliance landscape. Thus, there is a massive market to educate. As an example, Daymond John cited Listerine’s use of “chronic halitosis,” which made people recognize their bad breath was caused by something. Once people were educated, they bought Listerine. “Most of the people who will need you are suffering right now,” John said. “They don’t know how much they need you, so your communication needs to be improved in certain segments. People need what you’re doing, and most don’t even know they need you and they desperately need you.”
Applying these strategies will help you scale your business. Think big. Get off the keyboard and out of your business as fast as you can. Ensure your MSP’s future success by investing in yourself and applying this invaluable advice from the Sharks starting today. Don’t wait. “Your business has to be scalable,” John said. “It must be able to be acquired or licensed out, or you’re just going to run on that hamster wheel for the rest of your life.”
Want to learn more about how the biggest names in the industry are thinking big? Check out MSP Success’ Titans of the Industry special report, and see how the best of the best make success happen.
