The president of Direct IT shares insights on how he grew his MSP business to $7 million by targeting high-value clients in key markets.
Note: This article is taken from a live interview and has been edited for clarity and length.
David Javaheri is an entrepreneur and the president of Direct IT, which he founded in 2004. A TMT member, he won the 2022 Better Your Best Contest and served as spokesperson of the year. In May of 2022, having grown his business to $7 million, Javaheri took on Evergreen as a capital investor.
Robin Robins, founder of MSP Success and Big Red Media, talks with David about the strategies he used to acquire high-value clients to turbocharge growth at Direct IT, and the essential tips he has for smaller MSPs who want to go upstream with co-managed IT services.
Robin Robins: Can you start by sharing your journey as an MSP business owner?
Javaheri: When I came to United States, I had little money. But since college I’ve had three startup companies. The first one grew to about 104 employees; the second one to 244 employees. I started Direct IT in 2004, and in May 2022 I took a capital investment and joined Evergreen’s Lyra Technology Group platform, a Super MSP.
I have a degree in math and computer science, but not in IT or technology. I started an MSP because of recurring revenue, because of the money side. On the technical side, I saw a gap where we can help companies on the smaller side who can’t afford a full-time IT person grow and make money. That was the joy of starting an MSP.
Robins: You grew Direct IT to $2 million and stayed at that level for several years. Then you joined our organization and in two and half years grew to $7 million. Despite that success, you brought on a capital partner. Why?
Javaheri: Evergreen is unique among its private equity financial peer group. With Evergreen, the owner can choose to leave or stay, which is what I did. They believe in a longer-term partnership instead of buying a company, improving the bottom line, and flipping it in three to five years, which is basically what most private equities do. They take a more comprehensive approach to value creation. Everybody calls it the forever home—for employees, for the company. They want to keep it forever and bring yearly value to the shareholders. The perpetual money is very attractive. So my plan is to continue working and grow Direct IT within Evergreen and help other MSPs wherever I can.
Currently at Evergreen/Lyra we manage over 300,000 devices. We have over 10,000 clients and 3,000 employees. We are in four continents and do a little over $600 million in revenue.
Evergreen strikes a great balance between being a comprehensive, diligent capital partner, while letting their portfolio companies execute independently. That being said, Evergreen still finds a way to optimize and capitalize on synergies between the portfolio companies. You can imagine, as an example, the amazing buying power we have.
Robins: From a marketing and sales perspective, what advice do you have for smaller MSPs that want to go upstream?
Javaheri: I’ll tell you what they shouldn’t be doing. The No. 1 failure of a smaller MSP Is they try to be everything to everybody. For example, it’s very hard for a smaller MSP to work in the compliance world. It’s a lot of money involved, a lot of expertise, and they need a very strong partner.
I think what has made me successful is I always look for industries and markets where there’s not a lot of MSPs. For example, there are about 600,000 manufacturing businesses in the United States, about 200,000 of those have to comply with CMMC. Simple math tells you that 400,000 do not have to comply with CMMC. When I was competing in the CMMC world I had a lot more competition. Then I switched to targeting the bigger market, the 400,000, for co-managed services. I saw a lot fewer MSPs there. That’s what I look for.
Smaller MSPs should also go after high-value clients.
Robin Robins: How does a small MSP find local co-managed services engagements?
Javaheri: Pick an industry they’re familiar with that has more than 50 employees and one IT person on staff. Then design a co-managed program. One of the first things I look at is not how do I support them in IT, but how do I bring them more money? If I can tie that to IT, then I can put a plan together. Then learn the industry, learn the applications, learn the software. And then start educating that industry. It’s a long-term approach. Once you educate them, you create trust. Let’s say a three-month plan of education that includes five or six webinars and some tech tips. You can email or mail them. After three months, start your sales process.
Robin Robins: Are you targeting the CEO, the IT director, or both?
Javaheri: I’ve learned that if I do both I get better results. The messaging is different. For CEOs, you can point out you may get in trouble legally if you’re not doing the right thing on the security or compliance side. A little bit of that works with CEOs because they’re really cautious about their business.
When I go after IT I say, “How much time do you want to spend on the boring stuff? You know you need to grow. You need to learn more. So let us handle those repetitive tasks, and you focus on growing your company.”
Robins: For your educational marketing, what types of materials are the most requested and consumed by CEOs, CFOs, and IT directors?
Javaheri: Right now there’s so many security stacks out there and companies are spending so much money on security. There’s always a battle between CEOs who don’t want to spend that much money on security stacks and the IT guys who do. Using a pen test as a way to test if your security stack is working or not was a message that was well received. So that would be an educational topic for a webinar—benefits of pen testing your security stack.
AI too. Everybody wants to know about Co-Pilot. Pick a topic and start educating them. It doesn’t have to be directly related to what you sell. Just start creating trust. And that is the basis of trust-based marketing. If they trust you, then you can sell whatever you sell.
Robins: What are some best practices for countering objections and managing the dynamics when you’re discussing a co-managed engagement?
Javaheri: If we get a meeting, we request that both the CEO and IT person be present. We try to make the IT person feel extremely comfortable and use the word “complement” a lot in our conversation.
And it’s very important to be able to design programs. You need to know your labor cost and your tools; that’s one of the biggest keys to price co-managed. You’re going to come across scenarios in which they may not want help desk, then your typical $150, $175 per desktop, goes down the drain. Or it could be the opposite. They don’t want you to touch the servers or the backup, and just do help desk. So you need to be prepared and flexible. Especially if you want to complement them, then you can’t say no.
But the good news is, in most cases that we’ve had, more tasks get added over time. So you need to be prepared to give different pricing. Focus on what benefits them, and show them paths that they make more money with you. It’s very important to show how you bring value to the customer.
Robins: Are the margins better for a co-managed engagement?
Javaheri: The margins are definitely better, especially when you come across someone who doesn’t want help desk. These companies have more money and you don’t have to sell them on the value of IT. And there are a lot of higher-margin products that you can sell to co-managed customers.
Robins: Does an MSP need to hire additional staff to offer co-manage services?
Javaheri: Level 2 and 3 engineers are necessary, because now you’re dealing with an IT person. But the good news is they’re willing to pay for this service.
Robins: What other opportunities should MSPs keep an eye on?
Javaheri: Cybercrime will continue to grow, so focusing on compliance—not necessarily CMMC—and security, cyber insurance specifically. If you become a JV (joint venture) partner with a few local insurance companies in your area that sell cyber insurance and create trust with them, you can definitely grow your business through their clients.
After compliance and security, I think AI is something we need to keep an eye on and use that to our advantage very quickly. We already can with educating customers in some areas, but in a more comprehensive way, it’s coming up soon.
Robins: Are you finding that the labor shortage is still a thing, or has it eased up? And how do you find good people?
Javaheri: I think we still have issues, but it has eased up. We haven’t been affected as much at Direct IT because we bring in people who are at the entry level and train them to Level 2 or Level 2 and a half before we let them get on the phone. When you send them to training and get them certificates, loyalty gets created.
That’s one key to success. I have over 60 companies that have been with me more than 15 years. The key to keeping clients so long is to keep your employees for so long, because they’re the ones they call. So you need to keep your employees happy. You need to pay them. And I have a rule: I like to pay them 10% over market. If I do that, my odds of keeping them for the longer term increase.
Robins: Any last words of advice for MSPs trying to get to the next level?
Javaheri: If you have money to hire one person, hire a technical person to take over your job so you can be a salesperson. That is my biggest advice. It would open up the door—and your time—to grow.
