Are you really financially free, or financially tethered to your MSP?
That was the question Robin Robins, founder of TMT, asked attendees in her two-part keynote presentation at TMT’s IT Sales and Marketing Boot Camp last week.
“Most [MSPs] are operating your business to optimize for income today—for short term return. [They’re] operating like it’s a job, like it’s a hustle. [They’re] not building equity; [they’re] not building wealth,” she said. And this is a serious problem, because while MSPs who operate this way are working hard, they’re not making any real progress toward an exit plan.
Every business owner needs an exit plan, because Robins has “never seen anybody take [their business] beyond the grave,” she said. “So, you’ve got to have a plan for this. You have got to start behaving differently, making strategic decisions, and executing on good, solid information and strategy—versus just trying to make a buck today, so you can pay tomorrow’s rent.” That means building wealth to achieve real financial freedom, not the illusion of it.
What Real Financial Freedom Looks Like
“Financial freedom is when you no longer have an income and you can stop working, by choice or by circumstance, and you can continue at your current lifestyle to the end of your days,” Robins said. “A lot of people think they have financial freedom because they make good money, but that’s not true. The minute that they stop working, the minute they get off that treadmill, the money stops. That’s not financial freedom; it’s a money hostage situation.”
Robins advised MSPs to put together a clear financial plan, with specific numbers, not vague approximations. With the cost of living and the average person’s lifespan increasing, it’s more important than ever to do the math and have a plan in place to ensure that you don’t run out of money.
That means building real equity that will continue to pay dividends over time. And that means building your business in a way that truly sets you financially free.
The 5 Building Blocks of Financial Freedom
Building Block #1: Financial Rigor
Step one is getting reliable financial controls—meaning a budget—and reporting in place. One of the biggest things Robins wishes she’d done earlier when building TMT was “bring in a CFO and get financial controls in place,” she said. “You’ve got to have clean, accurate books.”
That means tight cash management against the budget, honest benchmarking against your peers, and accurate financial metrics. “The numbers help you spot where you’re losing money, where you’re making money, and where things are going sideways. They are the MRI of your business,” Robins said.
Financial metrics you should be tracking are:
- Topline revenue
- Gross margin overall, and for each category (percentage and amount)
- Product
- Services
- Hardware
- Labor efficiency ratio
- Direct labor efficiency ratio
- Management labor efficiency ratio
- Monthly reoccurring revenue (and whether it’s trending up or down)
- Sales, general, and administration costs
- EBITDA (percentage and dollars)
Building Block #2: Revenue Quality and Client Economics
Once you have your financials locked down and tracked, it’s time to stop chasing every dollar and start looking for quality clients. While scrappiness is a great quality for entrepreneurs to have when starting out, Robins warned MSPs to not let their scrappiness turn their business into a scrap heap. “I’m all for being scrappy,” she said. “But at some point in your business, you’ve got to stop being scrappy and start being strategic.”
“Not all investments of time, money, effort, and growth are equal in value delivered,” Robins said. “Make sure whatever you’re selling is going to be a piece of business or asset that is going to be worth something to develop.”
When you start charging higher prices and stop offering refunds, “[you] get better customers. Because a business isn’t just about getting a customer, it’s about developing a customer. I need [a customer] who’s going to implement, get results, and buy more when they do. By putting a higher barrier on the customer we’re getting, we’re getting better quality customers.”
At the end of the day, “The type of client you have is going to determine the value of your business,” Robins said.
Building Block #3: Operational and Team Excellence
Hiring a phenomenal team and giving them the structure they need to succeed will give you leverage within your business, Robins explained. “Opportunity without structure is chaos. There are opportunities [in business] all the time, [but to take advantage of them], you have got to understand the structure around it and leverage your people.”
“Having a big vision and passion was easy for me. But the thing that I struggled with the most as an entrepreneur was building and leading a team,” Robins said. “Once you learn how to leverage other people, you stop playing golf and you start playing football. If you’re Tiger Woods, it’s just you. If you don’t play the game, the game doesn’t get played; you don’t win awards and you don’t make money.”
Building a team of highly competent go-getters made all the difference. Robins used an example of two highly qualified SDRs, with the same skills, tools, list, and offer, to illustrate this point. The SDR who would win the most sales between the two isn’t the one who works themselves into the ground, “It’s the guy who can leverage all of [those assets] and build a team,” she said. “I don’t care how good you are as an SDR, you’re not going to outperform eight people with [those same assets]. That’s how you have to think about your people. Having a team is the ultimate leverage.”
Building Block #4: Growth Engine and Market Position
Your growth engine is made up of your sales and marketing pipelines and initiatives; market position is what your MSP is known for—what you’re famous for, who you serve, and what you sell.
Having both a strong growth engine and market position is essential for your MSP to grow. That growth is so critical because as iTValuations CEO Reed Warren says, “It’s easier to make a growing company profitable, than make a profitable company grow.”
Maintaining a strong growth engine requires four components:
- Market: The specific type of customer you want to acquire. In a campaign, this is the list or audience you’re targeting.
- Message: Includes the offer you’re making, your brand promise, the solution you’re selling, and the argument as to why you’re better than your competitors.
- Media: The methods and systems by which you’ll deliver your message and communicate to your chosen market.
- Math: The financial and funnel metrics of client acquisition.
“You’ve got to get those four things correct. They’re like four legs on a table,” Robins said. “If one of them is missing or shorter [than the others], you got a very rocky table—[and an unstable growth engine.]”
Building Block #5: Risk Reduction and Exit Readiness
“Your job as CEO boils down to growing earnings and reducing your risk,” Robins says. “If you do those two things, you got a hell of a business.”
How to maximize your growth:
- Keep more customers. If you have high customer churn, fix this first.
- Make each customer more valuable by upselling, cross-selling, and focusing on recurring revenue. Hire an account manager to take care of your customers.
- Fuel referrals with quality service to focus on proactive leads, rather than scooping up customers from other MSPs.
- Increase conversion of the current leads you’re getting with increased website effectiveness, faster and more dynamic follow-ups, and drip marketing.
- Tighten up and develop your sales process—focus on a higher close rate, at higher price points, with higher value clients
- Develop strategic partnerships and business alliances
- Increase inbound leads through all other means, such as SEO or pay-per-click
When it comes to reducing risk, “I would encourage you guys to ask yourself this question,” said Robins. “If three years from today, you’re going to be forced to exit your business, what would you do different? That’s a good question because it gives you a three-year timeline to [consider] what leadership team, systems, processes, and structure you need to put in place to reduce risk.”
Focus on What’s Really Important
Robins closed her presentation with insight on how to know if it’s time to sell your business—and a reminder to focus on what’s most important.
First, check the math. “Make sure that whatever amount of money you get [for selling your business] is enough for you to live off of because now you have irreplaceable money. [After the sale,] you won’t have the engine to produce the revenue like it used to.”
Second, “You’ve got to make sure you’re emotionally prepared,” Robins said. “The statistic is that 75% of business owners who sell later regret it. It’s not just because of the money; it’s because of lack of purpose. If you’re not prepared [to give up your business], you might want to rethink selling.
When Robins sold TMT, she did so with clarity. “I sold a financial asset,” she said. “I did not sell my passion. I did not sell my relationships, and I sure as hell didn’t sell my memories of what I was able to accomplish. Life is what you make it, and it’s up to us every day to not lose sight of that. As we’re building a business, it can be easy to get caught up in the chaos.” Robins then played a video to remind attendees what’s most important—community, family, and love and care for the people who matter most.
If you missed last week’s Better Your Best winner announcement, you can find that here.
