Pre- and post-sale lessons from an MSP founder

Even if you’re not looking to sell your MSP anytime soon, it’s best practice to work on building operations that aren’t dependent on you so that when you are ready to sell, you aren’t forced to do so for pennies on the dollar.

Lloyd Wolf, founder and former CEO of Wolf Consulting, learned this and other life lessons along the way as he built, ran and eventually sold his MSP. Here’s what he had to share about building value in his MSP, navigating the sale process and life post-sale.

Start succession planning before you’re ready to sell

When Wolf started working on succession planning in his business, selling hadn’t even crossed his mind. “I was blessed to have met Arlin Sorensen as part of a peer group. He talked about how someday you will not own your business, and you need to prepare for that. He stressed to us the importance of knowing the number you’d need to receive when selling your business to be able to step away,” Wolf said. “[It was critical] to understand, what is the value of the business today? What is it worth to someone else? And it was not based on how much hard work I had put into it over the years; it was what the true value was to another owner. Understanding the gap between those two numbers was the first step to closing it.”

The next objective was to make the business less dependent on Wolf. “There were some other managers in the business, but I was still too involved with far too many things. Too much was dependent on me. We needed to get the business to the point where it could run without me.”

To that end, Wolf Consulting integrated EOS, the entrepreneurial operating system, which was extremely beneficial. Wolf encourages any MSP owner to implement a business operating system of some kind for the same reason. “Have a formal business operating system framework that your business fits into, because [it creates] better opportunity for it to run without you when you step away from the business,” he said.

Advice for transitioning out of the business

Peer groups are essential for transition and succession planning, says Wolf. “Peer groups will push you to talk about things you don’t want to talk about, work on things you don’t want to work on and give you best practices and ideas. I wouldn’t have been able to step away, grow the business to where it was or have the success we did without the peer group.”

And, when you are finally ready to step away post-sale, your final words to your team can help smooth the way for your successor. “When we were working on my retirement announcement for the staff, I had a whole ‘Nothing’s going to change’ speech teed up. But I realized that was setting up [my successor] to get daggers thrown at him the first time he told the staff he was going to make a change. We are in a rapidly changing industry. So instead, [I told the staff] it would be business as usual, with respect to the way we did things.”

On selling and post-sale life

One critical part of selling is knowing when it’s time to sell. Wolf says there are a few components that helped him decide it was time. “One is the financial aspect of it—not until it was worth the value that it needed to be worth to an outside party. The next move was, could it run without me? The third part was the outcome that I wanted for the business. If it wasn’t going to be a good outcome for the employees, clients or the business as a whole, I was hesitant. When I could check those three boxes, I felt like I had the option to move on and was able to make the decision [to sell].”

However, an unexpected difficulty for Wolf was finding his purpose post-sale. “The challenge was unexpected because we romanticize retirement, but when I got there, it was very unfulfilling. It was fun for six months and then it was boring.”

Eventually, Wolf began doing consulting work helping other businesses implement EOS. “I ultimately realized I wasn’t ready for retirement,” he said. “There was still some more to do professionally and intellectually. I had to have some meaning as to why I get out of bed every day.”

Advice for MSPs who are considering the sale

Wolf’s best advice for owners is to know their must-have number and to keep the overall business outcome in mind. “There’s a number [we want from the sale] in our heads, but [it’s important to] literally calculate the number—the sale price, minus taxes, minus lawyers, minus accountants, minus any earnout or seller note. Just know your numbers, because I know some people who didn’t and sold, and found out that they didn’t have enough money,” he said.

There are a number of options available for MSPs looking to sell: selling to private equity, to a larger MSP as part of a rollup or to a holding company (Wolf’s choice for Wolf Consulting) are all options. For Wolf, knowing which option is best for the future of your MSP is critical. “Know what you want—don’t just take an offer and not think about what outcome you want for your employees or the company.”

Related: What MSPs need to know about today’s M&A market