Do You Know Your Cyber Math?

All right, we're live with the, um, what, what do you want to call yourself? Uh, some variation of crisscross edition. Oh my. Where's your hat, man? Huh? Andrew. Andrew, where's you at? Dude, I, I didn't know there was, I didn't know I had to be. All right. I'll make you feel Bad. Hatless or hat hatted. So, but, uh, welcome everybody. Um, week 69. Uh, so here we are. Um, and, uh, we got an interesting one. First off, Gary, That's somewhere between a 68 and a 70. Fair enough.

Um, we had some technical difficulties with our guests. Hopefully, uh, we'll get Mikey step in here, uh, shortly. Gary, I only have 42 announcements today. I'm gonna, oh, Good. That's down from 43 last week. Okay. So try to keep it real quick. Number one, um, in the call to action, uh, you'll see DattoCon is free. I, I put that there because Ryan, Wes, and I were on a call with Ryan and he's got some fantastic sessions. I'll get the URLs up once, uh, that URLs to register for free.

But some of the things specifically that Ryan's doing on, um, threat modeling and some things they actually are doing around apps and, uh, et cetera, that they're gonna give you guys some great assets. So, just in supporting Ryan, I, I, I really want, um, you guys To, yeah, I saw some, uh, I, I'm friends with a couple people, uh, including, uh, Rob, uh, posting some pictures about their stage they're using for their virtual event. It looked really cool. Yeah, It's an old ESPN stage. Yeah. Yeah.

Um, only other one, Gary Promise is in chat. I'm gonna put the, uh, upcoming training with John, uh, John Strand and BHIS, this one. Um, I'll also put in the, um, URL on the 11 things you're gonna learn. I've run this by some MSPs. This is a fantastic one. Um, it is pay what you can, which is different than pay what you want. Ideally, you know, you are in the position to pay the 4 95, use the a hundred off code and get the additional range cyber range.

And the session that we do with John, the two hour MSP session Feedback I got was awesome on it. Like, uh, across the board. It was awesome. Yeah, the, the training is unbelievable. This is, again, a 15 year sands instructor doing some training, um, that, that's just utterly fundamental for msp. So, Gary, let me set the stage and let's get into it. I'll keep an eye out for Mike. Uh, by the way, there is a poll up. We'd love for you guys to take a quick peek. Uner great to see you out there.

One of the long time awesome dudes out there as well. Um, okay, so Gary, week in and week out, we talk about things that could right, potentially be added to your stack. I mean, it's, it's incredible. Um, and, uh, not to make light of it, a lot of this stuff has to be added in some way, shape or form, whether it's a build buyer partner over the course of the next few years. Um, and you always keep kind of that, what I would say, keeping us a balance. Like again, hey, wonderful stuff.

The question is, right, how are we going to add this? And, and there's really important fundamentals that you're gonna take us through and walk us through today of what we look at historically as traditional MSP cost, process drivers, uh, metrics, which were somewhat, you got, you know, over the years, Gary really honed in, well, cyber, you know, has kind of grown us for a little bit of a loop here.

If you don't know what you're doing, you can get into, as you said, a rats had to real quick, Gary GI give us some perspective on that. And I'm gonna let you and Wes take over a little bit and I'll make sure we get Mike on. Yeah. And like, look, we talk a lot about stack, right? People are adding stuff like, you know, we're tracking tools to our peer group members and you know, we see 'em with, you know, on average 25 tools, which is, you know, twice as many as just a few years back, right?

So that's happening more often. So you have to have more comp content, but each of those tools usually has some other overhead, labor overhead. And then separate from the tools. Andrew, a lot of the things that we talk about, uh, every week here, they're not really tools. They're governance, right? It's time. It takes a time and a role and discipline, uh, to, you know, have a tested IR plan to do tabletops, to have, you know, a, a, a threat informed, you know, approach.

Um, the time we have to spend with customers to explain this is going up. So when you add that into it, Andrew, and the fact that MSPs have to do all the stuff that we were doing before all this started and the tools and the additional governance and some things we've never done before, and there's a talent, you know, like it's a lot going on, more going on more quickly than in the 25 plus years that I've been in this.

And so if you don't have real good command or a way to logically think through all this, um, you either will try to help your customers, but eventually they'll get stuck because unwittingly, your margins are too low, right? Um, or you don't have enough command to be able to make those changes. And if you don't do some of these things, I can tell you your competitors will, and your customers are gonna ask you. I mean, we've been talking about what's happening with insurance.

Like, you're gonna start getting it for the first time, ask questions, and either you're gonna have the answer to 'em or one of your competitors is. So we wanna help everybody understand that the biggest risk to MSPs is not just security, it is changing their business model so they can answer the bell. Yeah. Really good stuff. So let me just take a quick check. Mike, do we have you both audio in and out this time? We can. He can hear us. We cannot hear him.

I was gonna be such a great segue because Gary, you're gonna say in your 25 years, well, Mike's been doing it actually for 30, believe it or not. So hopefully we can Yeah, hopefully you can get his mic, uh, yeah, get his mic going because I would love to, Incredible perspective and one of the fastest growing MSPs, uh, over the past few years as well. So, alright. So Wes, why don't you start in with some, some of the questions for Gary.

Mike, if you feel you have it, just say something at any point. Mm-Hmm. Yep. And we'll intro you. Just give us a yo-yo or something like that. Yeah. Alright. So Gary, I want to take a, first of all, Andrew, uh, thank you for kind of getting us back to our roots. I think it's good on the cyber call.

I love covering all the stuff we cover, you know, breaking news or, you know, stuff happening in government cycles or best practice and having experts on like Phyllis Lee from CIS, but it's also great for us to spend some times getting back to our roots again. And so this is a good week for us to do that. So thank you for, uh, really building the content out today for that. So, um, Gary, let's start with this though.

I wanna make sure when we talk about like pricing and packaging, let's talk, let's start with fundamentals first, just to make sure everyone's on the same page here. So what are those fundamentals? Let's start there with that question First. Yep. So let's start at the highest level. When we're making a change, we gotta think about, um, two things that affect our costs, right? One is what I would call like hard cogs, cost of goods sold.

That would be if we're working with a vendor for a tool or a service, it's that direct cost. The other one is our labor cogs, right? Our labor cost of goods sold and how they're going to change. So one of the most important fundamentals is really to understand a way of looking at these things, um, as you're making changes to your process and your stack in a way that you understand how your average costs are changing, so you know how to maintain margins.

The second piece of it is, and this is why our business is more complex than other businesses, we're really representing what's changing in our delivery, like our service we're delivering. So we first have to be able to know how to operationalize it, then from that, match it up to how we price it.

And then the final third component is how do we talk to prospects and customers in a way that they understand the value to make the right investments so that all three of those things have to work together. Does that make sense? It does make sense. I wanna call out what Sunny just said in chat, you know, saying, you know, it's fundamentals, hard cog, soft cog or labor cogs, and then do it 10 times over, right? Like to really build mastery.

And I think the key, Gary, and you, you said this, but I want to hint at a little bit more. I want you talk about a little bit more, yeah. Is the word margins. Margins prove to me that I actually have control all of this. It doesn't matter that they charge a thousand dollars a seat or $1 a seat. What matters is the margins. That's what proves to me profitability. So talk to me a little bit more about margins and talk to me a little bit more about like what that should look like.

Well, and Gary, before you hit that, that that answer whole so far, even though again, I, I always love it. Love it. We have hundreds in here and 40, like 50 have answered. But the point being, they Don't want you to data mine them, Andrew. Yeah, exactly. Um, Gary, think about this as you are about to answer this, 75% do not have a process for adding something to their stock or their other recurring revenue. So take that as you start to answer here and, and, and yeah, why that's so critical.

Yep. So I'll take you through that. But before I do, let me tell you the number one mistake I've seen when P MSPs look at their margins since the beginning of time, when I ask 'em about their gross margins, they pull up a report that they got from their PSA that has all their customers, and then supposedly all the time that were logged on all the tickets from the 10 different people that touch them. And they say, oh look, we're, we have a hundred percent gross margin, 60%, 80%, 70%.

And I'm like, okay, can I see your financials? How come your gross margins on your financials say that you're at 52%? Yeah. You know why? Because you can't track margins by tons of people coming in and, and putting little dribs and drabs of time. You have to have a way of knowing, you know, we're gonna talk about later economics matching up roles with cost and revenue. If you don't, you never capture all your costs.

So if you don't have a way of looking at this and these principles before, you could get away with it and just have a little bit lower margin business. But with all the change that's happening, it's devastating to the bottom half of the market right now. So here's the first thing you need to think about. You're gonna add something. It's, uh, let, let's, let's stick with tools or we're gonna add some something to a, you know, security tool to our stack.

The first question you have to ask yourself is, am I gonna make this part of my core offering? And when I say core offering, this is what I, how I charge. Like, if you're my customer, this is the minimum, this is my, you know, my package that we won't go below. And if that's the case, whatever that is, you need to convert however you're charged for it to an average cost per seat.

And put that in along with, you know, and I'll talk more about the labor part later so that you know how that's changing. We're aiming for 70% gross margin. So for every dollar of cost you add, you're gonna add $3 and 33 cents roughly of, uh, sale price. Or you're saying, hey, In touch with you. Hey, I can hear you Andrew. Yep. Oh, I'm sorry, I thought I didn't myself. Sorry about that guys.

Or you're gonna look at it and say either A, I'm not sure how to convert this to an average cost per seat yet. Or like, it's so much, it's gonna add five to $10 a seat that I'm not comfortable based on right now bundling it in and raising my price by 30 bucks. So I'm gonna sell this on top of like a la carte where I know how to price it based on how I pay for it. And I'm gonna aim for 30 to 40%, you know, margin. We call that ORR, other recurring revenue.

And then the final thing, it might be something that's project oriented. So I don't know, does that make sense? Yeah, that, that does make sense. And um, hopefully we're not scaring you if you're listening to this call and you're like, uhoh, I have a lot to learn, uh, about running my business. Well you do.

Um, and, and these are things that um, you know, I even saw perch, you know, when we're talking to investors, um, slightly different story in the SaaS space, but like the same understanding and mastery of like what goes into your, your your costs, um, are a huge, huge issue for even investors saying, are we gonna invest? Is this an investible company or is it not? Yeah. And so, um, I think it's really good.

Um, so, alright, so Gary, the two different scenarios MSPs are gonna find themselves at looking for new solution. Talk to us just a little bit more about that. Yeah. Um, can I answer a real quick question here? That's really good. Yeah. And then come back. I'll have you ask me that again. Keith had a great question. Since security's process, culture and training, uh, the greatest cost, how do you consider pricing business process and engineering? Here's what you have to do.

You have to say, okay, who's gonna deliver this? Can I make this a role? And if it was a role, how many customers could somebody in that role manage? 5, 10, 20, 25? And then on average, how many seats do each of my customers have? And if you can do that, and you know what, you pay a person per month, we can do that math and say, okay, to deliver this, like we call that we put a lot of this in what we call the, the TAM or technology alignment manager.

And we know that it costs, you know, they can manage about 20 to 25 customers, what your average seats are. And then we can divide that and know, okay, that's gonna cost us 12 bucks a seat. Do you see how we did that?

And Gary, what's what's really important there, I think you just really delineated without saying it, is if you can do that and you can come up with the gross margins you need and everything falls correctly to the bottom line, that's something that could, could be in your stack versus, you know, maybe day one you decide you want to do building incident response plans, tabletops, threat modeling, whatever, that's a whole nother right? Again, question, is that doable or is it not?

Is that, is that a fair way of looking? Yeah. Well it's doable. Is it doable bundling it into your monthly fee right now? If you don't know all later on, maybe we can bring up Sonny, uh, a little bit later. Yeah.

Sonny is saying you have to go out and do these things, check your costs, maybe you're charging as a project or you know, some of these things, what I've been told, the ones you just mentioned, Andrew, like the costs aren't that different to do those things for a 20 user customer than a 40 user customer. It's almost like sometimes in the beginning the seek price doesn't really apply until we can picture it across all of our customers and understand the averages. And that's okay.

Do you know what I'm saying? Like, it's not bad. We wanna protect that core offering and our margins at it at all costs. We don't wanna dilute it. 'cause once you start to do that, you'll never get your margins back. Hey Sunny, good to see you. Doing good. Awesome. Can you get on the exercise machine while we do this and then Absolutely. Soon as I can. Can you hear me Now? Yeah, again, Mike, come on back. So we got Mike with us too, so this is gonna be great. Mike, come on. Uh, come on off.

Uh, let's see if we can get you off. Uh, now turn the video on. Alright, can You hear me now? Yes, we can my friend. So, Good job, Mike. So Sonny, uh, you, uh, you've worked, I know for a fact you've worked really hard on this over the years and, and so I know the principles I'm talking about are, are pretty near and dear to your heart. So you, you went through your logic here of like your eight steps.

Can you just explain to you as you're making changes, how do you approach this and, you know, what are the phases you take through to make sure you're getting it right and tested? Well, sure. Um, first there's, before we start testing, which is gonna be the na the level of getting exposed to what's out there, but, uh, one of the, I mean, there's five or six different things you have to do to make your company work better. And one of them is to simplify it over time.

And we're in this middle of this mix right now where everything is getting more and more complex as we do this. And you're letting balls drop because you're getting complex. So one of the things we're looking for is, it's simpler, but first of all, because we're A-C-M-M-C company, we're looking to see is it US based? Is the data stored US based? Is it isolated from other people?

Can the company see the data that I'm hosting at that it might be seeing, um, is there a, a way to make sure that, that we're US based so that we're not gonna run a foul of CMMC? Secondly, do they have a cybersecurity framework over and over again, I talked to these cyber vendors and they've not thought about their cybersecurity framework and their coding.

They don't have a SOC two type two that shows that they're doing the right things as far as, uh, making sure that they've built actual secure coding into place. Um, and these are guys that you would walk up and see, uh, on, on a, on a whi and you would think these are great guys. 'cause they're showing up at Robin Robbins, they're showing up in, uh, evolve. They're showing up in other places.

And when you talk to them, they don't usually have their stuff, their ducks in a row or their, yeah, we're starting to talk about that. But you can't put a tool that you don't trust into a cybersecurity stack. Um, third thing I want to know is, does it, like I talked about it earlier, does it reduce our complexity? If it's not gonna reduce the complexity of the organization, we're not gonna be able to maintain it. So when we find one tool that can replace two tools, that's a win.

And so we're looking for things like that. Um, number four, um, what service time will this add to our stack? We, we track all of our security, um, time on a separate board. And even though it's the same guys that are taking care of it, we could pull bright gauge, uh, numbers immediately out of how much time right now at our, everybody Write that down. Write that down. That there is usually some labor component overhead associated with every tool, almost every tool it gotta be has to be, yeah.

Right? And, and, and it's, it's, it's gonna be more with some tools and less than some. And you're, and you're some, and, and the truth is, if you're, you're, if you're putting these security tools in place and you're doing it well, it's actually going to reduce your ream over time, reactive hours for endpoint managed. And the, and the reason it's gonna do that is you're just not gonna have infections.

You're not gonna, one of the things I told my guys about 10 years ago was, guys, can you build me a cyber stack that will eliminate infections? And they said, no, I can't do that. Well, I said, okay, what if we did got a good firewall and we put a great antivirus and we put a great filter. And when I gave 'em about 10 tools, if you put 10 tools around, it would eliminate it. They said, well, I I didn't know you could.

Yeah, I suppose maybe if we did that, we just don't have that kind of things in our companies that are doing our full cyber stack because it's just not an issue anymore. We're really doing the things necessary to protect them. And so my ream goes down the amount of time it takes to support goes down, but you're still gonna have to have time tied to those tools. Um, then we're also asking, um, is this reducing risk?

One of the things you guys have to know if you're an MSP these days is the biggest danger, the biggest risk is that you are going to kill your clients. So is this gonna reduce the risk for you that as far as doing your, uh, doing your business second, is it core or additional? Gary was brilliant on that. I thought that was a great point. Um, are, is it in your core stack? And, and, and have you done it enough times that you can add it additional without killing yourself at cost?

Um, can we sell it 10 times? This is from service leadership. He says, if you can't sell something 10 times, don't sell it once because you won't even break even until 10. The first five, you're losing money on it. The next ones you're making the money you lost back. And then when you hit 30, you're finally making money. So if you're not gonna do something 10 times, don't do it once. Don't do any one-off tools and don't switch tools over and over again.

I see young MSPs constantly wanting to get the new latest school and they killed themselves when they would've been better if they'd stayed on one tool. Hey, so yeah. And you know what, and I think Sonny hit on the, you hit on a lot of stuff there, but one is I find that it's most time companies are best at understanding their entire stack and managing it, get the best results, not the one that necessarily tool by tool.

You know, listen, if you're gonna get a tool and keep it for five years, there's going to be times when the competitive tools based on who does their next release might be better or worse and you can't be making decisions based on that.

I don't know, Mike, I was gonna ask you, Mike, have you seen these same principles and have you seen some things that maybe you sell outside your core offering in the beginning and then once you get command or the price comes down, it moves into your core offering? So, so absolutely. I mean, with, with growth comes a lot of new challenges. So, uh, back to some of the questions, back to your conversations.

I mean, everybody right now thinks when a tool isn't working, the solution is to fire the tool vendor and hire a new tool vendor. It's the same pain, just a different name, you know. So I remind our team all the time, we need to know our tools better than any of our competition knows their tool. And then we move forward and we try to change very little. We've, I joke all the time with Andrew, we've been on ConnectWise since, you know, for over 20 years. So it's easy to change.

Second thing is pick what you want to do and become an expert at it. Um, I, I joked with Andrew, he and I were speaking yesterday too many times. I like to use medical analogies too many times. General, uh, primary care physicians, you know, in our industry wanna become cardiologists without going back to school. So you can't Of bodies on the, on the surgery table, You, you just can't become a security expert because you bought the tool.

Um, you have to invest in people and you have to invest in the staff to go with the people. Um, you know, we've been looking at a CISO and how many people do we need to support that person. So long story short, you just need to focus on, I mean, it, there are great growth opportunities in what we're doing and we have to be dedicated and willing to work through the pain of any vendor, any tool.

And then, you know, once again, you guys, the dirty little secret in most MSPs, and we've as Sandra knows, have an m and a side, um, is nobody's making the kind of money that they should be making for all the headache and heartache and time we give up for our families.

I, I, I would agree the average margins, you know, there's a couple things I, and I want, I want to talk to Wes about his experience because you know, there's a couple things I think about right now, sock and seam, and that one might not always be this way, but sock and seam and backup are two things that are really important, right? But the average cost per seat on 'em is between six and $20, right? And so they're usually the biggest chunks in your stack.

So I, I wanna get to that, but I wanna make some other point here. Um, you know, I've sold a lot of recurring revenue in my life personally, right? And I've trained a lot of other people to do it, and in almost every case at a higher price than everyone else. And so, and it applies so much to what we're talking about with security. And Keith's question that I I, if you can get this, I'm telling you this is how I became managed service legend, right?

When we broke the company up in the roles we separated, you know, the tool stack, we call that centralized services and support professional services from the proactive roles of DCIO and we call the other one tam, you might call 'em compliance, call it whatever you want. But we took these things and we put 'em in the roles when we got in front of a customer in uncovered pain, Andrew, we can say to them, yep, I can tell you all the things we did with tools.

I can tell you we do it way better than someone else. But let's just say that we don't, okay? Remember when you told us this, look at, look at some of the stuff that we're doing on a regular basis. We have this entire role that we're investing. Do you understand why my customers get different results and are more secure and better prepared than you are today? And they usually say, yes. Do you understand why we charge 4,000 and our cup's happy to pay it and you're paying 3000 now.

Do you think a vendor could do it based on everything I've explained to you with how we're set up with our roles? Do you think they could do it for less? And the answer many times is no. So you can start to be able to sell that piece of you, your unique process and how you do it, and you can get people to attach value to it in the first conversation in a conversation with a customer. And that's what we need to do.

And we need to understand the tool stack and how we're putting that in and affects our margins. In addition to that, Gary, uh, but what I think, and I No, I'm all fired up Andrew, And I'd love Mike to validate this. We hear this over and over from the top MSPs, that they are client zero. And I don't think you can do what you just said.

If you aren't doing it in your business, like to understand truly like the companies that have gone through a SOC two or something, Mike, your your thoughts on that because you know what, it Literally took, you know what it took, right? My No, you listen it, you know, drink your own Kool-Aid, eat your own dog food.

You can, you cannot invest in yourself because listen, it, it's, that's the first thing I point out to any of our clients is everything we do, we do for ourselves first before we ask for a client to it. 'cause that also gives you an appreciation for the spend you're about to ask. You know, I like to tell clients, Hey, listen, I'm gonna spend your money just like I spend my own.

Um, and you know, once, funny enough, I, and people will laugh me off the phone call for saying this, our best customers never talk price. That I mean at no at in the end, we've just Recently, you know why Mike? Because they really don't care within reason. Why would they care what they spend with you when you're such a small spend compared to their revenue and their other expenses?

You're, you're rounding other, whether you charge 'em 6,000 or 8,000 doesn't make you know if they're buying into your philosophy, right? That's why they don't care, Right? It's, it's learning how to pitch. How much is it gonna cost if you have the problem versus what's it cost to start this process. Um, you know, once again it's, you know, my cardiologist wish I believed in this and that he would say, why aren't you in shape?

Because you fight all these cardio problems because you didn't listen to me 20 years ago. Listen now. And here we go. So Andrew, did I answer what you were after? Hey Mike, One quick question. When you go back and you're making changes, and this comes up way more often now than it used to where you, you've gotta change the price for customers, right? I mean we're, we're seeing people like it wasn't that long ago. I was trying to get everybody to one 50 a Seaton. They were struggling.

Now we're seeing 200 a seaton up, right? To, because of all these things, when you go back to a customer, do you try to go back in chunks? In other words, even if you're only gonna add things that, you know, you need 10 bucks, you try to go back and get more on that concept. So you have to go back to 'em less often and do it in bigger chunks now. So, so Gary, the, the appropriate answer and what I think is reality or just two different things. So I'm gonna give you what is real to me.

We get as much as we can when we can, you know, and it may vary by customer. I I have some clients who, you know, when you have a client who has 5,000 seats, you know, you sometimes just have to make smaller price adjustments 'cause it's 5,000 seats. Yeah. You have a client that has 50 seats you can do, you can do things differently.

And what we've learned through this transition that we've went through is, you know, our MSP brands that have that focus in what I will call the very small business, yeah. They tend to get it in chunks. Our enterprise class business, it's much more, much more conversation related. What can we fit in the budget for next year? It's, it's spending time talking strategy with them. And you know, so I, the honest answer is it varies by client.

I think anyone who sits here and says you can make a decision global across your account base. Yeah. If you have a big account base, I mean, and once again, I Very like yours is probably unique. Most people don't have that part of the stack, right? Right. I mean, you know, we're, we're now playing in very small business with certain brands regular, what I would call MSP business that all of us think about. And then even a focus now enterprise class, you know, our enterprise class stack.

There's no client below 500 employees. Now they help us. You know, 'cause we learn how they think. So once again, we try to get what we can, when we can. What I will tell you that you should all be doing is everybody should be taking price increases. I mean, whether it's $1, $10, a hundred dollars keeping people's never been harder. And oh, by the way, the quality of life of all of your engineers has never been worse. People learning to work from home has lost all regard for time.

I mean, you know, people place help desk calls at I can't get into this Word document. I mean, because they didn't work for the first five hours on Thursday. Now they're gonna work for the next five hours. So be taking price increases. Do not, you know, don't, don't just base 'em because your costs went up as well. You have to get used to it. You know. Um, one of my mentors once told me, if you don't, if you don't put a cost increase in every annual contract, you have lost your mind.

And so we just kind of grew into the habit and you know, bill always pressed on us for that. And then, you know, today we just, were constantly looking. 'cause we're constantly adding tools. I mean, I, the tool spend inside of businesses has become a huge number. I don't huge, you know? Yeah. I mean I don't, I don't know What if you're, even if you're doing it right and most MSPs aren't. It is now, you know, 25 to 30% of their seat costs, whether they know it or not.

For some it's higher who don't understand their costs and they don't even know it except that they're, you know, feel like they're running hot all the time, Right? I mean, I, you just, the spins coming and oh, by the way, I, it there's an art in managing all your tool spend because it's so easy today for engineers to add tool spend with very little control, you know, all of a sudden. Yeah. Not just spend, I I mean it's complexity, it's security.

I mean, if people listen to the session, uh, that we did on APIs, like there's a whole, like there's a whole bunch of costs. 'cause risk of cost too, as you mentioned, right? That's why our customers buy from us, you know, we're reducing risk, you know.

Um, And, and Gary, I also think, uh, what Sunny mentioned earlier, you know, the reactive hours per endpoint managed and not only do we not sometimes not understand what that is, I would even say that in this modern age, we're seeing that grow all the more with what we're seeing with cloud systems that we're seeing with the need for automation, when we don't have it in place, um, I'm seeing that even continue to increase. Yeah.

And so I'm thinking about it, um, from your standpoint, Wes, you know, you've worked with so many MSPs, having them introduce something that is not easy. Like it's easy for them to go to their customers with something technical around sock and see it's easy for them not to know how to get it to market because it did, it didn't look like other things. We, you know, bundled in it, it does have some management and labor as you turn it on.

So what have you seen some of the ones that have got it right and really being able to get this out, explain to people, you know, why this is important and get it broadly out compared to those that kind of get stuck on it. Yeah. Just viewed it as a technical pro product. Yeah, that's a, that's a good question. I'm gonna kind of unpack the way vendors think a little bit. 'cause we don't do this on the call and vendors don't typically like to share what I'm about to share.

Um, so, so, and I'm just gonna say it shouldn't break any confidentiality agreements I have in place either. It shouldn't. Uh, so, so one thing vendors talk about a lot is this idea of like, what does land and expand look like? Like how it, how do I as a vendor have the ability to get in bed with the client and then have them expand everybody? The ideal scenario is like antivirus, right? Like we're in this everyone, you have to have antivirus, right? It's like you just know you have to have it.

And so antivirus companies, there's the reason there's so many of them, and the reason they grew so prolifically through the nineties into the two thousands is they'll realize, man, whether it's the channel or direct, I get one client, I get all their people, I Get all, it's it all, you get all the business, you just hit y they're worth 20, 30 x Bingo. Same with firewalls, same with like these understood adopted solutions, right? Like that's, we, we see this very commonly.

So this land and expand is a big thing that we think about as vendors. Like what are, what do the motions look like for me to go and say, I got the Ms. P, now how do I get all of their clients? How do we build that relationship? And it's different for everybody. I can tell you many vendors I know, uh, which I won't name names that really struggle with this mightily. Like they're really good at selling directly to the MSP. And then the MSP's like, how do I sell this to the client?

Like I don't, I don't understand the value and I try to explain what it does and they get confused. And so one thing you'll see vendors do, Gary, is they'll spin up these like, and ConnectWise has one for example, and it's a really good one, like a partner program. And the goal of the partner program is like, let's not just incentivize, but let's give you the tools that you need to be able to sell.

And so at Perch, here's what we would commonly see, to answer your question more directly is not like a, a solution Sell is often the first call I got a bank, okay, cool, we understand why you're calling us. You've got a solution sell for this bank. Or you're, you're quoting the bank and you're competing against a competitor. You know, they have to have a sim. Okay, cool, I get it. It makes sense. You're solution selling directly for them. So we're like, you gotta eat your own tacos first.

You gotta learn how to use it first and then we will roll it into the bank. And then mini, I'd say the ma, vast majority of MSPs, 50%, 60%, that's where it stays like in advanced security solutions, it just sticks there. They don't, they don't really know how to like message it to everyone else until an outside force forces them into it. Like cybersecurity insurance, which is where it's kind of new business comes from. So they get stuck on it and or it's a breach.

That's the other one that like causes them to finally understand. So, so they get stuck in inertia until an outside force moves upon them. Where we see success though, is there's a lot of creative avenues where you can get involved. Like, so for example, Marco, I'll, I'll pull them out for example. You know, you, everyone on this call knows Mike regard. They have a very strong VAR division.

And so they're very commonly walking this into their, their own like their, their larger clients and saying, Hey, are you struggling with X, Y, Z? And they message around it. And that's a great way to expand.

Another great way to expand is to really talk about this security challenges that we have rather than like, you need this product, let's talk about a gap that you have a control solution that needs to be addressed, an outside force like cyber insurance that makes you need to do something new and that delivers the value, which then opens these things up, right? So, so that's kind of Gary, how we see it very often.

And, and we noticed at Perch, like co-sell with the MSP is so important to get them to, like, I'll do a webinar with you and I'll talk to your clients about the age of prevention is gone. Uh, and you, you've gotta invest in detection and I can do that for the partner. And then they go to their, their client. What you think about West side, like I, that makes sense to me. I've never really realized that detection's important. I'm interested. Those things move mountains, Gary.

And so that's kind of how vendors oftentimes look at it Or they miss it, you know? And, and it's funny because you've had to do that heavy lift because you're above six bucks, right? On average, you know, per endpoint or per seat. If you are a tool that's 50 cents, you have to do less of it because it's much easier to say, ah, you know, I'll just roll it out.

It's the reason why you see something like when open DNS hit the market, simple low cost per seat, easy to push out, very little labor, like it checked all those boxes. But now we're dealing with some things that, you know, they're, they're not exactly that way and they're critical, right? Like we have to figure out like, like we can't live in a world where, and we're just using this as one example. We can name five other things where down the line, not every SMB has sock and seam, right?

Or am I missing it? No, they, I think they will. I mean they'll buy, they'll be buying it because they're gonna need cyber insurance. Yeah. They might not be buying it from us. I, if we don't have it bundled in, they could be buying it from the cyber insurance. Like, so again, that's the other thing. Like there's all these outside factors that we didn't have to deal with before, right? Of different types of competitors in the marketplace.

So having that core value and relationship built with every customer, it protects us from so much, right? It protects us where someone's not gonna leave Sunny because some, you know, the insurance company said, well I can do these three things for you for 500 bucks a month because of how well he wraps up all these other things. Gary, can I just mention one thing real quick and get Mike and Sonny's take, because I think it's important.

So, you know, you mentioned like, hey, for these more expensive things, what, you know, you were just talking about, but for these less expensive things, you know, we could kind of just, we didn't have to do that heavy lift, but I do want to talk about the less expensive things and give one example and get their take. And that is things like around phishing simulation and secured awareness training on paper. It's a low lower price thing. But I know, I know for a fact This is a great example.

I know for a fact that the MSPs that have implemented the um, I think this is phishing button in their outlook, um, the first time they do that, I talked to many MSPs, but one in particular, they spent something like 30 plus hours the first month this became a, a secondary spam filter.

So, so the costs Gary aren't just that you talk about these hard cos, but, so Mike starting with you and then the Sunny, have you experienced that and and how do you deal with that all of a sudden when you aren't expecting, you know, you know, an insane amount of labor cost to a tool? Well, so we included in our managed services platform, um, so we've been used to it, but yes it is big time ticket volume, lots of help desk calls.

And unfortunately today, like we have a couple publicly traded firms, you can't even tell the employee that it was a test. You know, you just have to tell 'em they have nothing to worry about. 'cause they don't wanna be told that, you know, compliance officers don't want 'em told. So we've seen a huge call volume this once again, and I don't wanna, God knows, I don't wanna pick a fight with Gary.

This is why you do have to be careful as we grow in this price per user model because there's a lot of, of extra time now our, our, I forget your fancy acronym for time per endpoint, we see it going through the roof. And I think, I don't think, I think our tool sets the very best in what could be developed help desk call volumes up because people call on anything. Now I, you know, I, I got a link from Gary and it just was the link, should I open it?

Yes, no, of course our answer is all the same, but they still call. So yes, lots of expense. So let me real quick take you through the, the omics answer to that, right? So here's what happens over time, um, your number of tickets per end user go up, uh, then you have some number of, you know, tickets closed per engineer on average that determines how many seats that one support desk person on average can manage. And that's your cost per seat.

So what happens is, when those things happen, maybe today your cost per seat for support is 10 bucks, it goes to 15. Guess what? You gotta now go ahead and, and raise your price.

Uh, if you're Something a little different than that, Gary, we're finding, um, we're breaking this out and tracking it very closely and we're finding total number of tickets is going through the roof, but total ream is going down and, and you wouldn't think that, So the number, so the kind of tickets, you're saying the number of tickets someone can do the roof at higher?

Yeah, there's events, there's threat locker elevation tickets, and there's uh, um, cyber security and there's the, the, the learning platforms and everything else are generating more tickets, but they're almost instantaneous to close. So they're, they're, those type of tickets are not really giving us a lot of problems. It's the other thing that I, I would say besides the cost of time is that there's a perceived loss of, uh, increased amount of time being used from the, from the texts.

The texts that are normally used to dealing with um, uh, Excel problems and Word and Outlook are all of a sudden being asked to do perch tickets and uh, other things like that and they feel a little bit lost. And so we've had to dedicate people just to security tickets that know a little bit more about those tools. But even so the techs that are doing it with when they weren't working any harder, we're getting inundated with tickets and were feeling like they were working harder.

So there's a psychological thing going on in your service desk as well as what the actual real time that's being used. Yeah, absolutely. Do you know, I, I'll tell you what's funny. Um, if I, now, you know, if I meet an MSPI, I'll ask 'em, you know, the basic questions. So if they don't know and I can kind of ballpark what their average, you know, cost per, like how, what their average revenue is per customer ballpark, their average cost per seat, then I'll ask 'em three questions.

Um, in that price, do you include backup? Do you include moves, ads and changes like all new workstation deployments? And now I ask 'em, do you include soc and seam? Because I know that they're all anywhere between six and $12 each. And so when, as soon as they tell me the answer to those questions and I know it, I can tell them what their gross margins are. Like it seems complicated.

'cause you gotta start working through each tool and you gotta understand your roles and, and, and as Mike said, if, if you're being affected on the support desk, it impacts your costs. But if you zoom out from it, it's also a little simple. 'cause the same things pop up, you start to know that anything is, that's more than this much per seat. You really better think about it.

And maybe I'm gonna list, uh, I, I think I told this story on one of these calls where, uh, I've had, you know, I deal with some of the customers through the years have been through breaches like, uh, about three years ago had a customer, 35 customers, they all got breached. And so they had this whiplash effect where they go out and they do everything and they buy everything and they're not gonna let that happen again. And I said, okay, well let's take a look at what you did.

I'm like, alright, well can you charge 400 bucks a seat? And they're like, no. And I'm like, okay, let's talk about what your labor is. What do you think you could get in your marketplace and, and add something a little higher than what you think it is. Then let's come up with your, your tools budget. Put your tools in order of importance. When you get down to that cost per seat budget number, draw the line. That's your core offering.

So if this doesn't have to be massively complicated and you don't have to get it a hundred percent right, but you do need to understand the principles and have some way of making decisions. You gotta look at it in some way where you're making informed decisions. And I I, I'm, I'm worried because I see a lot of times that's, that's not the case. People don't have the commander of their business that Mike and Sonny have over their business.

And even if we only get, like I said, 80% right, we're gonna be top 20% of MSPs. Well Gary, what I will tell you that once again, I think that people should focus on, we had to learn this the hard way. Um, you know, they need to define their box very well. What are you including and what are you not including and defend it viciously if if you don't. And logically Yeah, I know.

I mean, and if you don't, because Yeah, don't put things on there where the, where the don't put fuzzy things where the end user who never saw your agreement or your tech has to ask questions and know whether something's covered. Either put it all in and charge for it or take it all out and charge outside, Right? Like we learned the hard way. Like we, we used to include, you know, onboard and offboard in our contracts and onboards are killer.

I mean, you know, especially if a client hasn't done the right onboard process, you know, you know, and then you run into, like, we have a engineering firm. They have over, they have about 700 employees. They have a 20% turnover rate and a 30% growth rate, you know, and we were just charging tens of thousands to a contract that was negative from go because, you know, it's knowing the client and understanding what they're gonna do and be prepared to make changes.

'cause the other thing I will tell you is I haven't run into a great client yet who didn't wanna see us make a fair amount of money and they didn't want us to get rich. Yeah. But they, they had no problem with us making money. Yep. Yeah. Abso absolutely. Yeah. Su super, super great point.

It, it, it's interesting, you know, um, I I I get to do a fair amount of interviews and, um, the one question I get the most is what do you, what do you think the major, you know, things that MSPs have to deal with, like what's gonna change, you know, moving forward? And the answer I give, well, it's already begun.

We're already in the middle of it, which is we have to, that MSPs have to understand their business model, how they operationalize delivery for these new services, uh, and how they show customers value and what they charge. And if they don't do those things, this is what's already starting to create more winners and losers. And I've never seen it quite like this. There was always the top in every industry, the top 25% always make way, way more than the bottom 25%.

But everyone's done okay for the last 12 years in this industry. And now I'm starting to see that in some cases not be the place. That's why this messaging is so important that we have to spend more time together. We have to work together. You gotta be part of a peer group. You gotta attend things. You, you have to do things that you didn't have to do before because like Mike Sonny, you're not gonna figure it out sitting in your offices by yourself.

Like, if we don't get out and talk to people and, and get perspective and understand it so we can make the best decisions. You just, you, you can't figure it out by yourself, you like you, you'll, you'll be too late. Well, Gary, I mean, what you're just saying though is the, the guys like Sunny and Mike that started around, you know, at least five years ago, like Sonny I know done a SOC two, um, Mike as well, but security was a journey that they've been on and now they're hitting stride.

And for all of a sudden, for a lot of MSPs out there, this the journey starting, man, that's a, that's a hard thing to catch up on. Yeah, Andrew, I was gonna say, you know, people, I had mentioned to someone I just saw, like I, I, I see, um, in teams and stuff when people sell deals in our peer group, you know, and, uh, I recently saw a deal 15 user customer with their full security stack and offering, uh, it was 4,000 a month.

And I'll have other members say to me like, I, you know, how do I sell a 15 user for 4,000? And my answer is, you don't because you don't have, you don't have $4,000 of value. It's not price, it's value. And they started on this journey. But the good news is you can understand the principles and you can start your journey today and you can make some, some immediate strides forward that'll change your business and change your life. And you can get there.

But it's not, it's not a sales pitch, right? It's not like people are going out with some voodoo mind trick and tricking people into spending four grand man. They walk the walk right? And talk to talk when they sit in front of someone, it's because they're compelling about what they do and why investing in extra thousand or 1500 is the most inexpensive thing they can do. So it's Down to, um, what's gonna change in the future.

And it's legislation coming down the pike and that legislation is going to mandate that MSPs have massive security capabilities before they even get started. And that's gonna shut the door on all the little trunk slammers. They wanna come in and take care of your PCs. And this is gonna be a hard business to remain in unless you get good at this. So I wanna encourage all the MSPs out there, this is your survival strategy. Go out there and spend the next year or two getting brilliant at this.

Because if you don't, you will be put out of business by the government. And if you do, what I always say, Wes, what do I say every week? If you do this, it's good business. More MSPs are selling more recurring revenue at a higher price and higher margins right now than in any time that I've been in this. It almost makes me sad that I'm in between currently and between MSPs. Come on. I agree. And one quick thing I want say with this, and Mike, I'd love your input directly.

'cause I think you're, you're gonna smile when I say this I have a lot of conversations with MSPs, especially at conferences, and I'm starting to notice there's been m and a, you know, mergers and acquisitions among the vendor landscape for quite some time now, right. But now we're seeing private equity get into MSPs.

We're seeing MSPs look for other MSPs that are in that one to 5 million revenue range as an acquisition target, because it shows that they've learned how to get past that initial lift, but they really struggle to get past the 5 million. And they're like, man, instead of growing de novo, it's really hard to just go into a new market. I could just buy an MSP that's already operationalized and then clean them up on the backend and let them do their thing.

And Mike, this is a real thing, is it not my friend. It is very true. Mr. Spencer, We're we, We, and once again, Wes and Andrew Nola we're, we're doing it every day. We started in January of this year. You know, and I, once again, I hate, I've, I've set in enough of these, I've been doing this for a long time. Like somebody else said they were 40 years, so I'm not quite that old yet. You know, when people throw out numbers, it always scares the crap outta me.

But to tell you that Becca brand in Atlanta, Georgia has went from seven and a half million to now a holding brand that's over a hundred million since January of this year. That is reality of MSP consolidation. Without private equity, without external funders, we've tried very hard to, you know, recognize, I, I a hundred percent agree with what Sunny said regulation is coming like a freight train. Um, and it's not only coming to the business owners, it's coming to our engineers.

My standing joke in the state of Georgia, well, It's the government, so it's more like a dog and pony. But you I get the idea. Yeah. But, but in the state of Georgia to, you know, un I mean states, Yeah. State by state it is Gary, you don't have to spend near as much. I don't have to spend as much anymore in the state of Georgia to cut somebody's hair. You gotta be licensed. Right.

You know, I got engineers working on, you know, a hundred million dollar company servers who I just gave them a card and said, here, um, it's coming, it's coming like a freight train. I think for those that are prepared, it will be the biggest business windfall to be had. Um, those that are prepared for it not. And it, once again, it's not just security. It is everything else. You know, it's digital Revolution, it's everything. Yeah.

I mean, SMBs need to do that they didn't need to do before and how they depend on technology. Yeah. Yeah. I mean, Damn. Yeah, I mean, go ahead Andrew. No, No, no, no. So I, I just wanna tag on what, what Wes said. Look where things are with private equity, right? And I stay involved. I'm on a couple boards. If this was, if, uh, the, if the consolidation in the MSP industry was a baseball game, we're probably in the first inning. It's just, it's just beginning.

Which means if you are a small or immature, you might be larger, an immature operator from the things we're talking about today. You just have to have a plan. You can't do the same thing. You either have to decide that you're going to mature your posture and you're gonna carve out a niche that works for you that you can compete in, and there's an opportunity to do that.

Or I see some people teaming up with other people that they know from their peer groups or whatever, and they're joining together. Or you decide you want to get to the point where you maybe would, would be acquired, but you, you, you're gonna have to choose a lane. One of the lanes isn't staying immature, and I don't even wanna talk about size that has, you know, that has an impact on it.

But staying immature in your delivery, immature in your posture, um, is not gonna be one of the choices you're gonna have over the next three or four years. Yeah. Gary, the term we use is silo. So instead of immature, it's, it's a silo. You're, you can't, you know, once again, most of you, there's funny, uh, there's people on this call that I've known for 30 years. Yeah. I mean, the greatest thing, the greatest advantage our brand has ever had is knowing people like you.

I told Andrew yesterday, I, I think this is arguably some of the greatest skill set assembled in one place. Not the, not this call, 'cause I'm on it, but, you know, you know, all these people that you can learn and listen from. It's no longer us against our MSP competitor down the street. It's us versus the bad guy and it's us versus the government. Yeah. And really us versus the marketplace because the SMB spend is, is growing seven times GDP.

And so, like, there's so much business for everybody, but I would agree, this is a time when working together, uh, is critical in our, in our industry at a time. You know, it's the most polarizing in our country. So it's interesting. Yeah. The good news is tech, we can all get along with each other. Yeah. So I know we're at the top of the hour. Fantastic stuff. Sonny, Mike, thank you for the contribution. Gary, you know what, we know the, we didn't give a, where do you get started?

I mean, to me the first thing that comes to mind is making yourself client zero. Would you close us out? Maybe? And, and you know, Mike Sonny, do you agree with that philosophy of, it's gotta start with you internally. Like what are the steps we have to take? What are, what's everyone's thoughts? Yeah, I mean, I I, go ahead Sonny. I was just gonna say, can you say it one more time? Yeah.

So I don't, I wanna leave everybody with where you start Taking care of yourself first, making sure your MSP has the right processes before you go out to your client, right? Yeah. You wanna make sure that you're not gonna kill your clients first. You're gonna have a much high, if, lemme put it this way, if your system that you're doing in your company is not way more complex than what you're asking your clients to do, you're not doing it yet. Yeah, Mike, Well, I, yeah. Yeah.

I, what I would tell everybody on this call is find peer groups of people who are of your size of where you want to go. You know, that's saying, if I show you 12 millionaires and let you hang out with 'em, you'll be the 13th. You know, find the people that you wanna be like and join those peer groups. And it doesn't have to just be tech, but listen, there's some great peer groups in this industry with great leaders, with lots of experience, get involved with them.

They are not trying to steal your business or steal your customers. They are just trying to get better at the same time they're making their own businesses better. Yeah. Alright. Thanks Andrew. Uh, really, really love having guests on. This was really good to have real life, Especially if they're Michael work. Yeah. Especially if they're mic work. But this was, uh, I, I really enjoyed this and, uh, awesome. Well, we had sunny as business continuity. We were set. Don't worry.

You don't have to worry about it. Right. So with that, everybody, Wes, great job on moderating and wish everybody a fantastic week. We'll see you all, uh, very, very soon. Take care.