Play It Smart

Most managed service providers (MSPs) price per seat and then quietly lose money on their smallest clients. Raffi Jamgotchian bills a three person firm for ten.

He founded Triada Networks in 2008 and spent the early years taking whatever walked through the door. Four years in he looked back and noticed that of his first five or six clients, four or five were investment firms. He has aimed the business at financial services ever since. Not exclusively, he is clear he is no purist and plenty of those early non-finance clients are still with him, but that is who Triada markets to and who the business is built around.

The pricing rule is the part worth stealing. Triada sets a floor at ten people. A three person fund pays the ten seat bill and keeps paying it until it grows into the number. That sounds aggressive until he explains it: the compliance layer takes roughly the same work whether the firm has three people, ten or thirty. Same labour, smaller invoice, so the money has to come from somewhere. He is careful about the reason, too. Plenty of these firms do grow, three people to seven in a couple of months, ten by the next year, maybe twenty after that. But he says the floor is not a bet on growth. Some clients decide to stay small and nimble and that is fine. The floor exists because there is a built in cost to servicing any regulated firm, whatever its size.

Then there is the marketing, which nobody in his corner of the industry does. He runs Facebook and Instagram ads, and Instagram works best. His reasoning is simply that finance IT companies do not advertise, so turning up in the feed of someone who fits the profile is a pattern interrupt. People reach out. The ads point at a due diligence checklist he built from his last book.

He is also blunt about where the industry is kidding itself. Asked what is most overrated right now, he says artificial intelligence (AI), and that everyone is sprinkling AI dust on places that do not need it. Asked what is most underrated, he says identity protection, human and non-human both. His own clients generated more support tickets once AI tools arrived, not fewer. When he asked other MSPs in his peer group, they were not seeing the same thing.

What we cover

• How Triada ended up focused on financial services, and the four year delay before he noticed
• The two client types today, alternative asset managers and independent wealth advisors
• Why teams breaking away from Charles Schwab, Merrill Lynch and UBS suddenly need an outside partner
• What an investment firm needs that a manufacturer does not
• Why investors started asking cyber due diligence questions before the regulator did
• Security in three places, identity, data and devices, and why the program beats the tools
• Where new clients come from, new funds versus firms leaving a generalist provider
• The ten seat pricing floor, and why compliance work does not scale with headcount
• The channel mix: referrals, chief compliance officers, commercial real estate brokers, ads and cold calling
• Why Instagram ads work for an MSP selling to investment firms
• Selling one all-inclusive tier instead of three, plus co-managed and advisory arrangements
• When a firm should hire internal information technology (IT) staff instead of an MSP
• What AI actually did to his ticket volume, and the guardrails they built
• The move toward consumption based pricing
• The lightning round: one tool he cannot work without, most overrated, most underrated, cloud or on-premise

Find Raffi on LinkedIn, where he says he posts videos regularly. He does not name a website or a book title on the episode.

If you are still delivering work yourself, the gross margin on your screen is probably not telling you the truth.

Daniel Welling ran an information technology services business for 12 years, took it to around £1m a year in recurring revenue with 200 customers and 15 to 20 staff, then sold it. He now runs The MSP Finance Team, doing management accounting and fractional finance direction for MSPs, which means he spends his days inside other people's books.

In this one he gives the benchmarks straight. Best in class blended gross margin sits in the 40% bracket. Most MSPs are somewhere between the early 20s and the mid 30s. And the reason so many owners think they are doing better than that is the same every time: they never load their own delivery time into cost of sales, they pay themselves mostly in dividends, and dividends never touch the profit and loss statement at all. So the number says 90% and the owner thinks they are a genius. His words: it is a misreported, misunderstood number.

The bit that stings is what hides underneath it. The real cost of delivery and account management, he says, is totally masked by the enthusiasm, the energy levels and the work ethic of the owner. The business looks profitable because someone is quietly working for free.

He also does the arithmetic almost nobody does out loud. Once acquisition is properly delegated, so not the owner and not a referral from a mate in the pub, winning a client can cost £20,000 to £30,000. Put 10% of a £1m business into sales and marketing and that buys you four new clients a year, which is probably not the growth you had in mind.

The back half is the expansion that went wrong. He took the business into California chasing follow-the-sun support, the acquisition he had agreed collapsed, he built it from scratch anyway, closed new business on his first trip, flew home thinking he had cracked it, and had already made the mistakes that killed it. Commercially it worked. Delivery is what broke.

What we cover

• Starting an IT services business in 2002, before the term MSP existed
• Why he left the operator seat and went into finance instead
• The three finance mistakes he sees most, starting with reporting on a cash basis instead of an accrual basis
• Why one blended gross margin line hides everything that matters
• Labour-loaded gross margin, and the dividend problem that makes UK owners misread their own business
• How the UK 40% benchmark compares with the US, where the numbers run higher
• What a new client actually costs to win, and what that does to a sales and marketing budget
• Taking a UK MSP into America, and the difference between the commercial side working and delivery failing
• The Master MSP model: delegated delivery, turning on cost only when you turn on revenue
• The phases of ownership, from engineer to salesperson to leader to shareholder
• Why he is taking the finance business into a US market he reckons is 10 times the size

Find Daniel on LinkedIn. It is the only channel he names on the episode.

Marco Hernandez runs a one-man MSP with 140 clients, gets 100% of his leads from referrals, and closes every deal he quotes. This episode takes apart exactly how.

Marco was on his way to becoming a lawyer in Venezuela when a computer repair shop tried to screw him. Thirty years later he runs TEK IT UP IT Services, a deliberately solo MSP in the Greater Toronto Area, and he has turned being small into his biggest advantage.

What we cover:

Play It Smart is the show where Alexej Pikovsky sits down with MSP operators and takes apart how they do it.

Oliver Kenyon is a UK-based entrepreneur and the Co-Founder of ConversionWise, a company specializing in conversion rate optimization (CRO). Under his leadership, ConversionWise has collaborated with over 3,500 brands, including GFUEL, Lotus Biscuits, and Lamborghini, as well as prominent figures like Lionel Messi and Kim Kardashian.

He is also the Founder of AffiliateFix, a leading affiliate marketing community that grew to over 70,000 members and 400,000 discussions. This platform was later acquired by Neil Patel’s investment firm in 2017.

Before his entrepreneurial ventures, Oliver was a fully qualified chef. Beyond his business achievements, he is dedicated to education, offering courses on platforms like Udemy to share his expertise in CRO. 

Summary

In this episode with Oliver Kenyon, you’ll learn:

• How Oliver built ConversionWise, a large conversion rate optimization (CRO) agency, including how they helped put landing pages on the map.

• Since the landing page industry exploded, how ConversionWise has evolved and adapted.

• When Oliver met his co-founder Andy and how they divide their workload.

• Whether they have any systems in place, such as EOS (Entrepreneurial Operating System) or OKR (Objectives and Key Results).

• The current status of the affiliate community that Oliver built (and his first exit), AffiliateFix.

• Whether Oliver started out specifically aiming at eCommerce or if he had adopted a more general approach.

• Some examples from Oliver of best practices that apply across the whole industry.

• Where Oliver sees issues where direct response does not really work but conversion is optimized, such as traffic that is too expensive.

• Whether Oliver thinks tech stack and brand infrastructure can affect conversion.

• How he feels about the future, including CMS (content management systems), Shopify, and AI.

• How ConversionWise works with brands on the CRO side and what their retention is like.

• How you can get in touch with Oliver.

In this episode with Luc Arama, you’ll learn:

• HSBC Innovation Banking’s acquisition of Silicon Valley Bank (SVB) and Luc’s feelings about it.
• How companies manage a debt facility with SVB in both the UK and the US.
• Why a founder should consider going down the debt route rather than the equity route.
• At what stages does HSBC Innovation Banking lend to companies.
• What terms HSBC Innovation Banking usually offer for someone who is raising money through both an equity round and a venture debt facility.
• How HSBC Innovation Banking differentiates itself in the market against traditional banks, venture debt funds, and VC funds.
• How it differentiates from revenue-based financing.
• Why HSBC Innovation Banking helps so many software companies compared to e-commerce.
• What the due diligence process is for HSBC Innovation Banking when it underwrites.
• Examples of covenants being breached and what happens if they are breached.
• What needs to happen for HSBC Innovation Banking to auction off a business.
• How Luc sees the financing landscape evolving in the future.
• How you can get in touch with Luc.