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What is your vision for the next three to five years in the MSP industry?
We're not having growth in the SMB part of the business. The economy has hurt all of us. Our bread and butter is with companies with 30 seats who add five or 10 seats. We don't get that organic growth anymore that gives you a little cushion. Margin pressure over the next several years will be more difficult.
Number two is more consolidation. You need more scale to drive better revenue. The third part is the technology direction to cloud and Saas. The implication is it takes more capital because you need a data center. But you don't have to do it yourself. Another thing I tell people is it's not a panic situation. There's always a place in business for [small] companies. People might look at Office 365 now and they can buy Google for nothing. But did they ever hear of a thing called service? Differentiate yourself through service. Added pressure is a fact of life for all businesses but with better scalability, better financial performance. A bad economy forces you to focus on what make money and what what doesn't make money.
Is your core of the business the same as it was years ago? Fundamentally. The sales process hasn't changed. You really have two buyers: a business buyer and a technology buyer. We do tailor our business depending on what we're doing. A CIO of a 150-to-200 person company we might approach more technically, but most sales are to the business owner.
What's your view now of the M&A landscape?
The industry is still dominated by MSPs of $1 million to $7 million [in annual revenue]. That's about 80 to 90 percent of companies. There are two extremes in that. One benefit is the $7 million company has local service, local customers. I don't see that changing. There's no question there will be bigger companies but this is a big marketplace. I built a big telecom company but this is the hardest business I've ever owned. I work hard every day but there are so many chances for failure, even if you're a good company.
This is not a roll-up industry but more one of strategic acquisitions?
I've had that fight with the board for seven years. I call it selective acquisitions. Roll-up is acquiring multiple companies to get rid of all admin. How much admin do you all have? You have none. We're all doing a bunch of things. Don't just get rid of management. The customer sees that local person as their IT person. We've been successful integrating acquisitions because we do it selectively. About 75 percent of the people that we added through acquisitions. That's important for the continuity of the customer.