Shield Technology Partners Co-Founder: We’re Looking For MSPs That Seek ‘A Partnership More Than A Sale’

Shield Technology Partners acquires about 60 percent to 90 percent of MSPs’ equity while encouraging their owners to remain with the company and continue running their business at the local level. Co-Founder Jake Sloane says key is providing them with the ‘economies of scale of being part of a national company.’

Shield Technology Partners this month came out of stealth with a new twist on consolidating the MSP business.

The New York-based company is in many ways a platform MSP in that it was set up to acquire other MSPs as a way to add scale to what has historically been a very fractured market.

However, rather than melding a growing number of smaller MSPs into one big MSP, Shield Technology Partners acquires about 60 percent to 90 percent of those MSPs’ equity while encouraging their owners, called “partners,” to remain with the company and continue running their business at the local level.

Jake Sloane, co-founder of Shield Technology Partners, told CRN that his company has already acquired the majority of the equity of four MSPs and will be looking to expand its stable with further MSPs going forward.

The key to Shield’s model is what Sloane called “local ownership, national capabilities.”

“We believe fundamentally that all small to medium-size businesses have a special culture, whereas large companies also have a lot to add,” he said. “So it’s important to us when we partner with business owner-operators across the country to retain the local-level ownership and the culture of the local level while providing them with the economies of scale of being part of a national company.”

It is a new model for consolidating the MSP market, but a model that Sloane and his fellow co-founder Frank Zhang have championed in several other totally unrelated industries, including home services and veterinary services.

“After we built that [veterinary] business and sold it to a private equity firm called El Catterton, we asked ourselves, are we experts in the veterinary industry or did we just build a great model that incentivizes local autonomy and entrepreneurship while providing strong economies of scale at a national level?” he said. “We believed it was the latter.”

There’s a lot going on in Shield Technology Partners and its take on MSP consolidation. To learn more, read CRN’s full conversation with Sloane.

How do you describe Shield Technology Partners?

We’re a platform of IT service providers across the country, and where we differentiate ourselves is in our unit-level ownership model. What I mean by that, and this is something that I’ve built in our first five all-services-based platforms over the last 10 years with my business partner and co-founder Frank, is we acquire anywhere from 60 [percent] to 90 percent of a given business. And our partners roll over their equity at the local level. And the reason that’s so important to us is we believe fundamentally that all small to medium-size businesses have a special culture, whereas large companies also have a lot to add. So it’s important to us when we partner with business owner-operators across the country to retain the local-level ownership and the culture of the local level while providing them with the economies of scale of being part of a national company. Fundamentally, we think that we can achieve the best of both worlds through this hybrid model.

When Shield acquires 60 percent to 90 percent of an MSP, does that MSP still keep its unique identity and brand, or do they all fall under the same brand?

They keep their same brands with one exception—if we acquire an MSP under one of those brands. Let’s say over the course of several years we’ve partnered with 30 companies. I’m making up a number. It’s not that we’ll have 30 brands. We might only have 10 brands because some of those companies are part of what we call our ‘tent pole strategy’. What I mean is those brands become platforms within a platform. What’s important to us is the ambition and desire of our local-level partners.

What do the business partners, the former owners of the MSPs, get besides the money that Shield gives them when they are acquired?

We don’t want people to choose between their heart and their wallet. Of course, we provide a fair valuation for their businesses. At the same time, we offer a broad array of services at the Shield level to let our local-level partners focus on the client services and employee services side and less on the back-office services. The back-office services include anything from finance, accounting, business analytics, general HR, recruiting talent, marketing, and customer-facing B2B sales to adding ancillary business lines. The part we’re arguably most excited about is the technology itself. And one of the things most special about the MSP landscape is, fundamentally, when you’re working with IT service providers, you’re working with technologists. And technologists, at the end of the day, as seen before we got into this and it’s very much the case today, really appreciate new technology. So the ability to drive adoption and change management, which is ultimately a very difficult thing to do, rather than it being something we have to be nervous about, is actually something that is very much embraced.

Do you insist that incoming partners adopt a standard technology stack, or are they allowed to continue using their existing technology stacks?

We do not require new partners to transition immediately to a new tech stack. Over time, to deliver the value we believe we will ultimately deliver, they will move to a more centralized tech stack. What that looks like, we are working with our existing partners to figure out where what we want to centralize from a tech stack perspective, and what can remain local. …

I talked to you about our unit-level ownership model, and [its] cultural mentality is arguably more important to us than any of the financial implications of the local model. When I talk about ‘local ownership, national capabilities,’ we really believe it’s not just about the financials. It’s about giving people local ownership over things like tech stack choices so that we’re not forcing our partners down a route, down a rabbit hole, but that we’re working with them to figure out what is the best tech stack and then having them work among a peer group to lock hands and decide on that. And that’s exactly what we’ve done in our previous businesses, whether it was in the accounting industry or the veterinary industry or the commercial mechanical industry. In all these businesses, the tech stack decisions have been driven in collaboration with us. …

If one partner raises his or her hand and says, ‘I want to try this,’ we say, ‘Great. Go try that.’ And we support them in that tech adoption, in that change management. And if [another partner] goes another way, ultimately we come together and analyze who was the happiest with that change and who wasn’t before we push it out at the enterprise level. So there’s a lot of positives with our model that allow us to test things before making an enterprise-level decision. Once you make a decision like that, you can’t undo it.

You earlier talked about scale. But if the tech stacks are different, and it sounds like you’re not going to insist they adopt a specific stack, where does the scale come in?

Well, I want to be clear, if there’s a justification for an adoption to unlock the economies of scale to generate the benefits of being part of the larger platform, we absolutely will choose a certain tech stack. But it’s a decision you can’t undo, and so we have to be very methodical. … We’ve partnered with four firms across the country who meet on a monthly basis to talk about the different tech stack options, the pros and cons, and we demo them together. In these businesses, some of them have some overlap, and some of them do things differently. We’re working together to figure out who has the best experience. Two years from now, when we talk about this with new entrants, there’s a very rational reason for why we’ve gone a certain route. So I will say that in many areas, two years down the line we will have standardized decisions around the tech stack. But there might be areas where, frankly, an MSP chose to centralize a function, and we figured that out in our model. Just because something has been done one way in the past doesn’t mean you need to do it that way in the future.

How many MSPs have you acquired?

We’ve partnered with four MSPs: ClearFuze Networks, IronOrbit, Delval Technology Solutions and OneNet Global.

Obviously, there are a lot of people that can acquire MSPs today, and a lot of consolidators. The common denominator across all four is that they sought a partnership more than a sale, and they sought the ability to take advantage of and benefit from all the things that they’re hearing the market’s larger consolidators offer, while continuing to retain the entrepreneurial spirit inside their businesses. Our model is perfect for the person that wants to thrive in an entrepreneurial environment. Frankly, we’re not the right partner for everyone. If you're a partner looking to be fully out of the business tomorrow, there may or may not be other options out there better suited to you. If you’re a partner that says, ‘Look, I might want to stay on for six months, a year, five years, 10 years, and I have a lot of my net worth in my individual business. I want to diversify my net worth. I want to share the benefits of being part of a larger company. And even if I want to retire tomorrow, I have someone in my business that that can step up to a leadership role, or I want to be a part of the decision-making and the changes in this industry. Even if I’m retiring, I still want to be involved in the evolution of this industry,’ we’re a perfect fit for you.

Pictured above: Co-founders of Shield Technology Partners Jake Sloane (left) and Frank Zhang.