EP254 - How to Avoid Your Biggest Client Taking You Down with Ian Luckett

IAN: In this episode of the IT Experts Podcast, we're going to help you work out how to avoid your biggest client taking you down.

INTRO: Welcome to the IT Experts podcast, the only podcast to help MSPs scale to 1 million, and if already there, get to five and go faster at the end of the day. Isn't it all about building a business that works for you rather than you for it? I hope you enjoy the show.

IAN: So good morning, good afternoon, good evening. Welcome to the IT Experts podcast. Today we've got a really important subject to talk about. It's one of the biggest risks in your MSPs and what we see at the Growth Hub is that there's not enough conversations talking about business risk. People are talking about, oh, what if the economy does this or my team does that, or I don't get my sales and marketing working properly.

But one of the best ways to have a great conversation with any of your prospects, actually, as well as within your business, is to talk about the risks. And today's risk is actually one that we see too often, and it's all around relying too heavily on your largest client. So many times people have started MSPs and they've just grown and grown by referrals as we know. If you exercise good account management, then you will be in a position where you can actually, just keep getting some really good, steady growth. But the problem is that if you focus on all of your clients at the same time, so they all grow at the same rate, your largest client will always be your largest client. And the biggest risk is that what happens if. They leave. What happens if they get bought out by a larger company and they go, oh, we don't need these little IT people anymore. We're just going to bring in an IT department. It's not just revenue that you are going to lose or your potential of losing, you could lose the whole business, right? Because they could not only be the biggest client, but they could also be the most profitable. But many MSPs don't actually know whether they are or not.

So let's break it down. Let's break down these frustrations and fears and more importantly, what you can do to protect yourself. So what would happen? Here's a question. I know this is a one-way thing being a podcast, but what would happen if your biggest client went bust? This is probably the worst scenario, and I'm not trying to scare you, I'm just trying to be a bit realistic here. If they go bust, they have no money. The receivers will come in and you'll probably be the last person, you might get 10 P in the pound if you're lucky. The client walks away. You've got bills on licensing bills on office 365 that you've got a whole year's worth of paying for. If you do that on a monthly basis or a yearly basis, make sure that lines up. You've got immediate revenue. That means that you've got your team that you need to pay. You spend all of this time building an amazing technical team, but now you have no choice but for forced redundancies. And believe you me, we know how hard it is sometimes for MSP business owners to build confidence to grow their business. I actually got made redundant eight times in eight years back in the day when I was a lot younger. And I'm quite adaptable to change, so I'm like quite cool with it. It didn't really bother me. I just looked for the next job and every year one of my bosses said to me, he said, it's great here, isn't it? It was actually, it was early days cable tell NTL when the business changed, right? It changed from a design company to a construction company, to a cabling company, and then to a telecoms provider company says, it's every year someone comes along, you build a lovely Lego house, they come along and they kick it down. They take half the pieces, and then they say, go on, build that back together again. So it's quite funny analogy, but if you're an MSP business owner, there's a pretty good chance this is going to be one of the worst things you'll ever do is tell somebody that they can't afford to pay their mortgage. So redundancies can be and are a really big thing, and who knows what's going on in the in the economy at the minute. They're good people that you've invested in. You've invested in time, you've invested in training, you've invested in developing, you've invested in technical knowledge and you have no choice. And whether or not you're going to keep them or not, because that client's gone, right? Your valuation of your business.

This is a really big thing on the valuation of the business. It's client concentration. It's called, it's where your largest client takes up, and it's a big red flag for many investors. And the valuation of your business with that profit and with that turnover could literally just collapse overnight. Many MSPs don't do a lot of marketing or they don't do it consistently. And what happens is they do a bit of marketing and then all of a sudden, then some referrals come in, or so project work comes in, it gets all quite exciting and then they stop doing the marketing and then the project work's over and then they go, ah, growth has stalled again, what do I need to do? Put some more money in the meter, let's get some more work going and let's, if we can get some more leads going. But it doesn't work and you end up scrambling. And when you lose a big chunk and if you were to lose a big chunk and know about it. That's one thing. We've probably got five MSPs in the growth hub right now who know that they're going to lose a big client in the next year. And they joined us ahead of the game to go do you know what? I need to just stop mucking about with this buckled down, invest, and let's just start getting some leads together and let's start getting the structure of the business together. And if you listen to the rest of the podcast and you'll understand that yeah, leads a new business is one thing, but there's an awful lot to do where you can build profitability, efficiency, and all of that kind of great stuff without even doing any of that. If you've then got to scramble to replace that income, your reputation and your confidence can be damaged. And then you want that quick magic pill to make that marketing work. It can be a really hard place. What we see is, we see that you're busy, okay? You're busy every day, being busy working in the business many of the times, some of you lucky peeps out there are working on the business. But you're constantly firefighting in the business as it is. And then all of a sudden, if this was to occur, you are then going to be firefighting to replace that lost revenue really quickly. And your growth is just going to absolutely go in the bin in the bucket, in the bottom filing cabinet. It's just not going to happen because you're going to need to focus. You're going to get into what I call project mode. You're going to get into survival mode where you need to get cracking on that one. And, focusing on this big client just in your account management and then collecting the smaller ones, changes the balance, right? And it could change that balance of risk. So yes, you can continue to grow your large client. But don't neglect the little guys. Don't neglect the ones that are growing at a faster rate. And once you apply some really good account management tactics to that, you can just fly straight in and you can get super focused and rebalance. And move that client, it may be at 40%, maybe at 50% your turnover, but let's get a goal in place to take that from 50 to 40 to 30 to 20 in the next year or two years, or whatever it may be.

So talking about marketing, the pipeline itself is so long. It needs constant focus. It needs constant attention and nurturing. And it's not a safety net, you know when a client exits, it will help if, depending on where you are at in that maturity journey of your marketing, but it's certainly not going to be a quick pill or quick switch that you could just go bang and start delivering some fresh leads. You might have some success, but it's not going to be that quick, and the other thing is that as the business owner, you are going to get stuck in a real negative place, right? A fear-based short-term decisions that you are going to be making. So rather than sitting there strategically as you may be today, thinking about where your three to five year plan may be, you might even be thinking about how to exit or what your exit plan looks like. But if someone pulls a rug from under your feet, then it turns into a very different place. Long-term planning and scaling all grinds to a halt and you turn up into a real firefighting mode. That's very reactive, it's very stressful, it's very time consuming and it's not just going to affect your business, it's going to affect your family life as well, right? Because this is going to really start to affect some, all sorts of things. What we're going to do about it, right? Just give you some tips and tricks to help you to overcome this problem, or at least reduce the risk in your MSP. That's the most important thing that we're doing here.

STUART INTERRUPT:  Hey, Stuart here. Got a quick message for everyone that's listening. If you've decided that you want to grow your MSP but you're not sure what support you need, then you must check out our ultimate MSP Growth Guide. It's designed to help you compare all of the support that's out there in the channel for you and help you shortcut your decision making so you get the right support to help you get the right results to grow your MSP.

But alternatively, if you'd like to come and see us in action, then why not come to one of our events? Simply click on the link in the show notes and we'll see you very soon. Now back to the show.

IAN: Cheers, Stuart.

Number one, numero uno is about tracking the revenue concentration of your clients. And we really don't want any client to be above 20 to 25% of your turnover. Once we understand what that looks like and they can continue to grow, but what you've got to do is you've got to focus on nurturing and growing your existing smaller clients and landing some other larger clients so that you can then bring that concentration down and tear that, just reduce that risk on that one client within your business. If you've got two big clients, whale clients, many people call them and they're 40%, that's going to be better than them being, 40% each as it would be. So as you start to bring in the larger clients, and then it brings on a little bit of a question about when you are marketing and when you are out there wanting to generate leads in your MSP, what size leads do you want? Because if you're focusing on someone who's going to deliver you 500 pound a month, but your largest client's 5,000 pound a month, you got to go and get 10 of them to even try and half redress the balance. So why don't you focus on a larger client? And by the way, you can go and get larger clients if you want a little client, little clients are out there. If you want a big client, big clients are out there, but you've got to be really super deliberate and focused on where they are, this is a whole another podcast. I'm not going to go into it right now, around finding that target market and finding those ideal people that you need to.

So let's just focus, let's have no client, single client from 20 to 25%. Then what we need to do, we talk about it all the time in the Growth Hub is we need to analyze the profitability per client. Not just the turnover, not just how much money that they're bringing in, not their subscriptions. We want the profitability. So break it down into kind of like your help desk, the support costs, the subscription costs, the amount of project work that they're delivering. There might be some hardware, any other area that you've got there, but break it down so much because, just because you've had a good project from a client in the last 12 months doesn't mean they're your biggest client. Because if they don't deliver those projects worth, they could actually be your most unprofitable client that you actually probably don't want they might be the noisy little people in the back, like jabbering away in your ear all day long, and they're the ones that, in actual fact, you're not making any money because your service desk are servicing them too much and delivering, spending too much cost in that as well. So really understanding that profitability per client is absolutely critical.

Building a growth plan, right? Boring as it sounds. I know. But upselling and cross-selling smaller accounts, whitespace selling, a lot of people do call this, have a list of all your clients, have a list of all your products and services, and see who has got some missing. This is the easiest way for you to build efficiency, profitability, and turnover in your MSP is sell to people who are already know and trust you. So that's super, super important. Okay. And we just need to make sure that we are nurturing and we're focusing on those smaller accounts or acquiring some larger accounts to, as I say, to redress that balance marketing, let's have a little chat about marketing. We talk about building your new client runway. Contrary to a podcast I put out a couple of days ago where my good friend Paul Green says, no, never advise anybody not to stop, not just to stop marketing. We need to be consistently marketing. Okay? It was a bit of a tongue in cheek episode, but we need to make sure that you are building that new client runway. It takes a long time for people to build no and trust the credibility, your educational story. Build the content to build that machine that can deliver fresh new leads in your business. It can happen. You've got to believe it can happen. You've got to be consistent. You've got to be focused. You've got to have the absolute right target market, niche messaging value, non-salesy way to sell it. But you need to build that new client runway and keep that consistent marketing.

And then the last step is around having a proper account management process, but more importantly, assigning account managers to strengthen the relationship and revenue and to spot early risks. Make sure that you are having quality conversations, and what you need to make sure that you're doing as well is you need to make sure that you are balancing your account management according to the profitability and the size of the client. So you might have a very small client who might be marginally profitable, but they're just about to explode into a new market area in America or in the East or wherever it might be. And you know that they're going to need a bucket ladder, laptops and a load of support for that a lot of our clients are working sectors where they actually know that there's high growth. So it's almost not quite to the roulette wheel, but it's almost to a point of putting your chips down and you know that one or two of them are going to blow. It's like buying stocks, right? Stocks and shares and cryptos. But when you've got a proper account manager in place and they're going to go and build that relationship and understand how that business is operating and look for the opportunities in there, particularly if you then go bringing a new product, right? Could be a security product. It could be something that you could do a, kind of like an opt out on because it's a no brainer for your stack to keep you safe and secure. Then there's your eyes and ears out there rather than you having to do it. A lot of MSP business owners like to do that final sale and do the account management. It's all, and it's great, but, can you be consistent as your business scales and grows? When you've got your plan moving forward, do you need to be focusing on the business, not firefighting in it, and operating the efficiencies that you've got? And the processes that you've got moving forwards.

So let's talk about the future, let's talk about your vision. Once you get this lot in place and once you start to build a structured plan around making sure that client risk is reduced, because that's really what this is about, it balances the client space and to protect you. Somebody leaves so you are not staying awake at night. What if that person leaves? The pandemic wiped out so many hospitality businesses because just people just stop. Now hopefully we're not going to have another one of them in our lifetime, but you never know. And you never know what else is going to go on, things that happen in this world, you know you're going to be stronger and more profitable because you are focusing on the right accounts. And this is just standard account management anyway, but all with a vision and a purpose to reduce that risk. Okay? You're going to get predictable growth because you are going to know you're going to build your own new client runway. But in account management with your existing clients, the more about going to get new clients. Let's just focus on the ones that we've got at the minute, and until you've got that. As I've said before, many MSPs who come into the Growth Hub don't touch any sales and marketing activities because they don't need to for at least 12 months into their journey. It's actually mind blowing. Let's talk about valuation for a minute. Okay. We've got a little bit of a plan, what we want to do, go moving forwards, and your exit plan, and your exit. And we've got loads of other podcasts all around exit. So go and check out to get your value, work out how your valuation works on that, but we reduced the dependency risk on that client in your valuation. Literally, you can add one more multiplier to your valuation, almost guaranteed, right? Because you are reducing that risk people. They're looking at your business, if you've got a customer that is 40 or 50% of your client concentration, they are not going to like it. They are not going to give you a good valuation, and you're going to get the hump about it. So do something about it now rather than when you have to later on when you suddenly decide to put the for sale sign outside the front or at least have conversations with people about that.

And then what also happens, you are going to start to get greater confidence to invest in your team, the right people in the right roles. Let's bring in some automation. Let's bring in some really good AI systems and services. You might even have enough time to then go and spend doing an acquisition yourself right? Now, they might have the same problems as you, but also that might be one way to redress the balance is by bringing in other clients through an acquisition and that could then dilute your current large whale client.

So look, this is really exciting, right? You've got a great opportunity here. Don't let one client hold your business hostage. Start analyzing your profitability, spread the risk, and let's build a pipeline that you can rely on. And remember, all in all, go out there today please, and build a business that works for you and not you for it. That's it for me today. I look forward to catching up with you on the next one. You take care. See you later. Bye now.

OUTRO:   Hang on a minute. Just before you go, and if you're curious about how this episode links with the ability to scale your MSP to a million or, or if you are already there, accelerate to five, then we want to invite you to come and take the MSP Mastery quiz. And in just three minutes, you're going to get a 360 degrees scan of your business where you can identify the one or two tactics that can help you find more time, engage in, align your people and help generate more leads in your MSP. It's really simple. Just click on the link in the show notes and if you have enjoyed this episode, we'd love to get some feedback from you by means of a rating review on Spotify or iTunes, or your podcast platform of choice. We really appreciate every single one of them. Now, you can go and enjoy the rest of your day and we look forward to catching up and connecting with you soon. All the best day.