EP173 - Ask Stuart #11 -
How Do I Know if I Am Being Successful in My MSP? with Ian Luckett and Stuart Warwick

INTRO

In this episode of the IT Experts Podcast, we asked Stuart how I know if I'm being successful in my MSP.

Welcome to the IT Experts Podcast, the only podcast to help MSP's scale to 1,000,000 in if already there get to 5 and go fast 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're back with Stuart again and we're asking a really simple question. But it's actually a question that a lot of people don't know the answer to, which is how do I know if I'm being successful in my MSP now, we've got cash that's sitting in the bank. We've got people coming in, we've got clients coming in, we've got employees being built. Hopefully, yes and you know generally the MSP model, the longer you are in business, the bigger the business will be, did you see how I didn't say the most successful the business would be.

STUART

Hopefully.

IAN

The bigger the business will be, but that’s we're hearing around the Growth Hub and the areas when we get under the hood, under the bonnet are some of these businesses and we start getting the spanners out and start rattling around and we realise that in actual fact there's a few bits and pieces missing. There's probably a couple of carpet, is missing. Maybe if we put it into the car analogy. But how do, why do MSPs find it so hard to really nail down the Success Factors criteria measurements of their business.

STUART

I think it was because when they get started it's just about survival. You know, you don't go into business and I just want to survive. You want to grow a business. And after a while, every day is a new day. And you turn up and you get on with the work and if you're in the lucky place of having enough business, you just enjoy being in your, you know, we talk about all the time being in your comfort zone. And that's not a bad thing. You're enjoying it. You've got clients, you got money, you pay yourself. However, there is a point at which you question and it can be early on or it can be years, if not decades later, it’s what am I doing with this and why am I doing it? And for what purpose? What does success look like for me? How do I know if I'm being successful? Because as you said, I've got cash in the bank. I managed to pay myself, every month. What's it missing? And I think if you, the sooner you stop in your MSP career as a business owner and work out, was that success? But like you know, here they, I can't think who it was, but start with the end in mind. And again, cliche. You know, we've all heard it before, but actually, what does the end in mind look like for you in three or five years time if you're 28 and you've got your first MSP and you’re two years in and you're paying your way and it's alright, it's, well you could sell it in the next three to five years, possibly, and get out and do something else. Or you could scale it and have a highly successful or profitable yeah, business. Or you could just enjoy doing what you're doing. It's pretty profitable.

There's two or three of you if that, you know. We've got one guy that comes to the tech tribe who's got over 1000 endpoints and it's him. And he's only now starting to think about hiring another person. That's rare, but it's his approach and it works for him. So however, he is getting very really, really busy and he is feeling it now and he now he realises he needs to scale it up some way in the right way for him. So I think how do I know if I'm being successful.

Well, are you getting out of your business, what you want? And that stems to three things: time, profit and freedom. A business is an asset. If you want a proper business as opposed to a lifestyle business and you know the difference is that the business is able to function without you ultimately and provide steady flow of profit back to the shareholder or shareholders, which is you and that's a different approach to just having a business that is successful but lifestyle which is centered around you. And it's a choice. So what does success look like for you? Do you want to work full time? Do you not want to work full time? What sort of income do you want? What do you like doing in that business and it's different for do you want to send your kids to private school? Do you want to have 50 days holiday year and travel the world? Is it important for you to work with vulnerable people in your community? And that's a passion that you want to split equally with your business. Everyone's different, so working out what success looks like for you is the key starting point, then we can translate it into what are the measures of success that will do for that efficiency, profitability, gross profit, gross margins, the number of endpoints, the profit per end point, profit per customer profit and revenue per employee or engineer, your engineer utilization. So there's a mood of KPIs that will support what success looked like. But first of all, you could define what is how much profit time or freedom. All three does my business give me to enable me to feel successful at this point in my life.

IAN

And it was funny, I was talking to Darren Strong on the podcast a couple of weeks ago. He mentioned to me about the maturity, the efficiency and the maturity of MSPs, where they think they are and then when they do an assessment to into, you know, the whole owner not needed. You know, I'm ready to exit. I'm going to step away in actual fact, that person is still very much in the middle of that business. So even when people think, oh, no, I've got the automation in, I don't need to be here doing this, I don't need to be pulling the levers and pushing their things to make it kind of work, they actually do and they're still entrenched in it.

STUART

So moving away and we just have one client who now doesn't work Mondays, works for this week, but it doesn't work Monday and he is so happy at having him, but it's taken him a number of years to structure the business in such a way that it can allow him to do and that you can then step back.

IAN

Step back. Enjoy the day without worrying about the business and also not getting disturbed. So you're, you know, you're enjoying that that three day weekend.

STUART

And there is the other thing in where you someone must have been really successful on the outside materially. You know they've got big houses, they've got super cars, they've got kids at private school, they literally on the outside are really successful and we call that business MSPs, there are probably in that thrive space because there's what they unfortunately usually realise is that there's a fragility, a lack of maturity in their structure, and they get caught out when they yeah, it's, you know, built up in one one or two big clients, one or two key people or that. It's built up in them and they get ill and suddenly all their business partner gets ill and suddenly the leg of the stool has been whipped away and it's falling over. And they come crashing down to really, you know, to panic and what had been amazing for some years, if not decades, was now like a disaster.

IAN

So how do we start to work out? What are some of the key things, it's not just about how much cash we got in the bank this is around having a proper measured system or process or metrics that we kind of go through without boiling the ocean and without going super, super technical on it. Where do they start off in, you know, measuring what matters book, by the way. But yeah, how do they start?

STUART

Well, if we park the whole vision piece because we talked about this and understanding what success looks like for you in terms of where you want to be in three or five years time, we're parked that cause we've talked about that. If that is clear then success ultimately for a business comes down to its profitability, which comes down to you know your number and we've done a number of podcasts, and know your numbers and talked about that.

So understanding what the metrics are that underpin the success of a growing business. So if you don't want to work for five days a week, you only want to work two days a week in the next three years, then how what is it that we need to do such that you can. So if you're not that profitable at the moment. You're breaking even. How do we become more profitable so that you can invest in more people or systems that will allow you to do, so that you can move up into a role that is more strategic, because the more strategic you get, the more you, it's more a time-LED thing. You know one hour of good thinking a week and one hour of, you know, good meetings a week with the right people and leaving them with the clarity of expectations and objectives. You don't have to come back to our business for another week and you've spent two or three hours in the business, but to get to that point, you've got to invest in the right infrastructure, people, systems and also the product set to allow it to get to a point that it can, all that and so breaking down the key elements of what you need to deliver your level of success.

So if it's this three days a week or two days a week, then what do you need to let go of and who do you need to employ such that you're not needed in the business so often. And then a really good example, Ian, is a client of ours ended up with two months out on the business. A really nice business, great numbers, absolutely flying worked really hard at restructuring it. However, out of the blue had to take two months out of the business. What was amazing was that business carried on running, even though they just lost their SDM. However, the insight, though, was it didn't grow from a sales perspective, cause the business owner was the sales engine. Well, the marketing engine, the sales engine, so things didn't get followed up on new things didn't get pushed through leads wouldn't continue to be pushed up on a great opening for him because the business was already stable but it was like, wow, I need to systemize the sales side of the business so that I'm not needed.

IAN

And that’s his next step and that's the great thing about not only the model, but when you think about things strategically, you know whether it be your health, whether it be a family situation, whether it be just like, do you know what I want a couple of months off to go on holiday or go and do some travelling or something like that. Then you know that's why the as we keep saying the MSP model is such a powerful business model because it's so profitable. Well, it has the opportunity.

STUART

Yeah and just another example spins to mind, you know. One of our momentum clients joined in September and one of his goal was he's very frustrated, he couldn't go, and he wanted to go on holiday for two or three months with his wife and his young children and the business not to need him and I know we talked about our, but he genuinely that was a really, really top of his list goal and within 12 weeks he was testing it by taking two weeks off and he's now taking another three weeks off. And just testing it to see what falls out of the out of the woodwork in terms of being away from the business and he's learning from what's showing up and what's not showing what's working, not working. And he's pretty much on track for what it's going to be 10 months away, being able to take eight weeks off.

IAN

So, let's get down to the nitty gritty then. What if we're going to say that we've got the four or five key measures, metrics, whatever we want, we want to term it that each and every MSP should be checking out rather than their bank balance. What would they be?

STUART

They're some of the classic ones. You know, there aren't any sort of new magical things in running a business and scaling this, but you know the first one is cash flow is cash flow positive all of the time and if it isn't, why not and why cash flow, we mean how much cash do you have in your bank such that you can meet all of the demands you know expenses on a regular payroll if VAT corporation tax, if you've got a panic every quarter trying to find the VAT, you've got a cash flow problem. So that's the first measure.

The second measure is profitability. So what I mean by profit is you've got your operating profit, you've got your net profit and you've got your gross. And it comes down to, you know, looking appear now, making sure that your numbers are accurate every month through your bookkeeper or accountant. Whoever's doing them such that you can sit back and look at the run rate. So that's the cumulative performance of the business in the current financial year. And if you can compare the current six months with last year's same six months, you will see what's going on in that, this and are you making profit the cash flow we talked about in a moment tells us whether there's actual cash, enough cash in the business at any one time, annual profit margins, percentage of it. Are they changing? Are they increasing, are they going backwards from one period to the next? They're great measures because they tell a story. Your numbers tell a story. That's the second metric.

The third one is new business. How much new business are you adding every month? Is it half a client month? Is it 3/4 of a client a month? Is it zero clients because that gives you an understanding of how your new business is working, even if it's coming from the referral, because the beauty of the MSP business is if you're adding one new client a month or half a new client a month and they are a managed service contract support contract, then you're talking recurring revenue. Recurring revenue is that the you know the gold goose, that keeps on giving obviously you have to be profitable that recurring revenue if that's coming in every month from a new client, fantastic.

The fourth measure is existing clients. Does every client have a regular TBR- Technology Business Review, going on quarterly review, whatever you want to call it such that you are regularly speaking to the clients and you are closing the gap of your product portfolio in terms of what they could be buying versus what they are buying from. And so looking at the growth in the revenue and gross profit from your existing clients is another key metric to look at on a monthly basis.

IAN

And we've done, I'm sure, a couple of podcasts now on account management, low hanging fruit, how to really bring out methodologies to make sure that you're maximising that relationship and revenue with your existing clients.

STUART

Yeah, totally. Unfortunately, as we know and numbers can be boring, yeah. And numbers and P&L's and cash flow and balance sheets is kind of for many MSPs and many you know man's business owners. It's a bit of a dark art, but work with somebody to understand it and how they how they show up or how they need to show up in your business and why you need to look at them each month. And how do you get your chart of accounts set up appropriately so that you can see the numbers within a click of a few buttons, pays off massively to give you the cash flow, confidence in your numbers so that you know where you are at any one time and therefore can invest with confidence. And that's when you start to get profit time and freedom out of the business because you know what numbers you need to get you to where you want to go.

IAN

Yeah. It's just enlightening, isn't it sometimes when we see clients and they sort of like, oh God, I've got to do the, as I've got to work out my cash flow, well, I've got to do this, I haven't done it before, and when they really understand their numbers, like, Oh My word I didn't realise that it this good or that bad or now I've got visibility and as you say that leads to the cash flow.

STUART

And it's why we built out the trainings, you know, yeah, for the financial statements, 1 on 1 training that we did and the chart of accounts training, with our financial coach to help educate clients on without the overwhelm as to what good financial management looks like in MSP and when you demystify it that way, you give people that confidence to embrace it, and that's the secret.

IAN

Talking about the fundamentals of it, let's have a quick talk about Profit First Methodology.

STUART

Yeah. The profit first, Michael Michalowicz, I think it is great book if you're not read it, you should read it. And try and adopt the principles. But very simple, those principles talk about, you know, profit first, pay yourself first. Sometimes people struggle with, but it's ultimately saying, well, if you don't look after it fit your own mask first. The thing on an aeroplane, work out where the profit is and make sure that profit is feeding you and nurturing you as a business owner, don't pay everybody else first and starve on the sidelines. And even if you can't pay yourself first right now, save the profit, build up cash reserves, strengthen the balance sheet of your business, start with a pound a day start with 1%, you know, take 1% of every invoice and save it. Well, half a percent because it that habit compounds for every invoice that comes in. Put a percentage of weight for corporation tax, VAT. You know you're profitable reserves your similar to that. And obviously operation expenses, so every invoice the fat piece, obviously that's for the VAT and there's a profit piece for the government. There's a profit piece for you and then there's a profit, you know, a revenue piece for the operational expenses and wages. That's the way you build out a business, successfully.

IAN

The sustainable, profitable one at that and they keep repeating ourselves and saying the same words over and over again. But this is what we see and hear kind of every day. And these are the big things that that make such a big difference...

STUART

Absolutely.

IAN

To your confidence, to scale your MSP.

So thanks very much, Stuart. That was really some great nuggets there to help in this rather interesting question. How do I know if my MSP is successful or not? Because it's really difficult and can take a lot of thinking and a lot of brain space to do just that, but if you want to know how successful you currently are and where your business maturity is. Then I invite everybody on this podcast to go over to mspgrowthhub.com and check out the quiz, this scales your MSP quiz and it takes three minutes and you get a personalized report. It gives you a score, it gives you maturity score or tells you where you need to be focusing right now the understanding the fundamentals of the three pillars of MSP growth success. Absolutely love it, and I invite you all if you are thinking about how do I know if my business is successful, how do I know? How do I grow my business? Where do I start? What do I need to do? Go and check out the quiz.

Final thoughts Stuart.

STUART

Understand what you want from your business. What does success look like for you in terms of time, profits and freedom that comes from having time and profit. And once you understand those work backwards, what’s in the gap. What do you need to do in the next five years, three years, 12 months and 16 weeks.

IAN

To get you where you need to be, brilliant stuff. Great. Thanks very much for your time on that one. That's a great episode and we will catch up with you on the next one.

STUART

Cheers.

IAN

See you later.

OUTRO

So I hope you enjoyed the show if you did, I'd love it if you could leave a rating and review on your favorite podcast platform. If you want to know more about how to take your MSP to a million or if you're already there go faster. Then come and join Stuart Warwick and myself in the scale with confidence Facebook group the link is in the show notes. You go enjoy the rest of your day and I look forward to connecting with you soon.