Josh Kotler , a former MSP and now managing partner at Sansom Street Capital , which invests in MSPs , ponders , “ Would small and medium businesses be where they are today with technology if not for MSPs ? I think the answer is no .” Kotler says favorable trends in business are being driven by technology — which is driven by MSPs .
Technology both levels the playing field for SMBs and creates tremendous opportunity for MSPs , says Kaseya Vice Chairman Fred Voccola . “ Technology always has been , and always will be , the future . Many of these SMBs don ’ t have internal IT and security . Their systems are their most important assets , and they need MSPs to deliver it for them .”
Arlin Sorensen , another “ OG ,” founder of HTG Peer Groups , and now vice president of ecosystem evangelism at ConnectWise , says SMBs are looking to MSPs to drive their business forward , getting a meaningful ROI on their technology investment .
How Did We Get Here ?
The term “ managed service provider ” first surfaced in the mid-2000s , with a push to shift the industry from its break-fix ( billing for time and materials ) roots to a monthly recurring revenue ( MRR ) business model .
Former MSP owner Peter Melby , CEO of private equity firm New Charter Technologies , calls the shift to a service model a natural evolution “ to something more cost-effective and more consistent for the end user .”
The MRR model also offered MSPs more predictability for the first time . But at first , MSPs had to figure out on their own how to grow MRR profitably , Kotler notes . Now , he says , “ Advice comes through communities , like [ Robin ] Robins ’ s [ TMT ] community , IT Nation , and peer groups .” These resources allow young MSPs to develop faster than their predecessors .
Role Of The Channel Vendors
ConnectWise and Kaseya were arguably the first two software vendors developing tools specifically for MSPs , and were key to the industry ’ s maturation and growth .
“ When tools started to be developed , like ConnectWise and Kaseya , they not only helped us keep track of the work we were doing but [ also helped us ] figure out our profitability , cost , and sales ,” Sorensen says . “ It was a vital part of turning this idea of recurring revenue into something that we could manage and be successful with .”
Melby agrees , saying that the shift to a services business was “ accelerated by the fact that the vendors did a great job of defining and educating on the model .”
Pica ’ s previous MSP was one of the first customers of the ConnectWise PSA and Kaseya ’ s RMM . “ Both of those things helped the industry grow up ,” he says . “ First , this idea of a PSA was a way that you could look at the business and run it in a professional way ... RMM changed everything because it allowed us to change our business model to one that was scalable and profitable . It is the reason why we ’ re all here .”
Private Equity Takes Notice
No doubt private equity ( PE ) taking notice , of both the software vendors and the MSPs themselves , has amplified the industry ’ s value .
It has also fueled innovation on the vendor side , Pica notes : “ The reason we have so much innovation right now is that vendors can raise venture money . And the reason they can raise it is that if they ’ re successful , there [ are ] private equity buyers .”
Then PE turned its attention to the MSPs themselves . “ Private equity ’ s recognition of the industry was a big deal , because any time investment flows in , things happen ,” says Kotler . “ Now every MSP owner is thinking about enterprise value ... and their exit . That ’ s all driven by this tremendous inflow of capital from private equity .”
Melby credits the larger vendors for “ transitioning this from a good business opportunity to a true industry . And once there was a true industry , there was enough consistency for investors to get comfortable .”
He was first approached about selling his MSP back in 2009 , and by 2020 was getting three inquiries a day . That ’ s when he sold Greystone Technology to New Charter , which has acquired 29 MSPs in the last five years .
Kotler says PE turned its interest to MSP businesses for several reasons . “ It ’ s not just the fact that it ’ s technology , i . e ., it ’ s indispensable and will not get cut in a recession . It ’ s not that it ’ s recurring revenue , although that ’ s very appealing . It ’ s the fact that we , as an industry , have just begun to tap into value .”
Are MSPs Starting To Get Paid What They Deserve ?
Historically , many MSP businesses have struggled to achieve margins similar to other professional services industries . Paul Cissel , CEO of Growth Caddie , a TMT Expert in Residence ,
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