Many of the Titans agree that building their security practice is not easy and requires a heavy capital investment .
Mike Chaput , CEO of Endsight , feels that size truly matters to the type of clients he ’ s targeting . “ Scale is starting to really matter in the MSP space ,” he said . “ In the modern climate , you need a CISO on your team and a developed security offering , which is going to be expensive . If an MSP doesn ’ t have the accounts and revenue to support this , they ’ re going to have to partner with a third party to deliver it , which is going to [ make it ] very hard to compete against someone like us , who has the offering already developed in-house .”
But smaller MSPs aren ’ t without hope . Companies like RocketCyber are making it possible for them to provide advanced security to meet compliance requirements without the deep bench larger MSPs have . That , combined with the advantage you have of being small and local , are surefire ways to compete very effectively against the larger MSPs . In fact , many of the Titans agreed that they have a hard time competing against the small MSPs that specialize in a vertical , or who are local and privately owned . Many SMBs do not want to do business with big companies for fear they ’ ll be overcharged or treated poorly because they ’ re small . Big doesn ’ t always equal better in the eyes of the customer , and that ’ s a unique advantage small MSPs have .
SECRET # 4 : They Are All Using Acquisitions For Growth
It should come as no surprise that the Titans interviewed are competing for good MSP acquisitions as much as they are competing for organic growth . Last year , PE-backed MSPs grew an average of 79 % 1 versus nonprivate equity or venture-capital-funded MSPs , who grew organically by 19 % to 23 % on average . Titan Rashaad Bajwa grew an insane 483,018 % last year , hitting all five-year targets in just over two years , mostly by making great acquisitions of MSPs that were not only profitable and growing but also brought a discipline or expertise to the business that they didn ’ t have before .
And while most MSP CEOs have dreams of someday selling their business for a huge multiple with the M & A market being hot , the reality is that many are shocked at how little their business is worth when they get down to a serious negotiation with a buyer .
“ Most MSPs are educated enough to understand multiples of EBITDA ,” Mike Chaput said . “ But the buyer is still going to put their financials into our model to make sure it fits . So , if you ’ re not spending any money on facilities , sales and marketing , or underpaying your people , we ’ re going to adjust that number to what it should be , because we ’ ll need to spend that money if we acquire the business .”
The consolidations that are happening are also changing the competitive landscape for all MSPs . It used to be that you only competed with the other MSPs in your area . Now , with the consolidation happening , all MSPs are going to have to compete against private-equity-backed “ Super MSPs ” that have deep pockets , the efficiencies that come with scale , a deep technical bench , and serious sales and marketing manpower .
Will Slappey , CEO of IT Voice , told me , “ If you ’ re a smaller MSP out there , you should be positioning yourself to sell to one of the bigger platforms and join forces or become a platform yourself and grow . Either way , you ’ re going to have to make a choice to be able to compete as the market changes .”
Do you have to do M & A to grow and succeed ? Not at all . MSPs have a huge opportunity to grow their business from the ground up and sell for life-changing money .
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