My First Sales Person - A Very Expensive Lesson

 My First Sales Person - A Very Expensive Lesson

  - Lessons Learned, episode 64

 For some reason, business owners assume they need to hire a sales person. And maybe someday you’ll need one. But most of us, including myself, hired a sales person too soon. Here’s what I did and, more importantly, what I did wrong.

What I did: I researched the topic of small business sales. I even took several classes on it. Read some books. And then I put together my job description and posted an ad.

What I did right: Educating yourself is always good. Writing a job description before a job ad is good. The best thing I did was to set down very specific target sales and target dates for those sales.

Sounds wonderful, right?

With all that, I hired an  experienced sales pro who know something about technology but was certainly not an expert on managed services. That’s fine. Your sales person does not have to be a subject matter expert when they start.

What I did wrong: I am a good manager. That does not make me a good sales manager. That’s a very different skillset. And here’s why it matters. (This exact experience has been replicated with many business owners over the years.)

In the first month, the goal was come up to speed on what we do, who we serve, and the products and services we offered. In his spare time, the sales guy used this information to start building lists of prospects and dialing in our “ideal” client archetype.

The second month, we bought a good size list so we could do postal and email campaigns. The sales guy spent a lot of time cleaning these lists, preparing sales materials and getting everything “just right.” He did not spend time walking the business parks or calling prospects.

Then we put together printed materials, brochures, and great letters to go out. We did a bulk mailing. All of this needed to be finely tuned by the sales guy so it would be just right. He didn’t want to be held responsible if it wasn’t correct. That would eventually one of the reasons he didn’t make sales.

By the end of the third month he had still not made any sales.

We were getting some nibbles from the direct mail campaign, and appointments were set. I “went along” with him on these. We had a decent close rate, which is always the case once you sit across the table from someone who has invited you into their office. I like to say we made sales, but it was really me making the sales while he watched.

Month four: The sales person had not made any sales. But in month five I sent him out on his own. He knew our pitch. He knew our managed service bundles. He knew the kind of clients we want. And he knew how to put it all together. Still, he didn’t do any additional prospecting, he didn’t go door to door, and he didn’t make outbound calls.

By the end of month five we had exhausted the list we bought, added some names to our email list, and *I* had made some sales. Now, the funnel was empty. It felt very much like starting over, because the sales guy hadn’t done anything to cultivate more leads, fill the funnel, improve the offer, improve his pitch, and turn even a few cold leads into warm leads. He spent his time on tuning up the letters and the handouts. He didn’t go out and ask people for their business.

Finally, in month six I told him we had to pull the plug. I gave him a few weeks to sign one managed service deal. He didn’t and we parted ways.

All of this – 100% of this – was my fault. I was paying him a small “salary” plus commission. He could apparently get by on the meager guaranteed amount even though he was the lowest-paid person in the office. My commission was 25% of the profit (roughly 10% of the gross sale). So he could easily be the highest-paid person in the office if he just made sales.

Here’s why this was all my fault. Remember those targets and dates. We obviously missed all sales targets.

There were no negative consequences for missing the target (for not making sales). When I said I’m not a good sales manager, that’s the crux of it. Missing those targets took money directly out of my pocket.

A sales manager has to draw a very clear line and the consequences of missing a target should be clear and agreed to in advance. It doesn’t matter if you’re friends with the sales person or not. If they don’t make sales, they have to go somewhere else.

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I had some other lessons with sales people. Ultimately, I did the math and realized that a small business owner needs to do all the sales until the company is making at least $1 million in top line revenue and can grow the company very fast.

Let’s say your new sales person need to earn $100,000. That’s fine if they’re paying for themselves. Well, if that’s about ten percent of the gross sales, they need to sell $1,000,000 worth of products and services in a year. That’s about $83,000 per month of new revenue. And it represents doubling the size of your business in one year!

All of that’s possible, of course, if you have the right plan in place.  But chances are excellent that you won’t be able to achieve that right away.

My lesson is that the owner has to be the only sales person for a very long time, and the primary sales person for a long time after that. And that’s actually a natural progression. Owners tend to move “up” into managing their companies and out of the actual service delivery. That gives them more time to warm up those leads and make those sales.

When a company grows large enough, hiring a dedicated sales person will make perfect sense. But you have to put hard targets in place and get rid of sales people who don’t perform up to spec.

This can be a very expensive lesson.

 

Feedback always welcome.

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This Episode is part of the ongoing Lessons Learned series. For all the information, and an index of Lessons Learned episodes, go to the Lessons Learned Page. 

Leave comments and questions below. And join me next week, right here.

Subscribe to the blog so you don't miss a thing.

 

Karl W. Palachuk is an executive coach and author of several books, including Managed Services in a Month and Relax Focus Succeed. He has built, bought, and sold several businesses, including two successful managed service businesses in Sacramento, CA. He advocates a holistic view of business, viewing the company as a system. You can find him at karlpalachuk.com or on LinkedIn. No artificial intelligence apps were used in the writing of this post.

:-)

How do You Feel When Someone Leads with Price?

 We all want to save money. No one wants to waste it. But when someone's only appeal is, "We cost less," I am turned off. This is especially true of services.

I was really struck with the current Turbo Tax advertisement that is all about being less expensive. It's just blatant, "We'll beat the price" advertising.

Um. I don't want the cheaper tax preparer. Or the cheaper surgeon. Or the cheaper cybersecurity consultant.

If a monitor or printer is cheaper on Amazon than at my distributor (and I am very sure it's the exact same thing), then I'm likely to buy on Amazon. But services are another matter. One of the absolute truths about service delivery is: Service costs money. Better service costs more money to delivery.

You can still deliver better service at a lower price, but that just means you make less profit. Is that what's going on here? Or is the price cheaper because some service is missing? If you don't want to spend more to deliver the same service, then maintaining profit means the service has to be cut somewhere.

With tax prep, I don't really want to cut corners. I use an enrolled agent and can point to very specific advice that saved me tens of thousands of dollars - because my EA was looking at my business as a whole, not just the one tax return in front of them.

Now consider IT services. What do clients think if you lead with price? Do they say, "Oh goody. I can get platinum level service for the price of silver. It's all the same, so it doesn't matter which one I buy."? If they do say that, that's your fault for not showing them the value of your services.

Part of building your long-term client relationships is keeping them informed about you and your company. You have to change with the times. You literally have to respond to evolving technology all the time. You need to make sure your clients know you're keeping up and offering the new stuff. A monthly newsletter is a great tool for that ongoing education. So are quarterly roadmap meetings.

In the "Picture of the Day", I talk about my relationship with the UPS Store. Imagine the changes they've had to go through in recent years. Their total refresh has to consider increased traffic from Amazon, including massive no-questions-asked returns. They also have a newer clientele that may not own a printer, so they need to scan screenshots on phones.

On top of all that, there are new payment methods, new government requirements, postal regulations, and competition from both their "parent" partner (UPS) and their largest client (Amazon). But the store is the client interface for everything.

This is such a great example that branding is NOT your logo or your color scheme. Branding is every single thing you do. Taken together, your "everything" becomes the experience clients and prospects have.

Oh - and did you notice that the UPS store does not compete on price? They have a 100% markup on postage stamps. You can literally buy them almost everywhere for face value. But add some convenience and voila! the price goes up. With over 5,000 franchise stores, the UPS Stores are going strong. And their visible updates will keep them responsive to the times and profitable.

What do you think about competing on price and maintaining the perception of value?

Finance and IT Consulting... The Time is Right (again)

 When computers first showed up in small businesses, there were two sets of people who installed software: Consultants and Bookkeepers - because they were used primarily for accounting. Skip ahead. When computers became more generalized, those two sets of people were called on to fix "little stuff" - because they know how.

When I got into the biz, in the early 1990's, I had two key contacts who had started on the financial side and moved into computer consulting. Both of them became great referral partners. They still dabbled in bookkeeping, and virtually all of their business came from that side of their experience. When the computer side got to be too much, they called me in.

Today, I think we're seeing a similar synergy. In the last week, I had several experiences that brought this to light.

• I had a conversation with a former coaching client who is expanding the financial security side of his business.
• I had dinner with someone from the hot "Fintech" community.
• I had a Zoom call with a new SBT Community member who is considering a vertical in financial software and services.
• And, on Friday, I had a long discussion with my friend Sam Saab from Results Software. They're broadening their scope beyond QuickBooks and looking for larger IT partners who want a financial CRM focus.

Not on that list are my regular conversations with Heather Johnson from Gozynta and Rayanne Buchianico from ABC Solutions. All of those folks have one foot solidly in IT services and the other in some kind of financial services.

Some vertical markets are easy to see and define. Dentists, attorneys, manufacturers, restaurants, etc. The financial vertical includes accountants and enrolled agents, who are easy to spot. But it also includes a collection of services that are less visible or obvious.

While you might just specialize in a software package or CRM systems (e.g., Dynamics), the juicy good opportunity is really in getting back to actual consulting. Our industry was not founded on computers. Yes, we sell computers. But it's the actual consulting that brings clients in, and makes them sticky.

Consulting consists of 1) being an expert in something, 2) giving excellent advice, and 3) creating solutions that help the client be more productive, more profitable, or more efficient. It includes "solving problems," but it goes way beyond that. Solving problems is reactive. Creating new solutions to improve a business is an active, forward-thinking process.

Don't consider yourself a financial wiz? That's okay. I've supported several specialized line of business packages that I didn't know how to "use." I'll bet you have, too. Get the right hardware and network, set up the database, configure the users, and verify that you have a regular backup and maintenance program. Boom. Done.

Run a sales report by county for each customer support rep? No. Not my job. Having said that, there are also people who specialize in training on just this kind of thing.

Other finance-related specialties include point of sale, specialty printers, database management, security, credit card processing, and pretty much everything that has to do with CRM systems. And there's so much more, all of which is a great place to start building a business around true consulting, and not just pushing boxes or license.

As technology becomes less "physical" onsite, and easier to deploy and maintain, I believe the future of our industry will be with people who are willing and able to engage in good old consulting and providing what we used to call solutions. If your key selling point is that you can deploy Microsoft 365, you're quite replaceable. (Sorry.)

Whether it's finance or another special focus, how do YOU go to market?

The Process Discipline You Already Have is the AI Governance Skill Clients Need

 There's a moment most MSPs recognize. A client calls, something's broken, and when you dig in, you find there was no documented process — just someone who "knew how to do it" and no longer works there. The real issue wasn't technical. It was procedural.

MSPs learned that lesson early. Outcomes without process are luck.

MSPs Are Already Fluent in the Language of Governance — Internally

Managed services run on standard operating procedures. Onboarding checklists. Escalation paths. Change management workflows. Patch schedules with approval gates. Most MSPs built these out of necessity — because without them, you can't scale, you can't hold staff accountable, and you can't defend yourself when something goes wrong.

That's governance in practice. Not the enterprise analyst version — the operational kind, where someone is responsible, decisions are documented, and outcomes are reviewable.

But running a tight internal operation and advising clients on AI governance are related, not identical, competencies. The move to client-facing advisory work requires clearer business-risk framing, repeatable standards that hold across different client environments, and a concrete enough definition of AI governance that clients can actually act on. Most MSPs haven't fully built that out yet. That's the gap — and the opening.

AI Risk Isn't Hypothetical for SMBs

Small and midsize businesses are adopting AI tools faster than they're building any framework to manage them. Employees are pasting client data into external tools to draft proposals. Accounting staff are using AI to summarize financial documents without reviewing the vendor's data handling policies. Customer service workflows are being handed off to tools nobody on the team fully understands.

The risks are immediate. Confidential information may be exposed to external systems, retained under vendor policies the business has never reviewed, or used in ways that no one has evaluated internally. Outputs get accepted as accurate without verification. Vendor claims about AI capabilities often don't survive contact with real business data.

That governance failure doesn't stay contained. As clients move toward AI tools that take action — not just generate text — the same absence of process that lets an employee paste sensitive data into a chat interface is also the one that lets an autonomous workflow make a purchasing decision, send a client communication, or modify a record without review. Agentic AI doesn't introduce a new category of risk so much as it removes the buffer that's been absorbing the old one. When the system acts instead of suggests, the undocumented process stops being a minor gap and starts being an operational liability.

What AI Governance Actually Requires

For the term to be useful, it needs to mean something concrete. In an SMB environment, AI governance should cover at a minimum:

• Approved use cases — which tools employees may use, and for what purposes
• Data handling boundaries — what information may and may not pass to external AI systems
• Human review points — where outputs must be verified before action is taken
• Vendor evaluation criteria — how new AI tools get assessed before adoption
• Logging and auditability — what the system did, and when
• Escalation and exception handling — what happens when the system produces an unexpected or erroneous result

That's not a theoretical framework. It's a checklist. And it maps directly onto the kinds of controls MSPs already build for security and compliance.

A Defensible Position in a Crowded Conversation

AI strategists and consultants are selling governance concepts to SMBs. What they're generally not doing is operationalizing them — building the actual documentation, reviewing the actual tools, and being accountable when something goes wrong.

MSPs are among the best-positioned organizations to do that work. The underlying competency — translating technical complexity into documented, accountable, recurring process — is one they've spent years developing. It isn't a completely new discipline. It's a familiar operational skill set, extended into a new domain.

What it requires is deliberateness: formalizing internal AI standards, building repeatable client-facing frameworks, and raising the governance question before a client knows they need it.

The underlying skill set is already familiar. The question is whether MSPs turn it into a deliberate client-facing capability.

The Work You’re Avoiding is Trying to Tell You Something

 There are tasks on your list right now that keep getting pushed to tomorrow.

Not because they're unimportant. Not because you don't know how to do them. You know exactly what they are. You've known for weeks.

Here's what I've learned: that's not a discipline problem. That's a signal.

When I catch myself consistently avoiding something, my first assumption isn't *I need to be more organized*. It's *something is off here*. And the real work is figuring out what kind of problem it actually is.

The Misdiagnosis

Most operators default to the same answer: I need to be more disciplined. I need better time management. I need a new system.

That's usually wrong.

You're treating symptoms. You're not looking at the structure underneath.

If the same *type* of work keeps getting avoided — across weeks, across quarters — that's not a personal failure. That's a business design issue. And no amount of productivity hacks fixes a structural problem.

Three Diagnoses Worth Considering

It's Too Big

Sometimes avoided work is just poorly defined work.

It feels heavier than it should. There's no clear starting point. You open the document, stare at it, and close it again. That's not laziness — that's your brain refusing to engage with something that doesn't have an obvious first move.

You haven't broken it into executable steps. "Fix our onboarding process" isn't a task. "Improve documentation" isn't a task. "Standardize the security stack" isn't a task. Those are outcomes wearing the costume of tasks.

The fix is brutal scope reduction. Keep cutting until "done" is obvious. Until the next action is undeniable. If you can't describe what finished looks like, you're not ready to start.

It's the Wrong Owner

This one's harder to admit.

You know how to do it. You could do it. But it keeps sliding because it requires sustained attention you don't have, or it's simply not the highest-leverage use of your time.

Here's what's actually happening: you shouldn't be doing it at all.

This isn't about delegating tasks — it's about assigning ownership. There's a difference. Tasks get handed off. Ownership means someone else is accountable for the outcome, the follow-through, and the judgment calls in between.

MSP owners who are still handling escalations, still building QBRs, still managing vendor relationships day-to-day — that work isn't getting done *well*, and it's not getting done *consistently*. Because it's not yours to own anymore.

The tension here is real. Letting go is harder than just doing the thing. Doing it yourself feels faster. It feels like control. But you're filling a role that's blocking someone else from growing into it, and blocking yourself from the work only you can do.

It Shouldn't Exist

Some avoided work isn't execution-problem. Isn't ownership-problem. It's strategy-problem.

It's the recurring thing nobody wants to do. The work that exists because of a one-off client exception, a legacy decision nobody has revisited, a custom pricing arrangement that made sense in 2018. It's the process that's technically documented but nobody follows, because it was designed for a version of your business that no longer exists.

Your business has accumulated complexity. That complexity generates work. And nobody's stepping back to ask whether the work should exist at all.

One-off client configurations. Supporting twelve tools when four would do. Custom service exceptions that eat margin and create support overhead. These don't need better execution. They need to be removed.

What the Pattern Reveals

Step back from any individual item. Look at where the avoidance clusters.

That's where your business is unclear. That's where the structure is weak. That's where complexity crept in while you were busy executing.

This isn't a productivity conversation. It's an alignment conversation. The avoided work is showing you the gap between what your business is designed to do and what you're actually trying to do.

Where This Shows Up

In MSPs, the patterns are predictable:

Pricing conversations that keep getting deferred. Clients who should be exited but aren't, because that conversation is uncomfortable. Tools that should be consolidated but persist, because nobody wants to manage the migration. Processes that exist on paper but aren't followed in practice.

The math here is straightforward: the longer something is avoided, the more expensive it becomes. Deferred pricing conversations compress margin. Clients that should be exited drain support capacity. Unconsolidated tools create training overhead and security exposure. The avoidance isn't free — it's just a cost you're paying slowly instead of all at once.

Reframe the Behavior

Next time you catch yourself avoiding something, don't ask *how do I get this done?*

Ask *why does this feel off?*

Is it too big? Break it down until the first step is obvious.

Is it the wrong owner? Stop doing it and figure out who should.

Does it need to exist at all? Eliminate it.

Avoidance isn't the problem. It's the signal you've been ignoring.

The Most Important Piece of Employee Management - Lessons Learned

 The Most Important Piece of Employee Management

 - Lessons Learned, episode 63

 

Bad management causes disgruntled employees. That’s easy to say. How does it play out? In my opinion, it’s in the feedback and two-way communication. This article is about effective feedback that actually helps and does not alienate employees.

By the time I started my first MSP, I had been managing teams of 25-30 people for several years. In all of those cases there were either no employee reviews or annual employee reviews. In my opinion those are identical choices: Both are useless and not helpful for the employee or the team in any way.

Why is an annual employee review the same as none at all?

That’s easy. Consider your new year’s resolution to cut down on carbs, lose weight, learn Spanish, or document all your procedures. Then imagine that no one ever mentions anything about this to you until December 31^st. How are you doing on that resolution?

Or consider a new skill. I want to improve my basic coding so I can begin using agent AI more effectively. Option A is to set aside blocks of time every week to read, take classes, practice with real world tasks, etc. Option B is to spend one whole day once in the next twelve months. Which is more effective? Option A of course.

The weaknesses of annual reviews are too numerous to mention. The most important flaw is that they become “big” important events despite the fact that they cannot possibly have a positive impact on performance, employee morale, or company success. Employees are nervous about them, treating them like high school report cards.

Managers hate to do them and generally put them off. And, for the most part, they do a poor job precisely because they don’t know what to say. Every manager knows how good every one of their direct reports is doing. They see it every day. And they do give feedback all year long. But how do you summarize everything someone does for an entire year?

Never-Ending Evaluations in Your Business

Luckily, the concept of continuous improvement is practically built into the business model of IT companies. We try to practice lean and agile methods. Quick responses to changing needs. Kaizen – continuous incremental improvement.

In my company, we started with Quarterly evaluations, but tied these to weekly activities and what I call the daily “chatter.” Daily chatter is just the flow of conversation that happens every day in the office.

“How’s that studying coming? Is it as easy as you thought?”

“Did you put your notes in the ticket?”

“Thanks for checking up on yesterday’s appointments.”

Notice that all of these are just normal conversation. These comments and questions should not come across as accusatory or judgmental. If you need to correct someone, you can. But the all-day chatter in the office is just light conversation. It conveys a sense that this is simply what we expect.

Evaluation Starts with Hiring

In my book, evaluation starts before you begin the hiring process. You should have good, clear, detailed job descriptions. These should list the skills and temperament you are looking for. “Skills” means both technical and soft skills.

Once you have a good job description, create a spreadsheet with each item you want in the ideal candidate, one item per row. From there you can write your job ad, which should also be detailed and list as many of these traits as you can.

And it flows . . . You use those criteria to determine who to interview. And you use them as guides to the interview. And you use them for evaluating all the candidates and choosing someone to bring on board.

After you hire someone, these criteria will give you a good sense of where they need additional training or real-world experience. Specific training programs are defined as needed. And for areas where competence seems high, you just need to give them tasks that demonstrate the skills you believe they have.

Finally, we get to the classic process of evaluation. That begins with setting quarterly goals. These are personalized, for the most part. You can include company-wide goals like keeping clients happy. But the most important bits are focused on helping the employee come up to speed as needed, learn new skills, and improve in areas specific to them.

This list should be reasonable. Maybe five or six items maximum. Minimum should be two or three. Don’t feel obligated to put something down just to put something down. Goals are automatically time-bound as this is a quarterly exercise. And, of course, all goals should be measurable. Write down all of this in a simple form, one-page maximum.

Finally, you flow through the spreadsheet to the actual evaluation. How did the employee do on each goal? How do they rate themselves, and how do you rate them? If you’ve been giving daily, constant feedback, there should be no surprises here at all. People who are late every day know they’re late every day. People who always put their notes in the system before leaving the client’s office know they do that. And so does the manager.

Rinse and repeat.

One final note on giving continuous feedback: Don’t worry that employees will see this as nagging. If everyone goes through this process with a sincere desire to improve the employee and the organization, then the daily chatter is just a steady reminder of how we need to go about our day. Really. Employee won’t see this as nagging if you deliver it right.

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Book Notes

I still believe The One Minute Manager by Ken Blanchard and Spencer Johnson is the best place to start on employee feedback. Get the latest version, which includes an update on the classic “feedback sandwich” approach. Other good books in order of preference:

The Coaching Habit: Say Less, Ask More, and Change the Way You Lead Forever by Michael Bungay Stanier.

The Feedback Imperative: How to Give Everyday Feedback to Speed Up Your Team's Success by Anna Carroll.

The Feedback Book: 50 Ways to Motivate and Improve the Performance of Your People by Dawn Sillett.

 

Feedback always welcome.

-- -- --

This Episode is part of the ongoing Lessons Learned series. For all the information, and an index of Lessons Learned episodes, go to the Lessons Learned Page. 

Leave comments and questions below. And join me next week, right here.

Subscribe to the blog so you don't miss a thing.

 

Karl W. Palachuk is an executive coach and author of several books, including Managed Services in a Month and Relax Focus Succeed. He has built, bought, and sold several businesses, including two successful managed service businesses in Sacramento, CA. He advocates a holistic view of business, viewing the company as a system. You can find him at karlpalachuk.com or on LinkedIn. No artificial intelligence apps were used in the writing of this post.

:-)

Is Your Past Experience, or History?

I am always intrigued by the different ways people deal with the events in their lives. Some people seem able to simply ignore the past and not let it affect them today. Most people spend too much time thinking about the past.

Everyone knows you can’t go back and change the past, so it’s best to learn from it and move on. For many people, that’s “easier said than done.”

Your personal past and business past are related, but quite different. And, yes, they each affect the other. Here’s the question I’m interested in: Do you consciously learn from your past? In other words, do you see your past as simply history, or do you examine it as experiences to learn from?

I think most people would say that the “right” answer is to treat your past as a series of opportunities to learn. But that’s not what most of us do most of the time. I think you have to choose to when learn lessons so that they become "past experiences."

Some lessons we learn automatically. These are things like, “Don’t touch the hot stove (again).” We’re not talking about these kinds of lessons.

In business, two people can learn very different lessons from the same experience. Here are a few examples:

A client doesn’t pay on time

Our technicians consistently cannot get their timecards in by 5PM Friday

Another tech finishes a job but fails to document how the problem was fixed

In each of these cases, one consultant might say, “Well, some clients just don’t pay on time.” That person sees the non-payments as historical facts, and that’s all. They have not learned any lesson beyond some clients don’t pay on time.

Another consultant will look at that situation and say, “How can we address this? Let’s find out why clients pay late. Is it difficult to pay on the first of the month? Are they going through a bad time and need a different level of service for some time? Something else?” In other words, this consultant digs into the why so they can address the situation.

If the explanation turns out to be that this client just pays everybody late, then the experience can lead to a process that makes late payments expensive or impossible. Remember: All problems in your business can be solved with processes. If it's something else, then a human-to-human conversation has to take place.

Ultimately, you only improve your business when you choose to learn from experiences. If you simply accept that your experience represents the world as it is, then there's no point in pretending you can change anything. Clients won't change just because it inconveniences you. For proof, consider every vendor you do business with. How often do you sit down and consider how convenient it is for them to do business with you?

Two absolutely unbreakable rules come into play here. First, nothing happens by itself. (Sound familiar?) These problems won't fix themselves.

Second, you can't control people, but you can control your processes. And if I'm right that you can fix all business problems with processes, than you learn from you experiences and start building practices and procedures that will make you business better in the long run.

Follow the Money: Understanding Financial Motivation in Business Relationships

A surprising number of frustrating business conversations turn out to be incentive problems.

A customer asks for a technology solution that doesn’t actually move their business forward. A vendor pushes a product that doesn’t quite fit your environment. A conversation that seems straightforward ends up feeling oddly misaligned.

In many of those cases, the root issue isn’t technology or capability. It’s that the people involved are optimizing for different financial outcomes.

Two questions sit beneath many of them: how does your customer make money, and what is your vendor contact actually measured on?

Your Customer's Financial Motivation

Technology conversations too often start with the technology. What's the right tool? What's the best solution? But that's the wrong starting point. The better question is: why are we solving this problem in the first place?

More often than not, economics is what’s driving the decision. Your customer is trying to make their business work — generate revenue, control costs, deliver value. Even non-profits work this way. They may not be profit-driven, but they still need revenue to support the mission.

One of the clearest examples for me came from working with nonprofit membership organizations. Their key growth metric was membership, because membership was what funded the mission. In one case, articles were moving too slowly through the publishing process, which meant less content reaching the market. By tightening that workflow and getting material published faster, the organization could share more, stay more visible, and create more opportunities to attract new members. The technology change mattered, but only because it supported the real business objective: membership growth. Once you see the economic lever clearly, technology decisions stop being about features and start being about outcomes.

Your Vendor's Financial Motivation

The same logic applies to vendors. What is the person you’re talking to actually measured on?

A vendor rep is a person with a compensation plan. They're measured on specific things — new logo acquisition, upsell and retention metrics, movement of particular products or bundles, promotional quotas. Once you know that, a lot of vendor behavior stops being mysterious.

Here's the clearest illustration of what happens when you ignore this: picture an MSP walking up to a vendor's conference booth to complain about a support ticket from eight months ago. That rep at the booth is almost certainly being compensated on new business development or existing account growth. They may want to help, but they’re usually not the person equipped or incentivized to solve that problem. The interaction usually doesn’t resolve anything, and both sides walk away frustrated.

That's a misalignment failure. Not a bad vendor. Not a bad rep. A mismatch between what one party needs and what the other is positioned to deliver.

Once you start paying attention to incentives, a lot of vendor behavior becomes easier to interpret. A rep pushing a bundle may not be trying to sell you something unnecessary — they may be trying to hit a specific quota category. A sudden promotion on a product may not be about market demand — it may be about clearing a quarterly target. Understanding those incentives doesn’t mean you have to agree with them. But it does make the conversation easier to navigate.

Alignment Is the Work

Understanding the financial motivation on the other side helps you ask for the right thing from the right person.

For customers, that means grounding your recommendations in the economic realities of their business — not just technical capabilities.

For vendors, that means routing the right conversations to the right people, and understanding what a given rep can and can't actually move on.

Once you understand the financial motivation on the other side, it gets easier to ask for the right thing from the right person. A lot of business friction turns out to be incentive misalignment.

Acquisition Risk Modeling for MSPs: What I Learned by Getting It Wrong

 

In 2008, my MSP was in a strong position. Evolve was a generalist IT services provider — servers, infrastructure, the bread and butter of that pre-cloud, pre-security era. Business was solid, and when the opportunity came to acquire a smaller MSP, I jumped. New clients, new recurring revenue, a shortcut to organic growth.

Within four months, I'd lost nearly every contract I acquired. I was running the company on credit cards and watching the business I'd built before the deal start to buckle.

Here's what went wrong — framed around the risk modeling I should have done before I ever signed.

Risk 1: Unverified Revenue Quality

My entire acquisition thesis lived in Excel. I saw a client list, saw revenue numbers, and built a model that showed what Evolve would look like with those contracts bolted on. What I didn't do was look behind the numbers.

I didn't verify financials with any rigor. I didn't assess client quality — their engagement, satisfaction, or likelihood of surviving a transition. I didn't fully understand whether the contracts were even transferable. I had lawyers and advisors giving me checklists and guidance, and I skipped most of it because I thought the deal was simple.

The reality: most of the acquired clients were low quality, loosely attached, and had zero loyalty to a new provider, and most important, not interested in our standards. When the transition wasn't identical, they cancelled.

The model should have included: Client quality scoring, contract transferability review, and churn scenarios at 20%, 40%, and 60%.

Risk 2: Key-Person Dependency

The single worst blow came from what I thought was a crown jewel account. The technician I'd inherited convinced that client to hire him directly, cutting us out entirely. He walked out the door and took the revenue with him.

The model should have included: Identification of key-person dependencies, non-compete and non-solicitation provisions, and a client relationship transition plan that reduced single points of failure.

Risk 3: Staffing Exposure

I'd taken on the acquired company's staff as part of the deal. As contracts evaporated, I was suddenly overstaffed with no way to support payroll. The deal structure itself was actually sound — a small amount down with payouts tied to retained contracts — so the purchase price didn't bury me. But the operational cost of carrying a larger team through a collapsing client base was devastating.

The model should have included: Staffing cost scenarios tied to revenue retention thresholds, with defined triggers for restructuring if contract volume dropped below break-even.

Risk 4: Distraction Cost to the Core Business

This is the risk nobody talks about. As things spiraled with acquired clients, every ounce of energy went into triage — saving contracts, fixing service gaps, onboarding properly. All reactive, all urgent. Meanwhile, our existing Evolve clients started getting less attention. Response times slipped. Proactive work stalled. They noticed.

It took over a year to stabilize. The financial hole was real, but the distraction cost to existing client relationships was worse.

The model should have included: A capacity plan that ring-fenced service delivery for existing clients, with dedicated resources for integration work that didn't cannibalize the core business.

The Framework I Wish I'd Used

If I distill this down to a single failure, it's that I never modeled the downside. Every assumption was optimistic. There was no Plan B.

Before closing any MSP acquisition, stress-test your model against these questions:

• What happens if 30–60% of acquired clients churn in 90 days?
• Which accounts depend on a single technician relationship, and how do you mitigate that?
• At what revenue retention level does your staffing become unsustainable, and what's the trigger plan?
• How do you protect service quality for your existing clients during integration?
• What's your worst-case financial exposure, and can you survive it without jeopardizing the core business?

If you can't answer these clearly, you're not ready to close.

This Isn't Just Acquisition Advice

Here's the thing — every one of these risks exists in your MSP right now, whether you're acquiring another company or not.

You have clients on your books today whose revenue looks solid in your PSA but who are disengaged, underserved, or one bad experience away from leaving. You have technicians whose departure would take key accounts with them. You have staffing costs that assume current revenue holds steady. And you've almost certainly taken on a major initiative — a new service line, a platform migration, a big project — and watched it quietly erode the attention your existing clients were getting.

The same discipline applies. Score your client quality regularly. Identify where single points of failure exist in your client relationships. Know your break-even staffing number and what triggers a change. Protect the core business whenever you take on something new.

Most MSPs run on optimistic assumptions every day. We plan for growth, not for contraction. We assume clients will stay, staff will remain, and revenue will hold. The acquisition just compressed all of those unexamined risks into a few brutal months and made them impossible to ignore.

The Bottom Line

Whether you're evaluating an acquisition or just running your MSP on a Tuesday, the discipline is the same: model what happens when things go wrong. Build the plan that assumes some clients leave, some key people move on, and some initiatives don't land the way you expected.

Work the process. Listen to your advisors. Stress-test your assumptions. And be brutally honest about the downside — because that's where the real risk lives.

I learned this the hard way. Hopefully you don't have to.

War story of your own? I do appreciate feedback.

The Narrowing Path for the Generalist

There's a widening gap in the managed services market that's easy to miss if you only follow the topline numbers.

Industry revenue keeps growing at a healthy pace, and by most measures the market looks strong. At the same time, the number of providers appears to be flattening — or quietly declining. Those two facts can coexist, but they don't affect everyone equally.

M&A brokers I speak with confirm the pattern from a different angle. They're finding it harder to locate middle-market MSPs to acquire—firms that are big enough to be attractive but not yet at scale. The reason is simple: that tier has already been bought. The middle isn’t just under pressure; in some segments, consolidation has moved faster than new firms are growing into that tier. The shrinking isn't always a sign of struggle—some of it is simply consolidation. Firms that reached a certain size became attractive targets and were absorbed before they could grow further. To replenish that tier, you either wait for smaller firms to grow into it or change the economics of getting there. What I keep hearing in conversations with MSP operators is that the "comfortable middle" is getting harder to occupy. The space where a generalist MSP with a few dozen employees could grow steadily, maintain margins, and avoid extreme bets feels narrower than it used to. That doesn't suggest a broken market. It suggests one where the middle ground requires more intention to hold. Where the Market Is Pulling Apart What this keeps reminding me of is a barbell. On one end are scaled providers. These are the national or PE-backed firms that have largely industrialized IT delivery. They're not just selling support; they're selling a repeatable, automated service model. Scale allows them to absorb rising security costs, invest heavily in tooling, and spread specialized talent across a wide customer base in ways that are difficult for smaller firms to replicate. On the other end are focused specialists. These are smaller firms that have stopped trying to be everything to everyone. Instead, they've gone deep — into a vertical, a regulatory environment, or a specific operational problem. Their differentiation isn't breadth; it's relevance. What seems to be under more strain is the space between those two ends: the generalist MSP with traditional overhead, familiar tooling, and a value proposition that's harder to articulate in a crowded market. There's a counterargument worth taking seriously: the generalist who delivers genuinely excellent service—responsive, personal, high-touch—may still have a durable position, especially with clients who are themselves in service businesses. Large providers, for all their efficiency, often can't replicate that. The question is whether 'great service' is enough to sustain pricing and margin as baseline expectations keep rising, or whether it needs to be paired with something else How the Pressure Shows Up For MSPs operating in that middle ground, the squeeze doesn't usually arrive all at once. It shows up in subtle, compounding ways. First, the baseline keeps rising. Capabilities that used to be profitable add-ons — advanced security, compliance support, monitoring depth — are increasingly expected as part of the core service. Delivering them well requires investment, and without scale, that investment eats directly into margin. Second, talent is harder to secure and harder to keep. The competition isn't just local anymore. Enterprise organizations and remote-first vendors can offer higher pay, narrower roles, or clearer career paths, pulling experienced engineers away from smaller firms that rely on a few key people. And then there's efficiency. Larger providers are beginning to use automation and AI-driven tooling to handle routine work in ways that change the cost curve. Documentation that used to take a technician fifteen minutes gets generated automatically. Triage that required a senior eye can now be handled by systems that route and prioritize with reasonable accuracy. First-touch support—password resets, basic troubleshooting—is increasingly handled without a human in the loop at all. Smaller, human-centric firms can still deliver excellent service, but the economic gap is starting to show. It's not just the cost of the tools; it's the unbillable hours required to manage them and the liability that now sits squarely on the provider's shoulders. None of this is catastrophic. But it does make operating without a clear direction more difficult over time. Choosing a Direction Matters More Than Ever I don't see this as a call to panic. The question I keep coming back to: if the technology is no longer the differentiator, what is? The market seems to be rewarding clarity more than it used to. Some firms will lean into scale, investing heavily in automation and standardization to compete more broadly. Others will double down on specialization, using deep expertise to justify pricing and defend relationships. For some, the most rational move may be to join a larger platform — trading independence for access to tools, talent, and operational leverage. The question I keep coming back to: if the technology is no longer the differentiator, what is? For some, it's scale. For others, specialization. And for a few, it may still be the quality of the relationship itself.