Tuesday, May 02, 2023

Private Equity Doesn't Have to Ruin Our Industry

In my weekly newsletter, I wrote a commentary on the evils of Private Equity in the MSP/SMB IT market. You can view it here - https://conta.cc/3LFAu19 - and subscribe, too!

Basically, I believe a great deal of harm is being done to our industry by private equity investors. They are gobbling up vendors who used to be good companies, run by good people, focused on good products and services, and generally providing good customer service. 

But then the problems start. These good companies are then decimated by greed and a need to pay investors massive profits. Of course, personnel are cut. New investments stop. Development freezes. Customer service is expensive, so it has to go. And the people you used to have great relationships with are now in horribly stressful jobs where they have to treat you badly because their job depends on it.

Note: I am not opposed to private equity generally. But the way it's being used in our industry (and many others) is literally the worst case scenario.

Think of all the great business books you've read about good management, governance, having a clear mission, vision, and a set of values that will drive your company forward. What we're seeing is the opposite of that.

Good investors want to build "forever" companies, not temporary vehicles for generating maximum income in the short term and horrible businesses in the long term.

And the problem isn't about making money, or even making massive amounts of money. It's about being too greedy to build a business with long-term value that delivers a great pay-out over time, and potentially forever.

As we've seen in our industry, the goal of today's private equity investors is to make a huge profit really fast. So all that talk about values and ethics, customer service, and treating people well is irrelevant. These investors don't care about any of the humans involved in any of this. They don't care about anyone in the channel.

That means:

  • The end user is irrelevant except that they buy "X" widgets
  • You, the IT professional, are irrelevant except that you buy and resell widgets
  • Your employees are certainly irrelevant
  • The vendor's employees are irrelevant
  • The vendor's management is irrelevant

Nothing and no one matters except a great return on investment. Economy's bad? Tough: Give us our 20%. Interest rates are up? No one cares: Give us our payment. The competition has better products, better service, and lets partners make more money. Too bad: Make your payment.

None of the elements that make a company great, stable, long-lasting, or good to work with are part of this equation. But it doesn't have to be that way!

There are older, more established companies that buy up small companies and make them even better. Examples include Apple, Microsoft, GE, and Salesforce. They're not perfect, but they don't act like leaches that suck the life force out of the companies they buy and then walk away.

But MSPs (and all ITSPs) are not powerless. Let me propose something that will piss off a lot of people.

Our industry needs to start requiring data portability. 

Vendors hate this. They want to make it as difficult as possible for you to retrieve your data in a usable format. It makes them "sticky" because you can't imagine the pain of losing all of your historical data.

But imagine if you could export your data from one PSA and easily import it into another PSA. Then, if a private equity company buys your PSA company and starts destroying everything you love about it, you DO have an option to move to another PSA.

If this were universal across all products and services, the IT service provider could then use customer service, ease of dealing with, and even business values as criteria for choosing vendors. 

We'd still have private equity investors, but they would feel pressure to treat human beings like human beings. They've have to consider values and ethics, and stable long-term business practices. Instead of focusing only on how much they can suck out of a company today, they will have to have a legitimate plan to survive in the long run.

Nothing about this is easy, or fast. But it's worth thinking about. Data portability.

You can literally start today. Add the question, "How portable is my data?" to your decision-making process. Ask it of prospective vendors.

Feedback and comments welcome.



  1. Anonymous12:13 PM

    I have to say this is the most refreshing (and truthful) take I've read on the PE problem plaguing the industry. These two points right here:

    The end user is irrelevant except that they buy "X" widgets
    You, the IT professional, are irrelevant except that you buy and resell widgets

    Is, in my humble opinion, exactly the problem. We are no longer being seen by our vendors as value to our clients, we are just resellers and that's not what we signed up for.

    Great article.

  2. Anonymous11:40 PM

    100% agree Karl

  3. Anonymous3:29 PM

    The small business owners that sell to PE are to blame as well. They know what happens to their companies when they sell. It’s no secret that PE will try to maximize profits and the companies the owners built are going to be torn apart for a nice check. I know an owner must have an exit plan but selling a company to brand C or brand K will likely mean that the company they poured their blood sweat and tears into is basically going to die or at least be stagnant for years. As being a business owner I can see both sides but I would hate to see my business get killed by PE standard practices.

  4. Thanks for the comments. I have received a LOT of email on this post, as well as my recent newsletter. One person sent me the following, with a note that he didn't want to post a comment on my blog because it would expose how vulnerable he is relying vendors who dismiss his concerns because it doesn't serve them well:

    "I decided to take a closer look at Autotask. Exporting the data is not impossible—but it is highly impractical. As you suggested on the blog, exporting data needs to be easy. Exporting Autotask’s data is not. It should basically be a one-button job. I can get all our clients’ passwords fairly easily, but we also have a ton of information attached to configuration items (equipment). There is no way to export all the configuration items all at once. Instead, it looks as though we’d have to select each of 600 or so companies and export each company’s equipment. And then there are innumerable notes and tickets. Maybe they have a way to automate it via an API, because this would have to be done routinely to keep it fresh, but I doubt it. So the question an MSP has to ask is, “How will I provide my services without my PSA?” We ask questions like that of our clients, but we have to ask ourselves as if we were our own client. And even if we could get it down in a CSV file, will another company be able to import it into a usable program?"

    "You are right—vendors don’t even like to talk about this. If you ask directly about data portability or even just backing up the data, vendors will not answer your question directly. They will say, “We’re not going anywhere,” “You don’t need to do that,” “We have multiple data centers,” or “Don’t worry, be happy.” Rackspace shut down Hosted Exchange permanently without warning. The multiple data centers were useless to clients who had no access to any of them. That should be a wake-up call to everyone that every vendor needs to make provision for the day it goes out of business, even if it never comes. The $64,000 question is how to force them to do this, and just what constitutes useful data portability."

    I don't want to pick on any specific vendors. I'll just say, the bigger they are, the bigger this problem is for THEM as well as you.

    It's an interesting analogy. The Internet was built to be open and then we had to secure it. Vendor data was designed to be vendor-specific and now it needs to be open.

    As I mentioned in my newsletter (quoting from the New York Times), "Companies bought by private equity firms are far more likely to go bankrupt than companies that aren’t." Given that fact, YOU have to be responsible for protecting your data, securing your data, and keeping an up-to-date copy of your data. Right now, zero vendors are making that easy. It needs to be the norm.

  5. Anonymous6:07 AM

    Could not agree more on the generally evil nature of PE in our industry and others (see especially the veterinary industry). And also in wholehearted agreement on the issue of data portability. NSITSP might get involved in the latter, as there seems to be at least a hope that is a dragon that could be slain.


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