The Dark Side of Private Equity in IT

(Note: I first covered this topic in my SBT newsletter in May. But it needs even more focus in the year ahead.)

Is Private Equity Good or Bad?

The obvious answer is "neither," of course. So let's be more specific: Does private equity investment in our industry do more good than bad? I think it has done good and it has done bad, but the future is headed in the wrong direction.

Appropriate for this time of year, PE in IT is a lot like the classic Dickens tale of Ebenezer Scrooge and the ghosts of past, present, and future. There has been more good than bad; the present is a mixed bag; and the future will be bleak unless something changes. The future hasn't been written.

But there's hope! Read on.

Note: Almost no one in our industry and channel is free to say what they want about the companies they do business with. The "media" outlets will never openly tell the darker side of what they know about vendors because they don't want to lose advertising. Most of the opinion leaders and popular web sites are exactly the same. And so are all of the companies that make money putting on shows.

I have had many conversations with people in the industry who have been threatened by a vendor. They are being told to not discuss problems regarding the vendor because they are subject to a "non disparagement" clause in their contract. So, they don't complain in online forums or discuss openly for fear of being sued.

I know that ConnectWise has had such a clause for a long time. And I've heard that Kaseya has one for the companies they've purchased in the last several years. I'm not sure how these square with the First Amendment of the U.S. Constitution, but I do know that economic free speech is not as protected as political free speech.

SO: Members are left grumbling in meetings when they are pretty sure it's not being recorded, or mumbling on anonymous forums such as Reddit.

Our industry is not alone. Private Equity is generally bad for business, certainly bad for people, and sometimes very good for investors. There was a great line in the New York Times: "Companies bought by private equity firms are far more likely to go bankrupt than companies that aren’t. Over the last decade, private equity firms were responsible for nearly 600,000 job losses in the retail sector alone." * (Emphasis is mine)

The idea of private equity is very straight forward: You get a bunch of investors together; you buy a company; you reorganize and improve that company, often with economies of scale not otherwise available; and you make a huge profit. Rinse and repeat with more and more companies. Sounds great. It rarely works out that way.

When private equity first sets its eyes on an industry, there are many legitimate good deals. They buy a company, fire a bunch of people, make some changes, and sometimes improve some things. But then a few good deals evolve into an infestation of private equity. That's where the MSP or SMB IT channel is now.

During the infestation period we're in now, "everyone" thinks they're going to get rich buying vendors, running them into the ground, and sucking all the profit they can out of the industry. Similarly, different groups of investors are doing the same thing with individual MSPs. They are buying up individual companies in deals that are very bad for the sellers, gutting the companies, and taking all the profit elsewhere.

What's NOT included in this equation?

Humans: You or your employees

Clients (end users)

Relationships

Ethics, beliefs, and culture

Customer service, or even decent quality service

Product improvements

If you haven't seen the episode of The Sopranos where Tony takes over his friend's sporting goods store, YouTube it. Basically, Tony forces his friend Dave to do a lot of things he knows he shouldn't, eventually forcing him into bankruptcy. Dave doesn't understand and asks Tony why he did all this.

Tony expounds: "It's my nature. The frog and scorpion."

In the end, private equity in our industry is a LOT like Tony Soprano cleaning out his friend's store, destroying everything about it, and taking as much money as he can before he walks away. That's where we are today.

Kaseya is the current bad example. They're not the first, the worst, or the last. But they've certainly shown our industry how fast you can take businesses built on great products and great service and turn them into the most hated, despised companies in the channel. Private equity has taken some great companies and some great people and turned them into money-hungry cogs in a system that does not care one tiny bit about you, your clients, your employees, or the industry as a whole.

I'm not sure how this ends. With a little inflation and some higher interest rates, it may not be possible to keep paying the investors what they require for their annual cathedraticum. I fear that bankruptcies, consolidations, and even anti-trust lawsuits are just ahead for our industry.

A VERY common tactic to look out for: A private equity investment company will split a company into two companies, with all the debt in one of those companies. Then, one company goes bankrupt and the PE folks keep the profitable pieces. The leftovers and the stinking pile of waste? That's someone else's problem. This will happen. But you probably won't hear much about it in any channel-centric media. So keep an eye on channel-adjacent news outlets.

It will be hard for you to see the real news, because you won't see it in any of the magazines or tradeshow companies. You certainly won't hear about it on stage. No one wants to lose sponsors or advertising.

The Good News is ...

If you're a smaller company, or you don't need to sell, you can focus on your clients, your employees, your culture, and excellent customer service. You will thrive in this environment because you can focus 100% on being the opposite of the companies who have been consumed into the Borg-like collective of private equity.

PE-backed companies cannot care about you.

PE-backed companies cannot care about your clients.

PE-backed companies cannot care about your culture.

PE-backed companies cannot care about good service.

PE-backed companies cannot care about your employees.

But YOU can embrace all of those things and thrive!

I'm not saying it will be easy or quick. The road ahead is going to be difficult, no matter what you do. Our industry is going to go through some tough stuff. But YOU can thrive. You can survive. You can come out the other end profitable and doing great.

If I can help, let me know.

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* See https://www.nytimes.com/2023/04/28/opinion/private-equity.html. Note, also, that Institutional Investor puts the total of jobs lost to PE in the last ten years at 1.3 million. See https://www.institutionalinvestor.com/article/b1gfygl4r8661f/LBOs-Make-More-Companies-Go-Bankrupt-Research-Shows.

Understanding the Effects of AI: The Method of Work vs. The Nature of Work

Technology has been changing the world since way before recorded history. And whenever there's a significant advancement, there has been resistance. History is absolutely jam-packed with examples of advancements that people resisted. 

My favorite example is that Socrates opposed the written word. (See Phaedrus by Plato.) Socrates argued that written information is not knowledge. Knowledge came from telling and retelling stories so that a student could demonstrate mastery of the information, and its meaning. With the written word, anyone could pass on information and look knowledgeable without understanding the information they are sharing.

If this sounds like technicians using Google searches to fix computers, it should.

One of the most common reasons for resisting technical advancement is fear of losing your job. This is very often the first reaction when people see artificial intelligence generating text or graphics. The very word Luddite originates from mill workers breaking up machinery out of fear of losing their jobs. 

In fact, technology always creates more jobs than it eliminates - but it creates different kinds of jobs. In this process, it's important to draw a distinction between the method of work and the nature of work.

Many (Many, many, many. Maybe most.) advancements come from trying to improve the method of work. In other words, trying to create a "better mouse trap." Inventions often start by trying to do something faster, better, safer, with less labor. So, for example, tractors replaced plows drawn by oxen.

The promise of improved methods is often that we will be more productive. The bald-faced lie is that soon we will all live massively better lives and work only a few hours per week. We do get more productive, but that just speeds up the need for more people, more jobs, and more consumables. As a rule, technology always makes life better in some way, but it never reduces how much we work.

A great recent example is the use of special-purpose robots at Amazon. Amazon has bought or built more than 750,000 robots in the last few years. AND Amazon has been hiring over 1.5 million people per year over the same period. The technology makes everything move smoother and faster. That creates more work.

Note: These are different kinds of jobs. Robots are working the night shift, lifting the heavy boxes,  and moving things that take too much human effort. So, most of the back-breaking jobs are gone, and they've been replaced by more logistics, more maintenance, more high-touch jobs.

The intention was to change the method of doing the same work. The effect was to change the nature of the work itself.

The fear with AI is echoed again and again on social media: Memes that conclude, "I just saw my job eliminated." I've seen this from writers, editors, teachers, artists, editors, and more. These people are all making the same mistake: They believe AI will do the same work with new tools.

In fact, we're already seeing AI create not just new jobs but new kinds of jobs. No one ever went to school to learn how to write great "prompts" for AI. But now, if you can find a class that will teach you this skill, you will probably pay for it. 

The nature of the work is changing. 

I *highly* encourage you to talk to your employees and your clients about this. Don't let people get away with saying that AI will eliminate jobs. That's an absurd statement. AI is doing what technology always does - just faster than ever before. AI is changing the nature of work.

Think about the IT support business. Fifteen years ago, a technician might have a fulltime job logging into systems, applying patches, rebooting, and going on to the next machine. Now RMM tools and automated updates are universal. Now technicians have fulltime jobs monitoring more machines than ever and just verifying that the automated processes are working.

And the future? What will AI bring? We can't see too far into the future, but it's easy to see the next step: AI will do the monitoring, verify that it's seeing what it thinks it's seeing, then apply the correct fixes. When issues are outside the realm of automation, tickets will be created for humans to go do the work. With luck, the work left for humans will be less tedious and more fulfilling. But we can't promise that.

At the same time, AI will combine with all the other emerging technologies to create new opportunities and new services. IOT (Internet of things) has been exploding for a decade and is probably doing one tenth of one percent of what will be able to do by the end of the decade, especially once AI is added to the monitoring and management levels. 

The technician of the future will not simply use new tools, with AI or any other technology. They will be doing a different kind of work.

Change can be stressful. And I hope you believe that the pace of change is constantly increasing. It will come faster and faster. Look at the AI boom in the last year - and adoption has been almost zero comparing to the visible potential. We cannot imagine the real potential.

You can control the stress to some degree with education and training. Get the training. Train your employees. Train your clients. Seize the opportunities. Create other opportunities.

The future is brighter than it's ever been. But remember the big lie: It won't reduce your workload; it will increase your workload. Just don't dig into the past and get stuck. You have to move ahead. So you might as well embrace it!

:-)

Shaping the Future of the Channel with ASCII Edge 2024 – The MSP Conference Series

My friends at ASCII slipped this note into my mailbox . . . 

Shaping the Future of the Channel with ASCII Edge 2024 – The MSP Conference Series

Washington, DC – December 18, 2023 – The ASCII Group, a renowned membership-based community of independent North American Managed Service Providers (MSPs), is pleased to announce the keynote speakers for its highly anticipated events, ASCII Edge 2024.

ASCII Edge is the premier multi-city event where nearly 2,000 industry professionals, technology vendors, and leaders come together for two power-packed days of collaboration and growth. With events in nine cities across North America, attendees have the opportunity to connect with like-minded professionals.

With a commitment to business education, ASCII Edge events offer an agenda that is specifically curated for the modern MSP. Exclusive sessions will equip attendees with tools and insights to navigate the ever-evolving channel landscape. They will also feature a stellar lineup of industry experts and influential MSPs who are shaping the future, including: 

Featured Keynote Speaker – Damon West, "Defying the Darkness: A Tale of Redemption Amidst Unyielding Adversity"

Damon West shares his cautionary tale and message of hope with brutal honesty and candor, using his own story to highlight the power of redemption, recovery and finding meaning and purpose in life, no matter what has happened to you and no matter what you’ve done in the past. West learned that like a coffee bean, which changes with the application of heat and pressure, he was capable of shifting the environment around him. His Coffee Bean message is a story of grit and determination and has inspired audiences worldwide.

Keynote MSP Speaker – Todd Kane, "From Chaos to Control: Optimizing Project Management in Business”

IT projects have a shockingly low success rate - under 30%! Todd Kane will show his tips and tricks to immediately and dramatically improve your team’s project success. Kane is an award-winning MSP and has led technology teams for several large and high-growth companies producing double-digit margin increases. He will walk you through effective tactics to streamline your project management and start organizing your project workload today! 

MSP Speakers:

“Tapping into the Hive: MSP Business Hacks,” Joshua Liberman, President, Net Sciences

“Operational Automation for MSPs," Dawn Sizer, CEO, 3rd Element Consulting

“Scaling Your MSP for Entrepreneurial Success,” Shawn Walsh, CEO, Encore Strategic Consulting 

“ASCII Edge 2024 will allow attendees the opportunity to be immersed in a wealth of knowledge from industry experts and MSPs. Each presentation is designed to provide direct guidance and actionable takeaways. We want attendees to leave with an understanding of the latest channel trends, strategies and technologies that will propel their business forward,” said Jerry Koutavas, President, The ASCII Group.

To learn more about ASCII Edge including full city information and registration, visit https://events.ascii.com/. 

 

About The ASCII Group, Inc:

The ASCII Group is the premier community of North American MSPs, MSSPs and Solution Providers. The Group has members located throughout the U.S. and Canada, and membership encompasses everyone from credentialed MSPs serving the SMB community to multi-location solution providers with a national and international reach. Founded in 1984, ASCII provides services to members including leveraged purchasing programs, education and training, marketing assistance, extensive peer interaction and more. ASCII works with a vibrant ecosystem of leading and major technology vendors that complement the ASCII community and support the mission of helping MSPs to grow their businesses. For more information, please visit www.ascii.com. 

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:-)

2023 Tax Break - 2024 Training for Your Whole Team

What ONE THING can you invest in today that will guarantee dividends all next year? Training.

IT Service Provider University and Small Biz Thoughts Technology Community have teamed up to provide your entire team with training that's guaranteed to make you managed service business more profitable in 2024. 

And, if you subscribe today, your annual membership is a 2023 business expense, even though all the resources and training are good through December of 2024!

Plus, you get bonus certification coupons. Each membership level includes one or more coupons for free certification exams at IT Service Provider University (ITSPU.com) that are based on the calendar year. That means you can register for exams now, and you get fresh coupons to use next year . . . next month, if you wish.

There are now three membership options (see all the details at https://join.smallbizthoughts.org):

Community Membership includes one free course at ITSPU, and one  free certification exam per year. This is great for folks who have a new business, are one-person shops, or do not have time for massive education.

Community Plus Membership includes access to ALL five-week courses at ITSPU for one person, plus three free certification exams per year at ITSPU. This is great for folks who want to dig into the managed service business model, take advantage of massive content, and work to improve every aspect of their operations.

Team Plus Membership includes all of the above for up to ten team members. That's all of the above times ten memberships. If you have team that's ready commit to the next level, you can send the technicians to one training path, Sales people to another, and even the Front Office folks to their own pathway. YOU managed your team logins and access. Plus there are additional Team benefits that include increased access to my schedule.

All of these memberships include full access to the Small Biz Thoughts Technology Community - the only place where you get total access to every book I've written (20+), plus all of my checklists, audio programs, forms, SOPs, calculators, spreadsheets, and more. Of course, we also have weekly community meetings, monthly Roundtables, special events, and more.

Our goal is to give you access to everything I've ever created to help IT consultants be better at the business side of your business!

Why Training? Why Certification?

IT Service Provider University offers five pathways to become a Certified Specialist. Assign a pathway to a team member, or move through them all as a solo entrepreneur. Either way, we guarantee to improve the business side of your business.

Certification demonstrates your professionalism and commitment to your client's success.

Share certificates and badges on your website, marketing materials, and LinkedIn to increase your prospects' confidence in you and your company.

Certification is good for IT Service Providers

Continuing education and certification signals to your clients, prospects, and even your competition, that you take your business (and your clients’ businesses) seriously.  

We understand that IT service providers are IT experts first, and business professionals second. That’s why our classes focus on the intersection of IT and business so you can build and maintain your competitive edge through your brand.

We believe that your “brand” consists of every single thing your company does. This includes the way you hire, how you onboard clients, the way you manage tickets, the contracts you sign, and . . . absolutely everything you do.

Demonstrate knowledge of the managed service business model and how it is implemented in the real world. Stop second-guessing if you're doing managed services correctly and start signing contracts with confidence. Build your personal or company brand as a certified professional

Our classes are designed to help you build your brand by building amazing procedures, hiring great people, and attracting clients you love.

For Individuals, Certification leads to increased wages

While the average IT professional received a raise of 6%, those who attribute their raise to obtaining a new certification experienced a salary bump of nearly $13,000. (https://www.globalknowledge.com/us-en/resources/resource-library/articles/5-numbers-to-know-in-salary-report-2020/)

Stand out among your peers - establish professional credibility

Professional certifications let everyone know that you are constantly moving up. When you display your certifications, you demonstrate that you are committed to your profession and to yourself.

Invest Now - Enjoy the benefits all next year. Start at https://join.smallbizthoughts.org.

:-)

All the Deets: Small Biz Thoughts Community and IT Service Provider University

 Looking for a GREAT investment for your company - at a reasonable price? We got it!

Community Manager Kara Schoonveld and I put on a webinar with all the details of our new programs at Small Biz Thoughts

and IT Service Provider University.

I created both of these organizations - dedicated to the success of all IT Consultants and Managed Service Providers. And that means they work great independently, but even better together.

In this presentation, Kara and I present all the juicy details of our education and certification programs. View on YouTube now: https://www.youtube.com/watch?v=XyGUrB9Ly90.

Plus we have some open Q&A about these programs, with a lot of focus on determining which membership level is right for YOU.

Please check it out. Join us. And make a great investment into your company's successful 2024!

:-)

The Dawning of a New Era for IT Consultants - Register now for my 15th Annual State of the Nation Address for SMB IT

Register now for my 15th Annual State of the Nation Address for SMB IT.

This year's focus: The Dawning of a New Era for IT Consultants

15 Years!

Register free:

January 10th

9:00 AM Pacific 

Register Now on Zoom

Find out more at MSPWebinar.com.

Last year we focused on the post-pandemic reboot. This year, we look ahead to more than 2024: We look ahead to the rest of the decade. In particular, we’ll focus on the challenges and opportunities in the years ahead.

As always, I bring my personal biases: A positive attitude. A focus on processes, with a strong believe in a holistic systems approach. And, of course, I try to do a bit of analysis.

Topics Include:

• Highlights and low-lights from 2023
• Technology Updates 2023 . . . and what’s next
• We WILL address more than AI and ChatGPT
• The Economy
• Speculations about 2024 – and beyond
• A strategy for balancing the challenges and opportunities we have in our industry
• I have some specific thoughts about the affect of private equity and private financing on the SMB IT economic space.

PLUS, we’ll have time for questions and answers. So plan to take notes.

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A note on the MSP Webinar site:

One of the great sites we manage is MSPWebinar.com. Take a minute and check it out. You'll find the last two "State of the Nation" addresses along with lots of other useful webinar.

NOTE: One of the great examples is my End-of-the-year checklist webinar. Now is a great time to download that resource.

Another good one is the Seven Stages of Wealth and the Economy. 

All those recordings are free, and many of them have handouts you can download.

Enjoy!

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