How to Do MSP Acquisitions Well – TubbTalk #52

TubbTalk 52 - Mitesh Patel on MSP acquisitions

TubbTalk sponsored by Avast Business bannerIn this episode, Richard speaks with Mitesh Patel,Managing Director of Fifosys TubbTalk 52 - Mitesh Patel on MSP acquisitionsabout MSP acquisitions.

Fifosys, the London-based IT services firm, is renowned for being right on the cutting edge when it comes to the managed services model. Richard asks Mitesh about how he’s grown the business over the last 18 years, and where he’s going next.

An Interview with Mitesh Patel

Mitesh launched Fifosys back in 2001 and says it’s been an interesting journey. To begin with, he focused on organic growth, knocking on doors and giving people an alternative to using the Yellow Pages or a friend of a friend to provide IT support.

The company soon grew to include maintenance services, and along the way, they’ve added licensing management, procurement, and now managed security.

They’re currently employing around 50 staff and while most of their clients are based in London, they also serve internationally.

Mitesh on the Learning Curve of His First MSP Acquisition

Many IT business owners believe that acquisitions are a great way for them to grow their business but we’ve all seen people fail quite spectacularly when they start to go down that route. This clearly hasn’t been the case for Mitesh who made his first acquisition back in 2010.

So what motivated him to take that leap? And how has he made acquisitions work for his company? Mitesh reveals that he was prompted by a single question asked by a business growth lecturer:

“What does your business look like if your largest client left tomorrow?”

Mitesh was prompted by a single question asked by a business growth lecturer: “What does your business look like if your largest client left tomorrow?” Click to Tweet

He says, “I immediately started sweating, because we had one particular client that represented 72% of our annual revenue, and the question being asked is what gave me that wake-up call.”

Within a month he had approached an MSP who was on his radar and who had a good recurring revenue stream. They made them an offer that allowed Fifosys to reduce their largest client down to about 17%.

Mitesh admits that it was a steep learning curve. As well as losing a significant number of staff (due to a culture clash, an increased commute and other factors), Mitesh experienced around a 30% drop in the acquired company’s client base within the first two years as they were forced to raise the rates beyond the £6 per hour some clients had been used to paying.

He explains, “There were lots and lots of learnings from the first acquisition. We ended up wasting a lot of time, energy and effort going down certain routes rather than just focusing on delivering a better service to the existing client base.”

MSP acquisitions – Second Time Lucky…

By the time Mitesh made his second MSP acquisition, things ran more smoothly, thanks to the lessons learned the first time around. He explains that by that time, they already had their toolset in place and knew to ask the key question: “How easy is it going to be to migrate them into our culture and into our processes — and how swiftly can we achieve that?”

And because they were ready to absorb the existing cost base swiftly, they were able to deliver added value to their clients. “The MSP that we acquired didn’t offer 24/7 manned support and NOC (network operations centre) services. That’s something that we did, so we went to see those clients and said, ‘Great, your rates are going to stay the same, but we’re now going to offer you something more.’”

Future Growth for Fifosys: MSP Acquisition vs. Traditional Sales and Marketing Techniques

While MSP acquisition as a growth strategy has been working well for Fifosys (they’re on the verge of confirming their third), Mitesh’s preference is to use a combination of both.

He admits that in the past they haven’t been consistent in their marketing efforts, investing in tranches and giving lead gen companies a few months and then dropping it for another few months before starting again. It was a stop/start approach that didn’t really work for the business.

However, Mitesh explains that he’s now taking a very different approach, having invested consistently in sales and marketing over the last 18 months. They’re focusing on educating their market, without necessarily asking for a sale at the end of each blog or using a call to action and he’s found it a much less intrusive way to get prospects and clients to engage with the company.

Fifosys are focusing on educating their market, without necessarily asking for a sale at the end of each blog or using a call to action - a much less intrusive way to get prospects and clients to engage with the company. Click to Tweet

He says, “by giving them free training, they get to learn about us and what we do. Then when they’re ready and the time is right, then they will come to us. We’re having huge success by changing the approach in that way.”

Mitesh on His Current Tech Stack — and Consolidating Vendors

As Mitesh says, your modern-day business starts in the cloud, so Fifosys has an infrastructure in Azure, AWS and G-Suite, having consolidated their private cloud down to around 20%.

Mitesh says, “although we do have clients who are still in our private cloud or have taken rack space within data centres, I believe it comes down to a compliance and auditing requirement – if your auditors are required to turn up to your data centres and plug their laptops in to evidence what you have, then you need to go into a private cloud.

If you don’t, then a public cloud offering should certainly be considered. More and more, I’d probably say about 80% of our clients have a hybrid infrastructure, with a dual degree of infrastructure on-premise and the rest in the relevant cloud solution that’s available to them.”

For security, Mitesh explains that rather than stick with multiple vendors, around 90% of their data backup, business continuity and disaster recovery is actually now with Datto, which is what they’re also using as a point solution. Not only does consolidating vendors offer greater transparency for clients, but it’s also preferable from a staff training point of view, and can provide financial gains as vendors are more motivated to negotiate a deal.

Mitesh’s Philosophy on Leadership: Keep it Simple

Clearly, to have grown Fifosys from nothing more than an idea to the successful business it is today, Mitesh must have learned a thing or two about leadership over the last 18 years — so what does leadership mean to him?

He says it’s about practising what you preach and keeping it very simple. And he says it’s about understanding that they’re a technology company first and foremost.

“With some of the MSP acquisitions that we’ve made, we’ve found that they forgot that they’re actually a technology company. They thought they’re just a customer service company. There was a period of time when I moved away and went, ‘No, this is all about the number of tickets, number of instances, the response times and so forth’”.

Mitesh has seen a change in the MSP market though. About 10 years ago he noticed product vendors telling MSPs, “You’re a customer service company” but over the last few years, they’ve changed their tune.

Now, he says, companies are realising they’re a technology company first and a customer service company on top of that.

“From my point of view, the leadership around the actual technology stack is absolutely important. As is understanding why you need to do these things and what messages you need to give to the market. We’re lucky that there’s so much evidence around the market, especially around security and all the threats that are actually there.”

A final thought on leadership for MSPs? Take care of your team; make sure they’re constantly growing and developing:

A final thought on leadership for MSPs? Take care of your team; make sure they’re constantly growing and developing. Click to Tweet

“If we’re not learning we’re not developing, and if that’s the case, neither are we giving ourselves the opportunity to educate our clients on how to increase the use of technology to deliver the operations of their business.”

Ultimately, we’ve always wanted to get beyond the basics. It’s not, ‘Is my internet working? Is my phone working? Am I receiving an email?’ It’s wanting to elevate the conversation beyond that, in terms of how you can use technology to help you make more money.”

The Future of Fifosys

What do the next 12 to 18 months hold for Fifosys? For Mitesh, it’s a focus on the security side of the business and opening doors to a larger client base in terms of size of business.

He sees larger, outsourced organisations struggling to cope with the level of support required in today’s market and the opportunities that might bring. “It is always about increasing the annual recurring revenue, but how can you do that with a point solution rather than calling and saying ‘Give me everything’?”

“This whole ‘give me everything and I will be the best in every single area of your operational IT’ is a challenge for MSPs, or for many of them. It requires you to get to a certain size to be able to make that commitment, so if you’re not at a certain size where you can make that commitment, then you’re already compromising.

We are fortunate that we have managed to hit a certain size where we don’t need to compromise.”

The Rise of PropTech

We’re all familiar with FinTech, but we’re now seeing the rise of PropTech, and Mitesh is blazing the trail with his latest entrepreneurial role as CEO of Engage Property Technology, a company that has come up with a way of automating interactions between tenants and landlords.

It’s an enterprise that has actually highlighted an interesting point for fellow MSPs, about SEO.

“We work with an SEO company, and we put all of our search terms for Fifosys into Google to see how many times a month they searched. This is for ‘data backup’, ‘IT support London’, ‘IT support,’ ‘cloud computing’, ‘Office 365’ – you name it, all those search terms,

All those search terms are put into Google 1.4 million times a month in the UK. On Engage’s side, our related search terms are put into Google 4,300 times a month.

So it tells you about the levels of maturity within the market. I was like, ‘Oh my God! That’s why it’s been so difficult.’”

How is Fifosys making a difference?

Thanks to Mitesh for sharing his journey. And in return for his words of wisdom, he has a question for you.

With Engage, he says, it’s easy to answer the “how are you making a difference to people’s lives” question: “it’s a single product in a single sector which makes a difference to people’s lives who rent.” With Fifosys, however, he stumbles.

So over to you, how do you, as MSP business owners, answer the question “how do we make a difference to people’s lives?”

I’d love to know too, so stick your answer in the comments and let’s keep this conversation going.

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