ERP133 - AI-Driven MSPs: Integrating Technology for Better Service

Welcome to the Evolved Radio podcast, Todd. Thanks for having me on the Evolved Radio podcast. So stoked to be here. Cool. All right, so as we do lately, we're going to be talking AI, but I think you guys have a slightly different take on this. If you want maybe give us a quick little background on yourself and your adventures in the MSP industry. Yeah, for sure. Background on me kind of of marketer by trade in my 20s, fell kind of forward into the MSP world in my late 20s, early 30s, didn't even know what an MSP was. I just took a job ad and like showed up and they were like, oh yeah, we're an msp. So I was all the way from like a tiny 3 person MSP up to like a 75 person MSP. Have kind of done all the different stops along the way. Most recently was at a big private equity roll up, rolling up MSPs, you know, really in kind of globally in the English speaking world. And now as of January, I find myself at like, I guess what is an AI? First msp, which I'm sure we'll get into, but recently joined Treeline AI. I guess that's a good place to start is what is, what does AI first mean to you at Treeline? I think the, I think I hear this term around software, maybe a little less so around operating model. So maybe clarify sort of how you, you guys understand that. Yeah, I think it just means that we're being thoughtful and intentional about the way AI weaves throughout the service layer of the business. There's like a lot of kind of thought leadership on this going out right now around what it means to be an AI company or a software company in the services space. So like this technology sort of at this inflection point now where we think it can be an accelerant to the services space, it is obviously part of that, but fractional accounting, fractional hr, whatever you could think about all the other services that are out there that'll have a similar trajectory. So for us it's just really about architecting the end to end vision of the business with AI in mind. And so rather than deploying an AI help desk agent or using AI to vibe code client portal, it's sort of like all the pieces of the business should be touching and augmented by AI in some way. So more like purpose built kind of end to end rather than sort of maybe, I guess, sort of inserted into the model. It's the condition of the build. That's right, yeah. And I think the way that we've been talking about it is rather than saying like hey, we're bolting on an AI or software product. Rather it's the convergence of the software and the service coming together across the business. And so if you think about any functional part of the business, whether it's customer facing or behind the scenes, our goal is to find a way to insert technology into that service layer in a way that's cohesive across. Right. So it's not disjointed and you're moving from point solution to point solution. It's really all encompassing. Okay, let's talk a bit about sort of the different models of operating. Right. Because you've come from a pretty big roll up in the industry. We've got AI point solutions, there's the AI roll ups that are now in the ecosystem as well. There's lots of MSPs building AI tools in house. There's sort of the SAS apocalypse threat of people as you mentioned, kind of vibe coding some things. I think that you thesis is a bit different than this. You kind of want to do. You want to maybe run through how you perceive some of those other operating models in the industry and maybe why you guys think that your thesis is the better mousetrap. Yeah, I think it might help just to start with like kind of overview on landscape as a whole up to now which has been, you know, the MSP industry and the model has been around for 40 years and you know, obviously the last 10 years have been pretty hot on the M and A side. Private equity has been a big player in this space. Strong recurring revenue, good margin, expansion, opportunity. These are usually not like super optimized businesses. And up to this point there's been sort of two models out there. One is like the private equity aggregator roll up that's rebranding the acquisition. Everyone's carrying the same logo or kind of going to market as new company. And the other was like let's just them as a holding company and kind of leave them as bespoke unique entities in whatever market they're in. In both cases the models to generate equity value or yield for the shareholders. And so there's really a focus on driving margin expansion which shows up as obviously EBITDA improvement on the bottom line. And I think the third operating model you hinted at was the AI roll up which is we're seeing those start to come online now which is kind of an update to both those models I just mentioned. It's like basically using AI as a tool or a lever in the private equity model. To expand margin and produce better yield. We're different because we are. There is an acquisitive part of our business. We'll talk about how that differs from the rollup model. But generally our thesis is not that we're trying to use AI as a lever expansion. We're trying to use AI to really update the overall experience for the end user, improve some of those common pitfalls that MSPs fall into in terms of poor response times, unresolved issues, botched onboardings, et cetera. And then our goal is to grow organically on top of that. So really our inorganic strategy or acquisition strategy we view as an entry point into some of these attractive geographies in the States. We feel like there's still a very much local dynamic in the way that this service is delivered. And so we think it's important that we're local where our customers are. But we're not trying to buy 10 companies in Houston, we're trying to buy one company in Houston, you know what I mean? And use that as a launching off point, as really kind of our distribution model for the service that we're offering now. Is that to say that you don't necessarily need to acquire all of the business, in effect, maybe a bit of a land grab strategy instead, like the core offering that you're trying to build. Being service focused is so good that you assume that you guys can win the rest of the business without having to acquire all the separate entities. Is that part of the thinking there? Yeah, I would say there's a bunch of different ways we could get this approach, a partnership like this. For us, it's really just we're trying to think of like, what are the big attractive markets in the States? How do we find the best available MSP on the market, still help them build a moat around their business in terms of like bringing AI and software into that business in a way that's largely impossible if not really difficult to do if you're a single operator on your own. And then and then turning on go to market engine on top of that, you know, building a commercial team on top of that, and really expanding in that market and trying to capture a market share. Really, you know, we have a new offering, we think it's a better experience for the end user and the customer. And we think there's some cost advantage, obviously with some of the advantage and efficiency we get out of the AI side. So how we get there, there's obviously some flexibility, but generally that's the concept that we're after the AI as it sits kind of within the operation, a lot of organizations, especially the groups that are doing roll up, they focus a lot on sort of backend efficiencies and the things that the MSPs don' tend to be great at the administrative bits, the sales and marketing are areas that the average MSP isn't as strong in. And that's I think, where a lot of that sort of industry leverage comes in. I imagine you guys have a component of that, but also I'm imagining the tool sets being different. Right. I think when we talked before, you guys are leveraging some industry standard tools right now, but are looking to eventually kind of sub those in with inbuilt models. Is that kind of what you guys are thinking? That's right. So up to this point we've had our early MSP partners have been design partners for us as we're thinking about where the opportunities are as we're building the software and the product. And so really we've been building on top of existing infrastructure. So existing psa, existing client portal, existing, all the existing service layer obviously. And then as time goes on with kind of each shipment that we deliver to market, we're replacing not just like some of the services so like we can augment a lot of those services or shortcut them for the technicians, but also replacing some of that software. So an example of that would be right now we're wholly dependent on the ticketing system to ingest requests still and kind of ship it up to us, whether that's coming from an email or a teams chat or a Slack chat, whatever it might be. But eventually we kind of view it as like the interface will be the treeline software for both the customer and the technicians. And so that's the point where the service is delivered. So this kind of gets to one of I feel is sort of like the fundamental positions for a lot of the existing AI software out there is it's either client focused or technician focused. And being good at both, I feel is maybe not a core skillset of a lot of those, those tools just yet. Any thoughts on sort of like which one leads first? Which one is maybe primary in that relationship? You know, I think I would like my thought on the entire concept is the tools are only as good as like the time and skill that you have to put into deploying them and using them. And that's true like everyone's kind of using AI personally now. So like I just finally got Claude cowork going. I was getting like a Lot of heat for not using it yet. I was like, all right, I'm going to just sit down and like kind of figure it out. And until I did that, like there was all this untapped potential in that tool that just I was not recognizing. And I think my experience again, having come out of a large roll up of these businesses, we had over 100 MSPs under our umbrella was, you know, there was a lot of variability in like how well they were able to leverage any of those off the shelf kind of point solutions. And there are really good products out there and I know a lot of the guys that have made those products and I think there's definitely like a lot of opportunity in that space still. I think for us the fundamental difference in what we see is our advantage is that we are the owners of the software and the service together. Right. So we don't have to try to. There's no enablement that we have to sell through if we're selling product. There's no education to the customer. We own all of that. And really the value that we're generating is like at the nexus of those two things combined with. So generally like if it's customer facing or MSP facing, at the end of the day, I just think it's about how well it's deployed. Yeah. And one of the conversations that I had with some of the AI manufacturers, like the software people here was illuminating and the fact that they're able to move faster than some of the larger incumbents. And I think we're, I've kind of called this out as seeing a bit of a, a bit of a pace problem with some of the larger software vendors in the msp. And that's creating a lot of opportunity, sort of white space for opening up faster software tools to kind of fill the gaps. And I think that's kind of an interesting approach. It kind of leads with a lot of innovation within the channel. And then there's a different approach I've seen from another one of the M and A roll up companies where they've basically taken that approach in house and they said, okay, you know, you know, a lot of great software, good vendors, we work with these people, but you know, just the dev cycles need to be faster for us. So we're going to do the development in house. I feel like what you guys are doing is maybe a bit of an extension of that, but actually sort of taking it to kind of the nth degree of we're not just going to build on top of the tools that we're utilizing, we're eventually kind of replacing the whole stack. Am I sort of reading that right? And any thoughts on sort of why that is necessary based on the dev cycles? Yeah, I would totally agree. And I think the big ships turn slower kind of analogy or idioms is totally true. It just takes a long time. You may have more capital to deploy more resources, but actually the coordination cost on that and orchestrating that is really difficult at scale and coupled with AI just in general is a great equalizer. And so for small businesses you have a total leverage opportunity where you can do a lot more, a lot, a lot more quickly with less skill or less resource than you ever could before. Right. You have endless possibility if you have the right resources in front of you from the software standpoint. So totally agree with that sentiment. I think for us, yeah, it is that. It's basically all the best MSPs I've ever seen over my 15 year career are the ones that are doing the custom scripting and custom development inside their business anyways. They're like, they see a novel problem for their customer, for their business, and they try to solve it with like a PowerShell script or something. Right. And I was always like amazed when I would see that. I'm not a highly technical person, so I'd just be like, whoa, that's really cool. Like you shortcutted this issue and you just kind of solved it once and forever. So in a lot of ways it's like, it's a very similar approach. It's just like how do we find these opportunities in the business as it exists today, where the value chain could be improved, the customer experience could be improved, the technician experience could be improved, their quality of life could improve. And then how do we bring technology into the fold that can fix that? I think it's just the type of technology and the depth and breadth of the way that we're approaching that is really the update. So rather than saying here's one very specific problem, we're going to deploy a script to that problem to fix it. It's more like how do we link all these problems together in the form of linked solutions that when built up on top of each other, you really get some sort of compounding effect in the overall customer experience and obviously the way that we're able to go to market because of that. So extending on that, then this is an industry where a lot of the major solutions that are out there now were MSPs scratching their own itch. Right. They got a front row seat to this for it glue being developed out of internal software that we used at fully managed, you know passportal similar. You know a lot of these, these examples Immibot I guess another like these great solutions where you know they, they had a problem internally and just decided to solve that problem on their own. I guess with the expansion of this now and people are sort of calling for the AI or the SAS apocalypse where you know, people are just sor building their own solutions and you guys are a version of this I think. But more broadly like what's your take on this impact on the sort of the software industry in the channel? Do you think that this is actually a legitimate threat or is it going to be like fine, you can tinker but when you come, you know, three months from now realize like oh well maybe we actually do need this piece of software and it's not as practical as maybe people think it is. What's your take? Yeah, you mean in the context of like AI overall being a threat to that or like tree line? No, like more sort of like, like the, you know what I've heard from a lot of people is the constant conversation that is happening at booths, in shows right now is why do I need you? Why would I not just vibe code this myself? Right. So like is there a legitimate threat to the software industry and especially in our industry with like a bunch of technically capable people who might actually do this versus like a marketing company may or may not roll their own CRM type approach? Yeah, I think it's, I mean there's trade offs so. Well one I've, you know what I, what I'm hearing sort of in the technology zeitgeist right now is that distribution sort of the next moat for a lot of this stuff. So it's not just about like can you build the products, you have to have a good vision, you have to be able to execute on that. You have to have clean code. There's a lot of other variables in there but really like at the end of the day it's like the distribution challenge is going to be where you're going to win or lose in the future. At least people that are smarter than I am are saying that. But I think like more broadly it's just a matter of like trading off resources. So for, I mean again you've been in the space a long time. MSPS are small, they're bootstrapped most of the time, they're capital constrained, they're like talent and resource constrained. Just from like a skill set standpoint, like we have really talented technicians and engineers here, but like not always the best, like software developers. Right. For example. And so it's like every time that you take their time and attention away from a current customer challenge or operating the business day to day to go do that other thing, you're making a trade off there. And some folks I think are going to be able to navigate that just fine. Maybe other folks will not. At the end of the day, I really think it's about the focus of the software industry as a whole. Like can they go really deep on a point solution? If you're going to be a software company that's distributing through the channel to the msps, are you going to have really good enablement for them? We just kind of just hit on this a minute ago so that they can get the most out of the product that is purchased from you. They're not going to, you know, shut it down in six months or whatever or try to go build their own because they think they can do it better. That's I think the problem trying to solve again for us, why we think we have a little bit of an advantage here is because we're not developing software to sell through the channel. We're trying to find MSPs to directly partner with and distribute to end customers. And so we have a lot more control over the overall value chain there and how that software is being distributed along with the service. But yeah, I wish I had a crystal ball, dude. That's probably the million dollar question. I just saw the multi billion dollar question. Yeah, indeed. I was going to say a trillion dollar. I just saw a thing last month, Julian Beck, he's one of the partners at Sequoia, dropped this manifesto on X and he was basically like the next trillion dollar company is going to be a software company disguised as a service company. And so it's like there's still this distribution opportunity in the services world. The technology is great. How do you get it into the hands of end customers and actually make it useful for them? It's a big lift to do that if you're going through a middle person, a middle company and having to educate them and train them and give them all the enablement to do it and then hope that they're successful. It's a different story if you're able to just sort of control that delivery end to end. The other aspect of this I guess is rather than focusing on the technical end of things, that tends to be where a technical industry gravitates towards because they're more comfortable with it. But the general operating maturity level for MSP organizations could be higher. And I think maybe this is the opportunity that they probably wish things could be different and could be better, but resource constrained, time starved. I just have to get this thing for this client in order to get through the day. So not necessarily thinking about the internal operations. This is much to my dismay of people not having the time to focus on improving the operations of their business because quite frankly, like this is how you create margin is. It's great to win business, but in order to keep it and actually make money, the operations have to be efficient. So maybe this is an opportunity where AI can help augment a lot of the other technical capacities and give people the time that they need to focus more on operational improvement. Do you think that that is something that people should focus more on? Absolutely. It's, you know, I'll just say like I have a lot of empathy for anyone in that seat right now. It's really hard. I've been there when it's five people, I've been there when it's 70 plus people and the challenge is always there. It just sort of like looks different depending on like where you're at. Right. So everybody wants to make their business better. And I think honestly, like, you know, one of the reasons I was so attracted to Treeline was like, I've been around this space for so long. I mean it's just, it's, it's frustrating to sit on the sidelines and go like, man, like we all want to make our businesses better in some way, but it's just, it's just really hard to do like there's all these like kind of leaks and waste along the way as you're delivering these services. So yes, I think everyone should be focused there. I do think like, you know, the, the barrier entry on doing this on your own is lower. Like people can, you know, just by way of like automating some of their other routine tasks will get time back to put into the business and new and novel ways that help them improve the overall operation. So the technology is absolutely going to help there, you know, for, for us. When I think about just like the overall operational maturity, really what I think about is like what's the customer experience at the end of the day? And like, you know, I'll go back to my own personal experience and maybe there's like, you know, A plus MSPs out there that didn't have this challenge, but it was, you know, routinely we'd hear, you know, why didn't you get back to me on time? Or, you know, this ticket had to go to three different people to get solved or you solved it and then it got reopened a couple times. Or the worst one was like we had a new customer's employee start and we like missed some piece of software that we were supposed to turn on access for or something. Right. And so there's just obviously naturally going to be a ton of human error there. And the technicians are spread thin and they're really trying to please a bunch of different customers at the end of the day. So anything we can do to assist them and make their job easier I think is a win across the board. Not to mention those guys and gals work really hard and they probably go home and take a lot of that stress with them. So it's like, how do we just improve their quality of life? Because, you know, I've had hundreds of technicians work under me over the years and you know, they're all really good people and I just, you know, they want to do the best thing for the customer in like 99% of cases. Right. And they're always, they're not always capable of it. Like they don't have the time or the attention or the resources to do it. So I think it's just a win win honestly, like the, the employee's life gets better, the business obviously improves overall and the end customer is not having these, you know, errors or you know, drops in their quality of service because of all the things we just talked about. So. Yeah, I couldn't agree more. I think it's, it's great, it's a great thing that it's coming now and helping all the businesses. So you guys are looking for some, some companies to partner with. I don't know, maybe that's, that's sort of like a, a veiled way to say acquire, I suppose. Is that fair? Yeah, I mean, yeah, you could definitely. I think that'd be a fair thing to say for us. You know, the way that we're thinking about it in the traditional private equity model, again, 90 plus percent of the time, the founders are staying on for six months, maybe a year. They've got some sort of predefined earn out that they're working towards and they're helping with like a peaceful transition of power, if you will, to the new private equity regime that's, that's coming in. For us. It's different. We're partnering with operators that want to be around for four or five years that are interested in Technology that maybe like are having trouble bringing that technology into their business on their own. Which is a common story that we're hearing right now as we're talking to folks. Like everyone's curious about it, everyone's trying to navigate it. It's a topic in the exhibition halls, the topic of the peer group rooms, but no one's really cracked the code yet. And so really what we're saying is like, that's great. We need experienced MSP people and we need them in these very strategic markets for us so that we can come and help you with the software and the AI technology and deploy into your business. And going back to our conversation one minute ago, help improve your employee's quality of life, help improve that customer and user experience, help make your business better overall. And then if we are capable of doing that, which we think that we are, everybody sort of wins in the long run. So I mean, if you're trying to retire tomorrow, treelane's not the right business for you. If you feel like you've got some track in front of you still and like you want to like see what this next wave of technology does to our industry, disruptive or otherwise, like we're a great partner, like we definitely want to be helping the industry get better across the board. That kind of answers the question I was going to lend to, but I'll maybe tease this a little further that there are like most MSPs I think are becoming a bit numb to the number of people that want to purchase them. You know, like they get two or three calls a week of hey, you know, we'd love to acquire your business. And a lot of M and A activity has been feverish over the last certainly five years and even 10 years. And I'd be curious, like that is the big one is, you know, what do you want from the next five to 10 years of your life? I think is a, is a good framing of this as well as, you know, helping people with the AI enablement of their business. I'm curious maybe a bit more on sort of the mechanics of acquisition though, right? Like a traditional M and A, you know, there's certain percentages, there's an earn out, maybe you stay on, reinvest your, your shares. There's different models around these acquisition strategies that are, that are out there and some of them, you know, this is not, certainly not naming names, but there are certain organizations and PE companies that are very profit driven. I think they're more on the margins than some of the bigger folks that you And I know, but I certainly have heard some of these horror stories where a person gets acquired and it just becomes a pressure cooker for growth and that like a lot of people just kind of working out of spreadsheets and that can be a bit, a bit daunting as like, well, this is not exactly what I signed up for. Right. As people try to work through this, I'm curious, kind of your guys thoughts and ideas around. Not that you have to expose kind of what your model for acquisition is, but you mentioned being more service focused than profit driven and that feels like a bit more of a core thesis for you guys. You want us to talk a bit more about that then? Yeah, absolutely. Well, this is coming out in April, is that right? We're going to release in April. Yeah. So first off, we're not private equity, so we're venture capital backed. We've partnered with Andreessen Horowitz. They sort of bet on us to win this, this AI and the MSP world race. And because of the venture capital backing, it's just a totally different model. So like we have a longer time horizon where obviously like trying to in the short term improve the overall customer experience. It helps us acquire more customers, acquire more revenue and grow the company both near and long term. Whereas in the private equity world, you're absolutely right, it's 100% equity value driven. And so the way they generate EV is there's a standard playbook. You have so many levers you pull, you're going to raise prices, you're going to pool vendor costs, which now you're squeezing your vendors who are no longer incentivized to go to market with you and generate business for you. You're going to, you know, there's all these cost cutting just down P and L, human capital or otherwise. And so there's, there's, it's a very standard playbook and it's not unique to the MSP world that they'll run, they'll usually run that in kind of a one to four year window. Some are holding longer than that obviously and they're going to have to figure out the organic growth strategy on top of all this because you kind of pull those levers once or once every few years. That's the only opportunity you really get. You can't raise people's prices 10% every year. They would, they would quit, they would not be your customers anymore. So just like right out of the gate, the juxtaposition between that and what we're doing, where we're like literally just going and saying like, okay, the service is good. How do we make it great? How do we make it like the best service possible for the customers? How do we find the best people in this business and elevate them into higher value activities where they're being more strategic or consultative with the customers they currently have? How do we then take that and tell that story and go acquire new customers in these new attractive markets to us? And yes, we want the business to be profitable near and long term, but the primary focus for us is like, how do we just build the best msp, if you will, in the market right now, built on technology and AI and so that we can acquire more business and over time and gain more market share and then ultimately the end goal is the profitability will come. Right. So I hope that paints a clear enough picture and there's nothing wrong with the former model. Obviously I came out of that world. I was there for almost a decade. But you're absolutely right. If people are getting inundated and their inboxes are saturated with every family office in America and every big private equity firm in the world now has a Ms. Arm to their business, I couldn't be more clear. This is completely the opposite and even the opposite of some of the AI roll ups that we have talked about where really just using the technology to produce that same result we talked about and that is not our goal. Yeah, right. Okay, cool. Well, this has been cool. Appreciate your time, Jeff. If people want to hear a bit more about what you guys are doing and maybe are curious to, to have a conversation with you, where should they find you? LinkedIn and otherwise I can link to those in the show notes. Yeah, that'd be great. Yeah. I'm on LinkedIn, Jeff, at Treeline AI if you want to shoot me an email or follow the company treeline on LinkedIn as well. Would love to connect with anybody that's curious about this kind of stuff or has. You know, my complaint inbox is open as well, so you can direct complaint mail to me too. But yeah, Todd has been great, man. Thanks for having me today. I really appreciate it. It. Have a good one. All right, thanks, Todd.