ERP134 - Navigating Rapid Change in the MSP Channel

Michael, welcome to the Evolved Radio podcast. Thank you, Todd. Pleasure to be here. Excellent to have you. So you have a very interesting career in the MSP space. To kick things off, do you want to tell us a bit about your journey? It's a long adventure. You can give us the shorter version of this, where you've been, where you've come to now. Okay, I'll try to keep it short. I'm an old guy, so I'd say I'm an accidental lawyer. I graduated law school not knowing what I wanted to do with. I graduated from college not knowing what I wanted to do with myself. I still don't, but that's another story. And enjoyed history, political science, political philosophy, and studied and decided to go to law school like a lot of other people at my, at that phase of life at that time. And you realize when you're in the middle of law school that the only thing that you're, they're training you to do is to go work at a law firm for like five years to learn to actually practice law. It's like think about a doctor who just gets out of medical school. They're not ready to practice unsupervised. And so that's what happened. That's what I realized. And so I took advantage of that realization, worked as a lawyer, and then once you're five years into working as a lawyer, you've got a lot of sunk costs into the deal. So, so I kept working as a lawyer. And by the time I was 42 years old, I had practiced law and done a few different things, but mostly in the legal field, but was really unsatisfied with the legal career up until that point. Really very much of a journeyman, I would say, jack of all trades. And just so happened to be across the old conference room table with a 27 year old founder named Austin McCord at the time. This is 2013 and I was looking for an adventure. He was on an adventure and needed a, needed a Sherpa of some kind. He and I, or caddy, he and I hit it off quite well. Our personalities and the, the things that he needed were things that I was capable of helping him with. And so that spawned a interesting partnership. And for me it was the beginning of an adventure in MSP land. I joined the company as general counsel. It was about 100 employees at the time. And Datto grew to be a public company with more than 2,000 employees. I was the general counsel and head of HR for two different CEOs over the years and got to be a part of that entire journey of scale. And I thought, I mean, I think that that was the best job in America. I did that for like nine years. When it came to an end, I pivoted a bit and started working in venture capital again with Austin and his, his other partner, Teddy. And about a year into doing that, we, Austin and I decided to. That it was time to rekindle the magic. And that's how we started Slide. Awesome. So we'll. Yeah, we'll, We'll. We'll. We'll jump forward a little bit here. I want to linger a little on Datto, because it is. It almost has sort of this mythic status in the MSP ecosystem because of. I think the timing was so right and the sort of meteoric growth that you guys had. And when a company grows that fast, there's sort of this public narrative of success, but privately, there's usually some cost in the background. What did you guys see as a leadership team and as individuals, that it sort of cost you or the people around you? And how did that influence. How were you going to do things differently in Slide? Well, there are so many costs. Most of the costs are, you know, like badges, you know, so they're, they're, they're less. The generals badges, you mean? Yeah, or like a Cub Scout or Boy Scout badges or whatever, you know, I think their lessons learned. And so as much as they may have cost, they were valuable. They were worth the cost, I would say. I can't ever regret any costly mistake or endeavor because we always learn so much from them. We had a lot of different people in different leadership roles over the years in Datto. And I think that the most interesting observation from looking back on that entire arc of time was the, the ability for the business to evolve with different people who spiked in different areas at different times in the timeline of the organization and its development. And not everyone is right at all the right times. And that's a hard lesson to learn sometimes because a lot of people that bring you there don't necessarily have the experience to do the things that the company needs to do in the future. And a lot of people that join who have a lot of experience aren't really set up for the swashbuckling craziness of a startup. And so timing is really important throughout the life cycle. When you talked about timing, I'm thinking to myself, well, you know, at which, at which era, in my mind, I have many eras in that adventure. So the mistakes are pearls of wisdom. As long as you don't die from them. And so there's innumerable. But I'd say the most important takeaways there were that we all have our sort of butter zone. And being able to identify people's butter zones is a learned attribute that I think has helped me in this adventure that I'm on now. Cool. Okay. That sort of pace of evolution and the changes that you guys saw, I think there's a parallel with MSPs as well, especially now. I used to joke that the IT industry is a great industry to be in because the novelty, because the change, like everything has a shelf life of about six months. And now with a lot of the technology changes we're seeing, it's more like the technology has a shelf life is six weeks. So the pace of change is just so wild. That sort of rate of evolution, what are you seeing as far as impacts or questions from the clients that you're dealing with now about how that is impacting their business or how they need support from you guys as a vendor? What does that materially change or what observations do you have about how that evolution is changing the MSP channel? So I, I think my, that's a really good and difficult question. The I, I have a very strong thesis on the value of MSP as the transit transmission mechanism for IT services to be delivered to small and to medium enterprises across the globe. And so as small to medium enterprises manage greater complexity in their digital space, they become more and more reliant on the effect of MSP to run their business and not get caught in a, you know, catastrophic cybersecurity event or a similar disaster or, or not keep up with modern workflows and so as not to keep up with their competitors. So today, this day and age, well, we've seen waves of technology fall over the SMB IT space and we've seen timing be so important for the growth of the MSP delivery mechanism. And so I, that's only strengthened my thesis for the, the, the MSP space. And as we move into a world of AI and digital transformation at a pace that no one's ever seen, the MSPs that are looking around the corner, looking around the bend, learning modern workflows, learning modern tools, learning modern security threats and. Living with that, learning IT for their own businesses so that they can then translate that into being that for deployed AI specialist, for the SMBs who are going to need them for that so badly, those MSPs that get that are going to be exceptionally valued and there's MSPs that are not going to get that or they'll be behind the curve and they're going to struggle. Yeah, like one of the sort of the dirty secrets is the open secret now of the MSP industry and service leadership has talked a lot about this historically of 25% of the industry is break even or losing money. Do you feel like that curve will get steeper as maybe there's increased consolidation or the threat of these MSPs needing to adapt as things get harder and harder for them in the channel? Do you think this is a different circumstance than it has been through the changes in Cloud and the changes in security? Does this feel more existential? Maybe. The greater the reward, the greater the risk. Right. That is the essence of this Life. And the MSPs that don't stay ahead of the curve with modern technology are, are going to die and. But that's always been the case. Is it more, is it more existential now? I think it may be. It might move more quickly. But I also think that there's always, there's always winners and losers in all of these technology transitions. And my expectation is that this technology transition is going to be so overwhelming and massive that there's so many opportunities for winning that I just assume pay attention to that side of the, of the wave, then worry too much about the backside of the wave. Yeah. Okay. Both at Datto and with Slide, you guys have been very intentional about leveraging the channel as a go to market strategy, not doing direct sales and a real strong belief in what the MSP channel provides as a partner for you guys as a vendor. You kind of talked a bit about this of like a really strong thesis of the importance of MSPs. But what is sort of the internal discussion, especially as you guys rebooted with the go to market for slide of why the MSP channel as a delivery and a sell through model is so important. What are your thoughts on that. Thing has changed in Austin or my philosophy around this? If you go and read the S1 registration statement from 2020 from the Datto days, it's long but there, you know, most of it is, is legalese. But there's some really important provisions in there that really set out the thesis and there's just no way for. Well, as, as SMBs manage more and more complexity in their businesses related to their digital transformations that they're all going through and that complexity relates to how their work gets done, how secure their environments are, how, you know, how, how efficient their people are and that's just getting fat that's just moving more and more quickly because SMBs have profits that they need to protect, they have stiff competition, and in order to stay ahead of the curve, they need to be digitally transforming all the time. And so that, and again that pace is just getting faster and the complexity is just growing. And so that just makes MSP more and more central to their success. If they're to be successful, by and large, they will need excellent IT Sherpas. And that's just a virtuous cycle for me. That's an exceptionally exciting marketplace to have an opportunity to participate in. Yeah, I think we agree pretty strongly on this point about the, the importance of MSPs leveraging what they're learning and how they're adapting their businesses and what they can actually teach their customers about those lessons. I don't feel like this is something that a lot of them recognize in themselves of the, the necessity for competition and understanding all the aspects of business are pretty universal. Like they, they tend to be technically led organizations, so they do focus a lot on technology, but as they continue to grow, they focus a lot more on the traditional HR functions and management and scale, the marketing and sales functions, which don't come naturally to a lot of the technical founders. And I think that there's a lot that they can turn and lend to their customers around digital transformation of the things that they've learned about their business, but are probably 80% applicable to their customers as well. This is sort of that evolution of how people are consulting to their customers and moving more to a business consultant rather than just purely a technical consultant. Right. MSPs that I talk to, that I listen to most carefully, whom I learned the most from are ones that are digitally transforming their own businesses. And they are taking the learnings from that process and then being able to translate those learnings into tangible results for end clients. And at the end of the day, if there are no tangible results, this ain't gonna work. And so the only way for one to obtain tangible results is to know it and live it. In my view, eating our own dog food. And so there's no room for the cobbler whose kids shoes are shoddy or whatever that metaphor that I just mixed really means. But the MSP cannot be that effective for deployed AI and security engineer, digital transformation consultant, without having really understood it and lived it themselves. And so the ones that, at least that's my takeaway from my learnings to talking to MSPs whose opinion I value more than others. Perfect. The other part I'm interested In it's just a bit of your guys's view of market dynamics. Right. I think Slide, do you go. Maybe I'll ask this a different way to sort of get sideways into this question. Do you guys view Slide as a bit of a rebel in the industry? Is that part of what you would identify as sort of the hallmark of how you guys are participating in the channel at all? Or is that maybe me extrapolating things onto you? We're really not seeking to embody any image other than a partner, a true partner. And maybe that is a rebellious part. Is that the rebellious part? Maybe, I don't know. Our job is to help MSPS build their business and I think there are a lot of technology companies in the MSP space who may not view their jobs that way. They may view their jobs as to extract as much value out of msps. We're trying to sort of, you know, make the, the tide rise rather than, you know, suck the, suck the water out of the, out of the bay. We really want MSPS to be successful. We think we're going to have the best solutions to help them become successful. And so we think that's going to help us in the long run. But I, but if you think about the values that this crew of individuals carry with them, it is aligned with doing the right thing, doing what's best for the msp, not looking after short term gain, doing your life's work. And so we don't really think about how that might impact our image across the landscape other than as a strong partner and a great technology company. Okay. And part of the reason that I'm curious is like I do feel like there is an intention to do things differently. Right. Like you guys had some type of magic with Datto and you know, the post acquisition and maybe things felt or looked different, not what was imagined in the earlier days. And Slide as an opportunity to sort of revisit what made the, the sort of, the, the earlier days of Datto magical. Is, is, am I again, am I applying something that isn't there to you guys or that there's some truth to that? Yeah, I think the whole idea here is that there is a need in the market that we identified, I believe for a couple things. One, technology that is developed in the very recent past, you know, modern technology using modern tools to solve business problems using the freshest, best people and tools and technologies underlying them. And it's, you know, when we challenged this team to build a modern BCDR infrastructure, we asked them to go to first principles and build something that was. Markedly better than, than what was there before. That was always our pedigree. But you know, it's hard to, you know when you, when something is rests on a 20 year old foundation, there's only so much you can do with it. When you start from scratch and you spend a year and a half, two years in the lab, you have the ability to be inspired and to create that inspiration that we always sought in the old days. The other piece that is super important is I alluded to this a little bit before. The values to us, it shouldn't be thought of as doing things differently as you described. It should be described as doing things, doing the right thing, taking care of your partner, being a true partner, valuing the long term relationship over short term gain, doing, you know, encouraging, inspiring. Hopefully your, your. The people around you to do their lives work. That's, that's different. Okay. I mean I don't know. I mean I think that that's the best, the best I can be the best I know how to. Those are the only tools I have in my quiver. Only arrows I have in my quiver. And so the fact that those values carry on from one organization into a new organization, well that's just a reflection of the human beings who've, you know, who've assembled together to form that organization. Cool. And like related but not related more on sort of the technology and the sort of the, the idea of the direction for the organization. I feel like the era of platforms is very pervasive in msps and there's sort of a strong pull for a lot of the vendors to create a one stop shop in everything that they do. And you guys have been obviously very intentional about the solution that you provide and doing it really well. Has there been temptation to do other things as you start to scale up and grow or what do you guys talk about internally of maintaining that sort of deliberate focus on. This is what we do. We do this really well in enabling our customers to have the best platform or the best solution possible for go to market. Is that a temptation based on market dynamics or how do you guys think about your, your deliberate focus on what you guys do? Currently we're pretty, we're pretty deliberate in our passion for our chosen field. Right. So we are a backup company. We, we are MSP only. Right Channel only. And so MSPS backup and our have the privilege of protecting data on behalf of their end clients that lives in lots of different places and that's laptops and desktops and mobile devices and Azure Workloads and workloads that sit in O365 applications like that, additional servers, virtual servers, et cetera, of Linux boxes, Microsoft environments. We have a massive field to cover. We have only, we've only touched on one piece of that so far. We will be the backup company for MSP's period paragraph. Our first shot out of the Canon is the BCDR piece. There's a few different reasons why we chose that. First, it wasn't obvious originally. A lot of investors and other people say to me, why would you do that? Why did you do that? And we were very deliberate about that choice. One, this is BCDR is an extraordinarily hard technical problem to solve, believe it or not. Many moving parts and low level access to some really dense stuff. And then you have to, you have to coordinate all these, all these data flows. You have to present them in an elegant way. You have to keep them secure. You have. And so that technology in MSP land rests on 20 year old tech for the most part. And it's so, it's the most neglected piece of tech out there in our view. It's a big piece of the market in our view, in our experience, and it's not going anywhere. As it moves, it evolves. Some workloads go here, they go there, they come back, they navigate, they migrate. At the end of the day there's a massive need out there to back up server workloads on prem server workloads. And the tech is old. And so we thought, well, that's also the basis for backing up on a direct to cloud basis. It's also the basis for backing up a workload that lives in a virtual server in Microsoft Azure. There are so many foundational pieces of our future stack that are based on the big BCDR product. So that's why we started with the hardest problem first. We had the time that we needed, we had very talented people and we, we were looking to be audacious. So long story longer, we, we have a massive field to cover before we start getting cute and doing other things. That said, we're also entrepreneurs and stuff happens, like opportunities happen that you don't know. You're walking on the ground. You see a $20 bill in the park, it's a $20 bill, you pick it up. Sometimes there are opportunities that you don't expect. And so I'm never going to be dogmatic about all that stuff, but we're very clear eyed on all the things our partners are asking us for and all the things we feel like we can help them with. So fantastic. You've had a really interesting seat, I think, like because being in the early days of Datto through sort of the days of, you know, the funding run up to going public and then the sale and the transition, all that, that, that history I think is really fascinating. I'd love your perspective on how sort of different funding vehicles and money in the MSP ecosystem is sort of reshaping things. So there's obviously the private equity both on the MSP acquisition side as well as private equity in the vendor side. And there's obviously some mixed opinions on. Now we're actually seeing VC money coming in as well and there's mixed opinions on the pros and the cons of the PE involvement with both MSPs. And there's been some great wins and there's been some eroded trust as well. And I'm curious, sort of what you think about PE money in the industry as a whole, where it's been acquisitive or helpful or, and some areas where it's maybe created some rifts or some broken trust and what sort of those money vehicles mean for Slide and how you think about approaching or taking on investors, those sorts of things. Very good questions. It's, it's a very complicated question because. There's, there's a great VC behind some of these companies, right? And there's VCs that are, I wouldn't qualify characterize as great behind some of these companies, right. There's private equity sponsors that are, are doing great things, they're building great businesses that are going to be very valuable and that are delivering value to their, their customers. And there are private equity shops that are not, I'll say, and I'm not really trying to be political here. I'm trying to just be. As I've seen it. I'll give you two examples. One, when Datto originally we were planning on going public back in 2017 and we made a strategic decision to, to, to sell the company, a majority of the company to a large private equity firm that the private equity firm merged us with Autotask and what emerged from that was a private equity backed monolithic, if you, if you will. That's a term that I use a lot of the time. Platform is a term you use that from my point of view for several years continued the magic. I mean I really, I feel like that last four years of running Datto as we went and became a publicly traded company and then, you know, hooked in, given the fact that we were now A platform. We had to fill out the platform. Right. And so we did some interesting tuck in acquisitions and it was an incredible adventure. And at the end of the day, throughout that process, those values were etched on the walls. It doesn't matter who owned the majority of the company. We ran the business the way that we wanted to and that was successful. That was a rising tides scenario. I have seen other scenarios where private equity, and again when private equity comes in, depending on where they are in their journey, they usually pay top dollar for the business. So their opportunity is both grow the business but also make the business more efficient. And so they will seek to do both really strongly. And some firms are more focused on cutting the costs and getting the most out of getting the most out of that business in cash. Some of them are more focused on building a bigger business and reinvesting some of that cash into the business. I've seen both. I happen to believe that right now in MSP land there is a glut of platforms, as you would call them, that in my view are running largely outdated technology that are not great at any of the things they do, that are not differentiated in any of those things, that are not focused on necessarily the kinds of values that make us successful, in my view. And so we're seeing a lot of MSPs look to non platform vendors to get the best products in the space and expecting those, those best of breed vendors to play nice together and to have strong APIs and have modern tool stacks and to integrate with one another and to enable them to grow their businesses and do that in an efficient way. And that's sort of where I stand in this whole thing. Fantastic. I guess just looking to wrap up. I'm curious, given the different levels of exposure that you've had to all sorts of parts of the industry, both on the client side as well as the vendor side and the different funding vehicles and all the adventures that you've had. Any general advice for both the MSPs themselves as well as maybe some smaller vendors? We're seeing a lot of sort of stuff bubbling up from the surface as people are breaking away and kind of doing their own thing. A lot of constant entrepreneurial spirit in the msp. And what would you sort of suggest given your experience for both of those parties with those MSPs looking to digitally transform and the vendors looking to break into the market and grow their companies? Get out there. MSP land is the best. MSP land is the best. There is nothing like being on the in a boardroom or in a. On a conference, you know, expo floor. When you have curious MSPs wandering around that floor and seeing you and your competitors going at each other trying to, trying to compete for business, that's where great ideas come from. That's where the competitive juices emerge. That's where MSPs go to learn this stuff. That's where. That's where vendors either rise to the occasion or wilt. You have to be out there, get out there. This is a unique space where anyone can get out there. There are more opportunities than you can imagine to get out there and just whoever you are, if you're an msp, go to an event where your vendors that you're interested in are present. If you're an MSP. I'm sorry, if you're a vendor, go to where MSPs are hanging out and get as much feedback as you can from them and talk to them, learn from them and your business will be better for it. Fantastic. I appreciate your time, Michael. It's always interesting to catch up on what you've seen and the insights that you have. So I appreciate you sharing and coming on. Pleasure. Thank you, Todd. Great to see.