Even though Corey Kirkendoll has been in the MSP business since 2006, it wasn’t until he joined a peer group two years ago that he began contemplating what he wanted his business, 5K Technical Services, to become “when it grew up.”
Corey Kirkendoll
“Other MSP leaders helped me understand the importance of an exit strategy,” explained Kirkendoll, 5K president and CEO. He previously had a vague idea that he would hand the business off to his kids or form a board of directors to run it.
“Very few of us have that leadership and business mindset to plan ahead. If you’re not part of a peer group, you won’t shift your mindset. You’re always working in the business — and not on the business.”
What to Consider When Making Legacy Plans
There’s a pretty clear truth in life in general as it relates to business continuity. “Everything in life has to conclude at some point, and the people who don’t realize that are the ones caught off guard,” said Dawn Sizer, CEO and co-founder of 3rd Element Consulting.
Even if you have done some legacy planning, Sizer said there are things people tend to forget about, such as family members. In her case, she has an autistic child who is now an adult. “There are trusts that need to be set up and all kinds of legal documentation, so when you sell out, there’s appropriate money in place for them going forward. It’s not just about you.”
If an MSP has fashioned the company to be a lifestyle business, “there is no real reason to grow,” Sizer added. But if the plan is to hand off the business, sell, or be acquired, “You have to start thinking about the bottom line and succession planning.”
Sizer has established a three- to five-year plan for her business. “We didn’t want to sell out to a venture capital firm or another MSP, because typically what will happen is [the company] will be dismantled and they’ll take the clients they want and … that’s not who we are,” she said.
Instead, Sizer said leadership has identified three internal staff members who are interested in taking over. “We’ll be doing the first valuation of the MSP at the end of the year,” to determine how much the business is worth.
How to Evaluate Your Options
Dawn Sizer
It’s important to weigh all the available options, Sizer noted. In some cases, an owner should talk to an M&A advisor or their legal team. “It’s about seeing what’s attractive to you.”
It also depends heavily on the amount of revenue you’re bringing in. “People in the $1 million to $3 million range will typically sell to another MSP; over that, some will do an M&A or a VC or [the company will be] added to another group of MSPs,” Sizer shared.
MSP owners cannot forget to look at their personal finances, she cautioned. “Some people think they’ll make a ton of money selling but will have to go back to work … because they haven’t structured their finances properly. Think about all the things you’re responsible and accountable for.”
Steps to Take
Kirkendoll plans to sell his business in the next two to three years. Before he made the decision, he said the business was “lopsided.”
“If we lost one customer, we’d be in a bad place. I’ve spent the last couple of years right-sizing,” he explained, so if he lost one or two clients, “We wouldn’t go into a tailspin.”
Like Sizer, Kirkendoll said the first step is to determine what the business is worth through a valuation. This includes evaluating your sales team, marketing, tech stack, and recurring revenue. He recommended starting with the peer group.
“There’s no reason to reinvent the wheel,” he said. “I call that my couch time. [Peer group members] are like my therapists and my board of directors. They hold me accountable as CEO, just as I do for them. They’re people I can call on.”
Image: iStock
