After Big Cash Out, MSP Founder Misses ‘Tough, Tough Business’
Many outside of the Lone Star State were surprised when Forbes recently ranked the capital of Texas as the top city for technology job creation.
In fact, Austin’s reputation as the “second Silicon Valley” stretches way back to the early 1990s, when it emerged as a bustling venue of the dot-com boom shortly after Michael Dell founded his computer empire while a student at nearby University of Texas.
At the height of those heady days, investors poured money like champagne into the proliferating new tech enterprises of all shapes and sizes.
“We were right thick in the middle of it,” said Tommy Wald, who founded RIATA Technologies there in 1993.
Three years ago, Wald left RIATA, cashing out big when the reseller-turned-managed service provider was acquired by Ricoh’s Mindshift.
Not bad for a startup he launched two decades earlier in a back bedroom as a data backup shop.
Equipment back then consisted of a portable cassette duplicator, which he used to make copies of data from the personal computers at local businesses.
“I would take it from office to office and back up business data,” Wald said. “I’d take it back to my office, and stored it in a safe.
“They were reliant on me if they ever needed the data.”
Soon, the local bustling tech culture created insatiable demand for IT products and services, and RIATA Technologies evolved into a traditional reseller of servers and networking equipment.
Times were good.
That changed abruptly in 2001, when the combination of terrorist attacks and a bursting dot-com bubble shut off the spigot.
“We had the rug pulled out from under us,” Wald said. “Everyone stopped buying hardware. Nobody bought anything.”
When the smoke cleared, the reseller business was in shambles.
Margins on servers fell from 45 percent to about 10 percent, as consumers began to buy mail order and online, directly from vendors.
Wald recalled how he and his associates lost “a ton lot of money,” and that “there was a lot of carnage.”
‘The First Managed Service’
Like many IT firms that remained afloat, RIATA Technologies turned to professional services.
“We started doing recurring services,” Wald said. “I created a program where customers paid a small subscription rate to get access to my engineers on a regular basis.”
For the fee, clients would get discounted engineer time and four hours each month of proactive server services, including diagnostics, patching and checking tape backup.
The company invested in a data center and an early network-monitoring tool from WhatsUp Gold, that would send an alert whenever a server went down.
“That was the very first managed services offering,” Wald said.
He was among a group of MSP entrepreneurs who got together regularly under the name “True Profit Group,” to fine-tune the business model.
About the same time, technology was advancing the tools of MSPs, like remote monitoring and the first PSA platform.
Wald recalled ConnectWise founder and current CEO Arnie Bellini’s hands-on role at the time.
“Arnie personally came in and did a training and installation for us,” he said.
By the start of 2003, things were looking up again.
“We knew we were on track because our bottom line really picked up,” Wald said. “We were beating out our competition, hands-down.”
The company’s calling card became: “We manage a full-time network at part-time cost.”
“We owned Austin,” Wald said. “We sold a premium product, we had a very well-defined business development engine and as a result, a lot of that dropped to the bottom line.”
RIATA Technologies was running so well that even the great recession couldn’t derail its growth.
“It was barely a blip on our radar,” Wald remembered. “We were so well positioned with our service offering, companies just couldn’t get IT any cheaper that what we were offering.”
While businesses everywhere were slashing employees and other costs amid plunging revenue, Riata was picking up customers.
“Companies cut IT staff FTE’s and outsourced to us,” Wald said. “All that, combined, left us in a really good position.”
‘The Company is Always for Sale’
Such operational efficiency is rarely an accident.
In addition to formal IT training, Wald holds a degree in accounting and worked as a tech consultant at a “Big 8” firm.
“I would tell you that 19 out of 20 MSP owners don’t know how to read a balance sheet,” he said.
The company became a model for other MSPs.
“We were well known in our industry for best practices,” he said. “We were very open with our best practices and companies from around the country would come in and watch how we did things.”
Talk of a sale picked up around the turn of the decade and, like everything else Wald does, it came down to a pragmatic business decision.
“The company is always for sale,” he said. “As business owners, the whole reason we’re doing this is to achieve some form of financial independence.”
Riata’s owners maintained a good sense of their company’s valuation and had engaged a solid mergers and acquisitions consultant.
Each time a suitor would come around to kick the tires, Wald and his partner would hear them out.
“Many were looking for a fire sale,” he said. “I got to understand what a good offer was and what a bad offer was.”
A key piece of evaluating the offers, Wald said, involved the owners giving real thought to specifically what they wanted.
For example, Wald decided he didn’t want an earn-out as part of the deal.
In 2011, Riata was approached by two investors who had come around before. They didn’t have a background in MSPs, but had just bought a smaller competitor in town, and had plans to buy others in the state for a regional, then national footprint.
This time, the terms were right.
Wald took a cash out and retained the job of CEO.
Two years later, the growing chain of MSPs was bought again by Mindshift, and he walked away for the final time.
“It was bittersweet,” he said.
After running so hard for so long, Wald had secured his family’s future and figured it was a good time to “throttle back a little bit” and spend time with his two kids, aged 12 and 14.
“All those things are very good,” he said. “The bitter part of it, you had a lot of relationships at the company, employee-wise and customer-wise.”
It wasn’t long before he felt some anxiety.
“You never know how you’re going feel,” Wald said. “I had withdrawal symptoms.”
He still does occasional advising and consulting, keeping a toe in the water and sharing the lessons of two decades with a new generation of MSP owners.
One lesson in particular gets shared often.
“It’s fun, but it’s a tough, tough business,” Wald said. “People don’t call you when they’re having a good day.”
“This is a business where they call you when there’s a fire to put out,” he continued. “It’s a very intense, high-stress, high-pressure kind of business.”
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