mindSHIFT CEO: Managed Services Merger, Acquisition Insights
Paul Chisholm, CEO of mindSHIFT (an MSPmentor 100 and Talkin’ Cloud 50 company), is sharing some secrets to managed services success; merger and acquisition valuation points; and growth strategies during Schnizzfest, a TruMethods conference held today in Philadelphia, Pa. TruMethods CEO Gary Pica just wrapped up an on-stage interview of Chisholm (pictured), who addressed roughly 150 managed services providers. Here’s the recap.
Fast Stats: mindSHIFT generated nearly $100 million in 2010 and $13 million in earnings. The company has roughly 500 employees. Seventy-five percent of revenues are recurring, and 45 percent are cloud-related. Half of the company’s growth has come from acquisition and half involves organic growth.
Track the Metrics: Chisholm and the mindSHIFT management team measure the company’s business metrics daily, weekly, monthly and quarterly. “You can’t have 500 categories,” he said. “Find the 10 key metrics that drive your business then focus the entire company on them. Get down to a unit-based system — such as revenue per person per hour.”
- Don’t hire a resume… hire people.
- Employee and customer referrals are best way to hire.
- Be successful as a company and people will seek you out.
- Build up your reputation in local geography.
Share: mindSHIFT company hosts a WebEx meeting with employees every month, sharing financials and talking about successful engagements.
The Future: Chisholm said he expects margin pressure to get a bit more difficult and consolidation will continue. He pointed to SaaS and cloud as two areas “where you don’t need to do it all yourself and it’s not a panic situation. There’s always a place for good service organizations.”
Mergers and Acquisitions: mindSHIFT has acquired nine companies. Roughly 80 percent of the U.S. managed services market involves MSPs that generate $1 million to $7 million in annual revenues, Chisholm estimated. “This is a business you need to know and understand to be successful,” said Chisholm. “This is the hardest business I’ve ever run. There’s so many chances for failure. So process and people are critical.”
Chisholm said mindSHIFT typically acquires one to two companies per year. Pica stated that “it’s not a roll-up strategy… it’s a strategic acquisition business.” Chisholm agreed.
Components of a Valuation:
- The first thing Chisholm said was “we look at people, not numbers. You date before you marry to understand the people and the culture.”
- On the financial front Chisholm asks “How much is recurring revenue, professional services and hardware revenue? Is recurring just block hours or true service? Is it delivered remotely or via on-premise people?”
- “And obviously we look at earnings: How much has come to the bottom line and what can mindSHIFT bring to the party to make it better?”
- “Is there really a sales model? If you really think you’re going to grow 60 percent tell me how you’re going to get there?” said Chisholm.
Advice to Entrepreneurs:
- Start your company as if you want it to become a public company — so that you have discipline, structure, metrics.
- Hire the first three people very carefully because that’s what sets the culture.
- Have a focus.
- Don’t be afraid to tear up the business plan and start again.
That’s it from Paul Chisholm. More insights soon from the Schnizzfest conference.