About the Episode:
The hot topic of the day is risk. When was the last time you evaluated your’s? I’m not talking about what risk level you want for your investment portfolio, I am talking about your risk in your life, in your business, in your future. This is the time to risk more, so where is your level of risk sitting and why haven’t you modified it?
Listen to the podcast here:
Watch the episode here:
- Charge on your value
- Eliminating your customer’s urge to shop
- Expose your Risk and evaluate
- Clarity on what services are in what package you sell
- Risk Avoidance and mitigation conversations
- Risk to change, or risk to staying the same?
Hey, what’s shakin’, today? We’re definitely going all in. This topic has been on my mind about risk lately. And I know this is something that everybody here that’s watching this listening needs to hear, with all the banking collapse taking place, what are we going to do in business, right as service providers? What are we going to do in business? What does it mean for us, and even conversations that I’ve had internally with employees who are actually looking to move on to something else right now, because they’re evaluating their own risk and what’s taking place in the world, in the marketplace, even in the house within Reachout. And it started to hit me on a couple of things. And this is what I want to talk with you about today is some of the risks that you should be taking and some of the risks that you should not be taking going into the remainder of 2023. Over the next year. There’s a lot of weirdness that’s happening. And I’ve always looked back at this, and this is something that’s going to just be thought-provoking for you today. There’s not a lot of, hey, take these five steps and go do this, there’s not a lot of you write down this list of things and then go after this today. That’s not what today is about today is about provoking thoughts, and moving you in a specific direction.
So as I was talking internally, with the gentleman who is moving on to a different role with a different company, we just started looking back at stuff and he’s had mergers and acquisition experience. He’s had experience within this industry and outside of this industry, but in general, being a service provider. And one of the reasons that he was moving on is because of bad leadership. Right. And this is before I was involved in a situation that took place before I was there because we had a great one-on-one conversation that could be considered, an exit interview of sorts, right? And taking a look at some things and he’s like, you know, I just need a different environment for right now, it doesn’t mean that I’m not going to come back at some point. I’m like, Well, that’s good. He’s like, and then he made a comment. He’s like, you know because right now I can get a job anywhere. And I’m like, maybe, you know, and that’s the scenario that we have to look at because there are conversations that I’m sure you’re having with customers right now. Because of everything that’s going on, because of everything that’s shaking down, in the world with, with finance, I mean, it’s scary as hell right now, to me, when I see certain organizations started certain countries moving away from the US dollar. I don’t know if you’ve gotten into economics this much, but the world, the entire world, ever since World War Two.
So we’re talking in the 1940s. Ever since World War Two, has traded internationally with other countries based upon the US dollar. And this is why it comes back to oil as well because oil is traded internationally, based on the US dollar until the shifts that have taken place now, to where especially Saudi Arabia has moved away from trading in the US dollar, which means they’re a big oil producer for us, which means that oil is no longer going to be traded in the US dollar. It’s a, it’s going to take a while for a lot of countries to completely move away from that. But it marks a big landmark shift when this was put into place 7080 years ago, to where the US Dollar was the thing that everybody traded in. So we’re going to see some fluctuations. Obviously, we’ve seen some issues with inflation. We’ve seen banking collapses, what does this mean for us, in the service provider industries? The first thing it means it’s that customers are going to be evaluating things because they’re going to feel some of these shifts too, especially if you’re servicing companies, clients, and customers in specific industries. Now, some of those industries are going to be manufacturing, especially because they sourced their products from a lot of different areas across the globe. Even if it’s the United States, you know, a lot of those parts, a lot of those materials that they use to manufacture what they’re doing, whether it’s steel, or whether it’s just fully assembled parts fully, fully made parts already fully fabricated parts that they use to build their products.
Those products are going to have some fluctuations in pricing. And when I say fluctuations, I’m talking they’re gonna go up because it’s not just because of inflation anymore. It’s also because of this break away from the US dollar. And we need to be sensitive to that because the conversations that we’re going to have with everybody right now are going to be unique, they’re going to be delicate. Now I just went through this exercise with an acquisition We were standardizing pricing with our customers, we were bringing them on because the acquisition that we just took on a little bit ago, had eight or nine different plans. And I might have talked about this a little bit before they had eight or nine different plans. And right now reach out, has traditionally had to now or one I mean, but right now we have to, really three, if I give this to you, and I’ve talked about this before, is you want to be able to have your offerings really have the same deliverables, just meeting different segments of a customer, not for financial reasons. And this is going to be the big kicker, as you go into this over the next year because your biggest risk right now is going to be price shopping, that’s going to be the biggest risk, you’ll see from your customers as they will go out and price shop you with other people. And you never want to get into the mode of the conversation of competing based on price alone, which is why I’m going down this road for you today.
You want to get into meeting their needs and the value that you provide. So reach out has had traditionally one plan, as I’ve gone through in the past one, one deliverable, that’s it, but now it’s moved into three. And there’s a very strategic reason for that it’s not based on price. It’s based on the value that has been provided or is being provided. And really the way that we’re servicing our customers. So traditionally, it’s been an unlimited right, and in reach out, it’s it supports IT management managed services, and that one plan has been just a flat fixed fee, every single month. And I’ve gone through how to package and price before in the specific industry that’s available videos out there. And this one plan for us eliminated the shopping on price for our customers and for our prospects. Because while everybody else was saying, Hey, we’re just going to cut back on some things, and we’ve got this amazing offering that’s right here for you.
But if you don’t want to spend that much, then we’ve got this crappy plan over here that only includes about a 10th of what the real thing is that you actually need. And that’s not something that ever sat well with me. Because of many reasons, right? But one of the biggest ones, which is what we’re talking about today, is it exposed both our customers and reach out to me to more risk. And this is the conversation you have to have. When somebody is shopping on price, clearly, you have to expose the risk to your competitors. Programs. When somebody comes to you and says but this person is quoting me X, like well, did you consider this risk that’s involved with these areas that will expose you to potential downfall, here’s the risk mitigation that I’m going to offer you. Because this is what I know you need. Whether that’s cybersecurity, whether that’s IT services, whether it’s plumbing, or whatever it is, there’s everything today about risk avoidance. And that’s the conversation to have risk mitigation, risk avoidance. So reaching out to one plan was all about that was all about risk avoidance and was all about predictability and reliability.
Those are the two words that I always used when pitching a prospect when talking with an existing customer when we were making a shift for him predictability and reliability. Now, of course, it’s safety or security, predictability and reliability of cybersecurity have been more prominent. But these three plans now have come into different needs of customers, rather than just one single plan. So if you have three different plans to have three different prices, that’s the wrong conversation to have. Because now you assume the risk of being compared apples to apples to everybody else that’s out there. When somebody has a bid, they’re gonna say this person’s having this price, you’re offering me this price, of course, I’m gonna go with the lower price, because in their mind, that’s what it’s all about, rather than about risk mitigation or risk avoidance. So expose the risk. And this is two ways if they’re getting a different price from somebody else or shopping it around, or if they’re just coming to you, and they’re saying this is where I’m at right now expose the risk in your conversation about that person staying where they are. And this brings me to the biggest points of today.
When you’re selling this or when you’re evaluating this internally, the risks that you have to evaluate in any form of business is the risk to stay the same, versus the risk to change, which is greater, we’ll flip that the risk to change versus the risk of staying the same. That’s the real way to phrase it to anybody you’re speaking with, especially when you’re looking at the mirror, evaluating a decision for yourself. What’s my risk to change versus my risk of staying the same? And in my industry, right now, the risk to change is way less than the risk of staying the same. It just is because this industry is shifting so much cybersecurity, there’s so much involved, we’re getting hit from different ways every single day, there’s always cybersecurity in the news, that wasn’t the case, even just two years ago, we need to make a big shift. And the big shift that I’m saying right now, really, for any service provider, is to say to your customers, what’s your risk involved with that? And you might need to show them, actually, you really have to show them.
So back to this plan structure, right, because reach out, as always just had the one plan, the three plans now are still the original one that we’ve always had. But now we have added compliance. On to that. So we have what we call Reachout Unlimited, which was our traditional managed services. For lack of a better term, it is unlimited for a fixed flat fee. And now we have Reachout, which includes all of our cybersecurity layers, and adds all of the hardware. So all of the computers, everything else is wrapped up into that because it’s literally the one plan to give them everything that they need the one plan to rule them all for all the Lord of the Rings, flat fans that are out there. But then on top of that, we have a reach out to one compliance, which adds more controls in cybersecurity that that person might need for CMMC.
For those that don’t know, is the compliance side that you have to have, in order to do business with the governments with the Department of Defense, their specific cybersecurity controls that you have to have, in order to continue to do business with the Department of Defense. And those are the three core plans. And then there’s one on the side that’s reached out the synergy. Because we’ll come in if an organization has an internal IT department already, they can handle the day-to-day BS, we’ll come in on the high on the executive side of things, the information management, but most importantly, handle all of the cybersecurity for that organization, because that is the white elephant in the room. That’s the gap. That’s the risk that’s exposed that most people know they do not have the competency in-house, most of our customers, and most of our prospects know that they do not have the competency in-house for cybersecurity.
So that’s the risk. That’s the gap. That’s what we’re filling. Did you hear anywhere in there, where I’m talking about any of these plans that my company provides where I’m talking about price? Not one, single one. Now at the same time, when you take a look at all those plans, the price increases for all those, because it takes more to be able to deliver it’s just economics, there are more tools that are needed, there are more people there’s more attention that’s given to those specific clients that have the business needs, the risk associated with the type of business they’re in. Where they need that service level. Some just might need the one below. No joke, right? If they’re just like some kind of consulting agency or something like that business consulting, they probably don’t need HIPAA compliance. Okay, because they don’t have any medical information. That’s just the bottom line of it, right?
They don’t have any of the legal needs that a law firm would have when it comes to compliance. So they don’t necessarily need the other thing, but anybody needs really cybersecurity, which is why we have reached out to one that has everything included including the hardware, including all of that because that’s a risk. We identified that when we go in, and we say, hey, all of your stuff looks like it matches for the most part within the specs that we need. This is our standard. However, you need some of these other things. But we know what works and we know a configuration that works. We have this down to a science to where we say here’s the one plan that you need, that has everything because of the areas of risk that you’re telling me and it separates us apart, bringing this conversation back to the start with our customers. or with our prospects when they’re getting quotes from other people. Because those quotes are just numbers. That’s it, it doesn’t talk about the risk and rarely talks about the specific deliverables. And most importantly, there’s no emotion that’s driving it. That’s the risk conversation, the risk conversation generates emotion. And I need you to hear me on this, okay? Because you have the emotional conversation with your prospects with your customers around risk, and they will buy on emotion, and then later on, justify it with logic, that you hear me people buy an emotion, and then afterward, justify it with logic. That’s how people purchase anything in this world. Is that shiny a pretty? Is it going to save my ass? That’s the risk conversation.
So go back, and take a look at the services or the programs that you’re offering right now. And make sure it’s not eight of them, it’s not nine of them because the only reason they have that is for price points. That’s it. And as a service-based organization, you are not to sell on price. Hear me on that, as a service-based organization, I am forbidding you to sell on price, you are no longer allowed to sell on price, you’re only allowed to sell on value, and the amount of risk that you eliminate. Now, let’s move in into taking an internal checkpoint here. Your internal checkpoint is taking a look at yourself. Because you’ve got to identify risks that you have in your business. And that risk is really staying the same right now. The risk of staying the same is way greater than the risk to change.
The risk to change might take a lot of hard effort might take a lot of hard ass work might take a lot of things that you need to do over the next few months might take a good look in the mirror as far as whether you should sell or not. Right now, I had this conversation the other day with an individual who was an acquisition target because everybody who watches who listens knows that I’m in the acquisition business right now. I mean, I have the asset reach out, which is a managed service provider. It’s an MSP and a cybersecurity company and an IT services provider. But the way that we’re growing is through acquisition right now the way we’re exponentially growing through acquisition, and bringing our message or promise to the entire country as a household name household brand. So in my conversations with individuals who are exploring the option with owners, with sellers who are exploring the option to sell their MSP their IT company. It’s always about this idea that they have and it’s coming back to a number. So I had a conversation with this, this prospect, I’ll call him a pro we call them targets when it comes to m&a with a target the other day.
And he was very risk averse, very, very risk averse to the point where he was looking for guaranteed payments for a lot of these things. And when we got down to it, you know, he was expecting a payday of around or an offer of around four to four and a half million dollars for his IT company for his MSP. And he was doing about $2 million a year in revenue. His EBITA was about 400k after his ad max. Now you take a look at that. And that means it’s around a 5x, which means he’s really worth and this is pretty typical. I’ve gone through this before about how MSPs are valued right now. So you multiply that times five, he was really worth about 2 million. So it’s almost like a 1x is revenue, which is pretty, pretty textbook, very, very much in line. So he was shopping around, of course, and then the same thing, right? But then came back and had follow-up conversations like you know, the reason I came back to you is that I wanted to talk about the stock that you’re offering. Remember, I’m not even selling on price. I’m selling on risk mitigation.
Even in acquisitions with targets I’m selling based on this concept or having conversations based on this concept. So he came back he’s like, You know what, everybody was pretty much in line. They’re all offering me around $2 million. And the only thing that I couldn’t get because right now I’m taking out of the business about $350,000 a year I’m like you’re doing what? Holy crap. You’re, you’re only doing $2 million in revenue you’ve taken out 350k You’re like dude, you have a lifestyle business. Your business only exists to feed a certain lifestyle for you. He’s like, Yeah, I know. And it was good because in the original conversation he was a little, like, standoffish because I always this is another thing you always have the money conversation, the very first meeting, you always give the ballpark, right? So I told him, it’s like, this is kind of where we see you. But we’ll come back with an official offer. And he was very much like, whoa. But then when he got the same from a lot of other people, he’s like, okay, maybe there’s something to this. He’s very risk-averse.
So what he was looking at was a guaranteed salary of around $250,000 a year for the next 10 years. The next frickin 10 years, okay, wanted an employment contract based off of that, in addition, like you’re not talking, and this is where I came up with that four and a half million dollar number like you’re not talking a $2 million offer. Now, brother, you’re talking really like a four-and-a-half million dollar offer. Because you’re looking for the money that your business is actually legitimately worth around 2 million, plus you’re looking for employment guaranteed for 10 years, a $250,000 a year, that’s $2.5 million. So really, we’re talking about a four-and-a-half-million dollar deal here. He’s like, Yeah, I’ve come to realize that myself, and I know that and that’s why I wanted to come back to you is because all these other potential buyers that I’ve talked to, could not get me there. They wouldn’t offer the salary that I wanted, you know, they were offering like $100,000 a year. And I’m like, that sounds pretty, pretty normal. He’s like, but you’re offering stock? Because you’re a public company, you’re offering stock as part of the deal? Can you help me understand what that stock is worth? Because I phrase this as it’s like a second exit, right? Because when the stock price increases, that can help bridge the gap. And that’s a unique value that I bring, that’s actually risk mitigation on my part, because the risk in my transaction is the transaction when I sell as an owner, and then that’s it. So then it’s up to me, the risk is on me what to do with that money for the rest of my life.
Now I have risks to continue to provide a livelihood. And if that isn’t enough, that might be enough for a time period. But what are the investments I’m going to make to continue to provide income if I don’t want to be in the same business or in the workforce? In general, what am I going to do, I’m not looking for an early retirement. So that’s my risk that I have with selling right now, just based on a transaction, I’m like, my way of eliminating that risk for you is offering stock as part of the deal. And it becomes like a second exit for you. So in this process of talking with them, I explained how this is because of like the earlier get in, it’s like crypto the earlier get in, the more acquisitions we have, which means that the price will increase more substantially by a multiplier as we continue to go forward. So right now, it’s like every acquisition might hypothetically raise our stock price by 30%, right off the bat. So immediately, that portion of your purchase increases by 30%. On the day that we close, because the hole is worth more than the sum of its parts. I’m like, it’s really cool economics. I’m like, and then imagine another one that increases it like another 25%. Another one after that, which we’re doing this year, in just one year, increases another 20%.
It’s like you have almost doubled that portion that you’ve gotten in stock. And that’s the second exit that we’re talking about. So your risk is mitigated because you have an asset now that continuously appreciates with every single acquisition that Reachout, accomplishes. Like, that’s the beauty of what we’re doing. And he understood it, but he’s like, I just don’t see how I’m gonna get to 2.5 million. He’s like, but what if we don’t execute? I’m like, well, there’s risk there. Yes. And there are risks there. And this is where I had to express this to him. He’s like, Well, I could keep my business. This was the thing that got me, right? Well, I could keep my business going for the next 10 years. And get my $250,000 offer. I’m like, You mean, keep it going exactly how it is right now? Well, yeah, with my clients that I have and everything. I could even lose 20% of them and still take out what I’m taking out right now. Like, what are you doing man to gain new customers right now? He’s like, Well, there’s not really anything. What new services are you bringing to the market? What do you what are you incorporating new into your stack that you can sell? He’s like, Well, we’re not I’m just saying if I stay the same as it is right now if I stayed the same, and that’s where I stopped him.
Like, dude, the risk of change is way less than the risk of staying the same. Because 10 years from now, going with that I don’t even think three years from now in this industry. That there are going to be as many MSPs as there are today. I actually believe and I see it right now because it consolidation and other businesses closing their doors we will see about a third less than I mentioned before in three years, a third of MSPs will be wiped off, the markets go out of business dead. And it’s because they did not recognize that the risk of change is way less than the risk of staying the same. So this guy is going to wing it right? And he’s gonna figure it out, he’s gonna go thing he’s like, Well, I’m just not gonna do it right now I’m like, that’s when do I respect your decision. If something changes two years from now, and said, The only problem is two years from now, after looking back, you might wish that you would had sold at that point, because your business could be worth half or less than what it is today. Because he has no plans to grow, he has no plans to change, the only thing he wants to do. And what he’s focused on is the dollars and taking 250,000 Or really 350 out every single year right now. So what I’m telling you today is to analyze this in your business, we talked about how to look at that with your customers in that conversation already.
The second part is to analyze your business and identify where you have the risk of staying the same. Especially where it’s a greater risk to change. Now, this may be the type of service you offer, this may be services that you don’t offer right now that you could offer that you could add, that’s a change. Or it could be changing your plans, so that it’s just structured, not based upon price, but around the value that you provide, and the risk that you mitigate. Those are the changes I want you to look at over the next 30 days and make some shifts because those shifts are going to be the things that will make or break you over the next 24 months as we have this crazy crazy crazy, just flipped upside down economic situation we have right now. millionaires and billionaires are made in times like these, and that’s because they took the risk to change
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