The MSP software industry has been dominated by private equity. ConnectWise, Datto, Kaseya, N-Able, Pax8 and so many more software companies that serve the MSP space have been acquired by private equity in the last 5 or 6 years. This is also the case in cyber-security. “Thoma Bravo has one of the largest cybersecurity portfolios in private equity, representing approximately $47 billion in total enterprise value.”

Regarding ConnectWise, it has been 5 years since Arnie sold his company, which is a long time for a PE firm to hold an investment in a portfolio company. This from Channele2e:

“ConnectWise is also at a different crossroads. Five years has passed since Thoma Bravo acquired the company (for $1.5 billion, according to ChannelE2E’s estimates at the time. Here’s where we got that number.), putting it in the time horizon for the PE firm to be looking to sell the company now and looking for a price of at least $4.5 billion. But the market right now hasn’t been favorable to PE firms looking to exit. It’s unlikely Thoma Bravo could get the multiple it wants on its purchase price by selling ConnectWise right now. The PE firm could combine ConnectWise with another company to increase the value, or it could invest and wait for the market to improve, or it could take ConnectWise public in an initial public offering. Right now the trajectory is unknown.”

Recently on a channel round table there was mention of a PE-owned “super-agency” that was up for sale. This company announced its PE investment in 2021, so the 3-year cycle is about up. Most PE investments are 3 years, but some can go 5. Other investor types are in for a longer time frame, but PE is about quick turns in technology.

Let’s look at Red Lobster, Golden Gate Capital acquired the restaurant chain in 2014 for $2.1B. Golden gate sold the real estate that the restaurants were on for $1.5B and the restaurants were saddled with high rent payments as well as the debt from the buyout. Add in that the changing habits of the restaurant customer and you can see why Red Lobster collapsed.

Per NBC, “Asset-stripping occurs when an owner or investor in a company sells off some of its assets, taking the benefits for itself and hobbling the company. This practice is favored among some private-equity firms that buy companies, load them with debt to finance the purchases and hope to sell them at a profit in a few years to someone else.”

In the late 1980s, KKR bought RJR Nabisco in the largest deal ever at the time. It was an LBO – a leveraged buyout. A whole book was written about this deal and it became a MBA case study across business schools in America.

I know that I harp on PE in our industry often, but it has more to do with a warning than a dislike. Look, a telecom agency whether it is a TSB/brokerage or a “super-agency” mainly selling directly to customers have just 3 possible revenue streams:  commissions from sales; marketing funds from vendors; and events, which is an extension of the marketing funds.

A TSB can make a healthy profit at an event. Conferences are a healthy business. Informa, TMC, The Channel Co., ASCII, Robin, ConnectWise and many more businesses in our space, make bank putting on events/conferences. But even if the TSB only ekes out a tiny profit, at least they don’t lose money on their event program.

The MDF game is big because when you have 200-500 vendors vying for attention and access to the selling partners, you can make some bank. In fact, at least 2 in our space pay a 1% override to marketing on MDF funds collected. MDF is the only income stream that can go up exponentially without more bodies. A TSB can add an unlimited number of vendors to their portfolio. If a TSB started with 150 vendors and added 50 more at just $500 per year, that is $25K. Take in at least $500 in MDF in from 400 vendors and $100K in from 4. BINGO!

The commission piece is hard. Chasing commissions is a grind. And when the splits have gone from 70/30 to 90/10 as the average sales size has also declined, it becomes a grind for pennies. The telcos will tell you that wireline revenues have been declining for years. Verizon Business just wrote off $5.8 Billion. “The write-down is primarily linked to Verizon’s legacy wireline operations, which provide fixed-line communications services to businesses.”  Lumen, AT&T and every other ILEC have seen MPLS, T1, POTS, DSL and other legacy circuits disappear. In the process, customers usually buy from a different vendor for broadband, SD-WAN, cell phone service and fiber.

Dedicated Internet rates are also in decline. Renewals are almost always at a higher speed for the same rate or at a lower rate.

UCaaS has recently come under the same price compression. Zoom and now NICE are helping that price free fall with sub-$10 UCaaS seats. BTW, even Contact Center seat pricing is shrinking!

So if UCaaS, CCaaS and wireline are declining,  partners need to sell more and more every year in order to maintain or grow its revenues. That is a lot of transactions!

<This is all FYI.> The only public TSB reporting 3rd Quarter earnings: “Net billings for Intelisys increased to approximately $2.68 billion annualized, and Intelisys net sales for the third quarter increased 4.0%.” Do growing at the GDP speed.  The investor prezo says that recurring revenue is at $108M for fiscal year 2023. I think that is the part  of the commissions that they keep. Means the commissions are about $500M+.

Four percent growth isn’t what investors were looking for. But then stock holders of 8×8, RNG, Lumen and the like aren’t exactly happy either.

If the average investment is a $36M loan (a number I am spit-balling) at 12% APR (as per SEC filings from AB), the interest alone is $4.3 Million per year. I’d take a 12% credit card right now, but not a 12% home equity loan!

Upstack has 188 “employees” per LinkedIn. Telarus as 493. Avant has 260. That is a lot of payroll!

Sales Engineers, Partner Managers, Channel Managers, tech & dev people for the portal, vendor relations, marketing, events, Commissions, ordering, Cable and M&A – that is a lot of folks that need to get paid.

Upstack acquired about 30 agencies since 2021. Bluewave has done fewer deals. Bridgepointe has done about as many. These deals put selling partners under the umbrella of the super-agency. They share some back office support to save a few dollars. They get a lottery ticket on the eventual exit event, much like TNCI in 2011. TNCI had an equity play but was mismanaged and the business plan smelled bad to me from the start. Did any partner remember when TNCI tried to recoup commissions from partners as part of its bankruptcy?

No one is really certain how all this plays out. I am certain based on 24 years of being a telecom agent, consultant and startup mentor that the partners will end up wondering WTF happened?

If one PE-backed firm is struggling to re-package that business for resale, then other similar businesses in that same niche will also struggle to exit.

On the round table, Adam from Telarus did mention that there would be more TSB consolidation. I assume that means Columbia Capital, who invested in both Bluewave and Telarus, is in talks to scoop up any troubled assets in our world.

Hedge your bets folks.

 

BTW, I use TSB for Technology Services Brokerage because like insurance the former master agencies broker services, they do not distribute anything but commission checks to the selling partners, so TSD is a misnomer.

FYI..

Intelisys is owned by a publicly traded company, Scansource. Sandler Partners is privately held and Alan Sandler tells me he has no reason to sell — and I believe him! AppSmart is now AppDirect owned by a handful of investors who plunked down over $450 Million in investment. Avant and Amplix have PE money. Clarus/TDM is private.

 

 

NICE just announced a UCaaS offering at $5 per seat. TalkDesk launched a phone in 2021. It was rumored to be $10, like Zoom Phone. What does all this mean for the average UCaaS provider?

NICE has decided to get more channel friendly now that they are all in on CX1, their cloud offering that grew out of InContact. When they NICE acquired InContact for $940M in 2016, they got a channel friendly org. However, like most channel orgs, the primary customer was SMB.  NICE was selling to enterprise.

Today, it seems like NICE wants back in to the SMB (or at least the mid-market). They also are competing against Five9, which has several UCaaS partners including Net2Phone, Nextiva and Panterra. So NICE decides to go all in with UC-CX1. We will see if they can actually profitably sell to mid-market. It is one thing to sell to Enterprise with Professional Services, but another altogether to go down market with the same process.

At $5 per seat how many seats will they sell? Well, the UC might be cheap but the CCaaS isn’t.

Support and Implementation are unknowns – and for SMB their voice service is vital.

Does the channel want $5 seats? Not really. The average sale size is 13 seats. Who wants to sell and do LNP paperwork for a $60 sale? Let’s say the smallest deal is 50 seats; that is still a $250 deal.

NICE explains that their “sweet spot are contact centers with between 20 and 400 agents” on a TSB website.  That copy maybe prior to acquiring LiveVox for $424M to get $142M in revenue. Overall they have $2.5B in revenue of which $1.7B is cloud revenue. In quarterly reports there was no mention of LiveVox when mentioning the YoY growth of cloud revenues of 27%. Maybe an oversight.

They certainly are on the move. But what does that mean for other UCaaS providers?

First, it means that that UCaaS ARPU is still compressing. Growth year over year will slow because every new contract or renewal will be less than last year. This mainly means that mass market, nay commodity, UCaaS will bottom out at $4 per seat.

Some of this is directly related to how UCaaS is sold. It is POTS and PBX replacement, so it is a commodity. The fact that so many UCaaS providers also have Direct Routing and Operator Connect for MS Teams showcases the inability to demonstrate the value of your cloud communications platform. Period.

To me, chasing MS Teams dial-tone revenue is to just want money. Any money. And it dilutes the brand. Distracts sales.

UCaaS providers should have listened 3 years ago when I was yelling to go vertical and integrate. Not many listened, so now they are the equivalent of a Integrated T1. That’s right, we are back in the jungle, baby! The commodity voice jungle.

Vendors have to go back to the drawing board and decide who they are and who they want their customers to be. The Value Proposition and Target Customer are vital to providing value beyond dial-tone.

When you consider that there are over 2,000 providers** selling/reselling UCaaS of some kind, that is a crowded environment. To do well, you either have to learn to profitably sell, provision and maintain a $5 seat and do it at scale – or tell a story of why your platform is worth what you are charging and that it isn’t for everyone but those that are targets get great leverage from it.

To do that you have to consider that Cbeyond was a large CLEC with less than 53K customers. USLEC died with 26K customers. NICE after 2 acquisitions has 25K customers.

You won’t have 28M subscribers like Spectrum/Charter but then neither does Verizon, AT&T or Altice!

The key is to get to 25K profitable and happy customers.

Cbeyond was the first CLEC to take a 15% share in one Metro. They didn’t come close to that market share in any expansion market. Focus, strategy, and execution are more than words.

• What is your Focus?
• What is your Strategy?
• How well are you executing?
• Who is your Target Customer?
• Why should anyone buy from you? What makes you so special?

Need help answering these questions? Call our office at RAD-INFO INC at (813) 963-5884

 

 

**The 2000+:  NCTA has 200 cableco members; NCTC has 700 members; ACA Connects represents 500+ rural providers. USTelecom don’t list the number of members. Broadsoft sold to 450 CSPs – about 350 in the US. Netsapiens (now CXDO) has 150+ customers, quite a few white-label. Skyswitch has 750 MSPs selling off its platform. Momentum Telecom provides voice for many tier 2 and 3 cablecos. 2600Hz white labels Kazoo for a couple of hundred providers. There are 75 other white label providers including WLC, Alianza, and Intermedia. I don’t know how many members are part of Cloud Comm Alliance or the Cloud Voice Alliance. Add all that up and it crosses well over 2K providers pushing UCaaS but only grabbing less than 30% of the US market in 21 years of marketing!

During channel manager training, there is emphasis on alignment. When hiring sales reps, managers need to ensure alignment as well.

There are different types of sales reps: transactional, whale hunters, farmers, inside, field, BD and SDR. The reason that a job description is important is that it requires the manager to think about what they actually need and who they want to hire. Too often managers lazily Google search a job description and copy/paste. That doesn’t work.

Yesterday I received a call from a sales rep. He was sent my blog posts. He has been in his current position for 5 months with no success. That made me wonder: (a) what is his manager doing? and (b) what kind of management do they have over there?

He has to make 50 calls, send 50 emails and 3 handshakes per day. He thought that was far-fetched.

The disconnect is that for over 20 years he was working for a cellular company. Cellular can be sold to anyone. There isn’t a territory. And people change cell phone providers often as well. The market is dynamic.

Now after 20+ years as a transactional sales rep with short sales cycles and a large pool of prospects, he is working for a fiber ISP. Now the prospects are limited to where the fiber goes. This isn’t a transactional sales for Lit Buildings. It is a relationship business.

Connecting with property managers is a part of that sale.

After 30 minutes of giving him ideas from my sales trainings, he seemed dejected that I didn’t have a silver bullet. There isn’t a silver bullet in sales. It is about daily activity, relationship building, time management, and  learning about the customers and how they interact with the products.

I have coached a number of ISP sales teams. It is challenging when they are like Cogent: you can only sell in the Lit Buildings. But I wrote a whole book on the strategy and tactics around selling to LIT Buildings HERE.

A disconnect he is experiencing is that these are quick sales to anyone, but longer sales to a very specific prospect pool. And with little success in five months, he is frustrated. Come to the realization that this is a different kind of sale. A different buyer, sales process, and sales cycle and recalibrate for it – or look here.

The hiring manager didn’t do him any favors. You have to align skills and motivation with the position.

The manager should be coaching him up and helping him daily to get with the program.

There has kind of been a disservice to the company and the sales rep here, but nothing that a course correction can’t fix!

I have been thinking about this since I bought the book, Why Johnny Can’t Sell. After spending the last 5 years doing a lot of sales training, sales coaching and managing sales teams for ISPs and MSPs, I have some insights into why sales people struggle.

Quota is usually arbitrary. It is a function of the recouping of the sales rep’s salary. It isn’t often based on Average Sales Size and Median Sales Cycle. In other words, if the average sales size is $500 and Quota is $2000, the sales rep will need to close one deal every week. Yet if quota is $4K, that is 8 deals, 2 per week. If the rep can close 50%, that is 16 proposals per month – almost one per day. Most door knockers do not generate that many quotes.

Failing to hit a monthly or quarterly sales goals do not always have to do with activity, will, or skill, but with the people you’re calling on and following up with. Time Management is one of the most vital skills a sales rep can have. Time is Money. Use the time wisely. Spend time with prospects who will benefit most from your services.

If you’re following up with the wrong prospects, you’re not investing your time working with the right ones. And the only constant is time.

That there is Problem 1: Most service providers do not know who their target customer is. They don’t mine any data from their current and past customers to know who to target, so they go with everyone – or where ever the fiber goes – or where the fixed wireless signal will work.

Problem 2: The lack of a Value Proposition. The foundation of Marketing is the value prop. Why YOUR Services over everyone else’s? How do Customers benefit from working with you over XYZ? What outcomes do you see your Customers achieve?

You need to talk to your customers. To stay in front of them so you are not just an invoice. To see how you help them now – and can help them next! To see what technology they have, use, leverage – or don’t!

Then you take that knowledge and duplicate those customers!

Problem 3: Prospecting! It is Sales Math. Every rep needs to make a significant number of touches every day in order to keep the funnel going. Email, phone calls, texts, social, and even door knocks are all part of a sales cadence that results in prospects becoming customers.

Daily Activity is required.

Problem 4: Mis-Managed! This brings us to Management. Just checking the number of CRM entries, quotes and contracts will mean that you are missing the data that will let you know that something is wrong with the process.

Daily check-ins allow the sales rep to vent, ask questions, get feedback, report in and feel listened to.

Problem 5: Product Knowledge. It helps if they eat the dog food. Sales reps need to be leveraging the technology they sell. They need to be able to demo it. When using the tech, you will find it easier to talk about the uses and benefits.

Problem 6: Ask Better Questions. The discovery process is about asking questions to qualify – or even better disqualify a prospect. It is about finding out what solution may provide the desired outcome because you have learned about the business, its goals and where the business wants to go. The best questions win because it identifies need and priority.

Managing a sales team isn’t about watching the quota. It is about training up and coaching your team to success by identifying what elements are not part of their habit. Time Management and improving on the sales fundamentals are how your sales team hits their goals. Coaching them daily on every aspect of the sales process: retention, prospecting, discovery, time management, negotiation and closing. Also, coaching them on pitching and demos, knowing the target market and the Why (Value Prop).

There are a lot of ingredients to make the sales team successful.

It is rare to get a seasoned rep who does not need to be coached up and trained. I have never seen that work. The back office for every provider is different. The process, the CRM and other systems, the paperwork, the credit check, the products and the implementation of those products.

Sometimes the business itself is not set up for sales reps to be successful. A good manager can see that and work through some of it to bring sales success to the org.

If you need someone to take a look at your sales org, train your reps, coach them up, or even coach a manager up, give us a call at RAD-INFO INC – (813) 963-5884

Let’s help Buddy Sell!

 

 

When you consider the Scansource NewCo uproar, you have to look at the landscape where TSBs are soft on transparency.

All of the PE-backed TSBs have bought bases. If they aren’t actively farming those bases directly, then what did they buy the bases for?

They don’t really talk about that.

They say they invest in partner businesses to help them grow, but that transaction also ties the partner to do business with that one TSB, instead of maybe spreading it around.

I get messages often from principals telling me that everything is fine and that no one is beholden to anyone.  I present exhibit A:

 

This is from a SEC filing by AB Private Credit Investors Corp.  “AB Private Credit Investors is the $18.5+ billion direct lending platform of AllianceBernstein. We provide flexible financing solutions primarily to private equity–backed companies and directly to private equity funds managed by leading sponsors.” Sometimes when a PE investor pledges $100M they spread the money out to several entities. In this case, Exhibit 2 shows  the Delayed Draw Term Loans for Avant and Bridgepointe:

Some times DDTL have complex terms according to Swoop. Regardless, the maturity on these loans are 2026 for Avant and 2027 for BDGPT. $5M and $10M respectively with at least 7% interest plus fees. FYI, annual interest on $5M is $350K.

If you want the latest 10Q, go HERE to page 10. Avant has $15M out at 11.29%!  Bridgepointe has 7 loans out for $19.5M at 12%.

Maybe the principals have control, but they are on the hook for paying it all back in 2-3 years. With declining ARPU on networking and UCaaS, how optimistic is that?

That’s just 2 areas of TSB business that lacks any transparency.

Consider that a partner’s whole income stream is on a contract that the TSB holds that the partner has never seen? Remember before the M&A, when you would place an order only to find out that the TSB didn’t hold paper on that vendor directly? They went through a different TSB or the Agent Alliance for that contract? So your commission depended on many factors working out?

Where was the transparency to partners that at least one TSB had vendors paying SPIFFs to their Channel Managers directly? Or that the Channel Managers aren’t employees, but 1099 contractors on commission only – and with their own side hustle/agency?!

The TSB execs have a distaste for what they call revenue share. That is when a partner puts deals in whatever TSB he feels like. The partners spread out their own risk. In other words, don’t put all your business with any single TSB, just in case! [Note: partners remember Keane and the TNCI clusters.]

The TSB execs make it sound like the partner is abusing the TSB’s resources. For example, I use an SE and CM at Intelisys to get my quotes and answers, then shop that deal over to AppDirect. More likely, the partner used a quote tool to get a quote and then leveraged the vendor’s CM and SE.  Guess what? For some carriers, the CM and SE are the same across TSBs.

What the TSB execs are really saying is that they thought by now they would have exclusivity with more partners, but it hasn’t worked out that way – and they are mad about it.

All the tools and noise and parties haven’t resulted in 100% loyalty. Go figure.

I am transparent about how I do business with TSBs. [You can read about it right here!] Yet the TSBs aren’t really transparent about a lot of their business – and partners are just supposed to be okay with that.

That’s the way it is, but don’t say stupid stuff about one TSB, when in fact your own TSB has similar practices.

For a couple of years, I hosted a round table of TSB heads sponsored by AireSpring. Last year, it got a little heated. This year they would rather NOT have me moderate. Very fitting when you don’t want to be transparent to the very partners who have their livelihood tied to you, but who don’t get to see the finances or the contracts or the inner workings – or any of the jeopardy that their income is under.