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Succession planning strategy: MSP execs consider the channel's future

Have a succession planning strategy in place? If not, you're hardly alone. Get tips on why and what you should consider when planning for the future of your business.

Dominic Grillo didn't start his career thinking he would one day take over his father's network infrastructure and security services firm, Atrion Communication. He was an engineer working "completely outside of the IT industry," he said, but recognizing that "IT was so hot in the late '90s with the dot-com explosion," he decided to join the family business.

Today, Grillo's father, Pat, remains the sole owner of Atrion, but Dominic, 43, runs the day-to-day operations as president of the company.

"In recent years, we've built out a solid management team, so I won't be completely on my own if and when Pat eventually steps away," Grillo said. "The management team is largely of a similar age to me, so we are effectively the next generation as we lead the business."

Atrion has put its succession planning strategy in place, but other channel firms may not be so prepared. According to CompTIA research, an estimated 40% of the channel industry expects to retire over the next decade, and the industry group is urging firms to "shepherd younger people to fill the void." 

Succession planning strategy and the dream of being acquired

Finding successors is a challenge for the aging channel segment. Many channel partner business executives aren't even looking for successors, observed Diane Krakora, principal of PartnerPath, which specializes in partner relationship management. "If they are, they're look for someone to buy their business, and what we're seeing is they're asking for too much money. These are guys who built the business for 30 years and maybe they're a $20 million business in term of revenues, but they're asking and expecting too much. And understandably. This is their 30-year-old child."

Dominic Grillo, president of AtrionDominic Grillo

Some firms are being acquired by larger firms, Krakora noted. She has seen companies that "don't realize the multiples they should be asking for" because most are small businesses "and they're being offered fractions of their revenue and that just doesn't feel good to them."

"If they're a $20 million old-fashioned reseller, they can expect 10% return on that from an acquisition," Krakora said. "It really depends on their [business] models, and a lot of the guys in the 40% [CompTIA figure] have a traditional reseller business because they're not willing to move to an MSP [managed services provider] or cloud model. If they at least had MSP services, we're seeing they can get 120% of their revenue as a valuation."

Diane Krakora,  principal at PartnerPathDiane Krakora

In that case, resellers often will consider an employee buyout where the CEO will retire and get an ongoing portion of the business for X number of years, she said. "That's one succession plan we see that's successful in this market."

However, many smaller firms aren't even dealing with succession planning strategy because they don't want to change their business model. "They don't want to move their model; they're done," Krakora said. "They're not trying to stay in business."

Chart showing channel industry trends
Here are just some of the trends that are shaping the channel's future.

Appealing to a new generation

Amy Kardel, co-founder and president of Clever DucksAmy Kardel

"We're all getting older and our channel is aging, as the study shows. What's exciting is it presents an opportunity for us to diversify our intake and change the future," said Amy Kardel, co-founder and president of IT services firm Clever Ducks. Kardel is also chairwoman of the CompTIA Board of Directors.

It is important that people working in the IT channel "tell our story about why it's a great place to build a career," Kardel added, because it is not a career path that millennials or Gen Z typically take -- or are even aware of.

We can recruit all we want, but without retention and keeping our current workforce engaged and growing ... they'll burnout and not stay in the profession.
Amy Kardelco-founder and president, Clever Ducks

"We're a little abstract. Once they see it cuts across so many verticals, they're interested; but unfortunately, we're not top of mind for them," she acknowledged.

It's not only important to attract new people into the IT channel but retain them, Kardel stressed. "We can recruit all we want, but without retention and keeping our current workforce engaged and growing ... they'll burnout and not stay in the profession." Continuous training and utilizing trade association resources are great ways to do that, she noted.

Preparing for the future

Tom Clancy Jr., CEO of MSP firm Valiant Technology, said he and his business partners are now in their early 40s, and while they're not looking to retire soon, they have been preparing for the future with a succession planning strategy.

"We're definitely calculating things like protecting ourselves" in the event that Valiant loses one of the partners, by putting in place a shareholders' agreement and funding a life insurance policy to pay next of kin, he said. "We have a great financial planner, which puts us ahead of a good chunk of the [channel] community."

Tom Clancy Jr., CEO of Valiant Technology Tom Clancy Jr.

Two of Valiant's three partners have young children, Clancy said, "and there's a certain charm to the idea we could grow the company and have the next generation be a part of the business we built and love. Then there's the bitter reality of what that timeline will look like and keeping up with the insanity of the tech industry."

In the meantime, he said, they're keeping their options open. If the partners were to sell the business, Clancy said they'd have to grow it first beyond where it is today.

Valiant has already faced the untimely death of a senior team member at one of its customer accounts. "We were definitely not ready for that," Clancy recalled. "He was young and healthy, and it was just one of those things, and it was definitely a kick in the pants to everyone here."

Clancy believes the channel is and remains a career path for people who are tech-minded and interested in coding and are "born troubleshooters." "It's a fairly decent sector to be in," he said.

Although a lot of IT jobs will eventually "contract," it will happen at a slower pace than in other industries, he said. "The future of work is coming, and IT guys will be the ones turning out the lights. We'll be the last ones out the door."

Filling the empty slots

In the meantime, channel partner business executives said they are making outreach efforts through networking events, connecting with high schools and colleges -- and by offering perks. "We teach our team at Valiant to be the person who makes eye contact and speaks human first and technology second," Clancy said. The firm also teaches younger generations "everything from how to balance a checkbook to growing hydroponic tomatoes" at a lab they have in Manhattan.

The future demographic of the channel ecosystem will look much like any other kind of business ecosystem with more women and minorities, executives agreed.

"As these 40% age out and retire, that will likely create some form of a vacuum," Krakora said. "As the old guys move out, there's not enough channel partners to fill the need. A vacuum will leave an opportunity, and an opportunity means someone will fill it."

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