N-able CEO On M&A, Kaseya-Datto And Why The Term ‘Digital Transformation’ Is ‘Stupid’

‘You’re not transformed, you don’t go from a caterpillar to a butterfly and the transformation is over. It’s an evolution. What we do know is that with technology, the evolutionary cycle is going faster and faster and faster,’ N-able CEO John Pagliuca tells CRN.

While cloud transformation, security and labor scarcity can be pain points for most partners, N-able CEO John Pagliuca said those headwinds can be turned into tailwinds.

Pagliuca said Burlington, Mass.-based N-able does two things. First, it gives partners a “purpose-built platform” that helps them scale, standardize and be more efficient. Second, it builds, or partners with companies, to bring in enterprise-grade software that can grow a partner’s pipeline and expand its service offerings.

But it’s really about the partner in the pilot seat.

“Effectively [partners] are all the pilots,” he said. “It’s really them who are charting the course for their company, for their teams and finding the strategy and understanding the drive of the business. They are the ones making the decisions.”

If they are successful in navigating and carrying out the mission, they will boost their business and capture more of the market, he said.

There are three tailwinds impacting MSPs toay: labor scarcity, cybersecurity, and cloud transformation, according to Pagliuca.

“All are a core lesson and providing a tailwind for all to grow a recurring revenue business,” he said. “In doing so we’re increasing our TAM, our total addressable market, which gives [partners] a tremendous amount of opportunity.”

CRN spoke exclusively with Pagliuca about MSPs being in the pilot seat, his thoughts on the red-hot M&A market and what he said makes N-able better than Kaseya-Datto and ConnectWise.

What are your thoughts on all the M&A in the industry right now?

M&A is a trend that I would say is accelerating. We’re seeing more and more with what I often refer to as ‘smart money’ in the space. We have more private equity coming into the space as a result of that smart money coming in. They’re accelerating the consolidation plans of a lot of these MSPs. Without smart money, an MSP is kind of left with traditional methods of consolidating so they have to generate enough cash and build that use of debt. But with private equity, there’s a bunch of investment, referred to as ‘dry powder’ [marketable securities that are highly liquid and considered cash-like], that they can come in and push that agenda forward. So what we’re seeing is a big push for consolidation and we’re seeing that on really, I’d say, two different axes.

First is geography. So we’re seeing folks saying, ‘Hey, I want to be a national player or regional player.’ They’re gobbling up MSPs by dirt, so to speak, by territory. The second one is by vertical. We have other folks saying, ‘Hey, you know what, I service CPAs and I want to buy other MSPs that service CPAs and we want to be the big brand that‘s known to provide services to CPAs and specialize there.’ So it’s accelerating and I expect it to continue to accelerate. It might slow a little bit now that the cost of capital has gone up a little bit. So with rising interest rates, that acquisition thesis is going to be challenged a little bit. That means cash will be king and the MSPs that have a stronger EBITA [earnings before interest, taxes and amortization] are more likely to be acquired if they want to.

So what are your thoughts on Kaseya acquiring Datto?

So look, I think it’s an interesting opportunity there for those partners. I think the challenge there is that when you have two like-size companies coming together, the priority turns from an outward focus of your partners in the market to an inward focus. You’re inward-focused on the leadership team, who’s going to be the leadership, the rationalization of the organization, the rationalization of your product. So the challenge for those leaders at Kaseya-Datto is how do I make sure I don’t take my eye off the customer. And for us, we don’t need to deal with that distraction. We don’t need to be distracted by focusing on the inward rationalization because we know our journey. We know our leadership team, we know our strategy so we get to put both eyes squarely on the MSP partners and helping them grow their business. So that’s the challenge that they have in front of them and it’s not a small task.

When Kaseya first announced that they were acquiring Datto, did you see a lot of partners jump to N-able or did you ever approach partners?

The message I gave my team was pretty clear and that was to stick to your knitting, let’s focus on our road map, let’s focus on the value that we bring to the industry and let partners decide for themselves. I’m not one to take an opportunistic shot at someone who might be going through some type of turmoil or some type of transition. We wanted to focus on our mission, our vision and our strategy. So we didn’t try to poach customers.

That being said, the merger news created a bit of unrest. It’s change, and with change comes uncertainty. We saw more MSPs, I’d say more than normal, pop their head up and say, ‘Hey, what does this mean for me? And is this change a good thing or a bad thing?’ I think for many, that’s still a wait and see.

Did you have any partners come over to N-able?

We did. Because of the consolidation, because of the other things, there’s always some type of trade, I would say. We saw an uptick from both Kaseya and Datto [partners] and I think it’s squarely around the uncertainty. They need to go with a vendor that the stability is there and that they can make an investment today to future-proof their business for tomorrow. I think when they look at N-able, they see a company that’s pretty steadfast in their vision, pretty steadfast in their investment and making productive improvements in the offering in the life of the MSP. That’s really how we focused it.

What are some areas for growth opportunities for your SMB partners?

I think it’s in a couple of different areas. No. 1, it’s helping customers effectively get to the cloud. The cloud transformation is a project and then a managed service that MSPs can really crack into. A lot of estimates are putting the range in the neighborhood of a trillion dollars in 2027. That’s just for the SMB. MSPs have the opportunity to seize a part of that opportunity. And that’s why at N-able, one of our pillars is giving MSPs the ability to manage everything and helping them with their cloud offerings. The second pillar is it’s more squarely with [Dave MacKinnon, N-able chief security officer] and that’s in security. We want to manage everything, we want to secure everything. MSPs are growing their wallet share. When you grow, you grow two ways,either by increasing market share or increasing wallet share. MSPs are now focused on increasing their wallet share of their existing customer base adding more services. More often than not, those services are security, or security in nature, because the SMB knows that they need to invest in the right level to make sure that they don’t have any business interruption. So it’s those two fronts, helping get a ticket to the cloud and then this concept of securing everything.

During your keynote, you said that the MSP is the pilot, not the plane, and the emphasis is that the person is where it all starts. Then you also talked about automation and that lends itself to the labor shortage. You talked about people are important, but also automation is important, so what should MSPs focus on? How should they balance that?

The automation is really around the mundane tasks in creating a consistent level of service. If you’re an MSP, you have a limited number of resources. By automating, you’re now pushing those mundane tasks to the machine, so to speak. But for the more strategic initiatives, that’s where the humans can come back into the loop leveraging the power of the tools, but now being that trusted adviser. It’s allowing the human to focus more on the strategic bits versus the mundane bits and that’s the way an MSP can grow their efficiency, grow their profitability and, just as importantly, retain their people. Nobody wants to sit there doing the mundane tasks. They all want to grow their career, they all want to develop and they all want to deal with some more of the strategic bets in understanding how to help their customers grow. So that’s how automation is that perfect kind of play right there.

The big thing right now is the cloud, transforming the cloud, securing it. What do you think the next big thing will be in five to 10 years?

I’ve been quoted in saying that I think the phrase ‘digital transformation’ is stupid. I often refer to it as a digital evolution. You’re not transformed, you don’t go from a caterpillar to a butterfly and the transformation is over. It’s an evolution. What we do know is that with technology, the evolutionary cycle is going faster and faster and faster. These winds that I talk about [cloud, security and labor scarcity] have been the same winds for 10 years. So within five or 10 years, they’re going continue to be those winds but how are they going to evolve? How are they going to continue to challenge the MSP and go from there? What I say is as long as there’s something between the screen and the back of the chair, there will always be a need for an MSP. As long as there’s data, there will always be a need for an MSP.

I think it’s not necessarily about a quantum glitch shift, left or right, I think it’s more about the evolution of these winds and the challenges that MSPs face. The one interesting part that might be completely new is maybe the continued kind of deterioration of the network or the amorphous shape of a network. With 5G and all these other bits with a remote worker, that creates another challenge that it’s not a nice, neat local area network that everyone’s kind of working inside of the office. The fact that people are remote, the fact that people might be accessing the data from a bunch of different ways, just creates another evolutionary cycle on how people work, how people need to be secure, how people are pushing more of their workloads to the cloud and why they need to manage everything. That for me is the challenge. That’s why we stay in business, that’s why we continue to be relevant, because we have to stay up with the evolution.

What are your thoughts on the metaverse? Do you think it's going to be the next big thing?

I think over time it’ll start to impact the industry. I think in the initial phases it will begin to impact education, begin to impact trainings. They’ll start with education and school systems and it’ll evolve into more trainings and education for the professional world, the government, all these other bits. I think that’s going to be the leaping-off point in my view. There’s going to be gaming and some of these other bits as well, but from a practical productive part I think that’s where we will start and then I think it will evolve and grow into there. But I think we’re years away from the SMB walking into an environment where they’re collaborating that way. But it’s definitely in our future.

What keeps you up at night?

The same winds, actually. Security is top of mind. It’s a culture shift, and keeping up with the multiple vectors of how the bad guys can be aiming. We know that MSPs are in the crosshairs. We know that we are in the supply chain and we know that the bad guys are focused on the MSPs and the solution providers that provide them the software. No. 2 is being able to continue to attract, maintain and develop our team. We have 1,500 N-ablites across the globe and we’re making sure that they’re challenged, making sure that they’re developing. We say my three pillars here at N-able is safety first, development second and productivity third, in that order. To make sure that each N-ablite is safe, productive and developing is something that I’m very mindful of every day.

What makes N-able better than ConnectWise and Kaseya-Datto?

It‘s our people. It starts and stops with our people. Software companies are not factories, they don’t have physical assets. Our world is all about the intangible assets and those intangible assets are our people, the energy of our people, the collective intelligence of our people, the passion of our people. I believe our 1,500 N-ablites, they’re head and shoulders above everyone else in the industry. Everyone at N-able comes to work every day with the concept of they’re running a software company, it doesn’t matter what your title is. Your title is just your title. Your job is to run a software company and to serve as MSPs. I think that higher-level calling gives us a competitive advantage.

What's the second best thing that makes N-able different than your competitors?

I think we’ve actually developed a right balance strategy. So we’re comfortable building, partnering or using acquisition to bring on technology. We have a flexible business model that’s anchored in our mission, which is to empower MSPs. I think others in our space kind of tap into one view or another. They were only going to build it themselves or they’re going to have a marketplace. We believe we need to help the MSP navigate their journey and the best way to do that is to have it integrated in our platform. Our platform provides the broadest and deepest level of monitoring and management capability in the industry. That helps us win.