SMB Community Podcast

A significant regulatory development affecting MSPs was discussed: the US Government ordered the suspension of access to the Fable 5 and Mythos 5 AI models by any foreign national, including those inside and outside the United States, citing national security authorities. As reported in the Anthropic company statement, this directive forced abrupt discontinuation of these AI tools for all customers, regardless of business impact. The decision resulted in the sudden loss of access to custom-built AI applications and business process automation tools that MSPs and their clients had integrated into daily operations. Immediate disruptions included the cessation of SEO and analytics engines, RMM automation, and bespoke backup solutions that relied on the now-restricted AI platforms.

Further clarification showed these suspensions are tied to concerns about potential backdoor access, disputed by Anthropic but acted upon due to US Government findings. Additional context revealed Amazon—the largest investor in Anthropic and a direct competitor—alerted federal authorities to the supposed vulnerability. Stock prices of competitive AI offerings in China reportedly rose by 48% following the announcement, indicating market reactivity to perceived US regulatory risks. The episode underscored that AI model dependencies—whether managed internally by MSPs or by third-party vendors—can introduce sudden continuity hazards if access or legal standing is rapidly altered.

Adjacent discussions evaluated operational models for MSP service offerings. Contrasting perspectives highlighted the tradeoff between providing a single comprehensive managed services plan, designed for streamlined staff training and high-touch customer experience, versus offering a tiered set of plans (“good, better, best”) that, according to shared data, can result in about 70% higher revenue through client segmentation and option-based sales. The choice was framed as fundamentally cultural, influencing both workforce structure and scalability, with differing risk and complexity profiles for technical delivery and sales management.

Key implications for MSPs and IT leaders include the need for explicit risk assessments around reliance on AI platforms and third-party tools. Business continuity planning should contemplate not only technical redundancy but also legal and regulatory exposures to abrupt vendor or governmental action. When building service portfolios, organizations should align plan standardization or diversification with internal capacity, capability for sales-driven growth, and staff training. Establishing clear governance for evaluating the ongoing viability and risk exposure of both internally developed and vendor-supplied technology is critical for operational resilience in an environment of rapid regulatory change.

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A central discussion in the podcast focused on the applicability of the Entrepreneurial Operating System (EOS) for small Managed Service Providers (MSPs). Divergent perspectives were presented regarding whether the EOS framework is suitable for MSPs with very few staff. The conversation highlighted that while EOS provides accountability, transparency, and structured communication, some very small organizations (e.g., four employees or fewer) may find the framework’s meeting cadence and process requirements disproportionate to their operational needs. It was noted that EOS promises value in promoting ownership and alignment but that this benefit is more likely realized when an organization reaches a scale where individual ad hoc communications become inefficient.

Supporting these observations, it was emphasized that EOS, as detailed in resources such as Gino Wickman’s book and related summaries, is designed with flexibility to span small, medium, and large teams. Examples were offered indicating that even companies with four employees have derived benefits through formalizing updates and consolidating communication, provided their baseline culture supports collective knowledge sharing. However, one position outlined that simply reading EOS materials may be sufficient for the smallest organizations to improve focus without fully implementing the structure, especially when daily meetings or formal processes are not otherwise necessary.

The episode additionally examined risk management and operational best practices surrounding MSP business growth and eventual sale. The dialogue discouraged running a business constantly as if preparing for immediate sale, citing the need for risk-taking during growth phases. Factors such as maintaining diverse client portfolios, implementing clear master service agreements (MSAs), reducing owner dependency, and minimizing client concentration risk were underscored as practices that support both ongoing scalability and future valuation. A case was discussed in which valuation was negatively impacted by an overreliance on non-contracted, concentrated clients and a lack of W2 employees, illustrating the risk implications of operational decisions.

For MSPs and IT service leaders, the discussion underscored the importance of regularly reviewing operational frameworks and business hygiene regardless of size. The tradeoffs between structure and agility require clear-eyed evaluation, particularly in managing risk, scaling sustainably, and ensuring future options for valuation or exit. While formal systems like EOS can strengthen accountability and communication, overengineering processes in very small teams may reduce efficiency. Careful attention to client diversification and contractual commitments is essential for risk reduction and maximizing enterprise value.

 

Title:    Is EOS good for a small MSP?

What are we talking about today:

MSP Question of the week: EOS framework in your business – is this good for MSPs? First introduced by Gino Wickman in his book Traction, the EOS framework focuses on aligning teams and driving execution  What the Heck is EOS? (shorter book) 

AMYS NEW BOOK!!!   Top 20 questions - Should you run your business like you’re going to sell it? Image of Amy’s book  Amy’s Book: https://amzn.to/4dSYOcR

MSP struggle hiring good people – what do you do when you hire a mediocre employee?  Article reference: https://www.linkedin.com/posts/timothykoirtyohannsphr_their-new-hire-was-fired-after-28-days-share-7361376947848843264-5UwS/

What is your quote turnaround time?

Tales from the Field: I was doing a valuation this week and shared the results with the owner --  Good revenue 1.5m, good NI 375K, GREAT MRR 75%, good location and team.   No contracts, no office, no employees only 1099, 1 client represents 50% of revenues, and owner wants full exit.

Amy and James Events:

SMB Online Conference- June 25th panel. Free registration for SMB Online Community members. Register at www.smbonlinecommunityconference.com

Mastermind Event – July 30-31st, 2026 in Omaha, NE. Register at 

https://kernanconsulting.com/mastermind-event/

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Discussion centered on the evolving role of Artificial Intelligence (AI) in the MSP technology stack, emphasizing the necessity for MSPs to deploy tools that can comprehensively manage AI, particularly concerning security and shadow IT. Multiple participants highlighted the lack of current solutions that aggregate and control AI activity via a single interface, with an explicit focus on the requirement to educate clients about AI privacy, security, and usage costs. The practical challenge of MSPs asserting thought leadership in AI was underscored, as was the complication of usage-based AI billing models leading to unexpected customer expenses.

Supporting details were drawn from the recently released Kaseya State of the MSP report, which showed that customer acquisition remains the sector’s main challenge, with 71% of surveyed MSPs identifying it as their top concern. The report further found that only a minority of MSPs are executing effective sales and marketing strategies to educate clients. Additionally, 48% of respondents reported AI and automation as top client needs, yet a significant drop was observed in customers spending more than $25,000 a year with MSPs, falling from 75% to 41%. This reduction is attributed to clients undertaking technology initiatives independently, diminishing the perceived value of MSP services.

Adjacent discussions addressed common issues around automation and AI adoption. Several practitioners noted a prevailing trend of automating legacy processes rather than leveraging AI for forward-looking transformation. It was emphasized that most AI implementations among peer groups are focused on operational efficiencies for past tasks, such as help desk and marketing automation, with few examples of innovative new service offerings. The dialogue also covered practical, risk-related aspects of managing client relationships, particularly when enforcing security measures such as multi-factor authentication in the face of client resistance.

Implications for MSPs and IT leaders include the need to strengthen governance around AI adoption and service stack adjustments, actively communicate the value of AI security and management services, and anticipate client concerns about cost control and privacy. The observed decrease in customer spending points to operational and strategic risks around client engagement and service value. MSPs are advised to ensure that automation efforts align with future requirements, not just past service models, and to enhance accountability in both vendor and client-facing operations.

 

Title:    Should I Adjust My Stack for AI? 

MSP Question of the week:  How should I adjust my stack for AI?

Kasaya State of the MSP report is out: Running an MSP is harder than ever is the headline. https://www.kaseya.com/blog/msp-growth-challenges-2026/

Question for you! Amy had a post on LinkedIn last week telling MSPs that they are doing AI wrong. The final question was, are you adopting AI for the future or just automating the last 10 years. Where is your focus?. https://www.thirdtier.net/2026/05/31/most-msps-are-using-ai-wrong/

M&A: When is the best time to sell an MSP?

Chapter 2 from Amy’s book. https://amzn.to/4dSYOcR
Amy and James Events

Mastermind Event – July 30-31st, 2026
https://portal.kernanconsulting.com/mastermind-event

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A central development addressed is the projected effect of AI on the per-seat pricing model that underpins many MSP service offerings. According to the discussion, AI could reduce white-collar jobs by 30-50%, leading to fewer user seats for MSPs to support and bill for. This scenario presents significant revenue risk for MSPs reliant on per-user contracts. The discussion also references Microsoft’s introduction of Agent365, a product designed to license AI agents within enterprise environments, indicating a move by vendors to adapt licensing models while protecting enterprise relationships.

Participants noted that if customer organizations reduce headcount, MSPs will face declining license and seat-based revenue. Discussion suggested alternative business models, such as switching to per-device pricing or developing new service streams, with an emphasis on advisory services and security. The timeframe for these changes was cited as two to three years, which was described as an operationally compressed window for MSPs. Additionally, security, data management, compliance, and governance were highlighted as ongoing service areas with continued relevance as the MSP landscape evolves.

Additional topics included increased local competition among MSPs, as evidenced by survey data reporting 100% of respondents encountering significant competition in 2024. Differentiation and targeted marketing were underscored as necessary responses to commoditization pressures. Emotional considerations related to M&A were also discussed, with particular focus on the personal and organizational impact of business sales. Security operations in MSP settings were identified as a rising operational burden, amplified by rapid changes and the challenge of upskilling staff hired for traditional IT roles.

Key implications for MSPs and IT service providers center on the need for rapid operational restructuring, with greater emphasis on knowledge-based services such as IT advisory, risk, security, and compliance. There is a recognized accountability for customer education on evolving threats and for managing new AI-related risks that impact both data sovereignty and contractual obligations. The discussion suggests that MSPs unable or unwilling to adapt to these shifts may seek exit strategies, while those staying will need to reassess both revenue models and the skills composition of their teams. Participation in industry peer groups was recommended to share best practices and address common operational challenges.

 

MSP Question of the week:    How will AI impact the per seat model? 

-  How will AI impact the per seat model? 

-  Captera did a survey on local competition: Captera did a survey of MSPs. 100% of surveyed MSPs say competition in their region is high.  This was a 2024 study—  in 2026, it has to be worse. MSPs that can't differentiate are suffering. https://www.capterra.com/resources/managed-service-provider-for-small-business/

- Emotions of selling your business – AMY’S NEW BOOK: https://sellmymsp.com/book

-  How AI Is Transforming Security Operations: https://www.thirdtier.net/2026/05/11/how-artificial-intelligence-helps-managed-service-providers-deliver-smarter-security/When I talk with MSPs today—whether in my mentored-peer groups or consulting gigs—the same pattern shows up. Security has become the heaviest part of the workload. SOC-like responsibilities are landing on teams that were originally built for backups and patching. That mismatch is where AI can make a measurable difference and a wake-up call for MSPs looking toward the future.

               - Not meeting with clients because you don’t know what to say? Speak To Your Clients About Email Threats: https://www.thirdtier.net/2026/05/19/speak-to-your-clients-about-email-threats/

            - Tales from the field: Why MSP’s are exiting the channel 

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The most consequential development discussed is the rapid proliferation of Shadow IT in client environments, with emphasis on the unchecked adoption of cloud SaaS applications and artificial intelligence (AI) tools by end users. Speakers noted that this has led to a substantial loss of MSP control over client IT environments, eroding trusted advisor status and prompting clients to question the ongoing necessity of working with their MSP. The pervasive use of AI and SaaS products without guidance or oversight introduces governance and security risks, particularly relating to sensitive business data being accessible to third-party vendors and potentially incorporated into external data sets.

The episode provided details on how Shadow IT emerges, highlighting the ease with which employees can adopt SaaS and AI tools through free trials, personal accounts, or non-business credit cards, often outside of IT’s direct visibility. According to Amy and El, clients are increasingly self-serving their technology needs, shifting traditional MSP-client dynamics. The conversation outlined specific governance issues, such as most AI tools ingesting client data into the cloud, with limited assurance as to how it will be used or protected unless higher tiers of service are paid for—an unlikely scenario for most SMBs using free versions.

Secondary discussion focused on broader industry fragmentation and the challenges it poses for knowledge-sharing, consensus-building, and vendor feedback. The speakers recalled a time when MSP best practices spread rapidly through tightly-knit peer groups or single platforms but observed current information channels are numerous and scattered, such as Discord, Reddit, LinkedIn, and Facebook. This dispersion hinders both MSPs and vendors from collaborating effectively and reduces the feedback loop necessary for responsive product development and operational improvement.

The key implications for MSPs and IT leaders include the pressing need to shift operational models from rigid, tool-centric offerings to relationship- and advisory-focused services. There is heightened risk if MSPs fail to address governance and security concerns, especially as end users continue adopting technology independently. Speakers recommend implementing proactive client education, detailed risk analysis on SaaS and AI integrations, and establishing clear communication strategies to reclaim the advisory role. MSPs are encouraged to align compensation models to advisory activities, as future client value is projected to depend more on strategic guidance than product-resale or ticket-resolution metrics.

Title: How are you managing Shadow IT?

Topics:

How are you managing Shadow IT?

Is the MSP industry too fragmented in how we share knowledge?

Why do MSPs exist? (blog posts from “Amy’s Sayings”: https://www.thirdtier.net/?s=Amy%27s+sayings)

What does it mean to be a M365-based MSP in 2026?

Upcoming events:

Zero Trust Workshop- 3 sessions starting May 28. 

Register here: https://www.thirdtier.net/2026/04/27/arriving-in-may-zero-trust-workshop/

Mastermind Event with James (and Amy is a guest speaker!) in Omaha, NE

Register here: https://kernanconsulting-mastermind.mykajabi.com/mastermind-event

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