Chris Barbin

About Chris Barbin

Our second anniversary – it’s been a wild ride

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When we started Tercera two years ago, things looked a little different. The COVID vaccine was just rolling out, with in-person events still a distant memory. Tech valuations were skyrocketing, and interest rates were about as low as they’ve ever been. Capital was cheap, unicorns were running rampant, and companies couldn’t hire fast enough.

That brings us to January 2023. While COVID has become more manageable, tech valuations are now in the toilet. Last year the Fed raised interest rates seven times, making capital more expensive and difficult to secure. The hiring boom went bust, and by the end of last year, 159,000+ tech workers had been laid off. This month alone another 60,000 tech workers have joined those ranks with companies like Google, Salesforce, Microsoft and Amazon announcing large swaths of layoffs. So yes, it’s been a wild ride.

However, cloud consultancies and IT services firms seem to be weathering the storm better than most.

IT Services: A bright spot amidst turbulence

In 2022, many SaaS vendors saw valuations decline 60-90%. The valuations of publicly-traded tech services also took a hit, but it was a much smaller correction (closer to 20%). If you listen to earnings reports from the GSIs, you’ll hear a tone of cautious optimism. They are all keeping an eye on the macro trends, but most are still beating their top and bottom-line plans, continuing to expand through both organic growth and acquisitions.

Tercera’s own IT services investments performed well in 2022. In aggregate, our seven portfolio companies, which represent about $150 million in annual revenue, grew 52% year-over-year.

Tercera’s IT services investments performed well in 2022. In aggregate, our seven portfolio companies, which represent about $150 million in annual revenue, grew 52% year-over-year.

This economy is even bringing some tailwinds to third wave services firms:

  • Employee attrition is improving. While finding (and retaining) top notch talent is never easy, the market for that talent has eased a bit.
  • As customers reduce their own workforce and limit hiring, many are leaning on external services partners to supplement their teams and move initiatives forward.
  • For those that have the capital and cash on hand, acquisitions have become more affordable than they were in the heady days of 2021 and early 2022.
  • Tough times force companies to make hard decisions. Focusing on processes and data-driven decision making will put companies in a better position once growth returns.

While many of the IT services firms we speak with are planning for slower growth in 2023 to focus on better margins and profitability, there is still a huge opportunity for cloud consultancies, digital engineering firms, and managed service firms – especially those that focus on the fundamentals and bring skills that are scarce in today’s market.

Companies will continue to depend on technology, and it is the people who design, create, implement, integrate and manage that technology that make it successful. That’s true in any economy.

What 2022 taught us

As former operators who take growth very seriously (both personally and with our investments), we’re always looking to learn and evolve. Here are a few things we took away in the last year.

Diversity matters. Diversity matters on so many levels, especially as you scale. From gender and racial diversity, to portfolio and investment diversity, to regional and practice diversity. When war hit the Ukraine, firms who relied only on an Eastern European workforce had to scramble. Some industries and ISVs stumbled this last year, while others accelerated, which had an impact on growth for some partners. We’re big proponents of focus, but if you’re single threaded, you need a plan.

Investing is truly a team sport. In the second half of 2022, we closed 6 transactions in as many months. We added three new investments – Black Diamond Advisory, Orium, and Valiantys – and closed on three acquisitions. We did all this with a fairly small team, and without compromising on quality or our commitment to help every company in our portfolio thrive. Without our capital partners (Trilantic North America), our Advisors, and our partnership with Keensight on Valiantys, it couldn’t have been possible.

The ecosystem matters as much as the ISV. A key part of our thesis is finding service providers that are focused on a specific software partner, but this year it became clear that the ecosystems around those partners are equally important. In the third wave, systems are becoming more and more connected. Customers are relying on hundreds of SaaS apps and work across hybrid environments. Partners need to be more than a one trick pony. They just need to be clear who the winning horse is.

A few highlights

Our portfolio. We couldn’t be more proud of the companies in our portfolio, which now cover 14 of the top 30 cloud ecosystems for services partners (and many of the fastest growing). More than half our portfolio companies won “Partner of the Year” in their respective ecosystems, and every single one achieved a major win this year.

Our first Tercera retreat. In December we held our first in-person Tercera leadership retreat, bringing together all of our portfolio CEOs and their top lieutenants to network, share best practices and learn from each other. Hearing leaders leaning in and sharing ideas (and leads) may have been my highlight of the year.

The Tercera 30. We released our first Tercera 30 report. Releasing a portion of the data we use to guide our own investments might not come naturallyto many investment firms, but we knew it would help founders make better decisions.

Our extended team. This year we welcomed two new team members, amplified by Tercera’s unique Advisor Community – a group of 30 experienced executives who are deeply engaged with us and provide regular insights to the leadership teams across our portfolio.

Looking ahead

In 2023, we’ll be applying the learnings above and keeping a close eye on the trends we believe will impact IT services this year. We’ll be building on the investments we’ve made, and supporting our CEOs and their leadership teams in their quest to reach the next phase of their growth journey. And we’ll be exploring new investments – segments and ISVs within the Tercera 30 that we believe are ripe for disruption and an exceptional services company at scale.

The year ahead will test all of us in ways we can’t predict. However, when you’re in the right market, with the right people, doing the right things, good things happen.

Seven trends impacting IT services in 2023

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This post lays out seven trends we believe will shape IT services businesses this year. For tips on how to plan for or capitalize on each of these trends, download our ebook here.

2023 will test IT services business leaders in entirely new ways, probably including some we can’t predict. In fact, it’s that very uncertainty that will test them most.

The market, and most management teams, are coming into the year with a mix of doomsayers and cautious optimists, and both sides make convincing arguments.

“Dr. Doom” Nouriel Roubini, who successfully predicted the 2008 financial crisis, warns that the global economy is headed for “the mother of all stagflationary debt crises” that ends in high unemployment, high inflation, and a steep stock market crash in the U.S. Fitting moniker.

On the other hand, companies in every industry are still beating targets, still hiring talent, and forging ahead. As I write this blog, inflation seems to be leveling off and the stock market is starting to inch its way back up. It can be a confusing time for even the most seasoned tech CEO.

Succeeding in an environment like this requires getting back to the basics – finding a path to profitability, understanding customer needs, and focusing on company strengths. It also requires keeping a pulse on what’s happening outside your company’s (virtual) walls. With that in mind, here are seven trends that cloud services leaders should keep their eye on this year.

Trend 1: Customers, not talent, will be the battleground

In 2022, the chorus was “find me the people”. In 2023, it’s “show me the revenue”.

We’re only 18 days into the new year, and tech companies have already laid off more than 24,000 employees. Ouch. With talent now easier to find, the battleground is shifting to customers.

Customers will absolutely continue to invest in technology because they have to. However, sales cycles are getting harder and moving slower. Big “transformational” projects are getting even more scrutiny from buying committees, which for enterprise deals, often include more than a dozen decision makers. Customers are looking to wring more value from their existing investments (and their partners).

All this means that vendors and services partners must demonstrate measurable, near-term ROI. Those who do this well, and who can adapt to buyers’ new realities, will have an advantage this year.

Trend 2: IP and automation move from marketing to mandatory

Packaged, repeatable IP has become a must-have rather than a nice-to-have for services firms in the cloud’s third wave. This trend will accelerate this year, as cash-strapped customers and time-strapped consultants look to deliver results more efficiently.

That shift from investment mode to efficiency mode means services firms are emphasizing assets on the bottom of the IP maturity pyramid, focusing on accelerators and tooling that can support a leaner workforce and improve project margins. And spending less on full-blown products that require significant up-front investment and a dedicated sales and marketing budget.

Companies are also (finally) investing in systems and tools that will help them run the organization more efficiently, predictably and profitably. Those that do invest here are going to be in a better position to grow as the headwinds return.

Trend 3: The Tercera 30 goes vertical, and deeper into healthcare and manufacturing

The verticalization of software isn’t a new trend. Bessemer’s State of the Cloud report predicted that “the vertical SaaS wave will become a tsunami.” All those industry investments are now starting to gain traction.

Most of the ISVs in our Tercera 30 already have a vertical play, and many of the biggest companies on our list are betting big on Industry Clouds, with manufacturing and healthcare moving higher on the priority list.

These vendors, and the buyers they serve, will want to know that their services partners have a playbook for their industry as well. Now more than ever, a generic, “don’t worry, we can do anything for anybody” approach won’t cut it.

Go vertical. Or risk having your revenue line go horizontal and flatline.

Trend 4: Analytics and AI move up in importance and out of their silos

The title of data scientist was only invented in 2008. A few short years later, an article in Harvard Business Review called it the sexiest job of the 21st Century, saying that “more than anything, what data scientists do is make discoveries while swimming in data (…) a hybrid of data hacker, analyst, communicator, and trusted adviser. The combination is extremely powerful—and rare.”

The rise of the modern data stack, combined with easier-to-use AI tools like ChatGPT, is beginning to democratize those capabilities. Data analytics continues to be pushed up the organization into the hands of business users, while software becomes more intelligent.

The demand for data-rich applications is also pushing deeper partnerships between SaaS vendors and data cloud vendors like Snowflake and Databricks. It presents an opportunity for firms who can make those applications a reality inside an enterprise.

How data is used — and who can wring powerful, business-changing insights out of it — is changing, and fast.

Trend 5: Services consolidation continues, but deals get smaller

Services M&A will ramp back up in 2023 as cash-strapped firms look for a good home and well-funded firms look to fill gaps in their portfolio. The most attractive targets will be services firms that have solid unit economics, proven playbooks and accelerators (see Trend 2) and differentiated vertical expertise (see Trend 3).

Unfortunately, not every firm will make it, especially firms that don’t have the capital, cash flow or scale to weather the storm. Leaders in these firms will find themselves looking for a home for employees – even if the economics aren’t in their favor.

Trend 6: Software vendors prioritize partners that BYOC (Bring Your Own Customers)

As budgets tighten, the flow of customer handouts from ISV channel partners will be much tighter this year. Remember Trend 1? Software vendors that are fighting hard to find win customers won’t appreciate partners who aren’t pushing just as hard.

The channel will continue to be a solid part of any cloud services firm’s go-to-market strategy, but software vendors will expect a better balance of trade when it comes to leads. This will be a new world for many firms that have built sales teams and budgets based solely around channel coverage.

Partners may also get pressured by vendors to reduce the scope of projects or reduce bill rates to help keep the cost of implementation lower. Tread carefully here. In some cases this may be needed, but a bad deal that hurts customer satisfaction (and expansion) will have lasting consequences.

Trend 7: Retention and mental health (finally) get more attention

If we’re being honest, this is more of a critical need that we hope will become a trend. Even if things don’t get quite as ugly as “Dr. Doom” Nouriel Roubini predicts, this will be a bumpy year — and a lot of your younger staffers will have never lived through a year like this before.

A combination of layoffs, leaner teams, higher utilization and stressed out managers is going to translate into anxiety and burnout. Both of which have long term implications for individuals and the company if not adequately addressed. Employees who seem perfectly fine on the surface may be suffering in ways you don’t have a clue about.

Effectively supporting mental health requires awareness, training and investment. Companies are finally catching on to this fact, and shouldn’t be tempted to cut back on mental health benefits as a way to cut costs. Their teams will need them more than ever.

For more on all of these trends and what IT services companies can do to make 2023 the best it can be, download our ebook.

P.S. And don’t forget to explore the rest of our resources. There’s a lot of useful, distilled advice from Tercera and our advisors — all at the right price for today’s economy: free.

Not all services IP is created equal

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Technology consultancies and systems integrators have been proclaiming the prowess of their Intellectual Property (or IP) for decades. In the pre-cloud era, that IP often took the shape of a giant binder filled with strategy decisions destined to sit on a shelf collecting dust. Today, IP has taken on greater importance for services firms, moving from a ‘nice to have’ to a ‘must-have’.

Why is that? Because in the cloud’s third wave, where so much of the IT stack is delivered as-a-service, IP is expected. Customers want proven, packaged expertise to help them move faster and save money. Software vendors want their consulting partners to offer solutions that can extend the value of their platforms and drive customers to their marketplaces. And investors want the margins and multiples that come with software and recurring revenue.

However, all IP isn’t created equal.

The Value of Services IP — And Why Everyone Claims to Have it

Most consultancies are brought in to solve bespoke customer problems, which can make it tough to stand out from the competition. How many times can a customer hear: “we’ve got the smartest people!” or “we know this [fill in the blank] space better than anyone else!” before they start to tune out.

IP can help illustrate a firm’s expertise and differentiate in a more substantive way. If a consultancy has an asset (whatever form that might take) that’s been used to help other customers tackle a similar challenge, that’s a powerful message. It’s powerful to prospects and to the vendors who depend on consulting partners to keep customers happy.

The beauty of IP is that it’s predictable. While people and their outputs vary, IP is a bedrock of consistency and (hopefully) quality. That predictability can help teams move faster and reduce the risk of doing something for the first time.

The beauty of IP is that it’s predictable.

IP can also increase scale and automation, which means faster results for customers, and better margins and more profits for the service provider. Here’s an example: Say a customer needs to automate a specific business or industry workflow. A consultancy can throw eight people at the problem and bill the customer for every hour those people work, which is a traditional time & materials billing model. However, if that consultancy has re-usable IP that can solve 80% of the problem, it might be able to provide the same service with just four employees while still charging the full price. Or it can lower the price to win a deal. In an economic environment where cost and quick time-to-value matter, IP can be a clear competitive advantage.

In an economic environment where cost and quick time-to-value matter, IP can be a clear competitive advantage.

Truly productized IP can also add a level of customer stickiness and a consistent revenue stream, especially if it’s delivered as a monthly or annual subscription. This kind of predictability helps to reduce the revenue swings that often happen with project-oriented businesses, and it delivers better margins than time and materials billing. This is why product companies typically receive higher valuations than services companies.

However, products and services companies have very different DNA. They’re optimized for different go-to-market motions. Processes, pricing, resourcing and support models are also different, as are customer expectations. When a customer buys a product, they expect a certain level of ongoing support over a long period of time. That doesn’t always jive with the project or program mentality in most services companies, where products are often seen as a means to sell more services. All of this makes it very difficult to be exceptional at both products and services. It’s like running two different companies, and while it’s not impossible to succeed with both, it is rare.

It’s very difficult to be exceptional at both products and services. It’s like running two different companies, and while it’s not impossible to succeed with both, it is rare.

The IP Maturity Pyramid

When we evaluate IP within a services firm, we think of it as a pyramid. The higher up you go on the pyramid, the more mature and stand-alone the IP should be, which also translates to higher levels of resourcing and investment.

Different levels of IP maturity

At the bottom is the least sophisticated IP: off-the-shelf tools or reusable assets that are more valuable for sales and marketing than they are for delivery. Examples of this include reference architectures, design libraries or even small snippets of code. These assets play a critical role in competitive differentiation, but they aren’t necessarily designed to drive a differentiated level of delivery efficiency or productivity.

One step up are accelerators, which range from custom-built tools to pre-built integrations and connectors that automate parts of development or product implementations. A good example of this is BeyondID’s EPIC and Okta connector that enables healthcare organizations to automate provisioning for providers and patients. Or Zennify’s pre-built connector for Salesforce Financial Service Cloud and Jack Henry Symitar, a common core banking system for credit unions. Both of these accelerators are a huge value add to customers, but are not built to be standalone products.

Further up on the pyramid are standalone, fully-supported products that can be used independent of using a specific service provider. A number of the big GSI and digital engineering firms have set up incubators, sometimes in collaboration with their tech partners, to evolve internal IP into products that they market independently. Globant’s MagnifAI, which uses AI to simplify quality assurance testing for complex visual test scenarios, is a great example of this.

Finally, at the very top of the pyramid, are productized horizontal and vertical solutions that combine standalone technology with the surrounding advisory, training and management services. IBM’s Watson solutions are a good example of this, with Watson solutions targeting everything from advertising and human resources to healthcare and risk management.

You’ll notice a trend with those top two IP layers of the pyramid – it’s the large, global services firms getting into truly productized IP in a meaningful way. It’s not usually the small or mid-size firms. That’s because products cost money to develop, and they take dedicated resources and budget to support, maintain and evolve.

4 ways to up your IP game

So many firms we meet with have product ambitions, which can contribute value in lots of ways, but don’t jump into the product game blindly. It’s not easy and the market is littered with services firms claiming to be product companies – and doing neither well.

The market is littered with services firms claiming to be product companies – and doing neither well.

Here are a few ways to increase your IP maturity in a more methodical way:

1) Design and document your IP strategy

Start with your North Star. Are you a services firm that invests in productized IP, or a product company that offers services? You can do both, but you should optimize for one.

Think about how IP fits into your overall business strategy. Is it primarily a way to stand out in the sales cycle? Are you looking to use it to expand project margins? Or are you looking to generate seven figures of product revenue from it? If the latter, you’ll need to budget and invest accordingly.

2) Define what your IP is and who owns it

What are the actual assets, and who is responsible for developing it or driving usage of the IP?

If the assets are used primarily for sales and marketing, you may not need a dedicated owner. When we first started getting into IP at Appirio, we designated one of our consultants as our IP librarian. It eventually turned into a full time role but it wasn’t at the beginning.

Who takes on the role depends on where in the pyramid the IP sits. As you climb the pyramid, you’ll need a more senior product leader (and potentially team) that has products in their DNA. Someone who can design, develop and evolve the product, and just as importantly bring it to market.

3) Understand how IP fits into your delivery methodology or sales motion

If the IP is meant to accelerate and automate delivery, how do your consultants find, use and contribute to your IP portfolio?

If the IP is being jointly developed with a customer or partner, who owns the IP? How will licensing and support work over time? How will you collectively bring it to market?

If the IP is a critical part of your sales motion, how much sales or partner enablement is needed? Who is your ideal customer for this, and what assets and campaigns will drive awareness that this asset exists?

4) Educate and incentive your teams

IP that no one knows about or that sits in a code repository is a waste of time and money. How do you motivate and reward your consultants for using the IP in customer engagements?

If a consultant is measured and compensated based solely on utilization, they may choose to build something from scratch. However, if there’s an incentive to use accelerators or expand on existing assets, that may counterbalance that urge to reinvent the wheel.

Orium is an example of a tech-enabled services firm that’s been very methodical about this. Orium’s Composable.com Accelerator offers reusable front-end UI components and pre-integrations across 32 different composable commerce technologies. Developed over the last two years, it’s become a strategic part of the company’s sales and partner go-to-market motion, and it’s deeply integrated into the firm’s delivery methodology. Today, Orium’s Accelerators are used across 80% of its clients.

5) Measure the success of your strategy

Measure what matters. If you’re investing time and money into your IP, make sure you know why you’re doing it and whether it’s having the desired impact. Here are a few common metrics:

  • Are your project margins improving?
  • What percentage of your customers are using your IP?
  • What percentage of your consultants are using the IP?
  • Is customer retention or satisfaction better if IP has been used?
  • What is your annual recurring revenue (ARR) for products?

At the end of the day, IP is an asset just like any other. However, because it lacks the inherent definition of physical assets, it’s up to you to define it, package it and put it to use. By carefully applying these strategies, you’ll be able to take your IP to the next level. And—if done correctly—you’ll see a substantial return on all that investment.

Fighting the Bear (and winning): What IT services companies should do now

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I have battled through three bear markets in my 30 year career in technology — some uglier than others. Each one of these markets taught me something different.

My first was in the early 2000s when I led global services for webMethods, an early Internet darling that skyrocketed to a valuation of $10 billion, only to crater when the dot-com bubble burst. This experience led me to write about the risks of overvaluing valuation in September last year, which seems somewhat prescient looking back.

Lesson #1: Focus on the fundamentals because markets are cyclical and they’ll eventually correct.

My second was the 2008-2009 global financial crisis. Appirio had just closed our Series A with Sequoia Capital. I was a first time CEO flush with capital, excited to put it to work. Then I got the call from our new board member, Jim Goetz, summoning me to Sequoia’s office on Sand Hill Road for their infamous RIP Good Times presentation. The guidance I got from Jim, and the ability to lean on others across the Sequoia portfolio, helped us weather the storm. Appirio’s success over the next decade led to its eventual acquisition by Wipro for $500 million.

Lesson #2: When times get tough, the quality and experience of the people you have around the table matters more than ever.

My third was when COVID shut down the global economy. I was advising the leadership team at Traction on Demand, a 1000+ person Salesforce consultancy as Chairman of the Board. Traction’s leadership team made incredibly difficult business decisions incredibly fast — and without abandoning their values. The company came out stronger because of it, and continued its march to become the largest dedicated Salesforce consultancy in North America. Traction was acquired by Salesforce in February 2022 for a multiple that reflected that strength.

Lesson #3: If you’re decisive and you stick to your values, you’ll come out stronger.

Today, we’re advising our portfolio companies at Tercera about how to get through this latest crisis. We don’t claim to have all the answers, but these past experiences can be a guide.

How long will this last?

Buckle up: we’re probably in for a tough 18-24 months. The average duration of the last 14 bear markets was about 20 months (see chart below).

While the stock market isn’t a full proxy of business spend or private market valuations (which tend to lag by 6+ months), it is indicative of trend lines. Tech as a market tends to be more resilient than most, but not all companies will make it through this period. Don’t panic, but don’t underestimate the challenges ahead either.

Start by analyzing your cash flow, and get very clear on what’s coming in and going out of the business. Once you’ve done that, create base, best and worst case scenarios for the next 1-2 years so you can act decisively but not spontaneously.

How will the economic downturn impact IT services specifically?

It’s been a brutal 6 months for publicly traded technology stocks, especially SaaS stocks which saw a huge run up during the pandemic. Many now trade below what they were in early 2020. The collective market cap of the SaaS companies in Bessemer’s Emerging Cloud Index has been halved from an all time high of $2.7 trillion in Nov 2021 to ~$1.3 trillion at the time of this writing.

The trend line is similar but less stark when it comes to publicly-traded IT services firms. Companies like Accenture, Globant, Cognizant and Wipro dropped an average of 37% in the 1H of 2022. Painful for those companies, but not nearly as much as the 52% drop we saw in the EMCLOUD index.

While services spending does tend to track overall IT spend, the slowdown in hiring may actually benefit people-based services firms in the near term.

Over the last year, tech firms have had a very difficult time hiring and retaining skilled talent. That hit services firms particularly hard. Attrition rates were at an all-time high, and wages skyrocketed as companies fought with each other to find and keep talent, putting downward pressure on both growth and margins. Wage inflation and attrition both seem to be leveling off as we see more and more layoffs and hiring freezes, although top talent still commands a premium.

Those layoffs and hiring freezes may benefit service firms in another way. Companies may need to rely more on external consultancies and managed service providers to maintain, protect and evolve their critical systems.

Which services firms are positioned to win?

Those firms that can position themselves as the go-to-partner for critical areas and deliver high ROI are positioned well in this market. At Appirio, during the financial crisis, we grew market share and mindshare because we could deliver faster and take on smaller projects than the traditional Global Systems Integrators (GSIs).

Some services companies are better positioned than others. Those that are in market segments where spending is deemed critical to the business like security, or where spending clearly drives top line revenue growth and market share gains, may see less impact than areas where spend is more discretionary. The industry vertical a digital services firm specializes in also matters. Firms selling to software companies have been hit hard and will have an up-hill battle compared to firms selling to value industries like manufacturing, energy, healthcare and financial services.

What does this mean for M&A?

Over the next 18 months, expect to see a real bifurcation. Great companies with great fundamentals that service a big market will still command a premium when raising capital or being acquired. Good but unexceptional companies will see valuations, growth rates and pricing power shrink. A shakeout, if there is one, isn’t all bad. Great companies will be in a position to acquire good ones and position themselves to take a greater share of the market.

But as interest rates rise and a recession looms, capital has shifted from cheap to expensive. Debt lenders and investors are hunkering down. Companies that have more limited access to capital will want to conserve cash by focusing on smaller, less risky tuck-in M&A deals that help fill in the gaps or diversify offerings. Expect deal terms to shift from all cash deals to stock-based deals with bigger earnouts.

What should services founders do to prepare?

Revisit your plan if you haven’t already. Work with your teams to understand how customer demand and sales cycles are shifting, and the potential impact on pricing, margins and growth rates. Increase profitability but not to the point where it results in your business having negative growth. Customers, employees and investors still reward growth. Just shift your plan to durable growth, not growth at all costs.

Rethink your offerings to what customers need now. When tough times hit, customers tend to shift buying decisions from long-term impact to short-term ROI. Reducing risk, increasing efficiency, and saving money suddenly become more urgent than transformation and innovation. Do your current offerings address these new priorities? Does your packaging or delivery model need to evolve to the way customers now want to buy? Where can you automate to increase your own efficiency and lower costs for customers? Be creative and don’t forget to ask customers for their input.

Evolve your messaging to customers, partners and employees. People’s mindset even six months ago was very different than it is today, and your messaging and positioning may need to evolve accordingly. Stability and security are a lot more important than they used to be. Customers and employees want to work with companies that they can count on to be around for the long term, and partners need assurances you won’t abandon them. Consider how your messaging needs to evolve to a new hierarchy of needs.

Find a peer group. Tough times can be a lonely place for a CEO, and you don’t want to make decisions in a vacuum. Talk with peers who are experiencing the same pressures, and talk to mentors who have navigated these waters before. If you have investors, have them put you in touch with other CEOs and founders in their portfolio. Lean into your Board of Directors and get tight with your leadership team. Remember, you’re all in this together.

How should leaders talk about this with employees?

Communicate early and often. Don’t disappear into your bunker. In uncertainty leaders need to be more visible, not less. Overcommunicate with both customers and employees, so they don’t imagine the worst. Lean now towards a “push” style leadership: when employees need confidence in the company’s long term direction, a more direct approach may be needed. Be sure to balance optimism and realism. You don’t want employees to think the sky is falling, but they also shouldn’t be surprised if layoffs do happen.

Long story short, you can battle through a bear market and come out better as a result. That isn’t easy, but that’s the job ahead. The most important advice I can offer is to stay clear-eyed about what’s happening without letting pessimism and defeatism take over.

This is an opportunity to take a hard look at the fundamentals of your business, make some potentially tough decisions, and (re)position the company for durable growth. It’s the leaders who face reality and adapt with discipline, rather than fear or regret, are those who will win in the end.

Mental health requires more than a hotline

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A Personal Call to Action for Leaders to Support Mental Health

It was April 2011 when we got the call. One of our colleagues, let’s call him Jake, had taken his own life and was no longer with us.

When I got that call, I was the CEO and co-founder of Appirio, a 5-year old, 400-person services firm in the fast-paced world of cloud computing. Jake was one of our technical consultants who, like most of our team at that time, worked remotely. Because of this I didn’t interact with Jake all that often, but knew him as a smart guy on the quiet side who was tight with his team and had a surprising gift for poker and juggling. I witnessed the latter at our annual company meeting where he got a standing ovation at our “Appirio’s Got Talent” show.

His wife told us that Jake had struggled with depression for a long time, but all I could think about was how happy and full of life he seemed when we last saw him. It was a stark reminder that you never know what’s going on behind the scenes.

That’s the thing about mental illness and what makes it so hard – it’s all too often hidden from view.

That’s the thing about mental illness and what makes it so hard – it’s all too often hidden from view. It’s not visible like a broken arm or a physical illness that tends to elicit a natural sympathy from even the most oblivious person. Mental illnesses can live in the background and are too often a silent struggle that is misunderstood and easily dismissed by those who have never experienced it personally.

The truth is, more and more of us are experiencing it personally. I’ve gone through it with immediate and extended family members, who battled the range of minor short term bouts to major long term situations. In some cases, there were trigger or catalyst events. In other situations they were, and still are, long running. Luckily they’ve been managed with the right combination of awareness, therapy and medication.

Most notable, and shaping for me early in my career, was a situation where I needed to unplug for two months to take care of what could have been perceived as a non-issue. I quickly realized that the tax and toll of trying to balance my personal and professional life was too material. I needed to go all in on the family, and I was fortunate enough to have a company and colleagues around me that understood. I had a manager and co-workers who covered for me and allowed me to help manage this invisible illness that was impacting our family.

The role of a CEO in supporting mental health

My personal experience with mental illness has had a profound impact on me, but the Jake situation changed me as a CEO.

It’s one thing when you’re dealing with a situation personally, but how you handle sensitive issues as a leader has an impact far greater than just yourself. After we got the call about Jake, we talked as a management team about how we wanted to communicate the news to the company. How could we support his family and celebrate Jake’s life, but also talk about this as a real issue? How much should we say? I’m sure we didn’t handle everything perfectly, but we did our best.

It’s one thing when you’re dealing with a situation personally, but how you handle sensitive issues as a leader has an impact far greater than just yourself.

It’s been more than ten years since Jake’s death, and luckily mental health is on the radar of far more people. What used to be a topic of conversation reserved for healthcare professionals and those struggling with it, is now talked about in boardrooms, educational institutions and government bodies across the world.

What was once a personal issue has now become a business issue. And for good reason.

Depression alone accounts for $44 billion in lost productivity, and as I’ll explain below, providing support for mental health is now an expectation from employees.

A catalyst for the conversation

Mental health awareness has been increasing for years, but the pandemic made the conversations more urgent. COVID disrupted our lives in so many ways and continues to rear its ugly head even to this day. Add into the mix racial tensions, war, political instability and a deepening environmental crisis (just to name a few), and it’s no surprise that depression and anxiety are off the charts. Especially within the younger generations.

Consider these stats on Gen Z, which will soon make up more than a third of our workforce:

  • Gen Z adults (18-29ish) report the highest levels of stress of any generation (American Psychological Association)
  • 60% of Gen Z employees say that mental health resources are important in selecting an employer (McKinsey)
  • 41% of Gen Zers think mental health benefits will become a legal requirement for all employers in the next five years (Forrester)

Like other generations, Gen Z has seen a lot. The difference is they are digital natives and have been raised on a steady diet of social media which pushes these issues (and in my opinion, other bad behavior) front and center.

They’ve also come of age in an era where mental health isn’t a taboo topic. An age when going to a therapist is as common as visiting an orthodontist, and where mental health and meditation apps abound. A large number of Gen Zers have also attended universities and colleges where counseling is now offered as a free service, so it shouldn’t come as a surprise when they leave those environments expecting the same level of support from their employers.

Businesses seem to be rising to the challenge. According to the same McKinsey study referenced above, 70% of employers report they plan to invest in mental health resources by starting, continuing or expanding benefits.

I just hope these companies don’t re-evaluate these plans as cash gets tighter.

5 ways to start addressing the issue today

There is no one size fits all solution to this problem, but there are things that every CEO and founder can do to elevate awareness, empathy and support for those dealing with mental illness. Here are a few places to start:

1. Evaluate your existing benefits. Mental health support requires more than a hotline. Understand what the options are, and think through how your benefits and culture can support people struggling with these illnesses personally or those they love. An Employee Assistance Plan (EAP) is a good start, but it’s just that, a start. What else can you do? For example, can you afford to offer paid time off in addition to unpaid leave?

2. Communicate what’s available. Make sure new and existing employees understand what they have access to and how to access it. All too often companies make a benefit available and shut it down because people didn’t know it was there and didn’t use it. People might not pay attention to the fact you have a substance abuse support program when they join, but when a spouse or child has an issue, they’ll take notice.

3. Focus on access. Awareness might be up, but discovery is hard and the supply of mental health professionals is low. Explore partnerships with organizations like Project Healthy Minds, a group I’m involved with that is making it easier to find professionals and peer support groups.

4. Treat mental illness like a physical illness. Acknowledge that mental illness is real even if you can’t see it. If someone comes to you and says they need time or support, treat them the same as you would if they told you they were struggling to control their diabetes. If your brain isn’t working, how is that different from another part of your body not working?

5. Coach team members. Talk about how managers and co-workers can help people in these situations. If an employee comes to a manager and says they are struggling with anxiety or depression, how can managers help isolate certain things that are causing the anxiety and minimize them? You can’t remove every stressor in a job, but if 8 out of 10 things are causing anxiety, can you cut a few of them out? When should they escalate to human resources or to a professional? Do they need some extended down time to reset like I did early in my career? Start with the leadership team so it filters down and sets the tone with their teams.

This is a complicated issue and these tips just scratch the surface of what we should be doing. But avoiding the topic is no longer an option.

Why Salesforce is acquiring Traction on Demand

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Salesforce is not known for flying under the radar when it comes to acquisitions. However, last Friday the $26B cloud juggernaut quietly announced the acquisition of Traction on Demand, the largest dedicated Salesforce consultancy in North America.

For those like us that follow the Salesforce ecosystem closely, the news probably wasn’t much of a surprise. Traction and Salesforce have had a close relationship for years, and Salesforce recently invested in the company. Traction was often tapped by Salesforce as an early partner for platform investments and initiatives, and was seen as Salesforce’s go-to partner in the mid-market. With over 1200 employees, Traction was also one of the few remaining Salesforce pure play consultancies at scale.

Which begs the question, what does this mean to Salesforce’s partners? Is Salesforce getting into the services game?

This is the same question many asked when Salesforce acquired Acumen a little over a year ago, and the same question we at Appirio asked when Salesforce acquired Model Metrics in 2011. The answer is still a resounding no.

Salesforce has long understood the value of professional services to customer success. It’s why the company has invested millions over the years to build out a thriving partner ecosystem – an ecosystem which IDC estimates created $308B in new business revenue last year. It’s also why they have invested in an in-house professional services team. Successful enterprise software companies need both.

One only has to look at the ratio of services to product revenue in Salesforce’s business to see that Salesforce is still very much a product company. The percentage of Salesforce’s revenue coming from professional services in 2012 was 6%. That ratio has not changed substantially over the last 10 year — it’s just the top line that’s going up.

When you are a $24 billion company growing 24% year over year, you need to add a LOT of people just to keep that proportion of services the same.

When you are a $24 billion company growing 24% year over year, you need to add a LOT of people just to keep that proportion of services the same. Hiring thousands of skilled consultants isn’t easy, especially in today’s Salesforce talent ecosystem, and acquiring firms that have done the hard work to hire, train and develop great talent makes a lot of sense. Which is why in the last year alone more than 30 Salesforce consultancies have been acquired.

This is why the Salesforce ecosystem is an investment area for us, and why we seek out specialized high growth consultancies like Zennify. We believe Salesforce still has a ton of market potential. Even if growth slows a bit, this is still a massive market.

Why did Salesforce select Traction on Demand?

After spending two years advising Traction and another two years on the board post its funding by Guidepost, I boil Salesforce’s decision down to 7 primary things:

1. Scale. There are 1800+ consultancies in the Salesforce ecosystem, however, very few reach a scale that is appealing to a company the size of Salesforce (or even another large services firm). Acquisitions are costly and they require a lot of dedicated focus and investment to succeed – especially services firms where people are the product – which is why there is a sweet spot for most acquisitions. It’s interesting to note that Acumen, Salesforce’s last services acquisition, was approximately the same size. It’s far more efficient to acquire one 1000 person firm than ten 100 person firms.

2. Focus. Traction was all in on Salesforce, which meant they had fewer distractions and could harness all their resources into this one area rather than spreading themselves across multiple areas. Focus = a bigger impact, faster. Traction wasn’t focused on any one specific industry or platform, but it was focused on a particular market segment: the commercial mid-market. And while Traction, like many third-wave cloud consulting firms, developed some material and differentiating IP, it ran, organized, funded, marketed, and accounted for it independently. It never diluted Traction’s focus on services. All of this made it an easier, cleaner acquisition for Salesforce, something that any acquiring company is looking for in a potential asset.

3. Region: Traction has a global footprint, but its center of gravity in Canada and India was likely a big selling point. The company was founded in Canada and has always had a strong recruiting focus across the country, and had grown its Jaipur delivery center in India to north of 250 people over the last few years. Both these regions have a lower cost but highly skilled talent pool, providing significant labor arbitrage for Salesforce.

4. Culture: CEO Greg Malpass, President Mike Epner and the entire Traction team had built a truly culture-forward organization. You could tell a Tractionite at Dreamforce from a mile away. They were the ones wearing the Canadian-approved jean jackets and having a blast in the booth! Traction, like Salesforce, was also very philanthropic, focused squarely on stakeholder capitalism. Its Traction for Good initiative gave millions of services grants to non-profits, and included a workforce development program for immigrants and indigenous people. However, the most impressive to me was how Traction was able to scale that culture, which I believe was due in large part to its “squad” teaming model where each squad was empowered and had its own identity. That made the company feel small even while it got larger.

5. Channel: Traction never took their eye off who its biggest customer was – Salesforce. That close connection kept them visible with Salesforce execs and AEs even as both companies grew and expanded globally. Salesforce EVP John Durocher, who joined Traction’s board as an observer after Salesforce’s investment, was also essential in helping the company scale. His ability to provide strategic advice from Salesforce’s perspective was a game changer. For example, during the pandemic he helped steer and coach Traction in the right direction – to lean in like he knew Salesforce was doing when many firms struggled or pulled back. This is why founders who are tightly aligned to a specific partner should seek a senior leader from that partner to be a board member or strategic advisor.

6. Talent: Traction had built an incredibly talented team over the years (perhaps I’m biased because hundreds of Tractionites were former Appirians). However, it was the company’s proven model for building vs. stealing existing talent that was perhaps most appealing – a focus area that also set the company up well to compete when the labor market got tight. There is simply not enough talent in the Salesforce ecosystem and Salesforce knows it. It wants partners who can build, not just buy talent.

7. Marketing: Traction had built a brand that was well known, and well respected in the space (a huge shout out to Traction’s CMO Chris Peacock). Every person in the company knew what Traction was, what it wasn’t and what it stood for, which helped across everything from sales and recruiting to employee engagement. Its investment in brand and marketing was a big factor in the company’s growth. We look at a lot of firms and their positioning and marketing is often a weak spot, but Traction understood the power of a good story.

I wouldn’t be surprised if Salesforce looked at more services investments in the future as it tries to reach that goal of $50 billion in revenue over the next few years. The question is who? There aren’t a ton of Salesforce partners left at scale, and one fewer now. Who are the next set of cloud consulting leaders that will step in to fill that void?

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