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Know the why behind your investment

This is the fourth post in our series about how to prepare for funding. If you haven’t seen the first post, which provides an overview of the entire process, start there.

You’ve decided to add fuel to your company’s growth and take funding. Check.

You’ve gotten your financial house in order. Check.

You have a compelling and differentiated story. Check.

Now comes the fun part – exploring where, how and when you would use an investment.

This is where you get to step away from the details of the business you’ve been building to date, and think about what the future could hold. To think beyond today’s limitations to what’s possible if only you had enough time, money and resources. It’s also one of the first questions a potential investor will ask you in the funding process.

Any good investor will have a perspective on where capital will help, but no one knows your business and what has limited your growth potential better than you. Which is why it’s important to come to the table with a point of view on what you’re looking for in an investment (and investor).

This blog provides a framework to help you identify your biggest areas of need to take your business to the next level over the next 2-3 years.

A framework for growth

Because all investments are bets on the future, it’s smart to work backwards. Where does the company want and need to be in 2-3 years? What will it take to get there?

To answer that question, you need to think through:

  • How the market and competitive situation are evolving
  • Current weaknesses or risks within the business that could prevent you from capitalizing on that evolution
  • What is most needed for rapid and sustainable growth

If you’ve already considered this in detail, great! If not, Tercera’s 5 Elements of Scale methodology might help. We created the 5 Elements based on 20+ years of building services firms from the ground up, and it can be a useful tool to help you understand what levers you can use to drive scale and growth.

Corporate Strategy

Many people start seeking funding to pursue M&A, and for good reason. Acquisitions can help a company grow quickly, add much needed talent, and fill gaps in offerings. However, M&A is only one component of a growth strategy. You also need to focus on organic growth. M&A takes time, and in services, it’s not always the easiest path.

M&A is only one component of a growth strategy. You also need to focus on organic growth. M&A takes time, and in services, it’s not always the easiest path.

Is it time to expand internationally? You may decide to move to a new region to broaden customer support or to increase revenue. Or to open a new delivery center as a way to access new talent or lower the cost of your labor pool. It could also be to mitigate risk. The situation in Eastern Europe has caused a lot of companies to rethink their operations, and consider diversifying into other regions like Latin America.

Should you go deep into a particular industry vertical? Having an industry-specific approach to the market, with dedicated marketing campaigns, accelerators and even fully productized solutions is increasingly important in the third wave of the cloud, especially if this is the sales motion for your primary partner.

Is it time to pivot to a new market, or expand into a broader segment of your market? If so, does your corporate brand and positioning need to evolve in order to be relevant in this new area? Repositioning a brand might sound easy, but it takes time, expertise and money.

Leadership and Talent

This is often the number one area where services firms want to invest — especially in today’s labor market where recruiting and retention is a huge limiter to growth. Investment capital can help you recruit for new leadership roles and/or upgrade talent across the board. If you’ve been taking a “just-in-time” approach to talent, funding can also free you to hire ahead of demand and proactively go after talent you couldn’t attract before.

If you’ve been taking a “just-in-time” approach to talent, funding can free you to hire ahead of demand and proactively go after talent you couldn’t attract before.

Bringing on new talent might be top of mind, but retention matters more than ever. Take a fresh look at your compensation and benefits — before key employees leave. Do you need to uplevel total rewards or employee engagement programs as you look to scale?

Do you have the right team, structure and training processes to develop talent internally? When it comes to hiring disruptive tech skills, there is a serious skills shortage and companies looking to scale recognize they need to grow talent, not just buy it.

Sales, Marketing, and Partnerships

Is your growth engine powering on all cylinders? Are you being proactive when it comes to winning new logos and expanding existing accounts? If you aren’t growing faster than the competition, you may be ceding mind and marketshare to someone else.

Remember what got you to $5 million in revenue won’t get you to $50 million, and a dedicated sales, marketing or alliance function is almost always required. If you’re lucky, you can uplevel or expand an existing team. But you may need to build these functions from scratch, and that requires an experienced leader and a bigger budget.

Remember what got you to $5 million in revenue won’t get you to $50 million, and a dedicated sales, marketing or alliance function is almost always required.

Services companies often underinvest in marketing, but an investment here pays dividends in the long term. It not only builds a stronger pipeline for sales, it helps close deals faster and can lead to higher bill rates. It also helps you attract better talent if employees feel like they’re working for a company that is bigger, smarter, and more successful than the competition.

Are you well positioned to win and deliver quality work to bigger customers? As a company matures, account management and customer experience must become a bigger focus area.

Could your channel relationships yield more revenue? At the beginning, partnerships can be managed in the cracks, but eventually those relationships will need dedicated attention and investment.

Solutions and intellectual property

Funding means you can turn the best ideas on your roadmap into real offerings, instead of just fighting fires. Many firms get stuck in the pattern of moving from one project to the next, delivering on individual customer needs and moving on. That doesn’t work at scale, and it won’t work in the cloud’s third wave.

Many firms get stuck in the pattern of moving from one project to the next, delivering on individual customer needs and moving on.

Look for ways to create stickier relationships and create a more efficient delivery team. A differentiated and documented methodology can support both scale and sales. Accelerators and productized solutions can automate repetitive tasks, add value, or add revenue.

Perhaps it’s time for a more formalized product management function. If you consider yourself a tech-enabled services firm, do you have the right team, processes and tools in place to evolve the technology that your teams and your customers rely on? How are you capturing and using customer insights to guide the future direction and roadmap for solutions? Is it time for a formalized Customer Advisory Board?

Operations/Processes

Accelerated growth will break processes that once worked well. Beyond a certain point you can’t drive revenue reliably if you don’t have process scalability. Operations, especially in a services company, always matters.

Accelerated growth will break processes that once worked well.

Will the volume and scale of customer engagements exceed what you’re currently managing in Excel or Google Sheets? Are your tools and processes hindering your ability to effectively predict and manage staffing requests? If so, it might make sense to invest in a real Professional Services Automation (PSA) system, or hire someone who specializes in project staffing and workforce planning. When will you need a dedicated delivery operations team?

At a certain size, companies find they need to upgrade their current financial systems, or their Customer Relationship Management (CRM) systems. Have you reached that point where QuickBooks or Zoho just isn’t cutting it any more?

Be specific, but be flexible

The best plans are specific about direction but flexible about execution. Develop a plan with your leadership team that you’re excited to share with your investors, but stay open to change.

Investors like Tercera who have real-world operational experience can ask you the tough questions you need to hear to help refine or even expand your plans to reach that next level of growth. They can also help you understand hidden dependencies that might not be obvious at first. If you think we can help, get in touch!

Not ready to engage an investor in this process? Use some of the questions above to think through where you might apply a round of capital.

Next up is our final blog in the series: How to pick the right advisors.

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