Finding the right capital partner can be a game changer, but it can be a time consuming and nerve wracking process for first-time founders. It doesn’t have to be.
If you are thinking about partnering with an investment firm, this ebook can help.
This is the fifth and final 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.
In the funding process, advisors play a number of critical roles – from educating you on the process, to examining your business infrastructure, to negotiating and preparing the documents that represent the funding itself.
Seeking the right partner within the funding process is akin to hiring the right realtor, agent, inspector or contractor when you’re preparing to list or rent your home. You can do it yourself, but the outcome will likely be a lot better if you consult a professional. You might be too close or simply need a level of expertise you don’t have.
The advisors you need before and during a financing round primarily depend on the phase of your business’ growth, the size of the transaction, and the expertise you have internally.
For almost any deal (even early-stage), you’ll need financial and legal advisors. At a certain size, tax advisors may need to be involved. If you’re looking for a full acquisition of the business (assuming your business is of reasonable size), you may want to involve a good investment banker — and you’ll be glad you did.
Financial advisors
Financial advisors specialize in helping you get your financial house in order before you even sit down with a potential investor, and may be different than your existing individual accountant or investment advisor.
A financial advisor’s job is to help you understand where investors will focus, what documents you have and don’t have, and to help you get prepared for the journey ahead. Few early stage companies are 100% buttoned-up on every financial issue, and many are nowhere close. A good financial advisor will help you fix issues that risk derailing or delaying a deal, and they’ll help you show well through the process.
They will help you analyze the data and answer questions like:
Picking the right financial advisor comes down to more than basic competence with the numbers. It’s also about communication and insight. A good financial advisor will help illuminate the path ahead, and help you avoid turning the process into a painful distraction. You still have a business to run, after all.
Legal advisors
As a lawyer and former General Counsel, I’m probably biased here, but finding a good, reputable lawyer with useful and practical experience should be at the top of your list. A good lawyer will set the tone for the process, and save you time and money down the road. A bad lawyer can not only slow down the process and make it more expensive, they can also steer you in the wrong direction – or kill the deal entirely.
A lawyer will help you look at things like:
Reputations matter, especially when it comes to lawyers. Their expertise isn’t easy to evaluate before you start working together, so the very best advice is to find one from a personal referral. You also need to choose legal advisors who are aligned with your interests — which means you’ll need to be transparent about what those interests are and where the company will need the most help.
Tax advisors
In my opinion, these advisors are less important for early stage companies, especially if the founder is already working with an accountant for day-to-day bookkeeping. If a company is not making meaningful (or any) profits, the tax burden generally isn’t a major issue, and a solid accounting firm can probably handle the blocking and tackling.
Investors will want to understand any tax liability exposure as part of a diligence process, and may bring in their own advisor here to pressure check existing data.
Investment bankers
For early-stage deals where a founder isn’t looking to raise a ton of money, an investment banker may not be needed. However, if a 9-digit transaction is likely, you’re heading into banker territory. Bankers typically get paid as a percentage of the total transaction value, so it needs to be worth their time (and their fee needs to be worth yours).
Bankers are not cheap, but they get paid a lot because they do a lot. Their insight, process, connections and execution support can make the difference between a good outcome and a great outcome for a company. They’ll help you understand what buyers will look for and why. They’ll help shape how buyers view and evaluate your company against your competition. They’ll help you package and present your company to potential buyers, and in many cases they will run the process for you, which can take anywhere from 90 days to 12 months (or more) from your first meeting with them.
Choosing the right banker is among the most important decisions you’ll make if you are looking for a significant exit, and fit matters.
Choosing the right banker is among the most important decisions you’ll make if you are looking for a significant exit, and fit matters. The biggest deals — obviously — will get the bank’s best people and the most attention. Ideally, you don’t want to be the smallest and least important deal on your investment bank’s mind.
For each kind of advisor, naturally you’ll want to ask for references and listen carefully to what those references have to say (and what they hint at but leave unsaid). Here are some good questions to ask potential advisors to understand the value they might bring:
Beyond skills and experience, look for candor, clarity and professionalism. Good advisors give it to you straight.
1) Make sure your advisors have the appropriate experience, are fully aligned on costs and outcomes, and that you feel a solid personal connection with them.
2) Get buttoned-up and stay buttoned-up. You’re being quietly evaluated throughout the funding process. If your team presents well, your financial house is in good order, and everything is professional and polished, investors will feel good about building a future with you. It’s easier to do things right along the way than it is to go back and clean everything up right before you have to present it.
3) Have realistic outcome goals. Smart founders should come to the table with a solid sense of market norms. If you don’t know what norms are, ask around.
4) Remember your advisors are your advisors, so you’ll need to be sure they’re aligned with your interests.
If you’ve had your head down building a great business, you may not have had the time to build amazing connections. But part of your job at that level is to broaden your network and surround yourself with professionals who provide the advice you’ll need.
If you’re starting from scratch, here are a few natural places to start (in this order):
Ask your peers. Like most things, a referral is always the best place to start. You aren’t the first who’s gone through this process. In most cases, they’ll know someone. Or at least who to avoid. Ask about their own selection process.
Potential investors. If you are already in these conversations, ask who they would recommend. It’s probably someone good if they trust them, but keep in mind, there is some affiliation here and they may be on the pricey side.
Your senior leaders and other advisors. The extended team, and the accountants or attorneys with whom you already work may have suggestions or advice. They’ve seen similar situations before and can help you look around corners.
Google and LinkedIn. You’re probably not going to pick someone directly from a search result, but it’ll give you a sense for who’s out there and how firms compare. You can be a little more targeted on LinkedIn.
Industry events and associations. Bankers and advisors are commonplace at tech industry events like Dreamforce or CES. There are targeted meetings and associations as well. For example, there’s a group called Tech GC, and similar groups for CFOs.
Relationships matter, so build the bridges before you need them. Assuming you can just hire advisors on the fly just isn’t a good idea. “I’ll just hire the best from one of the top law firms” is a sentence that will cost you more than $1,000 an hour.
On that subject, now is a good time to evaluate your team. Great teams balance out each others’ strengths and weaknesses. Every team needs brilliant technical brains, as well as people who are comfortable with finance issues, customer strategies, and talent strategies. It’s rare for all those skills to exist at full strength in any one person.
Great teams balance out each others’ strengths and weaknesses.
Smart founders know their strengths and weaknesses, and great teams know where they need to step up and fill gaps and when to step back and let a stronger partner lead.
A good investment process is fundamentally a search for the right partnership, where both partners gain more than either could have won on their own.
If you’ve read the entire blog series, you should now have a pretty good sense of how the process will work and what you can do to prepare. You might also want to review the most important factors investors look for when valuing an IT services business.
The next step after that is simple: start talking with potential investors.
We hope you’ll consider talking with us at Tercera. You can start here.
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.
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:
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.
The term employer branding has been around for years, but with today’s talent shortage, it’s having a bit of a renaissance.
But what is employer branding? Or talent branding? Why is it suddenly a board-level conversation? Who owns it inside a company? How do you make your employer brand stand out when everyone claims their culture is special?
To answer these questions and more, we invited talent and brand expert Heather Polivka to join us on a recent webinar.
Heather has spoken all over the world on this topic and ran employer branding at one of the largest employer brands in the world – UnitedHealth Group. In 2020, she started her own consultancy to help companies large and small improve employee retention, engagement and scale workplace culture, so she knows a thing or two about the topic.
Read on for some of my biggest takeaways from that webinar, and five things you can do today to level up your employer brand.
Click here to view the webinar in full.
Your employer brand is how current and potential employees perceive and experience your company as a place to work. Whether you’ve developed it or not, your employer brand already exists so you might as well be intentional about it.
Whether you’ve developed it or not, your employer brand already exists so you might as well be intentional about it.
Many companies think too narrowly about employer branding, focusing only on how the company positions itself to recruits when, in fact, the employer brand spans the entire talent lifecycle. It is established and reinforced across every step of the employee journey – from how a candidate first discovers your company, to their experience in the hiring and onboarding process, to how they are managed, developed and able to move around once they are inside the company, to their experience at exit and as an alumni.
If you want to understand, define and up-level your employer brand, spend the time to understand an employee’s journey today. Then think about what you want it to be. Don’t let it just happen. Be intentional.
Heather walked us through what she terms the “Promise to Profit Chain™”, shown below, starting at the end of the chain: growth and profit. Companies intuitively know that to grow and make money they need to deliver a great customer experience and keep customers coming back. Yet, if you look downstream, it’s crystal clear the role that the employees play in all this.
If you don’t have engaged employees, then innovation, productivity, quality and service all suffer. If employees have a crappy experience, they disengage. If that experience does not match the promises that were made to them by an employer or their manager, they disengage. When asked where companies fall down the most in this value chain, Heather pointed to that gap between the promise and experience. Your employer branding efforts need to make sure your promises to employees align with what the company is actually delivering.
A company’s brand identity is a combination of three different elements. First, how the brand is perceived by corporate stakeholders (e.g. media, financial analysts, shareholders). Second, how the brand is perceived by customers and prospects. Third, how it’s perceived by employees and potential employees.
Each of these brand perceptions should all be rooted in a common identity, purpose/mission and shared values, but they each need a distinct value proposition. As humans, we are all motivated by “what’s in it for me?” Your value proposition needs to speak clearly to each of these very different audiences.
Employer branding may be a big concept, but up leveling or refining an existing brand doesn’t have to be overwhelming. You can start in small ways now. Here are a few ideas:
Gut-check your mission
Do the emotional homework to make sure your mission statement and values are more than words on a page. Does your mission speak to a reason for being other than to make money? A good mission should answer the question, “why does the world care that you exist?” It’s not a business goal.
Revisit your values and define behaviors
Do your values truly reflect how you behave, operate and make decisions, or are they empty words? Can you name the behaviors to show what these values look like inside the company to give them real-life context? Imagine if innovation is a value. To one person, innovation might happen through close collaboration. To someone else, innovation happens with intense competition. Give life to your mission and values – what they sound, look and feel like – so employees have a playbook for how to act and execute on the company mission.
Clarify your Employee Value Proposition
An Employee Value Proposition is what employees can expect when they deliver on the company’s mission in a way that reflects the company’s values. It should answer that “what’s in it for me?” question, within the context of what the company is trying to achieve.
Heather gives a number of great examples in the webinar, but I’ll use Hakkoda as an example since they are one of our partners. Hakkoda’s mission is to ignite the power of data and embolden the change makers to create a better world. The company’s values, which range from “stay curious” and “live life” to “be the change”, align directly to their mission. Their employee value proposition might be something like: “As part of Hakkoda, you can relax and know that you are taken care of. We are committed to protecting and improving the lives of employees in more ways than one so they can be a change maker.”
Give it shared ownership
HR and Marketing may be the natural owners to define the employer brand, but it’s everyone’s job to uphold the promises it makes. In the next leadership meeting, set aside a couple of hours to talk about the employee experience.
Heather created and shared this simple 2-page employer brand worksheet that can be used to guide the conversation.
Ideally, you could work with a brand consultant to help moderate a more detailed workstream, but not everyone has the budget for this. However, you can build the employee experience muscle in other ways. For example, when making big decisions, assign someone in the meeting to be the employee’s voice in the conversation. How will they react to these decisions? How does it fit into the promise that was made?
Put a new lens on your job postings
We’re in a highly competitive talent landscape where the best people are being actively and aggressively recruited. You don’t want to look and sound like everyone else. When a candidate lands on your job posting or careers page, can you help them visualize what life could be like working at your company? Stating you have a flexible work model doesn’t illustrate an employee’s day-to-day. Highlighting your policy of “No Meeting Wednesdays” or that you offer the option of a 4-day workweek is going to make a bigger impact.
Also, be crystal clear about what’s in it for them if they take the job. Not just what they’ll do for the company. Don’t be that person on a first date who only talks about themselves!
In the end, the the fruits of any branding work takes time. As Heather put it on the webinar, it takes a year to crawl, another to walk, then one more to run. The important thing is to just get started, and any of the above action steps are an excellent place to dig in to start creating sustainable results.
Exactly one year ago, Tercera officially launched with a contrarian position: that people — not just products — matter.
If the past year has taught us anything, it’s that people and people-based services businesses are every bit as crucial as we originally thought. Maybe even more so.
Companies across every sector are navigating a war for talent, a lack of tech skills, and a growing demand for digital innovation. This, according to Gartner, is pushing companies to rely more on external services partners. This bodes well for Tercera, and the third-wave cloud consultancies in which we invest.
But before we focus too much on the future, an anniversary is a good time to look back. After all, we talk a lot about self–awareness and a learning mindset being must-have traits in founders, so it seems only fair to demand it of ourselves.
We have four investments under our belt so it’s a little early to start reporting on outcomes. Instead we’ll grade ourselves using the same 5 elements of scale methodology we use to evaluate and advise our own portfolio companies.
It helps to be in the right place at the right time, and IT services is the place to be. It’s big, it’s growing, it’s lucrative and it’s finally getting the attention it deserves. We wish we could’ve put our capital to work across a wider variety of cloud ecosystems, but we’re off to a good start. Here’s where we think we knocked it out of the park:
Our mission: Empowering the people and businesses who make technology work has never been more relevant than now. Read our 2022 predictions to see why.
The market: In 2023, spending on IT services is predicted to reach $1.4 trillion. That’s a pretty big TAM. But we know from experience that focus leads to greater impact, so we focus squarely on the cloud and digital services segment of this market. Take a minute to Google the market value of cloud services. Needless to say, we like our odds here.
Our value to founders: We sit in a sweet spot between early-stage venture capital and later-stage private equity, specializing in companies with some scale (~$10M-$30M in revenue) who need help taking it to the next level. This, combined with our passion for services vs. products, our preference for minority investments vs. buy-outs, and our first-hand experience building successful cloud services firms, hits a nerve with founders. They want someone who’s been in their shoes.
Early stage companies tend to underestimate the impact of team design and structure on trajectory. When starting Tercera, I asked some of the best in the business their advice for starting an investment firm. Their number one piece of advice: get the team right. I think we did. Here’s why:
Team mix: We built a team of fun, diverse, opinionated, hard working humans with complimentary superpowers who care deeply about our mission and the market we serve. It’s a small team, but the right team, with a mix of operational and financial experience that founders can rely on.
Our advisor community: Having advisors isn’t a unique idea, but our approach is. We’ve curated a community of services experts who can help on everything from vertical strategy to value-based pricing. Our 24 advisors are a vital extension of our core team, helping with diligence, acting as mentors, supporting with execution, sitting on boards, and guiding us every step of the way. #grateful
Teamwork and coaching: Investing is not known as a team sport, but our strategy and processes are built around the team not the individual. Perhaps that’s due to our background building companies. However, that also means we have to resist the urge to reach for the steering wheel when we see things going off track. Even the strongest founders will go off course occasionally, and that’s OK. We’re getting better at coaching, not playing the game.
This section of our 5 elements methodology typically focuses on go-to-market, partnerships and customer experience. For this exercise, we’ll focus on investments and partnerships. We believe we did a good job investing in companies with real substance, solid teams, and significant growth potential.
We give ourselves an A for the investments we made, but there was more we could’ve done – for the firms we invested in and for those that got away. Here’s what we got right:
Our first-year portfolio: When we launched Tercera, we were clear about looking for four things in an investment: companies that were 1) people-first; 2) founder-led; 3) growth-focused and 4) cloud-driven. Each of our portfolio companies – BeyondID, Terazo, Hakkoda and Zennify – exceeded expectations in these areas.
The mix: Given our heritage, we could’ve focused all our attention on the Salesforce ecosystem. But our portfolio represents a mix of third-wave cloud ecosystems, from powerhouses like Salesforce to next gen players like Okta, Twilio and Snowflake. This mix will multiply the impact we can have.
Our ISV relationships: In IT services, the software partner alignment and their level of support drastically impacts growth. We’re happy to report 50% of our current deals include a venture co-investment from the firm’s primary ISV partner and 100% have strong, executive-level channel support.
Just as a services company must differentiate on its unique point-of-view, methodology, packaged IP and reusable assets and portfolio, so must an investment partner. Which is why we’ve put a great deal of effort into our playbooks and thought leadership. This year we’d like to do more industry research and expand our playbooks.
Cloud services thought leadership: After decades in cloud professional services, it’s not surprising we’d have strongly held views on how the cloud services space is evolving and what makes a winner. But we’ve been pleasantly surprised at how aligned those views are with others, from the founders to whom we speak, to industry pundits, to cloud pioneers like Salesforce – which introduced its own Cloud 3.0 vision this year.
Playbooks and best practices: Rather than cranking out press releases about deals, our goal is to share content that’s actually useful for founders. In the last year, with the help of our advisor community, we’ve published 30+ blogs, detailed playbooks on everything from Customer Advisory Boards to Delivery Operations, and a Plateaus of Growth workshop to guide earlier stage companies. Visit our resource center to see what’s out there.
Like most start ups, we could benefit from a little more focus on process. While we did a good job of putting in place foundational systems and processes, we need to smooth out the edges. Meetings could’ve been tighter, diligence could have been shorter, and we could have gotten to no faster in some cases – for our own benefit and for the founders.
We also learned that we work far better as a collective team. When we chose to divide and conquer, we weren’t nearly as good, and we didn’t offer nearly as much value to leadership teams in the process. Now we’re pretty clear…when you get Tercera, you get all of us.
Our top priority for 2022 is to ensure the portfolio companies that took a bet on us this first year are wildly successful. Our job is to counsel, coach and connect, whether to support their international expansion plans, to solve their talent gaps, to improve their go-to-market, or anywhere else they may need help.
From there, it’s putting more capital to work in more ecosystems. Watch for us to make another 3-4 investments this year, in categories and ISV ecosystems we believe are leading the cloud’s third wave and throwing off material services revenue.
Categories and ISVs we’re paying very close attention to:
Cybersecurity: Remote work, digital commerce and a security skills gap are driving an increase in security breaches, and a reliance on cybersecurity platforms and managed security service providers (MSSPs). By 2025, 50% of organizations will allow third parties to monitor and remediate threats remotely, up from 15% today (Gartner). While security services tend not to be as ISV focused as some categories, some of the third wave ISVs we’re paying close attention to include: Crowdstrike, Lacework, Zscaler and Wiz.
IT Service Management (ITSM) and DevOps: With software eating the world, companies are making big investments to speed and de-risk software delivery. The cloud ITSM and DevOps markets are both growing close to 20% YoY, with the global DevOps market alone estimated to be $21B by 2027 (ReportLinker). It’s a fragmented market, but the ISVs we’re watching carefully include: Atlassian, Cloudbees, HashiCorp and ServiceNow.
Commerce and martech: Commerce and data-driven digital marketing platforms are the building blocks for a great digital experience – a priority for nearly every company. In 2022, Martech will make up 25% of the marketing budget (Forrester) and headless commerce will continue to gain steam. Enterprise-focused ISVs we love include: Adobe, BigCommerce, CommerceTools and Salesforce’s Commerce & Marketing Cloud.
If you know any great companies in these ecosystems, please send them our way!
Last but not least is improving on those 5 elements of scale – adding a few new team members, expanding our advisor community, building on playbooks, and refining processes. We have no desire to be the biggest firm with the biggest fund. Just the best.
This first year has been a complete blast. I’m convinced that if we keep having fun and making a difference for every company we meet, everything else will fall into place.
We may have moved into a new year, but the challenges around employee recruitment and retention remain a big issue for leaders – especially for those running services businesses. So much so that Tercera put the people shortage at the center of its 2022 predictions.
But why are so many people leaving and switching jobs?
The most obvious answer is the pandemic. The seemingly never ending ups and downs of COVID’s global impact have changed us. It’s left many people (especially in tech, healthcare and the service industry) burnt out. It’s forced many people (especially working mothers who can’t find adequate childcare options) to leave the workforce.
But mostly, it’s changed our priorities. Many reprioritized family and don’t want to give that up. Some, like me, saw it as an opportunity to finally start our own business. Some are ready for a bigger challenge or a bigger job, while others want less stress. The pandemic ignited a lot of introspection on who we want to be and who we want to be with, what we want to do and where we want to do it.
As employee interests, motivators, drivers and priorities recalibrate, companies must recalibrate as well. It’s now an employee’s market, and if they feel like their current employer doesn’t understand them, support them or provide growth opportunities, I promise you, they will leave.
As employee interests, motivators, drivers and priorities recalibrate, companies must recalibrate as well.
In a recent LinkedIn post, I asked my network why they accepted a new job offer. I received more than 40 responses and the vast majority of them fell into three categories – growth & development, balance & flexibility, and leadership & culture. Compensation was only mentioned in 20% of responses.
If these are the reasons why people are leaving, these can also be the reasons why people stay at a job. Which is where leaders should focus if they’re trying to retain employees.
Here are 6 concrete strategies to start re-recruiting today.
You likely have already increased your budget for recruiting in 2022. That’s good because good recruiters are as in demand as the tech talent they’re trying to recruit, which means salaries and fees are increasing. However, your overall people budget is going to keep increasing if you don’t double down on keeping the employees you have. Recruiting, onboarding and training a new employee is far more expensive than retaining an employee.
So take that recruiting budget, and allocate a significant portion to re-recruiting your existing employees. It doesn’t have to be 50%. Everyone’s recruiting budget is different, but it should be meaningful. Then divide the re-recruitment budget into two areas – compensation and L&D.
Compensation
While compensation might not be the main decision for employees taking a new job, it does have an impact. If employees are being hit by recruiters for 2x the money they’re making at your company, they’ll be more tempted to take that call if they feel they are well below market.
First, if you haven’t conducted a market analysis for compensation in a while, start there. A lot has changed in the last year. Then perform a compensation review across the company to look at pay equity and alignment between existing employees and new hires.
External firms and consultants can be utilized to support this work as the market is moving so quickly right now. Here is a great resource on why to consider multiple benchmarks and how to think about an advisor in this area.
Consider more than just base salary. Variable compensation is an important piece of total compensation – especially within a services organization.
Use this data as a guide to make adjustments and guide performance-driven compensation decisions. Consider more than just base salary. Variable compensation is an important piece of total compensation – especially within a services organization. But before you reach for that tool in the toolbox, spend time to understand if employees see variable comp as part of their total compensation. Is it driving the right behaviors? If not, you might need to make some changes.
Learning and Development
With growth being near the top of what employees are looking for, placing a budget here will make a significant impact on employee retention. Oftentimes, business leaders believe they are sufficiently investing in this area. However, this mindset does not always transfer equally across the company, especially as employee interests and motivators shift.
According to Heidi Spirgi, Chief Strategy and Growth Officer at Cornerstone and a fellow Tercera Advisor, Cornerstone’s research shows that 90% of business leaders feel confident they have the resources and ability to develop employees’ skills for the future. However only 60% of employees share that confidence and nearly 40% of employees feel they are not enabled by the learning sources provided at their companies.
90% of business leaders feel confident they have the resources and ability to develop employees’ skills for the future. However only 60% of employees share that confidence.
With this in mind, how can you individually advance employee skills as the marketplace evolves? Start with your regular check-in meetings. In these meetings, confirm what tools they need to grow and ask personalized questions. For some examples of things to ask, click here.
Following these 1:1 meetings, collect the data from across managers, analyze the trends and take action individually. As Heidi states, “by gathering a deeper understanding of employees’ individual skills, it’s easier to locate adjacencies and develop new skills with speed.” In tandem with this personalized approach, talk to advisors and look at what competitors are doing to provide viable opportunities to their team members.
Cross-functional projects give people an opportunity to work alongside and learn from other team members. This can not only foster innovation and personal career growth, it can also create a stronger connection between peers because they understand the roles and ramifications of the work across a broader organization.
Cross-functional projects can not only foster innovation and personal career growth, it can also create a stronger connection between peers.
Cross-functional work can be created in any number of ways, from more informal assignments to more structured rotational programs or innovation labs. Zennify is a great example of the latter. The company created its employee incubator, Zennlab, to meet its employees’ desire to work together to create, experiment and come up with solutions while also adding value to customers and the business.
Peer-to-peer learning opportunities are also a great way to multiply skills and strengths, and create a collaborative environment among existing and new employees. Could you set aside one day a quarter as a “professional development day” where you invite employees to sign up and teach a topic they’re skilled at or bring in an expert or customer for a deep dive in a particular area?
Hiring within your company accomplishes a number of things. First and foremost, it shows employees that you care about their growth and development. In many cases, it can also be better for the business.
With an internal candidate, one is typically already ingrained in a company’s culture and unique way of doing things. The employee has the existing relationships and understands the customer base. This means they can be far more productive in their first few months in a role compared to developing an external candidate.
If an individual has only one skill gap, can you invest in growing that specific skill over a specific time period? Could you send them to a training class, or pay for them to get certified in a new skill? If so, a 3-month training program might be better for the business and the individual than a 3-6 month ramp of a new hire.
Even if you decide to hire externally, having direct conversations and open dialogue can help employees see potential growth opportunities, creating a more empowered and devoted employee.
Personal and career growth may be the top reasons why people leave or stay at a company, but balance and flexibility are a very close second. Before you start implementing policies to meet this need, spend time to understand what flexibility and time off really looks like within your culture.
Companies across the board are experimenting with ways to reduce burnout and retain employees who are looking for more balance. These could include:
There is not a one-size-fits-all approach. The key is to understand what your employees are looking for and how that can work within your organization and culture, and then putting in place and communicating policies that make sure employees understand what’s available to them.
Small actions go a long way in reminding your current team of their value within your company. Think of a time you received a handwritten note from a leader or co-worker or even a personal milestone was acknowledged. It probably left an impact on you.
When family members or partners are included in these gestures, it can create deeper connections within the company.
When family members or partners are included in these gestures, it can create deeper connections within the company — whether that’s a note to a spouse picking up the slack at home during an intense project or sending a holiday cookie making kit to someone’s kids. When I left Appirio my kids could not imagine me working anywhere else. They had all the swag, knew all the Appirio kids and loved the different events they were involved in. It made it harder to leave.
It could just be a phone call from an executive or manager to say “thank you” for going above and beyond, or to share positive feedback from a client, or for referring a phenomenal new employee who has made a big impact. Take time to understand what ‘little things’ matter to the individual. Some people hate public recognition. Some people love it.
Consider ways to implement a process for peer-to-peer rewards. This could look as simple as promoting a slack channel for shout outs and making sure executives are highly involved to allocating a budget for gift cards or company swag. At Appirio, we developed a system on our Salesforce CRM platform that allowed for managers and peers to allocate points to employees that could be traded in for special items within our company store. Employees loved it, it encouraged peers to appreciate each other, and made even the quietest “behind the scenes” star performers more visible to management.
These recognition programs don’t have to be expensive to work. According to a Bonusly article, “81% of companies that include a recognition program in their budgets spend less than 1% of their payroll budgets on these programs.”
These are just a few ways you can shift your mindset toward re-recruiting your current team. Don’t get me wrong, recruiting new talent to your organization is still critical this year, but don’t forget it’s your current team who is critical to interviewing, onboarding, recruiting and training those new team members.
It’s time to re-recruit your current team before someone else does.
