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27 questions to create your country playbook when expanding internationally

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For first-time CEOs and founders, the decision to expand internationally can be both exciting and daunting — as it should be. Expanding into new regions can spur growth and open up a world of possibilities, but it also adds a level of complexity that not every leadership team is ready for, especially without first-hand experience operating in that region.

In part 1 of my blog series on international expansion, I shared a strategic approach for how services firms can tackle international expansion, based on my own personal experience. It covered topics like when to expand, where to go first, how to work with partners, and ways to mitigate risks like culture dilution and financial readiness.

In part 2, I’ll dive deeper into what happens once you decide to make the move. Specifically, how to create a global operating framework that can support your expansion into each new country — what I call your country playbook.

What is a country playbook?

A country playbook is in essence an operating framework for international expansion, providing structure and information needed to expand into a new country or region in a disciplined, repeatable way. It’s the operating manual that brings your strategy to life.

A country playbook can align the leadership team with the new leaders on the ground in a new region. It can reduce risk, speed decision making and guide the new team to operate with the same vision for customer experience, culture and employee experience while still allowing for local flexibility.

While a country playbook should provide enough detail to answer the most common questions about expansion, it doesn’t need to be long or formal. It just needs to provide your leaders with the direction they need to understand and execute on your strategy—and feel empowered to make decisions that will benefit everyone involved.

What are the components of a country playbook?

There are two parts to a successful country playbook: a global overview and country specifics.

The global overview provides a high-level structure that can be used across countries, covering items like company positioning, sales differentiators, the scope of services to be provided, the customer value proposition, financial modeling and governance frameworks. This part of the playbook also includes information to help country leaders with hiring, providing clear expectations about alignment with your culture.

The playbook must also address country-level nuances linked to your overall strategy. For example, the specific roles you might need in-country for delivery versus what you can centralize through a center of excellence model. It might also include specific services or capabilities that best fit the customers and partner maturity in that market.
Since each country and situation is unique, this article will focus on the 5 areas that should be part of the global overview: 1) culture; 2) team; 3) services & go-to-market; 4) governance; and 5) financial model.

When thinking about each of these areas, look to expand through fractal growth. By this I mean branching off from an existing offering or point of strength, which helps to create consistency and alignment between regions. Below is an illustration for how this might look as you expand your market interactions, people processes and customer experience into a new country.

Culture

Solidifying and scaling your existing company culture should be top of the list when it comes to global expansion. You have to get it right, and so do the country leaders hiring your new team. Your country playbook gives you an opportunity to embed your existing culture into each new market from the start, weaving your mission and customer experience into the fabric of each country’s operating framework.

To help you get started, your playbook should address questions such as:

  • What is your stated vision, values and brand promise as a company?
  • When your company hires a new leader, how can the team make sure they’re aligned with your values and cultural DNA?
  • What are your norms and rituals as a company, and what can you/should you bring to the new region?
  • What kind of differentiated experience do you expect to provide to customers and employees in this new market based on existing brand expectations in other markets?
  • How can you translate your corporate culture into how you manage processes, performance and compensation while leaving room for local nuances?

 

Team

Thinking through how teams will be structured within and across regions in advance will not only create efficiencies of scale and limit conflicts down the road, it will also speed up recruiting and productivity. Your country playbook should provide guidance on how you will manage customer relationships inside and between regions, what kind of support will be provided from headquarters versus what talent is needed locally, and what you can serve out of nearby regions. This is especially important for customer-facing and leadership roles.

Certain economies of scale can come from centralization and filling some roles from nearby regions, however, these decisions must take into consideration regulatory, cultural and language differences between regions. You will likely want to fill in-country customer-facing roles (e.g. country management, sales, project managers, solution architects) by hiring local/native people, while leveraging global support functions for scale. Some companies will fly-in top experts or tap into global virtual delivery teams, or, when you have a first team in place and some traction, use nearshore and/or offshore facilities.

Your playbook should address questions such as:

  • What leadership roles are needed, and will those be hired locally or through existing leadership?
  • What is your delivery model? What are the services you need/intend to deliver locally or globally?
  • What is your partnership strategy for a given market?
  • How are you going to train your employees and manage their competencies?
  • How are you going to staff projects?
  • How are you going to structure work arrangements with subcontractors?
  • When it comes to forecasting how can you anticipate and prepare for demand?
  • How are you going to manage customer satisfaction?

 

Services and GTM

When it comes to the services, you’ll want to build a country-tailored portfolio mix and go-to-market strategy. This strategy should be based on the size and potential of the targeted market, the offerings most needed by your partner ISVs in that region, and the competition analysis you conducted prior to making the decision to expand. That portfolio shouldn’t reinvent the wheel, but instead be grounded in the services that already set you apart in your home market. For example, if 80% of your customer references are in the financial sector or are of a certain size, it makes sense to focus there in the new country.

Your playbook should address questions such as:

  • What specific services should we offer in each country?
  • What is the value proposition of those services?
  • To what extent will our offering differ from what we sell elsewhere in the world?
  • How does our pricing in this country compare to the rest of the world?
  • What markets or services do we want to say no to (e.g. public sectors, staff aug, etc.)?
  • What is your local plan to build/develop your customer-facing brand?

 

Governance

Governance frameworks and approvals should also be built into the playbook, breaking responsibilities down locally, globally and regionally. This part of the playbook should address who makes the decisions, and how that relates to your strategy and services.

Your playbook should address questions such as:

  • What level of decision making or approvals are needed when it comes to customer contracts?
  • How do we handle fixed-price proposals?
  • What are the thresholds on approvals and who needs to be involved?
  • Who makes the final decisions on hiring? Does that vary by role?

 

Financial model
Last but not least you will want to define your financial model and the budget implications of decisions being made. Your playbook should address structural models like how you’ll manage the P&L, and think through those decisions.

Your playbook should address questions such as:

  • Will we manage P&L by country, region or globally?
  • How do we align and create consistency between our P&L philosophy, incentives, compensation policies and governance?
  • How do we cope with intercompany subcontracting to ensure that countries/markets who host our expert resources are incentivized to support the start of new markets?
  • Who is financially responsible for budget overruns?

 

Once you have your global framework in place, you can dive deeper into the specific country-level detail. This should also be an evolving document. It will only continue providing value if it remains up to date and considers lessons you learn as you expand into more countries. So leave room for growth while ensuring your current playbook alleviates misunderstanding and miscommunication. Revisit the questions in here and add to those based on the situations that occurred in earlier rollouts and talk to your regional leaders to see what else would’ve helped them as they took their first steps.

If you’re a founder or CEO looking to expand internationally, and need capital or counsel to support your move, get in touch with Tercera. Or connect with me on LinkedIn with specific questions. We might be able to help!

Strategies to survive the talent war in the cloud’s third wave

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After working 15 years in talent strategy, recruiting and people operations for tech and IT consulting companies, I thought I had seen pretty much all there was to see when it came to trends in hiring. Then the universe laughed. Cue 2020, the year that changed the world, trapped us in our homes, and created unemployment levels we hadn’t seen since the Great Depression.

Now in 2021, we’re seeing demand for nearly everything come rushing back – especially demand for tech talent. Nearly everyone is short-staffed, but the problem is particularly significant for professional services companies, whose revenue correlates directly to having the right people to do the work. Cleveland Research estimates that many technology service partners are already 20-25% short on the people needed to deliver on their existing book of business.

With customer demand coming back faster than expected in some regions, and COVID still causing devastation in regions with a high concentration of tech talent like India, service providers are fighting a war to attract and keep top talent. Many companies are throwing money at the problem by raising salaries, instituting referral and signing bonuses, etc. This may be a necessary tactic given the current state of things, but there are other things companies can do to attract top talent that may have a more lasting effect on their employer brand. Before I go there though, let’s talk about how we got here.

What is driving the war for talent?

Even the companies who emerged from 2020 successful were cautious about hiring throughout last year, unsure of how the pandemic would impact their businesses and what a recovery would look like. On the flip side, employees were equally uncertain. Even those employees who had survived rounds of layoffs chose not to make job moves last year, sticking with the job they had so they could focus on juggling the unique nuances of the pandemic, like home schooling.

All that pent up demand is now being released as the economy recovers. Tech companies are resuming growth, with many seeing a huge spike in demand from customers that put off projects during the pandemic. The hiring required to keep up with demand, combined with the layoffs, furloughs and lack of hiring from the last year, means we’re now seeing 18 months worth of hiring squeezed into a few quarters – often from the same pool of candidates.

This is happening at the same time employees are feeling more optimistic and are starting to make the career moves they’ve been putting off for the past 12-18 months. Prudential’s Pulse on the American Worker Survey estimates that 1 in 4 workers is planning to look for new opportunities once the pandemic is over. While this data isn’t tech-specific or services-specific, it does point to a growing trend that seems to already be taking place when I see the growing attrition rates happening in firms.

While this supply and demand imbalance might feel incredibly acute right now, the challenges associated with hiring experienced and motivated tech talent will remain for years to come. Tercera’s recent ebook on the Third Wave of cloud computing points to a growing digital skills gap that cloud consultancies will need to address in the coming years.

This is why it’s time to rethink the way you recruit for talent, not only to get through our current talent situation but to prepare for the future. This new generation of talent has been shaped forever by a global pandemic, and convincing them to join a company now requires far more thought and finesse than simply throwing money at them and offering free food for offices they may not even visit.

Three trends changing recruiting in a post-COVID era

The interview process has accelerated.

In the past, even candidates for remote positions would typically come into the office for in-person interviews at the final stages of the process. Today, most companies have gone to all-virtual interviewing. This opens things up to move a lot faster, even if a candidate is interviewing with the same number of people as they would have before. It also means people can interview with many more companies at once from the convenience of their computer screen, allowing them to assess their options and the market more thoroughly. While these virtual-only interviews may get balanced out with in-person conversations post COVID, it’s unlikely we’ll ever see a full return to the old way of interviewing. Nor should we.

Candidates are all in on loving what they do.

For many, 2020 caused a perspective shift because it showed us just how short life is. People are rethinking their priorities; in response, employers need to meet candidates where they are, learning about what that individual is looking for. It’s more important than ever that recruiters can connect job tasks with a greater purpose – both for the company and for the candidate.

Companies may need to rethink offers.

Salaries for some of the most skilled or niche employees are already high, but the gap between supply and demand is boosting them further. While many companies default to boosting salary offers when fighting for top talent, they must balance this with offering other attractive benefits to lure people in. Otherwise, they risk having new hires stall out on pay once they arrive, because they came in at the top of the salary range. Companies are realizing they need to hire and develop instead of simply looking to find that unicorn candidate with the perfect set of skills and hoping they’ll stick around.

It’s time to build your employer brand

Companies need to build a brand that extends beyond one that customers want to work with, to one that employees want to work for. This is especially important for people-based businesses. You won’t have too many happy customers without great people to support them. When I counsel my clients at Cultivate Talent, I recommend they bring together the following elements to create a brand, story and processes to attract top talent in a post-COVID world.

Start with your purpose

People are looking for purpose and connection – a reason to work for your company beyond compensation. Make sure your organization, and everyone in your organization, understands why you do what you do and make it a core element of your employer brand perspective. This will have an impact far beyond just recruiting. Telling this story and how this purpose looks in practice on your website, in your meetings, on your social feeds and across future content will help you build a pipeline of candidates you can tap into 3-12 months from now. In the end, it’s important to convey the greater impact you’re trying to have beyond the services you offer.

Create an army of brand ambassadors

While you may not know it, your employees are the best and most credible advocates for your brand. They can become ambassadors by expressing their passion for your company and its work through their own social media posts, which is one great way to generate energy and interest. You can help your employees do this by creating content they can share. However, be sure you leave it open for them to preserve authenticity in what they say. That will resonate better than any produced message ever could.

Focus on culture

This one should already be at the top of your recruiting strategy but it’s becoming even more important. People are craving connection—particularly if they’re working virtually. Professional services firms will have to talk more than ever about their vision and values, centering their business and their people around these ideals. More companies are ensuring their job postings link to passion and fulfillment, telling stories through their current employees’ voices, sharing what they’ve done to make an impact in the last year and focusing on how they led their people and their businesses during 2020 or what it feels like to work there .

Change your recruiting mindset

Just as people should nurture their networks and not tap into them only when they need something, companies need to do the same. Don’t only reach out to people when you have an open role. Instead, create regular opportunities for people who are interested in your company to learn about you and what you’re doing. Create the expectation within your organization that recruiting is every leader’s job – not just HR’s. People go to work with people, especially in a services business, so capitalize on that and deploy your incredible leaders to bring in more top talent.

Rethink benefits

While candidates don’t make their decisions solely based on benefits, offering competitive and unique options can make them stay once they’ve come onboard. Unique benefits like four-day work weeks, more all-company holidays where everyone has off so people can actually tune out, or giving people paid time away from work to serve in their community are attractive and hard to replace.

Benefits should also prioritize mental health, self-care and wellbeing. Historically, mental health benefits have been overlooked or buried within an overall benefits package. Today, employees expect their companies to care about their health holistically, extending past traditional medical benefits to include gym and wellness memberships, free access to various mental health apps and more.

Optimize for remote work

It’s unclear whether the shift to “work from anywhere” will remain as companies shift to hybrid models or even a return to full-time, office-based positions. However, firms that optimize their operations for a virtual workforce, and who make in-person attendance the exception rather than the rule, will be much better prepared to recruit for the future.

The coming year will be both exciting and challenging for our entire industry. I hope this advice can make your recruiting efforts even more successful, although keep in mind, recruiting is only the first half of the battle. Once you’ve got talent in the door, the real work begins to ensure they stay engaged and enthusiastic to ensure your long-term success. Stay tuned for more insights on how to keep employees happy and connected to your mission once they’re onboard.

How to be a services leader in the cloud’s third wave

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Something big is happening in the cloud computing space. Salesforce calls it Cloud 3.0. We call it the cloud’s third wave. Far too many call it simply digital transformation. Whatever you call it, there is a perfect storm happening right now, with multiple forces coming together to drive more mindshare and more money into cloud technology and the vendors that play in that space.

The first force is no surprise to anyone — the pandemic. COVID dramatically accelerated digital initiatives inside most companies. As Satya Nadalla, the CEO of Microsoft put in, “we saw two years’ worth of digital transformation in two months.” Those initiatives aren’t slowing. In fact, they’re accelerating.

The second force is the maturation of cloud computing. Businesses of every size have bought into the cloud model, and are finding new and creative ways to embed it into their business and customer-facing processes. A maturing space also brings a bigger, more diverse group of vendors, which means more choice for customers, and unfortunately, more complexity.

A third force is the surplus of capital in the market today. Consider just some of these stats:

  • Cloud companies now have a $2 trillion market cap (Bessemer)
  • In 2020 alone, $186 billion was invested into private cloud companies (Bessemer)
  • In Q4 2020 alone, five cloud vendors generated $37 billion in revenue (Cloud Wars)
  • 45 cloud consultancies were acquired in the first 5 months of 2021 with an aggregate value of more than $3 billion (Tercera/451 Research)

Most entrepreneurs and investors will tell you at least 50% of success is being in the right place at the right time, and for those in cloud services, you couldn’t pick a better time. But being in the right place at the right time is only half of the equation. The other half comes down to execution, and building and scaling a business (especially a services business) in the cloud’s third wave looks far different than it did 20 years ago.

As an operator in the services space for more than 25 years, a founder of one of the earliest cloud consultancies, and now an investor and advisor to the next generation of cloud consultancies, I’ve seen the evolution of cloud services first hand. So has Jeff Kaplan, the founder of THINKstrategies, a strategic consulting firm focused on the business implications of transitioning from product-centric to services-centric business models.

Jeff has been a thought leader in both services and cloud computing for three decades. He’s a respected industry analyst, and is now a strategy and go-to-market advisor for Tercera’s portfolio companies. He’s seen A LOT over the years, so when it came down to documenting what’s going on at the intersection of cloud and services right now, I couldn’t think of a better partner.

Our newest ebook, What It Takes to Be a Services Leader in the Cloud’s Third Wave, covers the evolution of cloud computing, the new players in the space, as well as the business models, labor models and skills that consultancies need if they want to succeed in the third wave.

Jeff and I will be holding a webinar and live Q&A about the third wave and some of the concepts in this ebook on Thursday, June 3 at 10am ET. To join that webinar (or access the recording), register here.

We hope you’ll join us!

Building a smarter strategy for international expansion

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Today, international expansion is top of mind for most professional services firms. Expanding into new territory can not only strengthen your market positioning, help drive revenue growth and expand your customer base, it can also diversify your businesses and give you greater access to talent. That last aspect may be the most urgent need these days, as companies around the world scramble to find people with the tech skills needed for the third wave of cloud computing.

Expanding into new regions and countries can bring a host of benefits, but it shouldn’t be taken lightly. It requires capital to build a new presence in a new location, as well as time, focus and resources from a firm’s leadership team.

Global expansion can be costly and bumpy if you aren’t ready, so getting the timing right is important — something I’ve learned first-hand after two decades in professional services, leading international operations across 40 countries, and founding one of the first Workday and ServiceNow consulting firms in Europe. This 2-part blog series is meant to relay what I’ve learned about the opportunities and challenges of international expansion based on that experience.

In this blog, I’ll cover topics such as how to know when it’s the right time to expand, how to prepare for the risks that come with that expansion, and how to think about an effective strategy. In part 2, I’ll talk about how to execute an operating framework for expansion, which I call “the country playbook.”

Let’s start with the first big question.

Is it the right time to expand?

Services companies initiate global expansion for any number of reasons. Maybe it’s an opportunity that can’t be missed, like a proactive request from an important customer or your main technology partner. Perhaps it’s a need to diversify your revenue or customer base. Maybe it’s something being pushed by your board, or a suggestion from the leadership team to capitalize on your momentum and desire to become a global leader.

No matter what the catalyst is for these conversations, it’s easy to get caught up in the idea of a new opportunity and hard to take a step back and think: “Is this the right time?” or “What is the optimum pace?” So, how do you know when you’re ready to expand? There is rarely a black and white answer to this question, but consider the following questions:

  • Are you currently thriving in your home base? Is your business stable?
  • Have you passed a critical size in your home country?
  • Do you have a strong leadership team and culture in place to be a foundation for other regions?
  • Do you have the necessary financial resources or capital to expand?
  • Do you have commitment from your board and broader management team to make the leap?

If you can answer yes to most or all of these questions, it may be a good time to make the move.

Are you prepared for the risks?

As you undertake international expansion, there are many challenges that could impede your success. It’s imperative that you think through each of these challenges and work solutions into your strategy and plans. Here are a few of the barriers and risks that come up time and again:

  • Financial costs. Don’t underestimate the lead time and investment needed to start and build a presence in a new country. You will need at minimum an in-country team to handle the customer-facing roles (e.g. consulting leaders, sales, project managers and/or solution architects) while you leverage the rest of your organization to deliver projects. It takes time to hire your local presence and time to ramp up a minimum billability.
  • Cultural impact. In a people-based business, few things matter more than culture. While there may be certain cultural nuances based on the region you are in and the region you are planning to enter, there should be some consistency in how your employees, customers and partners interact with your company. To ensure your culture feeds into your new locations, you’ll want to have a set of guiding principles and processes that in-country leaders and employees can use to ensure your culture is performing, regardless of location.
  • Management distraction. You need your leaders to be focused on your business, and expanding into new markets will naturally create distractions for your management team. One way to mitigate this is by following a fractal growth pattern, expanding country-by-country and building off existing practice areas or IP rather than trying to open too many countries at once or launching a completely new service line in a new country.
  • Talent sourcing. You will not establish yourself in a new market without the right leadership and team. If your company doesn’t have an established brand in the market, recruiting the right talent won’t be easy. How will you mitigate this? Will you lift and shift current team members to a new market, or pay to hire a local recruiter? If you move existing team members, how will they work within the region’s cultural norms and languages?

Do you have the right strategy to be successful?

Once you understand the risks, it’s time to create a plan for success. Below are four areas that will help you develop a successful expansion strategy, and at the same time, create an effective business case to get buy-in from your board and stakeholders.

Align with your technology partners

Most services businesses rely heavily on technology partnerships. If that’s the case for your business, which it probably is, the first thing you want to do when developing your international strategy is to align with your primary technology partners or Independent Software Vendors (ISVs).

Here are some questions to consider:

  • What countries/regions are your ISV partners in today? What is their growth in those regions?
  • How established are they in these markets?
  • How strong are they at sales and marketing? Do they need a partner to help them bring in business, or is their biggest need on the service delivery side?
  • How open or closed is your ISV’s partner ecosystem? Do they welcome new entrants to an ecosystem, or do they prefer to curate their partners? How controlling are they with who gets access to their sales teams and customers in the region?
  • What certifications will you need to be marketable in the region?
  • How supportive are they about you entering a particular market?

This last question is especially important. If the country GM and sales leadership for your primary partner isn’t supportive of you entering their region, it is going to be an uphill battle. They need to see how you can help their interests in the region, and know the unique value you bring to their sales team and customer base that others can’t.

Assess the market opportunities

To ensure there is room for your services to thrive within a given country or region, you need to start by evaluating the maturity of different markets, the opportunity in each market and the competition that currently exists there.

Here are a few questions to help with your due diligence:

  • What is the market’s size, maturity and growth rate?
  • How saturated is the market today?
  • How receptive are your partners and customers to you operating in a given market?
  • How easy is it to enter that market (e.g. language, timezone, understanding of the local culture)
  • Would your entry reshuffle the ecosystem in the targeted country?
  • Does this create possible tactical strategies which could create new opportunities and/or de-risk your entry, such as partnering with local Global System Integrators or local management consulting firms?

Consider organizing your expansion by “classes” of countries and then map out your pace. How many can you expand into at once? Some companies will want to enter a market as soon as their technology partners begin to gain any traction there, while others might prefer to wait until there is a bigger customer base to serve. There are risks in each approach. If you go in too early, you may need to invest more time and capital to build demand alongside your partner. If you wait, you risk letting competitors build up competencies and become that valued partner. Again, there may be no perfect answer or time, but it’s important to talk through these risks with your leadership team.

Refine your tactical approach

Having a clear, compelling and consistent value proposition is important for any business, but it becomes especially important when recruiting a new team and establishing yourself with a new set of customers and partners. Start by remembering what made you successful in your home country in the first place – qualities like your founding team’s credentials, your culture, your team’s unique skills and expertise, track record of success, customer network and ability to deliver results fast.

From there, outline how you’ll differentiate your business in this new market and what partners and customers value the most. You’ll want to combine your market analysis with an understanding of your strengths, and build a value proposition that reflects this combination. What intellectual property or potential sales assets can you bring over to this new region, and what you might need to rebuild? Can you localize a preconfigured solution for a specific vertical market or bring an accelerator that is non existent in your new target market?

Refining your approach to this new market requires having an understanding of the customers in that market, not just based on assumptions. There may be an entirely new set of regulations or operating norms for businesses in that region that you aren’t aware of. It might help to start small, by targeting a certain segment of customers or industries where you can leverage your existing references and credentials or launching only a subset of your services portfolio.

Develop your country playbook

Once you are certain you’re ready to expand, have narrowed in on the country or countries you know hold the greatest chance for success, have aligned with partners, and have a basic understanding of how you’ll approach the expansion, it’s time to start building your operating model.

I call this your country playbook, and it’s essentially a documented framework that lays out what you’re trying to achieve for the business at a country level. It’s a more detailed plan for how you will execute in a new market that ensures that you, the teams in your existing home base, and your country leader are fully aligned.

In my next post, I dig deeper into how to create a country playbook, the areas it should address and how it can help you create a consistent, repeatable process for international expansion.

The case for verticalizing your cloud services portfolio

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We are living in a world that is becoming increasingly specialized, from how we consume information, to the brands we buy, to the resiliency in supply chains. This has become increasingly true post-pandemic as companies look to adapt and transform their business models. That focus on specialization is happening in cloud computing as well.

Industry-aligned cloud solutions and companies are taking the market by storm, so it shouldn’t be a surprise that the same is happening in cloud-focused professional services, where combining business process and industry expertise is critical to deliver innovations faster. If you are a cloud IT services firm who doesn’t have an industry-driven approach in your portfolio, you may be ignoring a critical path to delivering sustainable value to your customers.

 

If you are a cloud IT services firm who doesn’t have an industry-driven approach in your portfolio, you may be ignoring a critical path to delivering sustainable value to your customers.

 

In its 2021 State of the Cloud report, Bessemer Venture Partners predicts that “the vertical SaaS wave will become a tsunami” in the coming year. Veeva, a cloud-based CRM company focused on the life sciences industry, is perhaps the most cited example. With nearly $1.5 billion in annual revenue, Veeva continues to grow 33% year over year. Brightwheel, Procore, Majesco are just a few other vertically oriented SaaS companies. The larger cloud platforms (e.g. Salesforce, Microsoft, Adobe, AWS) have also been placing a larger emphasis on verticals over the past decade.

During the first two waves of cloud computing, software providers focused on building out their underlying platforms, leaving it to services partners and clients to customize and integrate them into industry-specific business processes. That worked well, but it leaves customers to finish the job — to manage and evolve those platforms to serve a business that is always changing.

In the cloud’s third wave, customers are looking for more help guiding them in the context of their business. That need is accentuated in regulated industries such as healthcare, financial services and government agencies that have specialized security requirements and risks. For example, a digital healthcare solution may require an operational transformation, analytics and workflow redesign, but it also needs a deep understanding of what patient/clinician engagement looks like across the value chain and how that aligns with HIPAA compliance.

Breaking the horizontal mindset

Specializing in one or two verticals is a smart move for almost any cloud-driven services firm. Unfortunately, many have been slow to adopt an industry-focused approach for a couple of underlying reasons. First is the assumption that you need to be at scale to verticalize. Many companies think they’re too small or simply don’t have the resources to do it well. The second revolves around fear. Fear that it requires significant effort without immediate ROI, or that they might pick the wrong industry, or that it will limit them in some way.

Let’s start with the scale issue. When consultancies get started, many begin with a more general approach to build their customer base and reputation with channel partners. The natural inclination for many founders, especially those who are technologists rather than industry experts, is to build up the firm around a specific platform or technical capability, rather than specializing in an industry. However with a generic approach, differentiation starts to diminish over time as more partners enter a space and there is a risk for services to be commoditized.

 

However with a generic approach, differentiation starts to diminish over time as more partners enter a space and there is a risk for services to be commoditized.

 

An interesting case study for verticalizing a portfolio is Onica, a cloud specialist in Amazon Web Services (AWS) consulting and managed services, which was a spin-off from a larger IT services firm. It delivered cloud migrations, big data and cloud-native development with a razor-sharp focus on AWS, but in parallel, also strengthened its competency in industrial and manufacturing oriented solutions with IoT and AWS. Onica was <$50 million at one point when it started focusing on industry solutions and grew 800% from 2016 to 2018. In late 2019, it was acquired by Rackspace for $323 million.

To alleviate initial fears, a vertical approach doesn’t have to be big-bang. A lesson from the above case study is the approach can be incremental and complementary to what a firm is already doing. For example, it may make sense to start with an industry-specific accelerator that speeds delivery or sets you apart in your go-to-market. Cloud vendors have made it a lot easier to create vertical IP and reusable assets by architecting their platforms to be more open and accessible. Or instead of building organically, consider a tuck-in M&A transaction to get the industry vertical expertise needed.

 

The bottom line is you no longer need the scale and resources of an Accenture or Deloitte to have a vertical play. It’s less about size, and more about having focus, picking the right vertical and partner(s) for that industry, and having confidence in your strategy.

 

When it comes to developing the right strategy, here are five areas where I recommend focusing your efforts: 1) Target your industry bets; 2) Align with your partners; 3) Co-create with customers; 4) Innovate at the intersections; 5) Tie your strategy to execution.

Target your Industry bets

Not all industries are created equal — like people they come in different sizes, and have different requirements, and not all will be the right match for you. The traditional approach is to look at the Total Addressable Market (TAM). David Kidder, CEO of Bionic and author of the book “New to Big” instead suggests looking at the Total Addressable Problem (TAP).  According to David, “the TAP model is based on discovering brand new customer problems or uncovering new untapped markets and that can lead to exponential growth.”

 

The TAP model, disruptive trends, unique expertise, and industry micro-segmentation should all play a role in finalizing your industry bets. The goal shouldn’t just be to have an offering in the space, it’s to be positioned within the top three service providers for that particular vertical or micro-vertical.

 

Start by looking at your unique expertise, and the verticals or micro-verticals that are a fit for that expertise. A great example of this is Snowflake, the cloud data platform that allows businesses to unlock insight from data. Snowflake’s financial services solution provides a strict approach for security and regulatory compliance that can be tailored to the needs of customers in banking, insurance, or mortgages. It is the services partner’s role to implement, integrate and amplify the solution.

If you’re a cloud services firm aligned to Snowflake helping clients monetize the large amounts of data being generated in financial services industries, don’t stop at banking or insurance. Instead specialize further in micro-verticals such as consumer finance, commercial banking, life insurance or property & casualty insurance. Or think through how you can help clients create new fintech offerings that take advantage of the disruptions happening in eCommerce and cryptocurrency.

The TAP model, disruptive trends, unique expertise, and industry micro-segmentation should all play a role in finalizing your industry bets. The goal shouldn’t just be to have an offering in the space, it’s to be positioned within the top three service providers for that particular vertical or micro-vertical.

Align with your partners

The partner ecosystems for large cloud platforms have grown substantially in the last two decades. Salesforce alone has more than 1,600 services partners around the world. As cloud vendors look to expand market share, they are looking to consultancies to create industry-specific solutions that add stickiness to their platforms. To differentiate in an increasingly crowded space, more and more early-stage services firms are now leaning in on a vertical orientation.

If you are a service provider focused on a particular vendor’s platform, it’s important to understand that vendor’s vertical strategy. In most cases, they probably have one. If not, perhaps that’s an opportunity to add value or fill a gap in their go-to-market strategy. What industry roadmap has the cloud platform provider laid out for growth? How does that align with your strengths, customer base or future bets?

When ServiceNow first announced their industry bets, they started with financial services and telecom. As ServiceNow grew from IT service management to customer/employee workflows to AIOps, it has continued to build on its domain capabilities. The company now specializes in more than 10 industries, from healthcare to public sector to manufacturing to retail and logistics. In a statement last year, ServiceNow CEO Bill McDermott said, “by creating industry-specific solutions, delivered through a partner-led model, we can better address the unique challenges that companies in key vertical markets face.”

Co-create with customers

Picking one or two anchor customers can make a big difference in how quickly you can gain traction with a vertical strategy, and the positive reference that will help you get the next set of case studies and references. You might start with an existing customer or identify a customer to pursue in parallel with your vendor partner.

 

By working hand in hand with customers you will avoid the classic trap of a solution looking for a problem. The bottom line, make the customer part of the solution.

 

Whether you’re working alongside your cloud vendor partner or directly with the client, attach yourself to a strategic and well funded program. Many companies have roles solely focused on future innovations, titles such as Chief Digital Officer or Chief Growth Officer. Find a customer willing to wade into uncharted territories with you and co-create some intellectual property for an industry problem that hasn’t been solved or is just emerging.

Innovate at intersections

There will always be historic and economic events, such as the financial recession or recent pandemic, that drive new levels of innovation, but smaller disruptions shift markets all the time. It’s important to be on the lookout for signals and trends while betting on the future. For example, renowned futurist Amy Webb recently released the 2021 Emerging Tech Trends report and talks about health care as the next battleground for big-tech and how drone delivery will disrupt transportation & logistics industries.

Also, industry lines are blurring. This can be seen in retail solutions that create a connected consumer experience across various points in the shopper journey, or a media solution that engage audiences across channels, or a solution that provides banking customers with a consistent streamlined experience across different interactions. There is a lot to leverage across industries and in some cases it might make sense to build your differentiation/IP around a business process that cuts across 2-3 different industries. A classic success story is Adobe’s experience platform that can be tailored to provide personalized marketing solutions across various industries.

In the Salesforce economy, several services partners have focused on a cross-section of business processes like Configure-Price-Quote (CPQ) or eCommerce. In this example, partners could take it one step further and create a differentiated solution for B2B industries (e.g. manufacturing or hi-tech) where CPQ and commerce are integrated to drive business outcomes across the “Quote to Cash” value chain.

 

Whether it’s between industries, between business processes, or between technologies, innovation is amplified at the intersections.

 

We’re also seeing firms create use cases that incorporate and integrate big data, automation, or the disruptive application of 5G and AI across industries to differentiate. Whether it’s between industries, between business processes, or between technologies, innovation is amplified at the intersections.

Tie strategy to execution

Tying strategy to execution seems rather intuitive, but too many companies don’t go deep enough when laying out how they are going to be successful in this new space. An effective vertical strategy requires more than some IP or people with relevant skills. It requires an understanding of the unique sales and procurement processes within the industry, and an effective customer engagement model with top notch resources. How should your Go-to-Market plans (GTM) change, and what people and processes do you need to have in place, to pivot to a vertical focus?

Once you know that, find the right talent to build into that customer engagement model. In many cases, you might need to hire outside experts. People who have lived and worked in that industry, who understand the unique nuances, terminology, challenges, and opportunities in the space. In some cases, you might already have the right people and just need to cross train them through shadow or train the trainer programs.

As you progress and gain more customers in a given industry, or expand into new ones, you can grow your IP and build your team accordingly. Be prepared that results will not come overnight, but once you tie your holistic strategy to the execution plan, the potential upside can be exponential with the right bets and partnerships.

Conclusion

Taking a verticalized approach to a services portfolio isn’t a new concept. Large software companies have been pushing their services partners in this direction for more than a decade, and as cloud vendors mature they are following suit.

To compete in this market, third wave cloud consultancies will need to specialize in some way. While some may specialize in specific platform capabilities or at business process intersections, many can do it through an industry approach. In some cases, a hybrid strategy might be best. Whatever your strategy is today, you should be experimenting. You must be willing to work a year or likely more with the right investments before you see real ROI. You’re learning through the process, creating assets, repeatable practices, refining capabilities, etc.

 

To compete in this market, third wave cloud consultancies will need to specialize in some way. While some may specialize in specific platform capabilities or at business process intersections, many can do it through an industry approach.

 

A final thought: it’s good to start your journey with the end in mind, but remember, in the end, it is the journey that will matter. To be successful in the third wave of cloud, you will have to adapt quickly along the way, integrate new cloud technologies and business models to drive digital innovations for your clients. A salute to the non-profit organizations who worked tirelessly through the pandemic to protect and save lives.

Tercera’s best practices, playbooks and growth capital may be able to guide your success in this competitive environment, where differentiation now is more critical than ever. If you think Tercera can help, send the team a message here.

Tercera adds two new partners

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Former Guggenheim Partners Investment Banker Bill Petty, and Former Appirio CX and Marketing Leader Michelle Swan Join the Tercera Team

EVERYWHERE – April 8, 2021 – Tercera, a growth-focused investment and advisory firm specializing in technology professional services, today announced that Bill Petty and Michelle Swan have joined the firm as partners. Together, they bring decades of IT services experience to help Tercera drive forward the Third Wave of cloud computing. Bill and Michelle join Tercera CEO and founder Chris Barbin, partner Dan Lascell and partner Lisa Burton to support the firm’s investments in third wave cloud consultancies.

“Our goal at Tercera is to identify and empower the integrators, consultancies, and managed service providers who will lead the next wave of innovation,” said Chris Barbin, founder and CEO of Tercera. “Bill and Michelle have built, ran, advised and supported dozens of services companies over the last 20 years, and they bring pattern recognition for the opportunities and challenges our founders will experience as they scale their own business. They embody our mission and values, and will be invaluable partners to the entrepreneurs we back.”

About Bill

Bill brings more than 15 years of M&A experience to Tercera and will focus on the sourcing, execution and monitoring of Tercera’s investments. He joins Tercera from Guggenheim Partners where he was a Managing Director in the Technology Investment Banking Group. Prior to Guggenheim, Bill held investment banking roles with William Blair and City Capital Advisors and worked in KPMG’s Transaction Services Group. He has advised dozens of technology companies across the IT Services and Software markets on topics ranging from M&A, growth equity investments and IPOs. More on Bill here.

“Tercera is creating a new kind of investment firm, focused on the people that enable the third wave of cloud computing,” said Bill. “We are excited to partner with the founders and teams driving the next-gen IT services firms, and are confident that our counsel, connections and capital can help them become category defining leaders.”

About Michelle

Michelle brings to Tercera more than 20 years of branding, marketing and customer experience expertise. She will be responsible for guiding Tercera’s marketing, content and diversity & inclusion initiatives, the Tercera advisor and portfolio community experience, and helping founders amplify their own brand presence. Prior to joining Tercera, she founded and led Swancomm, a marketing communications consultancy supporting early stage product and services companies. Michelle was one of the earliest employees at Appirio, where she led corporate marketing, customer experience and initiated the company’s Customer Advisory Board. More on Michelle here.

“People-based businesses are the heart and soul of the economy, and the secret to success for some of the most well known technology companies out there. Yet they rarely get the attention and support they deserve. We aim to change that,” said Michelle.

About Tercera
Tercera is an investment and advisory firm founded to accelerate the growth of people-centric businesses. Specializing in the $460 billion cloud professional services market, the Tercera team is composed of invested operators who know first-hand what it takes to build and scale a successful cloud services business. Tercera (Spanish for ‘third’) is on a mission to identify the people and partners who will lead the next wave of cloud computing – the Third Wave – and provide them with the capital, counsel and connections they need to scale faster and take an outsized share of the market.