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Why cloud services firms should include Latin America in their expansion strategies

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The topic of professional services delivery operations isn’t exactly a hot topic on Twitter or BuzzFeed (I’m not sure why?!), but if it was, then #latam would definitely be trending.

As a partner at Tercera, and someone who talks to a lot of founders and service leaders about how to scale and mature their delivery operations, expansion into Latin America seems to be a part of nearly every conversation I have these days. It feels eerily similar to the conversations from the early days of cloud computing, when tech founders, CEOs and boards were all trying to figure out how to break into the India tech scene.

In fact, there are a number of similarities between what drove the tech build out in India and what’s been happening in Latin America (or LATAM). Access to a growing community of highly skilled talent at a lower comparative cost, geographic proximity to the North American businesses, increasing infrastructure investment and stability in the region, and economic incentives are all bringing tech businesses to the LATAM region.

Access to a growing community of highly skilled talent at a lower comparative cost, geographic proximity to the North American businesses, increasing infrastructure investment and stability in the region, and economic incentives are all bringing tech businesses to the LATAM region.

Let’s start with the basics so we’re all on the same page. Most people define LATAM as including the continent of South America, Mexico, Central America and the Caribbean, so when I use the term LATAM, this is the region that I’m referring to. Like Europe and Asia Pacific, it’s easy to lump these countries into one nice clean acronym, but it’s an incredibly diverse region. Some countries are more developed and ready to support a thriving tech scene than others, and some countries have weathered the pandemic better than others. But the region as a whole is poised well for growth.

A lot has been written recently about the tech opportunities in LATAM, both as a region to expand a development center or with a thriving startup scene. This blog isn’t to regurgitate those, but to explain why cloud consultancies who are looking for scale, diversification and, most importantly talent, should be looking at this region to expand delivery operations. This can be done either in conjunction with other locations, or as a first step for those earlier in their lifecycle.

¿Why is LATAM suddenly muy caliente?

The biggest reason LATAM is seeing such interest from tech companies is access to talent in a tight labor market. A talent shortage is threatening nearly all sectors around the world, but as the world moves digital, the job roles that are most increasing in demand are those rooted in technology. The World Economic Forum lists out the roles most in demand in its annual Future of Jobs Survey, and data scientists, AI specialists, digital strategy and security specialists are all near the top of that list.

Unfortunately, supply is not keeping pace with demand. The need is especially acute in some regions like the US. According to research by Korn Ferry, “the US could lose out on $162 billion worth of revenues annually unless it finds more high-tech workers.” Broadening into other global markets is a critical piece to closing the talent shortage gap and meeting customer demand, and LATAM governments and universities are eager to fill that gap through investments in innovation, educational institutions and other programs.

The number of trained IT workers in LATAM has increased significantly in recent years. Evans Data research has found that Latin America now has the second fastest growing IT specialist population, second only to Asia Pacific. According to BizLatin Hub, Brazil alone has 1.7 million IT professionals.

Latin American countries have also focused on improving their overall infrastructure, investing in telecommunications and digital infrastructure — the backbone of a tech industry. LATAM governments eager for tech revenue have also been making it much easier to do business in the region, opening up opportunities to foreign business by lowering corporate tax rates, and offering investment incentives and grants.

The region is also known for less stringent regulations compared to Europe, and better legal protection for intellectual capital compared to countries in Asia. All of this has significantly reduced the barrier to entry, and a growing number of partners like BizLatinHub and Velocity Global are popping up to help walk you through complicated entity setup processes.

The ease of doing business in the region has also had a positive impact on the startup ecosystem. Since 2009, $16B has been invested in the region and tech companies alone raised $4.2B in 2020 (across more than 370 deals). That’s a record, and it was set in the same year a pandemic circled the globe.

The ease of doing business in the region has also had a positive impact on the startup ecosystem. Since 2009, $16B has been invested in the region and tech companies alone raised $4.2B in 2020 (across more than 370 deals). That’s a record, and it was set in the same year a pandemic circled the globe. With multinational companies continuing to show interest in and allocating resources in LATAM, there’s no reason to think the climate will change anytime soon for startups.

A huge opportunity for cloud services firms

For cloud consulting firms hungry for talent, diversity and access to new markets, LATAM is becoming more and more interesting, especially for firms headquartered in North America, With many LATAM countries geographically close to North America, travel times and costs are significantly lower than they are when working with Eastern Europe and Asia, where firms have tended to set up international delivery centers in recent years.

The time difference alone between Southeast Asia and North America is an 11-13 hour time difference. For LATAM, there is only a 0-5 hour difference. While being in the same time zone does not need to be a requirement for picking a location to expand, having similar working hours can reduce the need for teams to work outside of normal business hours. While the 24/7 development cycle and coverage has been billed as a benefit for customers and companies, it’s pretty crappy for life balance.

It also makes collaboration and communication easier. If you’re a development team based in Dallas and need to have a regular standup meeting with teams in Bangalore, finding a time that works well for both teams can be incredibly difficult. Imagine that same Dallas team working with a team in Guadalajara and the increased ease of scheduling. Further imagine the travel time saved if you are traveling to meet your team in person.

Another big argument for moving into LATAM is access to highly skilled talent at a lower cost. While the total cost of a developer in LATAM is generally more expensive than in India, it is still lower than in the United States and most western European countries. It should be noted however that comparing costs can become very complicated as there can be wide variation between bill rates and salaries within a country and region, and this doesn’t take into account indirect costs.

Last but not least, LATAM is particularly interesting for cloud consultancies because some of the biggest cloud vendors — their partners — are already staking out a large and growing presence in the region. Major companies like Amazon are already major investors in the region, and several other cloud companies like Google, Salesforce, Twilio and Okta have already expanded into Latin American countries and see it as a big part of their growth story.

Major companies like Amazon are already major investors in the region, and several other cloud companies like Google, Salesforce, Twilio and Okta have already expanded into Latin American countries and see it as a big part of their growth story.

As with expansion into any new geography, it’s important to fully understand the regional nuances that will affect how you do business, run the business and work across teams. These include language barriers, cultural differences and regionally-specific work styles and communication methods.

Having leadership in these countries that speak the language and understand the cultural nuances is a must-have when it comes to recruiting, engaging employees, and building long-term success. However, it’s not just the leaders in these countries who have to be culturally aware, it’s also the leadership and teams working with these international delivery centers.

Understanding and being sensitive to local etiquette, work preferences, local customs, and holidays can help you make deeper connections with your LATAM team, and save teams from committing faux pas that might be embarrassing at the least, or at the worst, damaging to your reputation. However, learning those nuances takes time, too, and more than you might expect.

Local expertise can also help you understand the local talent market, know where the protected free market zones are, and navigate government regulations and labor laws, which vary by country. But staying abreast of all those rules is another piece that can require a greater time investment than you’d expect, even in a region that’s geographically close.

Why wait?

The steady flow of international investments into LATAM has never been greater, and LATAM economies have shown steady economic growth over the last 15 years. Despite the pandemic, the six largest LATAM economies actually performed better than expected in Q4 of 2020 and growth is expected this year. The earlier you can take advantage of what the region is offering, the more you have to gain.

If you have questions about what it takes to expand your business internationally, I’d highly recommend the series from Tercera advisor Jean Manaud around building a strategy for international expansion. If you are considering expansion into LATAM and think Tercera can help when it comes to capital or counsel, send our team a message here.

Finally, I’d like to take a moment to thank the talented professionals who shared valuable insights and experience that went into the writing of this article, including Darshan Deshmukh, Amit Dhadwal, Neale Wooten, Josh Smith, Victor Tapia and several others. Also a special thank you to Lizzie Foley, one of our Tercera summer interns who helped with research. It takes a village.

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!

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!

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.

The rising volume and valuation of services signals a market shift

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Last week the valuation of professional services firms reached a high water mark when Hitachi announced plans to acquire digital engineering services company, GlobalLogic, for $9.6 billion, or 8x revenue! While this is the largest IT services acquisition year to date, it’s certainly not going to be the last.

GlobalLogic’s 20,000 professionals in 14 countries will be integrated into Hitachi’s Lumada IoT business, and is part of the company’s ongoing evolution from hardware to digital services.

While the 8x revenue multiple Hitachi paid for GlobalLogic is a high water mark for an IT Services M&A transaction, the multiple is in line with valuations for publicly traded high growth digital engineering services firms like EPAM, Globant and Endava. These firms are currently trading for 7.7x, 10.1x and 13.2x revenue, respectively.

These valuations, along with the volume of acquisitions, signal a market shift which entrepreneurs, acquirers and investors should take note.

For decades, investors have viewed professional services firms as less attractive and riskier than software companies. Whereas product company valuations might range from 20-100x forward-looking revenue, services firms saw historic valuations more in line with 0.5x to 1.5x revenue. While multiples have been creeping up over the last decade for services firms — especially cloud consultancies that specialize in disruptive technology — we’re starting to see 2x to 4x valuations become the rule rather than the exception. Services firms are finally getting the cred they deserve!

Why is this shift happening?

The most simple answer is that companies of every size are reshaping their business for a digital world. I won’t bore you with the stats because you’ve already heard them. But I will say digital transformation is now a board-level conversation, not just a talking point among IT leaders, and companies need help navigating this next wave of innovation.

No one understands this more than the global systems integrators (GSIs), which are seeing their traditional services businesses decline, while competing more with these digital engineering firms. They’re looking for growth and capabilities in new areas, and most of that growth is happening in the cloud’s third wave.

Cloud computing is now mainstream. For 20 years it’s been upending the way companies operate and build, and enterprises are now using public, private and hybrid clouds as a backbone for their digital transformation. In the cloud’s third wave companies are building their own customer-centric, data-intensive, digital experiences from the ground up, not just relying on a small handful of vendors. Those experiences cross organizational boundaries, and require orchestration between hundreds of different cloud building blocks. This is why third wave cloud consultancies and digital engineering firms are so attractive.

In the cloud’s third wave companies are building their own customer-centric, data-intensive, digital experiences from the ground up, not just relying on a small handful of vendors.

Unlike GSIs, which are built around large (often legacy) platforms, these next gen firms are not tethered to a specific platform. They have capabilities across them, and are more focused on custom development rather than platform configuration. According to Gartner research, the 13 largest GSIs hold only 30% of the market for custom software development with the remaining 70% of the market held by more than 10,000 local, regional and midsize players.

This is why companies like IBM are being so acquisitive. By bringing on firms like Nordcloud, a European cloud integrator with 500 consultants certified in Amazon Web Services, Microsoft Azure and Google Cloud Platform, IBM isn’t just specializing in its own stack of technologies. It’s working across them, supporting customers no matter what their digital strategy may be.

The digital era requires new skills, new models

Third wave cloud consultancies and digital engineering firms also bring something that GSIs, customers and vendors need desperately — specialized skills in areas like IoT, APIs, cloud integration, data science, cybersecurity, DevOps, e-commerce, new programming languages, etc.

The war for talent is real, and based on our conversations with hundreds of services firms and the cloud vendors, it’s getting worse. Talent acquisition and retention is a core competency for services firms, and the firms that are adapting their talent capabilities to this new world are those that will thrive.

Workforce models are evolving quickly. Next generation services firms have been optimizing for distributed and remote workforces for the last few years, not just as a response to Covid. It’s been a competitive differentiator, giving them access to specialized talent no matter where people live. These firms have also been learning how to use on-demand “gig” talent in new ways, which requires different internal processes. These aren’t overnight changes.

Delivery and pricing models are evolving as well. Next generation firms (like more and more customers) are less focused on big-bang transformations and project work. It’s more about providing capacity and skills for ongoing programs that add value in an iterative way over time – and pricing it accordingly. Services firms that make it easy for customers to get started quickly, scale up and down as needed, offer free ‘demo services’ up front, and that offer packaged IP to speed time to value will have a leg up on the competition.

The GSIs are well aware of these trends. But they’re big. They have entrenched relationships with legacy vendors and cash cow businesses that, while declining, still need support. For them it’s better to be a fast follower than a first mover, and to let the boutique services firms incubate these capabilities and then use their large stockpiles of cash to acquire them.

That’s not a new model, but there’s a lot of cash in the market and stakes are getting higher. This is going to be an interesting few years for services!

BeyondID secures $9M in series A funding from Tercera

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Tercera’s Investment Spotlights the Market Opportunity for BeyondID’s Identity and Cybersecurity Services, and the Growth for Services in the Third Wave of Cloud Computing

 

San Francisco, CA – February 8, 2021 – BeyondID, a leading System Integrator (SI) and Managed Service Provider (MSP) for cybersecurity and cloud services, today announced it closed a Series A funding round of $9 million from Tercera. The financing was provided by Tercera, an investment and advisory company specializing in the $460B cloud professional services market.

BeyondID helps companies acquire, deploy and manage best-of-breed cybersecurity and cloud services to become more secure, agile and prepared for the future. The company is a Platinum Services partner for Okta, and specializes in Identity and Access Management, Secure App Modernization, Zero Trust Security, Cloud Migration and Integration Services.

“We are thrilled to partner with Tercera to expand our footprint in the Okta ecosystem and broaden our identity and cybersecurity offerings,” said Arun Shrestha, CEO and co-founder of BeyondID. “Tercera’s investment will help us meet the growing demand organizations have for more secure access to their critical data and higher performing cloud identity solutions.”

BeyondID has been a top partner for Okta, the leading identity platform in the enterprise, for nearly three years. It has earned Okta’s Platinum partnership for consistently delivering joint customer successes and for building one of the largest teams of Okta certified experts to solve complex use cases.

“The BeyondID team has been an invaluable part of our partner ecosystem for many years, working with us on some of our largest customers,” said Frederic Kerrest, Executive Vice Chairman, Chief Operating Officer, and co-founder of Okta. “They’ve played a vital role in helping our customers solve their most complex security and cloud computing challenges, and we’re excited to see BeyondID continue to meet the needs of our customers and grow with us.”

“Tercera is on a mission to identify and empower people and businesses who will lead the cloud’s Third Wave, and we couldn’t be more excited to have BeyondID as our first portfolio partner,” said Chris Barbin, CEO and founder of Tercera. “BeyondID exemplifies the kind of company that customers want to work with in this new wave – agile, focused, growth minded and customer-centric. A company with the specialized skills, technology and services to meet the evolving security needs and demands of today’s businesses and their remote workforce.”

BeyondID has served hundreds of enterprises that include ATN International, Bain Capital, Biogen, Discount Tire, FedEx, Gundersen Health Systems, Johnson Financial Group and Major League Baseball.

“ATN relied on BeyondID’s expertise to deploy our Identity and Access Management solution from Okta, on time and on budget,” said Benjamin Doyle, vice president of Information Technology at ATN International. “As a result of our successful engagement, we’ve expanded our relationship to help with our Zero Trust strategy. I’m excited to work with BeyondID in this incredibly important aspect of our business.”

For more information about BeyondID, please visit www.beyondid.com. To learn more about Tercera, visit tercera.io.

 

About BeyondID
BeyondID is a leading provider of managed identity services to help companies acquire, deploy and manage their cybersecurity and cloud service needs. BeyondID enables organizations to streamline their adoption process and ensure that their implementations are secure, agile and future proof. A few of the customers that trust BeyondID to keep their organizations secure include FedEx, ATN International, Bain Capital, Biogen, Discount Tire, Gundersen Health Systems, Johnson Financial Group and Major League Baseball.

 

Tercera
Tercera is a new kind of investment and advisory firm founded to accelerate the growth of people-centric businesses. Specializing in the $460B 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.

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