Twice the Twilio Gold: Terazo acquires German Twilio partner c20y

Today one of Tercera’s earliest investments, Terazo, a systems integrator and managed services firm that specializes in Twilio, announced its first acquisition and its expansion into Europe.

The company joining forces with Terazo is c20y. Based in Berlin, c20y has quickly become a go-to leader in cloud contact center integration services across Europe, working with large and mid-size customers to upgrade their communications channels and provide better customer experiences. Both Terazo and c20y are Twilio Gold consulting partners, with deep expertise in Twilio Flex and API-based platforms.

Combining these two firms gives global customers looking to modernize their call centers an independent alternative to the large global systems integrators (GSIs), and a more specialized, focused, nimble team that still has the global reach and breadth of capabilities large enterprises need.

(Raise your hand if you love giant global SIs… Bueller?)

As an investment firm that supports people-based businesses, we think it’s great to see two complementary companies and teams come together. It’s even better when the two companies’ most important ISV partner provides the introduction. Which is exactly what Twilio – one of Tercera’s Top 30 cloud ecosystems for partners – did.

As Twilio VP Thomas Spiegl puts it in Terazo’s press release on the news: “c20y is one of our most respected and trusted Twilio services partners in Europe, and Terazo has built a great Twilio services brand in North America. Partners like c20y and Terazo have had a huge impact in the successful deployments of Twilio Flex and other Twilio services that are changing how companies engage with their customers.”

Terazo has grown organically since 2016, landing on the Inc. 5000 list in both 2021 and 2022. Since our investment last May, Terazo has nearly doubled its team and expanded into Costa Rica as a near-shore delivery center. The c20y acquisition plants a European flag, adds deeper expertise in Twilio’s flagship Flex product, and adds India delivery capabilities to serve a broader customer base.

To support the acquisition, Tercera provided an additional financing round, not long after we first teamed with Twilio on Terazo’s $10 million Series A.

When you’re experiencing market momentum, it’s our job as an investor to remove obstacles and add oxygen. We know there will be opportunities (both foreseen and opportunistic) for our portfolio companies to expand into new markets, new segments, and new industries. And we’re excited to help Terazo capitalize on the opportunity they have ahead. The company is only just beginning!

Curious about how we help cloud consultancies capitalize on those market opportunities and scale faster? Review our latest investments or drop us a line.

Why utilization shouldn’t be a dirty word

Utilization. It might not be the sexiest topic on the planet, but it is probably one of the most impactful metrics within a professional services company. For employees, utilization tends to hold negative connotations, bringing to mind visions of a cog in the wheel. But for services leaders and business owners, it represents financial health.

I’ve worked in professional services for more than 20 years, and utilization has always been a focal point. First, as a consultant who was measured by my own utilization. More recently, as a global delivery leader for companies like Appirio and 7Summits where I looked at utilization as a critical KPI for the company.

Some might say utilization is a necessary evil in the services business. Personally, I think it’s just a little misunderstood. But no matter how you feel about the term, utilization is an important topic for both individual consultants and business owners to understand.

That is the point of this blog: to highlight why delivery leaders care so much about this metric and how businesses can do a better job of managing it so utilization isn’t a dirty word.

What is utilization and why should I care?

In its simplest form, utilization reflects how much billable time an employee generates in a given period, based on the total time available. People have different philosophies on what “total time available” means inside a firm, but for most it’s based on a year comprising 2080 hours. Using that 2080 number as a baseline, some firms will remove holidays, PTO, and development time.

The reason why utilization is so important is quite simple: services firms make money based on selling (and delivering) people’s time so there is a direct connection between utilization and revenue.

The reason why utilization is so important is quite simple: services firms make money based on selling (and delivering) people’s time so there is a direct connection between utilization and revenue.

Let me give you an example: If you have a 200 person delivery team and you raise utilization by one single point, at a $200/hour bill rate, that translates to an $800,000 annual impact to the bottom line. If you raise by five points, the impact is more than $4 million annually.

However, utilization also has a direct correlation to employee satisfaction and burnout. Which is why you need to get this metric right.

How do I set the right utilization targets?

Like most things in services, setting the right utilization target is both art and science. However, getting that target right – where it can be held up as a positive for both employees and employers – is one of the most important things a services leader can do.

Industry benchmarks for most project-based services firms put “best in class” utilization at between 75-85%, however there are a number of considerations to take into account when setting targets. Including:

The profile and makeup of projects or programs. If a company is selling smaller projects at higher volumes, staff will likely be working on multiple engagements at the same time. In this case, utilization may need to be adjusted down to reflect the headspace required for context switching. If it’s larger ongoing engagements, it’s reasonable to expect utilization to be higher.

The way services are sold. In an environment where people are fully dedicated to a project, such as staff aug or through dedicated project teams, those individuals have the ability to achieve consistently higher utilization levels. However, if staff is fractionalized across multiple engagements (where hours may ebb and flow weekly, from project to project), it may be more challenging to achieve goals.

The company or practice’s pace of growth. If a company is growing fast and furious, they may need to hire ahead of plan in order to sell an engagement. In highly competitive environments, where another similar partner is right around the corner, telling a customer they have to wait 4 months to start may not fly. In this case, firms may need to account for some bench time as projects come to fruition, which will lower utilization.

The skills needed and the labor environment. If companies are having a difficult time finding the necessary skills, or are building capacity in a new area that requires significant training, just-in-time staffing likely won’t work. Firms will need to schedule in time for onboarding new employees and training or cross-training before a person can be fully “utilized”.

Analyzing the profile, makeup, and resource allocation models across deals will help a company determine the right utilization targets for them. Along with this, determining organizational models to deliver the services, and having a variety of approaches in place for how teams are structured may assist in hitting higher goals.

How do rates and margins factor into the equation?

While utilization is a measure of employee efficiency, utilization alone will not drive profitability. The cost of labor, bill rates, and deal margins are equally important. You could have an employee utilized at 100% and still lose money if that employee is expensive, and rates are too low.

This is where sales and delivery need to work together. When solutioning a new opportunity, having the right estimating tools and models can allow sales and delivery to see the direct cost of labor by role, apply that to rates, and determine overall margin for the opportunity.
From there, a services company can set deal margin thresholds, and make decisions based on these data points. Identifying a healthy margin and holding to that during sales cycles will help improve profitability.

How do I effectively manage utilization?

For many employees, utilization targets come off as negative and can create undue stress. Missing targets may create fear, while working toward unattainable targets can create burnout. This is where effective management and communication comes into play.

Once the targets are set, leaders should clearly articulate:

  • Why these targets are in place
  • How managers will help in the achievement of targets
  • What to do when targets aren’t met (or seem unattainable)

Employees will argue they can’t control their utilization achievement because of staffing and client behavior, while management tends to gravitate toward the belief that highly skilled, in-demand employees will naturally be highly utilized. The truth here lies somewhere in the middle.

Employees will argue they can’t control their utilization achievement because of staffing and client behavior, while management tends to gravitate toward the belief that highly skilled, in-demand employees will naturally be highly utilized. The truth here lies somewhere in the middle.

Management should be accountable to forecasting demand, ensuring their team is right sized, and supporting performance management. Companies need to provide clarity on what level of bench time is acceptable and sustainable too.

Employees on the other hand should be proactive when the work isn’t there by communicating to their manager, raising their hand, and when all else fails, taking advantage of the time to develop skills or support internal initiatives.

But ultimately, it’s on the company to understand what level of utilization is required, and for managers to ensure they are bringing in the right talent, enabling them, and staying in front of demand.

Utilization is at the heart of a healthy services business

Utilization can be one of those metrics that can hurt or help a company, depending on how you evaluate, set targets, and support the team in their achievement.

If the goals and targets are too aggressive or unattainable, employees may not feel supported and that’s where attrition will rise. Burnout is real, and employees have options – even in a tight economy. On the flip side, if the targets aren’t right, companies won’t have a healthy, growing business with profits to invest back into the business (and the people).

Evaluate your overall financial plans, look at costs, project profiles, organizational delivery models, rates and margins and then make a decision(s) that will best support the financial health of your organization along with the well being of your team.

Tercera makes investment in Valiantys, a global Atlassian partner, alongside Keensight

We’ve been tracking the Atlassian partner ecosystem — one of the Tercera 30 – for more than a year, looking for a cloud-oriented services firm with the potential and drive to be the #1 Atlassian partner on the planet.

We’re confident that we have finally found “the one” with Valiantys, an investment that we announced today alongside Keensight Capital, a French growth equity firm with an enviable track record in building and scaling companies in technology and healthcare.

This investment in Atlassian’s largest global partner will be Tercera’s first investment outside North America. It’s also our first in the agile transformation and DevOps space, and our first alongside another growth equity investor. Valiantys plans to use this investment to fund both organic and inorganic growth as it looks to expand its presence in Europe and North America. More details can be found here in the official announcement and here in a Q&A with CEO Lucas Dussurget.

Why Valiantys?

The fundamentals. We’ve been pretty transparent about what Tercera values in an IT services firm, and Valiantys checks all the boxes. This is a business with incredibly strong fundamentals, a blue chip client base, and a partnership with Atlassian that many firms would envy. The company grew 73% year-over-year in 2021 to almost €98M, it now operates in six countries, and expects to end the year with 300 employees.

The team. Lucas and the Valiantys management team is truly world-class. You know a management team is in a league of their own when you’ll fly across the Atlantic to deliver your proposal in-person over a dinner and then fly straight home (even amidst tight COVID protocols). Which is precisely what we did. This is a diverse team that is values-oriented and globally-minded. They are experienced at building and have deep expertise in the space. We’re confident this team can run an organization that grows to 5x its current size.

The partnership with Atlassian. Valiantys has been a dedicated Atlassian partner since the company was founded in 2006, and that laser-focus on Atlassian has paid off. Valiantys has been named an Atlassian Partner of the Year 7 times, and was the first to achieve Atlassian’s premier Agile at Scale and Cloud specializations. These designations allow the company to work with some of Atlassian’s largest customers on agile transformation, business agility, and cloud migration and consolidation. Valiantys also played a key role in Atlassian’s move into the ITSM and IT Ops space, building the foundation for Jira Service Management, which Atlassian acquired in 2013. This is a win-win for all involved – Atlassian can focus on building out the software, Valiantys can focus on delivering high quality service, and customers get the best of both worlds.

At Tercera, we believe focus builds great companies and Valiantys’ focus on Atlassian is one of the many things that make them great.

Why Atlassian?

A focus on innovation. Atlassian has been building its name in the technology sector since the early 2000’s, going to market with some of the first project management and collaboration tools for developers. Its Jira product is now used by more than 65,000 businesses around the world, and the Atlassian suite of products has expanded greatly over the last two decades through both acquisition and R&D. In 2021, Atlassian spent 46% of revenue on R&D – three times what a typical competitor might spend.

A partner-friendly ecosystem. Today about 70% of Atlassian’s enterprise client revenue is sold by partners like Valiantys. This is part of what makes this such an enticing ecosystem for customers and partners. Atlassian’s partner-centric go-to-market model frees capital to invest in R&D and build better products. In turn, partners get a greater breadth of solutions to service, revenue upside and a closer connection with clients. Customers get a deeper, more consultative sales experience. It’s hard to match the experience of a company like Valiantys who sees firsthand what customers need on a daily basis.

A platform for the third wave. Atlassian’s platform has evolved significantly over the last few years from one serving developers and techies only, to products that provide alignment and collaboration across an organization. Today, half of Atlassian users are non-tech business users. It’s somewhat rare when the push from the top of the organization for Atlassian is as strong as the pull from the bottom. There aren’t too many ISVs that are as well positioned as Atlassian to succeed in the cloud’s third wave where speed, remote work and technical innovation loom large.

Cloud and enterprise growth. Atlassian recently announced a goal to reach $10 billion in annual revenue as it expands its product line, cloud-focus, and drives deeper into the enterprise. This presents a huge opportunity for partners like Valiantys who know the cloud, have proven enterprise experience and know the Atlassian platform inside and out.

All these reasons are why we think Valiantys is “the one” for us. We believe that Lucas and Valiantys’ vision in the space, combined with Atlassian’s huge market potential, Keensight’s experience in Europe and technology, and Tercera’s experience in cloud services and North America couldn’t be a better fit. Investing isn’t always a team sport but it works best when it is!