Sales & Marketing

License resell: Free money or trojan horse?

February 8, 2025 by Garrett Blank Leave a Comment

On the surface, license resell revenue may seem enticing for IT services firms. Compared to lumpy, unpredictable project-based revenue, license resell can be a reliable source of cash with minimal cost and great margins. But this golden goose also comes with some long-term risks.

In this post, we review how firms should think about resell revenue as part of their overall business mix – when it could make sense, how to manage the risks, and how investors view this kind of revenue.

What are resell revenues and how do IT services firms earn them?

Simply put, license resell revenue is income that an IT services firm generates by selling an independent software vendor’s (ISV’s) products directly to an end user. Many ISVs have lucrative resell programs that encourage partners to sell their software as a way to expand market reach, and to leverage their partners’ established customer relationships and local expertise to drive revenue.

Many ISVs have lucrative resell programs that encourage partners to sell their software as a way to expand market reach, and to leverage their partners’ established customer relationships and local expertise to drive revenue.

Generally, partners earn a commission by collecting the difference between the software retail price that clients pay and the wholesale price charged by the ISV. Commission rates vary, but tend to range between 7% to 12% on the recurring fees that clients pay. If licenses allow unlimited usage, revenues may be fixed. If contracts are “pay as you go” or based on the client’s actual usage, revenues are typically variable.

ISVs will often tier their commission structure, with higher rates for partners that bring in greater sales volumes and have stronger relationships.

Most services firms will still charge a client a project fee for customization, implementation or ongoing support. Typically on a time and materials basis, although we are starting to see a shift to retainer or value-based pricing.

Why do ISVs incentivize IT services firms

ISVs tend to offer resell deals when they’re trying to quickly grow a new service. Resell commissions reward partners for upselling the ISV’s software to clients. When the ISV charges a pay-as-you-go fee based on usage (as is the case in some cloud contracts), the commissions motivate the partner to promote increased usage of the software.

The relationship is symbiotic. Services firms act as a sales channel for the ISV, and by providing recurring revenue, the ISV builds an ecosystem of partners interested in ensuring that clients are satisfied with the ISV’s product. Often the services firm acts as the first layer of support if issues arise with the software, saving the ISV from the expense of building its own captive support network.

More mature platforms do not offer resell commissions, or have limited commissions, because they’ve already established a large enough ecosystem and user base that it’s not required.

What are the benefits of reselling for IT services firms?

Resell commissions can be a predictable and attractive source of revenue in a business where fixed costs are high and revenues fluctuate significantly. In contrast to implementation work, which may yield strong revenues for a few months to a year while employees are busy, resell revenues arrive when clients pay recurring fees, usually monthly, quarterly or annually. As long as the client uses the software and the ISV continues its incentive program, the services firm earns revenue, which can be a critical source of cash to cover fixed costs, such as salaries, in lean times.

Resell commissions can be a predictable and attractive source of revenue in a business where fixed costs are high and revenues fluctuate significantly.

Additionally, the margin on resell revenues is very high. Consider a software contract with a retail cost of $10 million annually, with a 10% wholesale discount (the resell commission). The IT services firm collects the $10 million and remits $9 million to the ISV. Once the contract is signed, there is virtually no cost to the services firm, so the margin on the $1 million it retains easily exceeds 90%. In contrast, the margin for project-based IT services tends to range from 35% to 50%.

By partnering with an ISV that is aggressively building an ecosystem for a promising new product, a services firm can grow quickly through resale revenue. But as we’ll discuss, the window of opportunity is limited and firms shouldn’t overlook the risks that come with a dependence on this type of revenue.

What are the risks?

The lure of resell revenue is real, but more seasoned leaders and services investors know there are some significant risks that come with this reward. Here are a few that you should consider before building a business based primarily on resell revenues.

Any services firm that relies heavily on resell revenues should always assume that their economics will get worse, not better.

Revenue risk: Any services firm that relies heavily on resell revenues should always assume that their economics will get worse, not better. The ISV is free to reduce its commissions, and is likely to phase them out as its ecosystem grows, as it becomes dominant in the market, or as it comes under pressure from shareholders to boost profits.

ISVs don’t normally eliminate resell incentives abruptly, but belt tightening can still cause financial pain. For instance, an ISV that initially offered a 10% annual commission could decide to change the rate for existing clients to 7%. That would mean a whopping resell revenue cut of 30%. Services firms need to build this eventuality into their long-term revenue models. The art is anticipating when the resell revenues will dry up.

Ecosystem risk: Some ecosystems are so competitive that services firms will install or customize software at a hefty discount or for free in order to collect resell commissions. In these ecosystems, it can be tough for competitors to make a profit by billing for their professional services. Additionally, when an ISV reduces its incentives, firms that have been giving away their professional services will face an uphill battle in attempting to charge clients rates sufficient to offset the lost resell revenues. Many firms built on this free money may not have the culture, relationships or skills to survive the transition.

Credit risk: Firms should be aware that they generally assume credit risk for clients. As an intermediary, the firm owes recurring fees to the ISV for its clients’ software use. If clients fail to pay or pay late, some ISVs may work with the firm to find an acceptable financial arrangement. Others may not. Given that software fees may be very high, a delinquent or insolvent client could pose a major risk to a firm. To manage this credit risk, it’s important to handle the money owed to the ISV carefully. If a $10 million retail payment arrives at your firm and you still have two weeks before you need to remit the wholesale amount, it can be tempting, but risky, to use the funds to supplement your cash flow.

Contractual risk: In addition to credit risk, the firm may face contractual risks. The contract for the software is generally between the services firm and the client. If there’s a dispute, the services firm may get stuck in the middle, incurring liability or legal fees. That said, it’s advantageous for services firms to have direct contracts with their clients rather than having an indirect contract through an ISV. The former gives them more control, and they are far more attractive to strategic buyers.

How do investors feel about resell revenues?

Some investors may be cautious of a firm that relies heavily on resell revenues for the reasons mentioned above. Because the ISV is in control of resell commissions, there’s very little room for negotiating and there’s not much a services firm can do if an ISV changes its incentive model. This can be particularly dangerous if the firm’s revenue sources aren’t well diversified.

There’s not much a services firm can do if an ISV changes its incentive model. This can be particularly dangerous if the firm’s revenue sources aren’t well diversified.

Investors and buyers may also worry that the firm doesn’t have a competitive moat. If the firm is seen as a lower-value intermediary between the ISV and client, rather than a partner that differentiates itself based on its experience and value add to clients, it can hurt valuations.

All this said, investors and buyers do like the predictability that comes with revenue resell – especially if the business has a lot of debt on their books with covenants that require predictable cash flow.

If the firm is ultimately looking for an investment or a potential acquisition, it’s important to consider how to balance resell and other revenue. The guidance we give is that resell should be a sweetener to the business, not its sole purpose. Timing is also important, as there’s an ideal window for reaping this revenue and the margin accretion that comes with it. But having a sense for when those incentives might start to decline, is critical.

Avoiding the Trojan Horse trap

To take advantage of the benefits of resell revenues, while at the same time ensuring it doesn’t become a Trojan Horse that compromises long-term performance, firms should consider these three things:

1. Treat your professional services as a standalone part of the business (excluding resell revenue). A firm can get fat and happy on resell revenue and lose sight of the fact that margins for their services business are slim or declining, hurting value in the long run.

2. Diversify resell revenue sources. The one constant in services is change. Commission programs shift, customer buying preferences evolve. Don’t be so reliant on one source that you can’t adapt with the times.

3. Prepare for the inevitable and invest wisely. As platforms and programs mature, commissions will decline. Factor that into long term plans and invest profits wisely to scale the core business.

Those who rest on their laurels and live under the illusion that resell revenues will flow abundantly forever may be in for a surprise, especially when times get tight.

Why more services firms are foregoing monogamy

October 24, 2024 by Michelle Swan Leave a Comment

There’s a time and place for monogamy. But when it comes to working across an increasingly complex and interconnected enterprise tech stack, services firms are recognizing the value of not being too tied into just one partner.

Of course, some services firms do choose to focus on one partner, especially when they are in those earlier plateaus of growth. For good reason. Focusing on a smaller number of software vendor partners can help firms go deeper on platforms, and point finite sales, marketing and executive attention in a specific direction for greater impact. Being opinionated on a platform can also build trust with partner sales teams. If they know you have their back with customers and won’t recommend a competitor, they will be more apt to bring you into deals.

Yet, we’re seeing a growing number of services firms foregoing that singular focus – even in the early stages – to create a more diversified network of partners. Even pure-play firms that have been adamantly focused on a single vendor for years are looking to play in other software ecosystems. They are doing so judiciously, but they see diversification as a way to:

Offer more valuable solutions to customers that have complex, multi-faceted environments
Stay stickier with customers after an initial engagement is over
Manage the risk of having all their eggs in one basket

A recent Tercera 30 survey of 250+ services partners confirms this trend. The vast majority of respondents are already working with multiple software companies, and approximately one out five say they’re looking to enter a new software ecosystem within the next 12 months.

On average, services firms report working with between three to five partners. Not surprisingly, that number increases as companies scale, but not substantially. Even large firms recognize the value of focusing on a fewer number of strategic partners, and not spreading themselves too thin.

The Rise of Interconnected Ecosystems

The enterprise IT stack is both growing in complexity and becoming more composable. This means it’s becoming much more difficult to solve customer needs if you specialize in only one technology. The average large enterprise now has hundreds, if not thousands, of different applications – each of them collecting and producing data. Data, that if harnessed correctly, can be used by people and AI systems to create more personalized experiences, optimize processes and drive revenue. Something almost every customer is looking to achieve.

Certain software platforms tend to be the center of gravity for this data. Names like AWS, Microsoft, Google, SAP, Oracle, ServiceNow and Salesforce (to call out a few). Not coincidentally, services firms most often highlight these software companies as their strategic, or anchor, partners. It’s why we refer to them Market Anchors in our annual Tercera 30 report.

Each of these Anchor partners has hundreds of hardware, software and service providers orbiting around them, supporting or extending platform capabilities in different ways. And then each of those solution providers have their own partner networks, creating what we call an “ecosystem of ecosystems”.

Some partners are more agnostic and work across different ecosystems, while some are more specialized and tightly coupled with platforms. For example, Microsoft tends to be more tightly coupled with Databricks and OpenAI, while AWS tends to be more closely aligned with Snowflake and Anthropic. Nvidia is playing the field and working with nearly all Anchor partners.

The Ecosystem of Ecosystems In Action: Salesforce

Salesforce is a great example of how this ecosystem of ecosystems is playing out. Over the past few years, Salesforce has evolved far beyond a CRM platform, moving deeper into data, AI and everything that touches the customer experience. As the platform has evolved, so has its partner ecosystem.

When Salesforce first came onto the scene in the early 2000s, it had only a handful of software and services partners. Twenty years later, it has more than 11,000 partners around the globe. Nearly 3,000 of those are consulting partners.

When Salesforce first came onto the scene in the early 2000s, it had only a handful of software and services partners. Twenty years later, it has more than 11,000 partners around the globe. Nearly 3,000 of those are consulting partners.

Many of these consulting partners have built their business on the back of Salesforce, staying loyal only to Salesforce. Expanding their business by servicing different “clouds” within the Salesforce platform. Salesforce made this easy as it continued to grow, innovate and acquire its way into new areas. However, most partners now see they must do more than Salesforce today.

As Tal Frankfurt, founder and CEO of Cloud for Good, a Salesforce partner specializing in nonprofits and higher education, tells us, “When I started in the Salesforce ecosystem 15 years ago, we used to say, ‘If it’s not in Salesforce, it doesn’t exist.’ Today, we say, ‘If everything is in Salesforce, you have a problem.’”

This sentiment underscores the maturity of technology and the growing demand from customers (and Salesforce itself) that partners know their way around adjacent technologies and can work across data sources. Especially when it comes to effectively using AI.

This sentiment underscores the maturity of technology and the growing demand from customers (and Salesforce itself) that partners know their way around adjacent technologies and can work across data sources. Especially when it comes to effectively using AI.

Kevin Murray, VP of marketing and alliances at Zennify, a Salesforce partner specializing in financial services and regulated industries, tells us this is one of the reasons Zennify is doubling down on Databricks. “Unfortunately, not all customer data lives in your CRM. If we want to help our customers deliver on highly personalized marketing, service and sales experiences, we need to unify and standardize data from across the organization. That requires pairing knowledge of platform architecture with a broader data engineering skill set.”

So where else are Salesforce partners playing?

I’ll give you the typical consultant answer. It depends, but it’s largely dependent on the customer segment or industry a company specializes in. As Nick Hamm, founder and CEO of the on-demand Salesforce consultancy 10K Advisors, says: “If you focus on smaller businesses, then Snowflake, Oracle, and Databricks probably don’t make a ton of sense. If you focus on larger enterprises or are trying to move upstream, you may want to look there.”

For all but the largest firms, it’s tough to have more than two or three strategic anchor partners.

For all but the largest firms, it’s tough to have more than two or three strategic anchor partners. These are the partners that you go deep with and invest in building joint go-to-market motions, so it’s important to pick those wisely to ensure you get a high return on those efforts. However, you can go much broader when it comes to solution or technology partners.

Nick from 10K adds, “In the Salesforce ecosystem, there is a lot of opportunity to partner up with industry solutions or alternatives/extensions to Salesforce’s own technology, such as Logik.io for CPQ, Workato for integration or nCino for banking.”

Both Zennify and Cloud for Good have been capitalizing on this opportunity for years as industry specialists. For example, Zennify has implemented and optimized nCino for a number of its banking clients, while Cloud for Good has implemented Civis for many non-profits.

According to data from our Tercera 30 research, companies that listed Salesforce as their primary partner most often listed one of the hyperscalers (AWS, Microsoft and Google) and/or cloud data players (Snowflake, Oracle and Databricks) as adjacent technologies partners. Below is a map illustrating some of the other most common adjacent partners for Salesforce consulting firms.

What Will Your Ecosystem of Ecosystems Look Like?

Whether your primary partner is Salesforce or another software platform, it might be time to think about how your own partner network could evolve. If you’re not sure which technologies to pursue, start with these steps:

Look for unmet customer needs. Evaluate your partner relationships in the context of your customers’ most pressing needs. Where do you see glaring gaps that the current software you represent can’t fill? What other software products could fill in those holes and solve key challenges for your customers?
Pinpoint opportunities your customers are missing. Even if there are no obvious unmet needs, are there ways to add value with a different product or solution that complements or supports the primary platform?
Talk with your primary partner’s most trusted AEs. What applications and technologies are they hearing about the most from their own customers and prospects, where a services partner may be needed? Are these technical capabilities you could offer, or is there an opportunity to build a partner relationship with these software firms?
Leverage the Tercera 30. The Tercera 30 is a great place to start identifying both entrenched and emerging players that are focused on partner-led growth. Use the data within the report to identify ecosystems that might be a good fit to solve unmet client needs, and to understand the opportunities for new partners.

All these moves can help inform your partner strategy, but know it takes time and resources to build new partnerships so plan accordingly. In the early stages, you’ll be better off building technical competencies and developing customer case studies (even if it’s from within your existing customer base) rather than expending too much energy mining the channel and courting execs. Partners will value your success stories, technical chops and certifications over another round of golf and a press release.

The power of a CEO dashboard

September 1, 2024 by Mike Epner Leave a Comment

I once met a top official in the US space shuttle program who was responsible for signing off on the quality/efficacy of the shuttle’s millions of lines of code. He did this before every mission, in the presence of the astronauts who would be piloting the vehicle. Such an awesome responsibility. I asked him “how do you know that you can assure those pilots that they are safe?”

His response (paraphrased) stuck with me: “I have a dashboard of all the key metrics and I know our processes, so signing off is easy!”

Running an IT service company may not be as mission-critical, but it’s still a great lesson for leaders. If you want a high level of confidence in decision-making, you need a dashboard — a control panel that looks at metrics for how well your team (and processes) are performing.

If you want a high level of confidence in decision-making, you need a dashboard — a control panel that looks at metrics for how well your team (and processes) are performing.

Growth spikes and pipeline divots will happen. A dashboard helps to foresee what’s coming and respond to the inevitable challenges and opportunities that could change a company’s trajectory.

When I was President at Traction on Demand, a Salesforce consultancy that was ultimately acquired by Salesforce in 2022, we grew the company from 200 to 1500 people in five years. That kind of growth is impossible to manage gracefully without the right metrics and dashboards in place. Especially when something like COVID happens.

When the COVID lockdowns hit in 2020, we immediately saw the business impact in our dashboard – a significant number of projects were canceled or put on hold, and 25%+ of our pipeline dissolved nearly overnight. Our revenue forecasts showed within a few weeks that we’d start to lose significant amounts of money. We also knew we couldn’t cut our way to make up for the lost business, so we immediately shifted gears into offense mode.

We created project pipeline by scrambling to help organizations do everything from track available hospital beds and PPE equipment, to make the transition to virtual work. We saw results within a few months and created so much impact that we started growing at an unprecedented rate. Again, all reflected in our dashboards, which proved invaluable at navigating a very uncertain time.

So, what should be on a service executive’s dashboard?

The components of a CEO dashboard

The needs of each CEO and company vary depending on their target market, the size and stage of the business, and the challenges they’re facing in growing profitably. In short, there’s no one-size-fits-all dashboard. However, the most effective dashboard I’ve seen represent a combination of:

1) operational metrics that monitor day-to-day business performance

2) improvement-oriented metrics that track the progress of high priority initiatives

Operational-based metrics

For a CEO, operational-focused dashboard elements should look across core business functions, including sales, marketing, delivery, operations, finance and HR. Together, these metrics can give a day-to-day view of business health.

For a CEO, operational-focused dashboard elements should look across core business functions, including sales, marketing, delivery, operations, finance and HR.

Figure 1 below provides an example of a dashboard incorporating the core operational metrics I would track.

For sales and marketing, a CEO needs to see how well the company is doing at hitting its quarterly targets, but also how the weeks/months are trending for future performance. This data should help answer questions such as:

What are our best case and worst case forecasts?
How are close rates trending?
How much pipeline have we added this week?
Will we have enough pipeline, based on our close rates, to hit next quarter’s targets?
How are we doing across new logos vs. expanding existing business?

These are the high level metrics, but you can also get more granular to help guide where to focus attention. For example, which SOWs are set to close in the next month.

Similarly, delivery and operational insights keep the CEO grounded on “today’s” performance and allow them to pull the right levers to address immediate issues. For example:

Problem (red) customers may prompt executive outreach to a counterpart.
A downward trend in CSAT or employee attrition may require a more detailed analysis into why.
A dip in forecasted utilization may drive slower hiring and perhaps steps to manage cash.

The key is to have the right information as quickly as possible in order to take advantage of opportunities or take action to mitigate risks. Having it all on one control panel helps.

For example, historical and forecasted utilization (broken down by geo, group or job level) can indicate if there’s enough work for the consultants. Or if that work is being efficiently delivered in a 40 hour work week. Understanding utilization trends is critical in a services business because utilization ultimately affects profitability.

Supporting metrics such as backlog trends (how much booked work has yet to be delivered), goodwill (non-chargeable labor), and sold/realized bill rates should prompt action when they aren’t where they’re expected to be. The Figure 1 dashboard contains real examples that can guide this sort of decision-making.

For a people-based services business, talent and HR metrics should also be on a CEO’s dashboard, especially if they can immediately impact corporate performance.

For a people-based services business, talent and HR metrics should also be on a CEO’s dashboard, especially if they can immediately impact corporate performance. Attrition rates are a great example – which can spawn next-level down dashboard components around resignations, hiring results, candidate pipelines, forecasted talent vs needs, or diversity metrics if that’s a focus area.

Lastly, although perhaps most importantly, is the company’s real-time financial performance. Data and reports might include revenue billed in the last week, last month and in the current quarter – as well as accurate forecasts for the next week/month/quarter. Having a ready view into cash flow – especially when times are tight – is also important.

Initiative-based metrics

In addition to the day-to-day operational elements, initiative-based metrics may warrant a proactive place on the CEO’s dashboard. Here are three good examples:

1. Resolving causes of high attrition

One company struggled with attrition and customer satisfaction. After digging into the root cause, they found consultants were consistently being assigned to more than six customer projects, and as a result, were simply unable to deliver on expectations. They created a goal to assign no more than two clients per consultant, and created a dashboard component to track this – evaluating weekly progress.

2. Gauging M&A integration effectiveness

There are many metrics to gauge whether an acquisition has been successfully integrated, however, employee engagement is a big one. It’s also a leading indicator for attrition. One company had brought in a tool, CultureAmp, to do a monthly pulse check on how things were trending across groups and regions. They added these results to a dashboard.

3. Planning for rapid growth and hiring

One company was growing incredibly fast into a new segment, bringing on, training up and certifying large cohorts of new employees. Their business and staffing plans were built on assumptions for how fast they could get these employees billable, while maintaining high customer sat. They developed a set of reports to track things like business days to certify, business days to billable to ensure these assumptions held.

Initiative-based elements might up a much smaller portion of the CEO dashboard, but they may drive results on par with the operational ones if they are well selected.

Initiative-based elements might up a much smaller portion of the CEO dashboard, but they may drive results on par with the operational ones if they are well selected. The key is making sure they are meaningful – and retiring them when they are no longer pertinent so that the dashboard stays relevant and effective.

Making a Daily Habit

Having the right dashboard and data is only half the battle. How you use it, and how often you use it, is just as important. If you have a dashboard and aren’t using it every day, then you probably need to take a look at why. If it’s because you don’t trust the data, fix that. If it’s because the data isn’t real-time, fix that. If it’s because there’s too much on the dashboard and it’s overwhelming, fix that.

Having the right dashboard and data is only half the battle. How you use it, and how often you use it, is just as important.

Like that space shuttle director I mentioned earlier, I would start my day, coffee in hand, with a dashboard review. I would use it in discussions with other leaders within the business to talk about what’s performing and what’s not. It helped me push on certain areas in a quantifiable way and show the kind of data-driven decision making I expected from my team.

It helped ensure that we were keeping the business not just safe, but ready to take off like a rocketship if we saw an opportunity. Pun intended.

How we identify the best growth opportunities for IT services firms

September 3, 2023 by Michelle Swan Leave a Comment

Discover the methodology behind the Tercera 30, one investment firm’s view into the most promising enterprise software ecosystems for service partners.

With literally hundreds of cloud software vendors vying for coveted spots in the ever-evolving enterprise IT stack, technology services firms have to make difficult decisions about which partners and platforms they should support.

It’s a decision that can’t be taken lightly. In fact, we’d argue that selecting the right vendor to align with plays a huge role in any technology services firm’s future success. Software partner programs can drive demand for services, generating high-potential leads and deal flow to support profitable growth. However, building these partner relationships takes time and money, and not every partner program – or market or software platform – is created equally.

The Tercera 30 offers the perfect starting point to identify the right software partner

Tercera debuted the Tercera 30 in 2022 to help entrepreneurs and services leaders identify the right software partner(s) for their business. This week we’ll be introducing the Tercera 30 class of 2023.

The Tercera 30 started out as internal research to help us better understand which software ecosystems offer the greatest potential for high growth consultancies, system integrators, and managed service providers (MSPs) over the next two to five years. It has since helped guide the investments we’ve made to date, as well as inform expansion opportunities and guide our future investments.

We believe others can benefit from this data, so rather than hoarding it, we’ve made much of it publicly available.

The 30 software companies profiled on each year’s list offer a view into both entrenched and up-and-coming partner ecosystems. The names on the list are a mix of publicly traded and privately held companies, and they span categories that are important in the cloud’s third wave. Categories range from cloud infrastructure and cybersecurity, to data and analytics and AI, to customer experience and business operations (to name a few).

We believe each company on the list can realistically support a growing technology services firm or practice area of at least $10 million. The companies profiled in our Tercera 30 research all offer market-leading products in growing categories, coupled with a corporate growth strategy that depends heavily on a dedicated partner ecosystem.

The Tercera 30 selection process

We start with a list of 150 enterprise B2B software companies that rely on services partners for growth, and analyze them across a wide range of weighted factors. We factor in things you’d expect — total addressable market, year over year growth, innovation and sector demand — but we also consider how a software company views and supports its partners. We believe that matters just as much – if not more.

The Tercera 30 selection process focuses on these four dimensions of a high-caliber partner ecosystem:

1. Market size and potential: What is the current and future size of the market? Is the segment big enough to support a $10M technology services practice or a $50M business?

2. Brand and growth potential: Is the software company perceived as a leader in that fast-growing segment? Is it considered dated technology, or is it taking share? Is the company investing in the product and future growth?

3. Potential for external services: Is the product targeted towards small and medium businesses and easy to implement? Or is it enterprise-grade technology that can be highly customized, paving the way to medium to large projects with high service intensity? Is there a level of talent scarcity around the platform necessitating the need for outside support?

4. Partner support and collaboration: How open and supportive is the partner program? How easy or difficult is it to enter as a new partner? Are Global Systems Integrators taking interest? Is there an internal professional services team with which partners will compete for work?

The answers to these questions are equally informed by data, industry opinion, and actual partner experience.

To tease out each area, software companies are scored using 21 different types of weighted data. Some are hard numbers gleaned from public sources. Others are more subjective and heavily informed by insights and opinions from Tercera partners and portfolio companies, investment banks, and industry analysts. Partner leads at several software companies also weighed in during the selection process.

In 2023, Tercera introduced a qualitative survey of 55 executives from services firms that play within the Tercera 30 ecosystems to better understand their experience. The online survey, fielded between June 5 and June 26, 2023, gauged perceptions of existing software relationships, future partnerships being considered, project sizes, and the role of AI in future business strategy. We also looked at what makes a technology services firm recommend a software company partner program, and what doesn’t. Finally, we gauged the relative importance of criteria like customer referrals and deal size, as well as sentiment and perception around a vendor’s willingness to work collaboratively, quality of partner support, degree of partner saturation, and existence of channel conflict.

The Tercera 30 winners perform across a variety of factors

All the research, data, and findings from these various sources filter into the scoring formula below. Two variations—one for public companies and another for private companies—account for variances in the types of data available.

The results point us to the final Tercera 30 list.

The partner “sweet spot” is a key consideration

Because the Tercera 30 includes both public and private companies, well-established firms as well as new players, the maturity of the partner ecosystems can and does run the gamut from nascent partner programs to highly mature programs.

We believe there is a sweet spot when it comes to new firms entering these ecosystems: the partner program should be mature and established enough to support (and reward) partners, but should still have enough white space for new entrants.

There is opportunity for technology services partners to be had in each phase, however, those opportunities vary significantly and should be carefully considered.

For example, a high-growth player with a nascent partner ecosystem can be extremely appealing to smaller services partners who can be specialists and drive demand alongside the software vendor. For services firms that get in early, it’s an opportunity to become the go-to partner, but there will likely be growing pains in less mature ecosystems.

At the other end of the spectrum, mature partner ecosystems may be harder for a new partner to break into, but they offer more training, support, and potentially, access to larger customers. These mature ecosystems are well suited to technology services firms that can find the right niche, whether that’s a specialist in a certain aspect of the platform or an industry specialist.

Before jumping head first with a new software partner, it’s critical to understand the maturity of the ecosystem and how it meshes with a firm’s own growth strategy and ability to differentiate and support customers.

Dive deeper into the opportunities in the 2023 Tercera 30 full report

We invite you to meet the 2023 Tercera 30 on September 6, and to use this data to inform a short list of your own.

Technology services firms can’t afford to get AI wrong

June 22, 2023 by Chris Barbin Leave a Comment

“The biggest companies to be built in AI over the next 24 months will be services companies helping the largest enterprise in the world implement and adopt AI internally.”

That quote from Harry Stebbings, a well known tech VC and podcaster, is music to the ears of a growth equity investment firm specializing in technology services.

Harry is right. Tech consultancies, digital services, product engineering firms, and managed service providers are all going to play a pivotal role in the adoption of Artificial Intelligence, especially when it comes to large enterprises that can’t afford to get it wrong.

It’s why Accenture recently announced a $3 billion investment in AI. And the company is not alone. It seems every services firm is jumping into the AI game – some deeper and faster than others. In just the last few months:

Multiple firms are doubling down with Google Cloud on AI, including Deloitte, TCS, Wipro and CapGemini
PWC is investing $1 billion over the next three years to scale its AI capabilities, expanding its relationship with Microsoft and Azure
IBM introduced its own AI platform, Watsonx, and announced it would add more than 1,000 consultants to help clients build generative AI apps
Globant announced an AI challenge awarding $200,000 for ideas on how AI can transform business

Every services firm will need to figure out where AI, and specifically generative AI, fits into their strategy and ambitions. However, going in blindly has consequences. Before I get to the consequences, let’s talk about why this is such an important moment for services.

Why is AI so disruptive to services?

AI didn’t happen overnight. The big software platforms have been incorporating AI into their products for years, and the global systems integrators (GSIs) have been making investments for years as well. Don’t believe me? Check out Globant’s AI Manifesto from early 2019.

But it was the open sourcing of ChatGPT that captured people’s imagination. It showed the average person what’s possible with AI in an easy to understand way, and it democratized access to the Large Language Models that power generative AI. It also kicked off a feeding frenzy of investment that will make crypto and Web3 look small in comparison.

Some call it the iPhone moment. Others compare it to the introduction of the first web browser. I liken it to the introduction of cloud computing (which in our opinion set the stage for generative AI). Whatever analogy you use, it’s clear AI will eventually impact nearly every aspect of professional services — from how work gets done, to what solutions are delivered, to who firms hire, to how they train, to how they operate internally.

It’s clear AI will eventually impact nearly every aspect of professional services — from how work gets done, to what solutions are delivered, to who firms hire, to how they train, to how they operate internally.

It doesn’t matter if you’re a GSI focused on multi-million dollar digital transformation programs, or a small marketing agency supporting local businesses, AI is going to change what you do and how you do it.

The CEO of Cognizant, Ravi Kumar, talked about how Cognizant is using AI in the company’s most recent earnings announcement, saying an AI-led, automation-first approach to IT operations can “reduce operational costs by 25% to 45%, reduce mean time to delivery and mean time to detect by 30% to 50%, and reduce FTEs by 15% to 30% compared with the use of traditional approaches.”

This highlights both sides of AI. On one hand AI has the potential to dramatically drive down operational costs while improving performance and speeding innovation. However, it also means less people and consultants are required, which is a pretty significant impact on businesses that derive revenue by selling people’s time. That is going to present both opportunities and challenges for services firms.

This situation has been the case with most technology advances. Services companies have always had to adapt and figure out how to use these changes to their benefit. However, it’s going to happen faster this time and firms need to be ready.

Where and when should firms invest in AI?

Today, we see services firms incorporating AI (usually generative AI) in three primary ways:

Incorporating internally for efficiency and scale
Helping clients incorporate AI into their products or operations
Developing new AI-based solutions

However, not every services company is ready to jump into the deep end of the AI pool. In fact, we’d argue that for most (unless you have gobs of cash or resources to invest) it’s better to wade in slowly. It is still early days for this technology and it is moving fast. If you invest too much, too soon, in the wrong areas, or in the wrong way, you could drown.

Not every services company is ready to jump into the deep end of the AI pool. In fact, we’d argue that for most (unless you have gobs of cash or resources to invest) it’s better to wade in slowly…If you invest too much, too soon, in the wrong areas, or in the wrong way, you could drown.

Here are a few considerations as you think about where to invest your increasingly precious time and money:

Have you started using AI internally?

Before you attempt to advise customers, make sure you’re using it internally so you can see the opportunities and risks firsthand. It’ll also make the sales pitch a lot easier, and will make every one of your consultants smarter on the topic.

Where are your customers on the AI maturity curve?

Not every customer is ready to implement AI-enabled solutions. Do some research to figure out where your customers are on the adoption curve, and how you uniquely can help bring them along.

How are your partners thinking about AI?

Most software vendors are investing in AI, but at different levels. Know what’s on their roadmap. It’ll make you a better partner, and may prevent you from wasting your time on IP that could be embedded in the product in the next six months.

Where do customers really need YOUR help?

Understand where your expertise lies, and where you have permission to play. If you specialize in healthcare, identify those use cases. Identify the white space, and make that space yours.

Is my team prepared?

This is the most important question. If you don’t have a team capable (or willing) to execute on what you’re trying to do, you won’t be successful and you could end up alienating your team and hurting your reputation. That will have far-reaching consequences.

If you feel like your team is ready and willing, that there is a clear opportunity where you have permission to play, and your customers and partners are pulling you there, by all means, go for it!

But for the majority of firms out there, be measured about it. AI is at the peak of the hype cycle and so much is going to change in the next few months and years. The distraction factor is high, and you don’t want to waste your resources, panic your team or put your customers at risk just to get a first mover advantage. Cloud computing has been around for a quarter of a century, yet many mission-critical systems remain on-premise (with many still on mainframes).

Progress takes time. You just need to be ready.

How great positioning can elevate your brand and increase revenue

February 14, 2023 by Megan Lynch Adler Leave a Comment

It’s a noisy, saturated market out there. Every day we are inundated with information – text messages, emails, LinkedIn ads, TikTok videos, whitepapers, newsletters, billboards, the list goes on. We’re told to buy this, do this, think this. Last year more than 1 billion hours of new content was introduced online, and that is going to get even worse with the advent of generative AI in sales and marketing.

As someone selling a service, how do you compete with it all? Where do you even begin to compete with it all? Hint: it might not be where you think.

When someone is making a decision to buy, you may be inclined to think it’s driven by facts and rationale. However, more often than not, there’s something much deeper at play. Buying decisions are also driven by an emotional connection that an individual feels to a brand, past experiences and more.

Your company’s positioning is a big piece of both the rational and emotional connection you have with customers.

What is positioning and why is it important?

Positioning is essentially the meeting point between your customers’ pain points and your unique solution to their problems. It’s the messaging you take to market that defines and differentiates your company; it separates what you do from all the other noise out there.

Developing great positioning isn’t easy. It’s not something you can type into ChatGPT and out comes the perfect answer. It requires insight, outside-in thinking and perhaps most importantly, making choices. This is partly why positioning is so daunting to companies and leaders. Because it puts a box around what you do and who you serve. It informs employees, partners and customers about how they should view you.

However, the right positioning is an accelerant. It makes it easier for the people who you want to connect with to more clearly understand what you do, why they need you and why they should work/engage/buy from you over someone else. In a world where people are inundated with so much information, that clarity goes a long way. The companies and solutions that are everything to everyone will just get lost in the noise.

The best positioning can be found at the intersection of two elements: 1) your unique offerings and 2) Your customer pain points

And it’s influenced by three things: 1) the market; 2) competitors; 3) current events

Where do I start with positioning?

When developing your positioning, the best place to start is with your customers. Your customers hold the answers you’re looking for: what they want, need, why they buy from you and why they don’t. You need to get those answers. A word to the wise: you may think you know what your customers want and need, but it’s important to go beyond assumptions and talk to them directly. This will help you sell more, scale more, land better accounts, and truly differentiate yourself from others who may be making similar pitches.

Start by identifying the specific segments of customers you’re trying to reach. Not all customers are exactly the same. In the B2B world, you could break this down by industry, company size, departments or functions, and role. Narrow it down to between two and four segments. It won’t be easy but part of this exercise is to prioritize and create clarity, and if you have 10 different segments, that’s not prioritizing. Try to target multiple customers from each segment so you can see patterns and consistencies versus one-off outlier situations.

When developing your positioning, the best place to start is with your customers. Your customers hold the answers you’re looking for: what they want, need, why they buy from you and why they don’t.

The best approach to get solid input from your customers is through one-on-one interviews. If you’re looking to reach a broader group of people, a survey can be helpful, but it’s not as effective as live conversations where you can see people’s emotional reactions and dig deeper.

For customer interviews, it’s tempting to have the sales person or account owner manage the interview. However, it works best to have someone a bit more objective (and less inclined to try and sell), such as an executive or an agency or consultant (if you can afford one). This process takes time. Don’t rush it.

The questions you ask should cover emotional and rational topics, such as:

What keeps you up at night when it comes to your job?
How did you hear about our company?
Why did you choose us over _______?
What made you trust us?
How are we making your life easier?
How would you describe what we do in 2-3 sentences?

Take a look around before you get started

Once you’ve completed your interviews and have identified key themes, it’s time to combine those insights with some market research, a competitive analyses, and a review of current events. This will help ensure your positioning is both relevant and differentiated.

A market analysis can help identify where there is white space or gaps in the market, or where it’s oversaturated. A competitive analysis can give you context for how others are positioning themselves so you can more clearly articulate why customers should choose you over someone else. Surveying current events can help you avoid potential landmines, and fit what you’re offering into your customers’ current priorities.

With that being said, truly innovative companies are often ahead of the market and their positioning will reflect that. Their positioning won’t always hinge on what others are doing or saying at the time, which is why this element should be secondary to your customers and offerings.

Develop the positioning and messaging

Once you have the foundation in place, you’re ready to write your positioning. Whether you’re focused on corporate positioning or solution positioning, it should be:

Different
Cohesive
Simple
True to the brand mission and values
Connected to customer needs

There are many different templates available to help put pen to paper (or hands to keyboard) but all positioning should include:

A main value proposition
The pain points you’re addressing
The value/benefit you bring to customers
Key differentiators
Your approach
The industries or verticals that you specialize in (if applicable)

Make sure you focus on the value and benefit you’re delivering, not what you are doing/selling. It’s not about “integrating Salesforce” or “migrating to a new cloud data warehouse”, it’s about what problem you are solving and the outcome of what you do. How are you making their lives easier? Are you saving them time by automating a piece of their work so they don’t have to work nights and weekends? Are you helping them look good to their superiors?

When in doubt, dig deeper.

How do you know if the positioning resonates?

It’s important to test your positioning prior to rolling it out across a company, and to refine it along the way. Your position in the market is constantly evolving, just as markets and customer expectations evolve.

Before rolling it out, test it with a few of your best salespeople or customer success leaders. Make sure it doesn’t just sound good, but reflects what the product or services actually deliver. When it’s used in a sales pitch, do customers’ eyes light up? Can people remember what you do and identify similar differentiators? If not, chances are the positioning may be off. If that’s the case, go back and talk to your customers.

Once you’ve made a commitment to that positioning, test slight variations of it on your website, with ads or at events. Which versions are people responding to or interacting with the most? Check in with salespeople where the positioning is actually helping to accelerate conversations, or where it’s falling flat.

Ultimately, great positioning will make it very clear who you help, how you help them and why you are a better choice than other options. That clarity will not only make it easier for customers to buy, but also for your team to sell. It will provide a level of consistency that will help a brand break through and take root. And if you take the time to really get to know your customers, you won’t just be well positioned to make a sale, you’ll create lifelong relationships in the process.