- Top-line growth is one thing. Bottom-line profitability is quite another, and often elusive.
- First, figure out where you’re hemorrhaging cash before it can turn into profit, then apply simplification, automation, or process improvements.
- Our 10-step plan will help any services firm grow and thrive.
Do good work, build a solid sales process, increase average spend per customer, win new engagements, repeat. Growing a project-based business may not be easy, but it’s doable. The problem is that serving new customers and increasing the size of current contracts requires larger teams and more resources, so revenues often don’t quite catch up to operating expenses.
If you’re at this point in your journey, it’s time to take a step back from focusing on the top line and work on scaling.
While growth is about increasing revenues, scaling a business requires you to do more with a finite set of resources so you’re turning that extra cash into profit. If you can get more productivity out of current staff and be judicious with new spending while revenues consistently grow, the result is a growing profit margin.
Achieving scale may be easier for subscription-based organizations that thrive on repeatable processes. The more customers they bring into their ecosystems, the more these companies scale because initial investments keep getting distributed across more and more clients. If your business thrives on subscriptions, check out these trending tips.
Project businesses face a different challenge. While repeatability is key for operational efficiencies, as we’ll discuss, each engagement and account change requires some level of customization. It’s more difficult to scale when every customer requires individual attention.
While we focus here on systems integrators, by and large, this advice is applicable to any project-based business. For instance, you can turn one-off projects into long-term engagements through ongoing consulting whether you’re an SI, a personal trainer, or a landscape designer.
|Charlie Cox, SVP of channel transformation at JS Group
JS Group is a channel consultancy that specializes in creating indirect go-to-market strategies for technology firms. The team has built multiple award-winning channel programs for Fortune 100 firms.
Juan Fernandez, vice-chair of CompTIA’s Channel Development Advisory Council
With the exception of security-focused SIs, 2020 was a lackluster year for regional and local integrators as businesses across verticals pressed pause on what are generally, if not always accurately, described as “digital transformation” initiatives — projects like IT modernization, process automation, and development of new digital-enabled business offerings.
2021, in contrast, has yielded significant growth across the SI spectrum, and the pace is accelerating.
Now that remote and hybrid workers are equipped, companies can once again focus their attention on those more transformative efforts. The new distributed workforce in particular presents opportunities for SIs as they help customers build out systems and processes to support geographically dispersed employees.
That’s just one growth opportunity for SIs moving into 2022. The caution is to avoid trying to achieve that growth without creating scale within your organization.
We talked with two experts about consulting, recurring revenue, blending business models, and more to get a sense of what works, what doesn’t, and where SIs go wrong when trying to increase their profitability. The result is a 10-step plan that should help project-based companies grow both the top and bottom lines.
10-Point Plan to Achieve Profitability as a Project-Based Business
Step 1: Review all systems and processes with an eye to efficiency.
In many ways, systems integrators and other project-based businesses have a leg up here because their operational models tend to be built on processes and workflows that are closely tracked by people with serious project management chops.
But just because you know how to systematize a software implementation doesn’t mean that you’ve put efficient processes in place for other areas of the business.
Look at your accounts receivable and payable. Are bills going out and being paid on time? Are you tracking HR metrics around travel and expense management to ensure you’re not wasting money? Do you know the “new salesperson return on investment,” or NSROI, for your sellers? You should, because if the return is not what it should be, a sales automation tool can help with training, prioritizing daily tasks, and even suggesting tweaks in tone or verbiage based on who’s receiving the communication.
Wherever you see an inefficient process, ask: How can I tweak this in a way that enables me to do more with the same resources?
Sometimes the change is simply updating a policy. But automating low-level processes is also an essential first step to eliminating operational inefficiencies. A giant side benefit to automation is that platforms that provide dashboards and other reporting functions also provide visibility into a range of metrics and KPIs that yield a data-based picture of your operational efficiencies — and inefficiencies — across departments and job functions.
But a word to the wise: Bold claims about artificial intelligence and machine learning aside, there are very few tasks that can truly be executed without any human oversight. That’s not your goal. The point is to ease the burden on employees, freeing up your people to focus on creative solutions that solve problems and drive the business forward. It isn’t to force yet another task — managing an automated solution — onto workers and then expect your human capital expenses to go down.
Sometimes the answer isn’t software, it’s common sense.
Slow, Inefficient, Soul-Sucking
Questions to ask when evaluating processes to automate or streamline:
- Is this person or team executing a high volume of repetitive tasks on a regular or frequent basis? If so, then automation could surely help.
- Does this process take many people to execute? For example, do you really need a manager and HR or finance to approve recurring expenses, like subscriptions?
- Do you sometimes or frequently miss opportunities due to delays in manual processes, such as generating a proposal? If so, fix that now.
- Are there staff who work hard but still negatively impact other business processes, like a sales campaign that can’t be launched on time because marketing takes too long to send introductory emails?
- Have you wasted hours with an auditor or the IRS, or been the victim of fraud, for lack of automated compliance, audit, and AR/AP paper trails?
Take the core tenets that drive your technical projects, like being process-driven, repeatable, and utilizing automation, and apply them to every facet of your business.
Step 2: Combine your projects into profitable programs.
Project management, which you likely excel at, is different from program management. Sure, you know how to deploy software, perform system upgrades, and provision new users. But can you create a comprehensive program for a client from those disparate projects? More to the point, can you create an internal plan that defines the processes, workflows, workforce needs, and other elements that create an efficient and repeatable program for use across client engagements?
Profitable projects can’t be done on an ad hocbasis. Ad hoc is where operational inefficiencies thrive and inhibit the scaling strategies we outline here.
Each program needs to:
- Have all or most component services mapped to timelines and resource allocation;
- Be free of overlapping and redundant processes;
- Have an agreed-on definition of success that spans individual people and departments;
- Knit disparate component projects into a cohesive whole in a way customers can understand and sales teams can sell; and
- Deliver positive business outcomes for both the client and the systems integrator.
To get there, telescope out and look at the big picture. Without that view, you’ll find yourself constantly scrambling and troubleshooting rather than smoothly moving the engagement or revenue stream forward.
Say that one of your clients is a small medical office that wants practitioners to be able to digitally access a patient’s past data while the patient is in the room. That sort of point-to-point integration is a profitable project. But why stop there? They’ll need rules, policies, and training on HIPAA compliance. They probably need a new cloud storage or hybrid cloud configuration to safely handle all of that data. How are their backups and bandwidth speed? What about other application connectors for that data? How will they authenticate practitioners and control access?
The project, a straightforward EHR install to allow real-time access to patient e-health records, now becomes a program to help the practice protect, store and share that data in a way that’s compliant with regulations and improves patient care. Now that you’re looking at a comprehensive program, the KPIs shift. Each of the above projects needs to become part of a cohesive whole.
Then, once you’ve deployed this program for a client, you can standardize it so it’s a repeatable service for other healthcare customers. At that point, the program becomes a profit generator because you’re able to deploy the same process and knowledge across multiple clients, as we talked about above.
This won’t be news to savvy systems integrators, but it bears repeating: The backbone of any profitable service is a clearly defined set of processes, accessible by and visible to everyone, that doesn’t just point to the success of individual projects, but of the initiative overall.
Now, document, document, document. Appoint a program czar to manage the individuals or teams overseeing each component project, and task that leader with keeping the program on track, within budget, and tightly documented. One of the biggest benefits to this org structure is the smooth transfer of knowledge should one project team member leave. Now, you’ve got someone to identify gaps in knowledge, pull together resources to fill those gaps, and (hopefully) shift staff, timelines, and budgets around on individual projects to make sure the program meets its goals.
This person needs to understand the KPIs relevant to both individual projects and the overall service offering and have access to the data needed to calculate metrics. Make sure all your program czars are equipped to be client-facing so they can be assets to the sales team.
Step 3: Develop your consulting chops.
Systems integrator revenue streams come in three broad buckets: infrastructure integration, software integration, and consulting. As with many types of project-based businesses, consulting has been and will continue to be a cash cow for SIs that build out this practice. Unfortunately, smaller shops making that leap are still few and far between.
Service providers that can’t advise customers will lose business. As companies get serious about digital, they’re looking for real consulting chops when it comes to cloud, data migration, application modernization, and more. If you’re a regional or local SI that hasn’t yet developed a consulting practice, it’s time.
It’s key to make sure your team’s expertise goes beyond product features to encompass systems and processes that help clients to grow their businesses. Again, think programs, not projects. That means you aren’t just consulting on one piece of technology, but rather on how the new solution directly forwards your client’s business goals and supports its growth strategies.
The “mega” systems integrators, such as Accenture and Deloitte, have leveraged that opportunity and reaped big rewards, said Charlie Cox, SVP of channel transformation at IT consultancy JS Group.
“Almost universally, these huge global SIs have developed standard operating procedures they can plug and play into nearly every complex organization because they have that intellectual capital,” Cox said. “They’re a subject matter expert for their customers — they know more about their clients’ businesses than their clients do.”
Regional and some local SIs are starting to follow suit, but their pace should be much quicker. A true business consulting practice is critical to scaling any project-based business. Not only does consulting get you in deeper with your customers, but it also offers a chance to go beyond one-off projects into a longer-lasting, more meaningful engagement. And while you may need to hire specialized industry talent, their knowledge is a resource that can be deployed across all clients in a vertical.
“Think about what you’re trying to do here,” said Juan Fernandez, vice-chair of industry association CompTIA’s Channel Development Advisory Council. “It’s making a shift from that traditional transaction-based program management to something that’s more relationship-based.”
That starts with the conversations your sales team has with customers. Say that today you sell a CRM integration into an existing network infrastructure. Conventionally, the project starts and stops with getting that CRM up and running. But to be seen as an adviser, tie that result to business outcomes — in this case, explain how the solution will make salespeople more productive and provide in-depth training well beyond basic “how to work the software.”
Of course, if, say, a 20% increase in sales productivity is the deliverable, you may need to rethink the solutions you recommend. And, you aren’t done with the engagement until sales actually improve.
More work? Yes. Substantially more value for the customer? Absolutely. That value — which you charge for — is where scaling happens for your business.
Developing in-depth expertise in one or a few targeted verticals is a good starting point for a consulting practice that can differentiate you and earn you more business. For instance, if you’re based in Texas, there’s real money to be made in the oil and gas industry. Cox says that among global SIs, the ones that are consistently successful have expertise in multiple specific vertical markets. Of course, there’s a risk involved with putting all of your eggs into one industry basket, but if you take on a couple of verticals, that risk lessens.
Step 4: Buddy up to solution providers.
Scaling depends on offerings being repeatable, to optimize operational efficiencies so you’re doing the same work at a lower cost. You can get there by developing expertise in a technology, say ERP or CRM, then diving deep into one provider. Cox said that once an SI does an engagement about five times, it develops the expertise needed to build an efficient model.
Then you can create a repeatable offering that’s easy to deploy because you’ve built processes and operations to support it.
There’s an advantage to getting in deep with a solution provider in your chosen technology arena. Providers are increasingly turning to the indirect channel to grow their customer bases — including partnering with, and making investments to facilitate the growth of, key systems integrators skilled in delivering their solutions.
From a scaling perspective, SIs that have adopted the strategy of close alignment and partnering with a limited number of providers are essentially getting referral business. These companies, even if they have internal services organizations, can’t do what systems integrators do: namely bringing together hardware and software, application modernization skills, and cloud solutions outside of their own offerings.
Partners are an enormously profitable investment for vendors because they deliver customer stickiness and market satisfaction.
Cox has a word of warning for SIs looking to pursue this strategy.
“Be careful of who you’re picking to go to the dance,” he said. “You need an established provider with a steady business so you know you can rely on that relationship not changing anytime soon.”
Be cautious about vendors that are new to the channel or growing through acquisitions, for instance. You don’t want to become a victim of their growing pains.
Step 5: Decide whether managed services will help or hinder scaling.
Many firms that have services- and project-based practices, particularly in relation to the as-a-service business model, are having success integrating ongoing monitoring and management of infrastructure solutions.
Fernandez said that project-based businesses have an edge here: They’re geared to focus on defined outcomes, something managed and IT service providers, which build their businesses on long-term relationships, historically struggle with.
“What they need to do now is really engage in those relationships in a comprehensive, ongoing way and then build projects around all aspects of the organization,” said Fernandez. “It isn’t about thinking of just one technology, program, or output. Now they need to think about the overall structure and what it takes to support it.”
This approach is attractive — that recurring revenue stream provides steady income throughout the year, plus you get increased stickiness from being deeply embedded in the client’s business.
The problem is that while it might indeed be a great idea on paper, managed services take a different level of investment, a different sort of expertise, and a different operational structure to pull off. From how you forecast to how you compensate your sales team to the sort of marketing tactics you employ, project-based businesses and recurring services businesses are horses of different colors. Especially for smaller SIs, it may not be a viable path to profit unless they’re willing to overhaul their businesses.
We have seen SIs acquire or merge with MSPs, but it’s a heavy lift to reconcile the two models such that you’re using the same KPIs across the board. Marketing for a transactional organization, for instance, is very different from marketing for a services business. Sales strategies are different. Revenue is recognized differently. There’s a cultural disconnect.
The SI business model is all about efficiency. The problem when an SI starts adding managed services is that what makes sense from a transactional perspective doesn’t make sense from a service delivery perspective. It’s a major culture shift.
That doesn’t mean you should abandon the scale potential that comes with a recurring revenue stream. There are viable paths.
Step 6: Ease your way into as-a-service with a pilot program that plays to your strengths.
“If you’re an SI that wants to create more offerings that lead to recurring revenue streams, I’d look at providing business operations as a service,” said Fernandez.
Let’s say you provide a software solution that has a cloud component as well as on-premises infrastructure, all of which have to be maintained, secured, and operated. With business operations as a service offering, you can provide ongoing security, monitoring, and management and provide strategic guidance and performance reporting.
You’ll deliver the capabilities the customer is asking for as a project, then manage it for the lifecycle of the engagement. Together, these comprise a program.
Note that business operations as a service aren’t true managed services. You aren’t “keeping the lights blinking” with the core IT infrastructure. Rather, you’re managing one advanced aspect of the customer’s technology, such as ERP, CRM, or EHR. SIs have methodologies around how to walk customers through those journeys that MSPs lack, not to mention high-level engineers, project management teams, and deep relationships with big cloud-based providers.
Step 7: Create impactful partnerships with peers.
We already mentioned cozying up to preferred software and cloud providers. Partnering with a managed service provider can also be an extremely profitable endeavor if done correctly because the two models support one another. SIs have in-depth systems and process expertise that most MSPs lack, and managed service providers are set up to handle ongoing infrastructure monitoring and management that systems integrators don’t have the resources to support.
From a go-to-market perspective, you’ll be more attractive to customers because you can provide true end-to-end service. From a scaling standpoint, however, remember: It has to be an extremely easy-to-explain and cost-effective program or customers won’t bite, and you won’t turn a profit. And, someone has to own the customer relationship — be that “one throat to choke” — while the other entity works in the background, a situation many services businesses have difficulty swallowing.
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Step 8: Go deep and broad.
We all know that upselling a current customer is far less expensive than acquiring a new one, so when you’re looking to scale, look first at your client base.
It isn’t just that you need to go deeper with current customers to get more wallet share. You need to go broader as well: Working with operations on an ERP? Ask for an intro to sales and marketing so you can pitch a CRM. Besides earning more money from the client, you’ll also have a few relationships within the organization, so if someone leaves or changes roles, you aren’t left without a point of contact.
Always be thinking about ways to upsell or cross-sell your customers. Setting up a payroll platform? Go ahead and pitch a new travel and expense solution. Updating legacy infrastructure from on-premises to the cloud? Why not hammer home the efficiency and effectiveness of cloud collaboration software? Never leave a potential revenue stream unexplored.
Step 9: Get your people pulling as a team.
Some organizations see the “lower overhead with more revenue” maxim of scaling and decide to take it out on their employees. Giving in to the temptation to underpay and/or overwork your people is always a bad idea, and especially so if you’re trying to grow profitably.
Yes, automated systems and tighter business policies can maximize human capital, but at their core, services businesses are all about their people. Doing more with less doesn’t mean demanding 50-hour weeks as the norm. It means getting everyone on the same page and cultivating a truly engaged workforce that believes in your mission and your processes.
Employee Engagement vs. Employee Satisfaction
Employee satisfaction only indicates how content your employees are — it doesn’t address commitment, motivation, or customer focus. How to tell the difference?
To get there, SIs need a vision of what “good” looks like so that employees know what they’re working toward. Then, train teams in the most effective and efficient ways to reach goals. The training and development piece is crucial because it not only helps new hires ramp up faster, it aids in knowledge capture — especially important if you’re looking to scale via those longer consulting, as-a-service, or monitoring and management offerings.
Let’s take the sales team as an example. As much as a project management delivery company may want that sweet service delivery recurring revenue, they won’t get it unless sales properly position the program. Ongoing service delivery may easily become an afterthought in sales conversations, an add-on thrown out after talking about a cloud migration or ERP project.
If you’re going to offer a managed service, you must get sales excited. It cannot be a SKU. It cannot be an ancillary add-on. It cannot be “that new thing I haven’t had time to learn about.” You must make it intrinsic to your core program.
There are challenges. Your sales team has likely been compensated on a commission-based plan that’s been in place forever. Now, all of a sudden, you’ve got this new relationship model where sales teams are farming, not just hunting. You can’t just tack on some SPIFFs. You’ve got to rethink your entire compensation structure. Make sure you have the right people, the right deliverables, the right talk tracks.
As much as that’s a hurdle, it’s also an opportunity to build a culture of care. It’s hard, and lots of leaders aren’t going to want to hear this, but you have to bring your people into a room and involve them in the conversation. Get their input and advice around not only what the program should look like, but your battle card, your go-to-market, your processes and procedures, and yes, your compensation structure. Remember that without engaged people, there is no program.
Step 10: Bring marketing in early.
Marketing has to be a part of every conversation, an essential piece of every single thing you do in your business. That might be hyperbolic, but not by much. Yet in reality, marketing is way too often an afterthought.
You’ve been developing a program over the past year, then you bring in marketing when it’s ready to be deployed, and they have no idea what the heck it is. They’re just expected to make it shiny. But that’s not what marketing is today. Marketing is the journey. It’s shining a light on the program, the due diligence, the processes. Customers today care about the story behind the product.
Fernandez likes to do an exercise where organizations measure their competitive advantage against others in their space and ask employees, “What is our special sauce?” This is a great way to make sure internal and external messages are aligned.
Remember in Step 1 we talked about optimizing every process? That includes marketing operations. There are more than 8,000 marketing technology solutions out there, and many of them will help your team do more with fewer resources. It comes down to how you’re sharing your story. Marketing is the only department purpose-built to handle that, and when they aren’t brought in near the beginning, it’s a missed opportunity. For one thing, it’s often the marketing team who will determine the size of the addressable market and what customers will value about the new service. That’s critical to know very early in your product creation process.
The Bottom Line
When it comes to scaling, there’s a notion that we have to do something completely different. Many, many business owners get caught up in that mindset. If jumping into another market or another model is part of your master plan, we say go for it. But if you’re looking for growth and scaling opportunities, stand where you are and jump higher before jumping out the window into another delivery model.
Pull together some of your core projects, add training and consulting, and sell a project that will “digitally transform” a customer’s organization over the next 36 months instead of over the next six weeks. Now you have the chance to build a relationship.
The SI market is growing exponentially, and there’s no reason you can’t grow with it. Just remember: If you grow without scaling, you’re always chasing a moving target.
Kris Blackmon is the chief channel officer of industry consultancy JS Group. A veteran of the indirect sales channel, Blackmon has extensive experience in event programming, editorial and content creation, research and analysis, and community building. At JS Group, she consults on go-to-market strategies for organizations in the indirect channel.
By Kris Blackmon, chief channel officer, JS Group