When I heard this statement, I almost fell off my chair!
In my recent interactions with IT companies, there were some very thought provoking discussions that I was involved in. To the extent that the points made by some fairly senior level professionals from the Indian IT industry left me thinking. These are of course personal opinions based on their experience, and I had this strong urge to put this onto our blog to solicit viewer opinions on these matters. I trust that most of you viewers would find these topics just as intriguing as I did;
1. “Almost all mid-sized IT services companies are predominantly 2-3 client companies”- The statement shook me out of the mild afternoon numbness I had regressed into after a heavy “Working Lunch”. I was suddenly all attentive and trying to fathom the gravity of the statement. If this were true, then it meant that all these mid- sized companies were practically built on relationships, and to that effect- were extremely vulnerable in the given circumstances!! I stepped back from the discussion, and I jogged my memory to some of the mid- sized companies that I had interacted with in the past, and which were in the range of US$150 Million to US$400 Million. Almost on every count, I found that perhaps there was some truth to this statement. Without taking names here, I could think of at least seven mid- sized companies that were extremely dependant on two clients for upto 45-50% of their revenues! In one case, I distinctly remember a client of ours which used to be a US$60 Million+ company with two key clients. In the last 3 years, since we worked with them, the company lost business from both the key accounts and its turnover dipped from US$60 Million to US$20 Million!!
This really brings up a lot of questions –
- Are the Indian tier II/III companies truly as vulnerable and unstable as suggested by this person?
- In which case, wouldn’t risk mitigation through aggressive new client acquisition be of supreme priority at the board level?
- And which brings me back to an earlier topic that was raised by my colleague on this same blog – Are these companies equipped to deliver the goods from a hunting perspective?
- And in these circumstances – How far are we from a strong wave of consolidation in the mid tiered software services companies?
2. The other interesting statement I heard was in one of the workshops we were conducting, when the topic came up on new business targets. The client mentioned-“As a P&L responsibility holder, at a practical level – does investing time and effort into acquiring and servicing new clients really pay off as well as directing the same investments towards farming existing accounts? ”. All right, it was time for me to wake up again! Are we saying here that the since the pay-off is more when it comes to farming, at the operational level, new accounts don’t necessarily delight the delivery teams as much? Think of it this way- You have a new client. You need to set the expectations right, understand the clients stake holders better, deliver a POC to their satisfaction. Wherein, invariably the cost of establishing the trust, quality deliverables, and delivering the POC successfully has to be absorbed by your team! My guess is, all things being treated equal- I would rather focus on a proven relationship- than go through all the teething problems over and over again. Makes sense? To add to this, how many pilots are truly delivered successfully on a regular basis? Let’s look at it this way – Every quarter, we hear companies announce that they won “X” number of new client contracts within the quarter. What we don’t hear about is- the number of clients they lost in the quarter. I mean logically, with a large number of new clients being added every quarter and close to 70% of business growth coming from existing accounts, wouldn’t these companies be growing at a much healthier rate than they are as of today? And wouldn’t my first point be irrelevant there? Something doesn’t seem very right here.
Your thoughts might just help me understand if I am the only one with this method of viewing this situation. Would love to hear what you all think.
Abhijit Gangoli
CEO, QEDbaton
A very interesting consolidation of statements and facts.
I still feel there has to be a deep rooted reason for an organization to not emphasize on the fresh account hunting strategy.
Could it possible that if they adopt a very aggressive hunting strategy, it might make the smaller and existing clients that they have established a healthy relationship with, a little insecure or skeptical about the quality and deliverables ?
Ideally, if an organization has 2-3 mid sized clients, the clients are assured that the organization is doing its best. It has to, if it has to survive. The flip side of this being, the clients end up being dependent on the organizations performance as well. Which is a dangerously volatile situation to be in. Its like a ticking bomb. With timers on both ends.
As far as the accounts on a relationship basis are concerned, I believe that its the best way to go about for startups. Its always good to have a client that swears by you, irrespective of the engagement. But once you grow, and the client realizes this, its not a happy scenario for him either. Earlier, the client knew he was a friend, and then a client. As your client pool grows, the organization makes new friends. And this makes the old friends insecure. You draw more business from a different client and would naturally put more efforts on him. This is where your lesser revenue earning old friend begins to show signs of insecurity and symptoms of causing trouble.
Its rather weird to live, breathe and swear by technology and let the human psychological barriers take priority. We need to understand that if we swear by technology, which is nothing but rational logic, the same needs to be incorporated in our business strategy as well.
Aah, the fickle human nature rears it ugly head again. Whether it be an organizational failure, success, planning or organizational strategy, you cannot dismiss the touch of the mortal psychological barriers, insecurity topping the list as usual.
Great to know that we still have the human touch left.
My business development soul reats very badly to both points
and sorry for the hurry, but it urges me to a response:
(thanks for bringing the topic up, it could be a neverending discussion within IT companies these days…)
1. crisis has proved you can’t rely on 2-3 customers, although they are good ones. Also, mid-term profitability is not necessarily better with “old” loyal customers: in the long ru, and especially talking about IT services, they tend to take advantage of your competences-for free-as much as you would tend to take advantage of their trust in you. I am not so sure it can last long…especially if you include in this another variable, that’s to say people turnaround. If your reference person changes within the company, rules might change too, and quickly; and you don’t want this to happen, out of your control, to 1/3 of yuor business…
2. new customers (or even prospects) are always an opportunty of growth, not only in what you offer but in the way you present yourself. New background, habits, situations to understand and react to are a great chance to learn. You should alwasy dedicate part of your sales, marketing and business development efforts into finding new markets for existing products, and not only new products for existing markets and customers. It’s the other half of the apple. Now, finding the balance between new business/exising business…this can be tricky. But hey, where has ur propention to risk gone?