Strategy · Business Strategy

How does one scale up a technology service business?

Esther Anegbe I implement software solutions to optimize business processes and enable collaboration

June 29th, 2015

Hi, I'm working on a technology start-up to provide ICT services to other start-ups, small and medium-seized companies. I am passionate about helping startups grow using the right technologies. I am however worried about how this business can scale given that I would be selling my time and expertise; unlike in the case of a product which can 'distribute itself'.
Also, given that my market of interest is a challenging one (considering their limited resources); I would like t to know what technology services startups would find most compelling to outsource.
I am still working on a finding the right partners to work with on this. How do I get the right co-founders/partners?

Please share your thoughts and experience on these.
Thanks everyone!

Mauricio Hernández Entrepreneur and Angel Investor

June 29th, 2015

Hi!

I own an IT service company. Since I started 11 years ago and was young and relatively unexperienced I didn't really know what I was getting into. Here are some loose thoughts looking back on my personal experience:

1. Service companies CAN scale pretty well. Here in Latin America Globant is proof of that with over 1000 employees across the globe in a relatively short time span of a decade. Their secret? Amazing sales force effort. 

2. I would highly recommend you to read the Business of Software. Written over a decade ago I think the insight is relevant even today and rather than comparing services VS. product the author shows how really successful companies  (with few exceptions) try to do both.

3. On a personal note: with the cash made from my services company I invested on a pair of product companies (e-learning and online travel agency). From an investor portfolio perspective it helps diversify your risk and let's you experience how to handle both types of companies.

Hope it helps! 

Steve Tulk Change Agent

June 30th, 2015

I think you will get an overwhelming of "product" viewpoints on this - but I would caution against trying to do both out of the gate.  I've been a consulting services provider for 20+ years in media, general management, large systems, IT, architecture, and software in US federal, commercial and international markets.  I have rarely seen small/medium companies do well when they straddle.  A product company that tries to do services optimizes for product and the services end suffers.  A services company that has a product may either spin it off, or it is a pet project that doesn't really hit the market in a big way. 

In Services, they key is relationships. It's a relationship business and you are only as good as the people you can connect with.  This was true when I was an independent, and true when I was a top exec at a fortune 100 global consulting firm.  When you are small, you sell yourself, when you are big, you sell the brand and the reachback - but in both cases it's about your firms ability to convince your client/customer that YOU are the best, because ANYONE can hire the kinds of people you have. 

As for a business partner... I have just failed forward on a partnership.  We both had complimentary skills (e.g. they was an opener, and I was a closer, I had the management experience, they had some better relationships, I was more technical, they was more process, etc.) - but we couldn't agree on the value of our contribution and how the split would work.  I sold more work, increased the top & bottom line, hired the people, but they had gotten all the fundamentals of the business established and the initial contracts.  Naturally, we each though our contribution was significant, but in the end, couldn't agree. IF you want a partner, get things nailed down very clearly up front, before you start doing any work.  Equity in a services firm is only worth your contracts, your sold & funded backlog and in a limited way, your principals.  Equity in services can't be calculated the same way as equity for a product or brand.    Anyone who is good enough to help you grow your business is good enough to walk across the street and do it for someone else, or on their own - taking your business with them.  I'd suggest paying people extremely well for their contributions (i.e. sales) and leave equity off the table in the beginning. 

Most professional services firms are big pyramids (that's one reason many of the big firms are up or out).  You have to sell more services to sustain those that aren't directly billing.  More services generally means more people, more overhead, and therefore more sales are required to keep everyone billable.  It can be a vicious, or virtuous cycle.

When you start, you are as good as you are.  As you grow, you are only as good as your people.  But, your people ARE your product in a sense... and since you can't own or control them, it's pretty easy for your workforce to get recruited elsewhere, or leave if they aren't happy.  You will need superb people skills.

One last thought - services is feast or famine.  It's better to have too much work than not enough.  Make sure you can mix up your portfolio with long term, mid term and short term work.  You'll need to figure out your cost model early and budget against it.  When your people are billable, everything can be great.  But if they aren't you will quickly run out of cash when people that made 20-200% are now costing you 120-400%.   I personally don't believe in keeping a big bench, or hiring ahead of work, but that can be challenging in its own right.


Luke Aulin Co-Founder, CEO a.k.a., The Mayor of RTOWN

June 29th, 2015

Currently doing this with my business, Esther. I highly recommend the book "Built to Sell" for anyone trying to scale a services business. It's a great fable about a marketing services company but the lessons are applicable for any services company (whether you intend to sell your business or not in the near or late future).

The trick is to get good at saying 'no' to things that aren't core to your offering. Say yes to the things you do well and build repeatable processes around those services you choose to provide. 

Find a way to fire yourself from the day to day as fast as you can. I.e., hire, teach and lead your staff. Customers can and will fund your business if you do it right. Don't be afraid to charge up front for things.

Great lessons in that book as it'll teach you to create yourself a business rather than a job. 

Zvi CFA Senior Quantitative Analyst | Data Scientist

July 2nd, 2015

OK, you ask a few questions: 1. How do you build a business based off of one person's expertise? 2. What services would start-ups want to outsource? 3. How do you scale a service business? 4. How do I find partners? Sounds like you have some expertise, but you still don't have more than a business idea. That's OK. So, how do you build a business? First, you should know that some businesses don't scale. They are called "lifestyle businesses". Examples are law firms, private doctors and specialty consultants. They can make good money, but the business squarely rests in the founder's ability to develop and maintain a reputation for excellence. You'd have to focus on developing an awesome personal brand, and then you can charge a lot for your services. If you actually wanted to scale a business, you have some options. For example, you could do like law-firms or McKinsey, and hire other experts like you. Your business would live or die based on your ability to attract the top talent you'd need to further your reputation. Or, you could develop in-house technologies or web-platforms that would distill your expertise into a website. Then, you'd have a business based on your ability to provide high quality guidance at a low cost. Start-ups should be eager to outsource anything that does not pertain to their special expertise. Most companies do not specialize in the infrastructure needed for scale, so you're good to go, as long as your competitive with Azure and AWS. Finding partners starts with networking. Set up coffee chats with people from LinkedIn. Let them know that you are not selling anything just yet, but you are looking for partners. Events are also good. But, in 2015, LinkedIn is king. Best, Zvi Goldstein z

Ming Tsui

June 30th, 2015

My advice is first call any college mates you might still have contacts to
see if they want to do some type of starting up a business venture.
Bad news is 95% of humans do not want to start a business. People like
reading about people starting businesses and envy of their success but
never actually commit to start their own business. I guess it must be scary
to start a start up.

If you can find your class mates with the type of skills lacking then you got
a team started. That is the first step but again just in case no one wants to
join you as most likely is the case. Just to let you know it is tough to find the
right team during the start up phase with an idea on the back of your mind.

Passion is what drives you to continue. Once you build a team, you will
probably be creating a website app for your start up and depends on what
type of project it is it could be viable or it could just be another worthless
app.

It seems your idea is about service to help start ups or medium sized businesses.
This means you will be working close with these start ups and that needs more man
power. I heard a lady was able to do such a consultant work and grew that business to
over 100 or more employees. It could be done with hard work and hands on work and
help your clients be successful. If your clients are successful, your firm will be too.

I have no idea what your project is about but it seems to be a good idea to help other start
ups to succeed because according to government statistics that 90% of all start ups failed
within the first ten years of operation and if this is true then your start up venture to help
start ups might be what is needed as a solution to help cut down these start up failure rates
and the US government will likely give you an award for doing just that.

Good luck with your start up and hope you can find more talented people to join you. I think you
might have a great project because there is definitely a great need to help start ups to succeed.
There is definitely something wrong with start ups if 90% failure rates. I'm actually laughing at this
statistics.

Is this a joke? 90% failure rates?


Willem Muller

June 30th, 2015

Another angle on this is using your consulting business to become an expert within a niche, with the end goal of building a product in that niche. This is the strategy I'm thinking of pursuing. Pick something that
* You have previous experience in
* Is growing and or constantly changing
* Pays well
Eg. I'm picking software security, specifically customizing enterprise products. It may sound a bit boring - but ticks the 3 boxes. I'll learn a spread of products, blog about it, set myself up as a thoughtleader in the space. I always go after these kind of gigs even at a lower rate. The idea is that you build relationships with clients you've done work for and get a deep understanding of vendor products. Over time you can eventually identify a common set of problems among customers and invent you own product.

It's a different way of scaling - but also a valid way.

Peter Johnston Businesses are composed of pixels, bytes & atoms. All 3 change constantly. I make that change +ve.

August 19th, 2015

"Technology is stuff which doesn't work yet. Once it works, it stops being technology" Douglas Adams.

When cars were new, lots of garages sprung up to service them. Now cars work and those garages have pretty much gone. 7 year warranties, 20,000 mile service intervals and modular construction have seen to that.

The same is happening with computers. What was once a complex purchase involving choice of chip, graphics card, memory etc. is now a simple monthly rental for a throwaway device in your pocket.

The same is happening with software. Complex end-to-end suites are giving way to simple apps. Connecting these together is drag and drop and the complex, high power computing is done in the cloud.

ICT is now as old-fashioned and relevant to the modern world as a livery stable is to modern transport.

The scaling you should be doing to ICT is downwards. Instead of sitting there offering one-to-one advice, create an app. Or a technology chooser. Something, ideally, which let's people choose for themselves instead of the patriarchal "we know what's best for your business".

Ali S.

June 29th, 2015

Hi Esther, I’d certainly be very interested. My profile, Harvard, PhD, Telco, Exec, 10+yr, how about you and are you in the bay area? ALi S 415 530 7557 Regards

Esther Anegbe I implement software solutions to optimize business processes and enable collaboration

July 1st, 2015

Thanks everyone, your feedback has provided me with new insights into this. I hope to process this information and make the right decisions. I will definitely be following everyone who has shared on this discuss..I hope you don't mind!

Ming Tsui

July 1st, 2015

Hi Esther,

Maybe if you are burned out with you project, maybe follow me when
I start my project done. My project could be very interesting.

I will be building the first future free university on this planet. I think
my project is the first but it is only in concept so far. But I think If
I can get a patent on one of my latest inventions. I could get this off
the ground. I know I am very early on this project idea. It sounds crazy to
be able to offer free university degrees and for what? People ask why do such
stupid thing? Not making any money but giving to people to have an education.

Well, I'm retired and nothing else to do so maybe do something stupid and crazy
and good at the same time. Somebody will be doing it and mine that person might
be me.

My idea on this is 3 years online college education or two years earning an associate
from a community college and take an entrance exam from my university to enroll and
one year online with the last year or two in a real campus with room and board.

This way you can have more student able to graduate from my university since they only
spend about one year in a real campus this will lower the costs of earning a college degree.

Now, people taking online classes are not a waste of time but real credits toward a real degree
in a real campus. I think the last year is all hands on projects to show a student can do wonderful
things instead of just learning the technical stuffs. Most university today teaches people how to
find a job with a piece of paper and some knowledge of some degree subjects. That is not good enough.

You get to teach people how to think and create ideas to build new products and services and actually
be able to run a business without need to experience it. My students will actually be starting up projects
and real projects that could lead to IPOs. These students will help contribute their wealth back to the university to grow this free university concept around the world.

That is my plan. Also, my other projects will bring money back to the university.  I think my project will
be very interesting.

Anyway, 90% start ups fail so people must take this into their account that maybe yours' is in that stat.

Maybe mine is also.  But I have plans in place since my first project is just an education app I called My Tutor. It is basically a free tutoring service and acts like a big brother or sister to help kids at home to
learn and help them with their home works and even practice lessons and tests. This one day will lead to
grow into courses in math to science and advance science and even medical instructions. You see, once
these eds are written up it can be used for many many years without major upgrade.

I guess I talk too much for now. I hope able to update you nice people here giving free advice to help
others. My company will be called HumanityEX. A company that makes money for humanity. Sounds crazy
again. Yeah! HumanityEX one day if it exists will solve and bring social solutions to the world.