10 Dec 6 Elements of the Ideal Growth Strategy for IT Service Providers
The most profitable firms we see are running their business at higher than 15% net income and growing at over 30%. While it’s difficult to get this done, they do it by specializing in one thing, targeting one market, and having product enabled services that are tailored for their target markets.
The highest revenue growth firms grow their business by:
- Picking one technology specialty and being the best provider available for your target market. When you specialize you separate yourself from the pack by:
- Being extremely relevant to your customers’ technology needs, in their industry, using the ideal technology for what’s needed
- Attracting and retaining better talent by narrowing in on a specific technology niche
- Commanding higher billable and utilization rates from buyers who are less sensitive to price for effectively differentiated products and services
- Picking one vertical market and be the #1 player in that market, aligning with a technology specialty. You can command authority by being in the one or two markets for which you are naturally suited and doing it better than anyone else.
- Productize your service offerings that align to your specialty and vertical market, branding services at the intercession of specialization and verticalization. The best-of-the-best firms use a full life cycle of offerings, from wedges through long term sustainment solutions that are easy to buy and often fixed fee and fixed scope.
- Buy companies to increase market share. Our most successful clients will tell you that without an ongoing M&A initiative, you’re surrendering over 50% of your growth potential. It’s why we advise clients not to think of it as an acquisition, but as an investment for a more promising future. Invest in your future growth by acquiring another IT Services firm.
- Always have an exit plan: Buy, build strategically, then sell your company. Read why we think this year could be the year to sell your IT services firm. To be prepared for a successful acquisition you should have:
- Double-digit annual growth
- A healthy balance sheet
- Clearly differentiated service offering
- Reoccurring revenue equaling 30% of total annual revenue
- Realizing change by yourself is hard. It’s hard to work ‘on’ the business when every day is focused ‘in’ the business. The top firms have someone by their side guiding them through the process – that would be us!
We’ve been advising companies for the past 20 years, helping hundreds of IT services firms implementing a Specialize, Verticalize, and Productize (SVP) model in addition to helping them buy other companies and sell when the time is right. The best companies follow this model to create long term value for everyone involved.