LAJ ARTICLES

Regime vs Guerilla tactics. Professional Services gets real

tok subway new 88

Startup in professional services.
(Usual pharma warnings. This post is only relevant to professional services companies such as Recruiting, Staffing, Payroll, Learning Management, Applicant Tracking, and Accounting. etc., Full disclaimer at end of post)
I have been in professional services for almost 20 years. I was an early evangelist, investor, educator and always a salesman, coaxing people to move forward, answering questions and always (always) battling.
Back then, (a long sarcastic sigh, eyes rolling) for a solution to get implemented within a client, it always had to have the most aggressive internal advocate to force compliance and good will. If left to a community vote of all the affected departments and personal (which it often, aggravatingly, was), a salesperson not only never would have made into the walls to present a proposal, they would have been killed en-route just in case.
Over years, each economic cycle pushed more passengers into the Tokyo subways.
I waited generational and attritional shifts:
Internal Human Resource dept fiefdoms fragmented and over time, each spoke left the hub. The tools they used were built for compliance and the new staffers, on both sides of the HR desk wanted something friendlier, easier to use.
And it was technological improvements.  New modular service providers snatched up each station in an assembly line.
And, it was price. The legacy providers had 10 to 20 years of intermittent success and boom bust cycles to optimize their operating leverage, to evaluate pricing schemes and prospect/pricing disciplines. The new providers took beachheads funded with venture dollars.
I’m catching Zs like an early morning saw when I woke up to the racket yawn and pause
What the fuck man I can never get sleep man, peeped out the window what’s wrong with ya’ll?
Stood up in my Crimson Tide Alabama sweat pants and threw my pillow
Looks like daddy caught the motherfucker that tried to sneak in and steal his elbows
They don’t know that old man don’t hold hands or throw hands naw he’s rough like a brilo
Went to the Chevy and pulled out a machete and a gun as heavy and tall as the midget willow
Think he’s playin? You better listen what he’s sayin punk
Don’t make me go pop the trunk. Yelawolf, Pop the Trunk
And now, in 2015 we are here, in the middle of a venture capital whirlwind. A Human Resources vendor storm. Almost everything of value has been tied down and Venture Capital has only enough sandbags to secure what they really want to keep, everything else is at the mercy of the winds and rain.

There will be very few new investments in this category.

There will be mega rounds to finance the survivor’s movement from good to great.

This is a good thing. Profitability has to be restored to the industry. Capacity has to get soaked up. An extended battle of ‘(close to) free’ is mutually assured destruction and converts professional services to a Google module.
Barriers to new entrants are low
New entrants must battle incumbents that have had years of trial and error to get to operational excellence and leverage
Market offerings are ‘good enough’
Cost to get to ‘size’ is high
‘what if’ the public markets suffer prolonged SaaS indigestion.
“How many walkers have you killed? How many people have you killed? Why?” Rick Grimes (Walking Dead)
And this tangibly intangible: There is a shortage of good CEO’s (and qualified senior management):  No founder or CEO expects how difficult it is going to be. Around the 2nd or third year in the CEO (and shareholders) realize that they can’t flip this company, now they have to operate it. It’s a big shift. Some crack. Some go hard. I have seen it go both ways.
We are deep enough past the opening plays for broad analytical reductions of the two contender’s silhouettes.

“there must be a gradual change from guerrilla formations to orthodox regimental organization” (that can meet the enemy on his own terms) Mao Tse-tung
 “A flea can trouble a lion more than the lion can harm a flea.” Kenyan Proverb

And this, with little new funding available but plenty of cash in reserve stockpiles to get portfolio investments ‘huge’: Either you are doing the buying or you are on the shelf waiting to get picked up and squeezed for freshness.
The buyers: Likely too richly valued to be a suitable acquisition themselves.
Have built a management culture and the mechanisms to synthesize acquisitions.
Have front end pieces of marketing and tenured sales.
Need to complete a full product offering so that they may compete against the incumbents on a spreadsheet.
Need to push deep into vertical markets of ‘non clients’ where margins are better and client attrition is less
Opportunistic, paced, synergistic acquisitions to tolerate near-term uncertainty
Lessen product failure risk by reducing dependence on ecosystem partners
Will need to spend money to secure their place as an industry leader by lobbying, creating (or becoming a key member of) industry associations, certifications and standards.
“Joe Frazier wouldn’t fight me. George Foreman and Frazier both told me so, they said, ‘Hey, you hit too damn hard…” Ernie Shavers
The sellers: This is very positional play and there is no simple IFTTT recipe. Depends a lot on the temperament/patience of the investors and the tactical proficiency of the management team, the Alexander Hamilton’s of the HRTech revolution. They will benefit tremendously from big shifts in the market.
Most important is to maintain threats and pressures, to continually improve the quality of the material and this will lead to more favorable negotiations.
Gain more client facing visibility
Their competitors provide their prospect pool and employee recruiting ground.
Should overwhelm a prospect client category with so much brute force and at such a good price that the market leaders and the top new entrants will cede it to the guerilla tacticians and hope to regain it later. Part of the tactics could be to compel the large providers to spread their forces. Incumbents and well funded new entrants will be reluctant to fight an expensive manpower insurgency because it won’t yield significant revenue gain vs. cost
Size/Capacity utilization and Velocity: The leaders in companies are running at only a fraction of their capacity. Build something that permits massive client acquisition at any cost and you can give the product or service away – but you need to improve efficiency in sales, servicing, cross selling so that there is only the most negligible amount of human intervention required in the sales, presentation, contracts and servicing needed

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