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On Growth

Seller Beware: Customers Want Vertical Partners, Not 'Generalists'

"Geographic generalist" partners that offer any services for anybody, anywhere, are a struggling breed.

The less-well-known cousin of the more popular "buyer beware" (caveat emptor) is "seller beware" (caveat venditor). Both terms originated in the property market as a warning for buyers and sellers to be aware of the risks associated with buying and selling real estate. Since then, their meanings and uses have morphed, and they now serve as general cautionary warnings for anybody buying or selling anything.

I, too, want to put my evolutionary spin on the term "seller beware" as it pertains to the IT services industry. In this context, I caution IT services executives ("sellers") to be aware of how corporate executives ("buyers") are cautiously avoiding all the risks associated with purchasing the technologies (hardware, software, services) they need to drive their business. The buyer/seller relationship in IT is changing dramatically, which is the reason I've been so adamant about one key principle: IT services executives need to specialize in a few vertical markets as a way to lessen the risk of the buying community.

Case in point: Back in 2007, in this very magazine, my company ran an ad quoting an article in which Gartner proclaimed, "Through 2009, 75 percent of vendors that do not prioritize their vertical market initiatives will develop solutions that fail to meet revenue and profit projections." That was five years ago, and sure enough I'm seeing first-hand that companies with a vertical business model are outpacing their horizontal brethren by a large margin.

It's not enough to think that your market is financial services, manufacturing, health care and so on. You've got to be thinking about getting deeper into these markets with greater sophistication and expertise. Why? Customers are awarding their business to those companies that are No. 1 or No. 2 in their niche "micro-markets," because they perceive these companies to be more focused and better equipped to handle their business.

Customers believe this because they have to. Quite simply, they don't have time to fail, to experiment, to learn the hard way, to do over. Customers are looking for companies that know the drill. And, to further lessen their risk, they're implementing specific service-level agreements that put the onus of delivery squarely in your lap.

So, what's my advice?

Remember the movie "City Slickers" with Billy Crystal and Jack Palance? Crystal and two friends take a vacation to a western ranch for a cattle drive. There's a scene where Crystal and Palance are riding together, and Palance is telling Crystal that he knows the secret of life. Eager to find direction for his own life, Crystal wants in on the secret. The secret, replies Palance, holding up his index finger, is "one thing." Curious to know what that "one thing" is, Crystal presses Palance for an answer. Palance replies, "That's what you have to figure out."

So it is with IT services executives. Find the one thing that you're passionate about, the one thing you're really good at, the one thing that end users are crying out for, and make that your cause. You can locate the nexus of your virtualization strategy at the point in which the three pillars of an effective specialization strategy -- technology focus, vertical focus and geographic focus -- converge.

The key is to identify what combination of these pillars represents your best chance for success. The range goes from being a specialist in a specific vertical with a range of technologies to a broad geographic player with a single technology. But whatever you do, don't become what I call a "geographic generalist," which is anything for anybody, anywhere -- and which is a surefire path to nowhere.

The obvious advantage of a specialization strategy is that it separates you from the pack. You reduce the number of rivals and better insulate yourself from competitive threats; you attract and retain better talent; you command higher billable and utilization rates from buyers who are less sensitive to price for effectively differentiated products and services; you generate greater demand more efficiently, thereby increasing revenue and profit; and you significantly enhance the value of your company to a potential buyer.

Why would you not want to do this?

More analysis by Mike Harvath:

About the Author

Mike Harvath is CEO of Revenue Rocket Consulting Group, an IT services growth consultancy.

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