Consider the business situation of the emerging high-tech software company. The financial backers and executive management are anxious to build value in the fledgling software company as quickly as possible, with the minimum initial cash investment required. The bulk of the initial investment necessarily goes to finance, engineering, marketing and sales.
In addition, conventional wisdom demands that software technology companies need to show strong profit margins, with an overwhelming bias toward software sales compared to services sales, in order to demonstrate viability as a software company. Company valuations are typically much higher for software companies than for services companies, so the investors and management don’t want any confusion. They want to be defined by the marketplace as a software company, not a services company. It’s no big surprise then that emerging software companies are reluctant to aggressively embrace a services business component initially.
So what do you do? Emerging software companies desperately need their 1.X products to be successful so they can create reference accounts and build momentum, but it’s likely that the availability of technical resources to assist early adopters will be limited. This work would obviously fall within the charter of an internal professional services organization, or PSO, if one were available.
One common solution is to use product engineer (R&D) staff or pre-sales technical resources to help alleviate the problem. However, doing so takes them away from their primary responsibility of building the next release of the product, assisting clients with tech support issues, or assisting sales in generating new product sales. Using R&D and pre-sales engineers in this way always leaves services revenue on the table since they are trying to do the minimum consulting required to accomplish a successful installation and then get on with their primary responsibilities. In most cases this strategy leaves the early adopter client wanting more.
The result is a real business management conundrum. The company and its clients need a services capability that the company would rather not implement if it could get around it. The solution could be Virtualization.
Virtualization, as in Virtual Professional Services Organization, or VPSO, is a management strategy that can be used to reduce, or avoid, the cost, risks and reluctance associated with building out an internal professional services organization within emerging software technology companies.
VPSO can be designed and implemented to provide internal PSO capabilities, including executive management, specific to the software technology company adopting it so that in-depth subject matter expertise can be offered to their customers in exactly the same way an internal PSO would. Organizational virtualization has already been adopted by many companies worldwide as we’ve seen in business process outsourcing of help desk and customer services functions. The VPSO model takes this compelling management strategy into the professional services functional area of software technology companies.
Since the VPSO model is not, as of yet anyway, defined in an industry standard manner, it can be implemented in any number of ways. Regardless of the details of the implementation, there are a core set of features and benefits that must be considered in order to achieve the overriding goal of the model, which is to provide PSO services virtually at the same level, or better, than an internal PSO could provide. In the absence of an industry standard, the success of the VPSO implementation should be measured, at a minimum, against the following objectives.
- A commitment to developing a services business plan that demonstrates a path to achieving the business and financial goals of the VPSO arrangement for all parties involved;
- The ability to provide a seamless PSO management interface between the software company using VPSO, the services delivery company that is providing services, and the clients being served;
- The ability to develop a consulting services staff that is able to provide in-depth technology and business solution consulting around the company’s products using subject matter experts;
- The commitment and ability of the VPSO services delivery company to assist sales teams to leverage software/technology license sales through consulting services and the commitment and ability of the company using VPSO to leverage consulting services business through software/technology license sales;
- The ability to generate a services revenue stream that meets the business requirements of the company using VPSO and the services delivery company that is providing the services;
- The ability of the VPSO program to succeed in harmony with the partner channel of the software technology company;
- A commitment and the ability of the services delivery company to develop a PSO operating platform including methods, procedures, standards, engagement framing documentation, management structure, and information processing mechanisms that can be utilized if and when the software technology company decides to transition from VPSO to internal PSO.
This is not to say that the VPSO model works for all emerging software technology companies, under all circumstances. However, it is a strategy that can work in many scenarios and should be seriously considered as a means to transform a critical business challenge into a winning business opportunity.
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