The Times They Are A-Changin’

GUEST POST from Geoffrey A. Moore

This week I have had conversations with executive teams of VC-backed firms working in three different regulated industries: Healthcare, Telco, and Financial Services. All of them reported that their sales pipelines were around 3X what they were a year ago. We didn’t dig into why, although I expect that it means the incumbent providers are under increasing pressure to modernize their operating models and streamline their infrastructure models to meet customer demand and pricing pressure.

The reason we did not get to discuss why this is happening is that each of the teams was more focused on how — how do we adapt our playbook to this new development? You might not think an upsurge in demand would be a problem, but all three of these firms are at least an order of magnitude sub-scale to properly address the demands of their target customers. How do you ride such a wave demand without wiping out? How do you scale and not break your company?

Understanding the Dynamics of the Situation

The easiest way to see what is going on here is to examine it through the lens of the Hierarchy of Powers. Here’s how it plays out:

• Category Power. The category is shifting from resisting the next wave to embracing it, albeit reluctantly, because the status quo is deteriorating, and it is clear something has to change. This leads to the upsurge in RFPs and RFIs that each company is now seeing. Budget is being created whereas before it had to be scrounged. This is great news for each enterprise, but it has its challenges.
• Company Power. Compared to the Tier 1 prospects each of these companies is targeting, their own is tiny indeed. All of them lack the global reach and depth of personnel their customers require. Nonetheless, these are their most valuable prospects, so they must find a way to engage. That’s the core of the challenge.
• Market Power. Each company has already focused on a single vertical—that is how they got as far as they have. Now they are going to have to focus even more rigorously in order to control their exposure to too much demand coming at them too fast and too soon. To secure market power, to become the go-to vendor for their category of offer for this vertical, they must prioritize the right subset of prospects and do whatever it takes to get them over the line.
• Offer Power. This is where each company shines. It is why they are each attracting the attention of companies that a year ago were not returning their calls. Their products, however, are highly complex, and the implementations even more so, so they cannot support runaway growth. Moreover, the regulated industries they serve impose rigorous, one might even say onerous, demands, creating a whole series of hoops to jump through before they can get to the other side. How do you “catch the wave” when the sign on the beach says “proceed with caution”?
• Execution Power. At the end of the day, this is the crux of the challenge. How can a subscale company with a world-class offer meet the demands of a regulated industry dominated by behemoth enterprises? How should it adapt its playbook?

Adapting the Playbook

Given this change in dynamics, here are the kinds of adaptions that are called for:

• Control your destiny by narrowing your focus. The key for all three enterprises is to win a handful of Tier 1 accounts that the rest of the industry looks to for best practices. Winning these accounts will establish them as the go-to choice for the industry as a whole. This objective trumps all others, and every organization inside the company needs to reprioritize its workload accordingly.
• Hold fast to your priorities. This is an internal transformation that requires strict discipline to execute. In the past, it was OK to step off the path to address an impromptu request because the demand for everyone’s time was less insistent. Now it is not. Use weekly commits as a way to make workloads visible, and intervene whenever they are drifting off course.
• Stay very focused on your top-tier target accounts. Every one of them is a priority, even when they may not be giving you all the reception you want. Conversely, all other prospects are a distraction even when they are inviting you in.
• Continue to serve your existing customer base. These are not the Tier 1 players we are targeting, but they are references that can help win those accounts. In addition, they are the early adopters who put their faith in you. You must do right by them.
• Align with a big friend. Your target customers need you to bring many more resources to the table than you have inside your company. The good news is that these same customers work with global service providers who specialize in helping them on-board next-generation offers. You need to secure strong support from at least one of these, and you probably cannot easily support more than one, so pick one you think you can trust, and go all in with them on your go-to-market planning.
• Let the big friend help you clear your regulatory hurdles. Time is your scarcest resource, and unfortunately, regulated industries are not good at moving swiftly. It’s a mismatch in operating models. VC-backed companies take risks to save time; regulated industries take time to reduce risk. This is not something you are well positioned to deal with. Global services firms, on the other hand, already have relationships with the regulatory authorities you must interface with, not to mention the bandwidth to work through the mandated processes. Do whatever you can to get their help in expediting whatever needs to be done.
• Create the solution playbook that you and your GSI friend will co-deliver. Do not let the GSI take over the implementation. You know a lot more about what it takes to make your solution work than they do. But you can make sure that the work is profitable for them by giving them the playbook and letting them bill for their time. You don’t need the services revenue anywhere near as much as you need the Tier 1 account win.
• Defer inbound requests that take you off strategy. You don’t have to say no. You just have to say, not yet. Given the amount of stress that any Tier 1 engagement will put on your firm, taking even one account that is off-script risks breaking your camel’s back.
• Defer inbound interest around an acquisition. You are at an inflection point in value creation that is potentially extraordinary, the very outcome you and your investors have been preparing for. This is not the time to let go of the reins, particularly if they are going to get handed to an established enterprise whose culture is likely to clash with yours. Moreover, you cannot afford the distraction of all the due diligence that M&A discussions necessarily entail. M&A cannot solve your Tier 1 problem. You have to do that yourself.

Now, to be clear, there are exceptions that could overrule any one of the prescriptions above, so each team needs to review them in light of its own history and circumstances. The key point is that when the market is shifting from a state of scarcity to one of abundance, there is a short time window to catch that wave. The large competitors cannot move fast enough to do this themselves — that is why they are interested in making an acquisition. You are agile enough to do so, but you are painfully subscale — hence the need for the somewhat drastic prescriptions above. Navigating this part of the journey is tricky, but if you stay focused on winning (and keeping!) a handful of Tier 1 accounts, you are making the best bet.

That’s what I think. What do you think?

Image Credit: Google Gemini

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