litle-outsourcingBy NovaSphere Blog

In 2008, I must have had at least 50 conversations with small Latin American outsourcing providers, most of them in the IT Application Development space. I wrote about it quite a bit in this blog, but some of the salient points were:

* Everyone that contacted me was interested in a sales and marketing channel to the US
* Almost all were interested in a contingency sales model
* Many had tried independent sales contractors and failed to receive any benefits
* Nearly all were already doing work in the US, with a few even serving Fortune 500 corporations
* I was really impressed with what they were working on—not the stodgy old mainframe and client/server applications that the Indian IT firms built their empires on, but all were JAVA, .NET and many were building mobile apps and 2.0 apps. One guy I met at an outsourcing convention even had me download an application his company had built on my iPhone—showing confidence and creativity in his sales pitch!
* Just about all of them were working on IT projects, as opposed to Application Maintenance.

It’s this last point I want to talk about today, though, because as the recession in the US gets deeper and wider, most if not all of these firm’s very survival will be challenged by severe cuts in discretionary spending—which is where they currently derive most of their revenue. Let’s face it, that cool new mobile application is just about the easiest thing for the CFO to strike from the budget as she/he launches a raid on all available cash.

Last year I gave some basic advice to providers trying to break through to the next level, but as the recession deepens, I am convinced that won’t be enough. I do, however still believe that many of these guys are doing fantastic, innovative, high quality work. And I also still believe that the cultural similarities, proximity, and time-zone sharing with the US represent an as-yet unexploited opportunity.

So how can these firms weather the storm? Well, I don’t think there is a silver bullet, but there are some good practices, both old and new, that should help them market and perhaps even grow in these tough times.

Create new revenue models

I was thinking about this as I made reservations for tonight on OpenTable from my iPhone. This is essentially a sales application that charges restaurants for booking reservations for them. It’s quick, convenient and works relatively well. I know it might be a cash-flow challenge, but small providers should be approaching their clients with ideas for apps that increase cash flow or revenue, and then sharing in the results. Few companies want to spend cash right now, and all companies would like to have more of it. This model requires that the provider understand the client’s business well. But it has a great benefit, if the revenue-generating idea is good, which is that prospects are not likely to want it in the hands of their competitors and are likely to move quickly. The vast majority of small software development companies I talk to do not know their customers’ business well enough—and thus cannot help them to innovate their revenue model.

Getting into maintenance would seem to be easy, but most of the companies I spoke, particularly in Latin America, were finding that market difficult to crack. It is definitely the province of established Indian providers, who have long term deals, large workforces, enterprise-scale expertise, and of course, piles of cash (except for Satyam which had fake piles of cash). One creative way to secure long-term revenues, then, would be to create a Software as a Service (SaaS) offering from an existing development effort. An example:

Suppose you are a provider developing a mobile App for a mid-size bank in the US. There is a good chance that the 80 other mid-size banks in the US have a need for a similar application. Why not approach your client with the opportunity to “earn back” their investment in this application by allowing you to market it to the other banks, potentially driving their investment to zero and your revenue through the roof. This model gives everyone incentive to “grow the pie” and allows struggling client companies to monetize their software investment.

Check out a similar development by Avantica here. While it does not seem to be a true SaaS model, it is one step in that direction, creating an app that allows a middleman to drive revenues to retailers.

Recognize your core and your context.

“Esteban, we write great code, but we are not good at selling” or “We can sell but only once someone has opened the door for us” or “we think we need a permanent presence in the US but cannot afford it”

These are all statements I have heard from the small providers out there. The funny thing is that many don’t recognize that they are simply distinguishing what they do well (what is core to their business) and what they don’t (what is context). This is the exact same logic that companies use to decide to outsource, so the answer should be pretty obvious! Companies faced with these challenges can outsource their sales and marketing. My friend Matt Smith at 3Forward has offered a fantastic primer on their blog, and I can’t say it any better than they do so I won’t. But the point is there is no sense in trying to do something you are not good at. I still don’t recommend the lone ranger contingency sales-person model, for a number of reasons I won’t get into here, but I recognize that it may be tempting because of it’s seemingly low risk and reduced start-up costs.

But the best principle of contracting applies to deals between service providers: pay for the results you want, and that is what you will get! Pay for bodies, and that is what you will get—now which would you rather have?

Get visible

Sounds basic, I know, but there’s a lot more that could be done that just isn’t being executed. The vast majority of CEOs of the providers in Latin America that I talked to last year were smart, eloquent, insightful and articulate—in English! Gentlemen, where are your blogs? Why aren’t you speaking at some of the same conferences I am speaking at? Why don’t you grab a happy client and present together? Why can’t I find you on Facebook? How about an article in a widely read business publication? For those of you with a decent run-rate, how about a coming-out party by sponsoring a conference? Maybe a newsletter I can sign up for? Find out who is advising your target clients, and get to know them. Maybe you can make Twitter work for you (though this last one I don’t recommend—call me old school but I have my doubts about the work ethic of people who have time to describe the banana they ate with breakfast, or the poor judgment to text an update about their commute…while driving).

Do your homework

OK this is sales 101, but you have limited cycles to sell and you should devote them to the most likely conversions. Who has money and a need for your product? I doubt that GM or Chrysler are doing much IT spending right now. However, debt collection agencies probably are.

Follow the money! The American Recovery and Reinvestment act of 2009 (the big old stimulus) is pumping nearly a trillion dollars into the economy. This will create a huge need for services. Sure, its not likely the US government will contract directly with a non-American company, but there is enough money that even being a tier 4 supplier in the right place at the right time might make 2009 a very lucrative year.

I am not sure that any one thing is the answer, but I will continue sharing ideas as I think of them, and hope that some of you join in the public discussion. Am I crazy? Have you tried all these things? What has been successful for you?

Source: www.novasphereblog.com