The rapid pace of change in our industry has left many partners searching for new paths for growing their business. It’s increasingly difficult to build a sustainable, profitable business on the traditional IT model – so, now what?
IP is the next logical step to profitability for our evolving partner ecosystem.
Not only does creating and selling your own IP make you more profitable, it makes you even more valuable to your customers.
That becomes more and more clear as we begin to see IT services executives set their sights on mastering the art and science of creating and selling intellectual property as a way to grow their business.
But what do they know that makes them confident in investing their time and resources in IP, and why should you consider doing the same?
The history of partner evolution
The dawn of the technology revolution saw a small partner community of VARs, resellers, and ISVs selling and implementing the technology products provided by the hardware and software vendors atop the tech food chain.
Over time, this partner community grew larger and more competitive and sought to differentiate themselves. They grew by evolving into services companies, providing customized solutions and managed services around the software of the tech giants.
Now this services community is significantly larger and even more competitive, so the quest goes on for the next platform for growth: IP development. The leaders in this new phase of evolution are already seeing real growth and, more importantly, are setting themselves up to take advantage of the tremendous opportunities that still await.
Taking the IP initiative
Transitioning to the IP model can be harder for many firms than the transition to a services-based model. That said, for those with the chops to take on this initiative, there are rewards to be had, including:
- New sources of profitable revenue
- Competitive insulation
- More relevant company differentiation
- Accelerated development time
- Offensive counterbalance to offshore competition
These benefits (and a host of others) don’t always come easily, however, as executives often find themselves faced with a set of unspoken rules unique to IP development, among them:
IP requires a specialized, focused services offering. Specialization is what we’ve been preaching for years, and it’s the foundation for effective IP development.
Two key components of an effective specialization strategy are technology and vertical. Having a technology and vertical focus gives you the credibility and experience base for justifying your IP service offering.
It is important to contract for the IP properly. IP development is not your standard “work-for-hire” kind of contract in which the customer who paid for the service owns the work.
In order for you to reap the rewards of your IP, you’re going to need to construct a contract in which you are the co-owner, along with your customer.
IP isn’t a product. And if you look at it that way, you’re looking at it wrong and potentially undervaluing the value or limiting your relationship with your customer.
The IP you create will only ever be as good as the service you provide around it. It’s why we call this offering a product-enabled service.
Valuation is a necessity. You must correctly quantify and articulate the value of the IP offering.
Creating an IP service offering involves finding the right mix and balance of the existing code structure of the software platform, e.g. CRM or SharePoint, and the new customized code that becomes your IP. How you determine this mix, how you price it, and how you sell it is where the heavy thinking and experimentation come together. This is new territory, and there are no magic formulas for determining this value.
Check out the conversation Jen Sieger and I recently had on more best practices for building IP:
The next step
Having now created a unique IP offering, the next phase is how you go about creating a new sales channel, enlisting others to sell this service. Right now there are no hard and fast rules for determining the point at which you can realistically begin to market your IP to others, but a good rule of thumb is to hold off approaching new channel partners until at least half your new customers have bought into your IP. You’ll need this base of acceptance to credibly demonstrate the appeal of your IP.
And for those executives who are looking even farther ahead in your business planning, towards perhaps selling your company at some point in the future, offering unique IP can increase valuation. Effectively creating and marketing a unique IP service offering makes your organization highly attractive to the acquisitive set, to companies that will pay dearly for your company and be glad they did.
Next: stay tuned for the Rule of 45, which is what we consider to be a healthy growth rate for companies in the IT services space.