The technology space is known for innovative, rapidly growing companies. The downside is finding your technology provider has moved “upmarket” and left you behind. This is happening more and more with acquisitions funded by private equity groups. Their goal is to put together more and more recurring revenue, show increasing revenue and profit growth, and then sell to the next larger PE firm.
This is not always a bad scenario. If you are in the top quartile of your provider’s revenue (and hopefully profits) then you can benefit from the acquisition. The bad news is increased overhead, layers of management, and a focus on paying back the debt/equity used to fund the deal put pressure on your former provider in ways that are not aligned with your interests.
There are three tactics you can watch out for.
These are applicable whether or not your provider has been acquired, but are more likely when an acquisition has occurred.
1. Pricing increases with no increase in value
This is simple economics. Raise the price on a given customer to either make them profitable in your new cost structure OR they leave. This is especially prevalent when your renewal comes around. Often this can mean that your provider has started focusing on larger groups and is pricing based on that. There is absolutely no issue with accepting a price increase, just make sure it still meets your ROI requirements.
2. Project delivery not connected with an overall strategy
It’s no secret that projects are a way of increasing the profits of a customer account. When the projects being suggested have no apparent connection to an overall strategy or clear benefit to your business, it’s time to ask more questions. This is often a sign of a larger provider needing to keep “bench” utilization up.
3. They are recommending their internal products and services versus mainstream options
Many private equity backed groups started off in the datacenter (now called the cloud) space. They have spent a lot of money building out their cloud infrastructure and must keep utilization high to pay for it. This does not mean it’s a bad solution, but it does mean you will not get a cloud services recommendation that isn’t in THEIR best interest. If your provider traces its root back to datacenter, telecom, or similar space….watch out!
The bottom line is you want a technology group that delivers value to your business and can make a reasonable profit doing so. It’s the win-win we are all looking for, otherwise someone is the loser, and it could just be you!