As an IT Solution provider grows their business, their information needs change. Every entrepreneur starts their business the same way, with everyone doing a little bit of everything (including themselves). They know what’s going on in their business because they have first-hand involvement in almost every transaction, from pre-sales to delivery. Decisions are made by the seat of the pants and based on spreadsheets and the last set of financial statements.
If successful, the IT solution provider business grows… but what happens next?
As I grew my own Cisco partner business from under $1 million to over $50 million in revenue, I saw my own information needs change dramatically. Here are the three areas that I realized I needed to get on top of if I wanted to continue our aggressive growth:
As a business grows, cash flow becomes critical. At some point, using backward-looking financial statements or historical information to make strategic growth decisions just doesn’t cut it anymore.
Smart businesses transition to using a combination of current and forecasted data to make strategic growth and investment decisions. This only works if the data is current and detailed enough to answer questions like:
These answers become much more important when those changes impact larger customer projects which involve multiple employees and may result in hundreds of thousands of dollars sway in revenue forecasting.
If you’re using 3rd party quoting tools or doing quotes in Word and Excel, then changes to the quotes don’t update the forecast. Your growth decisions will then rely on the sales reps to manually update the opportunities accurately, every time there is a new quote version. I love our sales guys, but that’s never going to happen consistently. Your sales team’s focus is to get sales. That will always be a much higher priority to them than manually updating forecast information.
This is when having integrated opportunity, quote and delivery automation functionality become critical. It is the only way to ensure an accurate forecast and to get the detail you need to execute proper resource and revenue planning.
We all have stories of the perfect sale that turned into a financial disaster when it was delivered. Finding out you lost money on a project 60 or 90 days after a project closes is obviously too late to do anything about it. I call this approach “autopsy accounting”.
Let’s do an autopsy on the dead project we lost money on and figure out what killed it so we can make sure we don’t kill the next one.
Autopsy accounting is a very expensive way to engage in continuous improvement. What is really needed is real-time visibility into the cost against quoted budget of a project. The data needs to show costs not just for the project labor but for equipment and project equipment support as well. This way the management team and project managers get an early warning if a project is “sick”, while they can still do something to fix it vs. performing an autopsy on the project after it’s dead.
Most companies really struggle with this because even though the software they use has modules to track labor and equipment and support, they were never really designed to handle large progress billing or milestone oriented projects. This means there is no easy way to provide the Project Managers with the real-time cost against budget status of their project. It also means that you don’t have the real-time data to hold PM’s accountable for project profitability.
What is really needed is integrated quoting and delivery automation so that you can easily compare the planned budget with the current project actuals for labor, equipment and support. This provides PMs with that “early warning system” so they can stay on top of project’s actual costs while having the ability to drill down into the details to get to the root of the problem. This also gives PM’s the ability cycle any implementation lessons learned back into the quoting process.
Successful businesses pay attention to margin as opposed to getting distracted with revenue. Margin is the engine of growth. If you currently ask yourself questions like:
Who are our top 10 customers?
Who are our top sales reps?
Who are our top project managers?
These questions should be asked in the context of margin, not just revenue. Your company’s growth is funded by margin, so it’s the ability to measure and manage margin that determines the ability to fund growth.
The next question that naturally arises is:
Why are they our most profitable customers/ sales reps/project managers?
That’s when leveraging best practices can start to impact overall company profitability. Having the margin information analytics is the first step, but being able to quickly drill down to the detail is what allows you to confirm the “why?” and roll that best practice out to the rest of the company.
If you are a growing IT Solution provider, think about how different your company is from when it was 5-10 employees vs. now that it’s 30+ employees. Think about how your company’s growth has impacted:
That complexity is the reason why we implemented the Promys PSA software and Promys was a big reason why we went from under $1 million to $50+ million in revenue as quickly as we did. Having more detailed real-time forecasting, better visibility into our project and company margins allowed us to make the right business decisions to grow the business.
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Project Profitability Scorecard
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Cisco Audit Scorecard
For IT solution providers ensuring that your business processes support Cisco Audit requirements. |
