Development companies - How to grow in 2024
Dave Francis
Highly experienced IT professional / Sales and Marketing expert looking for a new role.
Probably not a subject you were considering, as we all lurch into a bleak 2024. This is a long article. Let me save you some time.
It's pitched at small to medium UK IT development companies and is split into two sections : the first one is a review of IT Sales and Marketing and the difficulties in implementing them from first principles, and the second part is a more radical suggestion concerning the feasibility and practicality of Joint Partnerships with UK-external companies for mutual benefit. Please note that this is just personal opinion, based on many years of industry experience. This article isn't meant to upset or challenge anyone, it's provided "as is" and hopefully contains some interesting and useful points.
Introduction
You don't need me to remind you that 2023 wasn't a very good year for the small UK IT development firm. I could, of course, preface this article with all the facts and figures on the economy, or the probable oncoming recession - or you could just look at the corporate accounts and think, well, things could be better.
Let's do it, anyway.
I doubt anyone in the UK IT industry will miss 2023 very much. Especially me.
I decided to take voluntary redundancy in January and walked out into a recruitment and growth desert. (Yes, I am still looking for a suitable IT position, incidentally.)
It's looking very bleak out there. According to the CBI, 30,000 companies will fail in 2024 - that's a staggering 7000+ per quarter. Not only are these companies your potential customers, but the numbers will also inevitably include UK software development companies as well. In the last few days, in fact, the Guardian and other news sources have painted an even gloomier picture, with 47,000 companies teetering on the brink of collapse.
You probably don't need me to remind you of this. Nor does there seem to be any good news on the economic front, with the BBC reporting that the UK is hardly likely to undergo miraculous change this year.
With a possible recession announced by several news sources, it hardly looks very peachy at the moment.
Having been in IT since the mid 90's, I personally can't remember a more difficult time for the industry. I expect you can't, either. With no clear end to the IT and economic recession, you may, as a small UK IT provider, be just glad to have survived 2023. It is, frankly a worrying time.
The UK Software Development Industry
Contrary to popular belief, the UK IT development industry, although generally well established, typically comprises of small companies with between 10 and 50 staff. A "major employer" would have over 100 staff. (Actually, that sums up most of the UK economy, really.)
99.2% of UK companies have 10 staff or less. The UK is not a cheap place to develop software, and, over the years, customers have become tempted to use overseas outsourced development. This is still an approach fraught with potential pitfalls, but "cash is king" at the moment.
All in all, small UK IT development firms tend to lead a hand to mouth existence. Typically, they don't need a lot of work coming in.... projects take several months to complete.... but if no work comes in, you have expensive developers on the bench. A protracted drought of incoming business can have serious effects for any small provider.
UK IT firms tend to be "reactive" rather than "proactive" - typically, a small IT development company won't have a business growth manager other than senior staff. Basically, small UK IT companies typically sit back and wait for work to come to them, rather than go out and look for it.
Not only does a proactive approach cost money, but it also takes time and involves specialist skills. The net result is that a large number of IT development companies are well versed in software development, but are less au fait with how to generate leads and thus income.
After 10 years as an IT professional - "working on the coal face", and 20 years in IT Sales and Marketing, here's the skinny on the pitfalls of going to look for IT contracts and customers, and a somewhat radical suggestion on how to do it as cheaply and effectively as possible.
Thinking strategically for 2024
"Insanity is doing the same thing over and over again and expecting different results" - Albert Einstein
You've probably done all the obvious - moved to smaller offices or encouraged homeworking..... you might have let go of all those overpriced staff you "invested" in prior to the recession.... perhaps it's time to try some of the non obvious ideas.
New ideas, of course, entail risk. So does not introducing new ideas. The obvious question is "What's the right approach ? " If you're thinking of generating leads via experimentally trying Sales and Marketing, here's some facts to consider first.
Part 1: implementing Sales and Marketing
Now is not the time to attempt to learn all about IT sales and marketing, he said, having spent decades doing it. But here's some handy hints if you're looking at becoming proactive, rather than reactive, and attempting to generate leads and hence business of you own - you going to find it, rather than it coming to find you.
The issues here are time and expense.
A calculated risk ?
It's astonishing how so many IT firms work on the concept that customers are merely going to drift their way, by word of mouth. Well. It works for Rolls Royce and Aga.
Except that Aga are in deep trouble and Rolls Royce is now a German company. See "proactive", above.
Of course, all sales and marketing activities are a calculated risk. They all, guess what, cost money to implement, monitor and manage, and take time to produce results.
Now, risk is of course, acceptable, if you understand the subjects, and, let's face it, for the uninitiated, there's a lot of information out there on the internet about how to market your company and sell software. CAUTION - most of the "helpful advice" out there on the internet regarding sales and marketing is WRONG. That's wrong, inadvisable and just sheer incorrect, ladies and gentlemen.
Let's start with Marketing.
Unfortunately, the internet is full of noise and people trying to sell their own services. This is especially true with Sales and Marketing. If you look on Linkedin or any "professional" website, the content will possibly convince you that there are all kinds of things you should be doing and that success is formulaic and guaranteed.
It isn't.
A lot of the hype around Marketing is based on a US business model. In the US, if you can demonstrate that a product will (with reasonable certainty) deliver business benefits, and it closely matches a specification and a price point, you'll have customers for it. This is absolutely not the case in the UK, our business climate is totally different and ruled by a Chief Financial Officer and a spreadsheet.
The first rule in the UK is "Is the money there ? If not, we'll do without something."
In the US, you can arguably create demand for a product by investing in Marketing. In the UK, you can't. And US development companies tend to be larger and more cash rich, with more money to throw at marketing their goods and services.
Now here's the nasty bit. Marketing costs money. And quite a fair bit of money as well. Conventional Marketing wisdom states that 10% of your revenue should be devoted to marketing - if you're B2B - and 20 to even 30% of your revenue if you're B2C. These figures are just inappropriate and probably incorrect if you're a small business.
The internet is full of generic information about how to do Sales and Marketing, and most of it is completely inappropriate, or hideously expensive and risky to implement. By "risky", I mean this: if you devote large amounts of company revenue to Sales and Marketing, and it goes wrong, you'll either sink the ship or get into serious trouble. Even at the best of times, you don't want to do that. We are not in the best of times. The other side of the coin is that you have to find some way of generating customer revenue, of course. Or you'll sink the ship or get into serious trouble. Again.
Now, what do I mean by "inappropriate" ?
Well. Marketing is a huge subject, and the "advice" you'll see on the internet is generic and not specific to a small and specialised company. Obviously, the approach you'd take if you were a 500 seat specialised Insurance company is different than if you were, say, a local firm manufacturing PVC windows.
Also bear in mind that the purpose of "sales and marketing experts" is to sell their services to you. Most of which you won't actually need. It's basically common sense.
If you have a £10k a month budget to sink into Pay per Click or social media ad campaigns, which you'll have to spend months fine tuning to get a result, fine. You probably don't. Otherwise you wouldn't be reading this article. You may think, right, I'll try and get higher up the SEO rankings, until you realise that so will everyone else and the company with the highest budget wins. Or try and get backlinked articles to increase your domain authority. As will everyone else.
And that costs a fortune as well. What happens with this approach is that even if you do get on Page 1 of Google for your search terms, any paid advert by your competitors will trounce you in the ratings. Google is, believe it or not, a business, and they'd like money, please. (Rumour is that if you start spending money on Google paid ads, as soon as you reduce your spend, you'll be knocked down the search rankings until you bring more cash. ) Eventually, you might work out that marketing, for any company, is a case of throwing money at a wall and hoping it sticks.
All marketing - and expenditure on sales - is a calculated risk. This is why there is so much emphasis on marketing analytics. What actually gives you a return on your investment ? You've had to spend the investment before you start on the analytics, of course. It's not really the time to start learning, is it ?
One point about Marketing. Follow all the advice on the internet, and all you're doing is joining a large club where everyone is doing the exact same thing. You haven't differentiated yourself, you've joined a crowd where the distinguishing factor becomes one of "who can shout loudest". In this case, making the loudest noise becomes a question of who can spend the most, and get the most coverage.
"Right", you may think, "Rather than spending large amounts of money, I'll do some minor changes. Hm. How about putting QR codes on the website so potential customers can download versions of our previous apps easily ? " Good idea. However. Small changes are unlikely to have large results. File under "magical thinking."
For a cash strapped company, Marketing is extremely problematic. There are few cheap avenues you can explore - Manchester Digital and Linkedin being two of them - social media is unlikely to bear fruit - and you might notice that everybody is on Linkedin, all putting up posts which just fade into a mass of similar content. (Did I say "mostly junk" then ?) If you've not installed Google Analytics and set it to track your sources, it might be an idea to do so. However, the likelihood is that the data you get back is somewhat questionable. Drawing conclusions from a few hits is always dubious. You may think that only getting a few hits from, say, Manchester Digital is OK, as they're "quality traffic" - but if you don't then follow up with asking your prospective customers where they heard about you, essentially, you're shooting in the dark. Marketing also takes time - time to write content, plan campaigns, execute them and then analyse the results, so you know what you're doing and where to concentrate your efforts. Putting money considerations aside - is that time you can afford to expend ?
There's much more to successfully marketing a small business than the waffle above, believe me. This is the tip of the iceberg, and here's my mail address again - hello@davefrancisconsulting.com .
Expanding your Sales activities
So let's look at Sales, then.
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For the uninitiated, the theoretical difference between Sales and Marketing is: Marketing generates interest and attracts potential customers to your website. Sales then converts those potentially interested customers into paying clients. Not many small IT providers can afford a dedicated Sales Manager. They cost money. Most development companies don't need high levels of leads coming in..... they need just enough to keep business ticking over, with a healthy pipeline.
Except it doesn't quite work like that in real life.
As with Marketing, Sales is a topic absolutely obscured on the internet by various layers of bullshine. There are purportedly all kinds of different methods of selling things or handling objections, all of which, when you read closer, are more or less adverts for the people trying to convince you that these methods work- they don't - or their new AI driven analytic software will identify potential new targets - it won't - or 1001 other snake oil solutions, suggestions and handy tips.
20 years in IT system sales here, folks. How you do it is politely approach as many people of possible and see if they have a problem which you can help them resolve. In saying "that's all there is to it", you have to be of a special bent to be an IT system salesman: you have to ideally have a high level of system knowledge, competitor knowledge, industry knowledge and the kudos to be able to talk to decision makers with some degree of authority. Just saying "Oh, we can certainly build you an app" and then trying to bully or cajole someone into spending £50k is not a very wise approach. A large number of IT development companies make a classic mistake of thinking that it's all about the software, and I've certainly sat in client meetings where someone on the technical side will blather on about the technical minutae of a proposed app to a client who really has less than no interest in what a JTI compiler is. Whilst you may not need a Sales manager, you need someone who can communicate - in human terms - to your clients and build rapport, whilst also understanding the bigger technical picture. These are rare beasts. Good ones are expensive, too.
The above presupposes that you've manoeuvred a potential client through the door and into a seat in the boardroom or a Zoom meeting. How do you generate Sales leads in the first place, though ?
"Bring money".
For the uninitiated - apologies if I state the obvious here - if you move or have moved from a reactive model of potential clients coming to you to going out and finding your own leads - then you've moved from, in industry terms an inbound sales approach to an outbound sales approach.
Cast your mind back to the start of the article and you may remember that I mentioned that all Sales and Marketing was "calculated financial risk".
With outbound sales, things start to get expensive. Outbound sales - approaching potential clients - it's a numbers game. The more potential decision makers you can reach, the more chance (theoretically) you have of generating a sale. This means "bums on seats", ie, "money", and it also requires a dedicated Sales manager (money) to run the ship properly. Don't for a moment imagine, if you're technical, that you're somehow qualified to run a Sales team. Ah ah no you're not. Especially if you're working on a basic plus commission model. The idea behind Sales is that you pay your sales people just enough to live on and then give them a generous level of commission to compensate for them doing a soulless, repetitive, stressful job. "Just enough to live on" means your sales team play all kinds of tricks in terms of lead qualification and targets and "commission" is all very nice, but did you notice that it's a pretty lean market out there at the moment ? Sales staff are very simple to understand, you put money in them and they work. However, as with Marketing above...... there's that word again, "money". Either in the form of wages or time or training or managing or 101 other things. So....
Conclusions so far
Right, having said all that, let's come to some conclusions about trying to drum up business by venturing into your own Sales and Marketing: "proceed with caution".
To distil the above into easy conclusions: 2024 is where you have to get proactive, rather than reactive. The main hurdle to doing this is that trying to develop your sales and marketing activities is an expensive and risky business. It can also take time for a sales pipeline to build, and what may happen six months down the line is, frankly, academic. There are some cheap "quick wins" you may want to consider, such as e-mail marketing or business networking - I'm going to skip over these (for reasons of space, I'm boring you enough already) by saying "you'll just be doing what everyone else is doing - competing with everyone else in a limited market is perhaps not a recipe for success."
Part 2: The "radical alternative"
Here's where we get to think radically. Ready ?
Here's something to chew over. With the rising expense of developing software in the UK, many firms are embracing outsourced development. Actually, so are your customers, with - as I'm sure you've found - many of them going direct to overseas development agencies. (With "variable" results.)
Outsourcing has always been a convoluted and difficult undertaking. It doesn't always work - let's skip over the whys and wherefores (which are mainly communication and expectation based) - what should be a method of accessing cheap developers and project managers turns into an occasional nightmare.
The ins and outs of outsourcing
If you're in IT Management, you will doubtlessly be utterly plagued by emails from overseas development companies offering their services. A full 50% of my mails were from Indian Business Development managers trying to offer outsourced development or team enhancement services of (I'll be diplomatic) questionable worth. Obviously they were cheap. I don't know about you, but if I was going to have a kidney removed, I'd prefer expert over cheap. However. Your customers don't know that - they have no expertise in software development and what can go wrong, which also probably explains why one in five enquiries you'll have are from customers who've tried overseas development and then found out that their app has been slapped together by amateurs and the codebase needs, well, starting again from first principles. The common thread for all "external overseas BDM enquiries" is that they invariably mention partnership. Actually, not the case. What these mails generically are are lottery tickets. "Is a Western company looking for some overseas development ? Can we make £20k off this.... whilst they risk it all going wrong and possibly losing a lot more ? "
This is the tip of the iceberg about outsourcing, incidentally. Whilst it's theoretically quite easy to find an outsourced development partner - as with all IT - there's a strong element of "smoke and mirrors". The internet allows for a great deal of obfuscation and it can be difficult to tell what is really happening overseas, with some companies merely being umbrellas for a pool of freelancers - and consequently no real control or responsibility over them. Also. Cultural differences do come into play - in some countries, it's seemingly acceptable to just ignore inconvenient deadlines, produce deliverables not to an agreed standard of work (just to the standard they're capable of working to) or even, as an extreme example, trying to use emotional blackmail in meetings. It's an interesting world out there, if you've not experienced it. There are some definite red flags and, with a bit of advice, you can definitely find a company you have long term common ground with. "Mutual benefit".
However. Not all overseas development companies are bad, of course. And I'm going to suggest to you that the answer to the economic problems which 2024 and beyond have to throw at us lies in a closer relationship with overseas development agencies.
Joint partnerships
So, after a fairly lengthy preamble, for which apologies, here's the Big Idea. Approach with caution, though.
Look at pooling resources in the form of a joint ventureship.
I mentioned "mutual benefit" above. Most outsourcing deals tend to be "single shot" or "on demand". A single project, which originates in the UK from a UK partner, starts up and runs until completion. Let's examine this in a bit more detail. The end customer (UK based) wants to commission a software development project. Ideally, they want the work to be done professionally, to UK standards of delivery and quality, and to be completed as cheaply as possible. So. As we all know, what tends to happen is that they approach a local software provider who has an appropriate technology stack.
Part of the reason for this is communication. The customer, if they have any internal IT provision, don't want their staff tied up in long, convoluted explanations and project management issues. They want to be able to pick up a phone or pop into an office - ideally - and talk through convoluted details with as few issues as possible. It's all about good communication and trust that software will be delivered on spec, on time and on budget. And also that if something does go wrong - face it, software development, it will - there's a potential issue of legal redress ("try suing someone over a geographical border") or the codebase can be picked up and given to someone else to expensively untangle.
Here's where UK companies have an advantage over overseas ones. So, the work used to come directly to them from UK customers. However. That's changed. Proactive versus reactive, of course. "Welcome to 2024".
Obverse side of the coin. The advantages which overseas development companies have over UK ones are.....
Cost of development - Given lower operating costs overseas, development costs, the main expense of a project can be substantially cheaper.
Larger software portfolio - most overseas firms tend to be larger than UK ones and tend to have more extensive variety of software expertise.
Cheaper sales and marketing - it's much less expensive for an overseas company to set up an outbound sales department. More staff, more calls, more business. However, they don't tend to speak a "lingua franca" when it comes to calling overseas companies.
What about the disadvantages overseas development companies have ?
They're overseas. First and foremost, this is the biggest impediment they have to doing business in the UK. No one can "pop in the office" to see if the developers are playing World of Warcraft or not when they should be working. Also, and this is never mentioned: overseas development companies tend to think that since they have a UK customer, they can charge UK market rates. Ah ah no. "magical thinking."
No transparency. It's impossible, at a distance, to tell whether a company is a reliable and safe provider.
Language barrier - one of the crucial factors when choosing an overseas development partner, for me, anyway, is "Does the company invest in an English language trainer ?"
Cultural barrier - Some countries have.... interesting ideas about what constitutes a deliverable piece of software or what a deadline entails.
No legal redress - If it all goes pear shaped, you're into cross border litigation, which is an expensive and fruitless hobby to have.
"Mutual benefit"
Again, let's pop back to "mutual benefit."
Going back to (the thousands of) mails sent by BDMs to UK development agencies, virtually all mention "joint co-operation." No one actually means it or has thought about how to achieve it, or what the potential benefits can be - the mails are are "lottery ticket" ones. "Can I have a one off deal and make a lot of money ? "
In a proper joint venture, the two companies - one overseas, one UK based - can reap potentially huge rewards.
- to name but a few. Joint ventures have the possibility to solve two sets of problems - one for the UK partner and one for the overseas partner. You get to punch far above your weight in a Joint Partnership. Yes, they'll take some setting up but the potential for success is greatly increased.
And that's what we're all looking for in 2024.
Contact me
Whew ! This has been a big article and just grew and grew, for which apologies. I hope you found it interesting - remember - it's opinion only (although based on experience) and not meant to upset or irritate anyone. Provided "as is and for your information". If you've got any questions or would like clarification, please feel free to drop me a mail - and yes, at the moment, I'm looking for a job. You may want to pleasantly surprise me. ;-)
All the best, and good luck !
Dave Francis
E-mail - hello@davefrancisconsulting.com