Episode 25 Transcript

Banoo Behboodi: Welcome to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. I'm Banoo Behboodi, and my guest today is fellow Kantatan, Charles Gustine. Charles is our brand evangelist at Kantata. And today we're going to be talking about some fascinating research The Forrester just released. This study was commissioned by Kantata and Salesforce to provide insights into the benefits of vertical SaaS for professional services. The title of the study is Vertical SaaS for Professional Services is Driving Material Benefit. Charles, welcome to the show.

Charles Gustine: Thanks Banoo, thank you, happy to be here.

Banoo Behboodi: Fantastic. First off, if you could let our audience know a little bit about what vertical SaaS is and what led to us commissioning this research with Forrester?

Charles Gustine: Yeah, sure. So obviously vertical SaaS is not a new concept. There's long been this concept in the technology industry of horizontal and vertical. So in defining vertical SaaS for professional services, we are not necessarily breaking new ground here, but I think we're trying to understand a shift that has happened in other industries before. Definitely, we've seen this happen in industries like the financial services industry, the healthcare industry, where as an industry, its technology needs get more specific, and more complex. The buying behaviors of that industry shift from more generic, horizontal solutions where you're buying solutions that anyone can provide toward truly vertical solutions. Where this is software specifically made for healthcare businesses like yours. And what we wanted to really understand is how is that happening in the professional services industry?

Now, obviously this has been something that's happening over the past few decades, but I think we see that boulder rolling down the hill and we wanted to work with Forrester Consulting in commissioning this study alongside Salesforce. So we co-commissioned this with Salesforce to really understand how that's happening in the market. And if you give me just a second, this is gonna be a pause, I'm gonna pull up the definition that we gave. And so one of the things that we did, is we had to put a hypothesis out there, that's part of the whole point of research. We needed to get together a panel of professional services business leaders. And we needed to get their reaction and we needed to put down on paper, okay, if you had to define what vertical SaaS for professional services is as distinct from what's out there on the market today, what does that look like? Here's what people were reacting to. This is what the definition was in the study: “A vertical professional service SaaS solution is a Cloud solution that has been purpose built by domain experts with configurable out-of-the box capabilities that are specifically designed to address the unique needs of services organizations.” And we'll talk about this more later on in the episode. Overwhelmingly, the reaction to that was resoundingly yeah, that is what we need. That's what we need to be buying in the future. When we're buying generic stuff, it's actually holding us back.

So the hypothesis that we approach this research with was look, the vertical SaaS moment for professional services is here and it's big. And that's basically the whole investment thesis behind the merger that created Kantata, which is the business that both of us work for. This isn't a sales pitch for Kantata, I think this is just trying to track this shift that's happening in the professional services market. And we've seen other investments happen since the Kantata merger that follows a similar trajectory like projector and big time merging that have this same feeling. Take businesses like Kimball and Mavenlink that are specialist vendors solely focused on professional services and magnify that double down. And really bring that focus and that expertise at scale, so that there is something that can compete against the more horizontal either suite-based or point solution-based approaches that are being brought to market.

Banoo Behboodi: That makes a lot of sense. I read the study and it was fascinating for me because it was almost reflecting on or hearing out a lot of clients we deal with day-to-day and their perspectives on where the problems that they're facing are and why vertical SaaS is the right answer for them. And confirmation that it is the right answer and where they wanna go. But that being said, can you just tell us a little bit more about the operational challenges that PS organizations are facing based on the study and the information collected in the study?

Charles Gustine: Yeah, sure. So obviously, one of the things we needed to do in order to understand why people are buying the software they're buying, is to understand what problems people are trying to solve. What are they trying to do? What are their goals? What are the objectives for their business? What are their priorities? What stands in the way of those priorities? That's table stakes, like what is every business out here trying to do? And I think what we see is, we're working with businesses, them trying to do, is there's the obvious stuff that I think everyone knows. And I think that every provider in the market has been trying to address this since the advent of tools for professional services, which is like, we wanna increase our utilization, we wanna increase our project margin. And I think this has been, and we'll talk about the data in just a moment, but this has been increased by a factor of the pandemic coming up on a recession, right? How do we recession-proof our business? The strategic imperative for business that we're seeing is how do we scale our business. And that could be scale up or scale down. How do we scale our business while yes, growing the business, while growing profits, but also while creating loyal customers and while growing and retaining our workforce? Those are not always the most complimentary goals. And oftentimes they're at odds with each other and businesses have a tough time balancing those.

One of the main things we wanted to accomplish with this survey, with this study, was to really validate that those are the top priorities. And so when we asked the 383 businesses, the organizations that responded to this, how much are the following initiatives a priority for your organization for the next year? The people who said that it was either a critical or high priority, create loyal customers, 87%. Maximize profits related to professional services, surprisingly lower, but obviously still very high, 85%. Grow/retain workforce, 85%. Invest in new technologies to meet evolving needs, 85%.

Now, the other thing we wanted to gauge alongside that was like, okay, can you achieve those things? And how is your tech stack helping you achieve those things? So we also wanted to ask how challenging does your business find some of these common business challenges. And we kind of asked a fairly easy question, how well does your tech stack work together? And the majority of businesses said yeah, our tech stack works well together for the most part. When we said how challenging does your business find these challenges, majority of businesses for most of them said “We find these things either very or extremely challenging.” And a lot of these lined up directly with those priorities, you can just sort of map the challenge to the priority and go uh-oh, these businesses cannot do the thing they say they most want to do. So the inability to predict project resource needs in advance, 59% of the businesses surveyed say they find it very or extremely challenging to do that. Lack of data insights needed to engage in robust forecasting, so basically to predict what's gonna happen, 56% say that's challenging. Poor retention of employees, 53% challenging. Poor retention of clients, 53% challenging. Those obviously both map directly to create loyal clients, and grow/retain the workforce. So you're seeing how there's this valley. And then the question of the tech stack, right?

Then the other thing we wanted to ascertain is like, those are the business challenges, but what role is the tech stack you're using? And this is not limited to what we'll talk about like PSA [professional services automation] as a kind of specific litmus test within this later on, but the entire tech stack, right, CRM, ERP, HCM, all these different tools. What role is the combined tech stack playing in your ability to overcome those challenges or maybe adding to those challenges? And what we saw is once again, for a lot of stuff that plays into either achieving those priorities or not achieving those priorities, you're seeing either a majority of businesses or close to a majority of businesses not being able to get there, finding it challenging. So 51% of businesses in their tech stack found it challenging to accomplish these tasks. They found it challenging to conduct resource planning across the entire services workforce, so both internal and external; their employees and their contractors. They found it challenging to collaborate directly with clients on engagements. With the approvals to client stakeholders, control what they shared with them. So that's having an impact on creating loyal clients. 51% found it challenging to do project budgeting and project accounting with visibility into plan baseline versus actual performance. Well, how are you going to grow profits if you find that challenging to do in your tech stack? So that's really painting a picture of an industry that has a clear vision of what it wants to do, but that is struggling both with the processes it has and with the technology it has to climb that mountain.

Banoo Behboodi: Right, and it's clear that, as you said, without proper ways to collaborate with clients, how can you drive that objective or prioritization of optimizing your client experience and so forth? The resource experience and without proper resource management capabilities, so fascinating. And the other part that I found very interesting about the study was the overlay of maturity and how the client or the participants' maturity impacts their pain point and where they are. And as you know, in Kantata, within the advisory organization, when we engage, we do a maturity assessment. We have a partnership with SBI. We find it critical where our prospects and clients are in their maturity journey in terms of the success of their business. And profitability, client satisfaction, all of that is directly related to maturity. So what did the study find on this?

Charles Gustine: Well first of all I'll say what did Forrester Consulting do here? Which is they took the results from the survey and they basically laid a maturity model over it. So they took the responses from the respondents, and they basically scored them by evaluating based on three criteria, which is the response to the question I mentioned earlier, which is how well does your tech stack work together? If your tech stack worked really well together, then you are more likely to be mature. There was a question around how much you had to customize solutions in order to achieve what you were doing. And the more customized you had to be in order to achieve something, well that's less maintainable, right? That's gonna be more costly, it's gonna be harder to maintain over time, and that's less mature. Whereas low code extensible solutions where you're using configuration, you're using out of the box, that's gonna be a more mature organization in the sense of mature as we're evaluating for the purposes of this study. And then the last criteria, those tasks that I was just mentioning before, what task can you accomplish in your tech stack? Like the external, internal workforce, the client collaboration, the plan versus actual budgeting.

For each of those tasks, if you didn't find it challenging to do them, then you were more likely to be mature. And so basically they scored, they bell-curved and they arrived at a maturity model. And at face value, the result isn't that surprising, which is that the more mature organizations are less likely to be facing the business challenges that stand in the way of the big priorities. But the degree to which that is true is I think really telling, and this is an audio medium, so I can't show you the picture, but I'll paint you the picture with words. There's a big valley between the leaders and the laggards, which is that the leaders still have some degree of business challenges with things like unsustainable growth, lower-than-expected profits, poor retention of employees, and poor retention of clients. So for example, let's take poor retention of employees, within the study, you have three groups: leaders transitioning, which is the middle group. And then laggards who have the most customization, the most difficulty with the tasks and said it was most difficult to work within their tech stack.

Poor retention of employees, 8% of the leaders said they found it either very challenging or extremely challenging as far as retention of employees. 36% of the transitioning group found it very challenging or extremely challenging. So a pretty big jump, but still reasonable. 73% of the laggard organizations found it either very challenging or extremely challenging. So between the leaders and the laggards, you see a discrepancy from 8% to 73%. Poor retention of clients, 12% for the leaders, 38% for the transitioning, 70% for the laggards. Unsustainable growth for the organization, 10% for the leaders, 65% for the laggards. And you basically see this pattern over and over again, where the leaders are around like 10% challenging for these challenges of like yeah, about 10% of us are finding this challenging as organizations. Where the laggards are around 70% of us are finding this extremely challenging.

So once again, at face value, yes, you'd expect the leading organizations who've sort of reached a nirvana state with their tech stack to be the most able to overcome their challenges. But it gives you a roadmap to success as far as well what are the things that are allowing businesses to just completely sidestep the things that businesses most want to sidestep? That allows them to hold onto their valued employees and allow them to hold onto their valued clients. And if you look at the three criteria, it is don't over customize, don't customize yourself into a hole and let's put it this way, code yourself into a hole. Don't prioritize doing those essential professional services tasks. So don't ignore solutions that can give you those capabilities to do those important things that are the operational framework for driving success. And ultimately don't have a tech stack that doesn't work well together, that can't talk to each other, and can't drive success for your business.

Banoo Behboodi: That makes a lot of sense. Now, I know the hypothesis you started with in the study was driven off of was that considering all of these findings, the challenges that are being faced by the professional services organizations is that adopting vertical SaaS is going to really allow them to move through that maturity curve and be able to meet their prioritizations. What are some of the material benefits then of adopting vertical SaaS that the study brought out?

Charles Gustine: Yeah, so once we define vertical SaaS for the survey base, we asked businesses, is this something you're currently using? And for those that said yeah, this is something we're currently using. We asked them okay, what's it doing for your organization? What are the benefits that it is driving? And so some of the things that they said that it was driving for their organization were the kinds of things that A, you would want, no matter what. And B, once again, tied directly into those strategic imperatives. So 47% of those businesses who said they were using a solution that they identified as a true vertical SaaS for professional services solution said that it increased forecast accuracy for their business. So they had identified that this has driven basically better predictability for my business.

Our ability to forecast what we're going to do is more accurate than it would have been without this vertical SaaS for PS tool that we're using. 47% said it had materially increased client retention. They're better able to hold onto their clients than they would be without this solution. 46% said it increased customer satisfaction. You know, basically along the same lines. 43% said it increased service revenue. I think this one's really important, 44% said it increased employee retention. I know we're all tired of hearing about the great resignation. And we're coming up on a recession, this is a separate survey we just did with atomic research, I don't want to double dip with surveys and stuff, but there's data that shows that so many people are leaving for the contractor workforce. I don't think the recession is slowing this down. The point being is there is so much value right now in finding ways to build a moat around your talent, however you do that. If a wizard came up to you and said “I can give you a way to hold onto 44% to increase your employer retention by 44%,” you would say give me that magic potion; these are those kind of days. So I think that's really important. 43% said an improved average project margin.

One thing I wanted to call out, like a follow-up question we gave was for those who said it increased their billable utilization, we asked how much did it increase their billable utilization by? And they said they estimated it increased it by an average of 49.5 percent, which I think is kind of a crazy number. But that just shows how much potential this has for organizations who might be plugging it into their tech hack.

Banoo Behboodi: Yeah, and it makes a lot of logical sense, right? Not being reactive, but being proactive by getting the leading indicators allows us to respond to our clients much better and therefore drive client experience. And being able to manage resources in such a way that the resources know where they stand, and what they're working on. They can raise their hands and say this is where I wanna be in terms of career development, and therefore these are the projects I want. All of these are capabilities that would be focused in a vertical SaaS offering versus other solutions. So with that though, I think a point that may be confusing and sometimes it's confusing to myself. When we talk about vertical SaaS, can you tell us how that compares with the traditional terminology, PSA [professional service automation]? Is that then considered a vertical SaaS, is it not? Can you just help clarify that please?

Charles Gustine: Yeah, I think that there are some answers in the data for this, and it's not necessarily in the published report, but we'll probably publish some further findings on this in the future because it is there in the data. But to take a step back historically, the PSA category [professional services automation], is a few decades old now. And on one hand, it is hard to argue that something that has, it says it on the tin, it's professional services automation, so by its very nature, by its very name, it's going to skew vertically. It is vertically oriented towards the professional services market. But I think there is an aspect of buyer beware, right? Because just because the category is called professional services automation, does not mean that every solution that then puts on that costume has true vertical intentions at heart. And you've had something like 20 years now for businesses that have wandered their way into and out of the PSA market to find and lose vertical orientation.

So as with any software category, whether vertical or not, you can't just go to the G2 grid and be like oh yeah, all the criteria here is exactly the same. You look at the PSA grid on G2 or any software reviews or Capterra or whatever, and you have this mix of, and I'm just gonna do a quick rundown of kind of how we see the market. And I think it's a good way of understanding how horizontal and vertical strategies interplay even in a space that is theoretically supposed to be exclusively vertical. You have a mix of legacy solutions that started vertical, but just over time have sort of outgrown or have lost their ability to keep pace with the market. And so no longer have the ability to keep up with the pace of change, and so there are those legacy tools. You have point solutions horizontal solutions, and I think in some cases with PSA, there's a very particular flavor of this, which is because PSA is professional services, it overlaps so clearly with project management and project management has such a broad market applicability. You have what I call the Super Bowl commercial solutions. A lot of those are right for businesses and professional services businesses, depending on the use case. I think businesses, as they're looking at their problems, need to ascertain whether they have a project management or collaboration problem or a professional services problem, and that needs to guide them. And so they find their way into PSA grids.

You have sweet vendors and these are two flavors of horizontal. You have horizontal point solutions and you have horizontal Omni suites who create sort of PSA tack-ons. And maybe either with the best intentions or with not the best intentions, and don't truly have the focus or the expertise. Maybe they have it now, but the question is, can they maintain that to be a truly best-of-breed vendor to keep pace with specialist vendors going forward? Or maybe they never really have the intent of doing that, but it's just a way to upsell, cross-sell. Then yeah, this is what I think this study is meant to do. And to be fair, vertical SaaS for PS, and that definition does not necessarily disqualify any of those other categories, but it does largely, I think, orient the market towards specialist vendors who focus either largely or exclusively on solutions for that market. Who have a true vertical orientation and are not trying to scatter spray outside of that market.

And so to get back to the data, we did ask a lot of questions about PSA. We asked are you using PSA? How effective is it? What is it doing for your business? We have a lot of data on that. And we also did ask, do you consider your PSA a vertical SaaS for PS solution? And not everyone said yes. I think that my expectation going into the survey, as someone who was kind of engineering the hypothesis in the survey, I need a backup plan. Because 98% of people who have a PSA, there's just no way, no matter what definition you give them that they're gonna think the thing that says professional services automation is not vertical. No matter how generic, non-specific, overly customized, non-expert, or non-best practice, they'll look at the name and they'll go no, it's vertical, it's for professional services, and that isn't what happened. And I think it doesn't mean that PSA in and of itself is not vertically oriented, but it means that not every vendor that tells you their PSA is truly tailored to the current needs of the vertical and not every vendor is going to be right for the future needs of the vertical. Now if you give me a moment, I wanna try and dig up the data just so that I can put a number to that.

Banoo Behboodi: We actually speak to a lot of prospects. And so what you're sharing with me totally resonates because we speak to a lot of clients or I should say prospects that have a PSA, but they're using a variant of other tools, Excel, Word, like everything else where the PSA is not fulfilling their needs. And we're having a conversation, again, it's categorized as PSA, but is it really enabling the professional services from quote all the way through to cash? And I think the vertical SaaS for professional services does, that's the theory.

Charles Gustine: Yeah, I'll just maybe give the raw numbers. So just to put some numbers to what I was talking about, in the survey, not everyone was using PSA but of the people that were, 164 of the respondents were using PSA and said that they believed that the PSA they were using was vertical SaaS for professional services could be characterized as all the things that I defined before. Purpose built by domain experts, configurable, out the box, et cetera. 95 of the survey respondents said that they were using a PSA, but did not volunteer that PSA solution as meeting those criteria. So it wasn't half and half, but it wasn't what I thought it was gonna be, it wasn't like three. So I think that gives you some idea of, like I said, there's a buyer beware there, right?

I think one of the biggest goals or takeaways that we wanted to achieve with this research, was to help people understand that as the needs of the professional services industry evolve, and as they evolve rapidly because of the changing climate of the world, the tempest, that it is becoming more important to evaluate vendors based on how much they are able to keep up with the truly unique technological needs of professional services businesses, and not just today, but the needs that they will have. And that requires a focus and expertise and a pace of innovation. And like I said, the definition criteria was not, they don't make anything else, but you need to do certain things. And if you're not able to do those things, if your solution and the people that are creating that solution aren't able to maintain that focus with that expertise at that pace of innovation, then you're not going to be able to keep up. And you're going to recede into providing generic one size fits all approaches. And it's not my favorite piece of data, there are a lot of pieces of data in here that I think are really compelling. But when we asked the respondents what happens when vendors provide you with generic rather than industry-specific solutions that require high levels of customization in order to get them working? 78% of them said that they felt that that limited their organizations.

So like I said, that could be force-fitting an ERP solution into doing what you needed to do. That could be turning a PSA tack-on solution, kind of tailoring a straight jacket out of that to get it to work. That could be asking one of the Super Bowl commercial project management solutions to do way more than it can do in order to meet the needs of a professional services organization. But the business leaders agree that's holding them back and the other big headline number here is that businesses agree that 89% of vertical SaaS for PS users agree that vertical SaaS for PS is the way of the future. 9 and 10 of the respondents agree that vertical SaaS has driven material benefit for their organizations. 73% of the non-users who hadn't adopted it yet said that they saw that their organization would greatly benefit from solutions like this. And this is probably the most indicative thing of where this is going, which is there's one thing to believe in something, and there's another thing to put money behind it.

The shift will really happen when investment changes and the survey says the investment is changing, which is that 88% of the businesses that currently use vertical SaaS for PS report that they're intending to increase their budget for vertical SaaS for PS. Okay cool, they're already using it, but they're planning to increase their footprint. 65% of the businesses who aren't currently using it are planning to increase their budget for it. So that indicates, okay, there's a groundswell, there's a change happening there. That indicates that, like I said, those tectonic shifts that you saw happen in markets like healthcare and financial services, where you just see the market shift towards no, what we buy is financial services software and healthcare software. The first place we go, the first port of call is we go look for healthcare software that does exactly what we know businesses like ours need. I think you're seeing that happening with the professional services industry.

Banoo Behboodi: Yeah, and I think one of the points you brought up that was music to my ears is the focus, it's the focus that drives innovation and responsiveness, right? Because professional services is not any different from any other sectors that you just mentioned in that the world is changing rapidly. And that responsiveness is critical, and focus is the only way that you can translate that responsiveness and innovate in such a way that you can make sure that the professional services organizations are enabled and are able to change as required. So this has been fascinating, I appreciate the conversation. Charles, can you tell the listeners where they can get access to the study? And I think you did a webinar with Forrester as well on this.

Charles Gustine: Yes, indeed. So you can find the study at Kantata.com/resources, it'll be at the top of the page there. I won't bore you with a full URL slug for it, but you can find it at the top of the page there. And you can also find the on-demand recording for the webinar that we did with Forrester analyst, Margo Visitacion at Kantata.com/events. So yes, we did that on September 8th, I was the presenter on that webinar and then Margo was our featured guest. And I do highly encourage you to check out that webinar recording if you found this episode interesting because she walks through the findings in more detail. And it's interesting to get an industry analyst’s perspective on these findings.

Banoo Behboodi: Fantastic, Charles. And I always have fun by getting a little bit more personal at the end of the podcast. So I was wondering if you could tell us about a mentor that has impacted you and your career in life and why were they that impactful? What made them effective that way?

Charles Gustine: Yeah, there's been a ton, and I'm gonna revert back away from talking about Kantata and talk about Kimble for a minute which is the business that I came from. It’s one of the two businesses that became Kantata because that's where the crucible in which my career was born and kind of in which I shifted from. I started out as an instructional designer as in line training and documentation. And so the people who sort of brought me into the marketing and the product marketing world, Rob Bruce, who was the VP of marketing at time. But the person I wanna shout out because I think it's pertinent to this conversation is one of the co-founders of Kimball, Mark Robinson, who I'll refer to as Robo because that's what everyone in Kimball called him. I think what makes the Kantata SX solution, the Kimball solution so powerful is that it was created by three guys who just created a solution because they needed to create something to solve the problems they were having in the consulting business that they were trying to run. They were like, the solutions that are out here are just too backward facing and they're not helping us do what we need to do, and so they built it right. And Mavenlink came from the same place of just being built by professional services experts for professional services experts.

So here's this guy, this professional services veteran, and I come into Kimball a few years later. And I'm like really new to marketing, I don't have any marketing experience and I'm just starting to get my feet wet in product marketing and starting to do webinars. And I think that someone like Mark Robinson, like Robo, being willing to do some of the stuff with me that he did. I think one of the biggest inflection points in my career has been where we did a TSIA trade show virtual, this was at the very beginning of the pandemic, I think, where we wanted to talk about unpredictability in professional services. And it's like, look, we need to make this memorable, we need to draw an audience. And on the fly, I came up with this idea of you know what we're gonna do, we're gonna make this damn webinar about Jurassic park. This whole webinar is gonna be about how Jurassic park is actually a parable for how to not run a professional services business. And there's a world in which the founder of the business, this professional services veteran is like, get out of here. Instead, by the end of this process, Robo didn't even tell me he was gonna do this, he had told the graphic designer to paste both of our heads on dinosaur bodies for the intro slide. He went for it full bore.

We did a Queen's gambit webinar together. I have a webinar coming out next week, probably by the time this is released, it'll be the day of, with TSIA actually, where it's because of him that I have the courage to like, I'm like planning it, and this is about building a project team, but should I talk about Oceans 11? So it's that combination obviously of like hard one experience, but playfulness. And the ability to map all of that experience and translate it into how to communicate with people. Which I think obviously like all this data, but how do you tell the story of that data, right, is what I find really powerful.

Banoo Behboodi: That's awesome. I love that giving you the space to think out of the box and be the creative you that you are and you've become, and you've been encouraged to become. I love that. Well, thanks Charles, I really appreciate the time you've spent with us. For all of our listeners out there, thanks for joining us today. If you would like to get a copy of this free Forrester study, please click the link in the show notes, or you can find it at Kantata.com/resources as Charles alluded. Thank you Charles.

Charles Gustine: Thanks.