How to Get IT Business Ready for Scaling — guest column

27 March, 2024, 15:08

Business success always rests on three pillars: satisfied clients (receiving quality services at market prices), satisfied employees (receiving fair compensation and growth opportunities), and a satisfied (profitable) company. If one of these components is missing, either clients will leave, or employees will, or the company will become unprofitable. Den Rudenko, advisor on Operations and Delivery at Wiseboard and CEO of Yalantis, in a guest column for AIN shares proven business development practices.

Most non-profitable companies reflexively start investing in marketing and focus all efforts on it. Unfortunately, it’s a monkey job. When a company’s processes are not ready for scaling and cannot meet the needs of current clients, how can one expect this to change with new customers? This is where I start conversations with businesses that are hiring me as an advisor at Wiseboard.

To achieve all three pillars of success, effective delivery processes, a strong matrix organizational structure, and clear and standardized efficiency metrics are needed. Last year at Yalantis, we discovered that 65% of our new clients came from referrals. They came to us through recommendations from our existing clients, with whom we had actively expanded our collaboration. Our delivery and account management generate 70-80% of revenue. This is an achievable KPI that technological businesses should be aiming for. Here’s where to start to achieve this.

Check if your company is ready for scaling: main blockers and solutions

In the Ukrainian IT landscape, there are several typical obstacles to company growth. Here’s what these symptoms are and how to spot them in your business:

Blocker #1: The company isn’t making a profit due to low-margin projects and unnecessary expenses.

Projects usually become low-profitable, when they involve senior-level developers with a fair compensation level. While the client is satisfied with the quality, the profit margin remains low. This can happen when an employee’s grade has grown during the project, but their rate changes haven’t been negotiated with the client.

Solution: Clean the landscape – eliminate unnecessary tasks and optimize priority processes.

Analyze the market conditions, your employees’ grades and rates, as well as project margins. This will enable you to have a meaningful discussion with the client about raising rates or replacing seniors with mid-level developers. A common practice is to review rates with clients annually, typically by 2-3%.

The next step is to conduct an audit and identify, what wastes developers’ time but doesn’t generate profit or additional value. It usually might be internal developments lacking a clear monetization strategy or reputational value. Keep a cool head while analyzing each project: some might not be profitable but contribute significantly to your reputation, provide high-quality referrals, or help you enter a new niche and gain expertise. If not, get rid of them and focus your efforts on other developments.

Blocker #2: Absence of business development function

Without business development, a company doesn’t understand its customers, doesn’t measure if they are satisfied with the service, doesn’t know how their business is structured and what touchpoints may arise in the future, doesn’t work with the customer’s network and generate referrals. If there’s no consistent communication or dedicated business developers, if data isn’t organized systematically, clients will start leaving after 1-2 months of collaboration or unexpectedly terminate long-term contracts.

Solution: Establish a business development department and designate employees responsible for it.

You can only manage what you can measure. Therefore, building a business development direction should start with understanding what “effective work” means for your client and which metrics can evaluate it. Formulate these metrics into an internal standard and appoint team members responsible for communication and gathering feedback from clients.

In a small company, business development can even be handled by one person, as long as they have clear KPIs and responsibilities: stakeholder communication, risk assessment, satisfaction level evaluation, and finding ways to scale. This function can be integrated into different roles: delivery manager, account manager, or client success manager.

Blocker #3. Lack of internal standards and policies, leading to resource dependency

A common mistake is the absence of precise internal standards in project management, testing, business development, HR, etc. These documents may seem to be an unnecessary bureaucracy, but in fact, they are the shortest path to building human-independent systems.

Standardized processes help onboard new employees and avoid becoming dependent on highly skilled professionals. People may leave, get sick, go on vacations, or switch to other projects. If a company lacks internal standards for their roles, it will spend an incredible amount of time on hiring, or compromise against the business interests. As a result, there may be “broken” gross and net margin metrics.

Solution: Standardize the delivery processes

The company should have clear and precise technical and organizational documentation that describes all processes and requirements in delivery. It should be approved at the C-level, understandable, and accessible to the entire team.

Blocker #4. Weak motivation system

Motivation and development are essential parts of corporate culture. From my observations, financial motivation works for a maximum of two months; after that, this stimulus loses its effectiveness. When a company has a proper and transparent motivational system that engages all team members equally, people find it interesting for long-term cooperation, even working on the same project.

Solution: Find the optimal motivation for your team

Develop a value proposition for employees, that goes beyond financial bonuses: career growth, learning opportunities, involvement in an important mission, etc.

Blocker #5. Absence of delivery-centered organizational structure

A company with up to 100 employees can be driven by the founder’s enthusiasm. Beyond that, it’s necessary to build a strong matrix structure and processes that will work effectively for 200 or 500 employees, considering the interests of all parties (teams, clients, and the company itself).

Solution: Build an organizational structure with delivery and business development at its core

Build the organizational structure based on delivery and business development as the main sources of revenue. They are responsible for stakeholder communication, risk assessment, and scalability. These departments should be served by others — such as recruiting one. Other departments transform into service structures that help delivery generate more revenue.

Getting rid of all these blockers will be the beginning of effective business scaling. A healthy delivery can be recognized by the following signs:

You know your client, their problems, and growth potential.
You are aware of your client’s plans and goals and know how you can help them achieve them.
You regularly measure NPS and consistently improve collaboration.
The company has at least a 45-50% gross margin.
Margins do not fall below 10-15%.

Last, but not least. Company transformation takes time and can be painful. Some team members may not be ready for scaling and growing their competencies. Along with the implementation of changes in the company, you may have to part with those team members who are not ready to align with the business goals. These are inevitable losses, but through them, you will find change agents and build a team, motivated to grow and drive the company’s development.

Author: Denis Rudenko, advisor on Operations and Delivery at Wiseboard and CEO of Yalantis.