Tech Implementation Partners: 5 Best Practices for CDD

Technology implementation partners (specialist organisations which help clients to implement and run software) are an important ally for major B2B software vendors, and an increasingly important ally for private equity investors. This article lays out Fairgrove’s top 5 due diligence recommendations to help investors implement best practice.

Fig. 1: Technology Implementation Partner Model

Highly Simplified, Illustrative; SOURCE: Fairgrove Research

1. DD the Software Vendor

1. In our recent experience, software giants from Salesforce to Atlassian are preferring to focus on software, and building an ecosystem of implementation partners to support customers. Nevertheless, interviews with TargetCo’s tech vendor(s) are a crucial element of good DD. Conversations with key relationship holders will help to gain comfort around the vendor’s partner strategy, and the risk of implementation services being brought in-house in future.
2. The vendor’s partner strategy can have good news for an investor’s exit route. One vendor we spoke to recently, for instance, hopes that small consultancies which are specialists in its technology will be acquired by large systems integrators like Accenture or Capgemini. For software vendors, this represents an opportunity to embed skills with its technology in the largest consultancies and clients; for investors, it represents an attractive exit opportunity.
3. It’s also crucial to understand TargetCo’s market opportunity, and the growth rate of the vendor’s specific software. Good DD should unpick both the TAM and the SAM – understanding, for instance, how much of the market is truly accessible to boutiques.

2. Seek Recurring Services

1. Technology partners which rely on implementations alone can find revenue is notoriously lumpy.
2. Ongoing support services (for example helping customers to monitor solutions, optimise performance, and build a tech roadmap) offer a much more predictable cadence, and can comprise upwards of 70% of revenue for implementation partners.
3. Recurring services help to position partners as a trusted advisor, grow the length of customer relationships and, ultimately, command attractive valuations.

3. Assess the Delivery Model

1. Understand whether offshore or onshore delivery is standard in the industry, and what customers think. Partners operating onshore-only models can face compressed margins; we find a hybrid model (onshore sales and customer success teams; offshore technology or product teams) can offer customers a compelling combination of accessible specialist support and affordable rates. Where possible, benchmark margins, day rates and utilisation versus competitors to understand best-in-class and uncover potential opportunities.
2. Contracts which require clients to sub-contract implementation services via the software vendor can be a source of frustration. We find customers respond best to joined up go-to-market between vendor and implementation partner, but with contracts written on separate paper.
3. DD should also look out for key-person risk: understand who holds key software vendor and client relationships, and which individuals are the linchpins of client delivery.

4. Recognise Differentiation

1. Go on the tech vendor’s website, and you’ll find several hundred ‘implementation partners’. Interview the key decision-maker at the vendor, and you might find that TargetCo is in the top three. Speak to competitors and industry specialists, and you might realise that TargetCo is number one.
2. Vendor and market interviews will also reveal critical insights about a partner’s go-to-market, including the balance of power between partner- and vendor-initiated leads, the outlook for opportunities passed on to TargetCo, and whether the relationship is transactional or truly strategic.

Fig. 2: Image from Salesforce’s Website Listing Over 300 Implementation Partners for its Service Cloud Software

5. Leverage Strategic M&A

1. Implementation partners can suffer from the age old ‘chicken and egg’ problem: it’s difficult to win a new project without credentials, but it’s almost impossible to gain credentials without a book of prior projects. Subsequently M&A is often the most effective way to add new capabilities or enter new geographies.
2. Adding capability in a new technology can protect against the risk of backing the wrong vendor while offering customers more choice, and helping to position the partner closer to the status of a trusted independent advisor.
3. For any potential buy-and-build, good CDD should identify a shortlist of potential bolt-on opportunities, followed up by customer referencing of any especially attractive prospects.

Our Experience

If you would like to learn more about Fairgrove’s experience in the space, please reach out to Patrick Woodrow, Paddy Woods Ballard or Jolyon Dannatt. Selected Fairgrove credentials in tech-related services are listed below.