Episode 54 Transcript

Banoo Behboodi: Welcome to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. I'm Banoo, and I'm very happy to be joined by a very special guest today, Michael Speranza, the CEO of Kantata.

We will not do any introductions to Michael today because we've had the opportunity to sit with Michael on two other sessions: episode 7 when Mavenlink and Kimble had just merged, and Kantata had been formed under Michael's leadership, and episode 32, Challenges, Trends, and Tips for Leading a Successful Business in 2023, which was hosted by my colleague Brent.

Thank you, Michael, for joining us a third time. We're really looking forward to having you and appreciate you.

Michael Speranza: Great. Thanks, Banoo. It's great to be here.

Banoo Behboodi: Fantastic. Michael, in episode 32, recorded in December 2022 but aired in January of 2023, you shared with Brent the feedback you were receiving from customers and the challenges you were anticipating for 2023 in the PS vertical.

We are almost at the end of 2023. The geopolitical and economic situation is still not stable. I wanted to revisit this and understand from you what are the trends that are shaping the PS industry right now, and how are these trends impacting how businesses do work?

Michael Speranza: It is quite a different time since I last spoke with Brent on episode 32. The last several quarters have really created a lot of change for prospects and participants in the industry. Particularly in the last 8 weeks, I've probably talked to more participants in the professional services arena than in my last two years with Kantata.

The message I'm hearing revolves around how different the environment is from just 12 months ago and how fast customers have been forced to adapt to the rate of change in the environment.

Rewind the clock 12 months ago, a lot of our participants in the industry and customers and prospects would talk about struggling with significant attrition during the great resignation, having more demand than they could possibly staff, and coping with significant growth rates than they plant to deal with.

A lot of that has changed, unfortunately for the negative for many folks in this industry. Hiring has translated more towards how they focus on enriching their staff. There's obviously a lot less attrition, which is a positive for their business. The notion of what was endless demand 12 months ago has translated more to staying close to their customers and dealing with a purchasing environment that is a little bit more challenging and less predictable. They are maniacally focused on making sure they utilize the capacity that's available to them.

The notion of staffing at any cost has translated into a mindset of making sure they access every resource in the most cost-efficient way possible. Many customers and prospects I talk to are dealing with more uncertainty and more pressure on their business than when we last spoke about 12 months ago. It's not the environment that's a challenge. It's the rate of change and how quickly they've been forced to adapt.

Banoo Behboodi: Yeah. What is clear is change is continuous and it can come from any direction. Agility is critical to a business's success. But to that point, what is the role of technology in your opinion and perspective in adapting to these trends and being agile to respond to the change?

Michael Speranza: More than ever, customers are searching for accurate data in a timely manner that helps them make the best decisions possible. We recently conducted a report in collaboration with S&P Global.

One of the stats that was most interesting for me, personally, coming out of the report was that less than half of the respondents actually indicated that they had the tools in place to provide the necessary information to help them make good decisions. In this environment, having the right tools, processes, and technology is more important than ever, especially when you’re operating a services business in an environment that has such a high cost of capital to run it, significant margin pressure if business oscillations, the margin for error becomes very narrow.

Technology plays a role by being able to provide accurate, timely information in a way that just wasn't possible. When we talk to a lot of participants in the industry, I'm still amazed at how many people are still trying to operate their business with gut, with instinct, and using tools like outdated legacy systems, or a spreadsheet to try and run their business.

This is not universal to small clients or large clients. It's everybody. Many of them, unfortunately, have really still not chosen to revolutionize the technology they're using to give them the accurate and timely data they need to run their business.

If you think about the trends that are out there today: it's siloed data, lack of clarity on how their projects actually translate to good client outcomes, terrible user experience, manual processes, too many disparate tools that don't integrate or talk to one another. Unfortunately, I think this period of uncertainty or change is exacerbating what was already a big challenge for a lot of individuals in the industry.

Banoo Behboodi: You've spoken a lot about tools or lack thereof, and historically everyone is very familiar with professional services automation, PSA tools, and that's a common reference. But I was hoping that you could talk through and explain to our listeners about this next generation or the next movement in the professional services cloud category. How is that different from PSAs?

Michael Speranza: I've been in this specific industry for a little over two years now. When I joined, the first thing I did was spend a lot of time with customers and prospects to really understand their challenges, pain points, and get educated on this category. From the outset, the category just made no sense to me at all.

When looking at the tools individuals use to run their business, I would go in and ask them the question, "What are you using to run your business?" More often than not, the answer I received in return was, "Well, what do you mean?" The client didn't even know how to answer the question. They didn't say, "I'm using tool X or tool Y." They literally didn't know how to answer. It shows how fragmented the space was.

When you look at PSA as a category, what's so discouraging to me is it emanated from an ERP software provider. If you look back, all of them evolved from the same place where it was an ERP product whose primary customer was a CFO and purely to have something incremental to sell to a services leader, they birthed this PSA category.

Their ambition and vision were really built out of having something else to sell to an existing ERP customer rather than really looking at the category in a vertical nature and actually understanding how to run a better services business. For me, if you really look at that, it was almost like an afterthought or an appendage. I don't know how anything whose initial vision starts as an appendage or an afterthought can ever do something exciting or revolutionary for a customer.

That's really why we've embarked, and I think others have embarked on defining this PS Cloud category and really defining a new paradigm about how we're building a comprehensive set of solutions that is purpose-built for service organizations in a vertical nature that is focused on helping those clients deliver better outcomes to their customers.

That statement I just said is fundamentally different from the way any PSA was born. Those PSAs were born essentially to optimize margin and run projects. That is it, that's where their boundaries stop, and they will forever be limited to that lane in terms of how they provide value to their customers.

Banoo Behboodi: Can we dive in a little bit more, Michael, into the professional services cloud technology and therefore, how will a professional services cloud technology be able to better equip businesses for the future?

Michael Speranza: A great analogy here might be asking a surgeon to try and use a needle and thread that they bought at the corner drug store. Of course, they would never do that, right? They would have a tool that is purpose-built for them, specific, that gives them a level of precision that isn't otherwise afforded by something generic. That's exactly what the PS Cloud is focused on doing. There are really three ways that I would try to define how it's different.

First, the PS Cloud is going to be comprehensive. It's not going to limit itself to delivering specific capabilities that are only related to projects. It's going to focus on the complete span of use cases and demands of a service organization: resource management, planning, service delivery, time tracking, project management, accounting, billing, invoicing. It's going to come in and cater to the whole span of use cases that are necessary to actually run the services businesses.

Second, it's going to be built as something that's people-centric, not project-centric. This is something that's often overlooked and critically important. When folks want to start to gather data or cross-section and do reports about how their business is running, the fundamental limitation of a PSA is if it's not built with the right data model, it can't provide the data you're looking for.

The data model for a PS Cloud is going to be built from the piece that runs your business, which is the people. Unless your data is indexed to that individual around skills, time tracking, resourcing, planning, the amount of data you can access is going to be limited after the fact. That's one fundamental difference of how they're built.

The third is that they're focused on the actual client outcome, not just the financials. Every PSA was built to optimize costs or margin. And if they tell you anything different, they're lying to you. But when you look at a PS Cloud, it's really going to be focused on end-to-end, how they actually improve the outcome of the client deliverable, getting past the financials and past scope and schedule, talking about the quality of delivery, getting into the project managing capabilities, measuring an outcome, and delivering more than just a margin to your business. That is one way we're seeking to differentiate from the old category.

Banoo Behboodi: Now, it's clear that within Kantata, we offer the PS Cloud solution. All of our strategy is focused on PS Cloud, and that includes not just our technological product development, but everything. All our expertise, our people, everyone is focused on providing and solving for all the pillars you just described that embody the PS Cloud solution.

That being said, what are the other elements that our listeners and companies looking for a partner should be looking for outside of just the technology? Because a lot of times they're coming to us with specific requirements and going through a checklist, but there's so much more in selecting the right partner.

Michael Speranza: The first is focus. If you look at the technology landscape over the last 20 years, the most impactful trend has been the advent of vertical SaaS. This has been ushered in by a different way of development unlocked by many of the cloud vendors, where you can now cost-effectively tailor an application to an industry with specific demands that wasn't economically or technologically possible in the past. That is now possible.

So, if you're working with a horizontal or generic provider, you're limiting yourself out of the gate. The advent of vertical SaaS is the future. You should be working with a provider who is 100 percent focused on the specific needs of your business. If you're not, you will be forever limited in terms of how that product is going to evolve.

The second really comes down to vision. For us, we try to spend a lot of time canvassing out with our existing customers and prospects and everybody in the industry willing to help us create this. But our whole goal is to lead with vision. This vision needs to be ambitious, audacious, borderline outlandish. It might feel crazy and incredible when we talk about it. But the end goal is that when you're working with a focused provider, they're going to take a percentage of whatever you're paying them in your investment and they’re going execute on that vision. This is our approach at Kantata. We take 20 percent of every dollar and invest it back into our products and services.

The way I think about this is you're buying an admission ticket to the vision we're going to execute, and the vision needs to be audacious and grand. If we achieve half of it, you should feel like you're in a spectacularly different place than you were 2 to 3 years ago. Unless the provider is talking to you about that vision, then you're probably in the wrong place.

Banoo Behboodi: It's important to ask, in your opinion, what is the cost of not moving directionally towards a professional services cloud?

Michael Speranza: It's massive. We recently commissioned a report with Forrester where we had a number of our clients willing to participate in a blind fashion to the study. Forrester did an extensive study with them, and the headline outcome was over three years, these clients achieved an 8 percent improvement in utilization across their business.

If you cascade that to margin, and you're running a 500 million dollar services business, that is going to translate to over 2 billion dollars in enterprise value that someone is forsaking for not having a tool in place. The ROI is massive and compelling. I believe it was almost a 499% ROI from using these tools. So that's what's at stake.

Anybody in this space who puts things like change management or access to internal resources as a blocker is foregoing hundreds of millions and likely billions of dollars in lost value by not having these tools.

What is absolutely befuddling to me is how there are endless reports and data that prove this and lay it out. We've commissioned some of this, others have commissioned it, but the case is very clear that the benefits of adopting a vertical SaaS solution are real and that folks sitting on the sidelines will be at a massive competitive disadvantage. You will be lapped by your competitors.

We see this when we talk to our customers. Some of our most astute customers that are highly adapted in using our product have aced the margin improvement, they've aced the utilization improvement, and we are so excited for them. We are so excited to talk about our vision for the future about client outcomes.

We are now engaging with a set of our customers and getting beyond what we talked about in scope and schedule and margin and really focusing on the improvement of client outcomes.

If you're struggling with even base tools, your competitors are moving on to the next horizon. They're so far ahead of you. And for me, that's what's exciting and also concerning. I want every client to really embark on this journey.

My goal and our strategy here at Kantata is to create as many ways for them to begin that journey as possible. I believe just the amount of pain that exists in this market specifically is enormous and our mission and vision is to solve it and help clients, our customers, be more productive and deliver better outcomes for their clients.

Banoo Behboodi: The business case is clearly enticing and the cost avoidable. But what are, in your opinion, some of the challenges in this journey? Because it can't be simple to get there.

Michael Speranza: There are many challenges. First and foremost is internal advocacy and sponsorship. That's definitely one that our clients struggle with when embarking on this journey and attempting to take the step.

Change in management within their organization is another. There's this belief and notion—I call it this 'no feature left behind' syndrome, where someone may have operated their business a certain way for a very long time. There's a lot of momentum and inertia around what they're doing and an inability to change or maybe a belief that they can't change or don't want to change.

The evidence I have is we have thousands of customers that have changed. Many people have done it. This is not an experiment; this has been proved. Really looking at the North Star is not the 'no feature left behind' mindset where you have to carry everything you did in the past forward but be clinical about what are the outcomes you're trying to achieve and then making sure that the product you're putting in place does it. We've got thousands of customers that have proven that.

So, if you're sitting on the sidelines and putting your head in the sand, there's really no reason to. You just have to get your business aligned and work with your provider to help you do that.

I can't think of a more compelling case. When you have a case like this that can present that type of improvement in enterprise value and improvement in client outcome, especially for a pure play services business, I can't imagine anything else being more important than this.

What a lot of folks need to do is work with the providers and the partners they're contemplating and ask them to help them make this case. Every client that asks us to do it, I jump at that opportunity. I will go present to their board. I will make the case for them. Our teams will do it.

This is the conversation that I delight in because the data and all the analysis and all the metrics stack up to support the vision and the ambition that we're laying out for this industry. I relish in that conversation. It's the best conversation that I get to be in every single time it happens.

Banoo Behboodi: Fantastic. On a lighter note, I always like to finish the podcast with a book recommendation and would really appreciate if I could have yours.

Michael Speranza: Right now, I'm actually reading the biography of Elon Musk. It is a journey. I think I'm about halfway through the book, so hoping to finish it this weekend, but it has shed a lot of light on a man that, regardless of what you think of him, has embarked on probably some of the most ambitious technological visions and missions that anybody has seen in our time.

I've delighted in getting through the first half of it and just seeing what was under the covers about his family, how he was raised, what drives him, what his idiosyncrasies and flat sides are, which all of us have. But it has been a fascinating read thus far. So, looking forward to getting through the second half this weekend.

Banoo Behboodi: I've read that book, The Autobiography, and it's fantastic. I highly recommend it. Thanks for being with us, Michael, and thank you listeners. As always, we love to hear from our listeners. If you have any follow-up questions for myself or Michael, please reach out at podcast@Kantata.com. Have a great rest of your day.

Michael Speranza: Great. Thanks, Banoo.