In our post about why traditional VCs are not a match for services companies, we dashed your hopes...
We are seeing fundamental changes in how IT services businesses operate. Businesses are demanding more technical agility and platforms are providing more capabilities. Because of the rapid pace of development, the old stalwarts of IT services are not able to keep up with the latest developments in technology. This has left a gap that is being filled by a new breed of IT services companies that we call Emerging Tech Services (ETS). We define Emerging Tech Services (ETS) as IT services businesses focused on adoption and management of emerging technologies that are growing rapidly at a rate greater than at least 25%.
We believe ETSes operate under different paradigms than traditional IT services businesses. They are not providing commoditized services so they are able to command higher margins. The cash influx, growth of the underlying platform, and lower competition makes it easy to get rapid growth. As the demand for platforms grows, ETSes become extremely valuable targets for acquisition by large IT services to keep themselves current, commanding up to 3-6x revenue multiples. With the high revenue multiples, opportunity for rapid growth, and far reduced chance of failure than traditional SaaS businesses, ETSes have become interesting to investors further feeding into this virtuous cycle.
ETSes also face unique challenges different from traditional IT services. While they have fewer competitors these firms have to do a lot of work to build the market demand. In addition, they need to build talent and delivery pipelines without existing talent pools, reference processes, or even a mature market. They are typically fast growing technologies or platforms, which requires them to have a strong focus on alliances. With these challenges, capitalizing on these opportunities requires founders to have a growth mindset. This growth mindset allows a founder to go beyond just a way to earn a salary, and instead grow a business. They develop a solid vision, create recurring revenue streams, build a talent engine, and build a sales engine. Executing well, or not, on all these fronts can make the difference between a house downpayment and a nine figure valuation that can set someone up for early retirement.
While the opportunity is there, we see that most founders in this space do not get access to an ecosystem to achieve the best outcome. They typically follow a path of accidental learning without a vision on shaping the future of the organization. They further struggle to find the correct knowledge & resources and metrics to measure against because there is no standardized taxonomy or benchmarks today. They also can’t get help easily in these areas as they don’t have a readily available network of veteran founders that can guide them through the process. A lot of time is spent searching for the right leadership talent and function. This takes time, introduces risk, and in fact often never gets done – and the fear of making the wrong decisions often leads to a paralysis. This is why a lot of companies never cross the proverbial chasms. Less than 30% cross $1mm. Even less, only about 10%, cross $3mm in revenue, and hardly 1-2% cross $10mm in revenue. Note that the reasons behind these chasms is in itself a very rich topic and we will write a blog post just on this topic in the coming weeks. The following diagram shows a high-level overview of growth stages and chasms in an ETS journey.
The various growth phases and the respective chasms in transitioning between those phases
An important comparison to ETS here is the life of a SaaS founder. Founding a SaaS company is by no means easy but there is a strong eco-system available to the SaaS founders. There is no lack of knowledge, books, industry benchmarks, success blueprints, accelerators, incubators, investors, and advisory and mentor networks. This, combined with a constant flow of news about success stories, helps not just boost the morale, but also the chances of success.
We are starting Vixul Inc to fill this void for ETS founders. Vixul’s purpose is to “make available to Technology Services startups the resources that are commonplace for SaaS founders so that they can scale and build equity quickly”. Organizations like YCombinator and SaaStr have created resources SaaS startups use to keep from having to reinvent the wheel and to establish benchmarks and areas for improvement. We want to help founders cross the aforementioned chasms successfully and faster.
A digression: this matter is very dear to us personally and professionally. We - Aater, Ali, and Vishnu - started Flux7 Labs, a Cloud & DevOps Services Company in 2013. The assets we brought into the business were eagerness to learn, tenacity, and ambition. We did not know how to do business, sales, or the inner workings of typical IT organizations. Still we were able to redefine our space. Tech Target in their Modern Impact Awards repeatedly named Flux7 Labs the best AWS Consulting Partner. AWS CLT awarded us their partner of the year award. We regularly had Fortune 100 companies coming in as inbound leads. Austin Fast 50, CRN 250, Inc 5000, foundational partnerships with Docker and Hashicorp, competencies and service delivery partnerships for AWS at the same level as behemoths like Accenture, and recurring acknowledgements in re:Invent keynotes - these just give you an idea of accomplishments we attained. All of this culminated in an acquisition of Flux7 by NTT Data Services in 2019. In the following two years after the acquisition, our soul searching led us to think back on Flux7: a. What we did right and what we did wrong? b. What did we realize too late at the cost of time and money? c. How could we have capitalized more on our opportunities? Vixul is about building the platform and the resources we wish we had in retrospect or that we wish we had gained sooner to save others from the same pitfalls.
Ali, Aater, and Vishnu meeting in Austin in 2016. Our youth has been replaced with wisdom which we hope to share with others
We foresee that Vixul will evolve into a community and platform dedicated to helping ETS founders end-to-end: from when an SME decides to leave their job to start the journey all the way to an exit event, however they define the exit. Shown below is a vision we have for Vixul (always subject to evolution as we learn).
The various phases, the respective chasms in transitioning between those phases, and the Vixul offerings corresponding to crossing these chasms.
The first fellowship we are launching is the Vixul Accelerator. Vixul Accelerator is the first accelerator ever launched for Emerging Tech Services founders. It is designed to take in startups with $2mm-$4mm in revenue but high aspirations, and give them the knowledge, network, and focused coaching to get them to the next level.
To join, companies have to first get accepted and then pay a program fee and make an equity contribution towards Vixul. The acceptance process includes submitting an application and participating in an interview. We are launching the first cohort for the Vixul Accelerator on Jul 1, 2022. It will run till mid-November (for 20-weeks) and will have our first batch of 5-7 hand-picked startups. The high-intensity accelerator will then be followed by a sustained geocaching service called Managed Advisory. To learn more about our program please check out website www.vixul.com. Please Apply here to be a part of our Jul 1, 2022 cohort or share with anyone you know who may be interested in applying.
We are also looking to expand the Vixul community. Right now we are handpicking some foundation members to start off the community. If you are interested in the ETS space, you can fill out some information here and we will connect with you.
