Client Retention in the Age of AI

Today, we’re excited to share with you client retention in the age of AI.

It’s a recent roundtable we held for B2B professional service leaders.

Knownwell CEO, David DeWolf, was joined by Tercera CEO, Chris Barbin, and DCM Insights founding partner, Ted McKenna.

They dove into some of the stats on customer loyalty in B2B services and unpacked how professional service companies should start utilizing AI to keep their customers coming back.

We hope you enjoy.

Right.

And with that, I think it makes sense for us to get started.

We want to make good use of everybody’s time.

So I’ll just set the stage here a little bit.

As everybody knows, artificial intelligence is ripping through our society and it’s beginning to impact business as well.

And as we look at AI adoption in the enterprise, there are all sorts of different aspects that are being transformed.

One of the areas that we’re especially interested in and where we’ve seen a lot of pain is in the areas of customer retention.

And so the point of this roundtable discussion is to discuss that and to get industry leaders together in order to share insights that we have, both about the pain as well as some of the solutions that we’re seeing emerge in this era and how we as leaders can deal differently with this.

So thank you all for joining, it’s great to have both old and new friends here on the call with us today.

As I mentioned to those that were arriving, I’ll mention it again, we do intend after sharing some insights to turn this into a conversation.

And so if you don’t mind turning on your camera and engaging it, we want to have a bit of an intimate conversation.

And so anybody that’s willing to do that, to gauge in, be prepared with questions, comments, we want your thoughts, this isn’t just about preaching to you.

So we’re thrilled to have everybody here.

I will note you’ve seen a couple of folks pop up with some transcribers.

We are also recording this call.

We’ll be sharing it with you afterwards so that you can get some highlights and take them away.

We’ll also be using snippets of this session in some marketing initiatives.

So feel free, please, to chime in, but be aware that we may be sharing snippets of this and obviously make sure that you are aware of any confidential information you may not want to share.

And with that, I’d like to just first start with welcoming our panel today that’s going to start us off and seed some thoughts.

I’m David DeWolf.

I’m the founder and CEO of Knownwell.

And I have been in the professional services industry for over 20 years.

And in my last startup, built and scaled an organization that was deep in professional services doing product development engineering and experienced firsthand what it’s like in a service organization in order to really try to delight customers as we scaled that organization.

Knownwell is built specifically to address this pain point.

And I’m really excited to welcome both Ted McKenna and Chris Barbin to the conversation.

Both of them are thought leaders in the space.

Ted is with DCM Insights.

I’m going to hand it over to him in just a couple of minutes in order to introduce himself.

But first, let me go to Chris Barbin.

Chris is the managing partner actress, Sarah, the CEO of that organization.

It’s a private equity fund that looks specifically at B2B professional services organizations in the digital space.

And it has quite an interesting view of the landscape because of that role.

Chris, do you mind just sharing very quickly about your own journey of how you came to starting Tercera and your interest in this topic of client retention in the AI era?

Yeah, happy to.

Thanks, David, for having me, for having us.

Excited about the topic today, excited to be here.

Yeah, so my background, about 30 years in professional services, IT services, and only the last almost four years in growth equity, founding and scaling and building up Tercera.

So I like to say, you know, 27 years as an operator and three to four years pretending to be an investor.

But I think it provides us a little bit of a unique perspective.

You know, we end up, we’re about a $200 million fund.

We are very focused on technology based professional services.

So we map out 30 to 40 emerging software ecosystems, and then we help build kind of 10 to $100 million firms that are focused on those software ecosystems.

Right now we’re in about 14 of those ecosystems through seven different investments.

But we like to say, frankly, the capital is the easy part.

The council and the connections are the really hard thing at scaling professional services.

And I do think right now we’re in a really interesting time in how you build scale and drive a professional service business.

So again, it’s great to be here and looking forward to the discussion.

Excellent.

Thank you.

And Ted, would you mind sharing just a little bit about yourself, your journey and DCM Insights?

Yeah, sure.

So thanks for having me.

Excited to have this discussion.

DCM Insights, we are a company that helps professional services organizations around business development effectiveness.

I had a writ large primarily around training and measuring those types of behaviors, but also working to advise companies and firms in general as they look to cultivate and build culture around business development.

Our background and my background is in research.

So I spent most of my career studying client behaviors, buyer behaviors and trying to extrapolate what does that mean in terms of business development or sales effectiveness.

We have a separate business that focuses primarily in business to business sales.

And so that’s kind of my background.

I spent most of my career in professional services organizations with a short stint with the exception in software, but I grew up professionally in a company called CEB, which is now part of Gartner.

So research and advisory kind of in my blood, and then did a stint as well at Russell Reynolds.

So talent advisory, executive search, helping them in a number of different ways around content marketing, insight generation, a little bit of sales enablement as well.

So excited to be here and looking forward to the discussion.

Excellent.

Thank you so much, Ted.

With that, I would love to set the stage.

There is a troubling reality going on in professional services, and that troubling trend is something that Ted has taken a lot of time to research and to learn more about.

I’d like to ask Ted at this time to jump in and to share more about the research in this area of customer retention.

Happy to do it.

Let me pull up just a few slides.

I hate to be the bearer of bad news, but there is, I think, hope on the horizon.

Let me just confirm you guys can see my screen.

It should say the activator way.

We can see it.

Terrific.

Excited to share with you all, this is the output of a large scale study that we’ve done, gosh, for the last 18 months or even two years, partnering in part with a company called Intap, who you guys might be familiar with, a cloud service provider for professional services organizations.

About two years ago, we engaged in this big study.

I’ll just briefly give you a sense for what we were studying, and then I’ll transition into what we’re seeing, especially from a client perspective, which is another focus for today’s discussion.

The intention of the study, though, was to study business development writ large in professional services.

Think your do-or-sellers, your lawyers, accountants, bankers, consultants, people who have to sell and execute on that piece of work, trying to understand both what the best people do, but then also how are those best performers operating and responding to big shifts that we saw happening inside the client purchase environment.

So the study itself was a big survey.

So you can see on the left-hand side, the representative sample at this point, we’ve got almost 3,000 different partners, do-or-sellers inside these organizations, inside these firms, again, law firms, accounting firms, consulting firms, and on down the list.

But then with that also conducted a whole bunch of interviews of both clients, so senior buyers, CEOs, C-suite-type individuals who purchased professional services, but then also a whole bunch of partners who work with clients every day about what do they do, why do they do, the types of things that they’re looking to execute on a week-to-week, month-to-month basis in business development, and then also firm leaders, as chief business development officers, chief marketing officers, senior individuals who are looking to managing partners, who are looking to operate in this environment.

That’s the study for those that might have interest on what we found with respect to the behaviors that went out and what those people are doing.

There’s a big article in Harvard Business Review published late last year called Why Today’s Rainmakers Do What They Do Differently.

If you just Google Harvard Business Review and my name Ted McKenna or Matt Dixon, you should be able to find that article.

The big finding with respect to what those people are doing, we think is grounded in big shifts happening in purchasing.

I’ll just take you through some of the things that we’ve seen happening from directly when we interviewed those clients and then also some data from a small survey that we ran of those clients.

I think some of these changes are just continued extrapolations from things that we’ve been observing out there in purchasing of traditional products and services in the B2B sales environment for years.

Highly informed buyers able to learn on their own changes, a little bit of the nature of that first conversation they’re looking at the providers.

We all know, I think, are quite familiar with the professionalization of the procurement function that B2B sellers have been having to manage for quite a bit of time.

For a long time, those that sold professional services, those were considered soft spend type categories.

We weren’t quite as susceptible to the professionalization of that purchasing.

That’s changed.

One big shift here is that organizations have gotten smarter and smarter and much more disciplined and more formal in how they evaluate those soft spend purchases, how they work with those professional services providers.

That notion that the only thing we have to do is make sure that we do great work with our clients and that assumes that we’ll get the next piece of business turns out to not be, or less and less true, I guess, over time.

You can see at the top of the page with clients, you hear things like most or every purchase we make is pretty competitive.

You see customers kind of going so far as to say, look, even if I have a very close relationship, especially long standing relationships, even very personal relationships, that actually makes me go to the other end of the spectrum where I’m actually careful to recuse myself even from those situations.

I can’t be seen to be putting my thumb on the scale for my friends in these types of purchases.

And in the top right, there’s never really a downside to hearing firms pitch.

And I think that’s especially true as firms feel like, or as clients feel like expertise that’s really dispersed across the market, through alternative service providers, boutiques that have popped up, niche firms that they can look to access.

There’s no real downside for them sort of entertaining that pitch.

And so you hear things like, doing great work might get us invited to do that pitch, but it doesn’t guarantee us that we’re going to win.

You can see at the bottom of the page, firm leaders reflecting this as well.

So long time clients who’ve spent millions of dollars with us and we still have to bid out, they still get out that work and we have to compete for it.

And I think the most harrowing thing for firm leaders that you see at the bottom right hand side, and this really drove a lot of our study, of course, on the do or seller side is, it feels like in this environment that’s grown more complex with a dispersion of expertise sort of into different corners of the earth for clients, that the gap between top and average business developers is only growing.

Now, to just put a finer point on what this means with respect to client retention and client loyalty, we did a study or a survey of about 100 C-suite buyers, people who are purchasing professional services on an ongoing basis.

And we asked them, look, assuming that this provider had done good work for you, would you go back to that same professional services partner or firm that you’ve used in the past if you had a new need?

And what they told us was that five years ago, 76% of those buyers would have said yes to that.

If they do great work for us, we will more likely than not go back to that same provider.

Today, that’s dropped to only 53% would say yes.

And I think the canary in the coal mine is they say five years, and now they expect that to drop to 37%.

So, just a really difficult moment here, I think for a lot of firm leaders, who again have built much of their business model, much of their go-to-market model on the assumption that the only thing we need to do is make sure that we focus on doing great work.

And that should make sure that we get the next piece of work and that clients will stay loyal to us over time.

And that seems to be less and less true.

And you can see this data here, of course, as you might expect, is causing lots of discussions inside of these firms about, you know, what do we need to do here to respond to these sort of shifts that are happening with respect to client purchasing.

Thanks, Ted.

It reminds me, as we’ve been launching Knownwell, we’ve done hundreds of customer conversations.

And over and over again, the pain that we’re hearing is not only about customer churn, but what really struck us was the surprise of that churn.

And I think this trend really speaks to that.

To your point, historically, professional services has been a relational business, and it’s transforming there a little bit.

It’s been about just deliver well, and you will continue.

And with that shift, I think the market dynamics are changing.

Chris, what’s your reaction to that?

And maybe you can layer into that reaction to the shift a little bit about what you’re seeing.

You have a really interesting view as the owner of multiple professional services companies.

Where do you see it playing out in different industries?

Where do you see the trends across?

How would you respond to this research?

Yeah, no, I think it’s incredibly spot on.

I mean, we’re lucky enough at Tercera.

We’ve seen probably 750 firms since we started Tercera four years ago.

We’ve made an investment in seven of those firms, but we get a purview into these emerging players.

The battleground on the demand gen side is, I hate the word because it’s overused, unprecedented.

I think the word shift, I heard Ted say a number of times, I look at it this, I think right now in professional services, it is a tectonic shift.

In my career, I saw it early days in the Y2K.

I saw it in the on-prem to cloud transition.

I think the size of this shift, people don’t really understand it yet.

I think as you look forward over the next 10 years, this notion of I think IT services has been built on the back of digital transformation.

One of those overview, like everyone pursues digital transformation, but the buying pattern, I think buyers are transactional now.

So I think this shift is from transformation to transaction.

You have to re-earn your stripes in every single transaction, every single project to stay engaged within your customer base.

I think that’s a huge shift.

I think also this shift is driving, I think, a level and will drive a level of contraction and consolidation in IT services.

The pie is not getting bigger.

It’s people taking share from each other.

If you lead all the public comps out there from the Accenture’s and the Deloitte’s and the PWC’s and the KPMG’s, these firms are not growing.

They’re flat.

Every up and comer is taking share from some of the big folks.

I think that just is driving this level of competitive dynamic that makes you really got to be hungry and creative and demonstrate use of technologies and AI in a way that no one’s ever really seen.

Because again, I think the mindset of the buyer is, and this is in Ted’s slides, the mindset of the buyer is transactional, not transformational anymore.

I think that’s going to play itself out over the next several years.

It’s fascinating.

When you get to the root of that, you talked about the onset of AI and how that’s impacting things and this fundamental shift.

It makes sense.

There are segments of the world you live in, in technology services that have gone from 20%, 25%, 30% year over year growth down to 3%, 4%, 5% year over growth, and you see all these flat organizations.

Some of that is AI and the elevation of productivity, but do you see anything else under the covers that you would point out that says it’s the economy or it’s other things that are driving the shift from transformation to transaction that you talk about?

I think also there’s been such a consumption of technology over the last 30 years.

There’s an indigestion in the buyer set.

And so now that indigestion is, okay, well, how do we tune, optimize, not transform?

And so I think there’s a catch up happening.

The growth rates have been so staggering in software and services.

I think there’s a bit of a slowdown.

Like now we have all this stuff.

How do we use it?

How do we use it more efficiently?

And I do think there’s pressure in the economy.

There’s definitely efficiencies.

I think services professionals, the day of 80% utilization is your target.

Guess what?

It’s not 80% anymore.

It’s how are you as a professional using AI to be 280% productive?

I think there’s a whole new set of metrics for productivity around services because you need to demonstrate a level of productivity and efficiency.

So I think there’s a bunch of converging things here, but I think most importantly, a macro is just this indigestion of technology and as a reset of how I’m going to use it more efficiently.

That’s interesting.

One of the things that we have felt very strongly in our customer research is over and over again, we’re hearing about this mindset shift from a growth at all costs economy to a performance economy, where organizations are saying it’s not just grow, I’ll spend whatever it takes to grow.

They’re recognizing that we’re shifting from this digital transformation where everything’s just exploding and it’s all about taking advantage of the network effects and the reach that we now have to, hey, we’ve got to actually turn a profitable business.

And that’s a big theme that I hear.

You start talking about more productivity.

It’s this mindset shift even in the services industry itself that’s beginning to take place.

Obviously, a lot of that view, Ted, is for Chris and I comes from the technology services.

But your research actually was broad across all professional services.

How does it relate?

What are you seeing in other service areas?

Yeah, well, and we study buyers in other contexts too.

And I think when Chris talked about buyers becoming more transactional, I couldn’t agree more.

In general, I think the word I would have used is that they’re a lot more discerning in general in terms of the types of purchases that they’re looking to make.

And quite frankly, I think there’s a lot of buyers writ large who feel like they’ve been oversold quite a bit in the past and they may be overpurchased in the past.

And I think that has actually had real effect in terms of the trust that they bring into the pitches and the road maps that we look to present to them.

And so, yeah, there is this sort of indigestion or glut, I think, that they’re looking to avoid.

And so then they’re looking to…

You know, you hear things from clients like, look, I’m going to make sure that I find the best possible provider for this specific need and not feel like I have to commit to a long-term relationship with, you know, one size fits all type situation.

And that does come across then as, okay, so this is sort of the transactional, like, I’m here for this.

And now it’s an expensive endeavor for, you know, somebody who’s running a firm to think, oh, I have to go and now compete and win market share every single time, you know, I look to engage in a project or a matter.

So it does change quite a bit in terms of the mindset they have and the investment they make with respect to the rhythms and the sort of business development that they have to engage in.

The day of land and expand is your primary strategy.

Maybe at risk because all of a sudden, it’s not about that relationship.

If buyers are recusing themselves, if they have too strong of a relationship, what does that mean?

And what do we do about it, right?

Was there anything in the research about that, about if this is the problem, this is the challenge of these fundamental shifts, what should we all be thinking about doing to address this?

Yeah.

Well, so I think one of the conclusions here is that, and you hear this all the time, you know, you interview, I interviewed almost 100 partners and you ask them, you know, what wins out there in the market and what’s the thing that really separates you?

And there’s still a lot of people who believe that it all comes down to trust.

You know, it all comes down to the degree which I can build this foundation of trust.

And you zoom out and look at some of the conclusions from our research, what it essentially shows you is that trust is necessary but insufficient.

You know, it’s not a differentiator on its own.

Yes, you absolutely have to be able to build that trust, but the winners out there that we find, we did this study of partners and did a couple of different analyses on them, one of which was this factor analysis which created these profiles of different approaches to business development.

You know, and some of them are sort of the classic old school trusted advisor sort of approaches where I kind of build this moat around these very deep relationships I have.

Some kind of go to market as an expert, they try to win attention on the fact that they have this very niche expertise that’s going to be perfect fit, you know, for certain client opportunities.

The winning profile, just to speed along to the answer, was a profile we called the Activator.

And the Activator is very focused on, I mean, they are habitual in their business development rhythm.

So that’s part of it is they invest in the time and the activity necessary to think broadly about client opportunities and to think about their network.

You know, they’re really kind of super connectors across their network, but then they’re very intentional about bringing insight and bringing ideas to those people across their network.

So they think about their expertise quite differently.

Yes, they are experts, but they also almost act like general contractors of their expertise across their network.

And I’m going to bring the best ideas to my clients in different situations or make introductions, referrals in situations where I’m adding value for people all up and down my network.

So that sort of has ripple effects in terms of how they think about relationship development, how they think about multithreading inside of those client organizations, how they think about networking even internally in their firm so they know who to make those introductions to.

But it kind of starts from this sort of feeling as if the value I’m bringing to you is a collective value of people across my network and not just my own single expertise that I’m going to look to kind of play hero on.

Fascinating.

I’m going to open this up for questions in just a minute here, but Chris, respond to that.

What are you seeing pragmatically?

If that’s what the research is saying, this activator profile, what are you seeing on the ground pragmatically actually work with your portfolio companies, and what are you advising them to do?

Yeah, I love the activator construct, if you will, because I do think that if you have a business developer that is an activator, a networker that’s focused on time to value, speed to value, that makes a massive difference.

And I think having a transactional mindset as a seller, of course you want a relationship that’s long term, but if you are paranoid and have a transactional mindset and can add and drive time to value and unique value and unique content, that makes all the difference in the world.

I also think the other thing that we’re advising strongly is spend less time trying to consult on AI, use it.

Because if you can’t demonstrate internally that you are using AI in every function of your business, then you shouldn’t be consulting on it.

There’s gonna be a consulting opportunity long term that will be massive around generative AI.

But if you can’t demonstrate as a professional services firm how you are more efficient, more productive in every function, not just your delivery organization, which is essential.

You need to be delivering a ridiculous amount of productivity through these tools.

But how are you doing in marketing?

What do you do in your G&A functions?

Are you using it in sales?

That’s the other big piece of advice, is to drive your fundamentals, not growth, to drive your fundamentals.

What are you doing?

And then use that to sell as an activator.

That’s a game changer, because then the customer will be like, oh, wow, we need that.

That’s better than consulting proactively on it.

We’ll help you with your strategy.

Everyone’s saying the same strategic BS right now.

Show them what you’re doing.

I love that advice, and it really speaks to the activator.

It’s the one that can take all of these information assets that are out there and actually do something with them for the value of the customer.

I think one of the areas that we’re seeing where professional services companies can really leverage AI for themselves is in this area of commercial relationship intelligence.

How do you really understand what your client perceives of your service and the quality that it has?

How do you really understand the nature of that relationship?

What we’ve found in our research is it’s fascinating, unlike other industries.

In SaaS and retail, you have all this transactional data that’s telling you how is your user, your buyer engaging with your platform.

In professional services, we don’t have that.

What we have is natural language that is at the heart of relationship and all these conversations going on.

We’re real big believers that what is going to emerge really at the heart of the professional services firm of tomorrow is an understanding of their customers and the relationship they have with them at the next level that then human beings can act on.

Human beings can take and say, hey, I understand my customer more than I’ve ever been before.

The reality is we have too much data.

We have too much insight sitting around to be able to do that well, but the AI can actually connect the dots and help us understand it at new levels that then you can take and do exactly what Ted’s talking about.

So let me open it up.

Who else is seeing something about the changing game and what are you doing in your own organizations in order to navigate this troubling thread?

Yeah, go ahead, Jeff.

I think I can just react to that.

I love, Chris, by the way, the paranoia that you see on the behalf of some of these bestsellers.

And it’s actually this interesting dichotomy where they’re both paranoid and patient at the same time.

So they’re laying the groundwork and building these long-term, placing value in the network, building over the long-term.

But I couldn’t agree more, David, with the power of technology, not just to save time, which is I think often where people go first, it’s gonna, I can write emails for me and it can save all this time.

And I can, in professional servers, it can read contracts.

I mean, all sorts of things you can do to save time.

It’s a separate story.

It’s like, if time is the way that you monetize your contracts, now you have a separate problem.

It’s like, do I now charge less because I’m spending less time on that?

But the understanding or buyer piece, I think is a really critical aspect, not just about their business, which I think too many professional services, business developers don’t really understand enough about all the dynamics that go on beyond the four walls of the client that they’re working with at that moment.

Like, what are all the dynamics that happen inside their business, but also on a personal level too.

What are the drivers for that individual?

What does their network look like?

What does the network look like of people inside of my firm and the connections necessary?

So there’s all sorts of relationship intelligence that I think AI can really unlock.

I love that because one of the things we found in our research is that the depth of the relationship really, really matters.

A lot of times professional service firms are worrying about, rightly so, the buyer, the executive sponsor, key influencers in an organization.

But a lot of times, especially when you are in an execution oriented service business versus kind of an advisory business, you have large teams working together with your client.

And in those situations, the direct employees working with the client really matters.

And if the organizational kind of ethos is, hey, this relationship isn’t working, that will bubble up no matter how strong that high level relationship is.

And so there’s these very complex relationships, not only many to many, but also multiple channels across which, you know, direct team members are talking to direct clients that executives, business developers may not have exposure to.

And so how do you get your hands around just the multitude of communication?

And in every single one of those, there are little breadcrumbs that are being dropped that provide insights that we can act on if we can connect those dots, right?

Yeah, yeah, I think it’s interesting because you, in my opinion, you need those insights in real time now because the expectations of the buyer is day-to-day, week-to-week, month-to-month.

And if you contrast that with how this industry was built, the industry is built, the holy grail are multi-year or decade-long contracts.

Like the holy grail is let’s go do transformation, outsourcing, $100 million a year for 10 years.

Guess what?

Buyers want to buy like they buy SaaS, which is on a monthly recurring basis.

And if you have a mentality as a services business, you have to earn your value every single month.

That is a whole different way of thinking and running your business.

And you need these actionable insights in real time to just stay current and to provide value in that manner.

It’s actually not just that.

They showed up in our research too, Chris, that from a buyer’s perspective, too often people inside professional services organizations, the relationship they have with them are actually rather sporadic in nature.

So the partner is working with them heads down on this project or this matter or what have you, and then they make time for business development when that project’s over.

And so from the buyer’s perspective, these people come into my life for a short period, and then they leave my life, and I don’t hear from them for too long.

And so you see activators naturally do this, where they think about the decay rate of their relationship with those individuals, but you can imagine firms are thinking hard about how technology can nudge other partners in that same direction and make sure that they have that instinct to stay in their clients’ lives, whether it’s a piece of insight that I’m sending along or some other way in which I’m showing them that I thought of them.

Even when they’re not purchasing, they still expect that you’re adding value between paid matter, between paid projects, and it’s just not something that most partners do.

Technology plays a big role there.

Yeah, I love that.

That’s fascinating.

Ed, you made an interesting comment in the comments just about the value of all of these little data points and how if you can turn it into tribal or even institutional knowledge, that unstructured data, that communication, all these breadcrumbs are really, really valuable.

I think that’s a great point.

Mike, I see you came off mute.

Do you have something to share on this?

No?

Maybe I didn’t, sorry, I scared him.

Maybe I’ll ask a question to Ted because I think you hit on a really important point.

The nature of professional services is billing for time.

That whole construct, I think over time, frankly needs to go away or will go away in some form or fashion, yet everyone has been talking about value-based contracts for decades.

Do you have any thoughts from the survey and the work and the research you’ve done as it relates to how and when that construct of billing for time emerges?

Yeah.

Yeah, I think you’re right that people have been saying this for a while now.

And quite honestly, I think this is why you see more and more sort of alternative service providers showing up in different markets, where you got the axioms in the world that are selling legal services in different ways.

And I think that will keep happening as firms are inflexible on this front.

And I think quite honestly, I think there’s still a bunch of firms, the top very leading firms that still think about their brand and think about the way in which they can elevate things and just hope that they can kind of ride this out because they’ve got the best people and the best experts.

But I think in general, you will see more and more fixed fee type arrangements.

And I think, honestly, when you talk to partners that are really thoughtful about, like there’s a firm, a law firm that we interviewed as part of the study that has been very forward thinking about developing AI solutions, not just for their internal purposes, but also as a way to develop solutions for clients.

And that’s where I think you’re going to see the most forward thinking of this positioning AI, not just as a way to think about how can we do the work that you’re asking us to do more efficiently, but also how can we help you do your jobs more effectively?

And that’s perhaps there, there you break out a little bit of that frame of, the only way that this technology is helping me is to be faster, or rather find ways to be more effective.

It’s interesting.

I’ve seen in the research over and over again that that point of maniacal focus just on the efficiency part of AI actually is putting folks into a box versus is looking at the additional value and how to productize and really push this to your customers.

I think it’s just another reminder how customer oriented we need to be, right?

Chris.

There’s separate, oh, sorry to interrupt you David.

No, go ahead, please.

You interview these people in these firms and it does bring up then these other separate issues that you don’t think about.

When those partners are then asked to look to sell these types of solutions to the, they’re not used to selling products.

They’re not even used to sort of a team oriented sale that might have developers or God forbid, product experts that they would bring into those conversations.

And then you start the difficult sort of a bridge of selling not just other solutions, but things that maybe I’m not a full expert on.

And then you get into lots of difficult scenarios there because it’s hard enough to get them to sell their own thing, much less sell somebody else’s thing.

And these are all like open, raw wounds here inside these firms that people are still trying to figure out.

You know, you just went exactly where I was gonna go is there is the question of the pricing and how do you bill, but sometimes I actually think we put the cart before the horse by trying to get there because that’s what the end result that we want.

And it’s really the engagement model.

It is the underlying manner in which we procure services.

And you just mentioned, right?

The professional services industry historically has been all about just pure customer intimacy and custom solutions.

There’s been this trend, I think, especially over the last decade to productize services more.

And you see that in a lot of different business models playing out.

Chris, I’m wondering, are you seeing that accelerate?

Are you seeing people embrace that more?

And do you think that this trend that we’re talking about will really double down on that trend and push it even further?

Yeah, I do.

I think where we play, again, these are firms that are 10 to 50 million of revenue.

Services product management as a discipline is not strong.

And so it’s an area that we end up spending a lot of time on because being great at a few things at this scale, this plateau of growth matters.

But I do think, again, the buyers want a level of specificity and I’d say rigor, discipline and expertise.

And so driving that, but then having tech enablement is the old phrase or AI enablement is the current phrase.

Having that as part of that product solution or productized services is critical.

If you are coming to market with tight product management, you need to have AI enablements to kind of get the win, to get in the door and to stay in the door.

Which again, I think you have to be paranoid and use solutions like you’re building David to stay there, to be compelling over time.

Yeah, yeah.

When I think about this trend of productization, it’s interesting because if you step back and just look at the core of the professional services industry, the reason it’s been so tailored, it’s been all about expert knowledge, right?

It is a knowledge industry more than any other industry.

And so the work that we’ve been doing is to take, how do you actually take this expert knowledge applied to a business and begin to package it?

And it’s been very nebulous, right?

Compared to selling a widget or even selling a piece of software, it’s still knowledge.

What AI does is for the first time, we can actually digitize knowledge, right?

And it’s that this AI is not just doing math and calculations now, it’s actually inferring and making judgments.

And in that way, we can truly start to not just package, but really productize.

And because of that, I think there is this wave of transformation where really professional services historically has been the one industry that hasn’t really gone through digital transformation, right?

They’ve been assisting with it, but the business model itself hasn’t been transformed.

I can’t help but wonder and think we’re on the precipice of that.

We’re really figuring out how to truly productize knowledge and where will that take us?

Yeah, I mean, again, the industry has been built on, you know, how many bodies can you throw at it?

And the labor arbitrage, it’s a finance play.

And so that is changing.

It’s not that anymore.

Again, it’s much more value-based, productization-based.

And I think the best firms are doing it on the backs of really smart activators that know how to quarterback.

And that’s not scalable.

That’s very individual.

It’s not a team sport.

So how can technology allow you to scale that on the demand gen side, but then also on the delivery side?

And so it’s a two-step process to do that well.

And I do think that’s why this transformation, if you will, for the industry, is not gonna be measured in the next handful of years.

It’s gonna be measured in 10 to 20 years.

All right, well, very good.

I wanna be cognizant of time.

We have about 10 minutes left here, and we are committed to ending on time.

Any final questions or thoughts from the rest of you that you wanna bring up about this subject of customer retention, customer growth and AI and how this industry is being disrupted?

I have a question.

Sure.

So I’m a buyer, at the same time, I’m a seller.

So we are a contractor for the Department of Energy.

And right now we are on the brink of deciding if we, it’s inevitable, we will have AI here.

But right now the consensus is we cannot have AI because of cybersecurity, because of this, that and that.

Just to give you a concept of how antiquated the Department of Energy is, we just migrated to cloud last week.

And now I’m pushing the client saying that, Hey, AI is here, we need to use it.

We need to allow us to use it, especially engineering.

And they’re still very hesitant.

And like Chris said, you need a catalyst, an activator.

How people like you that are in this industry, how will you convince the Department of Energy and the Department of Defense that, Hey, this is here, it’s inevitable, and you need to use it?

I mean, I’m happy to take a first crack at it.

I do think like the transition to cloud back in the day, there was a trend around private cloud first, and then it was private and hybrid cloud, and then it was public cloud.

And I think the same type of transition is happening here where there’s private AI, your own private and governed LLMs, where you’re kind of testing and experimenting internally that will evolve to some type of hybrid model that will evolve into some type of public model.

And so I think the catalyst would be like, how can you start small in a private manner with some use cases, build momentum for the department, and then rinse, repeat, get a little bit bigger.

And so finding services providers that are willing to be transactional and can be to show you that momentum is what I would recommend.

Chris, I will also add to that.

I agree with everything you said.

I’d also say that one of the things I’m experiencing right now is a lot of organizations have a mindset that AI is something different and it feels very personalized, right?

We think of it as an entity, not just cloud software.

And the reality is at the end of the day, it’s still bits and bytes, right?

And it still is software in the cloud that is executing.

And I think that corresponding with what you’re talking about, there is in society going to be a comfort level that starts to settle in in a mindset shift where we start to understand this isn’t really another human being, right?

This isn’t really something wildly different from what we have.

And that will begin to shift minds.

I think in certain industries, especially government is a great example of that.

It will take longer for that shift to happen.

But what it really reminds me of is it’s kind of like Uber, right?

When Uber first came out, there were the early adopters, but there was this I’m not getting somebody’s personal car.

And all of a sudden, it started to move a little bit more and a little bit more, and then it popped.

And so what I would say is, yes, take those small steps, bring them along step by step, but also be ready yourself.

Understand that at some point in time, it’s going to pop, and it’s going to become the norm for people to get in an Uber and to get in somebody else’s personal cars.

Okay.

And I think the same thing we’re on that path with AI.

Yeah.

No, I love the Uber analogy that gets spot on.

And I think that while there are similar analogies and parallels in the cloud world back in the day, yeah, there was, I used to call it cloud washing.

Like everyone was a cloud, like there’s the same AI washing, but it’s a different level of noise because of robots are taking over the world.

You know, they’re going to be embedded in your brain.

Like it’s a different level of paranoia than cloud washing.

But I do think it’s inevitable.

It’s how you adopt it, when you adopt it, how you control the change management within any organization.

Yeah, awesome.

Edwin, you have a thought?

Yeah, I wanted to ask, connecting buying behavior with macroeconomic environment.

So, you know, essentially how much has client behavior been affected by the end of ZERP, zero interest rate policy, and in general, client being much more scrutinizing their budgets.

So I wonder if that still applies.

I mean, I think ZERP ended maybe a year or two ago, but, you know, as a country, we had this policy for more than 10 years and a lot of people became, you know, you didn’t have to be, you know, as laser focused on your budget as you do today.

So I’m wondering if it still applies and, you know, what could potentially be some strategies to help focus and, you know, retain clients, mitigate churn because of that.

Ted, did anything in the research come out about that?

Yeah, so we did a separate large study on customer indecision a couple of years ago.

And so because of that, we get a lot of questions about, and I’m just so happy we finished it kind of right at the beginning of that sort of SaaS downturn, if you will.

So we got a lot of questions about, in a tough macro environment in general, when budgets become more of a concern, and I think the ending only exacerbated this even further, what does that do to purchasing?

And the short answer of it is it drives a lot more indecision, not for the reason necessarily to expect.

It’s not just the fact that I have less money, and so therefore I can’t choose which one’s the best, but it’s that when budgets get tight, scrutiny rises.

People start to point fingers about, oh, with those scarce dollars, who’s made that decision?

And then in the mindset of the buyer, the fear of those mess-ups start to get much bigger.

And it’s a tricky thing for a seller.

I think this is particularly true when you sell very transformative technology like AI because for the seller, it’s actually not going to be that hard to get a visit.

So getting pipeline actually becomes less of an issue.

You’re not going to get a lot of value-based objections, right?

They’re always going to say that thing doesn’t look valuable or I don’t think we can do it.

It’s less about is this thing, why should I buy this?

And more about whether I should and when and how.

And that’s much more about the review which they feel like they’re not going to fail with this thing, that they can actually achieve these returns and not just that the thing is valuable.

So it’s a long-winded answer.

And if you want to learn more about that, there’s a book that Matt and I wrote called The Jolt Effect.

Just search that up.

But that’s the sort of net effect we see happening in this sort of budgetary type environment is they start to worry.

It’s less about value and more about, gosh, if we were to do this and things were to go wrong, I’m going to get blamed.

And now, all those sort of downstream problems I need to consider.

Fascinating.

I would say that Echo is one of the things that we’re seeing is what we have found is very much the economy is an accelerator of an inevitability that was happening already.

So this slowdown of just adoption.

We talked before about buyers being overwhelmed.

The amount of implementations and data engineering projects and all of this work that organizations have been doing to get their hands around data, especially in the technology space, I think is really fatigued folks, and they’re tired of all of these services.

When you layer onto that the economy and what has happened with budgets, I think you saw a screeching halt where you would have seen kind of slow roll to the stoplight is the way that we’ve interpreted it.

With that, we have two minutes left.

Chris, let’s start with you.

Do you mind one quick takeaway and where can they find you and Tercera?

I think the takeaway would be stay paranoid through the shift.

Add value as fast as you can, and they can find me at chris.tercera.io.

Thanks so much for joining us, Chris.

Fascinating.

Ted, same thing.

Do you have a final punchline takeaway for us and where can they find more about DCM Insights and get in touch with you?

First, find us at dcminsights.com or hit me up on LinkedIn.

Happy to point you in the right direction.

I think it’s just learning in general about what’s happening with buyers and staying quite diligent on making sure that we’re staying really present with them from a business development perspective.

And I love Chris’s state paranoid mindset.

Awesome.

Thanks.

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