The Curse Of The IT/BPO Services Unicorn

Ask any emerging IT/BPO service provider about their definition for success and what you will invariably get back is to become a billion dollar firm soon or in the current parlance of start-ups a “Unicorn.” In the world of Silicon Valley, the Unicorn is a great thing these days but in IT/BPO Services where you might need $1 Billion in revenue to get a $1 billion valuation being a Unicorn today looks more like a curse than a boon.

In today's context for IT/BPO Services, $1 billion is the milestone after which a service provider becomes a broad or bigger player. This milestone is supposed to grant service providers access to bigger deals where financial stability is an important influence on provider selection. But this milestone also brings with it the challenges faced by the big service providers, oftentimes for service providers who aren’t really prepared for some of those changes. Service providers that were able to operate in specific niches before becoming Unicorns, now have to focus on the broader market: more geographies, verticals and service lines. It takes lot of management attention and bandwidth to find the growth opportunities required at this new level while maintaining existing relationships with clients who chose them in the smaller days because they felt they were better able to get the type of special attention they were looking for. After becoming Unicorns, service providers also face more attention from investors (public and private) if they don’t keep growing at historical rates as well. Service providers that struggle after this milestone and then try to cut back their growth plans, refocus into few verticals, service lines, and geographies often see that their role and value proposition in the market is not so clear to many clients and advisors. They clearly have assets and capabilities that are attractive. But do they have the vision to pass through the Unicorn phase to take on the very largest of the competitors in their market?

This is what happened to IGATE, which was acquired by Capgemini couple of weeks back. And if the market news is true, other Unicorns or near-Unicorn service providers—such as Syntel and Genpact—are thinking about how to respond to these same challenges in their strategy.

Big is better and small is beautiful but what about a Unicorn that is neither able to become big nor remain small?

By the way, this curse of the Unicorn is not limited to IT/BPO services. In many industries, niche players struggle to become bigger players. Lately, we are observing similar challenges in the management consulting industry—where a billion dollar consulting firm, Booz Allen, was acquired by PwC. In addition, many other consulting firms that weren’t small but had not transformed into bigger players—such as Diamond and Monitor—were acquired by the big four firms.

So is there a way to become a Unicorn and still keep growing? Of course there is. We have seen the examples of HCL, Cognizant, and Tech Mahindra crossing the chasm in last few years. They continue growing by focusing on key verticals, service lines and geographies and attaining leadership position in them. HCL focused on IMS and engineering services, Tech Mahindra focused on telecom and manufacturing vertical, and Cognizant focused on BFSI and healthcare vertical in US and UK.

So, some guidance for all who want to be Unicorns: Don't just chase unfocused growth. Instead become the leader in a few sectors and then use them as your growth engine. In the "As-a-Service" economy, specialization will trump scale. Go for specialization and scale will follow—not the other way around.