Deepak Vinchhi’s Blog

The Services Business consists of services provided by service providers to buyers, typically in a customized manner as defined by or as required by the buyers. Services is big business – 67% of USA GDP comes from services. Cross border services business, especially knowledge based services, is well acknowledged and growing rapidly from India.

The nature of services can vary quite a lot between commonly delivered services and very rare areas of expertise or niche services. For example, accounting is a very common service that every business needs, and hence the volume of business in accounting is very high, whereas Japanese garden landscape designing services is probably a very low demand activity.

The following figure depicts the Long Tail of Services.

In the Long Tail curve of Services, the vertical axis represents the volume of business being undertaken in a particular category of services. The horizontal axis represents the number of providers in a particular category in descending order.

The Long Tail curve (in the figure above) has two parts to it:

• The Short Head consisting of the steep portion of the curve on the left depicting the high availability and high volume skills and services. These are addressed by large number of service providers, and that are needed by many buyers of services as part of their business requirements. Examples of such services are: website design, accounting services, logo design. The main challenge for a provider is how to differentiate itself. The overall challenge is that of “improving the quality of market”.

• The Long Tail part of the market is the portion of the curve that tapers down slowly towards the right and consists of niche players providing niche services that are required very rarely by only certain buyers of services in special circumstances. Examples of such services are: Autocad Arm programming, Japanese garden landscape design, thermal design for electro-mechanical devices. The main challenge is for providers and buyers find each other – “how to make the market”.

The theory of the Long Tail (by Chris Anderson) is that our culture and economy is shifting away from a focus on a relatively small number of “hits” (mainstream products like a Star Wars movie and services like accounting or website design) at the head of the demand curve and toward a huge number of niches in the tail.

The new Internet paradigm results in the following business trends for services:

• Niche service providers can be found easily: Services sold on the Internet, especially niche services, can be found by buyers more easily through better searches and filtering mechanisms, recommendations from social networks and word-of-mouth viral effects.

• Reduction in the cost of marketing: The cost of marketing for the services sold on the Internet can be reduced significantly by proper positioning and keyword “tagging” for search. Since these services can now be found more easily by buyers, the cost of marketing reduces.

How to succeed in the Long Tail portion of services business

The exciting opportunity in the Long Tail part or the niche services business is probably that as a group it is as big in terms of the total volume as the Short Head part of the services business.

Following are a few pointers that can help providers that are providing services in niche areas:

• As a provider, the first and foremost focus should be to be found easily by buyers of their services. This can be done by listings on search engines, services marketplaces like nineMotion.com and specialty sites
• The key words or tags that describe you should be very specific to your expertise rather than too general. For example, if you provide services in Business Intelligence software using Java as programming language, using tags relevant to Business Intelligence is more effective than Java, since otherwise you will get inundated with a lot of common Java requirements that are not in your niche area
• Create and showcase a profile that is completely focused on your niche area of expertise, rather than your other peripheral skills. Use case studies, white papers, approach papers, technical papers and other collateral to highlight your expertise
• By undertaking the above & focusing on your core expertise, in the beginning you may not pick up some business in general areas not close to your niche area, but in the longer term it will pay off by generating much more pinpointed leads relevant to your expertise areas
• By being highly focused, you can charge a premium for your services. Any services business focused on niche areas is bound to be more profitable than other general skills based business

How to succeed in the Short Head portion of services business

The Short Head portion of the services business is much more crowded and hyper-competitive. A typical provider in this portion of the marketplace will have to do the following:

• Generate a lot many leads before it can convert a few of them into real projects
• Write a lot of proposals
• Undercut on pricing to win business
• Sacrifice on margins
• Spend more time, effort and money on marketing and sales

The broad approach in this portion of the market should be to continuously differentiate oneself even in general areas of offerings. A few pointers that can help the providers in the Short Head part of the market:

• Gaining domain expertise in certain industries or even in some sub-domains of certain industries. For example, rather than positioning yourself as a mechanical designer, you can position yourself as a designer for automotive transmissions with in-depth expertise in your field
• Process excellence to improve predictability of cost, time, quality and transparency of the services delivered
• Cost effectiveness by automating or re-using components of services being delivered
• Listings on search engines, marketplaces like nineMotion.com and specialty sites so that buyers can find you
• Create and showcase a profile that clearly defines your areas of strengths as against listing everything. Use tags and keywords to define yourself that are completely relevant to what you can undertake extremely well
• Use case studies, white papers, technical papers and other collateral to showcase your expertise and differentiators
• Only address those requirements and send proposals to requirements that you can deliver extremely well. It is very important to get a reputation of high quality from the customers all the time

Economic Times recently had an article about seven key lessons from Vishwanath Anand, the undisputed world chess champion and arguably the best chess player ever.

Here is a synopsis.

• Don’t get too absorbed in the game; this is essentially a distraction. It’s not the perfectionists who get the market share, but those who give the right stuff at the right time.
• Tension helps you concentrate and be alert. You give your best when you are under pressure. Feel the pressure, but don’t worry about things you can’t control.
  
• Set your goals clearly. The goal is not to make the perfect move but to score points. Know when to offer a draw even if you have a chance to win the game.
• Strive for objectivity. Know where you stand; don’t get emotional. Don’t be too optimistic nor too pessimistic. Being realistic is not easy. It demands constant analytical work. Be merciless with yourself.
• Know your opponent. What are his favorite lines. Is he deviating? Why? Is his favorite line in trouble?
  
• Know when to use analysis and when to use intuition. Intuition is when you make leaps into the dark. It’s very difficult to draw a line between intuition and strategic thinking.
• When you lose, move on to the next battle. It is important to be disciplined.
  

I am pasting here a post in nineMotion blog by Bala Girisaballa titled “Second wave of outsourcing”:

Globalization a necessity:

Globalization is neither new nor optional. For a decade now, businesses have been leveraging the forces of globalization by strategically outsourcing requirements to retain competitive edge. It has matured so much today that for many companies it often determines survival.

What globalization has done is to reduce the cost and talent arbitrage for businesses. Earlier if you wanted to get work done, your option would be either a) to do it yourself – often meaning hiring more employees, or b) to do it yourself using flexible contracting workforce or c) to outsource it to another company. Hiring employees makes sense only if it is strategic to the organization.

Prior to globalization, getting contractors or finding outsourcing partners is purely a matter of knowing them via your personal network or local directory listings. Often, the risks involved in outsourcing prevented businesses from using remote parties favoring local or regional parties. Globalization changed all that. Internet & digital revolution allowed businesses to work with remote parties effectively. Big businesses were able to leverage this to their advantage by developing relationships with service providers in far corners of the world and reducing costs and improving their competitive position.

Today globalization fueled outsourcing has evolved so much that both customers and service providers have matured and standardized their engagement models. Outsourcing has become a de-facto strategy of getting work done.

Small Businesses still struggle with outsourcing:
In all this, scale in volumes of work outsourced allowed both customers and service providers to engage using high-touch managed relationships. There is always a dedicated PMO (project management organization) associated with every engagement. Even the sales cycle involves a team of professionals, demos, proof of concept prototypes, office visits involving international travel and due diligence efforts that meant very high overheads. The overall cost savings across large volumes meant that outsourcing still made sense.

Small business however could not take part in this trend largely because of two factors: a) volume of work outsource was very small and could not justify the engagement overheads and b) even if smaller outsourcing partners were interested in this work, they couldn’t engage meaningfully because of lack of access and the ability to engage meaningfully. The result is that small and medium businesses worldwide were left out of the outsourcing trend.

This problem is severe. Considering that there are 20 million small businesses and 20 mil personal businesses in the US alone and growing at about 10% every year, this problem of isolation from outsourcing point of view is critical for their growth and competitive sustenance.

Getting small businesses into the fold
Small business participation will bring in the second wave of outsourcing which undoubtedly is bigger than the first wave of large businesses outsourcing. What is needed to bring these small and medium businesses into the globalization fold? Internet is an important tool for them that can serve as a low touch channel to connect them with each other. What they need is a medium which can help them do three things effectively A) Connect, B) Contract and C) Control / Collaborate

Connect:
Businesses need a web-based marketplace that can help them explore, find and get in touch with outsourcing and contracting specialists. This marketplace serves as a cost-effective medium in place of high-touch sales environment for large business outsourcing. The tools to connect should help them find the right partner to outsource their requirements. This marketplace works well as a reverse auction system. Unlike a product marketplace like eBay, a services marketplace has no wares to sell. There is no inventory or products. Services marketplace exists only when a requirement exists. Instead of buyers bidding for a product, in the services marketplace, the buyers post their requirements online and service providers bid on them with proposals. The key aspect of “connecting” in a services marketplace is to provide efficient tools to clarify the requirements and showcase the providers’ capabilities well.

Contract:
Another unique aspect of services marketplace is the part where buyers and providers negotiate a deal. Unlike product marketplace, buyers don’t necessarily look for the cheapest provider when outsourcing services. The evaluation criteria for services are based on four R’s – referrals, recommendations, references and reputation.

Also, a service engagement is more complex than purchasing a product. The standards of specifications and performance and well understood there. In contrast, there are not clear in a service. When you want a website to be designed by a specialist, it is not apparent what type of website it is going to be. Is it a simple 10 pages HTML based website or is it going to be a complex website with Javascripts, Flash and forms to capture visitor information? The performance standards vary considerably depending on the type of the requirement. Other contractual terms are also not standardized. How should the confidential information passed between parties be handled? Who owns the intellectual property? What happens in case of copyright violation? How are the requirements communicated? What happens if the service is not performed within the stipulated time? How will it be determined if the product meets quality standards? There are so many such details that govern a service agreement. A good service marketplace needs to help both buyers and providers manage this contract part effectively.

Control / Collaborate:
Control is another unique aspect by which services marketplace differs from product marketplace. In a product marketplace, once a deal is made, all that remains to be done is for the seller to ship the product and the buyer to pay. It is purely “transactional” in nature. In a services marketplace, a signed contract is only a promise to deliver. The delivery itself will take few weeks or few months depending on the project scope. During this time many things are at risk. The assumptions made during the negotiations can be tested. The expectations of both the parties can change. The capability of the provider can also change if they suffer from unexpected attrition. For a successful engagement, both buyer and provider must actively collaborate and control the working relationship to mitigate the execution risks. This is the most critical part of services outsourcing and unfortunately neglected often too.

What a service marketplace should be:
How does the service marketplace that is uniquely built for small businesses to connect, contract and control/collaborate work?.

Conclusion:
Small businesses world-wide have bigger motivation to reduce their cost and run their businesses efficiently. Outsourcing can help them to sustain their competitive edge. However, the traditional high-touch, high cost outsourcing channel effectively keeps them from taking advantage of this trend. Internet can help as an effective medium to outsource services. However, services outsourcing differs significantly from products outsourcing. Effective services marketplace like nineMotion that is uniquely built to connect, contract and control/collaborate will help usher in the second wave of outsourcing.

I am pasting here a post in nineMotion blog by Bala Girisaballa titled “Relationship based marketplace”:

Outsourcing predicament:
John runs a small marketing firm. He, along with five other employees, manages most of the company’s operations from sales to customer service. When John decided to use Internet as a marketing medium to attract more customers he knew he didn’t have the expertise to build a website himself nor could he afford to hire someone full time. He decided to outsource this activity. But where will he find someone who can do this work?. He could ask around or advertise his requirement. Then, he remembered purchasing his computers over the Internet on eBay. It was easy. He went on the website, searched for computers, bid on them and got them delivered. It was cheap and faster too.

He thought of looking for website specialists on the Internet. He visited marketplaces that help him find them and found quite a range. Specialized design firms to one-person shops. The cost also varied a lot. He didn’t know how to do this. This wasn’t as simple as purchasing computers.

When relationship matters:
The real difference between buying computers on Internet and getting your website done on Internet is same as the difference between “transaction” and “relationship”. Products such as computers are tangible and easy to understand. When you talk about a Dell Pentium V 1.2GHz, 120GB memory computer, you are sure that irrespective of where you buy it from, you will get the same product. The product’s specification and performance is standardized.

That’s not the case with buying service like website design. There are three big unknowns here. A) Your requirement itself and B) a provider’s capability to do it and C) Provider’s actual performance.

First let us talk about your requirement. What is it you want? Is it a simple 10 pages HTML website? or is it a complex website with Flash, Javascripts and forms to capture lead information?. What you want is not as straight forward as saying Dell 1.2GHz Pentium computer. Many times you may not even know your requirement. Discovering your exact needs is itself a part of the process. The solution you want and which provider you end up going with depends a lot on your requirement.

Second is the provider’s capability to meet your requirements. There are three broad parameters to evaluate provider’s capability: cost, time and quality. Can the provider deliver what you want within the budget, in time and of good quality? These parameters are never debated when John bought computers online because all of them were pre-determined. So, all he had to worry about was the price. In services one size doesn’t fit all. The right provider depends on your requirement so you may look at 5 proposals but the right provider may not be the cheapest one.

Third is the provider’s actual performance. When John bought Dell computer, all that was remaining after the deal was made was for the provider to ship it. When John opened the box, he wasn’t surprised. He saw exactly the same Dell 1.2GHz, 120 GB computer that he had anticipated. However the story wouldn’t have gone the same way with his website. Either the website is half of what he wanted or of poor quality or would have cost him twice the original amount. It would be a miracle if he got it all right.

Services marketplace
This is the crux of a “products” marketplace versus “services” marketplace. Product marketplaces are transactional in nature. Typically they are one time “transactions” focused on finding the cheapest product. Services marketplaces are “relationship” oriented. When you strike a deal it is only a promise to deliver. Nothing has been delivered yet. You then work on it to make it happen – your changing requirements, your assumptions about provider and above all, a continuous working relationship between the two until the website is delivered.

Many companies struggle with outsourcing services because they approach it like buying computers online. That’s where a relationship based services marketplace helps. Key aspects of a relationship-based marketplaces are as follows:

Template based approach eliminate assumptions:
To begin with, simple template based processes will help John spell out his requirement in greater detail so that both John and the provider don’t have to make assumptions. This also means that provider can estimate the work better. When you start off on the right foot, things tend to go well. The relationship marketplace also helps providers write good proposals using templates covering all delivery details which otherwise would have been missed out. It also helps John evaluate proposals using the right parameters (cost, time and quality).

Built in business terms helps reduce engagement risks:
A service engagement has a longer duration where buyer and provider interact with each other. This requires a robust business terms protocol of how the engagement should work. Many small businesses tend to ignore this to their peril. Robust business terms which govern each engagement reduces engagement risk and protects both buyer and provider by stipulating the terms. It determines who owns the intellectual property, how they will communicate with each other, how they will resolve conflicts and much more. This framework is flexible enough for buyers and providers to extend and customize it to their specific engagements.

Collaborative project management streamlines working relationship:
Of all the risks in a service engagement, the biggest one is the execution. Once a deal is made buyers tend to slack off thinking that their job is done. Not until it is too late do they realize that things have gone wrong. By then it is delayed, expensive and the benefits of outsourcing is not realized. Collaborating often during the engagement either prevents this or helps catch things early on and correct the course.

Conclusion
John can benefit immensely by outsourcing his website design and development. It lets him focus on his core business; reduce his costs and speeds up his time-to-market. However businesses like his have to be wary of treating service engagements like purchasing products. Unlike product marketplaces which are transactional and focuses on finding the cheapest product, services marketplace like nineMotion is relationship based, which helps in a) bringing clarity to the requirement b) finding the right provider based on parameters other than cost and c) collaborative engage with them for a successful working relationship. The end result is that outsourcing providers become your partner for life.

Following is an excerpt from Earth2Tech blog by Georgia Flight on Oct 25, 2007:

Listen up, cleantech crew: according to one scientist, you may want to relocate your labs to the slopes of Mount St. Helens. Yesterday’s NY Times features a provocative op-ed piece by Ken Caldeira, a scientist at the Carnegie Institute for Global Ecology, in which he asserted that seeding the stratosphere (above where jets fly) with sulfates (such as those produced by a volcanic eruption) could not only stop global warming, but actually cool the Earth.

Global warming is one of the most (if not the most) talked about subject nowadays everywhere. It is also one of the largest (if not the largest) challenge we face globally over the next few decades.

But I personally have a great deal of confidence in humanity that not only will we solve this problem, but also we will do it elegantly and in the process create wealth, jobs and better quality of life.

Human beings have over the past thousands of years faced many problems that have taken them to the brink of extinction. Examples of such circumstances are numerous: wars, natural calamities, famines, diseases, nuclear warheads, et cetera. Every time, the human race has overcome the adverse situations and come out stronger. Many times, the solutions have been technological in nature.

In earlier times, kings or governments used to fund or encourage vast scientific studies or research to solve human problems.

In recent past, over the last few decades, entrepreneurs have found ways to create wealth for themselves and for investors while solving larger society needs and pain points. The pace of innovation cycles have been shrinking very rapidly because of much easier availability of money and resources for such enterprise.

This trait will help us solve global warming and other related problems much faster and much earlier than most people think today.

Last week, we went to Lakshdweep for scuba diving. We were a large group with families and children. Lakshadweep islands are beautiful with crystal clear turquoise green water, gorgeous white sand beaches, perfect weather and tranquility.

Scuba diving was a very interesting experience, and very different from anything I ever expected. The dive masters / trainers were excellent in their approach, and they were very patient with each of us. At first, we were taken for an introductory dive into the lagoon near to the resort. After that, we underwent some training, and for next 2 days, we went deep sea diving.

The scuba diving equipment contains a face mask that covers the nose and eyes. It sticks airtight and watertight to the face. You cannot breathe with your nose at all, and you are not supposed to. There is a mouthpiece for breathing through the mouth; it is connected to an air cylinder at the back. There are a few gadgets to indicate pressure, depth, amount of air left in the cylinder, etc.

The main thing to get used to in scuba diving is to breathe through the mouth piece continuously and be comfortable doing this. This is extremely difficult to get used to. I have never been comfortable in water for too long. I can swim but only short distances in swimming pool.

Besides the breathing through mouth, you need to learn how to clear water if it leaks into your face mask when you are underwater. You do this by slightly lifting the mask and blowing air through your nose to push the water out. You also need to learn how to take out mouthpiece from the mouth and put it back again - all underwater. As you go down deeper, the pressure in your ears increases rapidly; hence, you need to ‘equalize’ every few meters. This is done by squeezing your nose with your two fingers and trying to breathe out hard from the nose; air flows out from your ears and equalizes pressure. You need to do all this while continuously breathing through your mouthpiece. These were very difficult maneuvers for me. I felt highly claustrophobic once I went inside water with all the scuba equipment. It took a lot of effort to just breathe and keep my mind clear.

The sea life, corals, fish, etc. that we saw in open sea was fantastic; its a different world down there - colorful, active, serene and sometime dangerous. All the effort was worth it and I learnt a lot.

Once you get used to breathing through the mouth and a few other tricks, this can be a very enjoyable sport. It is all about taking fear out of your mind. All the maneuvers become a second nature with practice.

But the question arises: Isn’t it possible to make the scuba equipment much more friendly so that more people can go deep sea diving more easily? I am sure there is a business case for this just considering the sheer increase in tourists this can attract as well as for educational and exploration purposes.

Ben S. Bernanke, just 17 months into his term as Fed Chairman, has already made costly mistakes and has shown lack of vision. Let me explain.

On Aug 17th, Fed announced an emergency cut in the discount rate (not benchmark rate) by 0.5%. This happened in the middle of a stock market trading day when a host of stock indexes worldwide were down 2-4%. Fed stated that a worsening financial conditions raised the risk of weaker growth. After the announcement that came as a shock to most people, the stock markets wildly swung to positive 1-3% territory on the same day.

Discount rate is the rate Fed charges to banks for lending money. Benchmark rate is the rate banks charge each other for overnight loans. Both these rates affect the overall borrowing cost of the economy; in the medium term, these rates affect the home loan interest rates and car loan interest rates that we pay. Under current circumstances, there are many loan defaults in the US and this has put a major squeeze on the mortgage companies and banks. Many mortgage houses have gone bankrupt just in the last few months.

Fed neglected the sub-prime woes for many months, and focused only on inflation. As recently as in their Aug 7th meeting, Fed stated that inflation and productivity are their number one and number two concerns, and financial concerns due to sub-prime and other effects were not high on their priority. How can things change so drastically in just 10 days? Clearly, the Fed has reacted impulsively to stock markets going down during 7-8 days time frame leading to Aug 17th.

Why do I think these are costly mistakes? For almost 20 years, Alan Greenspan worked very hard to bring a great degree of predictability and transparency in Fed policies and rates. Businesses, economists and stock markets kinda knew what was happening with the economy, and hence were able to take intelligent and informed decisions.

In the current situation, every one including the Fed is probably guessing about where the economy is going. Is inflation under control? Is economic growth slowing down? Will the Fed cut the benchmark rate on Sep 18th, and if so, why? In the longer term, unless the Fed gets its act together, it will lose control over the sentiments and controlling parameters that govern the economy. If such a control is lost, recession is not far away.

All the best!

For the quarter ending June 2007, ALL the listed Indian IT Services Companies posted quarter-on-quarter decrease in profits probably for the first time ever; most of them posted quarter-on-quarter decrease in revenues also. Indian Rupee has appreciated 9.6% since January 2007, and there is prediction of more appreciation in the coming months and years. IT industry salaries are galloping year after year, and so are many other cost factors.

A Strategic Inflection Point is happening in the Indian IT Services Industry - and it is happening right here, right now.

I think there are two broad trends emerging from this inflection.

Maturing of the IT Services Industry

A mature industry is the one in which margins shrink, growth tapers, competition intensifies, costs of sales increase, only large players survive or do well - in short, not an easy business to be in. The IT Services Industry is maturing rapidly, and hence only those players that can embrace the changing environment of cost structures and currency structures will survive and thrive.

Following are a few changes that will happen sooner than most people think:

• Profit margins will reduce
• P/E of the stock prices will decrease
• IT industry professionals will work longer hours for the same pay (maybe 48 to 50 hours per week)
• Salary increases will taper off or in some cases there will be decreases in salary
• Utilization of manpower will increase along with tightening of budgets
• Business travel will decrease
• Fixed priced projects will increase compared to time and materials projects

Innovation in products and services from smaller Companies

So far, India hasn’t seen much innovation in products and services inspite of its global leadership in IT Services. One of the most important reasons is that services business has been too easy to start and sustain. Now, because of the changing business environment, it will be very difficult to create a decent business out of services. This will spur innovation in products, niche services, SaaS offerings and Internet based businesses out of India, especially from small Companies and startups.

I am looking forward to some big successes from India over the next 2-3 years.

In the last post, we summarized the key concepts of the book. In this post, we can look at how the Long Tail principles apply in services business.

The Services Business can be defined as services provided by service providers to buyers, typically in a customized manner as defined by or as required by the buyers. The following figure depicts the Long Tail of Services.

In the Long Tail curve of Services (above figure), the vertical axis represents the volume of business being undertaken in a particular category of services. The horizontal axis represents the availability of service providers in a particular category of services which is the number of providers in a particular category in descending order.

For example, accounting is a very common service that every business needs, and hence the volume of business in accounting is very high, whereas Japanese garden landscape designing services is probably a very low demand activity. Accounting professionals are available in plenty and hence the rank by their availability (horizontal axis) is very low, whereas the same for Japanese garden landscape designing services provider has got to be very high.

The Long Tail curve (in the figure above) has two parts to it:

• The Short Head consisting of the steep portion of the curve on the left depicting the high availability and high volume skills and services. These are addressed by large number of service providers, and that are needed by many buyers of services as part of their business requirements. Examples of such services are: website design, accounting services, logo design. The main challenge for a provider is how to differentiate itself. The overall challenge is that of “improving the quality of market”.

• The Long Tail part of the market is the portion of the curve that tapers down slowly towards the right and consists of niche players providing niche services that are required very rarely by only certain buyers of services in special circumstances. Examples of such services are: Autocad Arm programming, Japanese garden landscape design, thermal design for electro-mechanical devices. The main challenge is for providers and buyers find each other – “how to make the market”.

How to succeed in the Long Tail portion of services business

The exciting opportunity in the Long Tail part of the services business is probably that as a group it is as big in terms of the total volume as the Short Head part of the services business.

Following are a few pointers that can help providers that are providing services in niche areas:

• As a provider, the first and foremost focus of should be to be found easily by buyers of their services. This can be done by listings on search engines, services marketplaces like nineMotion.com and specialty sites
• The key words or tags that describe you should be very specific to your expertise rather than too general. For example, if you provide services in Business Intelligence software using Java as programming language, using tags relevant to Business Intelligence is more effective than Java, since otherwise you will get inundated with a lot of common Java requirements that are not in your niche area
• Create and showcase a profile that is completely focused on your niche area of expertise, rather than your other peripheral skills. Use case studies, white papers, approach papers, technical papers and other collateral to highlight your expertise
• By undertaking the above & focusing on your core expertise, in the beginning you may not pick up some business in general areas not close to your niche area, but in the longer term it will pay off by generating much more pinpointed leads relevant to your expertise areas
• By being highly focused, you can also charge a premium for your services. Any services business focused on niche areas is bound to be more profitable than other general skills based business

How to succeed in the Short Head portion of services business

The Short Head portion of the services business is much more crowded and hyper-competitive. A typical provider in this portion of the marketplace will have to do the following:

• Generate a lot many leads before it can convert a few of them into real projects
• Write a lot of proposals
• Undercut on pricing to win business
• Sacrifice on margins
• Spend more time, effort and money on marketing and sales

The broad approach in this portion of the market should be to continuously differentiate oneself even in general areas of offerings. A few ways to differentiate oneself are:

• Gaining domain expertise in certain industries or even in some sub-domains of certain industries. For example, rather than positioning yourself as a mechanical designer, you can position yourself as a designer for automotive transmissions with in-depth expertise in your field
• Process excellence to improve predictability of cost, time, quality and transparency of the services delivered
• Cost effectiveness by automating or re-using components of services being delivered

Following are a few pointers that can help the providers in the Short Head part of the market:

• Differentiate continuously using a combination of approaches mentioned above or through other factors
• Listings on search engines, marketplaces like nineMotion and specialty sites so that buyers can find you
• When you do get found by buyers through searches and filters, showcase your key differentiators first and foremost in your profile. The first two to three lines of your public profile should clearly state your key differentiators
• Create and showcase a profile that clearly defines your areas of strengths as against listing everything. Use tags and keywords to define yourself that are completely relevant to what you can undertake extremely well, rather than provide a long list of items. Put a lot of thought while building the profile
• Use case studies, white papers, approach papers, technical papers and other collateral to showcase your expertise and differentiators
• Only address those requirements and send proposals to requirements that you can deliver extremely well. It is very important to get a reputation of high quality from the customers all the time

The Long Tail by Chris Anderson is one of the most path breaking books in recent times about marketplace impact of the increasingly Internet driven economy.

The following picture depicts the Long Tail curve.
(Source: http://www.thelongtail.com/about.html).

The theory of the Long Tail is that our culture and economy is shifting away from a focus on a relatively small number of “hits” (mainstream products and markets like a Star Wars movie) at the head of the demand curve and toward a huge number of niches in the tail.

The new Internet and the modern supply chain management paradigms result in the following business trends for any products:

• Significant reduction in the cost of storage and distribution:

All digital content is sold more and more on the Internet directly into your computers or other devices, hence the cost of media, packaging and distribution is almost zero. Most of the other products are transported directly from factories to your home or the nearby retail shop very efficiently, hence the cost of storage and distribution is reducing.

• Niche products and niche suppliers can be found easily:

Products sold on the Internet, especially niche products, can be found by buyers more easily through better searches and filtering mechanisms, recommendations from social networks and word-of-mouth viral effects.

• Reduction in the cost of marketing:

The cost of marketing for the products sold on the Internet can be reduced significantly by proper positioning and “tagging” for search. Since these products can now be found more easily by buyers, the cost of marketing reduces.

• Consumers, when offered infinite choices, gravitate towards niches because they satisfy narrow interests better:

The Internet based buying and selling is creating literally infinite choices for consumers. When the consumers have choices, they will automatically buy products that satisfy their narrow requirements and interests as compared to products of broader appeal.

The secret to creating a thriving Long Tail business can be summarized in two imperatives:

• Make everything available
• Help me find it

These are some of the key concepts of the book. In the next post, we will explore the Long Tail of services business.