Source: DOU.ua

What is specialization in IT? How does having a service niche works for an outsourcing company? What are the ups and downs of specialization?

I am Igor Tsinman, Cofounder and President of AMC Bridge. For the last 28 years, I've been working in the IT industry: 8 years — in Ukraine, 20 years — in the US. In the 90s, I held senior managerial positions in the US-based software companies. 20 years ago, my friends and I founded our own company, where I've been working ever since. We specialize in the engineering software, so our services are sought after by the construction, mechanical engineering, aircraft, architecture, and robotics industries.

I am confident that specialization is the future of the IT business. In this article, I'll tell you about the ups and downs of specialization, the things to consider when you enter a niche market, and how to gain a foothold on it. The topics will be of interest to the IT professionals, managers, and business owners who already work in or consider joining a specific IT domain.

Engineering market and IT

Engineering was one of the first industries — next only to banking, perhaps — to start using computers for calculations, design, and manufacturing. At the time, NASA ran the most large-scale projects that used computer software. For example, the Apollo spacecraft project. The ship was the pinnacle of progressive engineering back then. It showed how computers could be used to calculate complex engineering processes. Programmers started teaching computers to calculate object layers, movement trajectories, and so on. Although the User Interface was virtually non-existent.

Even today, there are still some industrial projects that have originated from NASA. For instance, Solid Edge. This CAD tool is basically a NASA project, which they have allowed to commercialize and bring to market.

Construction boom

Engineering has experienced radical growth over the past 5-6 years. It's particularly true about construction. Fewer people are willing to work in bad weather, fit rebars manually, and so on. US statistics show that labor productivity has not grown much since the 50s, and 80% of projects miss deadlines and exceed budgets.

All these factors have stimulated construction companies to modernize their processes. Their attitude to software has changed. Today it's viewed not only as a means of computing but also as a means of enhancing production, work efficiency, and, most importantly, the chances of meeting the budget and the deadline. Startups get million-dollar investments, and companies look for Chief Innovation Officers to stay tuned to the most recent technical innovations.

The AEC industry has already started using 3D printing, VR/AR, IoT, and AI. It's become possible to print out the whole building blocks, monitor or simulate the building process remotely, check if the employee has put the hard hat and gloves on, and so on. For example, one company has equipped the Boston Dynamic's robot dog with cameras and programmed it to roam the construction site and film everything that happens there in real time.

How long will the boom last? I'd say it will exceed our lifetime. Naturally, the tasks will change, from manufacturing regular cars to electric and self-driving cars, and such. With the increasing capacity of computers and networks, the number of tasks will only grow. Besides, all industries undergo cyclical changes, so the boom is bound to come back even if it ebbs at a certain point.

Our clients and competitors

Our clients are software vendors who develop the product — for example, Autodesk, SolidWorks, PTC, Siemens — and product users who need our help in customizing it to their needs.

On the market, about 10-15 other companies provide the same services. Some of them are large outsourcers with +10K employees and separate engineering software departments; others are small consulting firms with 200–300 employees. Our staff includes 700+ professionals. There is no other company of the same size on the market.

A logical question to ask is why there are few companies on a potentially large market. The answer is a high entry level. Years of specialized expertise and solid knowledge of Maths and Geometry are required to enter the AEC market and start developing engineering software. Other domains are less demanding. The only exception is the medical industry that presupposes strict regulatory and data control processes.

Given the limited number of competitors, our market offers many niches we aim to occupy.

Finding our niche

To be honest with you, we used to be a typical outsourcing company for the first ten years. We took on any project we could get. For instance, our very first project was in finance. Since all the company founders are tech people, we had a shared mistrust of the sales process. Thus, up to 2010, we gained new contracts due to personal contacts rather than professional sales activities.

Then things have changed. In 2001, we signed an exclusive contract with SolidWorks, one of the biggest suppliers of 3D CAD software. For the contract duration, we could not work for its competitors. In other words, the engineering market was closed to us. When SolidWorks ended the contract, we had 40% of our resources released and had to renew our market position very fast to retain the team. That's where our specialization has come into play.

You can do it; others can't!

I remember meeting a founder of another outsourcing company at one of the conferences. When he learned about the projects we worked on, he said, "What's there to think about? You can do it; others can't. So do it!"

At that point, we realized that we'd entered the industry. While working with SolidWorks, we'd gained immense expertise, so we decided to seek fast niche growth here, in the industry with high demand for it.

If you are looking for a specific industry domain for your company, I'd recommend taking the following points into account:

• Market dynamics. Is the market expanding or narrowing down? If the market is expanding, it means it still holds opportunities for new companies.
  
  
• Related domains. Is it possible to apply your expertise to other domains?
  
  
• Development opportunities. How much does the selected branch spend on IT? If 0.1% of that amount is enough for your business to thrive — that's a good sign for you to specialize in the domain.

For instance, the engineering domain spends about 50-60 billion dollars per year (excluding the construction process) on IT. And the figure annually increases by 10%. Thus, even the minimum percentage of the sum will enable the company to grow and develop for many years. The industry is also quite wide, so we can look for projects in the related domains.

Occupying a narrow niche

When going niche, we've made some mistakes I'd like to share to help you avoid them in your own venture.

• Exclusive contracts are not the best option. We signed such a contract with SolidWorks. I know it might be unavoidable at a certain stage: when your company consists of 10 people, and a contract with a big company is at stake, you'll sign whatever contract you can get. For us, that contract closed the whole engineering market for the duration of it, which significantly impeded our growth. Now, we are vendor independent and work with all the companies in the market.
  
  
• Defining whether your business is service- or product-based is important. These are two different business types, and I wouldn't recommend mixing the two. At some point, we spent two and a half years and a lot of money on developing our own product. Now we know that closing that project down was the right decision. Besides, it has made cooperation with other vendors easier. For one thing, they are sure that we will not compete against them.
  
  
• Go into professional sales yourself. Sales and marketing are essential parts of the IT business. It's not enough to write good software to grow. Our company is a good example. Today I understand that we should have started our sales activities at least five years sooner.

I'll elaborate on the last point. When we realized we needed a sales representative, we first tried to work with external professionals. It didn't give the desired result. When you sell a specialized service, the discussion quickly turns to technical details, and if you want to have a substantive discussion, you need to have a good understanding of the software you sell. In this scenario, even seasoned sales managers need help if they have no technical background.

And so, I decided to learn to do it myself. We knew we needed to figure out how to sell our services on our own, and then we could hire sales managers and train them. Thus, for a long time, the company co-founders and managers combined their duties with those of sales representatives'.

I must confess I am still self-conscious about not being a professional salesperson, but recently I've been inspired by statistics Daniel Pink (the author of To Sale is Human: The Surprising Truth About Moving Others) shared at one of the conferences. He told about a call center experiment that aimed to reveal who makes more sales: introverts or extraverts. It's turned out that extroverts were better at selling, but the actual sales were balanced, that is, sales peaked when operators could actually talk about the services they provided.

Therefore, technical people don't need to worry that they lack professional sales skills. They have excellent knowledge of their domain field, so if they focus on that, they will be able to sell their services.

And this brings me to the last mistake — the mistake of not telling others about your company. To avoid it, we've started taking part in conferences, introducing the company at events, and gathering information about the market. We've started building a database of contacts who might be interested in our expertise and reaching out to them. There's nothing glamorous about it. You just shake the tree. Ten people out of a hundred have interesting projects in mind, four of them may decide to give it a try, two will become your clients.

Igor Tsinman (in the middle) at the BIM World MUNICH 2019 conference dedicated to the digital transformation of the construction, real estate industry, and urban planning

Specialization risks and limitations

Stay with me. I intentionally save the advantages of specialization for later to let you see the disadvantages (at least the ones we've faced) more clearly and take them into account as you go niche.

The first risk to consider is the industry crisis. For example, the crisis of 2008–2010 severely affected the real estate and financial markets, and the companies servicing those markets. Is it possible to minimize this risk?

• One way to go is to have various clients. Different companies manage differently in times of crisis. When one company suffers losses and cuts down on their contractor expenses, other companies withstand the crisis and help their contractors weather it as well.
  
  
• Another avenue for opportunity is to enter the related markets that may benefit from your specialization. 

For instance, we started in mechanical engineering and then joined manufacturing as a related field. However, we could have chosen other fields that use similar technologies. For example, facility management. Companies that own large facilities (airports, malls, plants, and so on) use 3D scanners to create plans of their territories, including all their recent changes, and keep their evacuation plans up to date. It's a matter of safety. Dentistry is another branch that uses 3D scanning and printing to reduce prosthetics costs.

Another risk of the niche market is fewer professionals. The first question to ask yourself when going niche is whether there are enough talented people on the job market who are equally interested in your specialization.

The Ukrainian system of education offered the answer to that question for us. Compared to the USA, Ukraine still has a significant number of technology-oriented universities. Based on the statistical data, we have created courses tailored to our projects, which we use to train professionals, from university to research and client projects.

Such an approach gives us an additional advantage: our clients know that our developers are highly trained professionals, not just people who can code. However, some percentage of the employees you train will leave the company before properly immersing themselves into a customer project, and that's something to keep in mind.

We've also discovered that specialization makes it difficult to find Senior developers with the right expertise. Fortunately, most of our Seniors have grown into their current position within the company.

Advantages of specialization, or why we are here

Running a niche business has advantages as well. What are they for AMC Bridge, and what prospects do we still see?

First of all, specialization lets you stand out from competitors and enter the market with lower competition and higher demand. When we bid for a project of a general profile, the client selects a vendor from ten other outsourcing companies. To win the contract, we need to give a convincing answer to the "Why you?" question.

In theory, we could lower the project cost. However, the services of Ukrainian developers are not the cheapest in the world, and the client has bidders from all around the globe. Thus, lowering costs may not work. Personal contacts or client's individual preferences may become another leverage. For example, the client may want to work exclusively with a vendor from Eastern Europe or do business with an experienced company, and so on. Nevertheless, the pool of such arguments dwindles very fast.

On the other hand, if the company specializes in something, the answer to the "Why you?" question becomes obvious. Do your developers know how to work with Autodesk® Revit® software? Do they understand how the SolidWorks object model works? Do they have experience with the Aras® platform? Regular developers can certainly learn the technologies, but how long will it take them to? Alternatively, the client can sign a contract with a vendor whose services may be more expensive, but the cost includes industry expertise. Such vendors specialize in their field; they have already worked with similar companies and are very likely to bring value to the projects they will develop.

I genuinely believe that Ukrainian and East European developers love challenging tasks. When the project becomes too familiar and the tasks too trivial, we often hear our developers ask for something more demanding, for tasks that do not have obvious answers and make you think outside the box to find a solution.

Specialization provides an ample supply of challenges. We rarely have routine projects that require following patterns. Sometimes, you need to study the domain field to find a solution to a programming task. Our developers not only know the necessary technology stack but also are experts at Maths, Enumerative Geometry, and related fields. Such specialists are rare, and they switch between technologies more often, and that’s anything but routine. I am sure the same’s true of other industries, except the expertise list is different.

Narrow specialization in time of crisis

Lastly, specialization and the COVID crisis. I’d say specialization has played to our advantage. The engineering software branch has been affected less than we anticipated. It is evident from our clients’ reports. They demonstrate much better results than they thought.

When the crisis hit, high tech companies have managed much better than the manufacturing and construction ones that faced many process interruptions. Thus, when the industry has started recovering, it’s focused on process automation, robotization, and digitalization. This, in turn, has opened new opportunities for the IT companies on the market.

How has AMC Bridge weathered the crisis? Our specialization has greatly helped us. No doubt about that. Here is one example: one of our clients has faced enormous difficulty and terminated contracts with every vendor except us. Specialization makes you indispensable: if you take on a long-term project, the team develops unique expertise, and that’s not easy to replace. When there are only 10–15 companies on the market, who can better do the job than your team?

Specialization gives you a competitive edge and freedom in setting the price your services deserve. People are willing to pay more for expertise. Thus, I am convinced that narrowing specialization and providing unique services is the right strategy for the future.