IT Roll-ups in Nashville

[Milt Capps]

The great discussions here prompt me to ask your opinions: It has seemed to me that it's 'way past time for someone to get some money and do a roll-up of local IT and/or SWD firms. I've asked a few IT veterans (with money) about this and their responses almost always include: You just can't get all those rolled-up egos in one company, even though everyone would probably do better collectively. Rolling-up tech companies is probably beyond the boundaries of NSW, but I'd love to hear your thoughts ... Cheers, Milt

[Jason Moore]

Hello, Milt.

My apologies, but would you mind expanding on what you mean specifically by "rolling up" tech companies? I think I have an idea, but I would like to be a little more confident.

Thanks,
Jason

[Milt Capps]

Good question. I'm referring to the notion of combining x-number smaller IT or sw development firms to create company with greater scale, profitability, etc. Milt

[Chris Ennis]

This happens in silicon valley all the time. Typically these cooperations are based on concepts that are so similar in their end goal that merging is a much more appealing option than competing. There is a successful startup within the past two years that developed out of two groups of people who came together because they wanted to create the same product and it was in competition with a huge corp, so they joined forces.

For IT firms, if you could find two talented php groups that specialized in symfony or a couple of groups that were great ruby programmers, then it would probably make sense to merge the two as you would create the authority for that platform in this market. I for one never like the idea of a dev firm that uses multiple platforms. It usually leads to poorer quality products in return.

[Jackson Miller]

Hey Milt.

Why do you think a bigger company would be more profitable? As I see it, a bigger company would only be more profitable if there were under-utilized staff that mean a large company could have higher utilization but fewer total staff, or possibly the company could go after bigger projects which could have a higher profit margin (theoretically).

The down side is that a bigger organization would seem to suffer from decreased efficiency because processes are hard to scale.

Having said that, I know all business owners have a price. So I guess the simple answer to your question is that no one is paying the price.

[Milt Capps]

Good comments, Jx. A lot of anecdotes have shaped my perception. One thing I seem to hear regularly is that ITS owners want to put less of their personal human capital in services and create products and SaaS that have recurring revenue. Many, it seems, don't have and aren't likely to achieve the scale and profitability they need to do that, alone... Strength in numbers?

[Nicholas Holland]

For a services based firm, larger typically does mean more profitable. Many of the standard overhead functions are 'required' regardless of your size - so expansion of your production base can make a lot of sense. The main issue with "Rolling Up" service firms is that most of them depend on their owner for sales volume. I'd hate to run the newly formed company that has 5 previous owners that either a) Leave or b) have to get along.

I've actually tried to go down that road - but everyone I talked to wanted a ridiculous amount of cash up front. Also, a few of them weren't keen on the inevitable 'firing' of duplicate roles.

Jackson Miller said:

Hey Milt.

Why do you think a bigger company would be more profitable? As I see it, a bigger company would only be more profitable if there were under-utilized staff that mean a large company could have higher utilization but fewer total staff, or possibly the company could go after bigger projects which could have a higher profit margin (theoretically).

The down side is that a bigger organization would seem to suffer from decreased efficiency because processes are hard to scale.

Having said that, I know all business owners have a price. So I guess the simple answer to your question is that no one is paying the price.