SoftServe to top 20% growth in 2020

It has been a tough year for the majority of IT services companies, but digital services consulting firm SoftServe says it is on course to top 20% in organic growth in 2020.

The 8,000+ -strong privately-owned business, which supports clients from delivery hubs in Ukraine, Poland and Bulgaria, says it is on course to top revenue of $1bn in the next few years, and CEO Chris Baker mapped out the company’s strategy in an analyst call this week.

We last caught up with the firm two years ago, when we discussed the company’s emergence among the cluster of nearshore organizations that also included companies such as EPAM and Endava.

A lot has happened at SoftServe in the interim period, not least the impact of the global pandemic which Baker admits dented business during the second quarter, particularly with clients in the hospitality and travel sectors.

But since then, the company’s monthly sales volumes have accelerated, and it is on course for organic revenue growth in excess of 20% this year. This is below the 30%+ rate that Baker had anticipated at the start of 2020, but with profitability up above pre-COVID targets and the company set to start 2021 with an order book that is 50% larger than it was at the beginning of this year, SoftServe is way ahead of most in the sector.

So what is behind this performance? The company’s heritage lies in providing engineering services to the software and hi-tech industry, which continues to represent 60% of revenue, and SoftServe experienced a surge in demand for support from this sector as clients reconfigured their products to support the switch to mass homeworking.

While the company has ramped up its number of new logo wins in the second half of the year, many of its existing account relationships date back a number of years. SoftServe points to a Net Promoter Score that has continued to rise in 2020 to a level of 77 in the most recent quarter, which is a very favourable rating compared to many others in the wider IT services sector.

Baker also highlights the company’s partner ecosystem, where it has achieved premium status with many of the star performers in the vendor landscape. In the cloud arena, this includes Google, AWS and Microsoft, while its key business application partners are Salesforce and Adobe, both of whom continue to post strong double-digit growth in recent quarters. Importantly, the company tries not to position as a traditional systems integrator partner, but because it played a key role in developing their platforms, vendors often want it to help on more complex implementations.

The other 40% of the company’s revenue comes from commercial sector organizations, for whom it provides both software engineering services and also handles broader end-to-end digital transformation programs. This is an area that Baker is keen to develop, with the ambition of building $50m+ accounts in this segment in the coming years. The company is developing a matrix structure designed to drive deeper engagements with strategic groups of commercial sector clients, building on its existing base of business in sectors such as healthcare, retail, energy and financial services.

SoftServe makes around 70% of its revenue from North America, but Europe is a key focus region for growth. The company has good scale in the UK and Germany, and is building momentum in the Nordics and Benelux markets. Baker expects Europe to rise to 40% of group sales within the next couple of years.

The region remains the focal point for SoftServe’s delivery operations. The company is currently hiring two new associates every business hour is on course to add close to 400 new recruits this month. Baker says that the company’s single biggest challenge is recruiting at a level to keep pace with demand, and the company is exploring the expansion of the delivery network into other regions in order to tap into other talent pools.


PAC’s View

SoftServe’s annual revenue is currently bobbing around the half a billion dollar mark, and while the company’s growth has been eye-catching, Baker acknowledges that making the step up from its current level to become a billion-dollar business is a major step.

An additional layer of domain expertise will be needed to cultivate large, strategic deals in the commercial sector. German manufacturers will look to work with a digital transformation partner that understands the local and industry demands that makes their specific business tick, and it is encouraging to hear that the company is starting build this expertise into its new model.

As SoftServe moves up towards the top division, it will also come up against a new competitive field, with more branding and sales muscle. The company remains something of a hidden force and must raise its profile to get on the radars of the next level of prospective accounts.

At the same time, the company needs to scale a lot of the good stuff that has got it where it is today. It has managed to maintain relatively low staff attrition levels and a happy, stable workforce has a big impact on creating happy, long-term customers. SoftServe has clearly backed the right horses in terms of its partner ecosystem, and it needs to ensure that cultivating these relationships remains a priority as it scales.

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