Some small to medium sized software providers in Latin America seek specialization in business verticals and languages while others do not. Experience can create value, but is method or know-how the principle ingredient? NSAM talked to four Nearshore software development experts to understand how providers find their niches and how important those niches really are.
Often is the case a company moves in a particular direction because of the talent it hires. Arin Sime, CEO of Agility Feat explains that after initially setting out to provide outsourced development services without a particular focus, his company began hiring people with exceptional ability in design, user experience, and frontend web development. “You find awesome people and you build the business around their exemplary skills,” said Sime.
The expertise of Agility Feat’s Costa Rican nearshore team enabled Sime and his colleagues to focus the business towards startups or small and medium companies (that behave like startups) that need design, process flow architecture, and implementation in an end-to-end lifecycle. The US leadership team of Agility Feat already had good experience in startups and offshoot technology projects for small and medium sized companies; hence the melding of the skill sets from both sides of the organization produced a unique company with more focused services.
Ruby, Rails, Python, Mobile…..
Others outfits like Tekton Labs specifically chose their technologies based on gaps in the marketplace. “We chose Ruby on Rails, Python, Mobile and other open source technologies because they are something new in Latin America and especially in Peru,” said Kenneth Lopez, a consultant at Tekton. “Most of the other companies here in Peru were only dealing with Java and .NET so the differentiation helped us grow.” Lopez added that the company then employed SCRUM methodology (a derivative of Agile, which is already the standard in LATAM according to some experts and thus a non-differentiator). The business verticals in which Tekton works developed more organically through referrals from other clients. “We ended up working in retail, health, digital marketing, and human resources by chance,” explained Lopez.
In contrast to the organic movement into business verticals at the behest of current and potential clients, Tekton also draws upon its accumulated knowledge base in areas such as digital marketing in conjunction with Rails development for Facebook apps to push new ideas to potential clients.
Personal experience plays no small part either. Mauricio Duran, president of Definity First was invited to intern at Microsoft at the at age 21 straight out of Mexico, where his company has operations now. He was quickly impressed by the powerful tools and technologies offered by Microsoft. “I was a UNIX guy, but ever since that year in 1997 I feel Microsoft tools and technologies are the right thing to use because of their reliability, scalability, and support,” said Duran. “Despite, Microsoft being a giant company they have limitations too, I saw where I could build the stuff [on top of the Microsoft techs] that they didn’t have the time to build.”
Some firms that have grown organically in certain directions based on client and overall market need have run into skill shortages when going far into a specialized technology, which is not a problem specific to Latin America, says Barnaby Sheridan, Senior Partner at Velocity Partners, which has operations in Argentina, Uruguay, and now Colombia. “We have stuck to base technologies like .NET and open source, and have stayed away from particular industries, we can do work for any client that has a software intensive model,” he said. In terms of organic growth spurned by client demand Sheridan mentioned that “Ruby is huge and we have also seen a big call for more test automation.”
Although Agile methodology is not considered a differentiating factor anymore and instead the standard for nearshore software providers, there are many companies that run halfhearted Agile systems and don’t live and breathe it.
Maturation = Specialization, not Necessarily
It might seem intuitive that as software providers mature they naturally go in the direction of specialization in particular business verticals or technologies. We have it drilled into us in business school the need to differentiate and specialize. However, with software development firms, that is not necessarily true. “If the metrics that you are using for success of the company are number of employees, countries you are in, or locations you have it might be more advantageous to reach larger-broader markets and not specialize too much,” commented Sime.
Some think specialization must yield better results, but is that true? “Specialized providers have the sales advantage because the buyer thinks they get more for their money, I don’t want to harp on process, but if you are a good development shop and know what you are doing, it shouldn’t really matter,” commented Sheridan.
Lopez also does not believe buyers will automatically get more value from providers that specialize in certain business verticals. “I think it is more about the company and the culture that will deliver value. When we started with health companies in Peru, we didn’t know anything about health, insurance, or medical services, but they saw the value we could provide with our technology and methodology. They provided the industry knowledge, we became experts, and it worked very well,” he stated.
Although Agile methodology is not considered a differentiating factor anymore and instead the standard for nearshore software providers, there are many companies that run halfhearted Agile systems and don’t really live and breathe it. Sheridan commented that if a company is not going to specialize in a platform or business vertical, specializing in a methodology is another way to differentiate. Of course, the provider must be wholly faithful to the methodology for it to be a true differentiator.
However, there are contrasting viewpoints to the method triumphs specialization assertion. Sime explained that because of his US team’s wide ranging experience in multiple platforms the company originally set out to offer development services in any language by hiring on a client by client basis if need be. “Ultimately it is not a great business strategy, you are trying to be everything to everybody. Now we specialize in Ruby on Rails development and Python,” indicated Sime.
Duran also thinks that there is value in using providers that have extensive knowledge in a particular domain as those developers building the product have seen it all with respect to the behavior of said technology.
Specialized Shops Turning Away Business or Reselling it?
Some development shops that have decidedly gone towards particular technologies reject projects that are based in other technologies where their expertise is lacking. To the contrary, other shops will take the contract and farm it out to another firm with the necessary expertise. That begs the question, how much of this goes on? “I think a fair amount,” stated Sime. He mentioned that Agility Feat has considered doing it with projects close to their domain of expertise, but has stopped short because it would distract from the company’s core mission. Sime informed that if his company were to take part in such activities his company’s name would still be on the final product so Agility Feat would have to ensure the quality of all aspects of the development process and final product.
“Yes, that happens a lot, a lot, a lot. Especially in countries like Peru or other countries where the companies don’t have a lot of experience with new techs like mobile or Ruby on Rails they end up selling the contract over and over again until it is acquired by some company that is actually good at it,” remarked Lopez.
When asked about the pitfalls of reselling contracts and extending the chain of responsibility for an end product Lopez explained that transparency is the only way to ensure success. “The companies that approach us and say they have a contract that belongs to company X in New York, which was then passed to a company Y in Mexico, and now company Z in Peru or whatever, are really open with the client because the development team has to talk directly to the client. In that situation it will work, when you try to hide it and there are intermediaries in the communication channel that is where I will not go and don’t recommend anyone to go. With full transparency and direct access to the client there should be no problem.”