The Empirical Value of an Emergent Strategy
An emergent strategy is an agile approach to business planning where you let opportunities and challenges shape your strategic direction rather than trying to define it all up front.
In 2000, my partner and I started our own management consulting firm. Although ultimately successful, what we became was not what we envisioned in the beginning. This experience shows the value of an emergent strategy, an agile approach to business planning where you let opportunities and challenges shape your strategic direction, rather than trying to define it all in advance.
In this series on my half century in enterprise IT, we left off with my eight years helping to build a system integration firm (the “SI Firm”) from fewer than 10 employees to over 110 by the end of the 1990s. I started by leading two groups of implementation consultants for two ERP packages and then forming a management consulting practice with 10 consultants to focus on business and IT strategy, process improvement, and software vendor selection. Early in the formation of this group I hired Dan Husiak, a former executive at Bell Labs and Experian [1], who would eventually become my business partner.
As noted in that earlier post, conflicts soon arose between our management consulting practice and the rest of the SI Firm. The basic problem was that our management consulting practice needed to be absolutely free from conflicts of interest. This was especially a problem in our vendor selection services, where the SI Firm now had reseller relationships with two software vendors and implementation partnerships with two others. Although I could ignore those relationships, we began to get pressure from others in the SI Firm to steer deals toward those vendors or at least give them friendly consideration.
But there was another issue. I had spent seven years helping to build the SI Firm to over 110 professionals without any equity stake in the business. That clearly was not going to change. Dan, who by now had been with me for about two years, felt the same way. We decided we needed to split off, as partners, this time on a truly independent basis and with the potential to build equity. This would eventually become our new firm, Strativa®.
Too Much Planning
We made the decision to go our own way in 1999. Although the SI Firm was still enjoying the surge in technology spending due to the Y2K crisis and the e-business boom, there were storm clouds on the horizon. The year 2000 was approaching, and new system sales were already slowing down. We now had both a pull and a push to strike out on our own.
So, Dan and I began to meet every Saturday for breakfast at a local Denny’s restaurant (which Dan referred to as Strativa World Headquarters) to outline our vision and plan.
Those meetings were long. Starting at around 8 or 9 a.m., we would meet until noon, with the serving staff continually pouring coffee. There were a couple of times when they asked us to move to the bar to free up our table. We met like this for nearly a year, discussing and debating our vision for the future business.
I still have the documentation from those discussions, well over 100 pages, with much detail on markets we would serve, services we would offer, the mix of project types, resource plans, sales and marketing plans, and, of course, a financial plan. As a business strategy guy, this was all in Dan’s wheelhouse.
But ultimately, we didn’t carry out much of what we envisioned. Rather, over the coming years Strativa evolved as opportunities and obstacles presented themselves. Ironically, Dan taught me a term for this approach. He called it an “emergent strategy” (based on the work of Henry Mintzberg) versus a “deliberate strategy” where the complete vision for the business is defined up front. Think of an emergent strategy as an agile approach to business planning, and it is more popular now in the tech industry, where you hear about startups “pivoting” to a new direction. Even though Mintzberg encouraged an emergent strategy, we persisted during that year of pre-launch planning in trying to define everything in advance. Although we were ultimately successful, it was despite our deliberate strategy not because of it.
Lesson Learned: Embrace an emergent approach to business strategy. In the framework of the C.A.R.E. model, we spent too much time on “refining” before we had done much “advancing.” Because we were both “creator-refiners,” we should have consciously done some “advancing” before we worried too much about “refining.” We both had C.A.R.E training at the SI Firm but didn’t apply it in this case.
Bumps in the Road
We launched in April 2000 with a couple of small engagements to get us started. Then, just a few months later we brought in a third partner, an old friend and associate from my Smith Tool days, Wayne Meriwether. Wayne added a third leg to the stool: IT infrastructure consulting, where he had deep technical knowledge and a unique ability to speak the language of senior management. Wayne brought us into large projects at his client Seagram/Vivendi/Universal Music, which helped keep several consultants busy through the first couple of years.
But by the end of 2002, we could see problems emerging. Although we had some interesting projects in business and IT strategy, process improvement, and software selection, Wayne’s large engagements were the bulk of our revenue. Now those projects were winding down and Wayne left to take a leadership position at Universal Music’s IT organization. So, he went from our partner to being our client.
In response, we made some structural changes to our compensation model, which allowed us to get through this rough patch. The new comp model became another aspect of our emergent strategy, and within a year we were able to sell enough new consulting engagements to keep the ship afloat.
A Small Step with a Big Impact on the Business
Now I need to share something else that was going on. In 2002, I personally took what seemed to be a small step that eventually had enormous implications for us. I became one of the first tech bloggers.
At the time, blogging was just coming into being. But most blogs were either personal journals or focused on politics or social issues. I thought, could blogging be a way for me to get my name and my views out there on the enterprise tech industry?
At this time, there were only a handful of technology blogs: Engadget, some guy blogging on CRM, maybe one or two others, and then me. I started on Blogger, (which was eventually acquired by Google) as the Enterprise System Spectator (original site is here), and then in 2024, I migrated it to Substack (where you are now reading), and shortened the name to the Enterprise Spectator.
We didn’t know it at the time, but blogging became another element of our emergent strategy, with several strategic benefits.
Thought leadership. I used an informal tone in my writing style and offered insights and analysis on the industry. Unlike many consulting firm blogs today that mostly talk about how great they are, I avoided self-promotion. Over the years, when selling our consulting services, this allowed me to point to specific blog posts that were applicable to the prospect’s situation, establishing my credibility. My blog posts were the best sales collateral.
Networking. Blogging connected me to other industry analysts and consultants, too many to list here by name. They have been an invaluable source of knowledge for me over the years. Many remain friends and professional associates to this day.
Credibility with tech vendors. “Who the heck is this guy writing about us?” [2] [3] [4]. As a result, I got invitations to their events and was able to get briefings from their senior executives that might have been out of reach for a small firm like ours. The knowledge we gained and the connections we made were invaluable in our software selection consulting.
But most strategically, my blogging eventually led to our acquisition of Computer Economics in 2005, an IT research firm founded in 1979 [5].
Here is how that came about. In 2003, we hired a contract consultant named Mark McManus, who had previously worked for Computer Economics. After his project with us was finished, he went back to Computer Economics as VP of Research and immediately contacted me to get permission to republish some of my blog posts as free “research bytes.” I agreed, but only in exchange for free access to Computer Economics research (especially its IT spending benchmarks), which were useful for our IT strategy consulting.
Our Acquisition of Computer Economics
Meanwhile, Dan and I continued our monthly meetings to discuss business strategy. I remember one such meeting around January 2005. As we sat down, Dan said,
Frank, I’m tired of this consulting model. Everything is project-based. We sell an hour, then we work an hour, and then we bill an hour. We can’t go on like this. We need products. We need to be able to sell products that are not dependent on how many hours we work.
Dan had come from Experian, a business based on information products, such as consumer credit reports and prescreened mailing lists. He loved that model. He once told me, “Information services are great, because when you sell one, you still have it to sell again to the next customer. It’s not like selling widgets, where if you sell one, you need to make another one for the next guy.”
But we left that meeting without a solution.
Then, that very same day, after Dan had left, I got a call from the above-mentioned Mark McManus to say that the owner of Computer Economics, Peter Daley, wanted to know if we would be interested in buying the firm. I said, “Heck yeah, let’s talk!”
The next day, when Dan arrived at the office, I said, “Dan, remember our discussion yesterday about having products to sell? I think I have the answer.”
We closed the deal three months later, in April 2005, and I ran that firm alongside Strativa until I sold both firms in 2020.
Complementary Business Models
Computer Economics was everything we wanted in a product-based business. Its revenues were about 80% from syndicated research subscriptions, with about a 75% annual renewal rate. This was the perfect complement to the project-based consulting business model of Strativa, just as Dan had envisioned. The key differences between these two types of businesses are shown in the graphic below.
Business model: Consulting services are labor-based, and you sell them to clients one at a time. Although there can be follow-on projects, they are still individual engagements. In contrast, Computer Economics was a syndicated research business, where we sold the same research reports to multiple clients, mostly under annual subscriptions, which gave us renewal opportunities. The core publications contained metrics that IT organizations needed to make IT spending and staffing decisions. We also sold individual reports through our website, but the bulk of the revenue was, by design, through subscriptions.
Sales model: With consulting services, you first sell the project, deliver it, then collect the fees. As Dan put it, “sell an hour, work an hour, bill an hour.” With syndicated research, you first deliver the product (i.e., do the research to write the report), then you sell the subscription and collect the fees (up front!), with the opportunity to renew the subscription year after year.
Scalability: With consulting services, there is little scalability. To grow the business, you need to add consultants. With syndicated research, you can grow revenue by selling more subscriptions without adding people. Except for sales commissions, there is little incremental cost for new subscriptions and even less for renewals.
Opportunities and Challenges: When you are looking for a quick jump in revenue, consulting services give you greater opportunities, as they are larger deals. At the same time, consulting revenue is difficult to forecast. In some cases, one or two large engagements can make or break the year. It is often “feast or famine.” In contrast, syndicated research subscriptions are smaller deals, but they can be renewed year after year. We had some clients that stayed for a decade or more and are still clients today. As a result, the business can be quite predictable. And if your attrition and growth rates for subscriptions are fairly steady, you have much better long-term visibility and ability to plan. On the downside, however, if you want to develop a new research product, you’ll need to make the investment up front, before you have any paying subscribers for it.
Over nearly two decades, I grew to appreciate the differences between these two types of businesses and how they were such a great complement to each other. Acquiring a research firm was not in our original business plan but turned out to be the key element of our emergent strategy and a huge factor in our success.
An Enormous Loss
After the acquisition in 2005, Dan continued to run the Strativa business leading business strategy and process improvement projects, with me stepping in as needed to advise our consultants doing software vendor selection and IT strategy projects. At the same time, I took over as President of Computer Economics with a team of research analysts, sales directors, and customer services reps. The combined revenue for the two companies increased greatly in the two years following the acquisition of Computer Economics, validating our emergent business strategy. And, after a few years, the research business grew to be greater than the consulting business.
Then we faced a tragedy. In early 2008, Dan was diagnosed with cancer, and he passed away in October of that year. This was a huge loss, compounded by the fact that we were just entering into the 2008 financial crisis and recession.
For the two companies, this was a two-fold loss. We lost the head of our business strategy practice, and we now had to buy out Dan’s estate, putting a strain on our cash flow. The buyout for both companies was negotiated in 2010 and fully paid out in 2015, nearly seven years after Dan’s death.
Of course, none of this was part of our business plan.
I still miss Dan greatly, not just as a business partner but as a friend. I hope to post more about the many lessons I learned over the years from him and with him.
An Exit Strategy
An entrepreneur’s business plan should include an exit strategy. So, this post would not be complete without mentioning my eventual sale of both companies. Dan and I always contemplated eventually selling the businesses, and now that I was approaching retirement age, the issue was becoming more urgent. Fortunately, Avasant, a much larger management consulting firm, which also happened to be a Computer Economics client, was interested. We finalized the deal in February 2020. We rolled the Strativa business into Avasant’s management consulting practice, and the Computer Economics business became part of Avasant’s research offerings as a distinct line of publications. I became a senior partner during the earn out period, continuing to manage the acquired consulting practice and expand the research products for the new owner until I retired from employment in 2024.
As noted throughout this post, the business was successful, not because we saw the way forward every step of the way, but because we were able to take advantage of opportunities and overcome challenges as they presented themselves through the years.
One of my favorite sayings is, “The car is easier to steer when it is moving.” Prior to the introduction of power steering, it was difficult to move the steering wheel of a parked car due to friction between the tires and the pavement. But if you could get the car moving, even just a little, it would be much easier to steer it. So also in business, it is easier to set your strategic direction once you get the business moving.
End Notes
[1] At his core, Dan was a business strategist. He had a Ph.D. from NYU in chemical physics, and his dissertation was on laser science. His first job was at Bell Labs before the breakup of AT&T, where he worked to develop commercial applications for the scientific discoveries of Bell Labs. So, from the beginning he honed his skills in recognizing innovations and taking them into implementation. After the breakup of AT&T, Dan took a management position at TRW, first in New Jersey and then in California, where he went around to various TRW companies leading process improvement programs. His last position before I hired him was at TRW Credit Data. Coincidentally, I had worked there 20 years prior to Dan, and I wrote about my lessons I there in this post. At the end of his time at TRW, he was part of the leadership team that spun off Credit Data. This included the exercise to come up with the new business name, Experian.
[2] I was surprised at how quickly I became an industry influencer (as much as I dislike that term). A Lawson Software executive once told me, “Frank, everyone here reads your blog.” When I laughed, he said, “No, you don’t understand, I mean, everyone here reads your blog.” Here’s one such post about Lawson, based on an email exchange between me and the Lawson CEO.
[3] In another example, I wrote a long series of posts starting in 2003 and continuing over several years about Microsoft’s failed attempts to unify its four acquired ERP systems under a program code-named, Project Green. Here is a particularly harsh one: Project Green Is Dead. I based my posts on public information, combined with perspective (without confidential information) that I got from people close to the action. I found out later that my analysis was more accurate than I even imagined at the time.
[4] Perhaps the most surprising example of my influence is when I wrote an initial blog post in 2010 on Plex Systems, one of the first SaaS ERP systems. Plex was little known at the time, and I was about the only analyst following them. (That year, when I attended the Plex user conference, I was the only person in the press/analyst room.) Fast forward to 2012, and Plex was acquired by Francisco Partners, a private equity firm. At the Plex conference a few years later, I met Petri Oksanen, a principal at Francisco Partners, who was now a member of the Plex board of directors. He said, “Frank, I want to tell you, it was your blog post that first got us interested in Plex.” Naturally, I had to reply (jokingly), “Where’s my finder’s fee?”
[5] Computer Economics was founded as a newsletter business in 1979 by Bruno Bassi, a former IBM sales rep. He began by compiling IBM product price lists for buyers, lessors, dealers, and leasing companies. (Ironically, many of his clients were IBM sales reps, as IBM did not publish price lists, even internally!). He also published various IT metrics, such as cost per MIP and IT salaries. Later publications included a “Sourcebook,” which identified sources of computer software and hardware. The first issue of the firm’s original newsletter, the Computer Economics Report, is available for free download. Then, in 1990, Computer Economics launched what turned out to be its flagship publication—what is now known as the IT Spending and Staffing Benchmarks report, which provides IT budgetary ratios and staffing metrics by industry, the first IT research firm to do so. That report proved to be popular not only with IT executives but also with consulting firms, who used it in their consulting work, like I did at Strativa. Prior to his death in 2000, Bruno sold Computer Economics to his long-time business associate Peter Daley, who was (and is still) the source of the Computer Economics IT equipment fair market value and residual value forecast reports. Pete sold the firm to me and Dan in 2005, and he remains a friend to this day.
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