Chapters

Jason Mlicki (03:54.659)
All right, Jeff, so I want to extend our discussion on the impact of AI and consulting this week. I want to pick up where we left off a little bit, but we’re going to do it with two wonderful friends of the show. So two of our most favorite guests that have been with us multiple times. So welcoming back to the show, Chris Barbin and Michelle Swan from Tercera. So Chris and Michelle, thanks for joining us today.

Chris Barbin | Tercera (04:17.894)
Happy to be here.

Michelle (04:19.118)
It’s great to be here.

Jason Mlicki (04:20.757)
All right, so we’re really excited because you just published an ebook on the rise of AI Native Services firms. And so actually the working title of this podcast is kind of lifted from the ebook. It’s AI, the end of services as we know it, or is it just the beginning? So I want you just to kind of just give us some context maybe to start us out a little bit. you’ve been through a lot of different

periods of technology disruption in your careers. And I just want to get your take on like, why does AI feel different? I know you’re taking a pretty strong point of view on this and you’ve jumped really right into the deep waters. talk to us about it. Why does this seem different to you both?

Chris Barbin | Tercera (05:07.927)
Yeah, maybe I’ll start and then Michelle can dive in. And again, thanks a ton for having us. Love partnering with both of you. Yeah, certainly have been through Y2K, the internet boom, obviously the cloud phase. And probably one of the most common questions I get is how does this compare and contrast to those? I think to me, the

pace of change, the innovation that’s happening is probably the biggest thing that stands out. I contrast it when I was back at WW Grainger back in the day, we were implementing SAP and the SAP implementation was a hundred plus million dollar project. We had a building full of consultants and it was a three to five year program. Like the thought of those programs at that scale, that’s just so dead.

These programs, the rate of innovation, the pace of change is so quick right now. That’s the contrast that I think about. Number one. Number two, think what’s so different is it is a threat to the consulting industry at large. All of the other trends and changes that were capitalized on was an opportunity for consulting. This is the first time I think that there is a real threat to the industry.

So there’s an opportunity to capitalize on and you got to drive pace and change fast, but it’s also a threat to the industry itself. So I think those are the two big differences as I see it from the trends we’ve seen in the past.

Michelle (06:44.374)
Yeah, no, I’d agree. I was just going to say I’d agree with that. think the, know, it’s a fundamental shift in the business model of consulting that is causing so much of the focus on this, that, you know, it’s been human-based delivery, people at the center of everything. And it’s the first time that the business model of selling by the hour or selling by the person is fundamentally changing and it’s forcing

Jason Mlicki (06:44.439)
show you on it.

Chris Barbin | Tercera (07:03.793)
Thank

Michelle (07:13.582)
people to rethink a lot of different things, which is a big piece of the playbook that we’re trying to put out right now, which is talking about how there is an evolution that’s happening and that people really have to pay attention right now.

Jeff McKay (07:30.457)
So if you were saying that Michelle, it got me thinking, I’m looking back historically at major changes in professional services. I think about accounting and a shift into software and stuff like that. That was very client focused, right? We’re implementing a technology for the client.

Chris Barbin | Tercera (07:54.897)
Yeah. Yeah.

Jeff McKay (07:58.329)
But what’s fundamentally different here is the technology is impacting on us as a consultant, right? It’s essentially taking a chunk of flesh away, or I guess to quote Shakespeare, pound of flesh, in some respect.

Chris Barbin | Tercera (08:18.97)
Yeah, no, that’s right. And I think that’s one of the fundamental challenges for the industry is, you know, it’s, it’s the classic Cobblers children have no shoes. You spend all your calories on the client solving clients problems. You don’t spend a lot of the calories solving your own problems. Now you have to, if you don’t, you are going to be left behind. You’re not going to be able to keep up with the pace of change, the level of innovation, the IP that’s going to be required. So looking internally is essential.

while you’re trying to serve clients that are adopting to this change. there’s two main problems you’re trying to solve for, and I think that’s what’s very different today.

Jason Mlicki (09:02.903)
Talk more about this convergence. You know, it’s funny, Chris, for years, whenever I would meet maybe a new IT services firm or a new leader, I would always try to gauge where they were. And I always talk about the project staffing spectrum. And I would always joke that they’re a project firm on one day. And then when the economy goes bad, suddenly they’re a staffing firm and they kind of go back and forth and they waffle and be like, you got to pick one. You can’t just be anything you want. And you have a piece in here where you talk about this notion of a services software spectrum.

Chris Barbin | Tercera (09:25.118)
Yeah.

Jason Mlicki (09:30.691)
you had to pick and that’s converging. So just talk to us about

Chris Barbin | Tercera (09:35.629)
Yeah, no, I would add a third. mean, I think you have staffing, you have project, and then you have transformation or solution consulting. There are many project based firms that, you know, they’re highly transactional, but some of them aren’t solution or transformation centric. And I think that, you know, making that transition is really, really hard. And I think the different elements of

or types of services firms are being impacted differently. think management consultants are being impacted differently than the outsourcers are being impacted differently than managed services providers and are being impacted differently than staffers. I think trying to be everything to everybody, you’re kind of screwed. You can’t do that because there’s such a fundamental shift here. But I do think there are very specific implications to the different types of professional services over time.

Jason Mlicki (10:35.565)
Yeah. Michelle, talk to us more about this convergence, this convergence of software and services. You do a really nice job in the piece of articulating this.

Michelle (10:46.624)
Yeah, I mean, it’s interesting. And we’ll talk a little bit about this when we get into the playbooks and how things are changing. But it’s always been, there’s always been a very big divide between there are these services firms that partner with software companies. And then there are the software companies that work with services firms to actually deliver on that. And I think you’re seeing as, as you have to productize more of the IP in this new AI world, develop these

Chris Barbin | Tercera (11:13.167)
So. So.

Michelle (11:16.116)
Agents that need constant tuning. I think you’re going to start to see more services companies lean into more of the product software area. And at the same time, you’ve got a lot of these software companies, these AI companies that are going to lean more into the services world as well, especially as they need to maintain and learn how customers are using this AI. And I think that that convergence is going to cause people to behave differently.

in of partnerships, in terms of how they work with customers.

Chris Barbin | Tercera (11:48.526)
Yeah. Yeah. I think what’s interesting is that, you know, for 30 years doing this, I have always said, you can’t be both. Like I’ve talked to thousands of services firms that have the best IP that’s going to solve world hunger and change and so differentiated.

And I would always frankly downplay it and say, your services firm, don’t try to be a product firm. Don’t try to be a software company. Well, you know, the multiples are amazing. Well, it’s not about the multiples. It’s your DNA is as a services company and be great at that. I think that’s at the core of this change for the industry is for the first time, think you have to figure out how to be both, how to have that DNA in your organization.

not just for a little bit of IP and accelerators, but to potentially stitch together and have a longer term platform that provides value for your clients. And that’s a hard thing to do. It’s a very, very hard thing to do. And so I think the firms that can master that dual DNA will be the winners. How they get the DNA, do they acquire it? Or do they grow it from scratch? I think that’s

That’s where the magic, that’s where the leadership comes in.

Jason Mlicki (13:10.371)
You know, I wanted to ask you, as Michelle, you were talking to, software companies have always had professional services, arms. That’s not new. But is this different? Is it different for firms that operate within channels right now because they’re maybe seeing more conflict than they used to or these new, some of these emerging AI-oriented software platforms that are not the SAPs of the world?

have a different channel motion, just talk to us about what you’re seeing.

Michelle (13:46.338)
Yeah, I can start and I’m sure Chris has opinions here as well. I think it won’t change substantially in that services firms will need channel partners and software firms that they work with, that they specialize in, that that’s their area of expertise. And then you’re going to have software companies that need services partners. They can’t be all things to all people. mean, that is what a platform is. There’s always going to be customized instances of that.

Chris Barbin | Tercera (14:00.526)
Shoot. Okay.

Michelle (14:16.192)
It’s interesting. feel like AI is moving so fast. Everybody is trying to experiment and figure it out at the same time that the closer you can get to the customer and really learn how these customers are using AI, how it’s working, how it’s not working, how it needs to evolve, how it needs to get tuned. I think the software companies realize that. so they’re starting to, I mean, you saw Palantir do this a while back and now everybody is kind of following their

forward deployed engineer model, which, you know, they’re, they’re a little bit hard to get inside of. So it’s hard to see what, how different that is from, you know, a really great software engineer or pre-sales engineer that’s in there. But I think that model, you’re going to see a lot more software companies do that in the near term. And that’s going to create some competition with their services partners. So there’s going to be a little bit of a different, I think playbook, but

Chris Barbin | Tercera (14:50.188)
Thank

Michelle (15:13.288)
Over time, I don’t think the model changes all that much. I think that software companies are still going to need services companies.

Chris Barbin | Tercera (15:22.856)
Yeah, well, one, think this whole notion of the number of services, software companies that are talking about, let’s do what Palantir does. I think there’s a lot of BS there, honestly. think not all forward deployed engineers are created equal. You can’t just shine up a pre-sales person

customer support engineer and call them a forward deployed engineer, that will come to roost. An engineer is an engineer and one from Palantir is very different than a pre-sales engineer that is at an ISV today. So I think that there’s a little bit of noise in the market right now as it relates to that model. I think that the big, services, I’m sorry, the software companies will need consulting firms largely to continue to get access to

to big customers. These customer relationships are substantial and they want access to those. That’s the ultimate thing they want from Accenture, the PWC, Deloitte. I think that where you’re going to see some interesting developments are when they partner with the native AI services firms that look and feel a lot more like little ISVs in many ways that help them deploy and accelerate

the implementation of the software. think they’re going to look at these things very differently. They’re going to have these channel motions. One, where, OK, I want to partner with Accenture because they’re going to get me access to Procter and Gamble. I want to partner with Native AI, know, .ai because they are helping me deploy incredibly quickly with their technology that, hey, maybe someday I’ll acquire. I think there’s two ends of the spectrum here on the channel motion.

Jeff McKay (17:09.046)
My sense is, and I’ve seen this in some of my clients, is a lot of the opportunity is moving just beyond the core software platforms, but to the periphery in the interconnection of a lot of different software platforms, because that’s where the real value of AI and agentic AI is starting to pay off. What’s your sense of that?

Chris Barbin | Tercera (17:29.605)
Yes.

Chris Barbin | Tercera (17:38.979)
Yeah, I think that’s well said. mean, think the creating a services firms almost like workbench of tools that help them design, develop, test, manage, using off the shelf software, a collection of AI tools. Now those tools are moving so, so quickly.

It is hard to connect them and have a collaboration layer. I think that, you will there be some type of services, professional services operating system, AI operating system? Like that, that’s where I would be investing. You know, if I were a 50 to $500 million services firm, think ensuring that that set of tools can work well together to drive a level of efficiency, automation, higher gross margins, and ultimately higher EBIT.

that then needs to translate to more revenue per employee. Ultimately, all these other metrics are vanity metrics. If you’re not generating more revenue per employee, you’re not getting the benefit. But I think how you stitch these tools together across your delivery engine, but across all your functions, is really where there’ll be a lot of work over time. It’s hard because it’s moving so quickly.

Jason Mlicki (19:01.431)
I feel like you both mesh together two concepts from the ebook. You know, there’s sort of like this move to a multi-channel model, Michelle, that you talk a lot about, this idea that you can’t be operating in a single ecosystem. You have to be operating a multiple ecosystems to solve problems. And then Chris, you kind of talked about just, again, the only metric that matters. It’s like the metrics need to change. And you talk a lot of it about that. I’d be curious to hear more about the metrics piece of this.

Chris Barbin | Tercera (19:26.965)
Thanks.

Jason Mlicki (19:31.209)
I do think that what I like about what’s in the ebook is it’s not just about the metrics, it’s about the business model. It’s the recognition that the business model, the structure is changing. It’s not just like, what are we going to measure? It’s more about, wait a minute, you got to realize. So talk a little bit about that.

Chris Barbin | Tercera (19:34.571)
Thank

Yeah.

Chris Barbin | Tercera (19:49.356)
So you want to start and I’ll pile on?

Michelle (19:52.526)
Sure. Yeah. mean, I think the one thing is as services companies start to operate a little bit more like software-like, I mean, there’s this whole concept of the services as software, which is basically like an automation of traditional services and how that’s delivered in like almost like a software-like interface, maybe for a subscription model that you start to have more software-like gross margins when you can do things like that.

Jason Mlicki (19:52.62)
Yeah.

Chris Barbin | Tercera (20:19.658)
Thank you.

Michelle (20:22.562)
However, to do things like that, you need to invest almost more like a software firm. So for example, one of the metrics we’ve always seen for services companies is they have pretty small IP budgets. They tend to be in labs done off the back of consultants that maybe have some extra time. Maybe it’s one to 3 % of revenue. Maybe the more forward thinking ones, it’s a little bit higher. But I think you’re going to start to see that go more towards, you know,

maybe 10 % of revenue, even more, and start to look more like a software firm. mean, same thing with the types of people you have to employ to bring that kind of productized mentality. So that’s just one example of how some of the metrics change. mean, the one that we have great debate on internally and with our portfolio companies is utilization. I mean, that’s been what you guys talked about in one of your previous episodes is,

Chris Barbin | Tercera (21:03.306)
you

Chris Barbin | Tercera (21:17.097)
Okay.

Michelle (21:19.296)
Everybody’s been so focused on utilization and that’s just an, that’s an input metric. How many hours are you putting in? It’s not the value that comes out of it. So how do you start to shift some of the metrics more towards the value that you’re delivering to customers? It’ll be fascinating to see how that evolves over the next few years.

Chris Barbin | Tercera (21:40.591)
Yeah, I think we talk about software-like gross margins and investing-like software. I think that is optimistic in many ways in the short to mid-term. I think in the long term, there is going to be a material shift in gross margins from

The low forties used to be kind of the if okay, if you’re in the low forties, the investment banks will want to talk to you.

Chris Barbin | Tercera (22:17.049)
Thank, my back.

Jason Mlicki (22:19.105)
Yeah, you froze for a sec. Yep, you’re back.

Chris Barbin | Tercera (22:21.144)
Yeah. Yeah, the longer term, I think, you know, will you be able to see 50s and 60s of gross margin? I think so. I think that is going to become the new expectation of a bankable business that gets acquired. Now, getting the big firms that maybe right now are in the 30s and 40s because they have labor arbitrage is part of their success formula. That is going to be a hard

one to navigate for them. Which is again, why I think you’re going to see some of them having to acquire some of these, you know, next gen native AI firms to help catalyze some of the broader change. But I don’t think this happens overnight. I think you have to do it in segments of the business, maybe in industry verticals, maybe in certain types of services that you’re providing. But yeah, that is, I think that’s going to be a really, it’s a

Fun part of the problem that services have to solve for is how do you migrate from the 30s and 40s to the 50s and 60s while investing like a software company and changing the DNA of your company?

Jason Mlicki (23:33.315)
All right, there’s so much I want to ask you about that, but I don’t want to lose track of other things I want to talk about. So I want to change gears a little bit, and I want to go back to something you said early, Chris, and you were talking about how there’s obviously different types of services firms, and they’re at different points of maybe threat or disruption here. And in the e-book, you talk about this idea of the carbon-silicon spectrum as sort of mapping

Chris Barbin | Tercera (23:54.532)
Yeah.

Jason Mlicki (24:01.415)
the relationship of people and, let’s say, artificial intelligence that service might be rendered. Just talk to us a little bit about that kind of continuum and how you see it unfolding and what you mean by that.

Michelle (24:17.644)
Yeah, maybe I can start on that way in there too. I mean, I think the carbon and silicon spectrum, it’s a term we’re playing with, maybe trying to be a little bit playful on it, but the idea is that there’s not going to be one way of delivering services. So there’s a lot of talk about this services as software model. That’s how services are delivered. But there’s all types of different…

types of services companies out there, the different value that they bring, like Chris said, the management consultancies that are going to bring real industry specific insights, change management. They understand the complexities of these really big enterprises, like how to wrangle very complex enterprise systems. That’s going to be really hard in the near term to completely automate.

there might be those types. And then there’s maybe more of the transactional firms that are here, we’re going to help you with your test scripts. We’re going to help you with your coding. We’re going to help you with these more transactional things. You can probably automate a fair amount of that, but they’re different ends of the spectrum. And so the idea with the carbon and silicone spectrum, it’s this like this balance of humans and the human oversight and the human intelligence that’s needed to

bring these things to bear in really complex environments, the balance of that with AI. And the choice on how much you automate and how much is still delivered by humans, I think is a conscious choice that companies, firms need to make based on who they are, the type of services they offer, the type of customers that they work with. And there’s not gonna be one winner, just like there’s…

Chris Barbin | Tercera (25:51.747)
Thank you.

Michelle (26:04.738)
Today there’s software companies, there’s staff org firms, there’s tech enabled services, there’s all different types of services companies out there. I think that same thing will matter. It’s just that the higher you are on the silicone spectrum, the more you can automate, the more profitable you are, the faster maybe you can move. But that’s the concept behind the carbon and silicone spectrum.

Chris Barbin | Tercera (26:29.37)
Yeah. Yeah. And when I think about and have these discussions about all the things that are going to get automated, I think everyone initially starts with the stuff that’s easier around dev and test and configure. There’s things that are that jump out. We don’t talk as much about the

You know, and we have this in our ebook doubling down on client service. I ultimately, you know, these are, are client service businesses and there’s a level of trust and respect and knowledge that becomes real, you know, that you need to maintain and having that creativity and critical thinking and challenging the norms. Like that doesn’t go away. Like that is what people will want to buy. Executives will want to buy is.

Do you have to deliver that critical thinking and challenge your clients more so faster? Yes. I think the speed will change, but clients still, it’s that ultimate trust that I have a problem. Can you solve it for me faster than I can do it myself? That ultimately is what you’re buying in a consultant, that trust, that critical thinking, that problem-solving skill. But guess what? I’m going to give you this. Do it faster.

because we know you can now. And if you do it faster, maybe we can unlock more value together. Like that’s the dialogue. And I think that’s this notion of we call it doubling down on client service. That is a very open, honest discussion to have with your clients, not just how much faster can I code.

Jason Mlicki (28:03.863)
Yeah. Yeah, I like, I like you’re leading us. ahead, Jeff.

Jeff McKay (28:06.028)
My sense is that…

No, you go ahead, Jason.

Jason Mlicki (28:10.435)
I’ll just say you’re leading us into your six elements of scale. And I really like the six elements of scale a lot. And what I particularly like about them is how you describe how the AI era is taking you from one way of thinking about the element to a better and different way of thinking about it. We won’t have time to go through all six, but I’d like you to maybe just walk us through one or two of the elements, because I think it’s just, one, they’re sort of like universal.

Chris Barbin | Tercera (28:35.645)
Yeah. Yeah.

Jason Mlicki (28:39.587)
models for how you grow a firm. That’s sort like no matter what happens, these things are always truths and how you navigate them matters. just pick anything you choose. It doesn’t matter to me which direction you want to go.

Chris Barbin | Tercera (28:52.149)
Yeah, I mean, it’s this is a framework we’ve had since we started the firm five years ago. It’s a framework that I’ve used in my career, you know, and building scaling certain services companies. think the hardest piece, the one of the six that is going to be the toughest to crack moving forward is the IP and accelerator piece per our earlier part of the conversation.

breaking the conventional norms of accelerators and IP that help you maybe sell a little bit better, maybe differentiate, maybe round the edges of your delivery economics. This now goes from IP and accelerators to a platform-based, software-based mentality, connecting different off-the-shelf systems, but also your own IP. That will be the hardest one to have the discipline to invest, to stick with it.

and to show that it’s delivering value, because for decades that notion has been kind of the same. Like it’s 1%. It helps. looks cool when I’m trying to sell a company or a customer. I can show two points of incremental gross margin to my board. That stops in the past. Like these, these are, this is going to be a.

big step change in how firms need to deliver value. And so I think that’s the hardest one to have consistent discipline in managing, investing in, and driving value.

Jeff McKay (30:27.446)
Last week, we had the second of two meetings of firm leaders, those focused on growth, talking about AI’s impact on what I call the IC Triad, which really is that commercialization engine that you’re describing. And my sense is the group is coming to really appreciate that that’s where it’s all

Chris Barbin | Tercera (30:51.455)
Thank you.

Jeff McKay (30:57.056)
about, and there needs to be a serious paradigm shift as you’re describing Chris of how are clients defining winning and how are you helping them achieve that win with AI? And it’s a, it’s a, it’s a paradigm kind of born out of teaching AI how to play chess or some other game.

that instead of teaching it to play like we play, letting it figure out on its own how to win and play the game. And that is a huge shift for most professional services firms. They just don’t think that way. And it’s almost like they have feet of clay as a result.

Chris Barbin | Tercera (31:42.666)
Yeah. That’s right.

Jason Mlicki (31:51.514)
Ha

Chris Barbin | Tercera (31:53.226)
Yeah. No, think you’re right. And I think the, what will be a problem with feet of clay is that there are many native AI services firms that are getting well funded with founders that are soft, have software mentality. So I think when boutiques were going to chase Accenture, PWC, like a period, chase those guys in the Salesforce gold rush. Now the boutiques are going to get chased.

by these native AI players that are hiring young folks that are out of high school and college that have been using AI tools through education. And that was native to them using these tools. So this whole notion of the bottom of the pyramid goes away. You don’t hire young people. I think that’s BS too. You’re hiring a different type of young person that has native access and utilization of these tools from

schooling. Like that becomes the new bottom of the pyramid. And I think for people that are embracing those types of folks, you know, we would sometimes refer to them as inside engineers, that is a different part of the bottom of the pyramid. that and but when they have leaders that are software centric in their thinking, I think those are going to be really interesting firms to watch. And these firms that are 10 to 100 plus million need to watch out for those because they’re coming fast and they’re well funded.

Jason Mlicki (33:25.251)
That’s kind of the backbone of the ebook in general, the rise of these AI native firms. And I guess I’m just curious, what are you seeing? What are some of the types of firms that you’re seeing emerge out of this? Let me step back. When we define an AI native firm, what do we mean by that? What do we mean when we say that’s an AI native firm? What’s that lexicon mean?

Michelle (33:50.41)
Yeah, I mean, think it’s the people who are born in the AI era that are built from the ground up to have AI at their core, not just tacking it on, not just figuring out how to do certain tasks using AI, but like completely rethinking their models, their processes, how value is delivered using AI at the core. In some cases, I think you could also have companies that aren’t

Chris Barbin | Tercera (34:01.937)
Okay. Okay.

Michelle (34:18.168)
They were maybe born a little bit early, but they’re completely rewired to think about that. And part of it is, some of these firms, they see the writing on the wall. They maybe see some of their traditional business going down. And so they know that they have to pivot. So I think it’s really just thinking about AI at the core versus just kind of an add-on to it.

Chris Barbin | Tercera (34:20.766)
So.

Chris Barbin | Tercera (34:38.686)
Yeah, I would say it’s aligned with some of the discussion you both had on your last podcast. It’s not just using it in the delivery engine. It’s using it in every function of the business. I think that is a huge criteria of these firms. I think it’s challenging on the conventional wisdom on pricing as well.

you know, if you look at like what Sierra is doing to Salesforce, like their outcome based pricing is core to their pricing model. I think services firms can’t dabble in, we’ll do a little bit of TNM. We’ll do a little bit of project base. then we’re going to throw value based in over here. I think these firms are going to go all in on value based pricing. even if it’s just fixed bid with a kicker, a guarantee, a bonus, I think you have to embrace the new pricing models as part of,

as part of your go-to-market as well. But I think that those two things, one, it’s across your entire business. It’s rethinking every single business process, how you do marketing, how you do sales, how you do G &A, how you do your billing. That’s all woven together and having this operating system across. And then pricing. think those are, when I look at native AI firms, now there was a leadership mentality.

in it as well. think that these people that are starting these firms have a different mentality that is embracing both software and services, which I struggle with because again, for 30 years, I’ve said you can’t do both. So that’s what I’m trying to get my head wrapped around.

Jason Mlicki (36:13.859)
And they’re showing up and doing it.

Michelle (36:15.342)
The thing that I was surprised, so we did this survey of 300.

Michelle (36:25.25)
I was just saying, think there’s, it’s interesting. did this survey of 300 plus services firms and we asked them about how many of them were experimenting with this outcome-based value-based pricing. I was shocked at the amount of people who are already experimenting with this, just because this has been the Holy grail of services companies for so long. But I think just the way that the business models are changing, the demands from the clients who see what AI is doing and they want to.

Chris Barbin | Tercera (36:50.365)
Yep.

Michelle (36:53.272)
have some of that efficiency, some of those cost savings passed along to them. People are really leaning into, I think it was like three quarters of the companies we smooth made were doing something in the pricing world.

Chris Barbin | Tercera (37:01.873)
Yeah. Yeah, I think that what’s shifting here though is for 20 years, every services firm has talked about value-based pricing. I think the trends now, the buyers, the customers are maybe more willing and interested in these types of relationships. It takes two.

So you can, you know, we interview 300 services companies, everyone’s dabbling and wants to try it. think a lot of service companies have been trying this for 20 years. Having a customer who is receptive. There’s two pieces of that. One, there’s the business buyer. They’ve always, yeah, value, course. It gets to procurement and it gets just blown up. Like, no, we can’t do that. They’re going to unlock all this value. It’s never going to get to accounting. We’re a public company, blah, blah, blah. I think the buying pattern.

are shifting and I think that’s going to be the big change in the coming years, that are to be buyers willing to do this. We’re going to see some really great deals on both sides, but it takes two to put these types of deals in place.

Michelle (38:11.266)
I think it also is going to change the profile of the consultant too, because think about the type of consultant that is able to talk about value from the very beginning and then measure it all the way down. That’s a very different consultant than the typical one that is, I’m just going to get my project done. I’m going to complete these milestones and then I’m out. So I think that will just, you you talk Jason about the six elements of scale and just the

I think one of the biggest things that’s changing is the talent element of Scare and just the types of people that you’re going to be hiring. think Chris is right. This concept that you’re not going to need more junior people is a bit ridiculous, especially because a lot of those folks are bringing that really AI native thinking into firms. I don’t know if you’ll need as many of them necessarily and how you manage them, how you recruit from, where you recruit them from.

Chris Barbin | Tercera (38:47.548)
So. Thank

Michelle (39:07.555)
the types of skills and how you develop them over time, that’s going to be, I think that’s going to shift pretty substantially.

Jeff McKay (39:16.109)
You know, I couldn’t agree more. I’ve written a little bit about this. I feel like the winners of the future are going to be the thinker seller doers, right? Those that can do it all. let’s, let’s talk a little bit about the human dimension of here. That’s because it seems like in every historical, transformational epic, if you will, the wild card and all of them.

Chris Barbin | Tercera (39:38.246)
So thank

Jeff McKay (39:46.114)
is the human, right? Whether we’re implementing software and have to enhance adoption, or we need to shift the paradigm in terms of how we deliver and think about our services. Share a little of your thoughts about how we take the people that we have and turn them into the people we need or how we find the people that we don’t have that we do need.

Chris Barbin | Tercera (40:13.595)
Yeah, I mean, I think this concept in question around re-skilling the existing labor force and services is a huge one. I do think whether it’s in the consulting industry or in the customers that you serve, that change management is going to be essential. And I don’t think everyone makes the leap.

prompt or two into chat GPT doesn’t mean you’re in a, you know, you’re an AI power user. you know, I was talking to Yamini who’s the CEO over at HubSpot and a good friend and she has just love what, know, she has done by way of leadership. She has a power use. She uses lots of different tools herself. She’s leading from the front and she has ensured that every one of her functional leaders is leading from the front.

And, you know, they’re doing hackathons or sharing sessions every single week on what people are using because it’s moving so quickly. But ultimately, again, it comes down to revenue per employee. It’s not that lower level. know, how many agents are we using? mean, these like we’re using 12,000 agents. Press releases make me laugh. Like, I don’t think it’s about that. Right. I think it’s about how you are embracing the use of these technologies and ultimately driving revenue per employee as a business.

Jason Mlicki (41:29.442)
Yeah.

Chris Barbin | Tercera (41:39.265)
And so I think there is some change management thought leadership that’s required at the top of an organization. But I think there’s going to be roadkill people that just don’t make the leap. And I think those are the ones that are going to get rung out of a lot of these consultancies that they can’t get their hands dirty. And they’re not staying current, not staying relevant on these technologies.

Jeff McKay (42:01.508)
Yeah. My sense is there’s, there’s, this is a simplification, but two types of people, there are those that are waiting for training and those that are learners. Right. And it’s the learners who are going to be the thinker, seller, doer winners of the future. And anybody sitting around waiting for training, you’re already behind the, the eight ball.

Chris Barbin | Tercera (42:12.73)
Yes. Yes.

Jason Mlicki (42:12.795)
Ha ha ha.

Chris Barbin | Tercera (42:28.483)
Yes.

Jeff McKay (42:30.484)
and you just don’t have the right mindset.

Chris Barbin | Tercera (42:34.007)
Yeah, no, that’s right. mean, the golden rule in consulting has always been just be a little bit smarter than your client. Guess what? Like today, your client is probably smarter than you. If they are on that side of the curve that you just described, if they are an active user and are not waiting for training, they’re probably smarter. And if you then get caught in that meeting, you’re kind of screwed. Like you’re going to have a problem. You’re not going to get hired back.

So I think that’s, I mean, the thinker, seller, doer is, I love that. And I very much subscribe to that level of thinking. You have to be at all levels, not just the young, low cost resources, but at the partner layer, you need to be there too.

Jason Mlicki (43:21.965)
All right, so we are dangerously close to overextending our time with you, and I don’t want to take advantage of you. this has been amazing, but I want to, guess, kind of like have you leave us with a final thought. What’s your take? Is AI an existential crisis? mean, is this the end of services as we know it? Or is it the beginning of something big or bad or different, unlike anything we’ve ever seen?

Chris Barbin | Tercera (43:44.116)
So.

Chris Barbin | Tercera (43:50.17)
Yeah, I mean, obviously you see all these articles. don’t think there is one. When people say the consulting industry is a trillion dollar plus industry, I think the segments will be impacted very, very differently. I do think that the market itself is over time is flat to potentially slightly down.

Jason Mlicki (43:52.695)
No hyperbole there at all.

Chris Barbin | Tercera (44:16.217)
I don’t think this is as high of a growth market as it has been in the past. It is under pressure. And I think that, you know, it needs to be completely rethought from the ground up, which, you know, I think if I’m a large firm, I’m paying very close attention to the native AI services players and how they are building their businesses from scratch. And then, you know, I think if I’m one of these smaller firms, the native AI firm building,

You know, don’t be naive on client service, right? This, there is still a meaningful human element. You can’t automate everything of consulting. And so I do think that when I talked to some of these younger up and coming firms that think they’re going to blow up the entire consulting industry, you know, there is still a very powerful industry here that is still human centric and can provide tremendous value. So.

Yeah, there’s something in the middle here of the two. so I’m intrigued to continue to be intrigued to watch both ends of the spectrum and see how comes to the middle.

Jeff McKay (45:21.421)
Michelle, what are your thoughts?

Michelle (45:25.038)
would say I’m maybe a little bit more optimistic than Chris on the growth prospects long-term. I agree on the near term. think that you’re going to see a lot of pressure in the system over the near term in services. over time, I mean, you just see all the different waves. for every time in a new era, a new technology has solved some problem, but it’s created a whole

bunch of other problems down the road. think AI is going to do the same thing and services companies are going to figure out how to capitalize on helping clients get through those problems. So I think everybody just keeps moving up the stack. Just like, know, Jeff, when you were talking about, or Jason, I can’t remember who mentioned it, but like when, when Excel and you know, cloud software came for the accounting industry, like accountants still exist. You still need finance people.

You just do different things. And I think that consultants will do the same thing. So I think, I don’t know, I’m very optimistic about the future of services. Maybe that’s being an advisor and investor in services companies. I have to say that, but I think it’s going to be fun to watch.

Jason Mlicki (46:40.297)
All right. I want one. Thank you so much for coming back. We love having you on the show. You’re two of our best best friends of the show, I would say. And we really love to hear what you’re thinking. So thank you. Two is if someone wants to get a copy of the playbook, where do they get it? Where do go?

Michelle (47:01.838)
They go to our website, tercera.io, and there is a whole page on the AI era. And you can download the research ebook there. There’s also some really interesting data from the AI survey that I mentioned. So it’s worth exploring.

Jason Mlicki (47:21.195)
And one final thing before we leave, Chris is about a few months away from embarking on a pretty cool, crazy thing. Tell us about what you’re gonna do, because we may have you come back just to talk about this. So tell us about it real fast.

Chris Barbin | Tercera (47:31.71)
would you two kind to raise it, be happy to come and talk about it. But I’ll be embarking on a thousand mile ocean row down the Sea of Cortez next year, raising money for mental health and addiction recovery. But it’ll be about a 30 to 45 day row, solo, unsupported, continuous from San Felipe, Mexico, all the way down to Puerto Vallarta in an ocean rowing boat.

And so I’ve been training for, for about a year, another six months to go. And again, happy to talk more about it. Appreciate you asking.

Jason Mlicki (48:05.997)
Can’t wait to hear how it comes out. And Michelle and Jeff and I are going to rent a yacht and go alongside. We’ve been training with daiquiris and mitis for almost a year as well. So we’re ready to go. Ready to go.

Jeff McKay (48:14.533)
Hahaha

Chris Barbin | Tercera (48:16.311)
I’d be happy. You just cannot supply me any of the daiquiris or Mai ties. It’s an unsupported row. so, but I’d be happy to wave as you as you come by with your cocktails.

Jason Mlicki (48:18.883)
You’re right.

Jason Mlicki (48:24.003)
Absolutely.

Jeff McKay (48:26.713)
Well, make sure you have a big notebook and a stash of pens because that is going to give you a lot of quiet time to think. I’ve got to imagine, and you’re going to have some big thoughts.

Chris Barbin | Tercera (48:37.973)
No question. That is the goal and the hope of the expedition.

Jeff McKay (48:44.313)
Wow, that’s great. Yeah, there’s a book in there.

Jason Mlicki (48:44.503)
physical exhaustion as well, I think. No, it sounds exciting. Well, great to see you both. Thanks for joining us and until next time.

Chris Barbin | Tercera (48:46.938)
Ha ha ha ha.

Chris Barbin | Tercera (48:54.987)
Thanks for having us. Great stuff. Appreciate it. See you guys.

Michelle (48:57.784)
Thank you.