Netcompany is a Next-Gen IT services company that develops and maintains digital platforms, core systems, and interfaces for enterprises (39%/revenue) and public customers and authorities (61%/revenue). In Denmark, a country that accounts for 71%/revenue, Necompany has delivered some of the country’s most socially critical solutions like Borger.dk (the citizen’s interface for public matters), Sundhed.dk (the citizen’s interface for health matters), the handling of public pension payments, the tax collection system, the main public schooling interface, and the official Covid-19 tracing app.
Society-critical projects like these are not easy to win over, nor finish. It requires long public tender procedures, multi-year contracts, and negotiations (a public project usually takes about 12-18mos in the developing stage which spills over to maintenance over the next 5-7 years). Even so, Netcompany has consistently won >65% of the public tenders that it bids on and has finished projects on time and point.
Part of this competitive win rate can be explained by critical mass that allows Netcompany to handle huge projects. The other part has to do with its reputational advantage.
Netcompany is a consulting firm. But rather than billing by the hour, Netcompany takes on more fixed-cost projects than peers, allowing it to optimize margins by efficiency, but also exposes it to financial losses if projects cross the deadline (in fixed-pricing projects, consulting firms pay daily fines once the agreed-upon timeline is exceeded). Historically, though, the latter hasn’t been much of a problem for Netcompany, or at all. If anything, Netcompany’s focus on getting projects done on time is pretty much what’s allowed it to historically generate operating margins in the low-20s%, an impressive feat looking across peers:
Some can be explained by culture. Netcompany operates a decentralized management model and has no sales department. Sales, cooperation, and delivery are done by the same developers who work on the project (clients appreciate it when a tech-savvy person can explain complex technical issues to them in plain language), making developers selective in what projects to bid on. The avg employee is in their mid-30s of age. These young, and cheap, developers are incentivized to work hard and fast in an organization that rewards ambition with fast progression. This isn’t any revolutionary model in consulting, but consider the fact that Netcompany’s Danish peers are on avg almost 10 years older. There are only so and so good tech developers in the job market that are also young, cheap, and ambitious. Netcompany’s reputation feeds over to its ability to be first in line to hire and retain the most talented engineers from top local universities.
So it seems Netcompany has cracked the uncrackable code of delivering projects on time, on budget, and profitably, all of which have led to a significant reputational advantage, which is a key value prop to capture market share in an IT industry that tends toward fragmentation. With massive digitalization upgrades impending from the switch of on-premise solutions to agile cloud systems all across Europe, the TAM is huge (which I’ll return to in a minute), and reputation is alpha omega. For a company or public entity that looks to replace an antiquated, but functioning on-premise system, it’s equivalent to replacing the machine that supplies the company with oxygen. Customers can’t afford to select a bad vendor.