Recession Is No Time to RetreatBy Lawrence Walsh | Posted 2009-02-27 Email Print
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Times are tough, so the safe bet is to retreat into a bunker and wait for the economic storm to pass, right? Wrong. Now is the time to invest and grow your business, just as these risk-taking solution providers are.
Let’s start by stating the obvious: the economy is bad. This is shaping up to be the worst recession in living memory. Unemployment is at nearly 30-year highs, GDP shrank more than 6 percent in the last quarter and the government is spending more than $1.5 trillion (that’s a 13-digit number) of money it doesn’t have to shore up the financial and housing sectors.
The evidence that these are tough times is ubiquitous, so this is the time to retreat to safe ground and ride out the storm, right? Nothing could be further from the truth.
Conventional wisdom says that businesses should cut their spending and focus on sustaining their business through a recession. That often translates into focusing on retaining and expanding relationships with existing customers because, in theory, those are the people who know you best and are more likely to continue buying from you. Conversely, acquiring new customers takes an investment of time and money, which is in short supply.
Conventional wisdom be damned. The Channel Insider 2009 Market Pulse Report found a clear division between solution providers who believe their revenue and profitability will improve over 2008 and those who believe their business will remain flat or decline as a result of the recession. What are the distinguishing characteristics between the two groups? The optimists are investing in their businesses, looking to grow their customer bases and market share, while the pessimists are retrenching and cutting their investments.
"Historically, demand has been created by the customer, and you were responding to the demand. Now, you have to go to the end point and create the demand," says Adrian Liddiard, the chief operating officer of Bluewater Communications Group.
As budgets tighten, customer expectations for the return on their technology spend increases. Solution providers report that end users are taking more time to scrutinize proposals, cutting back on projects in the works and demanding demonstrative proof that their investment of a dollar today will result in a multiple return within a prescribed period.
"Before, I don’t know if any customer really evaluated what they were buying on the front end," says Jay Kirby, vice president of sales at Troubadour, a Houston-based security and VoIP solution provider. "Now, if you can’t get a project done within nine months, you can’t demonstrate the ROI to them."
More worrisome to some solution providers is how the recession may dramatically shift the way end users plan and execute technology budgets. This is more than just the shift to Web-based services. Reduced recessionary spend is teaching enterprises and midsized businesses that they can reap acceptable technology benefits by swallowing projects in smaller portions. The net result may be that flush technology spending may not return to pre-recession levels—or may change the entire technology sales-purchase dynamic.
Now, more than ever, solution providers must focus on their business model, their value proposition and their fulfillment delivery. The channel has been fed a steady diatribe that "pushing boxes" isn’t going to bring their prosperity. Many see services as the means to return a robust, high margin business, but the day will come when service provider will be derided like the box pushes of yesteryear (we’ll call them "packet pushers" for now). A true, robust solution provider business is never about the technology or the vendors in its portfolio, but rather what makes the service and solution unique to the customer. That’s value. That’s marketing distinction. That’s the path to success.
What will make a difference? Marketing, for one. Solution providers who are investing in focused marketing campaigns are generating leads, closing deals and increasing revenue. Force 3, a government integrator in Maryland, has invested in marketing initiatives ranging from spots on drive-time radio in Washington, D.C., to viral video campaigns that result in real business growth. Many people think this is not the time for marketing experimentation or hokey messages, but Krissy Edell Kelley, Force 3’s director of marketing and communications, says her business cannot afford not to market. "It’s OK if not everyone gets it, you just have to be out there," she says.
Another strategy that works well: market and technology focus. Troubadour is focused on security. Force 3 is an expert in the federal channel. And Silient Networks, a solution provider in Carlsbad, Calif., is targeting recession-proof verticals such as health care and nonprofits. "We saw this coming for some time and started to look for verticals that hadn’t quite gone mainstream," says CEO Mac Clarke.
The difference between the optimists and the pessimists is a business plan and a focus on key activities that are intended to drive the business. Investment in new initiative and activities is always risky, especially when money is tight. But investment that has a measurable and predictable return—short and long term—is often more beneficial than doing nothing at all. Now is not the time to sit back and wait for the economy to recover. Now is the time to plot a course, invest in opportunities that will pay dividends and build market share at the expense of those hovelled, pessimistic solution providers.
"If you don’t have anything left to cut and you’re still having problems, you have serious issues," says Gary Fish, CEO of FishNet Security, one of the largest security integrators in North America. Truer words have never been spoken.
Lawrence M. Walsh is vice president and group publisher of Channel Insider.