Surviving the Coming Economic RecessionBy Lawrence Walsh | Posted 2008-02-22 Email Print
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Marketing and adding real value to every single deal will help solution providers weather the economic storm.
These are not good days on Wall Street. The global financial capital is suffering one of its worst retreats under the pressure of massive subprime mortgage write-offs, rising energy costs and slowing consumer spending. From his corner office in a lower Manhattan high-rise, Lester Pierre has a prime view of the gathering economic storm clouds.
"We are in a recession," says Pierre, the CEO of Wall Street Network, a solution provider specializing in supporting financial services firms. "There’s no doubt about it."
The Dow Jones Industrial Index is off more than 14 percent since hitting its all-time high water market last October. Despite the Congress passing a $146 billion economic stimulus package and the Federal Reserve cutting prime interest rates, uncertainty and instability continues to rock the markets.
Technically speaking, a recession is two or more consecutive quarters of negative economic growth. The funny thing about recessions is you really can’t tell—by the definition—you’ve had a recession until it’s already over. While economists and politicians are debating this country’s and the world’s economic status, Pierre like many Americans is already seeing the tell-tale signs of economic uncertainty and downturn.
For months, Pierre’s customers have been questioning the price of everything from their commodity security and communication products to their specialized support and maintenance services. Even companies with health balance sheets are looking to cut costs and spending, he says.
"There are lots of longtime contracts on the table that we’re ready to roll with, but they’re pulled back because of the costs," Pierre says.
Pierre’s observation is reflected in the results of a survey by Ziff Davis Enterprise. Nearly half—46 percent—of enterprise IT professionals believe they’ll have IT budget cuts and layoffs if the economy slides into a recession. One-third believe they’ll have to make difficult choices if gross domestic product slips below 2 percent annually. And 25 percent say their budgets will take a hit if oil climbs above $100 per barrel.
The ZDE survey found that enterprises won’t stop spending on technology and services, but their priorities will shift. In fact, the data indicates that they’ll following very conventional strategy by looking to IT to cut costs and create efficiencies that will result in headcount reductions and expenses. It may sound good, but it’s nothing more than trading long-term sacrifices for short-term gains; the preservation of near-term stock values in exchange for giving up over-the-horizon revenue and profit opportunities.
Pierre is among a growing number of solution providers who recognize this trend and are already preparing their company for these changing market dynamics by changing their message to one of adding value to their customers’ businesses. Sounds simple, but the reality is much different than the box-pushing mentality of the traditional channel mantra. It means gaining a deep understanding of customers’ business operations and objectives, communicating directly with business decisions makers and not the guys in the data center, and clearly articulating the value of solutions and services.
Consider what end-user IT decision makers said in the ZDE survey:
- 48 percent gain better insight into their operations through business intelligence
- 55 percent will adopt a best-of-breed approach to solving solutions
- 77 percent will adopt SOA and Web services tools
- 92 percent anticipate storage needs doubling
All of this is good news for solution providers, who will be the ones called upon to design, implement, maintain and, in many cases, operate the systems that will provide enterprises with the services they need to remain competitive and grow.
Solution providers, however, cannot rely upon their technical acumen to survive and thrive in the coming bear market. As capital and credit becomes harder to obtain, the solution providers who have already staked their claim in technical and vertical expertise and are focusing on building business-oriented solutions will win the day.
Here’s a stark statistic: According to our exclusive channel research, most solution providers say it’s their technical skills and expertise, as well as their professional services that differentiates them from their competition. Marketing and sales were ranked dead last.
Interestingly, most solution providers have discovered that the richest sales opportunities come from targeting business leaders rather than the data center because the executive team has two things the data center doesn’t: business need and money. They often don’t care what the technology is, so long as it provides their operations and business with revenue-enhancing value. This makes marketing and sales critical.
Considering businesses want solutions that work and increase their revenue potential, it’s vitally important for solution providers to clearly articulate the value proposition of their products and services to capture executive buyers’ mind share. The winners of the new economy will be the ones who return "value" to the term "value-added reseller." That’s Pierre’s plan and the reason he’s not sweating while others on Wall Street are panicking.
"What we need to do is keep the momentum going," Pierre says. "Some companies are going to fold and some companies are going to thrive. We’re going to thrive by adding value."
Lawrence M. Walsh is editor of Baseline Magazine and regular columnist for Channel Insider. Share your recession survival strategies with Larry at firstname.lastname@example.org.