Reaching the Top
There is an old saying in business: "If you’re not growing, you’re dying." The adage holds true for today’s crop of solution providers, who constantly feel pressure to evolve their businesses to adapt to the ever-changing technology landscape.
Evolution without growth, however, spells extinction for many businesses, and solution providers are no exception. Many are forced into evolving their businesses as a way to survive during turbulent times, losing sight of a more important goal—sustainable growth. This puts them at risk.
With some 105,000 solution providers currently in the United States, according to research firm AMI-Partners, growth can be a tricky proposition. Of course, growth is relative and limited by a number of factors that solution providers must master to expand their businesses successfully.
Figuring out how exactly to accomplish that is a big challenge. Even successful business owners will tell you there is no silver bullet, but rather a combination of factors, and perhaps even some intangibles, which lead a solution provider into a growth path.
"You should base and make your business model decisions on facts," said David Dadian, CEO of Powersolution.com, but he adds: "The final test for me, no matter what the numbers say, is my gut. Once you make the decision, you must forge forward and stay focused, but always remembering nothing is written in stone."
Powersolution.com was among a handful of IT channel standouts, such as Neudesic and Touchbase, who were asked by eWeek Strategic Provider to share their experiences in building strategies for sustainable growth—from the twists and turns of the road, to success, to the importance of acquiring and nurturing talent, to ongoing business assessments.
Powersolution.com, neudesic and Touchbase are part of a vast infrastructure of IT channel companies of various sizes—some small, some large and others that could be considered "just right." Breaking down this population reveals that a large chasm exists between small solution providers and the big players, and that thegap is growing.
Out of the 100,000 or so solution providers, only about 50 have revenue exceeding $1 billion, and that includes industry giants such as IBM Global Services and HP Services. Fewer than 250 solution providers have revenue exceeding $100 million, and the revenue numbers drop off quickly after that.
If the market were illustrated as a pyramid, a small minority of roughly 500 solution providers would inhabit the top, while the majority would make up the pyramid’s base, leaving a vast no-man’s land in the middle. What’s more, most of the larger solution providers were not grown from small businesses, but rather as spinoffs (IBM Global Services, Lockheed Martin, Siemens Medical Solutions) from larger companies, or via mergers and acquisitions (Level 3 Communications, BearingPoint, Atos Origin).
This illustrates the difficulty of growing a smaller business into a behemoth. But climbing the pyramid is not impossible, as demonstrated by the experiences of some of the IT channel’s biggest companies—EDS (Electronic Data Systems), CSC (Computer Science Corporation) and SAIC (Science Applications International Corporation). Founded by individuals with very limited resources, all three now inhabit the pyramid’s top floor.
H. Ross Perot founded EDS in 1962 with a $1,000 investment. The company, which HP is planning to purchase, was sold to General Motors in 1984 for $2.4 billion. Today, EDS is the largest systems management and services provider in the United States, with more than $20 billion in annual revenue. Founded in 1959 by Roy Nutt and Fletcher Jones with $100, CSC reported $14.9 billion in revenue for fiscal year 2007. SAIC, founded by J. Robert Beyster, Ph.D., and a small group of scientists in 1969, posted $8.3 billion in revenue for fiscal 2007.
While EDS, CSC and SAIC have unique stories behind their paths to success, they share a common trait: Each traces its success back to individuals that were not "technologists" by trade. Perot was a top salesman for IBM, Jones was known as a marketing whiz, and Beyster was a research physicist.
They are the exceptions, since most solution providers are founded by technical people. The birth of the typical solution provider begins with an individual offering his or her technology-related expertise to a small group of businesses, friends, or associates and then slowly growing a customer base. Much like most small businesses, some 80 percent may fail within the first year. Others will grow slowly. A select few will expand quickly, but most eventually hit a growth barrier.
The path to success
Many solution providers may feel the challenges today are insurmountable, and so they forsake growth for survival. However, though they never may become an EDS or CSC, some are clearly on the growth track and accelerating. Their experiences may serve as inspiration for other small solution providers looking for sustainable growth.
Take, for example, Neudesic, a solution provider founded in 1991 by three partners—CEO Parsa Rohani, Vice President of Technology Tim Marshall and Anthony Ferry, the company’s vice president of sales and marketing. With reported growth exceeding 1000 percent in its most recent year, the company ranked 197 on the Inc. 5000 list of fastest
growing companies in 2007.
This kind of success owes to "careful planning and using a rock-star cast," according to Marshall. "It takes a small group of innovators to build the foundation and the ability
to articulate the business value of the offerings to prospective customers to
Another growth success story is Artech, founded in 1992 by Ranjini and Ajay Poddar, a wife and husband team. In fiscal year 2007, Artech generated more than $128 million in revenue with 2,100 employees at 19 service delivery locations throughout the United States, India and China. Ranjini Poddar, the company’s president, said sustainable growth is no accident.
"Although we didn’t feel there was a silver bullet to success, we had proved to ourselves that through aggressive sales, prudent financial management and day-by-day practical leadership, we would succeed," she said.
Sometimes there is a detour on the path to success, and Touchbase is a case in point.
"Touchbase was started in 1992 by me, my father and a friend of mine in a bedroom in Wapping, London," said CEO Riordan Maynard. "From a personal perspective, I wanted to start a business to try and build something different from the norm—simply, one which focused on its people and clients as it grew, rather than just obsessing about the numbers."
While that path proved somewhat successful, Touchbase experienced its most explosive growth only recently, as a result of a shift in direction. "We decided in 2006 to change significantly, and moved the entire organization from what we considered to be legacy technology, to focus 100 percent on emerging collaboration and customer contact technologies," such as Cisco’s Unified Communications products, he said. "Having made the huge gamble to shift wholesale to a new set of technologies, the results have been amazing. Our growth last year was in excess of 300 percent, and last quarter was 300 percent up quarter- on-quarter."
While Neudesic, Artech and Touchbase could be considered superstars in the solution provider world, there are some smaller solution providers also on the path to success whose experiences can offer insight into the problems of managing growth.
Raj Mehta founded the precursor to Infosys International in 1986, following a path familiar to most solution providers. "I worked on my own from my home, trying to sell my consulting services," Mehta recalled. "I began building and selling PCs and helping any business that would let me work with their technology systems. I had such a desire to start my own successful business that no job was too small. I was trying to make a name for myself."
His quest paid off when Infosys was recognized by the Long Island Software Awards in 1998 as the "Fastest Growing Software Company on Long Island." Inc. Magazine has also named Infosys as one of the 500 fastest growing companies in the country. The company now employs 55 out of its 14,000-square-foot headquarters.
Sometimes success takes a tortuous path, as evidenced by the story of David Dadian, CEO of Powersolution.com. Dadian worked in the industry for several years before founding his first business, partnering with a startup, and then building what eventually
became Powersolution.com in 1998.
Recently, Dadian reignited growth by combining traditional solution-provider services with managed services to achieve greater efficiencies and boost customer satisfaction. The company expects revenue of more than $1.3 million for 2008, a 30 percent increase
from the previous year, proving that change can be beneficial.
"The initial plan/model should always be in a state of constant evolution," Dadian said. "If it is not, it is not being vetted for what works and what doesn’t. Flexibility is a key to success."
It’s not the technology!
While these success stories have followed different paths, each of the solution providers agrees that technology is not necessarily the driver for success.
"Artech was founded with core technology skills, and this was important upon entry into the IT market," said Poddar. "Our sales skills at that time were nominal. The aggressive pursuit of new accounts was critical to our initial growth, but our interpretation of salesmanship was more about developing a business dialogue and making a business case for our services than just pushing discrete solutions."
This approach is evident in the company’s long-term client relationships, Poddar said. "Even companies that have very niche offerings must sell, and sell quickly before the market changes and competition catches up.
A company with profound IT skills and no sales capabilities will not flourish." Dadian agrees. "Some people have the ability to do it all and lead a company to substantial growth and prominence," he said. "I am a self-taught technologist. I understand the technology we deploy; you just don’t want me deploying it. My background is asset management and logistics. I understand business and processes, and I use this to understand the client’s needs and then design the appropriate technology solution to apply."
Dadian added that it’s important to understand one’s role within the company. If you are a technologist or salesperson, you should hire an experienced CEO, and sales management and project management people, he said.
Touchbase’s Maynard said a company should be led by market-focused people, as opposed to technologists.
"The company needs a very strong technical backbone, but the front of the organization needs to be highly attuned to client and market needs, which means that too much of a technical approach will limit the company’s success. Clients are interested in what the technology will do for them, not what the technology is."
As these solution providers demonstrate, building successful practices requires a focus on serving customer needs, regardless of the technology employed. For the most part, solving a business problem or building a solution needs to be presented as a process, and the technology is only part of the mechanism to make it happen. That is in stark contrast to many smaller solution providers that believe they are, foremost, purveyors of technology solutions.
Trust and talent
One common thread among successful channel companies is the recognition that success largely hinges on employees and how they are nurtured.
"The focus on human beings is one of the most important tenets of building a successful business," said Neudesic’s Marshall. "Talent is always in demand and talent works like gravity, attracting even more talent. Simply put, the best want to work with the best, and that culture offers a reward beyond compensation. Talent does deserve monetary rewards, and that can be accomplished using equity sharing."
In addition to gathering talent, it also helps to build trust among employees by knowing what responsibilities to give them, said Poddar.
"While it is hard to determine whom to trust, apportioning responsibility by degree is a good litmus test," she said. "During the span of any given year, you can tell which employees go beyond what is expected from them. There are key indicators beside the hours they work, such as their willingness to accept additional responsibilities.
Some employees, she said, are driven by emotions and show great care in their duties. "Some naturally develop instincts for making strategic decisions, while others develop it through hard work and/or continuing education."
As far as Dadian is concerned, trust goes hand in hand with success, and a company’s culture is the key to building that trust.
"I build trust in everyone and delegate to everyone," he said. "If someone lets me down once, so what? It happens. We fix it and make sure it doesn’t happen again. Mistakes happen. Where I believe we excel, is that when we make them, we correct them faster than most. And 99.9 percent of the time, they are made in our facility, so they are not client-facing."
Remembering to have fun and being flexible also helps, he said. One factor that requires special attention, he added, is how to reward top performers, which can vary. "My idea and practice is not to give ownership percentages, but to provide profit sharing.
It seems to work."
Maynard uses a different approach. "Touchbase has always offered exceptional people the chance to own part of the organization that they are building. We call this our 'Partner Program,’ and it was loosely copied from Goldman Sachs," he said. Every year, a number of people get nominated for election by the company as a whole and are then voted on by the company as a whole."
Based on that process, some employees are made equity partners and have the chance to own part of Touchbase, Maynard said. "This approach is fundamental to keeping talent, not in the good times, as it is easy to be exciting at these times, but more importantly, during the inevitable, difficult times."
Avoiding complacency with many solution providers, as is the case with any company, the biggest enemy can be comfort or complacency. Either is an antithesis to growth, and successful businesses have their own tricks to avoid that trap.
"IT is a constantly changing market and industry, and that’s a key factor to remember," said Mehta. "If you don’t ebb and flow with the demands of the market, you’ll drown and disappear. Remember where you came from, and by that I mean remember that you didn’t get to where you are today overnight. It took a lot of hard work, sacrifice and dedication."
Mehta likes to think of it as a relationship with a spouse or friend, he said. "Just because you are comfortable with the relationship doesn’t mean that it is static. There is growth and change that occurs, and if you want those relationships to last, you need to grow and change with them."
Maynard likes the practical approach to fighting complacency. "What is referred to as the 'comfort trap’ can only be avoided if the driver of the business, and those that own it, are prepared to gamble everything every day to develop and grow. This is easy at startup but becomes much more difficult as the business grows and the risks get bigger," he said.
Driven by the fear that comfort drives mediocrity, Maynard said he has set up the business for constant growth so that people remain interested.
Artech’s Poddar addresses the "comfort trap" by asking for help. "The most successful business people seem to have a natural inner drive that others can never develop," she said. "However, I can suggest that companies should reach out to management-consulting firms that can help keep them focused and assist in the creation and tracking of high-end strategies and tactical to-do lists.
A good consulting firm can keep a small or startup firm motivated and compensate for lack in strengths in one area or another."
Climbing the pyramid
While the beliefs and practices of Infosys, Artech and Powersolution.com—in growing their businesses—provide good examples of paths to follow, one issue remains: How to move up the pyramid from masses and boutique players at the bottom to share space with the major movers in the industry?
It takes more than just success and Touchbase’s Maynard has a theory: "To get to your first $1 million is difficult, to get to $10 million is very difficult, to get to $50 million is almost impossible, but once you get to $100 million, it seems to get slightly easier to grow. I think this is because the transition from small to medium means a huge change in the way the business is run and the systems that underpin it. Once this is achieved successfully, the next levels of growth become easier as you have the structure and systems in place."
Neudesic’s Marshall has a different take: "As a company grows and enters that chasm, a great deal of interest is generated about that business. Once that level of revenue is achieved, the company becomes a target for acquisition and is most likely to be gobbled up by one of the major players in the industry—or grow because of an infusion of venture capital. Either way, the company ceases to exist as a familiar entity and, indeed, does jump the chasm."
Marshall may be onto something: The majority of the larger players in the market were created by mergers, acquisitions and outside investments. That raises a question for solution providers: Which path to success makes sense for you?