How New Solution Providers Are Surviving

Ever wonder about companies that are born during a recession? How and why do you start a business when the industry is in a poor economic state? Building a solution-provider operation has its challenges,certification and engineer training are expensive, and investing in product reselling ties up a lot of cash,and it seems extremely difficult to begin such a business in a weak IT-spending environment.

It's not impossible. Just ask Scott Miller, president of Server Centric Consulting (SCC). He started St. Louis-based SCC in 2002, deciding that the business focus would be solely on server-based solutions. Miller quickly aligned himself with Citrix, an obvious choice considering that the software vendor dominates the server-based network solutions with MetaFrame. To really add value, he says, he and his engineers needed to pick one practice and be better at it than anyone else.

Capital Gains

The solution-provider industry is not a glamorous one, and thus is treated in kind by investors. Venture capitalists will surely dish out some cash for a bold software tool, but often turn a cold shoulder when a new IT services firm is looking for funds to get off the ground. They usually come knocking only when an established solution provider falls into financial trouble. So, entrepreneurs looking to start a solution-provider business need to have cash on hand and be ready to self-finance their operations. And they must be prudent with the cash and refrain from the sort of lavish spending and excessive rewards that have done in larger companies.

"We funded Milestone on a meager $1,000 of seed money, didn't borrow a dime and are now knocking down six-figure months in sales," says Joel Kappes, president of Milestone Networks, a Parker, Colo.-based solution provider founded in June 2002. The company, which resells networking products, is targeting more than $3 million in sales this year.

Whether you're reselling products or offering consulting services around a type of technology, you need vendor support. Young VARs need to find the right vendor around which to center themselves. SCC's Miller selected Citrix, which is financially secure, dominates its market of choice and has a solid channel program. Citrix is growing, thus SCC has opportunities to mine because it can offer skills and expertise around a complex technology area. Partnering with a vendor whose channel business is lackluster and license sales are falling isn't the safest bet for a new solution provider.

Acquiring talent might be the one area where new VARs have an advantage in an economic recession. Just two years ago, members of Congress were pressing for an increase in the number of HB-1 visas to bring more IT professionals from overseas to fill the void in the United States. Today there are many talented people looking for jobs. Massive layoffs and crumbling institutions have increased the talent pool seeking work. Furthermore, there is an increase in the number of IT professionals-in-training at colleges and universities. No longer do recruiters have to lay in wait outside Stanford University to find a promising student with a computer-science degree.

New solution providers often get their start by dominating a niche area,both technically and regionally. John McCarthy, for example, helped to start Altrun, a security VAR based in San Jose, Calif., hoping to capitalize on a growing market. In other cases, newborn VARs will set up shop in an underserved region. Sometimes you can do both: iFusion Solutions, based in Vancouver, set up shop in British Columbia and was able to quickly build expertise in Microsoft's new CRM software.

"We have the most certified Microsoft CRM professionals in British Columbia and plan to maintain that ratio," says Dean Guest, founder of iFusion.

Do you have any lessons or advice as an upstart VAR? If so, e-mail Rob Wright at rwright@cmp.com.