Birth of a VAR

The new solution provider officially opened for business last month as a spin-off of Avcom's highly successful East Coast business, which surged from $14 million in 2001 to $22 million last year. AvcomEast president and CEO Rob Wolfe had worked for Avcom Technologies for two years, running the solution provider's East Coast operations. It didn't take long for Wolfe to decide to build his own solution provider business. "At 7 a.m. we got the call that Avcom was shutting its doors and by 9 a.m. I had articles of incorporation written up for AvcomEast," Wolfe said. "The opportunity was too good to pass up."

Wolfe used much of his own money to start AvcomEast and purchased several assets from Avcom Technologies. The company also has a similar focus to its predecessor, a horizontally-focused solution provider specialized in application infrastructure with tight relationships with Sun Microsystems, Veritas, Oracle and other top-tier vendors. Wolfe also says that AvcomEast has retained a sizeable chunk of Avcom Technologies' customers, which include Cingular Wireless, Motorola, and XM Radio. One difference, Wolfe says, is that his company will focus more on complete infrastructure solutions for enterprise applications, storage, networking and security instead of simply selling product.

"It's exciting and scary at the same time," Wolfe said of starting a new business during a gloomy economy. "Things are still tough out there. We used to have 12 months of customer purchases at Avcom [Technologies], but in the last two years, it's been down to eight months. But we're starting to see some customer budgets open up a bit this month, so we're encouraged."

Avcom Technologies' closure came as somewhat of a surprise. The Sunnyvale, Calif., business suffered a drastic drop in revenue from 2000, when it pulled in more than $300 million in sales, to 2001, when it managed just $117 million. Nevertheless, Avcom was profitable that year and the company switched from a volume-based server and PC business to a focus on emerging technologies such as storage, security, wireless and disaster recovery while putting a greater emphasis on services to compliment the company's product sales. In addition, the company had sufficient funds to keep it afloat.

Thus, Avcom appeared to have survived the worst of the IT industry downturn. However, the company's business was tied closely to enterprise vendors such as Sun Microsystems and Oracle, both of which have suffered slumping sales and market share losses. Brad Bishop, founder, president and CEO of Avcom, made the decision to close the company down and distribute the remaining assets and equity to Avcom shareholders. "This was a very difficult decision," Bishop said in a press statement. "As far as we know, Avcom is the only large solution provider to hang it up while having substantial positive cash flow."

Wolfe, for one, understands Bishop's decision. "I think Brad just decided to cash in while the company was still in good shape. He'd been doing this for more than 20 years, and I think he just wanted a change of scene," Wolfe says.

When Avcom Technologies shut down, it released a statement citing a number of factors: depressed demand for high-end solutions, over-distribution of products and falling margins. Avcom also fired a parting shot at some of its partners, stating that "vendors' failure to value and reward the high investments required to be a successful VAR" was a crucial reason Avcom could not continue its operations.

"The value of Avcom's engineering, architectural, sales, ERP/SFA and marketing talents is not protected enough by the vendor community, which thrives off Avcom's efforts. Until the IT marketplace matures to a point where the ill ways of the channel are repaired and those systems integrators who create incremental IT solutions are sufficiently rewarded for their investments of sweat and equity, the road ahead will be paved with minimal, if any, ROB [Return on Brand]," the company statement read.

Although AvcomEast is aligned with the same vendor partners as its predecessor, Wolfe isn't worried. Despite some of the channel troubles Sun has experienced lately, for example, Wolfe argues that computer maker has made big changes to improve its channel business. "I think Gary Grimes [Sun vice president of U.S. partner sales and management] has done a great job with partners. Sun has really building a better channel business this year," Wolfe says. "They're listening to their partner advisory councils now, and they're putting a lot of effort into helping us add value to their products."

As for AvcomEast, Wolfe says he intends to keep the business lean and tightly focused for the foreseeable future. "I sounds unbelievable, but there's no better time to do this," Wolfe says. "There's a lot of opportunity in the midtier solution provider market. How could we do anything but start our own business?"