Nice Niches

Back in the early 1990s, ConTech President Robert Foley observed that more and more of his customers were using laptops. But few had a formal way of upgrading or keeping track of them.

Products existed for systems management, but Foley says they were limited to managing systems within a LAN, not remote users logging on to a network from off-site. ConTech, a Carmel, Ind.-based solution provider that already sold products addressing the specific needs of laptop users, saw a niche that wasn't being filled.

"[Mobile users'] needs were going beyond just moving data back and forth; they were deploying ever-more sophisticated computers, using more sophisticated applications, and, as a result, needed better tools," says Foley.

So ConTech worked with Computer Associates to build a product and service based on CA's Unicenter TNG, one that extends Unicenter TNG's systems management capabilities beyond a customer's LAN to its remote users.

ConTech has reaped rewards for being a niche expert, Foley says. ConTech's revenue jumped to $7 million last year from about $3 million in 1997, he says.

While being a generalist may be profitable in the short term, many solution providers say it's better to specialize than be a jack-of-all-trades and master of none.

ConTech has been able to resist the sometimes tempting lure of straying outside its expertise, Foley says.

"There were times, early on, when it was harder [to resist] than it is now," he says. "Somebody says, 'I want to buy your product, and oh, by the way, why don't you sell me 20 servers?' At the time, you're thinking to yourself, 'Twenty times X is Y amount of money. Why don't I do it?' But it would have diluted our focus on doing what we do well. And the reason that we can point with pride to some very large accounts that we've served over the years is because of our focus on this niche."

SBI is another solution provider content to concentrate on a specific vertical: manufacturing.

Coleman Barney, SBI cofounder and managing director of its Net Markets delivery group, says the Salt Lake City company has been profitable since 1998, in the second quarter of its existence. Despite 2000 being "the year for investment," SBI stuck to its goal of remaining profitable, he says.

"We've said business-to-business is where we want to be, manufacturing is the niche we want to target, and profitability and the fundamentals of running a business have been our goal," Barney says.

SBI has about 425 employees; slightly fewer than 400 are billable contractors. Focusing on manufacturing simply made sense to the company, Barney says.

"What we decided we wanted to do was focus on the largest segment of the Gross National Product, and that falls within the verticals of manufacturing," he says. "The largest budget figures that are spent on IT consultants and IT services are in the manufacturing verticals. The largest increase that was projected was, again, in the manufacturing verticals."

But Barney cautions solution providers to assess the risks before making a commitment to a particular vertical market. In SBI's case, there was the very real fact that manufacturers have historically adopted technology at a slower pace than other sectors.

"The only downside to [choosing that vertical] was that manufacturers were never known to be early adopters or leaders when it comes to implementing technology," Barney says. "What that said to us is they will be doing it, but they'll probably be doing it a little bit behind some of these other verticals. But that's OK."

As SBI encouraged more of its 100 customers to come on board, the company grew. SBI produced about $26 million in revenue in 1998, its first full year of business. By 2000, its revenue reached approximately $65 million, Barney says.

SBI's advantage over competitors is twofold, Barney says. One part of the equation is the company's expertise with products that support mission-critical functions such as finance, inventory, distribution and logistics. Combine that with many employees who have worked on a shop floor and understand how to build an efficient delivery system so a plant's capacity can fulfill its customers' needs, and SBI has an advantage when it comes to attracting and retaining customers, Barney says.

"It's a lot tougher for customers to replace you with either their internal people or with some consultant group," he says.

'YOUR REPUTATION STARTS TO PRECEDE YOU, SO YOU'RE BROUGHT INTO OPPORTUNITIES' DAN KELLIHER, VP OF SALES, PARAGON

Paragon Development Systems, Oconomowoc, Wis., is one solution provider capitalizing on the health-care industry's appetite for IT. Dan Kelliher, vice president of sales, says Paragon morphed from a chip distributor to a solution provider in 1990 to survive, because its core reseller customers were rapidly disappearing.

"We needed to find a different customer to be working with," Kelliher says. "That's really where we identified that all these values we had created for the resellers really translated very efficiently to the IS or IT department of those end users [the resellers] had previously served."

Paragon's specialization has been good for the company, he says. The solution provider reported $62.5 million in revenue last year, up from $22 million in 1997.

Having sales representatives who understand the verticals they're selling into makes a difference, Kelliher says, because they encounter the same arguments and questions again and again and can develop effective responses. Paragon also found that focusing on a niche can actually be more profitable, because sales cycles are shorter. If a solution provider does its job right, just about every customer can become a reference account, he says.

"Your reputation starts to precede you, so you're brought into opportunities, as opposed to always needing to bid on opportunities or propose opportunities," Kelliher says. "You're actually invited to the dance more on the front end, as opposed to just being one of the respondents on the tail end of an opportunity."

One of Paragon's signature products is Rack N Roll, computers shipped shock-mounted and shrink-wrapped on mobile deployment racks.

Besides the health-care sector, which Paragon serves nationally, it also targets other vertical markets locally, including government and higher education. Paragon's biggest contract was between $4 million and $5 million for the state of Wisconsin, Kelliher says. He says Rack N Roll appeals to customers in these niches because, like their counterparts in health care, government agencies often have limited IT budgets and staff.

Kelliher echoes Barney's comments about how tunnel vision actually can be a sound business strategy for a solution provider.

"We want to be seen as part of the solution,not just a source of product but actually somebody who can, in a meaningful way, help impact [the customers'] lives and how they go about their business," he says. "The only way that you do that is by getting a more detailed understanding of what they deal with day in and day out."