How To Manage Growth

It may sound crazy, but massive revenue growth can sometimes be bad for many VARs. The sales increases themselves aren't the problem. After all, making more money is the name of the game. But growth can sometimes quickly spiral out of control, especially if solution providers can't maintain it at a profit. Sudden, high double-digit revenue growth can sometimes also lead to unwise investments, too much infrastructure, overexpansion, and either a lack of skilled employees or even too many.

The best way to avoid such issues? Plan ahead. Successful solution providers devise a blueprint for managing their revenue growth to avoid common pitfalls. Too much of a good thing can indeed be bad, especially if you're not prepared. The following are some best practices from two Fast 50 solution providers from this year's VARBusiness 500 list.

Making the Right Rapid Hires

Quite bluntly, Kevin Powderly, president of CyberCore Technologies, says his company simply can't slow down. The government-focused solution provider experienced a 119 percent surge in sales for 2004, making CyberCore the third-fastest-growing company on the VAR500 list this year. Powderly says CyberCore, in Timonium, Md., has benefited from being in the right place at the right time, fulfilling the federal government's need for IT solutions as such agencies as the Department of Homeland Security have taken off.

"I never would have believed that after four-and-a-half years, we'd be a $122 million company," Powderly says, "and a well-run company, too."

As the company grew, however, Powderly knew CyberCore would need more help. His biggest concern was finding talented, skilled people in both sales and engineering, which Powderly says is still challenging today, even with the amount of displaced IT people that have been laid off since 2001. It's also difficult to find people with experience in the specialized federal-government market. So, how does Powderly get new hires who know the difference between the GSA and the FDA? He starts the hunt well in advance.

"A lot of VARs aren't ready for big growth when it comes, so they don't know where to find people on short notice when it hits," Powderly says. "So, we interview like crazy, even when we don't need people immediately. That allowed us to hire new people pretty rapidly, so we were able to keep up with the pace of the growth pretty well."

CyberCore places a strong emphasis on its human-resources department and devotes a significant amount of resources to building a strong pipeline of potential candidates for sales, engineering and consulting positions. Even after hiring qualified people to fill out the company's expanding business, Powderly says he remained cautious.

"We try to stick with what we were good at," he says. "We're able to take on some larger government contracts now, but we have had some potential contracts that were just too big for us to manage."

Thus, CyberCore has been able to avoid falling into situations like EDS' mega Navy-Marine Corps Intranet contract, where the cost of providing the services and technology became greater than the money to be made. To take on large contracts, CyberCore often partners with larger integrators and sometimes competitors, such as Computer Sciences Corp. For example, the two companies recently teamed for a one-year contract with the federal government's Counterintelligence Field Activity (CIFA) Group to provide supply-chain management and logistical services.

Walking the Walk...Away

John Marks believes that VARs sometimes need to walk the walk, as in "walk away." The president of JDM Infrastructure (JDMI), headquartered in Rosemont, Ill., knows about big revenue growth. After all, Marks worked at MPK Computing, the company that would eventually become CDW. After launching JDMI in 2001, the company, which specializes in hardware reselling, has experienced explosive growth, including a 70 percent increase in sales for 2004. Marks believes in practicing profitable revenue growth, even when a solution provider such as JDMI is generating cash hand over fist.

"You can't sell a bunch of products with no profit margin just to say you scored a big sale," Marks says. "If you make a deal like that, then there has to be a real good strategic reason for it. And usually, there isn't."

In essence, Marks believes one of the keys to managing torrid growth is resisting temptation.

"We pass on a lot of deals if there's no strategic reason to take them on at the low profit margins they offer," he says. "They can be big deals with big potential clients, but you have to be able to say no if they're going to cost you profits."

There are other temptations that can suck the profit out of a VAR besides big customer deals with little to no margins. Fast-growing companies sometimes have the urge to upgrade their facilities and offices, which can be a bad idea, according to Marks. For example, VARs can sometimes find themselves stuck in cumbersome, long-term real-estate leases that remain with companies long after their sales cool off.

"I try to stay away from five-year leases for offices and headquarter buildings because they just don't make sense," he says. "I look for two-year deals at the maximum. I stay away from long-term leases that can put me out of business."

Another pitfall Marks sees some VARs make is overextension, which can happen by adding a new business practice at the behest of a vendor partner. It's another temptation, especially when vendors pledge their support.

"Changing your business model to appease a vendor is a bad idea. You can get overextended very quickly," Marks says.

But even though entering a market with a vendor's support may seem like it would be a lucrative proposition, solution providers need to be careful before jumping in. For one, VARs shouldn't stray too far from their core competencies. And, second, starting a new practice can be an expensive investment. Like CyberCore, JDMI prefers to partner with another solution provider or even a vendor to get a sense of a new market.

"You can find yourself in a situation where you've hired someone for $100,000, but they're only making $50,000 in sales," Marks says. "If you see opportunities to expand to new areas, the best way to test the waters is to partner with someone in that market first."

Do's And Don'ts of Revenue Growth

Tips on managing growth from solution providers of all sizes

1 Do remember ROI: Reinvest revenue gains in smart areas that will pay off, such as technical education, certification and sales training.

2 Don't Be Vain: Leave the new high-rent office space and expensive furnishings to Madison Avenue. Don't waste profits on luxuries.

3 Do smart Marketing: Advertising is the first expense to go when money is tight, and the first thing that comes back with booming sales. Be smart with marketing budgets and focus on creative ways to increase your own brand.

4 Don't get lazy: Even if you're posting double-digit sales growth, you still need to stay picky. Find the right clients instead of taking on problematic contracts.

5 Don't get into Bad Debt: VARs sometimes take out big loans during growth spurts to help extend their infrastructures and finance acquisitions and mergers. But too much debt can put a VAR out of business very quickly.

Tweet

   

More Channel Programs