Economic Ascent

After all, last month Federal Reserve chairman Alan Greenspan went before the Senate Committee and stated that "recent evidence increasingly suggests that an economic expansion is already well under way."

Greenspan isn't the only one who thinks so. Joe Popper, president of Computer Gallery, a systems integration firm in Palm Springs, Calif., believes the first signs of recovery in the technology sector came as early as last June or July, but were stalled by the terrorist attacks on Sept. 11. His

theory is that after two years of very little spending in the IT sector, pent-up demand exists because people haven't spent major money on their technology needs.

"I think we were out of [the recession months ago. We were told about a recession that began in March 2001 in November 2001. So we will not know empirically [that the market has returned until the middle of 2002," adds GartnerG2 research fellow Ken McGee. "We are passionate about the need to upgrade companies so they can have real-time reporting of financial activity and performance, rather than waiting eight months after the recession is declared over to try to get behind the eight ball."

Surviving Today

Whatever the state of the recession, it's important for solution providers to balance future growth plans with the current environment.

Companies that did a good job of identifying the downward shift in the market and brought expenses back in line quickly are still around, says Dave Sperry, CEO of MicroMenders, an IT solution provider. Keep in mind, he points out, that any given shift varies in timing, strength and recovery from industry to industry, as well as geographically. MicroMenders, for example, is based in Silicon Valley, where the economic downturn was much more pronounced given the high volume of technology companies there.

"Undoubtedly, New York took a huge hit as well," Sperry says. "I know through meetings with people from different areas that everyone felt [the recession,just in different degrees."

Companies such as Intrinsic Technologies, based in Lisle, Ill., are doing better than merely surviving. While executives at the 5-year-old systems-management company don't assume past success is any indication of future opportunity, they say if you have the resources in a downturned economy, you should position yourself as a predator, rather than a survivor. Last year, Intrinsic saw its revenue grow by more than 40 percent. According to Mike Gersten, a founder and managing partner at Intrinsic, the company's managers recently sat down to figure out why they saw that growth and what they can do this year to sustain it.

"We saw an awful lot of attrition with our competitors, which meant market opportunity for us," Gersten says. "And it also meant that even though the market was smaller, if you have a larger share when it does turn back around, you're guaranteed to be well-positioned to pick up that opportunity."

GartnerG2's McGee says Intrinsic's aggressive strategy is a wise move. "Most of the recessions and depressions that this country has experienced have occurred when we have either been primarily agricultural or industrial. Since the mid-'80s, we have primarily been a services-based economy," he says. "It is silly for people to use strategies to offset the effects of a recession when those strategies were born in the days when industry was our primary economic driver. A services-based economy really requires brand-new thinking."

Examine Business Practices

A steadfast focus on business fundamentals is also key to riding an economic upswing.

"People without financial depth struggle through tough times," Computer Gallery's Popper says. "Often they are marginal prior to an economic downturn, and that could be a result of improper business practices.The companies with real business plans based on real revenue and profits are still in the game," he says. "Even if they struggled, they can view this as a bad year, and next year will be better."

More specifically, solution providers need to have the right cost controls and management in place. "This is a block-and-tackle business," Popper says. "Companies need to have strategic planning sessions, look at their balances and fix what's wrong because there is no magic bullet."

Gersten and the three other founding partners of Intrinsic, for example, recently locked themselves in a hotel room in Las Vegas for three 14-hour days, reviewing their company's vision with a hired consultant to make sure it was clean, consistent and on track.

"I think it's pretty simple," Gersten says. "Practice sound business practices,no different than if you were a kid with a lemonade stand. Make sure you are bringing in more than you put out. And add value to your customers. You have to have the best lemonade on the corner. Do that and you'll be successful in any economy."

Reinvent Yourself

Now is also the time to think about refocusing part or all of your business on areas that can provide more opportunity when the economy rebounds. Oli Thordarson, president of professional services firm Alvaka Networks, based in Huntington Beach, Calif., says many solution providers are examining their balance sheets. "Some are getting rid of what a lot of people call 'B' customers. They are often not the preponderance of your revenue, yet account for a significant part of your cost structure," he says. "They distract you from focusing value on the 'A' customers,your key demographic customers."

For example, while Intrinsic usually generates consistent revenue with enterprise customers, the company determined it could still pick up a lot of business in the midmarket arena.

"We added a whole branch of sales effort geared toward attacking the midmarket," says Gersten, who believes that midmarket customers will spend money on IT more readily than their larger counterparts as the economy recovers. "We see a significant amount of opportunity there because their budget cycles move a little quicker than our enterprise customers%85Our instinct is to go after the midmarket while the money is hot."

Connect With Customers

Technology solutions firm Digitas, based in Boston, turns to customers to help shape its future work goals, using their needs and concerns as a framework for solutions.

"We have worked very hard with our clients to assess what their technology needs are for the future," says chief marketing officer David Edelman, adding that Digitas has seen a big surge in technology strategy projects from their clients, who are reassessing the investments they need to make going forward. "They're enlisting us because we know from an impact perspective what they need to help them sort through what they should be building."

Many solution providers are also taking the time to find out from their customers what types of new services they're really going to be willing to pay for, says Dan Atkinson, executive vice president of DirectPointe, a Lindon, Utah-based managed computing service firm for SMBs.

"There's a much stronger focus on people saying, 'What would you like to see' as opposed to buying or implementing infrastructure with the assumption that if they build it, they will be able to go out and get those customers," he says.

In addition, being closer to clients is especially important in today's marketplace,a sharp contrast to when customers were constantly calling on solution providers for the latest and greatest products. Now, solution providers are increasingly finding themselves in the position of finding clients and creating long-term strategic relationships with them. Alvaka's Thordarson says the solution providers he talks to are focused on grassroot, hard-core, pragmatic business-development practices. A large part of that is strengthening relationships with existing clients.

"They have business-development people calling on existing customers to try and revitalize business," Thordarson says. "[They're making real grassroot efforts to go out and get new business with what they perceive as orphaned end-user companies, [whose current provider has gone out of business or is financially unable to meet their needs after the past year or two."

Unlike years past, there's no room for flashy marketing or advertising budgets. More emphasis is being placed on the basics, such as phone calls and face-to-face visits to get a better feel for the opportunities, Thordarson adds.

Expand Wisely

Granted, many companies have had layoffs, office closings and budget cuts. Digitas, for one, cut nearly $100 million in overhead. But at the same time, it gained market share and is now looking to expand through partnerships. "We've always grown organically, but partnerships are a very important part of our strategy going forward," Edelman says.

The company is in the process of making strategic hires, with talent coming from Sapient, Scient and Context Integration. Unlike e-services firms that used to hire busloads of new recruits just to meet vague expectations for growth, the difference here is the company says it's only bringing in the people whose skills fit a specific need. Intrinsic has also jumped on the expansion bandwagon. According to Gersten, the company's philosophy is simple: More is preferred to less.

"We want to continue a high level of growth, and one way is through geographic expansion," he says. "But it will be a slow, methodical growth." n