Stress Busters

If the primary market you serve dries up and all your customers are having problems, you're ultimately going to have problems too," warns marketing consultant Gene Bledsoe, a partner at Dallas-based Casal Group, a full-service, integrated marketing agency that focuses on IT companies. "There's no way I know of to get around it."

But even though you'll inevitably feel your customers' pain, Bledsoe and others say you can do a lot more to improve your chances of survival than simply assuming the crash position.

"Don't panic,that's rule No. 1," says Ralph Armijo, president and CEO of Navidec, an e-business solution provider based in Greenwood Village, Colo., that targets the financial markets. "Understand your business objectives and run your business accordingly."

If you start managing according to market squalls rather than business fundamentals, you'll make a bad situation much worse, he warns.

When panic sets in, remember: Businesses are continuing to spend money on IT, even though the pace of their spending has slowed and their spending decisions are much more deliberate. According to VARBusiness' IT Spending & Strategy survey data, a majority of end users (52 percent) expect their competitors to increase general IT spending within the next 12 months.

The same study reports that if end users' sales decline significantly, nearly half of the respondents say they would not change their IT spending investment (48 percent). Roughly one-third (34 percent) say they would reduce their IT spending, and 12 percent say they would actually increase their spending investment in the face of declining sales. Users who say they would not change their IT spending tend to have annual sales of less than $10 million and are more likely to be private than public.

So, even though many vertical markets are suffering sales declines, businesses are continuing to spend money on IT. Solution providers can stay afloat if they stay calm and pay attention to some fundamentals.

If you are witnessing a sales decline in your vertical markets, follow these 10 survival tips to help keep your business above water.

1. Stick to the markets you know. In a down economy, it's too late to diversify into new verticals.

"Opening up new markets is expensive and requires a lot of concentrated efforts that are going to be less fruitful than selling back into your established market," Bledsoe says. "Don't go looking on the other side of the fence,the grass is probably just as brown over there."

2. Decide on your core businesses. Navidec, for example, provides e-business solutions for the financial services market and within that vertical focuses on three applications areas: e-business management essentials, CRM and e-commerce management. Armijo's management team is reorganizing to focus even more sharply on those three areas.

3. Focus on your established customer base. "As difficult as things may get for any organization, probably one of the most valuable assets they have is their customers, so you really need to focus on keeping your current customers," Armijo says. "It's much more expensive to get new ones."

In order to retain strong relationships with your current customer base, Stephen Lane, Boston-based Aberdeen Group's research director for professional services, suggests that solution providers make a conscious effort to focus on customer satisfaction. Aberdeen's research on the Big Five accounting/consulting companies, for example, shows "that just about all of them had corporate-level positions independent of all other business units that owned responsibility for customer satisfaction," Lane says. "The services business is all about protecting your installed base, then making sure you're doing quality work,setting your customers' expectations and meeting them."

4. Maintain close relationships with your current customers. The more you know your customers, the more you can maximize your chances of survival. A valuable marketing strategy in a tough economy, for example, is to "go after people who you know have cash," advises John Gantz, chief research officer at International Data Corp., Framingham, Mass. But you won't know a customer's true financial situation if you don't stay in close contact. And when your customers downsize, try to stay in touch with their changing organizational structures. As Gantz points out, reorganization can "screw up the decision-making process,the person who was just about to sign off on a contract can be transferred or laid off."

5. Use a consultative selling strategy. In a down economy, the proposals that sell are those that "show how advanced technology can drive the underlying business," says Frank Settle, vice president for integrated strategy in Sapient's Energy Services business unit, based in Cambridge, Mass. "No more bluebirds are flying around in terms of people who want to build something but don't know why," he says. "It's a consultative sales process, and that's one thing Sapient is investing in."

6. Demonstrate that your solutions will help your customers be more competitive. "Working with the [customer] base to understand the challenges of the downturn and how it affects them can create opportunities for software development or technology deployment to help hold down costs and weather the storm," says David Condra, chairman of Dalcon Business Systems, a Nashville, Tenn.-based VAR specializing in hard-goods wholesale distributors.

Dalcon, for example, helped an electric motor distributor centralize its remote branches via a WAN so it could reduce staff at its branches. Sapient's Settle thinks solution providers should go a step further. Instead of simply showing clients how they can cut costs a few percentage points, they should show them how to actually create value by re-engineering processes.

7. Look for opportunities for predictable revenue. If your business depends on selling new technology projects, and your customers are postponing those projects, your cash flow will suffer. One way to compensate is to move toward maintenance of existing technology rather than exclusive reliance on new projects for your revenue stream.

"Traditionally, integrators have been in the plan, [and they] design and build business," Aberdeen's Lane points out. "But in the past few months, a lot of integrators also have been trying to get into the management phase of the IT lifecycle."

Lane warns that it isn't easy to become an outsourcer,many companies that have tried to deliver on service-level agreements have "failed miserably," he says. "But the companies that are able to deliver effectively on the entire technology lifecycle end up owning the client relationship as long as they keep their clients happy."

8. Retain and enhance your expertise in the vertical. Coleman Barney, co-founder of SBI, a Salt Lake City-based e-business service provider that Web-enables manufacturing companies, says his company is maintaining its focus on manufacturing solutions rather than commodity sales, like putting PCs on desktops.

"Our people are much more oriented toward the business processes of the company and issues like how we can improve the way they track material on the shop floor," he says.

The typical SBI consultant has 15 years of experience, Barney says, including experience in manufacturing. "Don't ever abandon your vertical," he advises. "If you've got the expertise, more than likely your vertical will come back, and your vertical expertise is what will differentiate you."

9. Maintain your R&D effort. If you're in the IT business, you obviously have to stay abreast of current developments. Like most solution providers, Navidec has recently laid off employees, but it's maintaining its status as a strong Java development center, Armijo says, and it's also exploring wireless solutions.

"You have to manage R&D more effectively, but you can't cut it out," Armijo advises. Dalcon's Condra adds that a slack period "can be a good time to do research and development for product enhancement or diversification, assuming you have the cash reserves."

10. Cut anything that's not essential to your core business. "You cut fat, then you cut muscle, and you try to cut bone as little as possible," Bledsoe says. "Try to start with things like travel that don't involve [losing] people. And it pains me [as a marketing consultant] to say this, but you can probably cut marketing. If you're communicating with existing customers, you can do that more cheaply with letters and so forth than when you're opening new markets and need the prestige of six-color brochures."

The core of any IT solution provider is its technical expertise. Cutting the people responsible for that expertise can be a form of business suicide.

"The biggest mistake is to let loose the people who have the deep industry expertise and the deep technical expertise to do heavy-duty integration," Sapient's Settle warns.

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