What Keeps VARBusiness 500 CEOs Up At Night

Channel consolidation and private equity funding. Staffing and the youth movement. Top line and bottom line growth. The competition.

These are among the issues that keep top executives in the VARBusiness 500's elite up at night. Three of those CEOs shared their insights on the state of the solution provider market during a panel discussion kicking off the 2007 VARBusiness 500 event in New York on Monday.

Jere Brown, CEO of Americas for Dimension Data (No. 30 on the VARBusiness 500), says that he is getting three to five calls per week from other solution providers trying to sell their businesses. The flow of private equity into the market and ongoing consolidation are shaping up to shift the industry, he said.

"I'm really interested to see how these companies handle [private investment and consolidation]," Brown said. "I'm curious to see who the outflow of these investments is and how the various business change."

VARBusiness 500 CEO Roundtable: (l-r) Dimension Data's Brown, Groupware's Thompson and MSI's Simpson.

Likewise, Jim Simpson, president and CEO of MSI Systems Integrators (No. 143) in Omaha, Neb., said he's also fielding a growing number of inquiries from potential buyers or sellers, including calls from a raft of "nontraditional" investors from outside the IT industry. One of his main concerns -- one that was echoed across the panel -- is how the need for cash to keep up with growth makes private equity appear pretty tempting.

"You can grow out of your skin run out of cash," Simpson said. "You can have double-digit growth for years, but at some point you have to ask if you have the cash to continue that growth or instead take advantage of what's out there to invest in you."

Growth is a major topic among solution providers CEOs. Mike Thompson, CEO of Groupware Technology (No. 320) enjoyed 91 percent growth to $59 million in 2006. So far, Thompson has kept investment organic and not sought outside funding, but it's something that he acknowledged he might have to consider down the line.

One of the consequences of growth is the need to ramp up staffing on both the sales and technical side, a daunting challenge to many solution provider firms that are finding it difficult to hire and retain highly skilled workers who are up on today's leading technologies.

The CEOs on the panel said they are turning to universities to find employees and taking advantage of vendor programs from the likes of IBM, Cisco and others to help with recruitment.

"I think our [vendor] partners play a key role in the recruitment process," Simpson said. "Many times we are competing with them for candidates, so the ability to work closely with these larger organizations is critical"

Interestingly, all three CEOs identified these same vendors -- and those vendors' partners -- as their primary competition in the marketplace. At Dimension Data, that means going up against EDS, IBM, Accenture, BearingPoint and other major system integrators, Brown said.

"The bigger the client the more they want the vendor directly involved in the project," Brown elaborated.

As for Dell's entrance into the channel, the three CEOs seemed nonplussed for the most part, with Simpson going so far as to say his company would never be adding Dell's products to its line card. Thompson was less rigid, but said the low-margins on Dell products make carrying them less attractive.

"We'd need something else around those boxes if we were going to sell them," Thompson said.

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