Nth Generation Eyes Services Acquisition To Fuel Next Growth Phase

Solution provider Nth Generation Computing, which has grown to become a $40-million company on the strength of its hardware sales, is now looking to acquire a peer with services expertise to fuel its next phase of growth.

Nth has done well with its HP-centric and VMware-centric server, storage, and virtualization business, but it needs to look to services as its new focus going forward, said Mark Gonzalez, president of the San Diego-based solution provider.

Profitable growth in 2011 will require Nth to move from being a product-led to a services-led company, a big change for a $40 million company for whom services accounted for only about 5 percent of revenue, Gonzalez said.

"Today, I see customers talk to Accenture about services, and talk to us about hardware," he said. "We want to be in there with the customer earlier, be part of the consulting stage. We have to change our sales force and who they are talking to."

Nth started girding itself for such a change back in October of 2008 when it hired Gonzalez as president. Prior to Nth, Gonzalez was a 25-year veteran of HP, Compaq and Digital Electronics Corp. (DEC), and last served as HP's vice president of storage and server sales, where he managed a $7.5 billion product portfolio.

The company about 18 months ago also hired its first CFO, Jon Rodriguez, an executive with experience in acquisitions, Gonzalez said.

Gonzalez, who worked with Nth for years while at HP and who is a long-time personal friend of Rich Baldwin, founder and CEO of Nth, said that one of his primary tasks when moving to Nth was to set the company's long-term strategy.

That strategy is now settled on growing the solution provider's services business through acquisition, he said.

Nth's tiny services revenue is now focused mainly on implementation and assessment, Gonzalez said. But going into 2011, the company wants expand into more high-value services, including cloud migration, managed services, staff augmentation, and selling vendor maintenance services.

With vendor maintenance services, Nth wants to be the first customer call for its primary vendor partners, Gonzalez said. "If things go bump in the dark, we will escalate it for the customer," he said. "No more questions like, is it the storage or is it the VMware."

Next: Services With An HP Focus

A big part of that services plan is related to Nth's partnership with HP, which accounted for about 74 percent of its business in 2010.

Gonzalez said Nth is looking to add more focus on HP's business technology optimization (BTO) services, where services revenue can be ten times higher than software license sales, he said. "This is no commodity play," he said.

Nth is also looking at expanding into the managed print services business. "That's low-hanging fruit in our accounts," Gonzalez said. "HP is now in many of our accounts doing managed print services, but we're going in with HP 's blessing. It's hard to get a customer to argue if we can show a 28-percent reduction in their cost of printing."

To build that services business quickly, Nth has engaged a third-party organization to help it find likely acquisition targets in the southern California counties of Orange and Los Angeles, which is where the bulk of Nth's customer base is located.

The ideal candidate is a company that has been successful in offering services, but which needs the strength of a larger company in order to grow, he said.

Above all else, Nth is looking for the right cultural fit, Gonzalez said. "The number one reason acquisitions fail is because the cultures don't fit with each other, causing people to bail out," he said.

In the meantime, Nth is also hiring to grow its business organically.

Nth needs people to help take advantage of HP's growing networking business, to help grow Nth's California state business, and to go after federal government spending in the San Diego area, where the U.S. Navy maintains a huge presence.

Gonzalez said Nth is especially looking for aggressive sales people, but that it is hard to find the right people. "I have interviewed 231 people in the last two years for sales, and I've hired eight," he said. "We're a small company. We have to be selective."