How To Turn Business Epiphanies Into Cash

How many times have you had a great idea at 2 a.m. only to realize later on in the day that you didn't have the funds, the manpoweror the guts to pull it off? Whether it's realizing your dream company, trying to extricate yourself from a deleterious relationship with a vendor or climbing your way back from Chapter 11, the executives you're going to meet, each with a different business model, believed in their ideas enough to implement a successful strategy that helped their businesses make it.

Facing Vendor Reality
About six months ago, Tim Burke, president and CEO of Sacramento, Calif.-based Quest Media & Supplies, a privately held solution provider that posts roughly $80 million in annual sales, realized that for all his business acumen, he was nave. "I had this epiphany—the idea that I'm important to the manufacturer goes only so far as it benefits the manufacturer. You get schmoozed," he says, somewhat surprised.

The realization, he says, was driven home in the past few months when Cisco befriended his competitors because of their relationships with Okena, a Waltham, Mass.-based network security software provider that Cisco purchased last year. "These guys will bring them into accounts Cisco hasn't been in," Burke says. The hard lesson learned by Burke—and one he eventually plans to take to the bank—is that he had to rethink his relationships with his vendor partners and, in turn, realize what kinds of customers he really wants to cultivate.

"Cisco wants me to be their feet on the street, but I've come to realize that's not the place I want to be," he says. "My strategies have changed in terms of the engagements I want to be involved in...I need to be a trusted adviser to my customers, and I have to learn which customers will let me do that."

In a way, Burke is ranking his customers—if he's just a delivery guy for the customer, then the customer has less value. Burke says he wants his clients to work through him to implement the solution; he isn't interested in just three points on hardware anymore. Burke advises other VARs to look to the major players for inspiration.

"I don't care about Sun's strategy. I'm a Sun reseller. If it fits my client's requirements, that's good, but I'm not going to be an extension of their sales force," he says, with a strong sense of conviction. "What I've come to realize is that Sun's biggest resellers—EDS, IGS, Accenture—are all running their own strategies. They had all this figured out six years ago. A lot of the other VARs need to look at them. These are pretty good models in terms of how they go to market."

With his new emphasis on total solutions for customers that seek them, Burke anticipates Quest Media & Supplies will grow between 12 percent and 14 percent in gross revenue this year. Not a bad increase.

A Middleman For The Middleman
The eureka moment for Paul Freeman, now president of Coast Solutions Group (CSG), came about two years ago when he was managing the professional-services division of Coast Technologies. He had been arranging subservice deals "so we wouldn't have to hire $80,000 engineers," and it dawned on him that, after one year of operation, 50 percent of the projects in the company's pipeline were coming from solution providers asking the company for resources they didn't have.

From then on it was a no-brainer. Last October, he and partner Stuart Flamm spun CSG into its own entity. In a way, the company is like a matchmaker—facilitating relationships between VARs with service-delivery capacities and those who need them. And who are these customers? Freeman has divided them into three distinct classifications: service providers who are seeking a partner, manufacturers or distributors looking for service delivery, and nonservice providers (such as consultants and hardware resellers) who, starting in January, can participate in a fee-based program that will hook them up with service providers.

The difference between CSG and other partner-services networks, and the one Freeman says will boost his company to about $6 million in sales for its fiscal year ended Sept. 30, is that CSG provides presales technical support, project scoping, engagement management and a menu of standardized service offerings—all at no additional charge to its customers. In addition, the company offers solution-sales training and project-management certification to those who request it.

Customers pay the same price for services, with CSG negotiating rates with its suppliers and taking a markup for value-adds. Currently, the group has 50 partners in 10 markets and is looking to add more. "We are cherry-picking the best [from] each geography," Freeman tells VARBusiness. By the end of the year, he hopes to have 150 partners signed up, with 500 affiliated partners. "We're building our network from the top down," he says.

Strength In Numbers
Pete Stevenson, CEO of New York-based Globix, a managed-apps and hosting services provider, had a different type of problem—building his company from the bottom up. A little more than two years ago, his company was fighting back from a Chapter 11 scenario, and Stevenson decided that the smart move was to seek a strategic fit to build his company: a merger candidate that offered complementary products and services to compete in a dog-eat-dog market.

Globix shareholders started talking about the possibilities to the shareholders of Neon, a Westborough, Mass.-based company similar to Globix and with its own custom private optical network-solutions division. The deal made sense: It provided the company the added muscle it needed and tacked on new services, allowing it to better compete.

Creating the $100 million company (Neon posted just shy of $42 million in annual sales last year) is an exciting and challenging strategy move for Stevenson and his company. While the synergies are obvious, the deal comes burdened with debt—Globix will have to pay off $60 million in debt in three years. But Stevenson says he isn't worried about it.

"We believe we can increase our cash flow because of cost savings after we combine the companies, and because our profitable businesses will allow us to invest without raising additional capital," he says. "Right now, we have $23 million cash on hand."

In Black And White
Sometimes, the answer is staring you right in the face—and you just have to pounce on it. Bill Duffy and Heather Davisson struggled a few years ago with their Opus-I startup, created to provide the SMB market with e-mail systems. Then one morning, Davisson read in The Wall Street Journal that the SEC had levied fines of more than $8 million on five banks for not archiving their e-mail, and, suffice to say, that little light went on. The duo decided to create a fully compliant, outsourced solution that it was convinced would reduce implementation time for clients from months to days. Restructuring the firm took roughly a year, Davisson says, adding that they developed strong partnerships with Microsoft and EMC, companies eager to tap into the SMB space.

And while the two were relaunching the company, they figured they may as well rename it. So last fall, Opus-I became FivePoints Compliance, after the five points needed for compliance. The New York-based firm now boasts more clients this year than in the past four years combined, they say.

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