The New Leaders

Among the firms that populate the recently released 2005 VARBusiness 500, a certain select group are making news with their own creative and distinctive business models.

VARBusiness decided to take a look at five of those companies and analyze how they're rewriting the rules of the game. Whether it's Innovativ's incubator model--which creates new technologies, then spins them off to become the centerpiece of new companies--the aggressive growth-through-acquisition plan of MTM Technologies, or JDMI's market-smart ability to build its own network of service partners, each firm is creating success on its own terms.

Read on and see whether these change-hungry companies are implementing practices that are right for your own company to incorporate.

SYSIX: Recovering From A Surprise Setback

By T. C. Doyle

February 28, 2003 is a day burned in the memory of John A. Sheaffer. If what happened to him on that day ever happens to you, you'll doubtlessly have no trouble remembering the moment, either. Here's why.

Prior to February 2003, Sheaffer's company, Sysix Technologies, competed as a proud HP Gold Partner, supplying PCs and servers to customers throughout the Midwest region. Then, the company had what Sheaffer says amounts to "its legs cut out from underneath it," without any warning or explanation. In a nutshell, Sysix was informed by its single largest vendor partner that it was no longer a valued member of the HP partner community. That's right: Hewlett-Packard fired Sysix as an ally.

Within a month, 60 percent of Sheaffer's business evaporated. Considering that Sysix is ranked No. 359 on the 2005 VARBusiness 500 listing of the largest IT consulting and solution-provider companies in North America, that 60 percent amounted to millions and millions of dollars in lost revenue and opportunity.

That kind of loss has buried more than a few companies. But not Sysix. Instead of folding, the company rallied like no other time in its history. It added new vendors, reconnected with customers, and drew up new plans for growing its business around services.

The date "really serves as my touchstone every year on how far we have come and how much we have evolved as an organization," Sheaffer says. But the evolution wasn't easy. After recovering from the initial shock of losing HP, a company Sysix had counted on for more than a decade, the company was dealt another setback. As if to add insult to injury, HP not only fired Sysix as a partner, but it then went about systematically trying to steal its accounts. But the gambit failed to work in HP's favor. It quickly found out that Sysix's clients were wedded to it and not to HP.

"They're not HP clients; they're my clients. They didn't understand that," Sheaffer adds.

To hold onto them, however, meant Sysix had to make changes. "Our focus had to shift," Sheaffer recalls. Then and there, he decided that services had to take center stage at his company and that vendor influence in his accounts would more strongly be controlled by Sysix than ever before. "The [HP] loss set us back two years in business, but catapulted us forward two years in vision," he says.

Today, Sysix offers bundled solutions around servers and server consolidation, backup and recovery, networks, desktop PCs and business-productivity software. Though headquartered in the Chicago area, the company has a strong presence in the states of New Jersey, Pennsylvania, Wisconsin, Texas, Georgia, Arizona and California.

Ironically, Sysix employs today the same number of people it did when HP pulled the rug from under it: 60. But, Sheaffer points out, it's not the same 60 as before. Fully two-thirds of his workforce had to be replaced to accommodate the shift from an HP-centric product reseller to a multivendor influencer of branded IT solutions.

With a new labor force in place, Sheaffer says his company is more stable and more capable than before. Last year, for example, the company says it added almost three dozen new accounts from key vertical markets, including manufacturing, banking/financial services, health care and the public sector. Sysix also benefited from an exclusive deal that it cut with academic software supplier Datatel. That deal, Sysix says, helped it secure new business from "several new colleges and universities nationwide."

More than anything, the loss of HP as a trusted partner and supplier forced Sysix to be a more versatile company. Although it had some service offerings, the company quickly developed those into competitive offerings as soon as HP severed ties. Likewise, the company expanded its financial lending arm to help customers pay for more advanced and sophisticated solutions.

As he reflects on his company's long, strange trip, Sheaffer notes that one of the best things he did was decide what type of company Sysix wanted to be. It decided that it could not be wedded to any one vendor or customer, could not be dependent on any one service or revenue stream, or committed to any one philosophy that would prevent it from recognizing market shifts occurring around it. Finally, Sheaffer says he now believes that companies have to be willing to turn over their staffs in order to maximize opportunities before them.

"For a lot of people, the biggest problem is identifying an appropriate niche and getting the resources to deliver," Sheaffer says.

Sysix is also a big proponent of partnering where appropriate to land and secure new business. In addition to relationships with Sun, IBM, EMC, Cisco, Oracle, Veritas, F5 and others, Sysix boasts ties to fellow solution providers, including Whittman-Hart, Signature Technology Group and Symmetry.

Not a bad comeback for a company with a date of infamy burned into its consciousness.

Innovativ: Living Up To Its Name

By Luc Hatlestad

In the past few years, many resellers have seen the proportion of their services businesses increase as some types of software and, especially, hardware became commoditized. Components ranging from PCs to network devices are making it increasingly difficult for VARs to turn a profit. At the same time, a demand for value-add services is motivating the channel to think outside the box and come up with unique services that help organizations run their businesses better.

Innovativ (No. 169 on the 2005 VARBusiness 500) is a solution provider that exemplifies this trend. It still sells hardware, and its services revenue is still 20 percent of its overall revenue. But three years ago, the company was 100 percent hardware, and now the services trend has spurred Innovativ to live up to its name by becoming a virtual vendor in its own right. The Edison, N.J.-based company has leveraged its expertise to create a number of branded solutions around technologies, including data warehousing, mobile CRM, mobile computing, mobile personal information management (PIM), video messaging and thin-client computing.

The solutions have done so well for Innovativ that the company has turned them into separate business units. So far, the company's ITVerify data-warehousing solution and its Clique Video Messenger units have done the most to distinguish themselves as separate entities; the others are coming along as well. The result of this transformation? Innovativ's revenue went from about $140 million in 2003 to about $158 million in 2004 and continues to rise.

Innovativ CEO Tony Mellina serves as a sort of umbrella overseer of the different business units. He says the company decided to develop its own solutions a few years ago after being primarily a hardware vendor specializing in Sun and storage. (Innovativ was founded in 1999.) "We were 100 percent hardware from the beginning, but a few years ago, we looked at the markets to see what the future held," he says. "With intellectual property and broadband networking growing by leaps and bounds, we took a closer look at what we needed to do to get into those markets."

He says the conversion wasn't just a matter of capitalizing on hot technologies; the company also wanted to protect itself much like a stock-market investor who doesn't want to put all his eggs in one basket. "We focused on developing the diversity of our revenue, technologies and people," Mellina says.

This process began not with the technology, but with the employees themselves. Of Innovativ's 130 or so employees, about 40 to 45 of them are certified in "various backgrounds," according to Mellina. By seeing what expertise they had and which certifications they could most easily acquire, Innovativ could match people with the technologies that were most ripe for development. "We started making the changes by focusing on our technology people," Mellina says. "The human capital investment we've made over the years has been significant. We particularly made an investment in intellectual property and in teaching our people how to sell our own products."

The ITVerify and Clique Video Messenger solutions are the most notable results of this investment in people. "Both solutions came from the people we hired," Mellina says. "Some of them came from large telecom or data-center backgrounds, so the ITVerify product became a natural outgrowth of their experience, and the Clique Video solution came from the work we'd done around network protocols."

Still, Innovativ's transformation from a hardware reseller to one that develops its own solutions and services wasn't without hurdles. Mellina says it has been difficult to decide what not to do because, at first glance, "everything looked like a revenue opportunity." The company had to prove to the market that it had the capability to migrate from being strictly a hardware reseller to one that had the necessary capabilities to attack the services market. "We focused on making an impact with our existing customers," Mellina says. "When they bought products from us and came back to buy services, we knew we were on the right track."

Interestingly, Mellina says that even with the company's intensified focus on services, he doesn't expect its proportion of services revenue to change very much over time. "Our percentage mix might not change much because people will still be buying hardware," he says. "More people will be required to do installations and services, so our recruitment is increasing. But our profits also are increasing because of the money we can charge for services. So it's more bodies, but more profit as well."

Helio Solutions: Hitting A High Point

By Bob Violino

Helio Solutions is not a company that rests on its laurels. After winning the VARBusiness 500 Newcomer of the Year award last year, it has had perhaps its busiest and most successful year since being founded in 2001.

"This has been another great year of [financial] growth," says Dave Condensa, president and CEO of the Santa Clara, Calif.-based company, which provides IT and data-center solutions. "We had huge goals, and we were right on the mark; we are right where we thought we would come in from a profit perspective. We actually kept margins higher than we expected."

Privately held Helio Solutions, which doubled its revenue in each of its first three years of existence, continued to enjoy significant growth last year. Ranked No. 240 on this year's VARBusiness 500, its sales in 2004 totaled $88.6 million, up 67 percent from $52.9 million in 2003. Condensa says the days of doubling revenue year-over-year may be over now that the company has grown to its present level of revenue, but he expects to see continued strong growth in sales, likely in the 30-percent to 50-percent range, in the coming years.

The company has been able to grow during a period of economic struggle for many systems integrators because of its ability to quickly respond to the changing needs of customers and the market, Condensa says. While other integrators have grown in part through acquisitions, Helio Solutions has had a different philosophy.

"To us, ensuring success [means] being very selective about who we bring into the organization," Condensa says. "It's all about people, reputation and how you provide service to customers. We've put tools in place, such as the [new] accounting systems, that have created efficiencies in the organization and put us on track to continue our growth."

Helio Solutions runs a lean operation with about 60 employees, most of whom are in sales or consulting positions, and that helps contribute to the higher margins. "There are basic business principles you can't deviate from," to be successful in the systems-integration market, he says. "You've got to keep your overhead low and be as efficient as possible. We have very talented employees, but not a huge staff."

Among its 2004 highlights were a move into a new 13,000-square-foot headquarters to house sales, marketing and engineering offices, and the opening of a 25,000-square-foot integration and operations center in nearby San Jose. The center allows Helio to perform customer integrations on a scale 10 times greater than it could before, Condensa says.

The company also rolled out a program, called Architecture Led Investment, in which it sets aside internal funding to drive proof-of-concepts within its customer base. "This provides a huge advantage for our sales team because they can talk about solutions with a customer and say, 'This is my recommendation,'" Condensa says.

In addition, in March, Helio launched a proprietary cost-reduction service called Bones to Budget, which allows companies to turn unused or obsolete computer equipment into incremental budget dollars through upgrade and trade-in programs offered by manufacturers. Through the service, Helio helps identify old and obsolete equipment located in data centers, then inventories and warehouses decommissioned systems.

"Our strategy has always been around asset management--helping companies do more with less and get more out of their existing infrastructure," he says. "With Bones to Budget, we take the pain out of leveraging those [trade-in] programs the manufacturers offer."

These efforts have helped give Helio Solutions "a tremendous amount of traction in the enterprise customer base we serve," Condensa says. "It resonates so well with them and creates a 'stickiness' for us. Customers are coming back to us. We've retained their trust as far as being a partner with them."

The integrator has also garnered trust among its key vendor partners, which include Sun Microsystems, Veritas, BEA Systems, Oracle and StorageTek. The vendors value the emphasis on reliability that end users demand, Condensa says. "Everything any customer buys from us they know has been tested, and everything has been installed right; it's all going to work," he says.

As for the future of the business, Condensa knows there will be challenges as well as opportunities. The economy is still at a point where many companies are holding off on technology upgrades, so winning new clients and convincing existing ones they need an IT refresh will take effort. But based on Helio's success to date, Condensa is optimistic.

"This was a year of major change and growth as we've taken ourselves to the next level," Condensa says. "We founded Helio to make a difference, to change the landscape of the reseller community. We want to raise the bar in value-added service levels for customers and the community, and we're doing that."

JDM Infrastructure:

Going Coast-To-Coast

By Rob Wright

John Marks has a message for fellow VARs who have complained about falling margins in IT hardware: "It's not the margins that have changed," he says. "It's the revenue."

The outspoken, quick-witted chief executive contends he makes the same points on his IT product sales as he did years ago during the boom. While some may scoff at that claim, Marks' company, JDM Infrastructure, has generated the numbers to back it up. The solution provider, headquartered in Rosemont, Ill., grew 100 percent in 2003; last year, just its fourth year in business, JDM Infrastructure (No. 284 on the 2005 VARBusiness 500) increased its sales another 70 percent to reach $68 million. The solution provider has achieved that success by taking a route few, if any, have ventured down since the dot-com bubble burst: high-volume, low-priced hardware sales.

Unlike other solution providers in today's market that have shifted their businesses to higher-margin services, JDM Infrastructure's bread and butter is product sales. It makes sense when you consider Marks' background: He started his career in the mid-1980s with a computer dealer named MPK Computing, which was owned by Michael Krasny (MPK is Krasny's initials). Krasny's company later changed its name to none other than CDW, where Marks worked as a partner for several years. During the 1990s, Marks spent time in executive roles at Elek-Tek and Hartford Computer Group before finally deciding to start his own business in 2001.

The timing, of course, was less than ideal as the economy fell into a recession and pinched IT spending, but that didn't stop Marks from creating JDM Infrastructure. Taking a page from mentor Krasny, Marks named his company after his own initials, emulating the CDW business model. JDM Infrastructure focuses on high-volume IT hardware and software sales for attractive prices, but this time Marks is putting a different spin on the approach. While CDW has little in services to offer, JDM Infrastructure teams up with solution providers via its JDMI Coast to Coast program and hands off the integration and engineering work to them.

"I think there's a compelling argument for VARs to get out of the hardware business," Marks says, "so I tell them to let us do the hardware sales, and they can have the services and get a nice commission, too."

Currently, JDM Infrastructure has a core of a few dozen partners, known as JDMI Affiliates, which the company taps on a regular basis, in addition to the 100-plus solution providers that Marks has used on a one-time basis. Marks says he spends much of his time traveling around the country hunting for prospective new JDMI Affiliates, meeting with solution providers face-to-face before signing them on to Coast to Coast.

"We do a lot of research on our affiliates to make sure they're qualified," Marks says. "We stay in constant contact with our customers to make sure the affiliates are doing the job right."

Leveraging other solution providers is part of JDM Infrastructure's secret. Marks says partnering enables his company to keep its cost structure low and, therefore, offer more competitive product pricing. And with the wide variety of products and vendors offered--JDM Infrastructure sells everything from Hewlett-Packard ProLiant servers to Apple iPods--Marks says his company can offer a range of options and act as a trusted adviser for customers, instead of simply being a fulfillment specialist.

JDM Infrastructure isn't the only company looking to team with other solution providers; Marks' old company, CDW, launched a pilot agent program, dubbed SolutionsEdge, last year. While CDW has faced skepticism from the channel and has achieved limited success, Marks says SolutionsEdge competes directly with Coast to Coast, though he thinks his company has the real edge.

"I think people who do business with CDW recognize the value they bring with logistics and fair pricing, which is always constant," he says. "I think we can perform at the same level in both those areas, but we do the services component and partnering better. We're the safe alternative to CDW for solution providers."

Still, going up against a multibillion-dollar company like CDW won't be easy. But Marks isn't shying away from the challenge, especially since he projects his company to top $100 million in revenue this year. JDM Infrastructure is currently readying a set of new online tools for its affiliates and will soon start a marketing campaign to reach more solution providers in the small and midsize business market.

"It's a team effort, and we work hard at building [the company]," Marks says. "We're always on duty because sometimes it takes a village to get an order out the door."

MTM: Stepping Out Of the Shadows

By Jeffrey Schwartz

As it enters its 20th year in business, MTM Technologies has hardly lit the world on fire. Despite a roster of blue-chip clients that have included the likes of Chase Manhattan Bank, UBS Financial Services and Verizon Communications, the Stamford, Conn.-based VAR has, at times, lived on the edge. Among other things, MTM at least once faced the possibility of being delisted, was almost acquired years back and took its own short-lived stab at providing e-business services during the dot-com boom.

Yet despite its rocky road, MTM has always managed to survive. And now, thanks to the most unlikely of events over the past year, MTM could be poised to thrive. In just 12 months, MTM is in the midst of undergoing an extreme makeover. Flush with cash, thanks to an infusion of venture-capital funding, MTM is now growing like gangbusters, both organically and through acquisitions of numerous VARs around the United States.

The result? This once unremarkable, if not mundane, VAR is transforming itself into a national systems integrator that, if things go as planned, will catapult into a top-ranking player on the VARBusiness 500. Making MTM's rapid ascension all the more extraordinary is the compressed time frame in which it has transformed itself.

Last year, the company, which grossed $52 million, lost $8 million and had 151 employees, ranked 350 on the VARBusiness 500. This year, it is ranked 330. Factoring in acquisitions, MTM today has 600 employees in 25 locations nationwide, is on a run-rate of more than $215 million and says it is EBITDA positive. "I think we are a rising star on the VARBusiness 500," says CEO Frank Alfano. "We will move up rapidly as we are able to disclose our numbers."

The first stage of MTM's transformation began last May, when it closed with Pequot Ventures for its initial round of financing--$25 million. Alfano, former CEO of Interliant, had been consulting with Pequot at the time, and helped hone in on MTM out of his desire to build a national systems-integration firm to bring emerging technologies to the midmarket.

The fact that MTM was publicly traded was pivotal, Alfano insists, providing the much-needed capital to make the necessary acquisitions that would provide that geographic and technology expansion. "My view was it would help us as we started identifying businesses that made sense to join us," he recalls.

With that, Pequot put in its own management team, which included Alfano and Jerry Poch, a Pequot managing director, as chairman. A former protŽgŽ of Alfano's, Poch was CEO of GE Capital Information Systems in the mid-1990s and founder of AmeriData (which GE subsequently acquired).

That's when MTM's fast track to expansion took off. During the next several months, MTM would use its capital and stock to make acquisitions of solution providers that fit in with its vision. Among those joining the fold: DataVox, which instantly made MTM a player in the VoIP space; Network Catalyst, another VoIP specialist that helped MTM expand westward; Vector ESP, which gave MTM a presence in the central region of the United States and expanded its expertise in back-office integration, security, networking and messaging; and Info Systems, a mid-Atlantic player with specialties in security, storage, collaboration, messaging and VoIP.

Other acquisitions are in the works to expand its geographic footprint, while MTM also has opened offices in various parts of the country. Alfano and Poch's vision is to seamlessly integrate all of these companies so that all of the expertise, vendor partnerships and best practices are available to customers on a nationwide basis.

Key to MTM's strategy of expansion is acquiring VARs that share its vision. That means those with leadership and the willingness to stay on for the long haul. Also, keeping the principles of companies it acquires is equally key.

"I haven't had a boss for 25 years--that in itself is new, as anyone who knows me can attest," says Mark Stellini, who was CEO of Info Systems and is now president of MTM's mid-Atlantic division.

Stellini knew Alfano and Poch well and determined the upside outweighed the loss of some of that independence. "This was absolutely the right thing at the right time with the right people," Stellini says. "And that made a huge difference for me."

Time will tell if it will make a huge difference in the VARBusiness 500 landscape down the road.