Reshape Your Business Model

Alex Karpovsky, CEO of Kanda Software, a Concord, Mass.-based IT integrator, wasn't entirely satisfied with his business. Sure, he was running a $3-to-$5 million-a-year business providing information delivery to publishers, but as his company moved into ID management, he knew a bigger and better payday was waiting beyond his current business model.

"We realized as we got into ID management, the enterprises themselves needed similar kinds of services in the provisioning of IT data to their customers," he explains. So Karpovsky decided to reshape his business to tap into what he perceived was a growing market. Granted, doing so cost money, mostly in staffing. He had to hire four new people and train half of his 30-person staff in new technologies to create a services-delivery model. But the effort has been worth it.

"It is getting us into much bigger doors. People who would not pick up the phone a year ago are asking us to present," Karpovsky says. "Dun & Bradstreet is now one of our largest customers."

The end result of his decision to take another look at his business? Revenue is now on track to double in the coming year.

Fine-tuning the right products and services for your customer base is a critical element for success. That is true, perhaps most of all, for smaller VARs, who are often niche players by definition and need to zero in on the right boutique play to make their specific skillset stand out among larger integrators while increasing sales.

But no company can change its stripes overnight. Whether it's new solutions, a switch from products to services (or vice versa) or a decision to rent instead of sell hardware, the conversion is a process. You train your staff, approach your customers and hope for the best. It may take time, but if you do your homework and identify a need, the payoff can be substantial. A little guts can't hurt, either.

Consider the move of Robert Duchouquette, president of Dallas-based SBS Security. Not only did he have the audacious idea last year to transform his company from one that generates 90 percent of its revenue from services to one that generates 90 percent of its sales from products--which goes against all conventional wisdom--he decided to change his company's name at the same time. Talk about creating a learning curve for your customers.

Still, what convinced Duchouquette to make his move was what he was hearing from his customers: They were asking a lot of questions about how to deal with threats, and he noted a growing demand for hardware and software that fought against e-mail threats and worms.

So Duchouquette decided to make his move, combining with a partner, Greg Curlee, who had a lot of experience in selling security. By August, he says, he was among the largest resellers in the South.

"We posted $500,000 in sales in 2003. We've already posted over $1 million in sales for 2004. And [this] year, we expect to grow to between $3 million and $5 million with our new business model," Duchouquette says. "And we're continuing to retool. We've decided to move in on spyware with an application from Apreo that sits on your PC and piggybacks with apps you download."

Strategic Hires

Hiring the right person, or people, also is a key component in reshaping a VAR business. When Bob Belshaw, COO of Manassas, Va.-based supply-chain consultant Insight, decided to re-create his business strategy to include strategic-transportation procurement--a natural outgrowth of supply-chain management--his critical move was to hire a manager who could lead the charge.

So last summer he hired Kevin Zweier, who spent the past eight years with Manhattan Associates, the company that "created this space."

"He's helping us [develop the] methodology for running the services, assessing our technical solutions and driving enhancements in the product offering," Belshaw explains. Perhaps most important, Zweier is bringing to the company "a network of contacts, people who are the who's who--clients and other professionals," Belshaw adds.

The COO hopes the move will allow his company to generate a 20 percent sales increase; presently, the company is in the $4 million to $6 million annual-sales range, with new engagements that could be twice as large as previous company engagements--up to $1 million, he says.

Sometimes, re-creating your business is not a matter of enhancing your sales picture so much as it is a means of survival. John Scandar, vice president of Athens, Ala.-based Fullscope, recalls that when he started his company, it was the largest reseller of Baan (a vendor since sold to SSA Global) ERP solutions. "That was in 1998, when people were still buying ERP," he jokes. "In our heyday, when we were called RedKlay, we were $10 million-plus a year in sales."

But ERP solutions began falling out of favor in 2000; in 2002, the company created an e-commerce Web solution that sat on top of ERP software and was different than Ariba's and Commerce One's offerings, which Scandar says were expensive to implement.

As it happened, that same year he met a group of investors from a company called Fullscope, which had money but no business; Scandar had the opposite problem. So RedKlay merged with Fullscope, and added Microsoft's ERP solution, Axapta, to its arsenal in 2003. With 2004 sales expected to be some $6 million, and with this year's sales slated, conservatively, to be at $8 million, Scandar's ability to find a partner made all the difference.

"Look for a technology that's lasting and not a flash in the pan. You have to do a lot of analysis to get to that. It's easier said then done," he advises, adding "the transition [to your new model] needs to be done with complementary skillsets so you can keep your core employees and not have to fire all your own people."

In other words, leverage what you know. That's what Robert Capinjola did. The president and CEO of Farmington Hills, Mich.-based TruArx, a solution provider with annual sales of $3 million, started the company in 2000 as a strictly front-end security consulting company.

Wanting to change the business, but concurrently build on its strengths, Capinjola and his team sought additional network awareness and decided to take on Q1 Labs security software to increase not just dollars but services.

"Adding that technology into the fold, then servicing it, has given us a 40 percent increase in business," Capinjola says. "We looked for a unique technology that brings a lot of value to our clients that not everybody and their brother is representing."