2014 Fast Growth 150: Life In The Fast Lane
Systems Made Simple, a solution provider launched in 1991, spent the first dozen years or so of its existence providing a broad range of products and services to an even more broad range of customers. Too broad, CEO Ron Fishbeck admits today. "We would do anything for anybody," he says of the company's approach.
The result was that by 2003-2004 the company's growth had plateaued at about $2 million and the owners were frustrated. Then Systems Made Simple, Syracuse, N.Y., became involved in a couple of government health-care-related contracts and, after some analysis, realized the potential of the health-care IT market.
Ten years ago the decision was made to focus exclusively on health-care IT.
Today, Systems Made Simple will record sales of about $334 million this year after a two-year (combining 2012 and 2013 revenue) growth rate of 265 percent. That's good enough for the solution provider to rank No. 7 on this year's Fast Growth 150 list, CRN's annual ranking of the fastest-growing solution providers in the IT industry.
[Related: Fast Growth 2014: The Top 25]
The 150 solution providers on this year's Fast Growth list had average annual revenue of $48,295,100 (based on 2013 revenue) and recorded an average two-year growth rate of 102.6 percent. Collectively, they racked up sales of nearly $7.25 billion in 2013. In addition to highlighting the channel's high achievers, the Fast Growth 150 offers a revealing snapshot of what's happening in the solution provider realm.
Take this year's triple-digit average two-year growth rate, for example. It marks the first increase in several years, up from just short of 88.95 percent average growth among the solution providers on last year's list. That number has been falling since the depths of the Great Recession: The average growth rate of Fast Growth companies was 171.6 percent in 2012 and 187.0 in 2011.
The Fast Growth ranking also demonstrates the dynamism of the channel. Ninety-four of this year's Fast Growth companies are new to the list—almost 63 percent. Cumulus Global, this year's No. 1 solution provider, recorded two-year growth of 689.5 percent.
Churn is also a hallmark of the list given that big companies tend to drop down the list or even drop off altogether as maintaining double- and triple-digit growth becomes almost impossible. That's what makes companies such as Cloud Sherpas stand out. The Atlanta-based solution provider was No. 1 on last year's Fast Growth list with a two-year growth rate higher than 672 percent. While it has dropped to No. 4 this year, its two-year growth rate of 438 percent remains impressive.
"We're still traveling on the basic path we laid out for ourselves," said David Northington, Cloud Sherpas CEO, in an interview. "We're not surprised at our growth."
Last year seven companies had revenue greater than $500 million—the highest revenue bracket—but only one solution provider was in that category this year. And only 14 companies were in the smallest revenue bracket ($1 million to $4.99 million) of this year's Fast Growth list, less than half the number (29) in that bracket last year.
Every company on the Fast Growth 150 has its own story about how it got there. And the factors and company attributes behind that growth vary widely among them—there's no one secret formula for success.
But there are some common elements among many, if not most of them. Many have embraced cloud computing and managed services, along with the new business models that go with them, even as they continue to sell and deploy IT products under the "traditional" reseller model.
Next: Seeing A Pattern
Take Cumulus Global. The Westborough, Mass.-based solution provider is a Google Apps Premier SMB Reseller and offers a range of cloud computing and hosted IT services for business, education and government customers.
CEO Allen Falcon says Cumulus Global is providing its services at a time when "market acceptance of cloud computing" is surging. "There's been a shift from seeing cloud as just [hosted] email and calendars to a way you can effectively run your business."
HillSouth, No. 15 on this year's list, recorded two-year growth of almost 206 percent thanks to its focus on cloud computing and managed services. Founded in 2000 under a more traditional VAR model, the Florence, S.C.-based company still counts on resell margins and IT implementation projects for about 60 percent of its revenue. "We're extremely efficient at developing strong infrastructure plays for our clients," said founder and CEO Robby Hill in an interview.
But HillSouth expanded into managed services about ¬five years ago, initially partnering with Microsoft and Amazon Web Services before opening its own data center two years ago to provide IT managed services, application hosting and virtual desktop services. "We saw the clear need to invest in our own cloud services," Hill said. Today those services account for 40 percent of the company's revenue.
"To see the tools to deliver IT services and to build a business around that has been a lot of fun and the most exciting part of my career," Hill said.
Another seemingly successful strategy is identifying and focusing on key industries: The health-care and federal government verticals seem to be popular targets among solution providers at the top of this year's Fast Growth 150.
After its decade of slow growth, Systems Made Simple won an IT contract with the New York State Department of Public Health in 2002. Around the same time it began providing IT for a clinical lab in central New York. And with one of its founders a disabled veteran, the company was eligible to participate in a U.S. government initiative reserving 3 percent of IT spending for disabled veteran-owned businesses.
The work "really opened our eyes to the whole health-care domain," Fishbeck said in an interview. After some analysis, the solution provider's owners realized that the health-care industry, burdened with paper, error-prone processes and even fraud, was a major business opportunity "and our future was in the health-care space."
Today Systems Made Simple is particularly focused on the government health-care arena — a contract to manage Veterans Administration IT infrastructure accounts for 45 percent of its revenue. And a nascent clinical informatics and data analysis service is "a new up-and-coming part of our business," Fishbeck said.
Fishbeck's only regret: "I would have chosen a focus in our evolution sooner than we did."
For HillSouth, 60 percent of its customer base is in the healthcare arena, CEO Hill said.
For Cumulus Global, education, especially K-12, is now about 60 percent of sales: The company has won contracts in some 2,500 school districts in the past two years. Falcon wants to accelerate sales to local governments and small/midsize businesses.
Next: The Keys To Success
Three Wire Systems, a Falls Church, Va.-based solution provider founded in 2006, is focused exclusively on the federal government for its IT consulting and solutions business, including IT infrastructure, IT asset management, cloud-based services, telecommunications, cybersecurity and power consumption services.
With government budgets under strain, Three Wire's expertise in helping government agency managers control costs was the right message at the right time. "We deploy disruptive technologies to eliminate wasteful spending in federal agencies," said founder and CEO Dan Frank in an interview.
Three Wire Systems is No. 13 on this year's Fast Growth list with two-year growth of 212.8 percent. It has 85 employees and expects to record sales of about $100 million this year. Through a wholly owned subsidiary the company also operates a veteran case management IT system, a fast-growing business Three Wire plans to offer to health-care plans, corporations and other new customers. So what's the secret to success for these companies?
Offering the right technology and services certainly helps. Out of all 150 Fast Growth companies, all but a dozen provide cloud services and solutions and all but 18 offer managed services. "It's not lost on us [that] this is a hot market," said Cloud Sherpas' Northington. "We believe we've positioned the company to well take advantage of that."
Northington has put a high priority on forming tight relationships with Google, Salesforce.com and ServiceNow, the three vendor partnerships it has deemed strategic. That lets Cloud Sherpas leverage their brands and participate in the vendors' partner programs at a high level.
Of the 150 solution providers, 69.3 percent partner with Dell, 68 percent partner with Cisco, 63.3 percent work with Microsoft, 58.6 percent partner with VMware and 54 percent work with Hewlett-Packard.
Cloud Sherpas was also smart enough to begin working with what Northington describes as "some very forward-thinking clients," including Coca-Cola, Oppenheimer and The Weather Company (which produces The Weather Channel), early in their cloud adoption. Having the right people is also key. "We've gone out and recruited aggressively," Northington said. "The talent in the company is amazing," he said of its 900-plus employees.
And while some startups devote huge amounts of time and energy to developing their strategy, Northington said: "We did a little strategizing and a lot of execution," saying the key is staying flexible and adjusting strategy as conditions change.
"Being nimble" is also a factor in the rapid growth at Cumulus Global, said CEO Falcon. Recognizing a market shift or opportunity and building a customer base around a product or service before it becomes a commodity is key. Getting in on the ground floor of a Google pilot program to sell Chromebooks was one example, while offering the vendor's Google Apps Vault for education customers was another.
Having the right internal business processes is also key. "One of the things we're good at is leveraging processes and automation to stay lean while we grow," Falcon said. Cumulus Global, for example, uses Google Apps Vault to help respond to requests for proposals, gather requirements information, develop quotes and send out purchase orders.
"We spend less time chasing loose ends," Falcon said. That's why the company, which recorded sales of $7.5 million in fiscal 2013, still has just 10 employees.
Cloud Sherpas, meanwhile, has bought 11 companies since its founding, seven between September 2011 and September 2013 alone, and those acquisitions have brought best-in-class systems and processes to the company.
Next: The Hiring Challenge
If he was starting Three Wire Systems today, Frank said he would act earlier to implement more sophisticated financial management and forecasting systems and processes.
Perhaps not surprisingly, executives at Fast Growth 150 companies say hiring the best employees is critical for their growth — and one of their biggest challenges.
"We are a services-based company. So we're only as good as the people we hire," Fishbeck said. Systems Made Simple has its own recruiting operation, constantly searching for hiring prospects for the company.
"Hiring is a challenge," acknowledged Hill at HillSouth. One mistake he admits to once making is hiring people to fill an immediate need, only to discover they aren't a good fit for the company overall. His advice is to focus on hiring people that are a cultural fit, even if they require some additional training to fir a specific job.
"It's definitely critical that we find the right people," Falcon said. And sometimes those people can be found in surprising places. Falcon discovered a woman who is now with Cumulus Global's operations team while she was working in Starbucks. She had been taking video game development classes at an area college.
"So she had the technical skills," Falcon said. "And she had been made a shift supervisor within six months, so you know she had the people skills."
Also, for fast-growing companies, managing cash flow and gaining access to capital are high on the priority list.
Some solution providers on the Fast Growth 150 have managed to bootstrap their growth. Systems Made Simple is one such company. "Building our corporate structure to support our rapid growth is always a moving target," Fishbeck said.
"The biggest financial challenge is cash flow," Falcon said. A relationship with distributor Synnex, including access to operating capital, provides Cumulus Global with short-term financing options. "I think our next big challenge is growth capital if we want to get to the next level or the next two levels," he said.