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What's Your Road Map? The Best States To Grow A Solution Provider Business

CRN researchers and editors undertake a detailed analysis of the business climate in all 50 states around business opportunities, innovation and growth potential, lower costs and much more.

Anthony D'Ambrosi, president of Indianapolis-based managed services provider Bell Techlogix, likes to talk about what he calls "heartland arbitrage." That's the competitive edge his company gains over MSPs elsewhere in the U.S. -- and even offshore -- because of Indiana's low costs of doing business, including comparatively low labor and land expenses, and generous tax incentives.

Being based in Indiana "affords us a competitive advantage in terms of the cost-quality equation," D'Ambrosi said in an interview with CRN. "When you add up the whole equation, it's a wonderful location for running an IT company -- and an IT services company in particular."

Kevin Routhier, CEO of Needham, Mass.-based Coretelligent, a fast-growing IT support and private cloud services provider, likes to talk about the deep pool of talented workers and the culture of innovation in the Boston area. He also points to the region's large number of small and midsize companies in life sciences, health care, IT and financial services that make up much of Coretelligent's customer base.

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[Inside the 2015 Best States to Grow A Solution Provider Business]

"I couldn't imagine Coretelligent not being headquartered here and enjoying the kind of success we've had," Routhier said in an interview. "We see strong growth here well into the future."

Both are right, of course. Every state has its advantages and disadvantages for solution providers trying to grow their businesses.

For the third year, CRN researchers and editors have undertaken a detailed analysis of the business climate in all 50 states to offer readers guidance about which states offer solution providers more business opportunities, more innovation and growth potential, better pools of talented workers, lower costs, and less burdensome taxes and regulations.

[Related: Worst To First: How Growth-Friendly Is Your State?]

The analysis covers a broad range of criteria including a state's economic strength and growth rate, the education levels of a state's workforce and the available pool of experienced workers, labor and employment costs, taxes (including tax incentives, corporate income taxes and property taxes), regulatory environment, potential for innovation and growth (as measured by awarded patents, entrepreneurial activity, and the share of the private sector employed as scientists and engineers, among others), business opportunities (including the number of fast-growing businesses in a state that are potential customers), and even lifestyle criteria such as crime rates and personal income tax rates.

Growth, of course, is an aspiration for today's solution providers. And that's especially true as the economy finally shakes off the last vestiges of the Great Recession and kicks into a higher gear. So while this project in 2013 and 2014 leaned toward identifying the best states to start a solution provider business, we've changed up the focus this year toward identifying the best states for solution provider owners and executives to grow their business.

CRN surveyed solution providers earlier this year to learn what criteria were most important to them. Those results were used to weigh the data in our state-by-state analysis.

And the results of that analysis can be surprising.

High-tech meccas such as California and Massachusetts might seem like obvious places for solution provider growth. And it's true that such states are centers of IT innovation, have large numbers of talented IT workers, and/or are renowned for high levels of entrepreneurial activity.

But such states have their Achilles’ heels, such as high labor costs, high taxes or regulatory environments that are less than friendly for growing businesses. And while they may have a more educated workforce, there's frequently more competition for recruiting the engineering, sales and managerial employees that a growing solution provider needs.

At the other end of the spectrum are states that offer low labor costs (Iowa is No. 1 in this year's analysis) or business-friendly tax and regulatory environments (Missouri is No. 1 here). But in a case of you-get-what-you-pay-for, Iowa is No. 26 in the education and experience levels of its available workers. Low-cost, low-tax states often score low in other criteria: Missouri is ranked a mediocre No. 24 for innovation and growth potential, for example, and No. 32 for business opportunity.

Then there's the competition factor. California is crawling with solution providers: Fifty-two of the companies on this year's CRN Solution Provider 500 are based in that state. That can make for some tough going for growth-ambitious solution providers. At the other extreme are states like sparsely populated Wyoming with few solution providers to compete against -- but few customers to compete for.

The states that come out on top of the CRN Best States To Grow a Solution Provider Business analysis aren't necessarily the ones that score highest in any one criteria. They offer good business and growth opportunities and an educated workforce balanced against moderately low costs and limited taxes and regulations.


The Top States

This year Colorado, which made the top three of the CRN Best States rankings in 2013 and 2014, captured the No. 1 spot thanks to high scores for business opportunities, innovation and growth potential, availability of educated and experienced workers, low taxes and a business-friendly regulatory environment.

"The number one reason is the diversity and growth of businesses," said Steve Shaffer, founder, president and CEO of Zunesis, a Denver-area solution provider, when asked why Colorado is such a hot spot for the channel. Lots of small and midmarket companies, many of them fast growing, mean lots of demand for Zunesis' services -- especially its cloud and managed services offerings.

Colorado is a hub for the communications and energy industries, Shaffer pointed out, and distributor Arrow Electronics recently moved its headquarters to Centennial. And IT talent is plentiful, including educated workers produced by Colorado's extensive education system and those who move to the state. "It's pretty easy to recruit in Colorado, especially younger people," Shaffer said.

Rounding out the top five states are Washington, Virginia (last year's No. 1), Utah (No. 1 in 2013) and Texas.

Washington especially shined in the innovation and growth criteria, beating all other states in the share of the private sector employed as scientists or engineers and the number of patents awarded to businesses. It also scored No. 2 in employment in IT occupations in non-IT industries as a share of total private-sector jobs.

The only state higher in that last metric is Virginia, this year's No. 3 ranked state. And IT talent is certainly a key attraction for solution providers in that state.

"It's all in the people and the expertise," said Gregory Feldman, president of Three Wire Systems, a Falls Church, Va.-based solution provider that's No. 10 on this year's CRN Fast Growth 150. Three Wire Systems' focus is helping federal government agencies eliminate wasteful spending through its IT infrastructure optimization, IT asset management, telecommunications cost containment, and power consumption reduction services.

Increased federal government spending for IT, in fact, is a significant driver of business opportunities in Virginia and Maryland (No. 11). "We have built a business from zero to over $400 million in less than eight years," said Tom Deierlein, CEO of ThunderCat Technology, a Reston, Va.-based IT services and solution provider that does 99 percent of its business with federal agencies.

Deierlan notes that while there's a lot of IT talent in the Washington, D.C., region, labor costs can be expensive (Virginia was ranked No. 43, near the bottom, for its high labor costs). And real estate costs can be high, he said.

Lower labor costs and other expenses are one of the attractions for Utah. "Utah is a great state to do business in," said Spencer Ferguson, president and CEO of Wasatch I.T., a Murray, Utah-based solution provider and MSP. He cites the business opportunities (No. 4 in the CRN analysis) presented by the state's large number of small businesses, the favorable regulatory environment and limited taxes (No. 3) and the educated workforce (No. 21).

But even in Utah competition for IT talent can be fierce. Ferguson said his company has had to get creative to attract and retain workers, including offering such benefits as fully paid health care and gym memberships.


The Bottom States

And then there are the states that are difficult places for solution providers to grow. West Virginia, No. 46 last year, fell to No. 50 this year with low rankings in multiple criteria including workforce education and experience (No. 47), business opportunity (No. 45) and innovation and growth (No. 50).

Advanced Technical Solutions, based in Scott Depot, W.Va., provides a range of IT services to customers within the state, including IT infrastructure, voice communications and virtualization. But President and CEO Gary Sims acknowledged that business has been "kind of flat. There's not a lot of new opportunity in the marketplace, not locally anyway."

ATS has been looking outside the state for new business: As a Cisco Authorized Technology Provider partner in the unified contact center enterprise marketplace, the company provides Cisco products and services all across the U.S. and Canada. "It's a significant part of our business," Sims said. "That's where we focus our growth."

West Virginia does rank No. 7 for its low labor costs and Sims said ATS, which services North American customers from its headquarters, leverages those low costs to provide an advantage when competing with solution providers in, say, high-cost California.

Hawaii, No. 48 in the CRN analysis, is hardly paradise for solution providers. While its scores were poor for innovation and growth (No. 47) and for business opportunity (No. 44), the Aloha State's real problem its high labor costs (No. 49 behind only Connecticut), high unemployment insurance costs, and other expenses.

"It's just extremely expensive to do business in Hawaii," said Gordon Bruce, president and CEO of Honolulu-based Pacxa. He notes that businesses with more than 20 people must provide fully paid health insurance for employees. "You just have to accept that you will earn lower margins here," he said.

But Hawaii has 27,000 small businesses that are potential customers for Pacxa, an established solution provider with 95 employees. Bruce said his company is shooting for 5 percent revenue growth this year. "Key for us is our quality service, affordable costs and the fact that we are a longtime player," he said.

And then there are states whose fortunes have changed a great deal in the last year. North Dakota was No. 11 in last year's analysis as it rode 6.3 percent real GDP growth in 2014 fueled by the oil boom. But with falling oil prices, the state's scores for growth and business opportunity are down, dropping its overall ranking to No. 18 this year.

Tom McDougall, president and CEO of High Point Networks, maintains that the oil boom raised infrastructure costs and other expenses for companies like his and business conditions are more stable now. High Point Networks, based in West Fargo, N.D., provides IT services throughout the upper Midwest and Mountain States.

"We really don't need the oil to be successful in our state," McDougall said, arguing that the state's economy is diversified enough in health care, insurance, banking and manufacturing to support growth. High Point Networks grew 23 percent last year and is on track for 20 percent growth this year. "Business is very, very good," he said.

There are, of course, quality of life issues to consider. Maine ranked No. 46 in this year's analysis, held down by a high (8.93 percent) corporate income tax rate, a burdensome regulatory environment and limited growth opportunities -- particularly in the northern and western parts of the state.

But Adam Victor, operations director at Portland, Maine-based Systems Engineering, sees a trend in people moving to the Pine Tree State -- including people hired at his own company -- who are seeking the best environment in which to raise their families. And he sees a bright future for his company in the booming Portland region.

"Maine is a great place to do business because you can really determine your own destiny in a way you can't in a place like New York City," he said. "I see nothing but opportunity for the next 20 years."

PUBLISHED SEPT. 28, 2015

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