Shore Up Storage Sales With An Investment In Managed Services

You might feel a bit like an NFL player deciphering Xs and Os strewn across a locker-room chalkboard if you start tracking the growth and acquisitions of massive solutions provider Incentra Solutions. What looks like the random, explosive growth (118% last year) of this storage, security, and managed services VAR is actually the result of several carefully crafted and researched business decisions. CEO of Incentra Tom Sweeney says the same good business decisions and calculated risks Incentra took to achieve success can apply to any VAR, regardless of size — if business owners are willing to plan strategically and invest enough back into their businesses to fuel growth. "Our company offers solutions from design to implementation to application, and that is a great place to be, but a tough place to get to unless you methodically plan for it," says Sweeney, whose company burst into the midtier market (companies with more than 100 employees and IT spending between $5 million and $100 million annually) in 2004. "We are growing at an exceptional pace because we are investing a ton of money into acquiring more customers."

Use Acquisitions Or Partnerships To Augment Services
The meteoric rise of Incentra started in August 2004 when ManagedStorage International, a managed services company, merged with Front Porch Digital, a digital archiving software company. "As we formed Incentra, we had the capability to remotely monitor and manage large storage infrastructures for customers, which is something most VARs can't do at the beginning," says Sweeney. "Plus, we knew we wanted to offer this service to the midtier market because it was underserved." Often, midtier companies, which have needs similar to enterprises, are too small to support IT expertise internally and yet large enough to be overlooked by systems integrators. Incentra's executive management team then focused on acquiring traditional product resellers and installation-oriented VARs in an effort to offer a one-stop IT solution that ranged from products to consulting to managed services. Since then, Incentra has added six VARs to its portfolio and now services 3,000 clients via 15 branch locations in the United States and Europe. Its revenues have grown from $8.6 million in 2004 to an anticipated $200 million this year.

Use Deep Research To Drive Successful Mergers
Included in those acquisitions, which cost less than $30 million in all, was Helio Solutions, a VAR whose CEO was Dave Condensa, now president of Incentra Solution's West Region. "At Helio, we needed to get beyond classic product fulfillment and realize our goal of being a full-fledged services provider," Condensa explains. "To do so, however, would have required us to invest a million dollars-plus to build out the infrastructure for professional services."

Helio began exploring a partnership rather than starting from scratch. The relationship with Incentra evolved because Condensa and Sweeney knew each other from working together on advisory councils. Condensa says partnerships and mergers are good options for a quick move from a traditional reseller role to providing managed services, but only after much research. "It is a critical element to any successful merger to know the organization you're partnering with — put the strengths and weaknesses you both have on the table from the start," he advises.

To identify potential partners, you should start by contacting your vendor associates. "Manufacturers have a good grasp on who is doing what and how they do it. That makes them a good gauge of the possible synergy two companies may have," he says. On Condensa's must-have list of traits needed in a potential partner, he includes a similar business philosophy, a comparable pay structure (particularly for sales), and a clear road map of how the companies will merge resources.

At Incentra, the due diligence for identifying potential partners is more scientific. "We survey the VAR landscape [using the VAR 500 and Web research as launching pads] and apply certain criteria to the companies we find," explains Sweeney. For instance, the company evaluates potential VARs according to geographic region, size, technologies they are currently handling, and partner vendors. Once each VAR's scorecard is tallied by Incentra, a matrix emerges with rankings. Incentra then looks closely at the top third of the companies, and its investment banker confirms which are interested in a merger. Only then does Sweeney contact the VAR's principals. "We have walked away from more of these deals than those we have completed. If you don't judge them critically, you can end up with a mistake," he warns.

Look At Current Business Model Before Branching Out
Sweeney's first advice to VARs ready to position themselves as solutions providers is less about managed services and more about good business sense. "Many solutions providers are fairly concentrated with one technology partner, and today that can prove to be risky as growth decelerates or when a partner becomes slow to offer new versions of its products," he explains. "If you have 40% of your business concentrated with one manufacturer, you have too much. Bringing in new solutions will stimulate growth." He suggests researching manufacturer partners that offer different products so you have a full suite of solutions. Otherwise, you can't react quickly to evolving market conditions.

That is also why Sweeney advises expanding your company's offerings into adjacent, complementary technologies. But, he warns against expanding so far or so fast that you can't support your products with engineering and other services. "Look deeply at support needs if you add a capability or vendor offering; some take much more of an investment than others," says Sweeney. For example, consider the training and certification your staff will need to sustain a new offering. Without that expertise, you run the risk of losing more customers than you win.

Focus On Staff During Move To Professional Services
Evolving into a solutions provider requires a professional services team, which means an investment in staff, and Sweeney admits engineers come at a premium. "Our number one challenge today, and for the last couple of years, has been filling the engineering headcount we need," he says. Engineers are in high demand, and their wages reflect that, with experienced field engineers asking for $80,000 to $150,000. They can also be hard to locate. "Our West region has roughly doubled our team from 10 to 20 engineers in the last year, mostly by leveraging the referral networks with our vendor partners," says Condensa. The company also filled staffing openings in its professional services group by promoting existing employees with the appropriate skill sets, as well as by offering referral bonuses.

Sweeney says your staffing investment can stretch further if you don't hire specialists who handle only one technology. Rather, look for those with a myriad of skills. For example, one engineer at Incentra works primarily with Microsoft Exchange migrations and upgrades, but his secondary discipline is data archiving and storage management.

Avoid Common Misstep That Hinders Expansion
Determining the level of reinvestment needed to grow your business is one of the hardest decisions VARs face. For example, Sweeney says that when technology markets are strong, most businesses can manage growth by investing about 40% of their profits back into the business. But, if the economy slows as it has recently, that percentage needs to increase to nearly 75%.

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Condensa agrees. "If you aren't acquiring new customers in this market, you are in trouble," he says. "But, on the flip side, today's economic climate breeds professional services sales from existing customers seeking to get more out of their existing technology infrastructures." That trend bodes well for VARs jumping into the managed services market. "Be willing to do more than provide a piece of technology," says Condensa. "You can weather slow times by strengthening your relationships with customers and by providing services that aren't usurped by other VARs, such as engineering support." For example, prior to the merger with Incentra, Helio supplied computing and storage technologies for a large manufacturer. "After our merger, we went back to that client and explained our new portfolio. That discussion uncovered that the customer was dissatisfied with its existing technology supplier; it was counting its service resolution cycle in terms of days and weeks," explains Condensa. Incentra's on-call support offering provided a perfect solution, and suddenly Incentra was a business partner rather than just a supplier.

Condensa believes the days of traditional VARs are limited. "In five years, virtually every VAR will be required to be a services organization as well as a product provider. Managed services will become necessary, but it is hard to accomplish." To prepare, VARs should consider methodically adding managed services through partnership or merger. Then, work to meet your customers' needs beyond the traditional product fulfillment at an achievable level for your business. In a nutshell: Embrace new technology in and adjacent to your space, introduce it to your customers, and then let your customers' needs drive what you do next.