by Rob Wright & Steven Lang, VARBusiness

Irving, Texas (February 2004) - It was during the past year that Alex Solomon realized he and his co-president and brother, Edward, just couldn't do it all by themselves anymore. Their 6-year-old company, Net@Work, was growing, with two divisions and a spin-off generating $7 million in sales. It was time for some reinforcements.

We needed formulas in place," Solomon says. "It used to be always based on gut. But now that there are 60 people in the company, that just doesn't work anymore."

So last year, the New York-based solution provider built a proper management team and hired new executives, including a CFO and a director of sales--a move Solomon believes was the company's most critical during 2003. "We needed to start focusing on utilization and wanted someone to bring that together for us," he explains. "We're now very focused on cost because everybody is getting updates on their billable hours."

With developers, engineers and consultants all under the same roof, Solomon wanted a CFO to gauge whether employees were being utilized to their capacity and when to bring in additional resources. The sales director proved especially critical for the maturing Net@Work, which specializes in business applications and infrastructure solutions. The executive organized the company's different divisions, including sister company Docutrend Imaging Systems, which was launched last spring.

Net@Work isn't the only VAR to drastically remodel itself for the better in the past year. Other solution providers made significant changes to their businesses in hopes of improving cost structure, sales, employee retention and overall skills. Here are their stories.

Cutting Costs In the Heartland
Integrated Solutions Group (ISG) began 20 years ago as a local computer-services shop in small-town Salina, Kan. Over the years, it moved from PCs to new technologies such as storage and security, but the most crucial action ISG took in the past year, according to president John Gunn, was to adopt an almost fanatical approach to reducing operational costs and expenses. That, more than anything, has helped his company outlast competitors and even thrive during an anemic post-recession market.

"We don't have expensive facilities or a high profile with lavish office equipment," Gunn says. "We don't spend a lot of money on lunches and dinners or fancy cars. We certainly don't have a fleet of Lexuses here."

The IT veteran says ISG, No. 355 on the 2003 VARBusiness 500 ranking of solution providers, has benefited from being in a nonurban setting with a lower cost of living and a disposition that is more economical than opulent. "A lot of this has to do with being in the Midwest," Gunn says. "The culture is more conservative."

Along with pinching pennies for travel and expenses, ISG is almost religiously cost-effective when it comes to office space and facilities. For example, ISG was looking at a company in Kansas City that it considered acquiring, but Gunn says he reconsidered when he learned that the company was paying $200 per square foot for office space. As a rule, Gunn says, he tries to stay under $10 per square foot and pays roughly $5.50 per square foot for his headquarters in Salina.

Those tactics have allowed Gunn to devote more funds to technical training and education around ISG's top vendors, such as Cisco and Symantec. And thanks to ISG's survival instincts, the solution provider is looking at making acquisitions to enlarge its sizable Midwest footprint.

"We're looking at some good deals right now that can both expand our operations regionally and our skillset," Gunn says. "There aren't a lot of healthy companies left in our area."

Customers? Why Not Fans?
EPartners, which ranked 303 on the VARBusiness 500, devoted 2003 to creating and implementing what CEO Dan Duffy calls a new mantra for his privately held company, a core focus doggedly committed to "client service delivery excellence." CSDE is a concept Duffy believes in so strongly that he refers to it by its acronym. But CSDE is more than a concept for ePartners, which specializes in Microsoft-based business solutions. Duffy says the new business focuses on every detail of a client relationship.

"It ensures that all aspects of client delivery meet client expectations. We ensure exceptional outcomes--timeliness, performance--all through written documentation," he explains. "Extra things make the difference between a satisfied client and a raving fan."

A guiding principle for all employees at the Irving, Texas-based company, CSDE is backed by specific compensation vehicles linked to metrics that indicate client satisfaction and strength of client engagement. "It was likely the single most important effort for our entire 300-person organization," Duffy explains. "While accelerating revenue is a great by-product, the most important part of it is our company's relevance to the customer."

Such beyond-the-call efforts for clients include ePartners' 100 percent money-back guarantee on Microsoft CRM solutions, which helped the solution provider earn a CRM Excellence Award from Microsoft last year. EPartners' CSDE initiative has met with strong results, improving its margins 16 points in 2003 over the past year and allowing the company to invest in expanding its market presence. "We posted the single most profitable year in the company's history," Duffy says.

Product-Line Expansion
Many VARs have found themselves cutting down the number of vendors they partner with. The recession and IT spending slump led to reduced inventory and smaller warehouses and caused many integrators and resellers to reduce the number of products in their offerings. But one solution provider did the opposite last year, increasing the number of product lines it carried and adding new vendor partners. Some said it was a risky move in this economy, but FedStore, a government solution provider based in Germantown, Md., says it's paying off.

"We found out customers...wanted more of a choice from us," says Jack Cayouette, co-founder and president of FedStore. "We listened hard and then expanded our lineup with alternatives from IBM, Apple, Acer, Sony and Toshiba."

Specifically, Cayouette found that notebook and laptop computers from some of its new vendors were driving more business for the company. "It's critical for our business as a small solution provider to offer a range of solutions and have some flexibility," he says. "You battle incumbency a lot in the government market, and to beat out some of the entrenched players you need a breadth of options."

Building out your product line and vendor partnerships aren't easy, however. Cayouette says the process of forming new partnerships with large vendors and then becoming authorized to sell their products was no small feat. First, vendors weren't exactly knocking down FedStore's door, so Cayouette and his staff had to aggressively court new partners. Second, FedStore took a methodical approach to choosing new vendors and products, then hired people with the necessary skills to support those additions.

The move has led to sales increases and also helped FedStore become more than a government solution provider; the company now does more than one-third of its business with commercial clients in the SMB market. "There's a big investment with these vendors and products," Cayouette says. "But so far, it has proved fruitful for us."

Walking the Walk
It's rare in these days of short budgets to see a VAR taking its own medicine and deploying an IT solution for itself instead of a client. But, sometimes, a little solution can be just the answer. Optimus Solutions, which ranked 186 in the 2003 VAR500, and its sister company, Canvas Systems, decided to spring for a new IT solution of its own last year. Specifically, Optimus deployed a portal that provides contact management, CRM, e-mail, sales forecasting and tracking, order management, inventory access--everything but the kitchen sink. The Norcross, Ga.-based company offers hardware and software solutions around IBM, Cisco, Sun Microsystems and other vendors.

Sandy Potter, vice president of business development and marketing at Optimus, is jazzed about the new system. "Now sales reps can receive news flashes of pricing specials and updated price lists," she explains. "The system integrates with the corporate ERP so reps can see if a client is over its credit limit before entering an order."

Additionally, the CRM package tracks all history and interaction with customers, establishes a single controlled revenue-pipeline report, provides for a help desk and allows Optimus to discover customer trends. That has enabled the company to cut down printed-material costs by 30 percent, a savings of $12,000, Potter says.

Perhaps as critical to cost savings, the package includes an opportunity section with forecasting and a sales pipeline. "This allows Optimus to have the right number of people available for the amount of work that needs to be done, saving the firm money by only hiring high-priced consultants when there is work to do," Potter says.

Dumping the Old PC Biz
Like ISG, Ace Computers found itself in a precarious situation. The PC and server business that had served the solution provider well throughout the years was no longer providing the type of growth and revenue the company needed. So in 2003, Ace Computers began focusing more on consulting and integration services, high-end workstations, storage systems and security solutions.

"We actually raised our margins...because we made the decision to get out of the commodity hardware business," says John Samborski, vice president of Ace Computers, Arlington Heights, Ill.

Samborski says the switch was challenging, especially for his sales force, which had to learn completely new technologies and change the way it was approaching the customer. Instead of relying on commodity hardware to sell itself, Ace Computers' sales team essentially retrained itself to communicate the value of emerging technologies. Now the solution provider is thriving.

As a result of getting better margins on more lucrative solutions, such as security and storage, Ace Computers used some of its earnings to build a federal-government practice last year. The company got itself on the GSA Schedule and saw an almost immediate impact. "We went from $0 to $1 million in sales last year after becoming GSA-authorized, so it was extremely productive for us," Samborski says.

And who knows? Ace Computers can always go back to PCs when the economy fully recovers. But for now, emerging technologies and IT services are the cards up the solution provider's sleeve.

Six Ways To Success

1. Expand your leadership team and reduce micromanaging; delegate responsibilities.
2. Slim down your expenses and resist costly travel expenditures, office space and meals. Work harder to find great deals.
3. Construct a detailed, actionable plan to improve customer satisfaction and client retention.
4. Partner with new vendors that your customers are demanding and build out your product lines, if only a little bit, to keep things lively.
5. Don't forget about IT; new technology and solutions can work to both enhance business operations and increase productivity.
6. Forget about commodity products and PCs and move into higher-margin areas of emerging technologies, such as storage, security and wireless.