Threat Level RED
Risk Advisory
If the economic uncertainty were not enough, VAR business owners should be advised of the competitive threat and disruptive impact on sales caused by new entrants in the marketplace. Your sales force should be your first line of defense in positioning your business against this threat. In order to justify your prices and preserve margin, your sales force must understand their competition and possess the ability to clearly articulate your firm’s value proposition.
Background
The well known phrase “Necessity is the Mother of all invention” partially describes one of the more significant dilemmas which confronts VARs today. While business leaders are focused primarily on reducing their IT costs, many are also investigating the practicality of Business Process Outsourcing (BPO) and Managed Service Providers as means to achieve such reductions.
Our financial management workshop outlines the five distinct stages of growth in a typical IT services business as set forth in the following illustration
The typical entrepreneurial VAR Business Owner has worked for only one or two other employers before establishing their business. In most instances they simply lack a successful services career experience and “Do not know what they do not know”. Most VARs start their services practice as a “Cost Recovery” model and progress through a natural evolutionary period of learning (aka “School of Hard Knocks”) and are just now enlightened enough to “Know what they Do not Know”. See Knowledge Quadrants diagram below. Approximately 75% to 85 % of VARs operate in a Cost Recovery or Emerging stage and have yet to master the sales skills necessary to consistently sell highly profitable IT service engagements.
Knowledge Quadrants
Welcome the New Kid on the Block
Few companies have been immune to the market’s unprecedented volatility, uncertainty and economic fallout. As the credit markets have dried up with little relief in sight, companies have been forced to preserve cash and what’s left in open lines of credit. The resultant effect of this phenomenon has been a significant rise in unemployment over the past twelve months, with more joining the ranks of the unemployed with each passing day. Faced with a soft job market many are choosing to hang up a shingle, calling themselves consultants, rather than seeking new employment. During downturns it is common to hear things such as “Hey, after all, how much could it cost”, and “I’ll be damned if I’ll be in this position again”.
The corollary of the phrase “Necessity is the mother of all invention” is that job security in today’s market resembles a necessity more than a want. In the past four weeks, I have spoken with three individuals who have emphatically echoed a variation of the above comment. The “New Kids” on the block do not know that starting a business is tough and have yet to realize when starting out “All Opportunities appear to be Real Opportunities”. As I counsel with these newly minted consultants it becomes apparent that they simply “do not know what they do not know”, and as a result tend to price their services without a sense of realistic and practical methodology.
Conclusion
As long as the economic cloud of uncertainty prevails there can be no eminent forecast for this risk to subside. Vigilant watch over your marketplace competition coupled with reinforcement of your sales force understanding of your firm’s value is recommended.
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