How does it happen that 50 per cent of North American Solution Providers (Resellers/VARs/System Integrators/Consultants) are currently technically insolvent? These companies do not have current assets available to meet the current liabilities that they have due. Why is it that 40 per cent of Solution
Providers generate financial metrics that indicate a slow, painful path to liquidation? Gross Margin Dollars generated per employee are flat or declining. Cash Flow generated per person and Net Cash Flow generated per person are stagnant. Net Profit After Tax per person is declining or flat. Why is it that only 10 per cent of North American Solution Providers are in excellent financial condition? This small percentage of companies has 10 per cent or more of last year’s revenue available in cash or near cash (unutilized lines of credit).
The answers lie in the fact that only 10—20 per cent of North American Solution Providers have “real CEOs” leading their companies. The most important decision a Board of Directors makes is the appointment of a CEO. With the right CEO, most Solution Providers with a strong position in their market, or even a good plan, can be successful. It is almost impossible to succeed with a mediocre or poor CEO. The odds are clearly stacked against those companies that try to succeed with no CEO. As for Boards of Directors, fewer than 10—20 per cent of Solution Providers have formal or even informal Boards.
This is the second article in a series entitled The CEO File. This article examines the profile of CEOs who can do the job, and the profile of the businesses that they build.
Businesses built by “real CEOs”
Top quality CEOs build Solution Providers that have several identifiable success attributes:
- businesses that survive more than five years and are profitable;
- businesses that have stable ownership and management structures;
- businesses with emphasis on financial/business planning;
- businesses that engage in ongoing performance monitoring that regularly focuses on revenue/expenses/cash flow and operating data;
- businesses that have functional business/growth planning processes that increase in sophistication as the size and complexity of the businesses increase;
- businesses that have financial structure matched with the stage of development of the business and the nature of the business; and
- businesses that focus on client retention and the expansion of business with existing clients.
The high growth Solution Providers that top quality CEOs build have, in addition to success attributes, a unique set of attributes that support high levels of business growth:
- top down, CEO-driven focus on innovation throughout the business and its processes; internal focus on improvement, updating and modification of the business and its systems;
- businesses that focus on client retention through quality customer service and quality customer experiences that drive high levels of word-of-mouth;
- businesses that focus on client acquisition through the sale of new and improved products, services and solutions
- businesses that focus on business planning and cash flow planning;
- businesses that focus on employee acquisition, employee training and employee retention; and
- businesses that focus on higher levels of financial flexibility characterized by more sources of capital and higher levels of equity and permanent capital.
The Solution Providers that are built by top quality CEOs are clearly and identifiably different than the average business in the industry. Who builds these businesses?
Attributes of “real CEOs”
Very few Presidents or CEOs of North American Solution Providers ever started out their career wanting or expecting to be a CEO. Most of the people occupying the top jobs in the industry have technical or sales roots. Financial skills and marketing skills have often been learned on-the-job, free of the priceless mentoring that an experienced CEO can provide. Almost no one has had the benefit of those senior managers at GE who have watched Jack Welch, or those at Intel who got to watch Andy Grove. No, most CEOs of Solution Providers are pretty much making it up as they go along. If it works, they try and repeat it; if it doesn’t work, they try to remember not to do it again.
If the CEO is so critical to success, and most everyone occupying the role is making it up, then what is the job? What is the profile of successful CEOs and what leads to CEO failure?
The CEO is the single person in the Solution Provider who is ultimately responsible for the operation and performance of every aspect of the company. The “top job” is responsible for integrating the complex Web of resources of the company in order to increase the company’s value. In a public company, value creation is easy to calculate. In a private company, surrogates for value creation such as Gross Margin/Person, Cash Flow/Person and Profit/Person can be used.
The CEO provides the leadership for the organization to innovate while at the same time delivering stable management with consistency and foresight. The CEO is appointed by the Board of Directors and is accountable to the Board of Directors and ultimately the shareholder of the company. It is not uncommon in many Solution Providers for the CEO to be a top sales or technical person, the CEO, the Board of Directors, and the largest shareholder.
The “nesting” that takes place in small to medium-sized Solution Providers tends to obscure or wash out the very critical roles that the CEO must play.
Top quality CEOs have a number of attributes in common that emerge as a profile of success. Some common attributes of successful Solution Provider
- evidence of high intelligence ;
- evidence of multi-specialist capability;
- evidence of ability to cope with and withstand stress;
- evidence of positive view towards others;
- evidence of willingness to sacrifice and dedicate themselves;
- evidence of integrity, the ability to calm others in the face of crisis, and the ability to build and elicit trust; and
- evidence of superior stamina and good health.
CEOs who fail have as clear a profile as those who succeed. The profile of those
CEOs at risk of failure contains attributes that are easy to spot:
- CEOs who focus on appearance over substance and process over results;
- CEOs who are arrogant either inside or outside of their organizations;
- CEOs who exhibit dysfunctional ambition — growth without logic;
- CEOs who are lazy;
- CEOs who forget that the Board and Shareholders are the boss; and
- CEOs who are unable to balance family and the workplace, and expect others to live an unbalanced life.
Bruce R. Stuart is the President of ChannelCorp. He is the author of the recently released books Reseller Management Handbook — 7th edition and Channels Handbook — 2nd edition. Both books can be perused at http://www.channelcorp.com/products.htm.
Bruce Stuart is one of the world’s foremost experts on solution provider profitability, business model transformation and vendor channel strategy improvement. He has educated and consulted with channel and channel partner executives from more than 40 countries over the last 15 years.
He is a frequent speaker at vendor events worldwide. Mr. Stuart can be reached at firstname.lastname@example.org. The corporate Web site is www.channelcorp.com.