Surviving and Thriving in an SMB IT Recession

1. Surviving and Thriving in an SMB IT Recession Ingram Canada SMB Alliance (c) 2004-09 – Confidential and Proprietary – All Rights Reserved

2. Today’s “Great Ideas” Agenda • 1:30 – 1:40 Opening Remarks • 1:40 – 2:30 Surviving and Thriving • 2:30 – 3:00 BenQ • 3:00 – 3:30 Cisco • 3:30 – 4:30 HP and Great Ideas Roundtables • Be ready with your Great Ideas! • 4:30 – 4:50 Adobe • 4:50 – 5:10 Lenovo • 5:10 – 5:30 IBM • 5:30 – 5:50 Symantec • 5:50 – 6:15 Results of Great Ideas Contest! • 6:15… Technology Fair & Reception

3. Today’s “Great Ideas” Contest The best ideas for thriving come from you! So, a Canada-wide “Great Ideas” contest: • Round 1 was in Toronto in April • Round 2 is in Calgary today • Round 3 will be in Montreal in October Each city votes for a winner and runner up After Montreal, a national winner and runner up will be chosen by S-L

4. Here’s How to Play and Win • In an hour we’ll go to our breakout sessions • Be thinking now of your best “Great Idea” • In your breakout: • You’ll each have 1 minute to pitch your Great Idea! • At the end of the breakout, you’ll vote for the best

5. Here’s How to Win • The winning ideas usually: • Can be conveyed clearly in 2 or 3 sentences. • Can be easily implemented. • Have a quick and quantifiable payoff.

6. Prizes for the Winning “Great Ideas” • Within each roundtable group today: • Winner: Two (2) free downloads from www.service-leadership.com • Runner-up: One (1) free download from www.service-leadership.com • Grand winners today: • Winner: 1.5 hours of phone consulting with Service Leadership (value US$636.00) • Runner up: 45 minutes of phone consulting with Service Leadership (value US$318.00) • Grand winner Canada-wide: • Winner: 3.0 hours of phone consulting with Service Leadership (value US$1312.00)

7. Surviving and Thriving in an SMB IT Recession The broader economyWhat’s really happening?

8. Canada and Its Southern Neighbor • “Recessions in the United States have been accompanied by a wide range of outcomes in Canada. • “The sharp contractions in the US during 1974-75 and 1981-82 were associated with a mild and a severe recession respectively here in Canada. • “The mild downturns in the US in 1990-91 and 2001 were accompanied in Canada by a severe recession in the former case and no recession in the latter.” Source: Statistics Canada, March 2009, “The Impact of Recessions in the United States on Canada”

9. Canada and Its Southern Neighbor • “Recessions in Canada and the US are often, but not always, closely synchronised. • “There is a large disparity in the magnitude of the downturns since the severity of a recession in Canada is usually determined by the course of domestic demand, not exports. • “Domestic spending is influenced by global trends, especially the impact of commodity prices on business investment. • “The record drop of our terms of trade late in 2008 suggests that the global recession will play a determinant role in domestic spending.” Source: Statistics Canada, March 2009, “The Impact of Recessions in the United States on Canada”

10. Google Search Trend: “Recession” Source: Google Trends Canada, April 2009

11. S&P/TSX Composite Index Source: Yahoo Financials

12. How Bad is It? Source: Statistics Canada, April 2009

13. Surviving and Thriving in an SMB IT Recession Recession strategies What Your Peers Picked

14. Survey Method • Canadian Solution Providers only • Asked to rate 54 recession management strategies: • Scale: Poor, Fair, Good, Best • 37 total Solution Providers responded • How would you rate these strategies?

15. 5 Staffing Strategies Rated

16. 3 Compensation Strategies Rated

17. 6 Customer Strategies Rated

18. 12 Offerings Strategies Rated Best Poor

19. 8 Cloud Strategies Rated

20. 6 Peer Partnering Strategies Rated

21. 4 Capital Expense Strategies Rated

22. 4 M&A Strategies Rated

23. 5 Capitalization Strategies Rated

24. Surviving and Thriving in an SMB IT Recession Now, Your Great Ideas!Have you thought yours up yet?

25. What Were Toronto’s Winners? All winners are now entered in the All Canada SMB Best Practices Contribution Contest!

26. Prizes for the Winning “Great Ideas” • Within each roundtable group today: • Winner: Two (2) free downloads from www.service-leadership.com • Runner-up: One (1) free download from www.service-leadership.com • Grand winners today: • Winner: 1.5 hours of phone consulting with Service Leadership (value US$636.00) • Runner up: 45 minutes of phone consulting with Service Leadership (value US$318.00) • Grand winner Canada-wide: • Winner: 3.0 hours of phone consulting with Service Leadership (value US$1312.00)

27. Today’s “Great Ideas” Agenda • 1:30 – 1:40 Opening Remarks, Mark Snider, GM Ingram Canada • 1:40 – 2:30 Surviving and Thriving • 2:30 – 3:00 BenQ • 3:00 – 3:30 Cisco • 3:30 – 4:30 HP and Great Ideas Roundtables Be ready with your Great Ideas! • 4:30 – 4:50 Adobe • 4:50 – 5:10 Lenovo • 5:10 – 5:30 IBM • 5:30 – 5:50 Symantec • 5:50 – 6:15 Results of Great Ideas Contest! • 6:15… Technology Fair & Reception

28. Surviving and Thriving in an SMB IT Recession Calgary Great ideas!Today’s Winners and Runners-Up

29. Surviving and Thriving in an SMB IT Recession 14 More slides to Thrive!Leave your business card to get deck...

30. S-L Recommended Strategies • What specific strategies does Service Leadership recommend to survive andthrive: • For all Solution Providers? • For Managed Services-centric Solution Providers? • For Project-centric Solution Providers? • For Product-centric Solution Providers?

31. Taking Advantage of a Downturn • Actively seek local competitors who are going out of business • Buy them or buy their customer lists • Hire the best from their teams • Hire the best from clients who are downsizing • Market also to insecure internal IT guys, who may be buyers then become your employees • Leverage white-label SaaS/HaaS offerings

32. Taking Advantage of a Downturn • Develop recession-management offerings • Change focus of QBRs and assessments from growth to increasing asset leverage • Develop “skinny” offering as entry wedges, but: • Be sure to include many checkbox options • Only market to target customers, not too-cheap ones • Seek out “recession-proof” clients • You only need a few Ferrari-buyers! • E.g. Law firms often do well.

33. Recession-Oriented Value Props Change your marketing to include recession-management messaging Value Propositions Value Propositions Leverage staff, costs with more mobility Stretch out useful life of equipment Avoid empire-building Downsize IT by letting us hire your guy Make IT more accountable Take advantage of IRS Sec 179 • Free up working capital • Pay as you go • Focus on core business • Predictable budget • Increase budget flexibility • Rebound faster • Improve security during changes (esp. IT staff) • Reduce software licensing wastage

34. For All Solution Providers • Management guidelines: • Maintain Flexibility in the Business • Contracts, leases, loans, cash • Of the time you invest in planning for a recession: • Spend 75% planning for a mild downturn lasting 4-8 months • Spend 25% planning for a strong downturn lasting 18-36 months • Identify Your Leading Indicators and Track Them • What simple metrics show you not only the past (P&L) but also the future (sales funnel activity, A/R collectability, operating cost ratios, etc.) • Assess Your Strengths and Vulnerabilities • Attack your top 3 vulnerabilities, not all of them • The worst action is no action at all

35. For All Solution Providers • Be cautious about your H2 2009 budgeting and financial fitness • Include a lower revenue case in your budget planning; but hold margins up as long as possible • Assume that your DSO (Days Sales Outstanding, a measure of the days it takes on average for you to collect on your customer invoices) may extend as customers push out payments • Assume that credit – yours and your customers’ – will be harder to obtain or expand • Be careful about customers pushing you to assume more debt to support them • Be sure to do credit checks before taking on new customers; they may be switching vendors because they couldn’t pay their previous one; periodically credit check your existing customers (especially your top ten) • Rigorously determine which customers are truly profitable for you; raise prices or fire those who are not • Determine proper staffing ratios now so you know in advance when you must cut wages or staff if business drops • Multiple of W2 for technical team • Product and service gross margin dollar production for sales team • Administrative cost as a % of revenue or gross margin dollars for admin team

36. For All Solution Providers • Employees • Assume that employees, perhaps feeling crunched themselves, will push towards less incentive risk (while you will want more) in their comp plans. • As their spouses’ jobs potentially become less stable, secure benefits may be a strong desire as well. • Communicate with them regularly to reassure them about your company’s status and plans for managing through the recession • Vendors • Likely to focus back on immediate sales and old fashioned promotions • Ask for additional MDF funding and discounts; be proactive to gain maximum support • Likely that Vendor’s current focus on partner enablement and service enablement will be sustained; ask for best practices and benchmarking

37. Mergers and Acquisitions • If you are buying: • Buy more of what you already do profitably • Buy to balance your business model to gain new wedges into accounts • But be very careful – it’s risky and hard to add new lines of business • The greatest sins are: • Paying too much • Ignoring cultural and style differences • Failing to integrate well after the acquisition • If you are selling: • Don’t sell too soon, but don’t sell too late • Waiting usually favors the buyer • Consider reducing price to accelerate payment • The buyer may be too aggressive and be unable to pay later

38. For Managed Services Providers • Keep your focus on Managed Services: • In the three economic downturns since 1980, those Solution Providers who were delivering Managed Services to enterprise customers found that enterprise customers outsourced as much or more to them during downturns. • We can’t be sure about this in the SMB space yet, because SMB Managed Services hasn’t had to weather a downturn until perhaps now. • When revenue is uncertain, customers often find flat fee offerings have more appeal. • When profits are uncertain, companies reduce staff and turn to outside providers. • Quite important for Managed Services providers: • When recessions occur, customers hang on to the IT equipment longer, which drives up the need for maintenance services. • Will also drive up your maintenance costs on current contracts. • Some customers will shrink; this will reduce your device count and therefore your monthly per-customer fees.

39. For Managed Services Providers • Create a low-frills but still full-service offering. • Don’t succumb to the temptation to reduce your flat fee by pushing more of the scope back into “optional” time and materials work. The unexpected T&M charges at the end of the month will upset your customers just when they are trying even harder to manage cash flow. • Raise your monthly fee slightly, then allow customers to may quarterly or even annual pre-payments at a slight discount. • Assume that customers will hold onto equipment longer, which will drive up your year/year support costs. • Make sure your contracts today have annual budget increase clauses. If they don’t, go back to your existing customers and negotiate them now. • Your work to document and automate your operational processes will be even more important if you yourself need to downsize or hire lower-cost employees. • While it does take investment to build these kinds of efficiency factors, they could make or break your margin flexibility later. And by all means, get your customers to adhere to your technology standards or pay more for their choice to hurt your economies of scale. • Leverage those Managed Services tool providers who will let you “pay by the sip” to use their licenses or even their behind-the-scenes staffed services. • Even though this may cost a little more over time, it will help you conserve your cash for possible rainy days ahead. •  Lastly, the “land grab” for customers continues. • Any customer you can sign now is your most secure asset in a downturn. Keep margins and pricing high for now, but consider expending more of it on marketing to bring in leads in the short term. Start to position your offering even more heavily as a true-cost-savings, budget assurance and HR flexibility solution.

40. For Project Services Providers • In the last downturn (2001-2003), project-centric firms typically dropped in revenue by between 20% and 45%. • Partly due to one-time market misalignments • Y2k, Internet Boom had soaked up huge dollars, resulting in a vacuum when the economy slowed • Assume that customers’ capital expenditures will drop, resulting in fewer large scale new projects. • However, you can position your assessment and re-design services as ways customers can extend the life of their investments by getting the maximum capacity out of them, and then do asset re-allocation projects. • If your project methodology is solid, and you know and control your project costs, switch to a flat fee pricing methodology. • This is more attractive to customers looking to conform to stricter budgets. It also diverts the discussion from rate per hour, which is always a hot topic in a downturn.

41. For Project Services Providers • Finding leasing alternatives for your clients • Turn a capital expense into an operating expense • Pay strict attention to your Multiple of W2 attained by your project teams. • A key vulnerability of project-centric firms in downturns is holding on to under-utilized billable people too long. • Waiting for a project to close to rescue your billable utilization is a losing game in an environment where capital expense decisions get delayed or cancelled. • Take the hard medicine early and fewer will be hurt later on. • Start to stack rank your project people by your most important operating criteria so you know who you can and cannot afford to cut if you need to bring your Multiple of W2 back in line with falling project revenues.

42. For Product Resale Firms • In the last downturn, even SMB-focused product resellers were under pressure, though less so than their mid- and large-market colleagues. • Revenue drops of 50% and even 75% were not unusual in the 2001 through 2003 timeframe. Capital expense-driven businesses often suffer during downturns. • So re-look at your H2-2008 budget planning with a stern eye and create an all-hands-on-deck contingency plan. • Investigate expanding your leasing capability. Although credit will be harder to come by, those who can offer lease options to customers will maintain sales volume longer. • If the path to Managed Services looks too long in the face of a downturn, consider partnering with local Managed Services providers to be their equipment, spares and warranty processing resource. To the degree they sell product today, it is their lowest margin offering, and they are likely to have less credit facility than you do; they will want to stop selling product. Conversely, it will be the Managed Services firms that have the closest pulse on their customers’ capital expense plans, and so are the most likely stream of SMB product sales volume. • Consider getting into the used-equipment market. Margins here are quite strong and in a downturn there will likely be more equipment on the market and more buyers looking for budget-saving ways to get new gear.

43. Remember… • Adversity brings strength • Belt-tightening and efficiency in lean times will result in a stronger company and more cohesive team when the economy starts to turn around • Focus on life after the recession; great companies are forged in adversity • Get good at it • Many of the things you do to survive and thrive in a recession are simply good business practices you should do all the time to run a great business

44. About Service Leadership, Inc. • Founded by successful Solution Provider executives, Service Leadership’s mission is to enable owners and executives of Solution Providers to maximize the value delivered to employees, partners, customers and shareholders. • Service Leadership’s exclusive benchmarks, tools and training, consultation, and mergers and acquisitions advisory services enable Solution Provider owners to deliver the highest value to their constituents and in turn receive the high rewards so earned. • Service Leadership publishes the Service Leadership Index™, the industry’s only unbiased source of Best-in-Class Solution Provider financial and operational metrics. • Service Leadership Index™ Groups are the industry’s leading executive best practices sharing groups, which meet quarterly to objectively compare results and share best practices in a highly productive, expertly facilitated setting. • 11% of our revenue and 13% of our customers are Canadian…and growing! • For more information, go to www.service-leadership.com or e-mail info@service-leadership.com.