So with that in mind it means that cash to fund growth must be extracted from ongoing operations, and this is the place to look.  Let me first say that having covered the world last year for Microsoft we can clearly identify the top three issues that are plaguing partners bottom line today. They are:

1. Lack of mid-level management to assist the owners with driving the business. When times are tight, you need extra hands to drive growth and change.  When you look around and everyone is out billing, it makes it hard to capitalize on the new opportunities being presented. So a balance has to be achieved where a true leadership team can emerge at the same time, making everyone at minimum a break even proposition.
2. Organizational design. Providing a small span of control and compounding it with non-revenue generating goals is eating the bottom line of many partners right now.  PLEASE STOP THAT.  Taking a senior person (read: expensive), making them a non-billable resource so they can “manage” a team of 4 – 6 people is really impairing the ability of many partners today to do anything.  To make matters worse, in core areas of focus like sales, it is even more dire, we mash together 3 roles into one, then wonder why no one achieves the plan.  These are two structural issues that left unattended, will make partners EBITDA in the low single digits.
3. Lack of visibility into core leading indicators. We are all good at looking at the bank balance and P&L after the month has passed, but this is like driving in reverse down a high speed freeway.  After conducting dozens of deep dive evaluations of partners this year across the globe I can say that as an industry, we have failed ourselves by not building in systems that show us leading indicators.  Things such as new marketing “pulses”, learning and growth for our technical teams, customer satisfaction and the process improvements we are actually gaining on.

I believe 2010 can be a year for growth in our industry. But we have to stop making the same mistakes over and over again, and start focusing on the core drivers that increase profits.

But like I said, we have a good excuse. We’ve been working on developing our lines of business, so we can best round out our offerings in Partner Marketing Services, Sales Strategy & Methodology Consulting, Website Design and Inbound Marketing for Partners. And let’s face it, we’ve also been out and about enjoying one of the best summers Vancouver has seen in years!

I for one am fortunate enough to be truly enjoying the majestic beauty of our great Province. For the month of August, I am spending my days fishing, catching prawns and navigating my boat through the beautiful calm waters of the BC coastline. And I’m spending my nights enjoying the fruits of my labour, dining on my daily catch and sitting out under the stars, sipping my favourite wine and listening to the sounds of the great outdoors. No more construction noises and hustle and bustle for this guy. I’ve left my city living, Porsche driving, fast-paced ways behind for a fabulous month of sun filled fun and adventure. And I couldn’t be happier.

The good news for you is, after a month of rest and relaxation aboard my cruising yacht – a Tiara named Lucy Blue, I will be back in the office, energized and ready to hit the ground running to help you and your business grow and prosper throughout the fall, sailing right into the new year with success. My team is diligently working (on their tans and the proper way to hold a margarita) throughout the month, so we can all be best prepared to solve the unique business challenges that have plagued you on your summer vacation.

Watch out world. We’ll be back in full effect come September, and you won’t believe the excitement and motivation we’ve got in store!

While this may appear prudent at first, most of the companies that are in this cycle are already suffering from the weaknesses of their current systems.

By weaknesses I mean that the very issues that keep CEO’s and CFO’s up at night – such as forecast accuracy, cash flow, inventory velocity etc.

These issues will remain until such time as the system can be replaced, and delaying the decision to purchase a new system will only increase internal suffering. Systems which cannot effectively help manage a business instead create increased areas of frustration. And what’s more, the very act of trying to reduce capital expenditures is exactly what will allow the frustration to continue to increase.

Without the right business management solution it is difficult to streamline operations and increase productivity, which in turn affects a business’s ability to save money in tough economic times.

Companies are suffering from a bad memory.

The reason these businesses are replacing systems today for the most part, grew out of the need to replace their systems in the late 90’s to deal with a little pesky thing called Y2K. Now if any company can remember that process, you will remember a few things about it.

So many companies were rushing to change systems at the same time, that:

1. It drove demand sky high, and as a result drove up the cost of replacing the systems (price is driven by demand)
2. Costly errors were made in the actual functionality delivered, and the business value of the application was reduced by using too many inexperienced people
3. Delays in implementation caused companies to suffer from prolonged information gaps
4. There was a total lack of ability to negotiation on the part of the customer. Demand was so high, you paid the price and took the system, or you risked being blacked out in January of 2000.

So how does that effect the buying decisions of 2009?

Consider the timing. The economy has slowed, and business partners that help companies make the right decision in applications are not as busy.

Software companies need the revenue, and the business looking to make a change need to perform to their bank covenants more than ever. Working to keep inventory at a minimum, stretch every available dollar of working capital and be intelligent as to any investments contemplated, businesses are looking to make the right decisions.

What a better time for two groups to get together and help each other.

Think about this,

Average replacement cycles range from 7 – 12 years, so roll the clock forward from 1999 and you get 2006 – 2011 as the replacement period.

So if you are waiting to replace, you are not alone. In fact the number of companies considering replacement grows each month. And guess what? There is set up here, where companies will suffer from the same issues that they had in the late 90’s only this time driven by their own decisions.

Right now large scale business application partners are laying off core staff, so there goes the work pool you will need when the economy turns, and you want to move forward. And it will turn.

I say 2009 is the best year you could possibly change your core business application systems.

Why? Everyone will negotiate with you to keep their teams together; you will get the brightest team as they are not 150% busy, software vendors will negotiate the value or terms of the license, financing on these types of systems has never been easier, and more importantly you will put your own company in a very competitive position of not having to replace systems when the market takes back off.

This will allow you to deliver punishing blows to your competitors that struggle to make changes in the heat of a rising market.

This is why delaying is misguided.

If you needed a new system in 2008, you still do today. And it is getting worse, not better.

More risk will enter your business and the very issues the system could solve are not available to you. And when you really want to move forward, and all the pent up demand from all the other companies materializes, then you won’t be able to act the way you want to get the very talent you need to make your project a success.

As a business owner, I would be looking for ways to improve my business now, and one of the best ways to do that, is with a new business application system.

There is no time like the present.

I say look at the current economic situation as an opportunity, and invest in your business.

I am challenging the thinking of Partners today, forcing them to evaluate how and why they have fundamentally stayed with the same business model for more than 19 years.

Very little has changed in the way they sell and estimate their offering to prospects, or how they deliver services and add business value to the customers.

This scares me.

The rest of the world has changed in innumerable ways, so why haven’t Partners kept up?

I can’t image banking in the same way I did in the early 90’s, or driving around in a 1988 Oldsmobile, stopping to use a pay phone, or getting on an airplane filled with cigarette smoke.

Things have changed and so have I.

And I am left wondering how the infinitely intelligent, highly educated business Partners out there continue to think that the status quo will remain the same.

I saw this as a major risk before we entered 2009 (not to mention the economic storm clouds) and of course, it appears more vivid now.  Any of you who know me will realize I am likely worried at least 18 months ahead of when I should be, and this time it’s no different.

Despite my warnings in the past, I have seen many excellent business partners washed out to sea when they didn’t see the big wave heading their way.

I feel a tsunami coming on…

Let me get to the point here.  Today’s customers want to buy software that fits their business (vertical, industry), and they want to go about it in a different way than they did the last time.

While some customers want solutions that are “tailor fit” and customized exactly to their business needs, others are willing to change their internal processes in order to reduce total cost of ownership over time. Some see the value in services from Partners, while others don’t.

The dynamics of customer behavior are changing under our feet.

The Yellow Pages have all but been replaced by Google and other search engines, customers increasingly reject traditional interrupt marketing, and they are underwhelmed by proposals that have 50 line items specifying products and hours, but fail to identify what’s in it for them.

They are more concerned about total project cost and less about per hour rates, and they want to see and understand the real value before they buy.

This is of course exacerbated by the recession, which has people clinging to their dollars, idling in indecision.  The sentiment of most people these days is, “if you can’t identify what is in it for me, then I will wait and see if and when I want to go through the pain of changing my system.”

This is a hard sell for your sales force. It just becomes a waiting game.

More customers are looking at the off balance sheet potential of software plus services.  This is disruptive for most Partners who need the license margin spike associated with on-premise solutions.

This is forcing Partners to re-shape the professional services compliment from the super application consultant, to an increased emphasis on remote team based support and training.

Monetizing Service Businesses

An important and often challenging issue faced by business owners today, is figuring out how to monetize these service businesses.

This remains a mystery for many. And as the entrepreneurs who built these practices age, and the era of the consolidator has run its course, what is next in the way of an exit strategy or succession?

Now it is interesting that a reputable franchise of any type is easy to buy and finance through traditional sources, as they have proven to be money generating machines for those that can reasonably operate them.  It is also interesting that many franchise owners hold multiple locations, and are happy with the business they are in.

I have heard the argument from Partners before that I am comparing two different types of businesses. Fundamentally, I agree.  However, what is most important in this comparison is that unlike most Partners, these business owners have found a way to scale their business and not make it completely dependent on the super hero.

You can argue all you want that you can’t compare those two, however, I would then argue you should compare Partner businesses to a CPA firm or something like that.

They scale, they have world wide scope, they have a more complex environment with more skill intensive work than the average Partner, and they are readily sold when the business partners decide to.

Are you prepared?

At the end of the day, I liken this to the bit Al Gore does on the boiling frog – if you put a frog into a pot of boiling water they jump out right away recognizing the danger, however, if you place them in a pot of tepid water, they will sit there as the heat rises and boils them to death, not noticing the changes around them.

As I consider the Partner Channel as it stands today and those reluctant to consider the way things are changing, I am left wondering if the business applications Partners out there are aware of this impending wave, or if they are complacent enough to just let the water boil around them.

What are you doing to change? Post your comments below.