Channel Elite Express Webinar Series September, 2008

1. Channel Elite Express Webinar Series September, 2008 “Financing Growth in Challenging Times”

2. From CMP to… Everything Channel • Channel Consulting, Education and Market Intelligence • Over 50 years of collective experience in the channel • Thousands of partner profiles in every geography • More than 90,000 interviews with Channel Partners and their customers annually 2

3. Agenda The Challenges to Managing Growth Financing Strategies Making the Right Choice

4. Challenges to Solution Provider Growth

5. Research shows… Profit:53% of Solution Providers Operate At or Below 5% Net Income IPED Solution Provider Competency & Profitability Benchmark Study Growth:Less than 10% of All Companies Can Maintain Above-Market Growth Rates for Longer than 5 Years Multiple Academic / Economic Studies (i.e. McKinsey 2006, etc.) Lifespan:Average Age of a Systems Integrator Company is 7.4 Years … and Lower Each Year VARBusiness State of the Market Research The Facts of Business Life

6. Get Your Business Model Right Define Growth Goals Develop Business G-T-M Strategy Assess Risk/Willingness Prerequisites to Financing Decisions

7. Critical Success Factors The Solution Provider Balancing Act Capacity Opportunity Process Systems People Margins & Profits

8. The Toughest Business Question “Do I really need the money?” • The right “engine” may not be monetary at all • What are the downstream implications?

9. Lifestyle Business Solution Providers who claim they are either a.) not focused on growth or b.) are focused on simply keeping pace with the market due to: Desire to live a certain lifestyle Personal customer service Company in transition, internally focused on business models as a preface to growth mode Moderate Growth Solution Providers who expect to grow 4-15% over the next year based on: A desire to target new markets Primarily driven by taking existing solutions and adding expertise which make them specialists in a given category Hyper Growth Solution Providers who expect to grow business more than 15% over the next year by: Adding practice areas/new product lines to capture greater number of customers and greater amount of customer share Most expect to accomplish this through M&A The Growth Profiles of Solution Providers

10. Growth: Not a Function of Size Small Medium Large

11. Business’ Ability To Succeed: Critical Factors Finding New Business Customer Service Changing Techs Marketing Your Business Managing Cash Flow Finding/Recruiting Tech/Cons Tech Training Finding/Recruiting Sales Measurable/Actionable Goals Overall Financial Mgmt Managing Vendor Relationships Finding the Next “Killer App” Sales Training Managing Disti Relationships Understanding Peer BP’s Adding New Vendors Contingency Planning Finding Management Outsourcing Divesture

12. Agenda Challenges to Managing Growth Financing Strategies Making the Right Choice

13. Financing Business Growth

14. Expand • VC • Go Public • Joint Venture Exit Maturity Start-up Growth • Banks • VCs • Individuals • Credit Line • Internal • External • Go Public • Vendor • Personal • “Angel” • Minority Equity • Internal • Vendor Different Sources for Different Phases of Growth 14

15. SELF-FINANCING Cash Flow Financing Personal Credit Re-financing Assets BANK FINANCING / CAPITAL INFUSION Line of Credit Equity-based Loans Private Equity (Ownership, Investment Strategy) VENDOR / DISTRIBUTOR PROGRAMS Extended Terms (60 / 90 Days) Employee / Resource Funding MDF / Co-op / Initiative Funding or Incentives Three Fundamental Financing Strategies

16. The essential core of self-financing strategies is an independent, entrepreneurial spirit that drives home-grown opportunity … OR a fear of debt that limits growth and prevents certain opportunities that would otherwise make sense for the business PROS of Self Financing Control Ownership Autonomy Focus CONS of Self Financing Organic Growth = Slow Growth (Most often) Risk One Point of View Limited Resources Self Financing: The Pro’s & Con’s

17. When private equity is managed well, it can be the fuel for fast growth and access to opportunities an entrepreneur couldn’t access alone … BUT when it’s not managed well, it’s the fastest way to cause an otherwise healthy business to go out of business PROS of Capital Infusion Large Resource Pool Immediate Access to Cash Opportunities to Grow through Acquisition Risk Management through Diversified Ownership CONS of Self Financing Loss of Ownership External Priorities Imposed Upon the Business Risk Increase through Debt Service Requirements Expense of Carrying Debt Bank Financing/Capital Infusion: The Pro’s & Con’s

18. What Makes a Solution Provider Attractive To Private Equity? Capital Infusion: Are You Prepared? Unique Offering / Opportunity Existing Customer Base … Diversified, Loyal, Sustainable Stable, Talented Management Team Talented, Stable, Improving Employee Base Formalized Systems and Processes for Repeatable Outcomes Revenue Predictability (i.e. Contracts, Recurring Revenue) Solid, Articulated Strategy for Growth *NOTE: These are the VERY SAME criteria that make your business healthy overall, so …

19. Questions to Ask Yourself (and Answer!) Before Seeking Outside Financing What are your financial goals … personally and organizationally? What is the current state of your business finances? What is your tolerance of debt and risk? Do you have the ability – and the commitment – to measure financial performance beyond the top line … especially at Net Income? What is your strategy for growth … and does that strategy require outside capital, or could you grow on your own funding? Capital Infusion – Are You Prepared?

20. Most solution providers see vendors or distributors as product sources or potential partners … but rarely as a source of investment resources. The simple truth is that’s funded by another partner that would otherwise cost money is an investment … and should be managed that way PROS of Vendor / Distributor Funding Alignment Investment = Priority = Access to More Resources Access to Expertise Offset Fixed Costs / Improve Cash Flow CONS of Vendor / Distributor Funding Brand Confusion External Priorities Limited Resources … Many Competitors Management Requirements Vendor / Distributor Funding: The Pro’s & Con’s

21. Agenda Financing Principles Solution Provider Profiles Making the Right Choice

22. The IPED BIC Methodology Becoming Best In Class STEP 1: Understand Your Business CONTEXT STEP 2: Set The Bar for Best In Class Performance STEP 3: Learn The Key Performance Indicators … Measure Gaps STEP 4: Get Your Business Model Right STEP 5: Grow Your Business (Capacity + Opportunity) STEP 6: Balance Your Performance, Adapt, and Repeat

23. “GROWTH” is the Product of Two Basic Business Principles CAPACITY … i.e. the resources, processes, and management acumen to deliver more output and create more value from your organization OPPORTUNITY … i.e. access to more customers who need and are willing to pay for more of your resources and the value they create Many Businesses Fail to Grow because They Put Too Little Emphasis on One Factor or the Other Too Much Capacity / Too Little Opportunity = Low Margins, High Fixed Costs, Pending Layoffs, Need Better Sales / Marketing Effectiveness Too Much Opportunity / Too Little Capacity = Low Customer Satisfaction, High Employee Burnout, Pending Customer Defection, Need HR for Recruiting and Operations for Process Managing Growth: The Balancing Game

24. Leadership in Theory Set the Direction for the Business Own and Actively Administer the Culture Inspire and Motivate through Vision and Action Have a Plan, Work the Plan, Demonstrate Accountability Leadership in Practice Manage “Capacity and Opportunity” Determine investment strategy for growth Relentlessly oversee day-to-day financials Track and understand business drivers that impact financial Implement financial management systems and processes Optimize your “Profitability Model” In the End… “It’s management’s role and responsibility to manage the financial engine to drive business growth.”