What Recession? Solution Providers Bullish On 2020 Economic Opportunities

In a recent survey of solution provider CEOs attending this month’s Best of Breed channel thought leadership conference, 69 percent of those surveyed said they do not expect a recession next year.

Greenpages Technology Solutions CEO Ron Dupler doesn’t give much credence to the pessimists predicting a recession in 2020.

“We see a lot of momentum going into 2020,” said Dupler, who has architected a recurring revenue, secure cloud services strategy that is paying big dividends for Kittery, Maine-based GreenPages, No. 201 on the 2019 CRN Solution Provider 500.

In fact, he expects 50 percent-plus growth in his company’s security and cloud services businesses next year. “Our cloud business is screaming. It’s growing very rapidly. Adoption is strong. People need help moving toward cloud and hybrid cloud business models. That is driving a lot of business,” Dupler said. “The investments we made in cloud and security are very well aligned with what the market needs right now. Cloud and security have been important for many years, but now it is exploding. You can’t hire people fast enough.”

Dupler said that in 30 years in the business, with the past 15 years at the helm of GreenPages, he has never felt better about the road ahead.

“Never,” said Dupler emphatically. “The opportunity to differentiate businesses with technology has never been greater. So the opportunity is as high as it has ever been for businesses to leverage technology for competitive advantage. Balance that with the fact that there is a lot of complexity. That is why there has never been a more exciting time.”

That strong demand for digital transformation, cloud and security services is one of the reasons Dupler expects the overall economy next year to weather macro-economic issues like the U.S.-China trade war and Brexit.

“I think the economic fundamentals are looking really strong right now,” Dupler said.

Dupler is not alone in his sanguine view. In a recent survey of solution provider CEOs attending this month’s Best of Breed channel thought leadership conference—hosted by CRN parent The Channel Company—69 percent of those surveyed said they do not expect a recession next year. What’s more, the majority of those CEOs characterized their view of the 2020 economic prospects as “optimistic.”

The 2020 sales outlook for North America’s top solution providers is off the charts. Forty-nine percent of BoB Conference attendees surveyed expect sales to soar above 20 percent and another 49 percent expect growth of up to 20 percent. Just 2 percent expect no sales change, and none predicted a sales decline.

The outlook for EBITDA—sparked by the rapid adoption of monthly recurring revenue subscription models—is also skyrocketing. Thirty-nine percent of BoB Conference attendees surveyed expect EBITDA growth above 20 percent, while 56 percent expect growth up to 20 percent. Just 5 percent of those surveyed expect a drop in EBITDA.

Dr. Douglas Holtz-Eakin, former chief economist of the President’s Council of Economic Advisors under President George W. Bush, said he is “cautiously optimistic” with regard to the economic outlook for next year.

“I think this is a very resilient economy,” said Holtz-Eakin, who is president of the American Action Forum, a Washington, D.C., policy institute that has been critical of President Donald Trump’s trade tariffs. “It is continuing to grow. The fears are outsized compared to the data. So I am cautiously optimistic. There are things that I can see that could go wrong. If they do, it will have a big impact.”

Holtz-Eakin is predicting GDP—a commonly used indicator of economic health that measures the value of produced goods and services—will slow in the U.S., moving from 2.2 percent to 2.5 percent this year to 1.6 percent to 2 percent in 2020.

Most economic models call for a 20 percent to 30 percent chance of a recession next year. Holtz-Eakin sees a recession as the “less likely” possibility in what has become a tale of two economies, with strong consumer and household spending on one side versus a business sector that is becoming increasingly pessimistic in the wake of the trade war.

Holtz-Eakin said the upbeat outlook from BoB Conference solution provider CEO attendees is in sharp contrast to the “broad consensus” of CEOs—the majority of whom see a recession as likely next year.

“[The surveyed solution provider CEOs] sound more optimistic than the average CEO,” he said. “That makes some sense. Tech has been growing faster than the rest of the economy. They have a little more momentum than the rest. But you still have 31 percent [in the survey] who think there is going to be a recession next year, and that is above what the data would say.”

One reason for the optimism from solution provider CEOs: the fundamental shift in how corporate America views technology solutions. Many CEOs realize that their businesses will succeed or fail based on how effectively they utilize technology to drive customer experience and business outcomes.

“Organizations are realizing they need to leverage technology in ways they’ve never leveraged technology before to either grow their revenue streams or reduce operational costs,” said Manak Ahluwalia, president and CEO of Aqueduct Technologies, a CRN Triple Crown winner for the past consecutive years (see story, p. 54). “So there’s still a big appetite for them to make investments in technology, especially if it’s technology they can [implement] relatively quickly to give them the agility they need or has a short-term [return on investment]. That’s been the mind-set for most executives and their boards for the past few years. I don’t see that letting up.”

Ahluwalia, who founded Waltham, Mass.-based Aqueduct eight years ago, expects his company’s sales to increase upward of 30 percent in 2020. Businesses simply can’t afford to cut corners when it comes to IT, he said. “I can’t imagine there are many businesses out there, many sectors out there, that are not thinking technology is a beneficial way for them to move forward in 2020.”

The channel, he said, is overall in good shape for next year as a result of shifting to a recurring revenue, monthly services model for many customers. “The necessity for us to repeat netnew business next year doesn’t need to be there for us to grow 20 percent,” said Ahluwalia. “January 1, 2020, is not Groundhog Day for us. Many of us are walking into next year with 60 percent or 70 percent of the revenue in hand of what we’re expecting. So we’re going to be effective even if there is a little bit of a hiccup in the market.”

The largest technology manufacturers in the world, including Cisco Systems, Dell Technologies and Hewlett Packard Enterprise, are changing the way they develop and sell solutions—moving to as-a-service and subscription-based offerings that deliver business outcomes, which is making it easier for customers to invest in digital transformation.

“From the manufacturer side, products have become easier to use. The promise of what you can do for customers from a visibility, assurance and analytics standpoint on their networking platform, for example, has fueled a huge transition and growth for us,” said Ahluwalia. “For routing, switching and wireless—you’re definitely seeing huge refreshes being driven by increasing customer demands around usability and performance. … You see how Cisco transitioned into what customers want: software, subscription and security. At the end of the day, the technologies that they are bringing to market is what customers are looking for. That won’t change [in 2020].”

Security Is The No. 1 IT Spending Priority In 2020

Security continues to be the No. 1 priority driving IT investments by a wide margin, according to solution provider CEOs surveyed by CRN. Security, in fact, topped the list of the biggest spending IT priorities for 2020, according to the survey, followed by hybrid cloud, public cloud, private cloud and application modernization.

Michael Hadley, president and CEO of iCorps Technologies, named to CRN’s 2019 Tech Elite 250 list, said the need for customers to invest in security and cloud services has made the channel somewhat recession-proof.

“We see a lot of energy and effort going into security, especially with everything that is going on today. With everyone being held hostage with ransomware, you just have to keep better securing yourself,” said Hadley. “I don’t see, even in a recession, businesses stopping investment in technology. Not in today’s world.”

Years ago, customers could cut back on technology spending without doing harm to the business, said Hadley. That just is not the case today.

“You still have to pay your monthly cloud fees and internet bills,” said Hadley. “It’s not like you can just let the server sit there and run for five or six years like people used to do in the old times during a recession. In the old days, people just wouldn’t update their on-premises equipment during a recession. They just sat on it, let it run and hoped it kept running. You can’t do that today with cloud.”

Hadley sees talk of a recession as politically motivated. “Look, a lot of companies are doing very well and see themselves doing well next year,” he said. “The bulk of the small and midsize businesses that make up a good part of the market today are booming and growing.”

Boston-based iCorps Technologies is expecting 15 percent to 20 percent revenue growth in 2020 year over year, said Hadley.

If there’s anything to fear in terms of an economic downturn in the future, 2021 could be the year due to the potential economic fallout from the U.S. presidential election in November 2020, said Hadley. “I would say the biggest fear is probably 2021, to see what happens based on the election at the end of the year,” he said. “But I see it continuing to boom next year.”

Innovation Is Key Differentiator For Solution Providers

Joe Vaught, owner of PCPC Direct, Houston, expects double-digit sales growth next year in a market where innovation is key to success.

“What you need to do to be successful in this market is ‘Do something every day that scares the hell out of you,’” he said. “You have to be a little bit of a dreamer to be successful in this market. I’m not afraid of anything that is technical. I’ll try it and test it and God only knows what you may find. Technology like artificial intelligence and high-performance computing have put all of the answers in front of us. You just need to go out and put it all together.”

Putting it all together is what PCPC Direct has done with its innovative immersion cooling high-performance cluster solutions. Those immersion solutions—which PCPC Direct has been investing in for five years—are driving breakthrough levels of price-performance for high-performance computing. Those high-performance clusters are powering a new era of big data and AI solutions, said Vaught.

“I haven’t seen anything like this in 33 years in this business,” Vaught said. “This is all about computational fluid dynamics. What we’ve got is a superior high-performance immersion cooling system. This technology nearly doubles the speed of high-performance systems. This is going to go crazy for us. This is green. It uses half the power of conventional clusters. It cools 1,000 times better than air so you are not spending all your money on cooling.”

Among the vendors helping fuel PCPC Direct’s high-performance drive are processor giant Intel, data center cooling provider Midas Green Technologies, AI GPU maker Nvidia, co-location provider Data Canopy, Hewlett Packard Enterprise, Dell Technologies and Lenovo.

Vaught scoffs at talk of a recession as nothing more than fearmongering. “I feel really good about the economy,” he said. “I have seen recessions and 22 percent interest rates. My view of the economy is optimistic. And I would be extremely optimistic if we weren’t having issues with Iran, which could disrupt the global economy.”

Fundamental Shift In The Channel Model

David Powell, chief revenue officer for New York-based MSP Corsica Technologies, said the ebullient mood for 2020 is in part the result of a fundamental shift among top solution providers from selling technology to solving business problems.

“We’re not just throwing boxes at things,” said Powell, who expects 20 percent-plus sales growth in 2020. “We are solving problems and helping clients meet their business goals. We are guiding our clients toward business outcomes. We are bringing guidance and expertise in a market where the complexity and risk of adopting technology continues to go up. The risk of going it alone without a good partner keeps getting higher for businesses.”

The biggest danger for companies in a digital era is to not be proactive, said Powell. “I always tell customers: ‘You don’t want to be in a position where technology happens to you,’” he said. “You want to have a plan and a strategy to embrace and incorporate technology. Our No. 1 qualifying question in the sales process is, ‘Does the customer want IT leadership?’ We want to be the partner that helps customers reach their goals and be leaders in their industry. If they are winning, then we are winning.”

Powell said he is “super jazzed” by the high-innovation, business-outcome-focused channel dynamic. “Our clients need us to innovate on their behalf,” he said. “I am really enthusiastic about what is ahead, but it is going to be like it has always been: Adapt or die. If you don’t adapt to what the market is doing and the changes happening in business, you are going to be left behind. That pace is only increasing.”

GreenPages’ Dupler, for his part, knows that at some point there is going to be a recession. “Things don’t go up forever,” he said.

But even if a recession does hit, the channel is in a much better position to handle a downturn than in the late ’90s when the dotcom bust sent capital expenditure data center sales plummeting.

“I think our industry was pretty naïve in the ’90s when the dot-com bust hit,” he said. “We have got a more mature, more experienced industry right now, and I think people will be ready for it when we have another downturn and will make the adjustments needed to weather the storm better than we did then. The business is totally different. It was hardware-based, very Capex- based, which is tied to GDP. When a recession inevitably hits, you can pull back your Capex spending, but it’s not like you are going to turn off your monthly recurring revenue. Those are contract-based commitments.”

That shift to a recurring revenue services model is one of the reasons Dupler is so optimistic about the future of GreenPages, which will celebrate its 30th anniversary in 2022. “The story changes,” he said. “We have pivoted our business model a number of times. We have been great at what we did through certain periods in our evolution as a company. Right now, we are working to be great in the digital era. That means helping companies transform with great technology solutions. The game has changed, and certainly having a recurring revenue model as the basis for your business is much healthier than a Capex-based model. We have got a great road ahead.”