On Growth

When Partner Growth Stalls, Deeper Problems Are at Work

IT services executives need to take a hard look at their businesses right now to make certain they are fully in sync with -- and preferably ahead of -- the market.

• By Mike Harvath
• October 25, 2016

A month or so ago I read an online article in Forbes magazine about the deadly outcome of stalled growth. It was written by Adam Hartung, and while the focus of the article was on McDonald's and its problems at the time, I quickly noticed how applicable the problem of stalled growth is for small to midsize IT services firms.

According to data provided by Hartung, "A growth stall occurs when a company has two consecutive quarters of declining sales or earnings, or two consecutive quarters of lower sales or earnings than the previous years." He goes on to state, "When this happens the future becomes fairly easy to predict."

Specifically, "When companies hit a growth stall, 93 percent of the time they're unable to maintain even a 2 percent growth rate. Fifty-five percent fall into a consistent decline of more than 2 percent. One in five drop into a negative 6 percent per year revenue slide. Sixty-nine percent of Growth Stalled companies will lose at least half their market capitalization in just a few years. Ninety-five percent will lose more than 25 percent of their market value. So it is a long-term concern when any company hits a growth stall."

Hartung proclaims, "Growth Stalls are a great forecasting tool because they indicate when a company has become 'out of step' with its marketplace. While management, and in fact many analysts, will claim that this performance deficit is a short-term aberration which will be repaired in coming months, historical evidence -- and a plethora of case stories -- tell us that in fact by the time a Growth Stall shows itself the situation is far more dire than management would like investors to believe. Something fundamental has happened in the marketplace, and company leadership is busy trying to defend its historical business in the face of a major change that is pulling customers toward substitute solutions. Frequently this defend-and-extend approach exacerbates the problems as retrenchment efforts further hurt revenue."

I think the operative sentence in his analysis is: "Growth Stalls are a great forecasting tool because they indicate when a company has become 'out of step' with its marketplace." The reason this statement jumps out to me is because the IT services market is going through so many transformational changes, it's not hard to imagine how quickly companies can fall out of step with these business-altering changes, and find themselves in a stalled growth mode.

In two previous columns this year -- "9 Signs You're a 'Partner of the Past'" and "10 Steps to Becoming a 'Partner of the Future'" -- I've written just what IT services companies have to do to keep abreast of these transformative marketplace changes, avoid becoming out of step with the market and, with it, avoid the specter of stalled growth.

The foundation for these two columns comes from an IDC report published in November 2015 titled, "Partner of the Future: 10 Transformations IT Solution Providers Must Make." This report hits the dilemma of being "out of step" squarely on the head, and is a valuable prescription for either getting out of a stalled growth rut, or preventing one in the first place. The article states, "The fact is, maintaining the status quo will be a failing strategy for IT solution providers. These business partners of some of the world's top IT vendors are going to have to make multiple changes, and soon.

"The hard part is that the market conditions that are forcing all of these transformations are happening all at once. This is a very interesting time to be an IT solution provider."

IT services executives need to take a hard look at their businesses right now to make certain they are fully in sync with -- and preferably ahead of -- the market. Having a growth strategy in place that puts you in the best position to take advantage of these changes is a surefire way to avoid the deadly outcome of stalled growth.

More Columns by Mike Harvath:

• For IT Services Partners, All Roads Lead to M&A
• 10 Steps to Becoming a 'Partner of the Future'
• Archive