2016 Channel Forecast: Confidence Is Extraordinarily High
Solution providers have high hopes for the remainder of the year, but hiring woes and a lack of self-investment could dampen their outlook
By Larry Walsh
While the American economy seems healthy, signs are pointing to economic instability this year. The stock market is off to one of its worst new year starts in its history. Oil prices remain suppressed by oversupply and waning demand. China’s economy is slowing rapidly. Europe is mired in low growth. And the technology market – the growth engine of the global economy for the past two decades – is contracting.
The indicators give plenty of reason to worry, but that’s not deterring North America solution providers. They came into 2016 with the most optimistic performance outlook in recent history, according to The 2112 Group’s 2016 Channel Forecast.
More than nine out of 10 solution providers believe their 2016 sales and revenue will increase at least 6 percent over the previous year. Comparatively, 73 percent of solution providers last July believed their 2015 sales would end with the same growth over 2014. What’s even more significant is that nearly two-thirds of solution providers expect strong double-digit growth in 2016 – again, up over 2015.
A key performance indicator in 2112’s annual channel forecast is acceptable rates of growth – or the minimum positive change over the previous year in gross sales and revenue. The average acceptable growth range increased in the 2016 Channel Forecast to 16 to 25 percent. This elevated acceptable rate of growth shows that solution providers aren’t just confident; they also have higher expectations for their businesses than in the past.
Acceptable rates of growth are especially significant because they’re among the strongest indicators of actual growth. In previous research, 2112 found that solution providers with higher growth expectations often post higher actual growth rates. But there’s more to it than just a correlation. In many cases, solution providers with higher expectations report growth rates as much as double their minimum expectations.
Part of the optimistic forecast is attributable to high demand for certain technologies – most notably, security, backup, and cloud computing. While these are the standout technologies, solution providers are surging toward other emerging opportunities in areas such as unified communications, converged infrastructure, and software-defined networks (SDN). Conversely, solution provider interest in legacy technologies is waning quickly, as many see declining opportunity in printing and imaging, endpoint PCs, and mobile devices.
Beyond technologies, solution providers see real growth potential in services – particularly professional services. The profitability of professional services climbed in 2015, while other product and services segments remained relatively stagnant. Solution providers are showing signs of capitalizing on the general drought of tech talent pervading all industries by offering everything from advisory to integration to managed services.
Growth doesn’t just come from products and services. It also comes from planning, effort, and discipline. Solution providers are investing more in their business acumen, with more engaging in strategic planning and monitoring performance indicators to guide their growth. In fact, most solution providers believe their growth will come from a focus on driving sales increases and not through peer-to-peer acquisitions.
None of this is to say that the channel is free of worry in 2016. While the overwhelming majority of solution providers are very confident their businesses will grow this year, they’re also showing continued signs of organizational immaturity, lack of investment in emerging technologies and next-generation skills, an inability to hire and retain staff, and limited potential for sales expansion. These factors could dampen actual growth and inhibit long-term growth potential.