Still it was a slow period for Sethi, who since then has been making up lost ground as clients use his manpower to move data and re-configure their systems.
Like so many other mid-sized IT services companies nationwide, SVT, which was founded in 1997 by Sethi and former investment banker Amit Sarkar, profited mightily from the tech bubble, and has grown remarkably fast — from $1.3 million in revenues to $26.5 million in 2000. But what happens now?
Slowdown
Sethi admits that the Internet-based work has all but gone. Major client AIG, which was rushing to put its insurance policies online in 2000, suddenly cut back drastically on those projects. Sethi, who had 100 consultants at AIG, now has more like 30. He’s taken rate cuts of 10 to 15 percent from his core Wall Street customers. In the last two years, he jokes, even he was billable, since there was so much business. Those days are gone.
But things could be worse. At least Sethi has relationships with customers. He has been able to place his consultants all over the U.S., and in the UK, and more than 70 percent are off the bench. He claims he will actually beat his 2000 earnings.
Sethi wants to ensure that his profitability continues. If he can’t place someone in two weeks, he sends him back to India, to the company’s operation there. To facilitate that process, he hires mostly young consultants without families who are not opposed to these temporary movements.
SVT just landed a major contract with Minneapolis-based United Shipping and Technology (Nasdaq: USHP) that will employ about 50 consultants. On top of that, the company’s offshore business is expanding. SVT handles application development in India, and also outsourced systems administration and database administration work in Sri Lanka. Those managed services revenue from the company’s Colombo operations, where SVT has 100 employees, is a solid anchor for the company.
The Bigger Picture
Sethi admits that traditional IT consulting business on Wall Street will likely not grow. But he sees some hope coming from government business. SVT has even recruited former presidential hopeful Jack Kemp for its board of directors.
Sethi admits he has seen recruiting-based “body shopping” businesses begin to die off, since the business just isn’t there. The New York, New Jersey area is full of such business, and Sethi used to go through third party recruiters to get enough manpower during the boom. These days he doesn’t have to.
The Opportunity
SVT has become very cash rich off of consistent 20 percent net profits over the past several years. Many observers have suggested that consolidation will be inevitable in the IT services sector. SVT was actually nearly acquired by India-based DSQ Software, until the India stock markets collapsed and DSQ walked away from the deal.
Sethi isn’t retreating, and wants to use his cash position to pick up business through the acquisition of companies that may be struggling at the moment. He explains, “We are looking to make deals with a few companies. We can buy revenue at forty or fifty percent today.” The ultimate goal for SVT is to raise some VC money, go public, and quickly grow by acquisitions.
Why is this bootstrapped company looking to raise capital? “You can do it organically but it’s going to take a longer time. Now since a lot of people want to get out because their business is sliding they are willing to play with you,” says Sethi. VC resources could accelerate the acquisition strategy. It’s an unusually aggressive concept in these more cautious times. It remains to be seen if it can be made to work.
