Stepping Up: Leading Public-Sector Channel Programs
As middlemen, VARs take on the burden of some heavy expectations. On the one hand, customers demand timely delivery of goods and services; on the other, vendors want to get paid in a reasonable amount of time. Now factor in the nuances that exist in the public-sector market--such as lengthy sales cycles, quirky buying seasons and picky customers. Suddenly, those expectations become a lot more difficult to meet.
In the fifth annual directory of vendor programs that serve government and education partners, GovernmentVAR highlights 25 solution providers and integrators that offer five-star treatment by accommodating the individual needs of public-sector consumers.
In general, government partner programs tend to share some customary characteristics. They often provide VARs with access to a GSA Schedule, for example, and they usually offer some form of deal registration that provides credit to partners that bring the vendors government opportunities, regardless of whether they win the contracts. While those benefits are important, they're not enough.
"There needs to be some intimacy with the channel," says Rick Marcotte, president and CEO of Herndon, Va.-based DLT Solutions. "The vendors that are taking the time to talk to their government partners consistently become very educated on the unique nuances in the market and do creative things to make them manageable. They recognize that government transactions get complex."
Adapting Lines of Credit
Perhaps the biggest challenge that faces government solution providers--particularly the smaller ones--is staying far enough in the black to keep business running. At a minimum, there are four buying seasons to keep track of and accommodate: the end of the federal fiscal year in September; the end of the state and local fiscal year in June or July (individual states vary); the individual vendors' own year end, and the end of the calendar year, when systems integrators generally make their capital purchases.
While vendors accommodate a large chunk of the upfront costs associated with those seasonal purchases with credit lines offered direct or through distribution, it's difficult to predict what each individual solution provider faces each year.
American Data and Computer Products (ADCPI), for example, counts Raytheon and Lockheed Martin as its two biggest customers. Like most big prime contractors, the companies are typically good about assigning payment. But, as a small company, ADCPI is still challenged with carrying the receivables associated with some of the megacontracts won by the integrators, and the integrators' capital purchases.
"Through Tech Data, I had a $400,000 line of credit, but one order can wipe that out," says Terry Castro, vice president of Tampa, Fla.-based ADCPI.
By leveraging all the vendor and distributor financing options, ADCPI quickly learned to maintain the necessary balance. Specifically, the company negotiated a flooring account with GE Finance about four years ago that pays for all orders received by Lockheed Martin. Basically, the manufacturers' product lines go on the account; GE pays Tech Data, which pays the manufacturer; Lockheed Martin pays GE direct; and ADCPI receives only the portion due. Even channel-adverse Dell allows its products to be resold on credit. "The conditions are not as good as the larger credit lines, but they do at least give us the opportunity," Castro says.
In addition to distributors, many vendors have their own finance divisions that offer similar services--Cisco Capital and NEC Financial Services, for example.
Since ADCPI uses the flooring account for more than half of its business, the company receives special manufacturer discounts or extended net terms.
"Extended terms from any vendor is always a plus for the reseller," Castro says. "The longer you do business with someone, the more they're going to increase your credit line and offer advantages."
NEXT: Fronting Costs
Search GovernmentVAR's 2006 directory of partner programs .
Beyond financing, a lot of vendors offer loans to smaller businesses that are just entering the government market. Often, they have a venture-funding pool of money and invest in resellers to help defray startup costs.
"It's more critical on the federal side, because the sales cycle is typically much longer than [it is on the] commercial [side]," Marcotte says. "There's a certain amount of sowing your oats, and not being able to harvest what you've sown for a longer period. Investing in people to work opportunities, therefore, tends to be a longer-term investment; if a reseller can get help from a vendor to fund that resource, that manages the risk."
AutoDesk, for example, has a growth fund to assist resellers in hiring new salespeople and to co-invest in other growth initiatives. Similarly, Cisco provides loans for small companies that may qualify as federally certified set-asides.
"There are a lot of smaller companies that have a harder time entering the government space," says Dawn Duross, director of Cisco's federal channels. "When there's a good business case, we'll do an extended loan and provide financial incentives to have their people trained."
Similarly, the growing demand for managed services by government agencies causes billing cycles to be far more complex. Solution providers are required to validate that they have met the scope of work before getting paid by the government customer. Often, the red tape delays payment beyond the customary 30 days.
"By law, the government is allowed to be fairly picky," Marcotte says. "Some of the vendors have a better process for giving us more rope; they don't necessarily come up to the channel partner saying, 'I want you to pay me in a month, and I don't care what happens with the end customer.'"
Keeping Inventory
Lengthy sales cycles and the tendency for government to lag behind industry in terms of IT can also cause a variety of inventory issues. For example, a solution provider may place an order through distribution in September, but still be waiting for the contract to be finalized two months later, or an integrator may put a particular product on a five-year contract with an agency, only to find out that in two years it's going to be obsolete.
Given those kinds of scenarios, some vendors offer cancelation or inventory rebalancing programs that provide some flexibility to the partners. Based on best estimates, a reseller may place an order for 50 configured servers, only to find that the contract requires 40. The vendor or distributor will take back the 10 and provide credit.
"In the government space, it's important for both vendors and distributors to have that kind of flexibility," says Bob Laclede, vice president and general manager of government and education at Ingram Micro.
Similarly, if a product becomes obsolete with the release of a new version, adjustments must be made to ensure neither the vendor nor the solution provider loses the deal.
That's what happened with one government reseller who had a long-term contract with an agency that standardized on near- obsolete IBM PCs and needed to continue supplying and supporting those products. Ingram Micro had the PCs in stock, but the reseller had no storage space to inventory them until needed. IBM stepped in to resolve the problem. "IBM paid for what we called the consignment charge for three months until that inventory was required," Laclede says. "Those are the types of things set up in the channel to make sure deals roll out as needed."