On The Record

May 27, 2009

Watching CNBC last week with my morning coffee I laughed out loud when I heard the umpteenth pundit talk about how it was time to buy equities because the economy is improving.Switch the channel to the even less truthful "mainstream" networks and you'll hear some government talking head spewing optimism.

They are all lying. Sorry, I didn't say that. They are all misinformed and trying to guide individuals to do things they believe will help.

This economy is not getting better any time soon. Unemployment is rising and may hit double digits before long. The deficit is climbing. Government bonds are falling. The auto industry is in free fall. Gas prices are up and most governments, here and abroad, are doing more harm than good by taxing and spending too much.

So what's a VAR to do?

First and foremost, watch your cash flow. Cash flow is the mother of all VAR killers. Thankfully, there are some vendors stepping up to the plate to help. Juniper Networks, for instance, has a new program to help VARs in this area. When a vendor steps in with a cash management program for partners in a market like this, it also signals its commitment to the channel.

Next, make sure you are carrying vendors that are committed to you and have programs that reflect that. As mentioned above, look for cash-flow-friendly programs first, but don't forget to assess the ease of doing business. In addition, there are other signs to watch for. When a vendor's first reaction to a bad quarter is to slash partner support, you should expect it to get even worse as the economy limps along.

The third and more important move is to push more forcefully into the growth areas that show customers an immediate return on investment. Virtualization and VoIP are category winners here, but there are some other technologies that do well in times like these because they are must-haves. Security and storage are two. Customers need security regardless of what's going on in the market.

You also want to be pushing vendors and technologies that drive service revenue and profitability. A study by Everything Channel's IPED division shows Juniper Networks as being particularly profitable for its competitive set. IPED has data on other manufacturers as well. Kevin Johnson, Juniper's CEO, also likes to point to the service revenue that surrounds his product set. At the recent J-Partner event he repeatedly mentioned that $2 to $3 in service revenue is generated for every dollar of Juniper hardware sales for partners.

You also must double down on sales and marketing efforts. While I get the adage that it is easier to generate a dollar in new revenue from a current customer than a new one, in this market you have to spread the net. There is always new opportunity and you have to make the effort to find it. I've found far too many VARs don't invest enough in sales resources. In this market, if a new employee won't directly correlate to new revenue it's hard to justify the investment.

I think you have to plan for a weakened economy at least through next year. If it improves faster, then it's a plus, but I don't think you can count on it. Politicians are not economists and they make decisions based on politics, not economics. This downturn is the longest of our adult lives and it is going to set many more records before it is all over. You have to cut costs, conserve cash and find new sales to get through this.

BackTalk: Make something happen. Robert Faletra is CEO of Everything Channel. You can contact him via e-mail at rfaletra@everythingchannel.com.