Eye On The Prize

Jim Simpson, president and CEO of Omaha, Neb.-based MSI Systems Integrators, pulled a Kerouac this summer and hit the road for two months, calling on customers to personally find out what they wanted and needed, and whether his offerings were on track. Weary but enlightened upon his return, Simpson says a couple of customer themes followed him across the country.

Over and over again, he says, customers are moving to simplify infrastructure environments both in terms of IT complexity and the sheer number of vendors they have to deal with. A midsize customer he visited, for example, counted a whopping 120 vendors with which it works.

That customer is actively trying to get that number down to a more manageable 20. "The biggest theme is clients' looking to simplify their environments—fewer vendors, more standards—in order to exploit some of the efficiencies that result," Simpson says.

Like many other VARs, Simpson knows that finding out what his customers want is key. VARs responding to the 2005 State of the Market survey report that the typical customer relationship spans 5.7 years, down last year from an average 6.3 years. The upshot: Customers are getting more demanding, and it would be wise for you to know what they need before they do. But Are They Spending?

James Davie, vice president and co-founder of Norcross, Va.-based Canvas Systems, a systems integrator that provides refurbished equipment and services, says customers are spending, albeit cautiously. That means often having to justify how they spend their IT dollars, which makes the relationship side of the deal even more important.

Regardless, customers are still spending. According to VARBusiness' State of the Market research, in the past year, large VARs reported a typical customer as spending at a median level of $100,000, while midsize VARs reported spending of $30,000, and smaller VARs saw roughly $7,000 spending from their typical clients. In fact, MSI's Simpson saw some creative accounting, which allowed customers to upgrade their IT. Customers were "swapping budgetary items," or taking the savings from reducing infrastructure costs and applying those toward new application-development or other projects, he says.

"I've seen this in a number of clients, where budgets aren't necessarily going up, but they still have to fund projects, so they look to savings from server or storage consolidation," Simpson explains.

Catering To the Customer
For Davie, building relationships is what it's all about; it keeps customers and attracts new ones. "Our business is done on relationships," he says. "We're not only helping them solve an IT need, but a business need. We have to understand the customers' business needs and work from there—put ourselves in their shoes." He adds that customers look to his company as a trusted partner, rather than just a vendor bidding on a project.

Curtis Hite, CEO of Dallas-based Valtech Technologies, an IT services and consulting company and the North American fully owned subsidiary of Valtech, agrees that a relationship with the customer is key. "The services firms that remain today, after the downturn, are more stable and have better people," Hite says. "We're asked to participate as a partner, more than just a service provider. They trust us more; we've been through good and bad times with them, so now they ask us for our advice and are more appreciative of it."

Hite adds that flexibility is key to attracting and keeping customers. "Flexibility is an important component of our customer satisfaction," he says. "We allow customers to ramp up or ramp down more quickly than a rigid contract would call for. There has to be a willingness to work with the customer amicably."

Hite says his company can be flexible and react more quickly than larger vendors because there is less bureaucracy. How does he keep customers? "Our customers tend to grow with us. We set expectations, and we meet them," he says. "Expectations are what a customer wants to hear about."

Hite notes, however, that it's difficult to nail down the full complexity of a customer's business requirements off the bat, so he sets initial expectations based on current agreements, then updates them after work gets under way. "Shortly after the project begins, we'll come to them with revised estimates," he explains. "This calls for a lot of trust on the part of the customer, but we've actually lowered the amount of a contract. When you do that with a customer, you've established trust, and they'll come back again and again."

Where Are the Customers?
VARBusiness' State of the Market research found that existing customers continue to represent the backbone business for VARs, with 65 percent of total revenue coming from repeat business and 35 percent coming from new customers. Of the new business generated, smaller VARs are once again most likely to generate new business on their own (80 percent, up from 78 percent in 2003) vs. midsize (73 percent) and large (65 percent) VARs.

Simpson refers to customers that were generated with help from partners as "frosting on the cake," but doesn't rely on that to attract new business. His company makes the most out of messaging on its Web site, marketing collateral and targeted campaigns to attract new customers. One attraction in particular that draws new customers in, Simpson says, is MSI's Technology Enablement Centers. The centers, located in Omaha, Neb., Bloomington, Minn., and Overland Park, Kan., provide a working environment where prospective and existing clients can go and see how technology is implemented.

"Clients have told us they don't have the time, energy or money to do R&D on new products," Simpson says. "They're looking for us to take a leadership position and do some of the R&D work on their behalf at our centers."

Of those who visit a Technology Enablement Center, Simpson says that roughly 80 percent become customers. He adds that customers are much more confident about the solution they are implementing after going to one of the centers and seeing firsthand how it will work.

The centers are also key for selling additional services to existing clients, Simpson says. "They might have come in for a storage briefing but see a platform they're interested in and want to see a portal demonstration, too," he adds. Looking to the future, Simpson says the company has plans to expand its centers to include three to potentially six new ones in 2005.

Hite says that Valtech's existing customers account for the majority of the company's revenue at about 75 percent. Keeping that business is very important, he says. "Our customers tend to grow with us. I can't think of a customer that hasn't done repeat business with us." Setting expectations and meeting them are vital for that residual business, as well as attracting new customers, Hite says.

Hite adds that he has won over many new customers after another service provider has failed to deliver. "Either they didn't set the right expectations, didn't know how to build large systems or accepted tasks that were too difficult," he says. "So we come in and clean up."

What do repeat customers want? VARBusiness research found that for existing customers, the vast majority (80 percent) of VARs' incremental revenue comes from professional services, followed by technical services (64 percent), software (57 percent), hardware (48 percent) and infrastructure (44 percent). Simpson prides himself on the fact that MSI's original client, which signed on 10 years ago when the company first started, is still a customer. Why? Once again, he says it's the notion of a one-stop shop and the fact that customers are looking for a dependable partner to help them on a regular basis. But he also says it's important to make sure every client is satisfied and its technology needs are met.

When it comes to new customers, Canvas' Davie says that a good number of them come through referrals. "That's what we shoot for," Davie says. "A recommendation from someone else is the best way of earning new business." But everyone knows customers fall by the wayside, and Davie says Canvas also depends on a lead-generation team and cold-calling contests to drum up new business.

As for customer size, VARBusiness market research confirms that the midmarket is where the growth is (see our Sept. 13 State of the Midmarket issue for additional midmarket customer research). Forty percent of solution providers reported increasing revenue from midmarket customers, with another 39 percent reporting revenue in the midmarket remained the same. From the customer side, 40 percent of midmarket executives reported increases to their 2004 IT budgets and plan to continue increases to their 2005 IT budgets.

Simpson says that while his company serves customers of all sizes, there is a "sweet spot in the large SMB space." But while smaller customers might be more apt to look to third-party providers, Simpson says that large customers are under the same pressure to do more with less and also rely on third-party help.

Regardless of whether a customer is new or existing, small or large, VARs agree that customer service and providing exceptional value brings in new customers and keeps the existing ones coming back for more.

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