New Lease On Life

At least that's what solution providers, in growing numbers, say they're doing. While leasing and financing have always been components of the IT equation, in recent months solution providers say they have been forced to move these once-mundane and often-neglected aspects of an IT project to the front burner in order to win new business.

In today's uncertain economy, offering a total IT solution goes far beyond technical expertise or business acumen, they say. As customers increasingly scrutinize solutions' return on investment potential, creative financing options often hold equal weight with the technology being brought to the table. Indeed, solution providers and channel executives say that going forward, the art of financing a technology solution could be a key factor in separating the winners from the losers.

Sysix, Oak Brook, Ill., is one solution provider that leans heavily on financing to win new business. About two years ago, the company started Sysix Financial, a unit that offers leasing to Sysix customers. "Has this helped us swing deals? Absolutely," said Sysix CEO John Sheaffer.

Sheaffer said he figures that his finance unit is responsible for a 25 percent to 30 percent growth in his overall business, in part because it enables some customers to implement projects they might otherwise have delayed. Moreover, having its own leasing business gives Sysix a leg up on rivals competing for a deal on a straight purchase price, Sheaffer said.

In one recent deal for a storage system, a larger competitor tried to make an incursion into one of Sysix's existing accounts by offering the customer a price Sysix couldn't match, he said.

"We would have been beat out on a straight purchase price," Sheaffer said. Instead, Sysix got the deal because its financial arm made the difference. "Even with my slightly higher purchase price, because [Sysix was] supplying the equipment and the lease, my [overall] asset [was] cheaper."

Sysix originally marketed its leasing services to existing customers that were financing their purchases through other leasing firms. That represented about 30 percent of Sysix's customer base, or about 50 accounts, and contributed to a tripling of its leasing revenue from 2001 to the end of 2002, Sheaffer said. Sysix then moved beyond those initial customers and began offering leasing options with new deals. There, too, the results have been significant: Lease originations have more than doubled since the beginning of the year, Sheaffer said.

The increase has been fueled by the downturn in the economy, Sheaffer said. A couple of years ago, companies had so much cash and liquidity that the argument against leasing was fairly strong, he said. They didn't want to pay points on leased equipment when they could buy the equipment outright.

"But those arguments are gone, and today companies have less cash," Sheaffer said. "Even though interest rates are at all-time lows, the double-edged sword of that is that banks are even more risk-averse today than ever. Even though you can borrow for less, no one is going to give you the money."

Moreover, Sysix has found that looming budget deficits, notably those of state and local governments, create fertile ground for solution providers with leasing expertise. Sheaffer said these institutions often didn't consider leasing in the past, but because of tight budgets, they tend to be more interested in using the lease option to reduce up-front costs for IT equipment. "Overall, you are finding more customers open to leasing today than in the past," he said.

Solution providers and channel executives said the ability on the part of the channel to bring a financial component to the bargaining table is more crucial now than ever. In fact, financing was a hot topic at the recent CRN Channel Chiefs roundtable, where executives attributed the rising importance of financing in part to the fact that IT purchasing is no longer confined to the IT department. Companies' decision to commit company capital to IT equipment has become an overall business decision, calculated with a strict ROI in mind, they said. In these scenarios, financing can become the swing vote for green-lighting a project.

"I think there is more money outside IT [departments] than there is inside [them]," said Chuck Robbins, Cisco's vice president of U. S. Channels, adding that Cisco is encouraging its sales teams and solution provider partners to look beyond IT departments to understand the business problems their customers face. "Don't underestimate the power of financial vehicles in selling today. If you can fix the financial side of the buying problem, you can close the business," he said. "The art of structuring the deal is more important than it ever has been."

Gary Grimes, vice president of partner management and sales operations at Sun Microsystems, said he, too, sees an uptick in creative financing on the part of solution providers looking to close more business. "We're seeing either leasing or some other creative financial approach to the art of the deal," he said. "We're seeing [things like] six-month delayed [lease] payments,install now, don't start paying for six months."

Don McDowell, vice president of server solutions at Forsythe Solutions Group, Skokie, Ill., said having financial expertise isn't just an additional benefit, it's a prerequisite for winning business in today's economy. That expertise is an especially important element when it comes to account control and the customer relationship, he said, adding, "If you only come to the market with one solution involving speeds and feeds, you're not going to get the business."

McDowell said Forsythe's financing offerings often enable the solution provider to move on to "phase two" of a sale. "Just because equipment is budgeted doesn't mean that the IT guy can spend the money. Now you have to go to the second sell, which is to the CFO or somewhere in finance where [the customer justifies ROI]. Just having a need for technology is not enough justification to purchase it."

And the art of deal-making doesn't stop with leasing. Jeff Reed, executive vice president of product marketing and CTO at Logical, Bloomington Hills, Mich., says his company has begun leveraging its multivendor relationships to get better pricing for its customers.

"The ultimate value of the solution provider is that we sell products from multiple vendors and we know what we can get from each vendor in terms of special pricing and rebates," Reed said. "What we are doing new this year is telling our customers that if they buy all of their products through us, we will give part of the rebates back to them in the form of steeper discounts. If they buy all of their IBM, [Hewlett-Packard], EMC and Intel from us, we tell them we'll give them additional rebates. That's something they can't get by buying product direct from the vendor."

Ultimately, Reed said that no matter what financing options a solution provider offers, it's important to engage customers both large and small on the financial side of the solution. Small companies are often motivated to use leasing options because of cash-flow issues, while managers at large companies may be focused on financial metrics that require them to make sure an IT purchase doesn't show up on their balance sheets during a particular quarter, he said.

If you want to help your margins, the important thing is "to get the customer focused on terms and conditions rather than actual costs," he said.

Solution providers and channel executives also said that intimate knowledge of the IT industry allows solution providers to be more creative and more aggressive than institutions outside the business when it comes to offering financing options.

A lot of solution providers know how to do financing "really well" because "they have their own financing sources and put together some incredibly creative deals that a large company wouldn't touch," said Sun's Grimes.

Sysix, for example, just won two deals that a leasing company wouldn't typically fund, said Sheaffer. "You need to understand the [customer's] story, not just their financials. I have advantages over leasing companies and banks because I can understand what companies are trying to do, and then [I can] go to my consortium of banks and give them a story that is plausible so we can get it funded," he said.

Another factor that allows solution providers to be more aggressive in financing their customers' IT projects is knowledge of the projected market value of products once the lease expires. "We can make smart bets up front and set residual values knowing what the back end will be," Sheaffer said. "If it's from Sun, IBM or HP, we know that they have great trade-up programs [for old equipment]. We also know when something is one-offish or that the vendor likes to come out with new products and squash old ones. That's the advantage of being in the business,you know what will end up being truly worthless."

But Sheaffer added that in the current economic climate, the ultimate advantage of an IT professional also becoming a financial expert is survival.

"Where would we be without the leasing business over the past 18 months? Probably about 25 to 30 percent smaller and struggling," he said. "The finance business is one of those diversification things that helps us add a more complete offering, and it provides us with a recurring revenue stream."