Tips From The VAR Trenches

Forget technology for a minute and pretend that IT truly doesn't matter. With still-tenuous economic conditions and increasing competition and consolidation in the marketplace, many solution-provider owners have been working overtime to enhance their back-office operations, lower costs and efficiently scale their businesses with wise investments. However, it sounds simpler than it is; credit and financing terms for resellers have tightened. For example, partner programs fees aren't exactly falling, and hiring the right people is still an enormous challenge despite the pool of displaced salespeople, consultants and engineers.

"Cost controls are extremely important," says Frank Knox, CTO of solution provider Skyline Advanced Technology Services. "Running a business today with narrower margins is a lot more difficult."

What's a solution provider to do? VARBusiness has compiled the best practices from a few of the more notable and successful members of the VARBusiness 500 and beyond to get an idea of how they improved profitability and operations within their companies. In addition, we provide some insight from VARBusiness' 2005 State of the Market research regarding the business challenges resellers are facing today and the strategies they are employing to overcome them.

Office Space For Rent--Cheap

Sure, moving is a pain in the neck. But with occupancy rates still surprisingly low in many metropolitan office buildings and an abundance of attractive real-estate options, it may be worth moving out of your present office to a new location that offers more competitive terms. Amazingly, a recent report from real-estate services firm Spaulding & Slye Colliers International states that nearly 20 percent of Boston office space is still vacant and roughly 11.2 million square feet is currently unused, which is the highest rate in nearly 25 years.

Resellers can use such conditions to their advantage to lower their real-estate and office expenses. Whether you're expanding a business, starting a new company or just looking for more affordable space, juicy opportunities exist in even the largest cities. For example, when Roundstone Systems, a solution provider based in Alameda, Calif., was searching for office space in the San Francisco Bay area in 2003, CEO and founder Tim Joyce discovered a great deal for a location that hadn't been occupied for two years.

"The economy hasn't been great, but that has been an opportunity for us to get things cheaper," Joyce says.

Business Bonding

Calvin Cooke, CEO of Brainstorm, a networking solution provider headquartered in Durango, Colo., says he plans on forming more partnerships with other VARs to win additional VoIP business, which has become Brainstorm's biggest revenue source. Last year, Cooke's company joined Tech Data's TechSelect organization, an exclusive group of more than 300 North American solution providers in the small and midsize business market; it's common practice among TechSelect members to work with one another on mutual IT projects or joint customer accounts, which Cooke says is a perfect match for Brainstorm's expansion plan.

"I want to go national with our VoIP business, and partnering with other VARs is the best way to do that," he says.

Indeed, teaming up with fellow VARs has become quite popular these days. VARBusiness' State of the Market survey shows that nearly 75 percent of responding solution providers partner with other resellers and integrators. In terms of the type of solution provider that other VARs are seeking, the two most popular choices are software solution providers and IT consulting and professional-services firms. Campbell, Calif.-based Skyline, for example, frequently teams up with one-time competitors in the Cisco market; it offers both integration services, and training and education programs for other VARs in the channel.

"We've tried to do everything ourselves," says Mike Zanotto, COO of Skyline. "But in the past couple of years, we've spent a lot of time building relationships with other integrators and training partners. That has helped to lower our overhead [and] allowed us to acquire best practices."

Perhaps the best and most crucial area to reinvest profits, according to several VARs, is in training and education. Vendors are aggressively courting resellers to take part in everything from weeklong boot camps to quick, two-hour seminars for new technologies, whether it's Cisco's IP telephony push or Sun Microsystems' RFID push.

"We reinvested a lot of our profits into Cisco," Cooke says. "We recognized IP telephony as a major trend and adopted early, and now have a solid customer base."

Distributors also are getting into the groove, promoting emerging markets, such as storage and security, and sometimes offering cheaper, less time-consuming courses and sessions than the vendors'. Arrow, for instance, last spring launched its first annual event specifically for Hewlett-Packard's storage product line, which the distributor says helped boost its resellers' storage sales and server attach rate. For its part, ScanSource's Solution City program includes a series of road shows for solution providers that offer training and education for emerging technologies, such as VoIP and RFID.

Death of the Salesperson?

According to our State of the Market study, 47 percent of solution providers are looking to hire more people this year. Within that segment, more than 40 percent say they plan to hire IT services professionals or technical support staff. Close behind, 37 percent of survey respondents plan to hire more sales professionals, such as Roundstone's Joyce. Sales, however, seems to be more challenging to find new talent; VARs complain that many sales professionals don't understand the solution sell and are stuck in the old days of product pushing and price haggling.

Tom Freese, a sales consultant and president of QBS Research, Atlanta, says the challenge to find the right salesperson can indeed be overwhelming. "If you're a small VAR, how do you find good salespeople?" Freese asks. "Experienced people aren't always the answer. If someone comes in with 10 years' experience, is that a good thing? The sales approach in IT was completely different 10 years ago."

Thus, Freese says, solution providers should emphasize training and development rather than try to find the perfect salesman. "Most resellers I've encountered have had minimal to no sales training," says Freese, who spoke last fall at Tech Data's TechSelect University event in Tampa, Fla. "Good salespeople aren't born. They're developed."

Cutting the Cord

Last year, a number of solution providers found that dropping some of their vendors and respective product lines wasn't such a bad idea. Our State of the Market survey showed that respondents dropped or de-emphasized an average of 3.6 vendors and 4.9 product lines in 2004. Cutting ties with unprofitable or unruly vendors will no doubt continue in 2005; the survey also found that more than 18 percent of solution providers plan to drop more vendors this year, and more than 16 percent will cut product lines as well.

Changing primary vendors can be a major transition, but if you find the right replacement, it can be well worth the effort. Norm Shockley, president of Sunnyvale, Calif.-based Adeara, restarted his solution-provider business two years ago and decided to switch platform vendors, moving from Sun to HP.

"It didn't make sense for us to go back to Sun, so we looked at HP and IBM," Shockley says. "We had good ties with HP, and in the end they had a more attractive package [with its partner program]. We have a great relationship with them now."

According to our State of the Market study, VARs say the top three reasons for dropping vendors and/or product lines are, respectively, a lack of competitive pricing, bad service and better alternative technology. Whatever the case, getting rid of dead weight can add to a solution provider's bottom line by saving money spent on fruitless partner program fees and other vendor expenses.