Innovating Your Way To Profitability

wireless

Although many fans see the new networks as not much more than a way to annoy those around them with cellphones and laptop PCs, stadium connectivity is here to stay. And with Minute Maid Park -- and more recently, the San Jose Arena -- under his belt, Shaw's wireless business is off and running.

"I never planned to get into the business of wiring stadiums, but even if we don't do any more of them, this shows what kinds of things we can do, and help us expand into new areas," he says.

Some might say that IT innovation is back after a half decade or so of slumber, but the truth is that it never went away. After the Internet bubble burst, vendors and solution providers still innovated, but did so more around keeping costs down and revamping their business models to better enable them to survive the economic downturn.

In the past two years, true innovation has been back in full swing, particularly in fast-moving sectors such as security and voice networking. But the new solutions can create dizzying choices for VARs who want to grow their business but don't want to make a bad bet on a technology that might end up on the scrap heap. The truth is that there's no foolproof way to avoid this, but by employing a few key strategies, resellers may be able to make their gambles less risky and turn the newly adopted technologies into long-term revenue streams.

Make Sure It's a Fit

These days, almost all solution providers have a security aspect to their business; it's an increasingly crucial component that touches upon all aspects of IT systems. This doesn't mean, however, that all solution providers are security specialists. Like any other technology, security specialization requires having the right people with the relevant skills. You can hone these skills through training to some extent, but most industry observers agree that hiring people who already have the desired skill sets is the quickest way to flesh out a new business unit.

When VARs do start out selling a hot, new product, it doesn't mean that they will be permanently moving into that technology area. Shaw says sometimes VARs have to walk away from what appears to be good technology if it doesn't fit their business long-term model. This comes up a lot with security technologies that solution providers add to solve a particular problem without trying to become full-fledged security resellers.

"It is hard for the owner of a business to walk away from a situation where it looks like you can make some money, but if it's no more than a one-off opportunity, you have to tell the manufacturer that," Shaw says. "You don't always have to say yes."

Look For Alternative Vendors

It's a widely held belief that the most innovative technologies come from smaller companies trying to make a name for themselves. Large vendors are preoccupied with hanging onto their market share to take risks, so it falls to less established ones to make the widgets or application that might put them on the map.

Companies like these often come up with brilliant solutions that are just what resellers have been waiting for their larger partners to produce. The risk for VARs in this scenario is multifaceted. Before taking the plunge on the new technology, they must ask numerous questions:

• Does this vendor have staying power, or are they a one-hit wonder?
• Does the smaller vendor have a channel program? If not, will they get one and when?
• Are they likely to get acquired, and if so, do I want to partner with the acquiring company?
• "What I look for (in a vendor) is a sustainable business model that can be duplicated," Shaw says. "If you can you actually duplicate the technology and it is something that is transferable, that is the best approach."
• The other option is to pick technologies from upstart competitors that are more established than a start-up yet more nimble than the market leader. A case in point: Juniper Networks, which in October released its Infranet Access Controllers -- an alternative network access solution to the still-immature Cisco Systems NAC and Microsoft NAP solutions. Some resellers are leaning toward the Juniper option because they can't or won't wait for what they need from the others.
• "We can phase in the Juniper solutions in areas we're concerned about without requiring a forklift upgrade," says Steve Fuller, president and CTO of the Networks Group, a systems integrator in Brighton, Mich. "I don't know if it's the answer, but it's an answer."
• Let Necessity Dictate Terms
• Sometimes VARs don't have any choice but to innovate, and the market makes the decision for them. With the emergence of technologies such as VoIP comes the need for better security and innovation. This customer-driven demand is forcing all solution providers to think differently about how they knit networks together, as with Solunet, a solution provider in Melbourne, Fla., which has evolved its VoIP practice into an increasingly sophisticated operation.
• "The notion that VoIP is just data packets is a bunch of baloney," says Solunet CEO Phil O'Reilly. "Customers now require highly integrated networks, so you can't just sell them a switching environment; you have to sell traffic-management and security solutions around it as well."
• Necessity can also force the hand of VARs in more painful ways. Advanced Business Networks Boise, Idaho, is like countless other Microsoft partners, anxiously anticipating the impact of the vendor's plan announced in November to provide the Windows Live and Office Live services beginning in 2006. The concern is that Microsoft will make the Live so easy to use that they will obviate the need for solution providers at the SMB level (see "Microsoft's Services Gambit,"and the results of our exclusive quick poll on Microsoft services.
• Regardless of how skeptical you are about Microsoft's ability to accomplish this -- and there are many skeptics -- the Live services goal would seem to be a genuine threat to small solution providers, forcing them to make up the lost revenue elsewhere.
• "That's a definite possibility," says ABS owner Tom Prebula. "We have some other boxes that we'd probably have to push even more, and it would mean having to be more focused on our networking and security businesses."
• Build Multiple Revenue Streams
• Finally, if you have decided to innovate around new solutions, try to pick the ones that will have the most ancillary benefits. WAMS' Shaw says because so many large vendors are pushing single-source solutions, it discourages VARs from aligning with newer best-of-breed technologies. But when resellers do choose to go with an upstart, they should try to pick ones that will help their bottom line in multiple ways.
• "I pay close attention to that particularly around when I am adopting new technologies with testing tools," Shaw says. "If I'm going to make a $30,000 investment, I want to know how much of that can I drive back (to the business)."
• He adds that when he has been an early adopter, it has been important to stay disciplined and not wander from the company's long-term course.
• By running through this checklist and adding other practices based on your own experience, solution providers can begin to ensure that whatever innovations they do end up adopting will be well worth the risk.
• Senior editor Ed Scannell contributed to this report.