ShoreTel's Next Challenge: Keep Momentum Going

So many things have gone right for ShoreTel in the past year that the company's next big challenge might be getting out of its own way.

That was the assessment of a range of ShoreTel partners interviewed this week at ShoreTel's Champion Partner Conference in Chicago: relentless enthusiasm for how far ShoreTel has come, but insistence that the scrappy PBX and UC vendor protect its loyal channel partners as it faces inevitable growing pains in the coming years.

ShoreTel returned to profitability in its fiscal third quarter, ended in March, and it has grown revenues not only quarter-over-quarter, but also 30 percent on a year-over-year basis in every one of the last four quarters. By several analyst estimates, it now lays claim to about 9 percent of the U.S. IP telephony market. According to a recent study by Eastern Management Group, ShoreTel was among only four PBX vendors -- Avaya, Cisco and Aastra being the others -- to grow market share in 2010.

ShoreTel's channel gains, too, have been substantial. It reworked its channel program last year to focus on partner specialties as well as sales volume, and it also made a key move earlier in 2011, entering two-tier distribution in the U.S. with ScanSource Communications and Westcon Group.

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But VARs have told CRN that ShoreTel's biggest ace in the hole may yet be its mobility play -- a program designed around its acquisition of Agito Networks last fall. About 30 percent of ShoreTel's 900-or-so global partners are qualified to sell ShoreTel Mobility, which is a vendor-agnostic solution, leveraging the Agito platform, that extends an enterprise's PBX and UC functions to the mobile edge.

With all those victories to celebrate, it wasn't surprising at the conference to hear new CEO Peter Blackmore articulate a stay-the-course strategy: if it isn't broken at ShoreTel, why fix it?

"We're gaining every quarter and I do not see anything to stop that momentum," Blackmore told representatives from more than 600 ShoreTel partners attending the show from around the world.

What Blackmore did urge partners to do was get even more aggressive: market ShoreTel behind its "brilliantly simple" mantra and help grow ShoreTel's UC, contact center and mobility market reach while its many competitors, from Cisco and Avaya to Microsoft and Siemens, are, in Blackmore's estimation, distracted.

That's where many solution providers see both potential for ShoreTel, and also concern. As the company continues its upward climb, ShoreTel will continue to add larger and more voluminous partners such as telecom service providers, and also global integrators -- it recently signed Cisco powerhouse Dimension Data, for example, to sell its Mobility platform.

Dave Casey, CEO of Westron Communications, a Carrollton, Texas.-based solution provider, said the more ShoreTel approaches its stated goal of partnering with top Cisco and Avaya partners to take ShoreTel products further into the enterprise, the more it'll have to do to protect its smaller, loyal partners.

"There will be conflict," Casey said, referencing ShoreTel's service provider channel partners and larger integrators. "I'm not competing with Dimension Data on a mobility deal, necessarily. But there'll be questions about how partners are competing for deals that [ShoreTel] is going to have to address."

Next: ShoreTel's Expanding Channel Presence

Casey, like most ShoreTel partners, said he's been impressed with ShoreTel's focus and the growth of its channel program. Westron's ShoreTel sales are up about 30 percent year-over-year, he said, and Casey agreed that ShoreTel partners have a lot to be excited about.

Throughout the conference, ShoreTel executives, from Blackmore on down, pledged to stay the course on partner growth while ramping up ShoreTel's investments in mobility, R&D and next-generation UC and contact center products. Growing its partner ranks is a stated goal -- a must, said ShoreTel executives, if the company is to hit ambitious targets of $1 billion in annual revenue and 20 percent market share in IP telephony in a few years.

"At this point, I think they're doing it just right," said Don Gulling, president of Verteks Consulting, an Ocala, Fla.-based solution provider. "They've been up front and said, we need to add more dealers, and that's totally fair. I mean, we don't want 100 other guys in our area selling the same stuff, but I've been telling dealers forever, if you are nervous because they're signing up another dealer, you're not looking at the big picture. There's a natural curve to these things."

Gulling and other VARs noted that ShoreTel has been completely above-board with its ambition to grow its channel partner base, and also attract those partners that are to date selling only ShoreTel Mobility because their focuses are with other vendors' PBX and UC products.

ShoreTel executives repeatedly referred to Mobility as the company's "trojan horse" play -- something ShoreTel VARs can sell into customer bases that already have Cisco, Avaya or other vendor's UC infrastructures in place.

That, to Gulling, is a huge advantage as ShoreTel pushes into enterprise accounts. And partners like Verteks -- whose ShoreTel sales grew 321 percent year-over-year, and is one of ShoreTel's top VARs -- have hit a growth streak with ShoreTel they hardly want to see slow down.

"This is a game changer for us, and the reason is, we can now sell into people who have another PBX," Gulling said. "You hear, 'Oh, I'm sorry, I already bought a Cisco so in seven years I'll call you back.' But we say, 'Great, awesome. We've got something that they don't have that we'd like to show you.' It's a sales revenue stream that we didn't have before, that we can sell into now. That's huge."

Gulling isn't worried about margin pressure and competition from ShoreTel's service provider and global integrator partners.

"As far as price goes, what are you really getting?" he said. "You get the same products, but would you rather have it delivered in a box or have it installed by someone who's there? Would you rather have someone like me who has 13 straight 100 percent customer satisfaction services, or would you rather go through a guy who's going to fly someone in to work on it for you from never-never land and there's no relationship? Carriers are going to be a fulfillment arm [for ShoreTel] and they will push numbers. But I'm not worried."

Next: Partners See ShoreTel Focus More Than Ever

ShoreTel's elite partners say the company has a clear growth strategy now, whereas years ago was still finding itself as a scrappy alternative to bigger telephony players.

"They've matured a lot, and they seem to have a much better idea of how they're supposed to grow," said Rick Hirsh, CEO of Transcend United, a Springfield, Pa.-based VAR500 solution provider and one of ShoreTel's largest national partners. "There is actually a concept for growth now, and they've articulated how they're supposed to make it fit with us. We're very encouraged by that."

Hirsh said that for Transcend United, which merged with another top ShoreTel partner, Wayne, Pa.-based LiquidSpoke, in May, mobility is one market adjacency where UC-focused VARs expect to see massive opportunity with customers.

"You can take their product to a high-user, high-prospect base," Hirsh said of ShoreTel Mobility. "If you can lead with mobility, you can also get [the conversation] into wireless access points and infrastructure. If you lead with wireless, you can have a mobility conversation on what to do with smartphones. It works both ways."

ShoreTel executives repeatedly emphasized to CRN that although ShoreTel is making moves to grow its partner base, its chief goal is to protect its best partners. Richard Tarity, LiquidSpoke's former CEO and now executive vice president of sales at Transcend, said he's seen no reason to doubt that.

"I think as long as they pay attention to helping their 'A' players get bigger and stronger, they're in good shape," Tarity said. "The message loud and clear from Peter has been quality, not quantity. You don't need dealer saturation. When you get quality players, that helps us because we all start to compete in bigger deals."

Don Girskis, senior vice president of worldwide sales at ShoreTel, said that the company's expansion into two-tier distribution would bolster its numbers, but also give ShoreTel long-overdue distribution support to better provide for partners.

"We are not going to get to $1 billion a year by adding 4,000 partners. That's not the idea," Girskis told CRN. "We're trying to be very surgical in how we add partners, where we have geographic needs, and also which verticals, such as government, education, and mobility, we need to support. It's not come one, come all. It's quality, not quantity."

Girskis added that ShoreTel had cut a number of partners from the ShoreTel program in the past year to weed out underperformers. ShoreTel also offers additional discounts to VARs that are exclusively ShoreTel, and offers a range of discounting programs so that VARs can acquire resources like demo equipment affordably. His sales team, Girskis said, has also changed, with dedicated sales staff now focused only on functions like partner recruitment and partner support.

Buck Baker, president of ScanSource Communications, said ScanSource had already signed up about 150 ShoreTel VARs to buy through distribution. ShoreTel VARs at the Gold and Silver levels of the program have the option to procure from distribution or direct from ShoreTel, but Baker said the overall interest level in ShoreTel products -- especially from non-UC VARs who work in adjacent areas like A/V integration -- has been encouraging.

"ShoreTel's been very open and transparent on some of the things they need ScanSource to help them do, and one of those things is recruitment," Baker said. "They're straight-up with us: 'We're this size company today, and we want to get to $1 billion in the coming years.' They have a good sense of what they do well as well as some things they could better, and it's been very refreshing across the board."

Verteks' Gulling said he'd like to see ShoreTel invest even more resources in marketing and air cover for partners, but from a program perspective, they've been top notch.

"They've nailed it," he said.