Q&A: Telarus' Edwards On VARs And Connectivity

Telarus is a leading telecom master agency based in Sandy, Utah that has been seeing growing interest from the VAR community. Telarus has targeted programs in place for VARs interested in adding carrier services to their portfolio; with its VARNetwork program, and unique research and quoting tools that can help VARs navigate the unfamiliar carrier world. Since September of this year, 80 percent of new partners who have signed on with Telarus are IT VARs, MSPs or interconnects. That’s up from 56 percent last year.

CRN talked to Telarus’ president and co-owner, Adam Edwards, about why it’s essential for VARs to embrace carrier services.

Here’s an excerpt of that conversation.

Let’s talk about how cloud is changing the both the IT and telecom landscapes.

Selling in the telco world is very different from what you’ll encounter in the IT world, but those spaces are blending now. A lot of the attributes of how agents and master agents work will blend into the broader IT channel.

Because so many solutions are hosted now, there’s a residual payment rather than a one-time, up-front payment. And that’s where the bulk of the structural change is going to take place, because compensation impacts so much of what we do: it impacts business planning, it impacts budgeting.

[That residual compensation model] was the reason we stayed separate for so long. It creates a very different relationship, and a different structure, but now it’s one of the things forcing us together.

Number one, these solutions are really becoming more integrated, and both sides need each other. We’re getting into the cloud space and the data center and solution providers are seeing the WAN as more of a critical part of their solutions. Additionally, when you go over to a residual compensation model and you’re counting on people getting paid over three years, rather than next month, it creates a very different relationship and very different issues in terms of trust, longevity of service, and in the way you interact with the customer. Solution providers now have to retool, and figure out how to compensate and incent people with this different model.

It’s a different world and it’s what we’re used to on the telco side. That change is what has forced this conversation between the channels. It’s something that we have tried to force in the past but now the market is bringing us together. It’s a positive change that I see, but it’s certainly changing the landscape.

Is the change towards a residual compensation model a difficult transition for VARs?

Absolutely. When you transition from an upfront payment to a residual, and stretch that payment out over the next several years, it becomes very difficult. For someone who is used to the upfront and depends on that for payroll, for infrastructure, for incentive compensation, it’s very hard to make that change. Some of the start-ups are able to gear their companies toward that payment structure whereas some of the more traditional houses are having to make adjustments in their compensation schedules. But we’re trying to bridge that gap and be more flexible in the way we compensate. Often times we as the master agent have the resources where we can help them by taking a look at what that their cash stream is going to be, and give half of a residual and half up front, or whatever they need to make that transition. That’s what we’re focused on.

It’s been hard to talk to larger VARs and integrators, because they haven’t seen the value in that residual, what they see is the big upfront. They calculate things differently: cost of capital, how much money they’re going to tie up in the purchase of equipment, and how many months it’s going to take to get it back. They use different metrics to manage their business, and as a result they haven’t known where to place that residual. They haven’t seen the value in it.

As we’ve talked to VARs over the years they say, 'Why would I do that and risk my sale of this big solution I’m putting together on that small piece over there?' It doesn’t hit their top line gross revenue. If you sell a $20,000 MPLS deal, that $20,000 doesn’t go to your top line. And VARs are used to a sale going to their top line. It doesn’t fit well into their metrics, but if you look at the return on that $20,000, and say for example you’re getting 10 percent, $2,000 a month doesn’t look very good, compared to $20,000, but if you look at that over time, look at the $2,000 and what that can do over six years, it’s pretty powerful stuff.

Next: How Residual Compensation Benefits VARs

How can VARs benefit from a residual compensation structure?

It adds incredible consistency and stability. You can plan your budget and see what’s going to happen in six months down the road, a year down the road. You have a very good idea of what’s been sold and what will continue to cash flow. You know your attrition rate. While it takes time to build up, it’s very powerful in knowing you can plan. It’s not just about what we did this month to make sure we’re covering costs for next month. You can really look at a longer range plan.

Because of that residual, you can stay in the deal, and you can start layering things on top. That’s what we see on the carrier side. We see agents getting very interested in managed services. There are $4 in managed services being sold for every $1 of access. If you can turn that $2,000 a month into $8,000 or $10,000 in monthly commissions, you’ve really got something.

Why should VARs consider ’risking’ their equipment sale on that connectivity piece?

We’ve seen this over the years, especially with the smaller shops, that get their toe in the water and say, ’Ah forget it! I’m not getting involved in that, it made my equipment look bad, and I can’t afford to do that.’

But at this point in time it’s changing to where they can’t afford not to do it. The reason I say that is equipment is diminishing significantly as a sale, everyone is going to the data center, everyone is getting virtualized, everyone is relying on the cloud. We see desktop virtualization, so the PC sale is going away. We see hosted solutions, so the software sale is going away. We’re not selling licenses anymore in an upfront, everything is going monthly. Just for survival purposes, they’d better get out of focusing on equipment, because if they just stay there they’re going to die.

Secondly I would say having control of the network and dealing with some of the pitfalls they’ve been concerned about before, puts them in a position where they can sell other solutions. It’s pretty easy to lead with network and then sell everything, because you’re talking about the framework that controls all of their IT, and not just a specific attribute of their IT infrastructure. You’re talking about the core. And then you can build from there.

I think it’s important to offer a more complete solution and have a further hook into the customer. Whether they do that by building expertise in-house or by partnering with someone, offering a more complete solution is going to be critical. You’re not just going to walk in with boxes and sell to the customer in the quantities you have in past years. Rather than just talking access and saying, ’How many megs do you need and what kind of QoS do you need on that network, and which carrier should we go to,’ it become a deeper conversation of ’What do you need at the data center, what kinds of applications are you running, let’s plan your network around that, and by the way, let’s talk about all of that together.’

What we’re finding is that a lot of carriers are offering these services. It’s not just access. They’re offering virtualization. They’re offering private cloud and public cloud. They’re offering licenses, backup, security. It’s not just selling some phone lines from the phone company any more and maybe get a toll free number or two, they’re truly becoming cloud providers and blending into the IT world.

How can VARs use carrier services to complement what they already do?

Because IT is still a very customized world, and while carriers are trying to bring all the pieces to the table, and be a one-stop-shop, they’re never going to be that. Every situation is so unique, that’s why the carrier world embraced agents in the past and VARs now and tomorrow, because they’re the ones who are able to bring the different pieces together. If your game today as a VAR is disaster recovery, you can bring the other pieces together that a carrier has to complement your offering, and to offer more. More specifically to MSPs and VARs, carriers are a great partner to bring some of the other pieces together. And we’re finding that they’re becoming more flexible in breaking those pieces off and offering only a part of it, if you specialize in security or desktop virtualization, we see those carriers backing off in those areas and embracing the VARs by letting them do what they do best.

What do VARs need to get started selling network services? How does Telarus as a master agent help?

What they need is training, tools, and most importantly, they need to have dedicated resource. One of our rules for bringing on any VAR or integrator, is that they have one person who is dedicated to focusing in this area.

That’s when we feel like we can really jump in, roll up our sleeves and help that VAR with the resources we have, to be able to show them availability, to be able to show them real time pricing, to show them what kind of things we can do together. We can help with marketing, help them understand the carriers, and make sure that those first deals complement their solution, rather than detract from it. We feel like we have a great set of tools that we continue to expand for them. We feel like we have great onboarding and great staff to support them through that transition and beyond.

But if they can’t take that first step forward and dedicate some resources to it, we don’t see success. This has been our experience over years. Integrators will try to dabble in it, to sell carrier services on an exploratory basis, and those types of launches typically fail. But with a concerted effort toward the WAN we have great success.

I think a concern for people who haven’t done this is whether they are going to have a person sitting idle for six months while their carrier services business ramps up. We can help them in the transition, help them get leads, but only if they are willing to dedicate the resources.