Timid About Telecom? VARs On How They Dove In And Became Profitable

Embracing cloud and carrier services can be a chilling prospect for IT solution providers. In addition to having to broaden their technical expertise, it's a leap that requires them to spark up new partnerships and, perhaps most intimidating of all, wrap their arms around a recurring- and services-based business model.

But at the Intelisys Channel Connect event this week in San Francisco one trend seemed especially clear: For those solution providers who have bitten the bullet and taken the telecom leap, the risk is paying off.

"As far as making money, we've been pretty successful," said Rod Brown, vice president of carrier services at Ronco Communications, a Tonawanda, N.Y.-based solution provider. "When we started looking into [carrier services], two-thirds of all our revenue was up front, and one-third was residual. Now, that's moving in the other direction."

[Related: Selling Cloud Services: 5 Things You Should Never, Ever Do ]

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Brown, a 27-year industry telecom vet who was tapped by Ronco to build out its carrier business, told CRN that Ronco's carrier services unit has more than doubled in size, in terms of recurring revenue, over the past four years. Ronco, which also partners with Cisco Systems, Avaya and Microsoft, decided to move into the carrier services space in 2008, Brown said, after its executive team made a "commitment" to the residual model.

The company already had a strong focus on unified communications and voice solutions, Brown said, but much of its success in the carrier services space can be attributed to the fact that it has established a dedicated carrier services unit.

"The way we have done it is by having dedicated carrier specialists by region, as opposed to every region having our equipment people selling it," Brown told CRN. "We do a combined approach, where the equipment salesperson and the carrier salesperson work together to sell services."

In addition to growing its recurring revenue base, a dedicated carrier services unit has helped Ronco become more of a one-stop shop for its clients -- providing bundled solutions of network services and hardware, Brown said.

The convergence of the IT and telecom channels was a major theme at the Intelisys Channel Connect conference. Intelisys, a master agent that has predominantly sold through the telecom agent channel, has seen a jump in the number of IT solution providers in its partner base, particularly as end users continue to flock to services- and cloud-based IT models. Intelisys said this week that solution providers account for 57 percent of the new partners it has brought on this year.

Intelisys also said there are roughly 40 solution providers participating in its Channel Alignment program, which pairs traditional IT solution partners with telecom agents to help them learn and warm up to carrier services sales. Intelisys projects that number to reach 70 by the end of the year.

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Michael LeBlanc, president and CEO of LeBlanc Communications, a Redding, Conn.-based solution provider specializing in voice and carrier services, was ahead of the curve in terms of the IT-telecom convergence and transitioning his business to a recurring revenue model.

In fact, LeBlanc said, his company, once exclusively focused on IT, threw in the towel on one-off hardware sales completely after the emergence of IP-based PBX and the dot-com market crash back in the early 2000s.

"We realized we couldn't just keep selling hardware. We had to figure out a way to make money on residuals," LeBlanc told CRN, noting that his hardware sales "went off a cliff" after the crash. "I didn't want to have to go out and sell something every month just to feed my family."

LeBlanc said he got his feet wet with the residual model by attaching five-year warranties to every phone system his company sold. Today, LeBlanc Communications sells a full suite of carrier services, ranging from hosted PBX to structured cabling to phone and Internet provisioning.

LeBlanc said his carrier business grows "steadily" every year and right now is up roughly 20 percent year-over-year. He also said his business, in general, seems to maintain a stronger growth curve than those of the more traditional IT solution providers he works with as referral partners. This, he said, isn't only because of the more consistent revenue streams introduced through carrier services sales, but because he can "do more with less" compared with those partners.

"On a strictly dollar basis, as a business owner, I am making more money than a lot of the guys I know because they have to have more expensive engineers on staff, and more of them," LeBlanc said.

LeBlanc Communications works with roughly a dozen solution provider partners today as referral partners. LeBlanc described those partnerships as "symbiotic." Solution providers refer carrier-focused sales to LeBlanc and his team -- for a slice of the residuals -- while LeBlanc does the same for all IT-related inquiries.

"VARs out there can take advantage of a bigger piece of their customers' revenue without the hassle by working with somebody like us," he said.

Tim Kennedy, vice president of carrier services at Carousel Industries, an Exeter, R.I.-based solution provider, told CRN Carousel's carrier services business in the second quarter was up 42 percent over the first. Kennedy, who, like Ronco's Brown is tasked with building and leading a dedicated carrier services team, said Carousel's investments in the telecom space so far are definitely paying off.

"[Carousel] recognized that they were leaving a lot of money on the table, and they realized they were doing an injustice to their customers because they weren't looking at part of their business," Kennedy said as part of a VAR panel at the Intelisys Channel Connect event Thursday. "Now, it has positioned us more as a trusted adviser and, certainly, the recurring revenue stream is extremely attractive."