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Future of VARs: Applications, Access and Data

September 8, 2010

We’re entering the decade of the developer, enterprise infrastructure is a maturing business and the growth for tech is applications. The Solutions Provider Industry was built around finding businesses that have “pain” and “budget”, uncovering and relieving the “pain” with software applications, selling the infrastructure and security to make it all work and, if you want to survive, selling Managed Services and Support Contracts to ensure upkeep and availability (and recurring profitable revenue).

The challenge for Solutions Providers is that they tend to re-sell applications, not develop them. Does this spell trouble? It could – . So the real question is how can your business position itself as a value-add facilitator (and ideally, if its in your DNA, a software developer) of relevant applications for your target customer?

When I worked at Eze Castle Integration, Inc. I learned the value of focusing on and identifying ourselves by an industry vertical (I never defined myself as being a specific vendor’s partner).  Of Eze’s 500 clients more than 90% are Hedge Funds or Trading Firms. Their core business was implementing and managing infrastructure; however, as the world turns towards the decade of the developer, ECI are positioning themselves as application delivery and compliance specialists specifically for their industry vertical. They add value by knowing the nuances of the hedge fund industry and the corresponding regulations, they sell consulting services and they’re well positioned to write APIs and programs that make life easier and more efficient for their clients.  This strategy also helps close deals by having an abundant list of reference-able clients which builds credibility and reduces a potential buyer’s perceived risk.

In a recent blog post from HubSpot where they listed 60 proven ways to increase your online marketing influence, I was struck by #36: Master one niche, own that niche, then use webinar marketing to promote your brand. That one line is invaluable advice.

Read more: HubSpot\’s 60 Proven ways to Increase Your Online Marketing Influence

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Its all about the Apps – Not the Cloud

August 31, 2010

Today, more than ever, an IT Solutions Provider needs to have a Value Proposition that differentiates from the competition. The real value of any solution for a business’ challenges and opportunities centers around applications – not necessarily where the application is physically located. This piece by Lawrence Walsh is an interesting look at mobility – where applications will be accessed.

Intel Reveals the Cloud is Dead

Let me be the first to say this: “The cloud is dead!”

In fact, I’m not sure if cloud computing was ever a real trend.

The real disruption to the IT paradigm is mobility, which is part of the promise of cloud computing – access to data from any place, at anytime from anywhere. In that sense, the cloud is just a delivery mechanism to whatever endpoint is requesting applications and data, and a growing number of those endpoints are smartphones, netbooks, tablets and mobile computing devices.

Analyst firm Gartner says smartphones will be the primary Internet access point by 2015. Perhaps, but we may not have to wait that long, and by the time we get to 2015, the actual device may change. Chipmaker Intel has returned to its role as barometer of the industry; its latest acquisitions are showing its bets are placed on mobility.

Two weeks ago, Intel shocked the IT world by buying McAfee for the premium price of $8 billion. Intel made its reasoning very clear: It had no intentions of trying to become a competitive security vendor (although McAfee will operate as an autonomous business unit). Its true intention is to embed greater security capabilities between the operating system and the silicon to enable more efficient mobile devices and platforms.

Today, Intel announced its $1.4 billion all-cash acquisition of the wireless division of German chipmaker Infineon. The deal will improve and expand Intel’s portfolio of processors and memory chips for laptops, netbooks and smartphones. Basically, Intel is looking to get closer to anything that has 3G, 4G, Wimax and Wi-Fi access.

These two mega acquisitions come about a year after Intel paid nearly $900 million for WindRiver, a software company that specializes in applications for non-PC machines. The software WindRiver produces is for machines ranging from smartphones to cars, ATMs to industrial robots. Essentially, WindRiver got Intel closer to the embedded systems that are quickly attaching themselves to the Internet.

If Intel has spent $10 billion in acquiring assets that will break it free of conventional personal computers and servers, I think we should all take notice. But it’s not just Intel making these moves. In 2008, Apple bought chipmaker PA Semi to bolster its capabilities for building mobile devices. And Symantec has invested heavily in Mocana, a specialist in securing mobile devices independent of the operating system. These are all pretty good indicators the mobile endpoint is where the IT game is going.

The cloud, you ask?  Well, that will become the virtual CAT-5 of the next generation of computing. In other words, the cloud is dead. Long live the “cloud-connected” device.

Smart solution providers would start thinking about how mobility is going to change their business models and identify the changes they’ll need to make to support future customer mobile computing needs. Already, many solution providers are finding tremendous services opportunities in deploying and managing email services for mobile phones such as the Blackberry and iPhone. The coming era of mobility will go far beyond email integration and maintenance. The time to prepare is now.

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Lawrence M. Walsh is CEO and president of The 2112 Group, a technology business advisory service that specializes in optimizing indirect channels and partner relationships. He’s also the executive director of the Channel Vanguard Council, a thought leadership group and advisory committee to CompTIA on channel issues. He is the former publisher of Channel Insider and editor of VARBusiness Magazine. You can reach him at lmwalsh@the2112group.com.

Cloud Computing is Disruptive to a VAR and an Opportunity for a true Solution Provider

August 27, 2010
Crossing the Technology Chasm

Cloudy Future or Bright Horizons

Old chart, same story: You need to lead and adapt. Is this time different because of the economy, channel consolidation and Cloud Computing? I’d say the answer is yes!

Look, you have no choice. The Solution Provider’s existence is about Business Concerns and Opportunities that are solved by Technology Applications. That has not and will not change.

The key success factors and the change process to deliver success with this adaption and paradigm shift  has already been stated earlier in this blog: Create a strategy that enables you to differentiate and have a clear value proposition and a profit model based on the Retail Model which determines how to categorize your offerings into buckets and creatively optimize which you utilize to drive traffic and what to drive profit. What would be nice is to have a less lumpy project based revenue stream replaced by a sustainable, consistent and recurring stream.

An Example: A Voice Solutions Provider makes a strategic decision to become partner with Google Apps and Salesforce.com. Their assumption is that their customer base is interested in programs and applications that reduce their operating costs and drive increased sales. The Voice Solutions Provider’s “Winner” is to win business and make money from consulting and training services and to continue to squeeze every last dollar out of their core competency. They have an opportunity to create a new value proposition that’s differentiated from the other legacy phone dealer. Integrating all three applications makes sense to their client base and  the business found a way to leverage their base of clients with whom they’ve established a trusting relationship.

What concerns and opportunities in cloud based solutions do you see in the future?

Differentiation for Solution Providers: Stand out of the Crowd

August 26, 2010
Margins for Solution Providers

How much margin is a factor of how you differentiate

Here are a couple of examples of strategic differentiation.  The busiest restaurant in my town  allows you to bring your own wine. Now for many restaurants wine is the “Winner” – wine is to a restaurant as perhaps Managed Services are to your business. By allowing customers to bring their own wine (and charging an uncorking fee) they are using a competitive restaurant’s  “Winner” as their “Traffic”. Are they leaving money on the table? When I go there, it seems that my total bill is no different than any other restaurant I go to.

The restaurant is “up-selling” (today’s special) , “attaching” (Soup, salad, dessert). This restaurant Differentiates itself and has a Value Proposition – this is their Strategy.

A partner that I conducted a workshop for in a small city in Canada only had 8 employees but did $25MM in revenue with Operating Margins over 7%. After I gave my presentation the owner told me his differentiated strategy:  He offers a specific Managed Service at no margin: Wins the deal, maintains a reference-able client and makes money on reselling his “Winners” -service contracts.  He’s constantly working on his business strategy by finding products that have high margin to “up-sell” and “attach”. His “Traffic” is his competitor’s “Winner”.

What’s your “Traffic”? What Differentiates you? Is today’s “Winner” tomorrow’s “Traffic”?

Differentiation

Do you want fries with that?

Qualified Leads – Change your Game

August 26, 2010

If you believe your sales team is under-performing or is costing you too much than this may be the most important takeaway I can give you: Read this link! Inbound Marketing Lead Generation

On my workshops with Cisco and HP partners many times the business owners would state concerns about their sales team (they all complained about the output of their Sales Managers!). Look, I’ve been there, the way I built my business in the late 90’s was by cold calling. Today its harder due to the reality of Caller ID, spam filters; you name it we can hide from the annoying cold call. What’s even more relevant is that when I used to make a cold call and I did reach a decision maker I could add lots of value by teaching the ins and outs of technology – I could add value, qualify and set the appointment. Well, today the target customer information available right at their fingertips via Google.

The key sales metric I used to focus on is the total number of Qualified Appointments or Leads I would generate in a given time period. It is a fact that getting qualified leads is more difficult than it was five years ago.

My advice is to take a good look at how you’re allocating your sales and marketing resources and think about changing your allocation from traditional lead generation efforts and more towards Inbound Marketing Lead Generation programs.

Do you see any similarities in your business compared to the example of the pool business? What has worked and what hasn’t?

Channel sales
Restructure Sales Resources

Value Proposition for Solution Providers

August 26, 2010
Value Proposition for Solution Providers

You Need a Strategy

On my travels as a consultant with Intuition Consulting working individually with the business owners of 40 different targeted Cisco or HP Solution Providers I always started each workshop with a question: What differentiates your business from your competition? The most common answer (usually after some thought) was “our people”. Guess what? The partners that could answer that questions quickly, with confidence and by specifying what differentiates them outperformed those that struggled with the answer.

If you’re the boss you need to know the answer and say it until people are blue in the face! I strongly believe that prospects do not buy on price – they buy on a perceived factor of risk. When a client perceives two options as having the same risk they then buy on price. There’s a factor between how well you communicate what differentiates your business (your Value Proposition) and what customers are willing to pay (Margin) for your services.

What differentiates your business? Do you have your Value Proposition in writing? Can everyone  in your corporation message it? If the answer is no you’re leaving money on the table and you’re allowing your prospects to think there’s no risk in using the outfit down the street.

Sales Compensation: What’s the Correct Cost Benchmark?

August 26, 2010

Sales Costs for Channel PartnerThe most significant factor impacting profitability for any channel partner is the cost of their sales team (or more precisely – the costs of winning the revenue) . Partners that have operating margins in the 5% range tend to have sales costs as a factor of Total Contribution to be under 30% (The example on the chart on this page is the best way to illustrate the financial numbers).

Here’s the honest truth: Many of the most profitable partners get leads from the vendor and therefore only need to focus on bringing deals to closure. Without marketing and prospecting costs, they can focus on sales talent that have value-add technical and relationship skills. Success leads to success which leads to industry consolidation. Partners that tend to hire employees that formerly worked for the vendor is the key differentiator for the partners that tend to get vendor leads. Most partners are not in this fortunate position. The example given in the chart is a partner that is in that fortunate position.

In my ten years as a Solution Provider, I never once received a lead from a vendor – I feel your pain! Well, no whining, it won’t help with the vendors and it’s a waste of time.  The answer lies in strategy, attitude and hard work.

Channel Partner Strategy:

  • Defining your Value Proposition and how you Differentiate from the partner with the same certification level down the street
  • The Retail Game: Defining your “Traffic” vs. “Winners” (disrupting the partner down the street)
  • Marketing efforts to increase the number of Qualified Sales Appointments
  • Technology, Managed Services and Cloud
  • Best Practices for Running an Aggressive, Efficient and Value-Add Sales Team

How to get more from your partners:

  • Strategic Planning for your mix of technology partners.  Think out of the box for new partner relationships and channels.  An example is a traditional Voice – Telephony Partner that adds Salesforce.com as a new partner.
  • Learn to hunt for leads without the vendor’s help. When you deliver opportunity for the vendor its certainly fair game to ask for an opportunity in return.
  • Define you Value Proposition without referencing a technology vendor. There’s risk in defining your business as a “Cisco Partner”

The bottom line – literally – is that it’s very difficult for any channel partner to have Operating Margins of 5%+  if your sales costs are higher than 30% of Total Contribution.

Do you agree with the Benchmark of 30% of TC? Do you agree that a channel partner needs to have Operating Margins of 5%+ to be long-term sustainable?