The VAR Paradigm Shift

By  Regina Ciardiello, Editor, VSR
It seems to be true, now more so than ever, that the technology marketplace is shifting toward a more complete, all-encompassing solution. And the VAR or reseller channel is not immune to this pending paradigm shift. In fact, as the partner community is continually being asked to "do more with less" by their SMB end user customers, this evolution is one that will not be avoidable -- at least as it relates to the channel.

So what is a VAR to do with this new information? Does he or she abandon all efforts, and try to just focus on building their current business practices? Or rather, do they continue to focus on how they can become a partner who can provide the total package? It's safe to say that it would be wise to go with the latter, especially since VSR's 4th Annual End User Study revealed that resellers need to offer "more than just technology. "

Featured as the Cover Story of our December 2008 issue, the study noted that "SMBs expect their IT partners to have a thorough, working understanding of the technologies they offer." This is undoubtedly proof that resellers will have to begin to think about repositioning themselves more as "solution providers," offering the total hardware, software, sales, support and maintenance package.
 
As a result of these market shifts, there is a group of VARs who are closely connected to these changes, and therefore want to do something about helping their peers in making this shift, as the choice lies within VARs either maintaining a failing business model, or transitioning to a more profitable one. Of course, the majority would opt for the latter, but most are left questioning themselves on how to make the cross over. But help is on the way, as a new group known as the Solutions First Council (SFC) is ready and armed to provide ideas, assistance and guidance on how to make this move.

This special community of channel executives are those who have already made the shift, or are currently in the process of doing so. Their mission is based on providing a "community" atmosphere where reseller can share ideas on how to transition to the ASI (Application Solution Integrator) model, which puts a much heavier focus on the use of software and value services to obtain profitability and growth.

And because the mission of VSR is to promote a healthy channel business model, our own Albert Guffanti, VSR's publisher, is one of the founding members of this group. We also asked seven of the SFC's founding members who were present at the council's inaugural board meeting this past fall in Chicago, to shed some light on the mission, vision and overall role of this new organization as it not only pertains to their ideas, but why they decided to act upon this new movement that will undoubtedly position the channel to meet these current challenges' head on.












VSR: Please discuss why the Solutions First Council (SFC) was created?
Todd Baggett: The SFC was created by a group of ADC (Automated Data Capture) business owners who are all involved in transitioning from a hardware-centric model to an Application Solution Integrator model with a revenue stream more balanced by application software and professional services.

The reasoning behind this organization is because the business environment is undergoing a period of transformation. We are currently in a state of chaos in which our value roles and how we get compensated are changing. Many customers no longer reward the educational value of consultative selling. If you want to get paid for your expertise and time investment you need to bill for it.

Hardware margins decline every year; if you don't create significant revenue by producing value in other areas your business won't make it.

Tony Kara: SFC was created when resellers started realizing after many years that general tradeshows, conferences and IT events were just not enough and/or not working for them.  Events as we have had in the past are great at that moment, motivating and filled with ideas, but this all quickly disappears and fades away as soon as you back at your usual desk, and back at your daily routine. Resellers realized they needed a system to stay in touch with other resellers on a daily basis and share their thoughts.

Brian Marcel: There is an obvious need for companies who want to continue growing to change from a "me-too" company to a company that offers a real difference in its value proposition. There is currently a perfect storm between hardware margins reducing, recession and a credit crunch. Undoubtedly this will lead to weaker players going out of business and in some instances through no fault of their own, could be that they are unable to obtain finance because a large customer has defaulted.

Caryn Scherer (COO, The JS Group, not pictured): The core mission of this group is to provide a supportive environment for fellow solution providers (VARs) who are evolving into mobility application solution integrators. We will achieve this through an interactive peer-to-peer community focused on sharing best practices and benchmarks that can increase competencies and outcomes around the application solution integration business model. Our "year one" focus will be in the areas of business model changes, management evolution, go-to-market development and services strategies.
 
Tom Beusch: In today's business environment with hardware margins declining, resellers are looking for different business models to continue to grow and be profitable. One of those models is providing software and services wrapped around an application solution. To create an application solution business model, you are transitioning your company from selling hardware to selling solutions. The Solutions First Council was created for those companies who want to be a part of a group of companies that can develop and share "Best Practices" in how to create this business model.

VSR: What are the major benefits of joining the SFC?
Carlos Ferraz: SFC is a business community group consisting of a number of industry members that have many years experience in this market and are interested in helping achieve this evolution in the reseller market. Through this experience and skills base, SFC can act as a change agent with all the stakeholders in the market value chain.

Baggett: SFC is all about having a chance to work collectively with group of peers from respected industry leaders and emerging leaders of tomorrow to define best practices, identify high-value programs most needed from manufactures and distributors, and to participate in pilot programs available exclusively to SFC members. 

Marcel: Benefits should cascade down firstly to the SFC's Founder Members who are sharing ideas and best practices, then to the potential membership who will have access to best practices and benchmarks for this new business model which we loosely call the ASI model (Application Solutions Integrator.) This is essentially moving toward a revenue mix of 30 percent hardware, 40 percent services and 30 percent software (approximately). Finally, benefits will accrue to the vendors who will learn how to help this new group grow their business for them, as well as saving their channel (Yes, it could even come down to that!).

Beusch: Manufacturers are looking to work with companies that "Add Value" to their products, which will help them expand their products into new markets, application and industries, and SFC members will have exposure to these manufacturers and distributors, allowing them to have better margins on their solution sales.

VSR: How is the role of today's reseller/VAR currently changing?
Kara:Today's VAR must be very resourceful and must be able to deliver a complete solution, rather than specific components of an overall solution. Customers today will give their projects to VARs that can handle the implementation of an entire solution and not just bits and pieces of it. Resellers that are experts in building a network (routers and servers) will have to find other resellers that are experts in cabling, and yet another one that is an expert in IP telephony to deliver an overall solution (an new office network setup).  This is the type of project that will have to be managed by the reseller, and not the client. 

Scherer: The VAR needs to react and regroup because of the constantly changing requirements of the customer. The end user customer now expects their VAR to provide full solutions  from application integration to hardware to installation and support, and full professional services. 

Baggett: We are entering the era of the Applications Solution Integrator (ASI). To compete, you must bring value beyond the hardware. Customers want integrated solutions from partners with deep expertise that know how to drive cost savings and efficiency into their company, and they want their hardware competitively priced. Manufacturers and distributors need solution providers who can provide vertical applications to stimulate demand and drive growth.

Graham O'Keeffe: Declining hardware margins and vendor delivery models dictate the need for ASI differentiators to survive. This is helped by end users' increasing requirement to hand the planning, installation, integration and support of mobile solutions to a reliable, qualified VAR. Misplaced reliability on hardware margin will impact, and therefore, threaten ongoing viability and survival.

VSR: How will the SFC work to promote and strengthen the reseller channel community?
Marcel: We aim to raise the awareness of the ASI business model and show resellers a possible way forward if they are prepared to change their culture and restructure their businesses and make tough decisions. This change is not at all easy, and is also expensive, but at what price is survival? Their margins should increase to 55 percent and thus the value of their businesses. This has to be good for them.

But the SFC is there to help resellers who really want to change, or are already changing, and want to utilize us as a support group and a place where they can find answers, best practices and a sympathetic ear. We are fortunate to have Albert Guffanti, (VSR's publisher) on our board, as we see him as the "mouthpiece" for the new SFC community. We would also like to have some of the channel vendors partner with us to spread the word of the SFC to their respective partner bases.

Beusch: We want to help others who want to follow an Application Solution model and promote the awareness of the council to Manufacturers who are truly looking for Solution Providers. Those resellers who will be a part of this group will experience higher margins, more stability and great financial success.

Baggett: By taking a proactive approach to manage the change in our market, we are creating a new model and defining new programs that will support the transformation in our industry that is currently under way. The exciting part is through vertical applications, the opportunity to carve out your niche has never been greater.

VSR: As an SFC board member, what do you hope to accomplish (as it relates to the group) in the coming year?
Ferraz: My role is to contribute to a community of professionals as they craft an industry community group that will add significant value to the channel. We all see challenges ahead, and these challenges are best faced with the collective input of recognized industry professionals who have dealt with these challenges before and can leverage these skills and experience to assist other business partners.

Beusch: We want to promote the awareness of this council to the manufacturers and be viewed with the credibility that will help them define their channel programs and promote the Value Proposition of selling solutions. 

O'Keeffe: My hope is that the SFC will be recognized and respected by vendors, alliances and end users, as an unbiased, non-political professional body that helps members deliver profitable client satisfaction.

Baggett: As Founding Board Members, we will formalize membership requirements, host face- to-face meetings, organize and work in task groups, and define some preliminary program needs of the ASI for manufactures and distributors.

Kara: I hope that many VARs today will see the importance of this change and will decide to join SFC. The new group will only be successful if members decide to join and "open up" to each other. Once these ideas start flowing, and the SFC can bring them all together, we will then see new successes and opportunities arise from the sum of all these members. 

Marcel: Along with my Founding Board Member colleagues, I would like to take this group to a level where the vendors look at us as a credible impartial body who are working to shape their channel to cope with difficult times, advise them how to best engage with their Channel, and what programs they should be offering. These efforts will eventually lead to group members obtaining better margins, promotion and go-to-market funding of their solutions, and ways to help them financially through the recession. Ultimately, the group will provide a vehicle for a stronger and more viable channel that will make a dramatic positive difference, and therefore change the way we do business.