A friend of mine, the CIO for a Colorado state agency, recounted a near crisis the agency had with its Exchange environment a while back. Basically, the infrastructure he inherited was running on an old iSCSI array that failed — and that wasn’t implemented with enough redundancy in the first place or properly backed up. The team had some sleepless nights and weekends but eventually got the system stabilized and then moved onto another storage infrastructure. The thing that got my attention when he was telling this story was how the agency brought in a team of consultants to straighten out the mess and handle the redesign effort. The agency didn’t have the in-house people to do it — or weren’t confident in its current skill sets. I know that engagement wasn’t cheap, especially given the fix it was in — like trying to negotiate with a tow truck driver when your car is broken down in the middle of nowhere. Maybe it’s time for VARs and MSPs to talk more about professional services again?

Ten years ago we routinely got 25 points of margin on integration deals, and often 25% of that total was professional services (PS). Today, I know both those numbers are typically less than half of that and that customers routinely gut PS on the statement of work in an effort to bring the sticker price down. Then they end up trying to get the VAR to come back after the sale or call tech support to “fix” the things they were unwilling to pay for in the original implementation. So where’s the rationale for trying to sell PS in this day and age?

What if one of the VARs my CIO friend deals with had made him aware that the company also does Exchange engagements? It doesn’t mean the VAR would have gotten this deal, but it would certainly have been in a position to offer a competitive rate on PS hours, since it would have been in line to get the ensuing infrastructure upgrade. The VAR may even have been able to structure the contract with incentives to buy gear related to this project.

The point is that VARs and MSPs have talent that customers need in this environment of flat budgets and thin IT staffs. Ten years of IT devaluation have left your calling base with an expertise deficit, one that you can fill. Unfortunately, most VARs these days can barely keep up with their own engineering workload, from pre-sales work to installation and post-sales support. So it will probably take some investment in training or head count, but you may find that your vendors are willing to chip in. They too are getting squeezed by their customers for technical help and are hungry for VARs who are willing to step up and provide more than order fulfillment.

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Customers still want the channel because they need someone they can trust, someone who will bring in new technologies and do the “nonrecurring engineering” required to implement them. They also need someone to whom they represent a larger piece of business, someone who will go above and beyond the usual and who can represent their interests more effectively to the big vendors they buy from.

Customers aren’t thinking, “This cloud thing may be the way to finally get rid of that damn VAR, once and for all.” They’re really thinking, “I like this cloud idea–I just hope that when we move some of our business into cloud products we can still buy them through our VAR.” Customers still want to buy from VARs, and the cloud represents an excellent opportunity, but don’t expect vendors to show you how to make money.

Services are more lasting than stuff

The cloud is a service, not hardware and software. Establishing your value selling services focuses you on the details of how your customers are using those services, not what infrastructure to choose or how to set it up. This is the selling benefits focus we’ve talked about in previous posts. It’s also a value proposition that’s less likely to erode. When features become more common, users expect to pay less for them. When infrastructure becomes less complex, they’re less likely to pay for its implementation. This is what happened to VARs selling technologies like backup and traditional disk arrays.

Opex, not Capex

Cloud services represent an operating expense, not a capital expenditure. Opex is a revenue stream, not a onetime event that has to be re-created (at least not as often). While the immediate gross profit (GP) opportunities are lower, there’s a certain magic in the recurring revenue stream, not dissimilar from what Einstein meant when he referred to compound interest as the eighth wonder of the world.

Value-add consulting

Cloud can let you move up the stack from infrastructure to application modernization and new features, including upgrading applications to better run in the cloud. These kinds of activities are the Holy Grail for VARs who can always find something that needs to be fixed or upgraded once they get into the data center.

Change can help margins

Every time there’s a technology shift, it’s an opportunity to reset your offerings and restore some of the margins you’ve lost to “genericization” of your products. Every VAR has used change to help restore margins, whether it’s a vendor’s price increase, a consolidation of part numbers or just employee turnover within their clients’ companies. The cloud is another opportunity to rework what you’re selling and put some of the profitability back into it.

Get trained, hire the right people and stay on top of what the cloud has to offer. Don’t assume you can simply run cloud services through your sales process and still make good margins. The cloud is an opportunity but one you have to invest in to benefit from.

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But he said his company would start looking for new solutions when customers had clearly unmet needs that it couldn’t satisfy with its existing products. Said another way, it was time to find a new vendor when defending the technology of its current vendors’ products no longer made sense. All vendors’ product lines cover a range of use cases or certain segments of the overall market. They also have “sweet spot” use cases that they handle really well, and the opposite, which I like to call “flat spots” (think of the bottom of a melon). These are the use cases their technology doesn’t cover well.

All VARs (and most customers) are aware that most vendors will exaggerate their range to some extent and tend to ignore their flat spots, which can become more pronounced as a technology gets older. One of the primary value propositions that customers rely on VARs to provide is knowing these flat spots and having the independence to say so, and then to recommend an alternative when it’s appropriate.

From the VAR’s perspective, promoting products that aren’t as strong a fit for an application is a good way to lose a deal because they can be fairly certain that another VAR will bring in a better solution. This is the scenario mentioned above that prompts VARs to look for a new vendor.

One example could be selling a “name brand” disk array system when there’s a lesser-known solution that has comparable specs and a much lower price tag. Years ago, NAS appliances were sold primarily by one or two leading vendors. Now there are many alternatives to these Tier 1 brands — both hardware appliances and software-based SAN file systems — that could be very appealing to customers looking to save some money.

Another example is solid-state storage devices. SSDs have become an accepted solution in environments where more application performance is needed, and an appealing alternative to high-spindle-count configurations that legacy disk array vendors have traditionally sold. Now these companies are offering SSDs but most often as hard drive replacements in their existing arrays. Server-side caching and tiering is a viable technology but one that’s not available from most Tier 1 disk array vendors. And then there’s network-based flash caching appliances and all-flash storage arrays. While definitely more specialized solutions, these products can offer astounding performance at competitive price points, in the right application scenario.

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It just occurred to me that we never grabbed that term and used it on other proposals. Looking back, we should have put a line item on every quote for “nonrecurring engineering” — instead of “integration” or “installation” or the least descriptive of all, “professional services.” It’s all about providing value, which includes making sure your customer understands what that value is and how often you’re providing it.

It’s essential to remind your customers, early and often, about the things you’re doing for them. Activities like on-site assessments, setting up demos or having your sales engineers stop by the data center and tweak a configuration for free are all things VARs do that most customers appreciate. But there are other things VARs do that they should probably make a bigger deal about, like the effort involved with vetting new technologies, learning them and then coming by with an SE to whiteboard them for the customer, when there’s no RFP involved. These are things that save busy IT folks time and thereby provide them value.

Another idea is to ask your customers what you do that they value the most. They may say “provide a non-biased source of information” or “put together solutions from multiple vendors,” both of which are certainly valid. But there are probably things you do that they really like that you don’t realize. Maybe they appreciate the fact that your salespeople seem to know their stuff and don’t have to call an SE to answer every question. There may even be a few things another VAR does to provide value that you could do as well.

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The CIO I spoke with said his biggest concern wasn’t really the BYOD movement; it was the security risk from the use of laptops outside the company — hacking or snooping at places like Starbucks and the potential for lost laptops. I had a big “Oh yeah” moment and was brought back into the real world, one I’d stopped thinking about a year or more ago. Shame on me for not focusing on the issues users have today and talking about solutions they can use. While making this mistake is a “my bad” situation for me, it’s much more serious for a VAR.

Being a year or two removed from what users are implementing is a mistake VARs can’t afford to make. They do need to bring in fresh ideas to show their clients, but they also have to keep their line cards stocked with a comprehensive set of solutions to the problems users have today. Taking the example of my discussion with the CIO above, data loss prevention (DLP) is a topic that probably got more ink from folks like me a year or two ago. It may never have scored particularly high in gee-whiz value, but it’s what he needs — and it’s what VARs should be showing him.

Other examples could be addressing performance issues on a SAN or a WAN or improving SAN troubleshooting. SSD caching and tiering are certainly collecting more than their share of attention, considering how much of those technologies users are actually buying as a percentage of their total IT spend. But there are some basic server-side SSD implementations that users should know about, like simply replacing a boot drive with an SSD.

The point is that while VARs do need to know about what’s coming up from a technology perspective, they must keep rooted in the “hear and now.” Customers want to hear about what they need now.

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Feeds and speeds instead of business cases, features instead of benefits — a lot of people trying to sell stuff in the storage space are talking about the “what” of their products instead of the “why.” As a VAR I never understood this tendency, which seemed more prevalent with vendors but was also practiced by many of those in the channel. Focusing on the why, on the business benefits of what you’re providing, is a sure way to solidify your value in end users’ minds. If Tom Cruise was a VAR and Renée Zellweger was a customer in “Jerry McGuire,” she might have said, “You had me at why.”

One of the reasons some VARs get stuck in the “what rut” is that they don’t really understand the range of technologies available or the variety of solutions that could be applied. Maybe they don’t have a complete range of products on their line cards. This is a classic vendor problem; they don’t typically sell a complete solution, which is why they (fortunately) rely on their channel partners to provide the missing pieces.

One example is SSDs. Everyone knows they’re fast and speed is something that customers are interested in, but emphasizing how SSD can increase the performance of a critical database application is the business benefit that will make the sale. There’s a lot of gray area between fast hardware and reduced processing time for an application that generates revenue for a company.

Is the solution a PCIe SSD card installed in the host, an appliance SSD solution or maybe a software accelerator that runs on the hypervisor? It doesn’t matter. All of these products can be on your line card ready to support the why discussion the customer is interested in. Get them to think about the why (reduced processing time) and you’ll take care of the what (SSDs).

How about a cloud storage example? No one really disputes the veracity of the cloud as a technology solution for a number of IT problems. Cloud solutions offer nearly limitless scale, pay-as-you-go financing, simple implementation, minimal IT overhead, etc., but there are about as many variations on the cloud theme as there are companies claiming to have a cloud solution. As a VAR, this doesn’t matter.

Armed with the knowledge that they carry all or most of the technology options available enables VARs to preach the business benefit of reduced overhead or upfront costs and ignore the distraction of the specific cloud implementation details. It’s all about value, and focusing on the why instead of the what is one of the best ways to show your value to customers.

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There’s a good editorial by Rich Castagna in the March 2012 issue of Storage magazine, in which he talks about “consumerization” of IT, essentially the move in companies to allow people to use their personal devices for business processes. This includes smartphones and tablets mostly, and many employees are now opting for their own skinny notebook computers instead of the old dictionary-sized laptop that the company provides. I’m reminded of the television commercial where a flight attendant is pushing a cart full of sexy new notebooks down the airplane aisle after the all-clear bell rings for using personal electronic devices, and one passenger breaks her tray table setting up her enormous laptop.

Some of the reasons for this new permissiveness are pragmatic — IT can’t really stop people from bringing their smartphones and tablets to work — but also fiscal. Companies are hoping this may allow them to save some money on buying hardware for their employees to use. Of course, in reality it may end up costing more indirectly, as administration, security and data protection get more complicated, but that’s not stopping companies from joining this movement.

Keeping up with the flood of new and increasingly powerful devices is the pain du jour for IT departments, as employees take company data all over the place. Mobile device backup and security are the two areas that come to mind first, but there’s another one that warrants a closer look: collaboration. In addition to protecting and securing data, IT will need to ensure that workers maintain access to their data as “information behaviors” change along with their work environments. If people want to work at Starbucks instead of in the office or on a more secure connection from home, IT will have to enable this.

Besides access, IT consumerization will effectively increase the growth rate in capacity and bandwidth requirements for storage infrastructures. To get an idea of this, just take a look at the specs for Apple’s newest iPad: more capacity, more CPU power, more resolution, more everything. There are a number of solution sets VARs can present to assuage this new pain their customers are feeling, but the point is this consumerization of IT should keep users’ anxiety up and keep their VARs smiling.

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For users, it’s a way to solve a business problem or replace a legacy piece of infrastructure. It’s a means to an end. For vendors, it’s a product to sell to end users or cloud providers. Ask a manufacturer, and it’s likely to say something like: “Cloud storage is a grid of clustered, scale-out modules of spinning disk and SSDs with built-in caching or tiering. It’s an object-based file system and a global namespace with erasure coding and storage virtualization, all running on commodity hardware.” According to vendors, cloud storage is equipment.

If VARs talk to their vendors, they’re led to believe the cloud is another product set to sell. But if they talk with their customers (always a good idea), VARs can focus on what the cloud really represents to them. It’s a delivery model, another way to get their IT services needs met.

A VAR’s value proposition includes a lot of things, one of which is to know its customers’ businesses and be able to suggest new ways to solve challenges around information technology. Way back when, that meant selling standalone computer systems and things like storage, networking, etc. When open systems became the norm, VARs provided a way to integrate these components from different manufacturers into a unified solution that, again, solved a business problem.

Now the landscape has changed again, and VARs need to change with it. Today, the functions provided by many of the components they used to integrate into systems are delivered over the Internet. But they’re still providing the same business value to customers, solving the same challenges around storing data that supports information technology.

A typical storage VAR’s interaction with its market consists of two main functions — a sales function on the front end and a technical function on the back end. It has to find opportunities in its market and then deliver solutions. For a VAR selling cloud-based services, the back end has changed. While it does need to understand how a cloud storage service will integrate into a customer’s environment and play well with existing on-premise systems, it’s not installing hardware and software like it used to. But on the front end, I submit that the sales part is essentially the same.

VARs selling cloud services need to know their customers’ business information needs and often understand applications and industry-specific workflow processes, just like they did when the end result was a 60-day on-site integration project. But now, with cloud options in the mix, it’s that much more important to nail the front-end piece, specifically because there may be less to do on the back end to show value and differentiate themselves.

The cloud brokers that are springing up to challenge traditional storage VARs certainly know the importance of that front-end process. VARs that compete with these organizations can leverage their knowledge of the back end to provide more comprehensive solutions. They can also do a better job of integrating cloud solutions with existing on-site infrastructure, something that’s not likely to go away completely for a long time.

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In the first post of this series, I discussed the importance of vendors having a direct sales effort for going to market with a technical product like storage, and how the VAR channel is ideal for providing that local coverage. In the next two blogs we discussed the kinds of things that motivate VARs to sign up with new vendors and have success selling their products — and the things that don’t. In this final installment we’ll discuss what I like to call the VAR success formula, a strategy for developing strong relationships with good VARs.

When building up an effective VAR channel presence, vendors need to sign up and manage successful programs with VARs. This requires vendors to show value to the VARs they’re working with, ask for those VARs’ commitment to their mutual relationship (and honor that commitment themselves), and then keep score to make sure they’re getting what they need out of the relationship.

Show value

Showing value means providing any of a number of resources that can help VARs capture business. It’s essential that vendors understand that their relationship with a VAR develops only as they close deals — not through sales meetings, technical demos or entertainment events with their VAR partners.

Developing an effective channel program is really a training process, on-the-job training. VARs handle many lines and need to learn the sales and field engineering aspects of each new line. This means working deals together, not attending conference room presentations or webinars. The ideal situation is for the vendor to provide a field sales person and an SE (sales or solutions engineer), but vendors that don’t have local resources can get by with alternatives. For most, it requires at least a vendor inside person dedicated to each VAR and a combination of technical resources. An interactive website is not a substitute. Often, this means a strong technical training program in which the vendor flies VAR SEs in for hands-on experience at the vendor’s headquarters or training facility and then supports them over the phone as they work deals.

The specifics of what the vendor needs to provide depends on their products and their industry, but the bottom line is that vendors must be willing to make an investment in their VAR partners. That’s the value vendors need to show.

Ask for commitment

Make sure that VARs understand the ground rules. They won’t flip a deal – meaning, they won’t sell a competitive product into that account — and the vendor won’t take the deal direct. This is the VAR/vendor prime directive (for those familiar with “Star Trek”). The vendor has made an investment in the VAR and has the right to ask for something in return. This would be a commitment to follow the rules of engagement and for the VAR to reciprocate by making investments as well.

Trust is the currency this relationship trades on, and both sides need to be willing to share. There will be some deals where they’ll compete; perhaps the vendor will be in an account with another VAR or the VAR will be selling a different vendor’s product (often the vendor that brought them into the deal). In terms of investment, the VAR is expected to make a time commitment to the sales process — prospecting, following up requests for information, providing a forecast to the vendor, etc.

Keep score 

Vendors also need to keep track of the deals they’re working with each VAR to make sure the rules of engagement are being followed and that the VAR is reciprocating. After all, this is a two-way street. It doesn’t have to be one-for-one regarding who brings in each opportunity, but there must be an acceptable level of contribution on both sides. Typically, vendors have greater resources, so they provide more leads, but VARs can reciprocate by providing introductions into their existing accounts and by sharing contacts from their calling base. Again, this entire process only works if the trust factor is strong and communication is maintained.

Every company needs to make sure they’re getting an acceptable return on their investment. For vendors, this investment means direct help getting the sales process going and then regular effort to keep the pipeline full and close deals. They can’t expect to build an effective channel presence in the storage space with a few VAR managers who cover the entire country and a road show demo that comes through town once a year. It’s a day-in/day-out process of finding opportunities, working the deals and closing business — in person if possible. Neither the vendor nor the VAR will be able to tell how good a fit the other is until they run that process.

A lot of vendors find out the investment they need to make is greater than first expected, at which point, they either need to find more resources or reduce the number of VARs they actively pursue. If that’s the case, so be it. In the end it’s better to have a few strong partners than a large number of ineffective ones.

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In my two most recent blog entries, I talked about the importance of education in the buying process of technical products and the need for a sales effort to deliver that education. Since VARs provide the end-user sales contact for most vendors in the storage space, it’s important for those vendors to understand how VARs choose them. In the first entry in this series, I discussed how vendors make the jump to the channel. In the last entry I discussed basic parts of a channel program, things that most VARs have come to expect. 

In this entry I’ll focus on the things that go beyond those table stakes. These are some of the things VARs look for in a manufacturer’s product and its channel program. Most storage VARs have a couple dozen vendors on their line cards. A new vendor has to stand out and provide some value, beyond what’s expected.

Get them in the door

VARs make their money penetrating accounts, selling the second and third projects that come up after the one that got them in the door. So products that have a high interest level and can generate appointments are very valuable to have on the line card, even if they don’t themselves bring a lot of revenue or an especially high GP percentage. Many startups with new technologies sell themselves short in the value they can bring by getting VARs in the door.

Get them a sale

Get a deal closed as soon as possible, with one person, and then work on the others. The first deal is critical for a salesperson, not so much because it motivates them, but because it shows them what works. Most VARs have a couple dozen product lines to juggle, and given their turnover rates, a large number of their salespeople are relatively new. People sell what they’re comfortable with, which usually means what they understand. No amount of conference room training will be as effective in this regard as seeing what works with a real customer. This also motivates the other salespeople who haven’t closed a deal because, aside from being competitive, they’ll learn from these first closers.

Invest in them

Demo equipment is nice, but making product available for them to install at a prospect’s site is better. It’s much easier for people to appreciate the value of something they can see, touch and use, rather than just read about. Installing a product and leaving it for the prospect to use (and fall in love with — this is called “the “puppy dog close”) is very effective. People find new and interesting ways to use products, especially in the technology space, and since the VAR did the installation, there’s a low hassle factor for the prospect.

Be selective

If it seems like these are the kinds of things that a vendor can’t do with a large stable of VARs, they’re right. It shouldn’t sign up more VARs than it can support. This means limiting the number of VARs it sets up in a particular geographic region and limiting the total number it signs up altogether. From the VAR perspective, limiting the competition and showing this level of investment is one of the biggest motivators.

In the next and last entry in this series, we’ll talk about what I call the “vendor success formula,” a three-step plan to create profitable, lasting relationships with the VAR channel.

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