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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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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In the last entry I talked about the need for a certain amount of education in the sales process for storage and related IT equipment. Potential customers have to understand the value proposition in any sales situation, and with larger capital purchases, a direct sales force is a common way to get the required information across. For many companies, but especially smaller ones and startups, VARs offer those “feet on the street.”

The challenge common among vendors first approaching the channel is that they assume they only need to sell the end user — and they forget about selling the VAR. The value proposition a vendor offers a VAR does include the strength of its products’ appeal to end users. But as you well know, there’s much more that goes into the decision of which vendors to work with than simply the demand their products generate with the market.

Most vendor channel management people make assumptions about what motivates the channel to sell their products. This is common since many have never actually been a VAR, reseller or integrator. In these situations they get some of it right and some of it wrong. What I’ve found is that the things that don’t really matter to VARs, or are less important, are often the most surprising to these vendors. For example:

Money

Revenue (margin, gross profit) is the most misunderstood aspect of a product’s appeal to a reseller. It’s certainly important but most often is considered table stakes; VARs assume they’ll make money selling a vendor’s products or those products wouldn’t have been considered in the first place. But a good margin won’t make up for all the other shortcomings a vendor’s channel program might have.

Interactive websites

Vendors are often in love with their online channel resources. These interactive websites have sales collateral, training materials, case studies and white papers in abundance. But VARs typically don’t use them, at least not to the extent that vendors assume they would. The typical VAR has about two dozen vendors to deal with, and they simply don’t have time to learn how to use a website for each one.

Leads

Like money, leads are widely misunderstood by vendors. Yes, they’re important, but many very successful manufacturers never supply traditional leads. Most VARs make their money penetrating accounts, essentially selling multiple products throughout the year, with different projects that come up. While they do need new companies to call on, quality is more important than quantity. An introduction is much more valuable than a name that came from an inside sales cold call or a trade show scanner.

Deal registration

This concept was originally introduced by Qualstar, the economy tape library company, about a dozen years ago. It used to be a big selling point to VARs but is now an expected component of price protection, and most vendors have it.

Relationships

Getting to know channel partners is important, but being friends with a VAR won’t get it to sell a weak product or struggle with an incomplete channel program.

Activities such as lunchtime learning seminars, sporting events and contests have their places in a channel program, but like the other things mentioned in this blog, they’re more support activities.

In the next blog we’ll talk about some specific things that VARs look for in a vendor’s channel program.

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Historically, this has meant a sales process, driven by the vendor’s own sales force or a network of resellers or VARs — or a combination of both. With small vendors, this can be a team of sales and technical people — sometimes the same person. With startup companies, it can be a core of executives and management personnel who are the first to champion the products and technologies, leveraging their own personal networks and expertise to capture the initial customers.

The channel presents an opportunity for vendors to leverage their expertise and produce more of the effective, real-time interaction mentioned above. But how do these companies scale that model and make the jump to really using the channel?

Leveraging the channel means the vendor delegates the job of getting its value proposition across to potential users. It requires that the vendor educate a network of VARs, integrators or resellers who can themselves then go out and educate potential users. But aside from educating, vendors also need to motivate these channel partners to go forth and sell their products. These are VARs who typically have a dozen lines they focus on and another 10 or 20 they regularly interface with.

So in addition to selling the end user, vendors need to sell the VAR as well. They can’t assume that having a strong value proposition for end users automatically means they have a strong value proposition for VARs too. That’s kind of like saying that products will sell themselves.

Creating a strong VAR value proposition takes an understanding of what gets a VAR excited about selling a product. Unfortunately, many vendors make some assumptions about what VARs need and want (like margins) in a product and a channel program. There are a number of factors that VARs will expect (like margins) but that won’t necessarily drive a VAR to really focus on a product. In the next two blogs, we’ll get into some of these details and talk about what kinds of things will and will not motivate you to sell a vendor’s products.

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This is an interesting concept and one that escapes a lot of folks, even outside of IT. How many people do you know (maybe yourself) who commit to doing things in their personal lives without really understanding how much time these commitments will require? I think it’s human nature to participate in as many activities as we can. The problem comes when we underestimate (or deny) the amount of time a commitment will consume.

And when we’re focused on keeping costs down, as we have been of late, time can get sucked in to make up for that lower price. I’m reminded of a real estate agent neighbor who said that people she would show houses to universally underestimated the time it would take to fix something they didn’t like about a house they were considering. They were very aware of the money they would have to commit to purchase a house but largely unaware of the time.

In IT, where a do-it-yourself spirit is part of the job description, getting overcommitted on time can be an occupational hazard. This is why my friend’s zero-sum policy is such a good idea. As a VAR, part of the value we brought to this customer was what they called “non-recurring engineering.” This represented the upfront design and preselection work that made infrastructure decisions easier — and less time-consuming — for them. But after the system was in, the day-to-day administration was on them.

For VARs, keeping this time budget concept in mind when they consider products and solutions for prospective customers is essential. Too many vendors and VARs think only in terms of covering costs when they run ROIs and other justification analyses. If they’re unaware of the real or perceived administrative burden a new system will put on the IT team, they’ll lose deals and not know why.

VARs need to make their vendors explain the ongoing admin workload associated with a new piece of equipment, the way it integrates with existing management tools and how easy it is to maintain and upgrade. When a vendor conducts new product training, it needs to ensure that the administrative effort the product requires is fully explained. Then, when they’re out showing this technology around, they need to ask the prospect how they see a new system fitting in. If the perception is it will take an extra four hours a week to run, they need to know that upfront. 

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For a lot of vendors trying to leverage the channel, the answer would seem to be “yes.” As analysts, we take a lot of briefings from companies with new products and new companies trying to sell their first product. I’m always amazed when I hear a vendor say they’re “committed to the channel” and then explain a channel program that was obviously put together without regard to the needs of their channel “partners.” Usually, this is due to a lack of understanding about how VARs and integrators operate and what their overall value proposition is. Oftentimes, these folks have never worked in the channel, and some, it would seem, have probably never dealt with the channel. But there they are, putting together a channel partner program.

When I was a regional manager at a large storage integrator, two examples of this lack of awareness on the part of vendors would come up time and again. (The question that serves as the first line for this blog was a favorite expression of one our SEs.) The first was the collective VAR meeting, where a vendor would set up a nice lunch (oftentimes spending a good sum of money) and invite all the VARs they had in the area. Then they’d dive into their current product line or upcoming program while the VARs in attendance (competitors of one another) would sit there saying nothing. They wouldn’t ask questions when they surely had them, they wouldn’t comment on any sales aspects they found effective and they certainly wouldn’t share any real-world experiences with the group.

The vendor management who typically pushed for these meetings couldn’t understand why the VARs they’d invited to this elaborate function never seemed to participate. It didn’t occur to them that salespeople never want to share their secrets with the competition. They’re not going to stand up and talk about a new application they found, an objection they overcame or even a line they used to get a meeting with a prospect. VARs don’t have the resources, the name recognition or any of the things that vendor reps take for granted. They’re certainly not going to help train their competition.

The second thing that amazed me was how vendors never seemed to grasp the primary value proposition that VARs and integrators bring to the table–namely, the ability to put a system together and to take systems responsibility. This is where the term “integrator” came from in the first place. Every large vendor we worked with would give us the bundle pitch, at least once. They’d put together a package of related products they manufactured and/or had partnership agreements for and try to get VARs excited about the ability to get all these components from one source. Sometimes these vendors would even include their professional services. Every integrator and most VARs live and die by the success of their PS bookings. Except for the occasional situation where they don’t have the expertise for a specific product or are too booked up to get a project done on time, why on earth would they be interested in turning that business over to their vendors? When these bundles were announced, all VAR people in the room would look at one another and roll their eyes–even the competitors, if this was also one of the meetings described above.

Vendors seldom seemed to understand that VARs and integrators actually trade on the complexity of open systems gear. If everything worked, out of the box, VARs would be out of business. I wrote an article recently on integrated IT stacks, the bundled solutions that the big storage and compute vendors are putting together to offer customers complete, plug-and-play virtualization platforms. It discusses this strategy, what the vendors are getting out of it and what it can mean for VARs. I’m assuming these vendors are expecting VARs to get enthusiastic about this “new” product strategy. But I’m pretty sure the reaction will be, “What, are you NEW here?”

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If choosy mothers choose Jif, then smart VARs choose one of these new storage vendors with a compelling technology and start showing it around. Two companies Storage Switzerland was briefed by at VMworld come to mind for VARs looking to replace a legacy storage vendor.

Gluster is an open-source software solution that runs on commodity hardware and can give VARs a very interesting play, especially for a customer who’s pounding you on price. And, they’ve just released a new module that provides scalable NAS for VMware environments.

Zetta is a cloud storage provider that seeks to provide a real enterprise file storage feature/functionality in a cloud solution. It’s being well received by users who’ve bought into the cloud concept, only to be disappointed with the cloud service providers that are available.

While neither of these solutions will compete head-on with your favorite three-letter storage behemoth, they can provide strong solutions for a large segment of midmarket customers that most VARs regularly call on.

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To help answer that question, I had a conversation with ParaScale CEO Sajai Krishnan, former GM of NetApp’s StoreVault business unit, a few days ago about the company’s cloud storage software. It’s one of a handful of companies (other companies in this space include Bycast, Mezeo and Caringo) that sell software that can be used as the platform for a cloud storage service.

As Krishnan explains it, MSPs and resellers can set up “high-touch” cloud storage services pretty cheaply, charging 40 to 50 cents per gigabyte per month, in exchange for reliable (backed up and redundant via your data centers/colocation facilities) file storage over a fast network. Compare that to the 15 cents a gigabyte per month for Amazon S3, with that traffic running over and data living on the anonymous Internet. ParaScale lets its customers store the first 4 TB of data for free in pilot-stage mode.  So, the pitch goes, say you have available space in your data center and a colocation facility and three or four spare Linux servers hanging around (2-year-old machines would be fine, Krishnan says), the infrastructure startup costs for cloud storage services would be next to nothing (not taking into account the apportioned cost of housing and running the Linux hardware in your data center). Once you get beyond 4 TB or begin using the 4TB in production mode as opposed to pilot mode, the costs from ParaScale start to incur (including minimum support costs of about $3,000 a year on the free 4 TB). Krishnan says there’s an optional quarterly payment plan and that at a volume of about 10TB, the cost for the software and support is less than $3,000 per quarter. If you’re at about 100 TB of storage, for Year 1, the cost is “well under $200,000,” said Krishnan, including hardware, software and support.

That translates to less than $2K per terabyte per year at a volume of 100 TB. The cost to a reseller would be less than $2 per gigabyte per year. Assuming you’re charging all customers the same price and giving them all the same service (which is unlikely in reality but it gives us a baseline for analysis), if you’re charging customers 50 cents per gigabyte per month, the cost to the end user per gigabyte would be $6 per year. So at a volume of 100 TB, the margin would be $4 per year per gigabyte to resellers, about 67%, not including data center costs and personnel. And the data center costs could be the big gotcha, since they can’t be ignored, and estimating them will differ from company to company depending on size and existing infrastructure. Some resellers may be able to piggyback cloud storage services on top of their existing equipment/data centers,  but the bigger your cloud storage services business becomes, the higher the costs become and the more likely they’ll need to be accounted for separately on a budget.  And for resellers without spare space in an existing data center, the startup costs are even higher.

So that leaves me with some questions for you:  Do the metrics on this sound right? Will customers be willing to pay 40 to 50 cents a gigabyte a month for high-end cloud storage services? And what kinds of data center/hardware costs would you face to support 100 TB of customer data? And have you looked into any of ParaScale’s competitors? I’m interested in your thoughts on this. Email me at stroy@techtarget.com.

VARs can and should play the “independence card” when competing with a manufacturer in a deal. But there also may be an opportunity here. Customer environments vary, as do the systems they buy. Often, there’s legacy gear that has to be integrated, or at least understood. Maybe the customer has a piece of software they want in the solution — something the manufacturer’s professional services team has no experience with or can’t officially support. A good example of this is a third-party storage system or virtual infrastructure monitoring suite.

The point is, infrastructures are never as clean or as “cut and dried” as they look on the whiteboard. In the real world, they’re always a little messy. But, like that Honda commercial, this is “Mr. Opportunity knocking.” You can step in and provide the expertise for a piece of a larger system that the manufacturer’s professional services group cannot. Years ago, when EMC first bought Legato, many local VARs sold their Legato expertise back to EMC in their own deals. This doesn’t mean you should settle for table scraps when competing with a large, primary storage manufacturer. It just means that if you don’t have a shot at winning the deal, you still may have an opportunity to capture some good business. And, you may set yourself up for a phone call from that same manufacturer when they’re in the next deal and need a little help with a product that’s not on their supported hardware/software list.