If you are reselling technology your business may be headed for trouble. Don’t expect an economic recovery without taking steps to change your approach to the market…find out why in this video. In this video I speak candidly to small and mid-sized resellers about market trends and what factors play into future growth and stability. It’s a sobering message.
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High Tech Business Growth 
Great video Dave. I agree with you almost entirely. Yet I feel that there is still going to be a need for the suppliers of IT related hardware and licensing. The question is: Does our model evaporate resulting in the only remaining suppliers to be price clubs, faceless etailers and cell phone companies etc?
The manufacturers have created this mess. They are the only ones that can repair it if it is not too late. Carly Fiorina at HP was one of the key people setting the tone for such short sightedness. HP had fantastic products, market domination and consumer value. She made good attempts buying more companies to try to be all things to all customers but inadvertently screwed up her cash cow businesses like printing. And at the same time, out of 1 side of her face said that she believed in the channel, and out the other side proved through her actions that she would sell out the channel to any company or consumer with a buck to spend. The results we see years later is that resellers had to sell HP products at little to no profit. Now the resellers have had enough and don’t want to bother.
Carly was missing a couple key things. She rarely considered the health of the ecosystem that HP was built on. She did not open her eyes to the fact that hundreds of major manufacturers were looking up to HP trying to be more HP like. The copy cat manufacturers mistaking decided for the reseller that sub 10 point margin business was going to be the max they could markup, dictated by manufacturer’s own ecommerce site. List price simply does not exist anymore. Nor does MAP pricing or even wholesale pricing. This results in the rediculous fact that ANYBODY can buy almost ANY IT product for BELOW dealer cost via the web. The Channel is simply being destroyed. Clearly, the manufacturers are holding the smoking gun. This causes the resellers (like me) that you described to go out of business. Sadly, consumers will get the short end of the stick when they have to dial 1-800-3rd-World-Nation to get the hardware and services they need to keep keep their businesses alive.
The only way to reverse this trend is to have a tea party type movement. To band together and send the message back up to the manufactures that they have gone too far. Gartner and CMP have the politcal clout, but are afraid to SAY boo and bite the hand that feeds them. When in fact, this message is what could save them.
Another thought here is for Resellers to realize their own power to provide value outside of product/install – if you allow the manufacturer to control your business model, you are in trouble! building your value on risk mitigation through risk analysis and managed security services still promises significant profitability, but it is clearly a different model. My goal is to help companies figure this out before it is too late – while they will still sell products, they won’t depend on eroded margins. Read more on this at: http://www.stelzl.us/sales_development.asp
Agree with your comment. Companies that want to survive as “Resellers” will not make it. I see every day that the only margin being retained is by the manufacturer. The profit that was in the deal for the Reseller is long gone in most cases.
I work for a large organization and we have already started to move to a Managed Services focus but it’s not easy. It takes very clear product offerings, delivered by highly skilled people. Most Resellers are not operating at this level yet. I suspect that many small Resellers will listen to this and become angry and insist that they can exist in the new market. But without radical, difficult changes they will be marginalized if they survive at all.
Good move Justin – the transition is easier if you recognize that managed services is not a monitoring service, its a risk sale. When you demonstrate measurable risk to the client, you then have the opportunity to help them reduce the likelihood of an issue (including risks of data loss and down time), and maintain risk at an acceptable level. You might find the House & the Cloud (which is free on the side bar) to be a help in thinking through this equation. Check it out.
Dave,
I totally agree with you. I felt this transition starting back in 2003-2004 and finally did something about it in 2006 by creating an alternative channel for small VARs. Residual revenue and MULTIPLE streams of residual revenue are the name of the game. Managed services through cloud application management is one way to do this, but ultimately you are going to have to compete with the big players with any offering you choose. It will always come down to value and relationship management in the end. Keep in mind though that the players get bigger.
You’ve mentioned only half of the channel, the traditional IT side of the channel. What you haven’t taken into consideration is the huge push from telco’s to erode the small VAR’s base. Verizon recently setup a new division to go after sub-20 employee firms and sell them not just their voice and data services (with the free router, switch and phones bundled in), but also their managed AV, backup, DR, etc. This has been coming for a long time.
What my company, Innovative Visions, does is to help VAR’s diversify their revenue streams in three different sectors to ensure they can embed their true value with the customer: Voice and data services from over 30 carriers (and all the Hosted VoIP you can imagine), wireless device management for any organization with more than five devices and energy consulting services. Some of these markets are more commoditized than others, but by being not just the printer company, but also the Internet and phone company, wireless device management company and energy company you can ensure longer term success (not to mention much larger margins than pushing boxes out the door). Residual and multiple, those are the two words of the day.
Jake, thanks for your comments – you are exactly right, the SMB small integrator doesn’t stand much of chance as larger companies create offerings to take this market. They are clearly hurting in the larger accounts and working hard to move to mid and small markets where budget approvals don’t require the same rigor. The telco’s are in a strong position as well as large firms partnering with real estate companies to build and manage infrastructure. I checked out your website – offering an easy was to enter the managed services market will be important for companies focusing on UC technologies – I this this quickly commoditizing as well. Thanks for sharing this.
Nice synopsis. I have been running an IT consulting business for the last 10 years and I agree that the traditional VAR is dead or will be soon. I disagree with your assessment that small to mid consulting company is in trouble with SMB’s. Again, if you are a product pusher, your days are numbered. But most SMB’s don’t have the knowledge, skill, time or resources to assemble these low price “commodities” into a viable solution. Our business and IT VAR businesses should be that liaison between the technology and SMB—the grease that keeps things running smoothly. That is why I think that we will be able to stave off attempts from Dell and HP to reach down into the SMB market and take over it completely.
If I were a consumer, I would not trust Dell to run my IT because I know that they are only going to push Dell products and not “best of class” solutions. If I were a Dell shop, I would trust them to “service” the equipment, but not plan it. In a way it is like going to a broker to plan your retirement. If he is independent, you know that he will put you in the right investment for your situation. But he will charge more on commissions. If he is a broker for Janis funds only, you know that he will give you lowest commission rate for Janis funds, but never recommend anything else. You have to be the knowledge expert and shop to various brokers to plan your retirement accordingly. Will some companies spend the time? Absolutely! Will all of them? Absolutely not!
Thanks Michael – certainly those who understand how to measure consulting profits and burden cost will win if they understand how to market and sell the consulting. The problem is, most don’t realize how profitable their current install services are (and pure consulting dollars are hard to come by). Maybe you do – most don’t. I had a VAR business owner on the phone the other day, specializing in HP, who swore their services were profitable and utilization was high. In about 2 minutes I was able to prove it was a break-even business for them – zero net profit on services. They were shocked…I was not.
amazing discussion to have in these competitive and tough times..