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The Var and the Vendor

February 25, 2011 — Leave a comment

When I first entered the technology consulting business, my new manager referred to our firm as a VAR (value added reseller).  VAR!  He said it with pride as though it meant something special.  Coming from a large bank where we referred to our services providers as vendors and VARs, I knew this was no complement.  Yet our manager seemed to take pride in something that, on the client side was viewed as a commodity.   I soon learned that, on the provider side, VARs were partnered with vendors, but in my heart, I knew the client perceived us all as one thing – the vendor!  Simply put, we didn’t see any value in those we called vendors and there was no such thing as “Value-Add”; vendors provided people and products at the lowest possible price, and free lunches on occasion. This is not the way to position your company if you are looking to build a profitable business.

© 2011, David Stelzl

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When was the last time you raised your fees?  If your business still quotes T&M most of the time, now is the time to make the change.   If you set fixed price fees based on estimated time, you might consider moving to “value pricing” this year.   Don’t wait; it’s the New Year, meaning people are open to change.

If you’re looking for justification on fee increases, look at the value you bring to your clients.  If your value is low, it’s time to upgrade.  However, most companies I talk to insist their value is high and their clients are highly satisfied.  If this is the case, you have justification to raise your fees.  But don’t penalize your existing customer contracts.   Guarantee pricing to your best clients while you move new business opportunities to new prices.  Consider adding new offerings to your existing programs that deliver more value with a higher price.  Figure it will take several months, if not a year to see bottom line impact, so get started now.  Those who wait until their income statements are in a crisis will be sorry.

Some considerations.  It’s time to charge more if:

o You are losing money on existing contracts

o Installations are coming in with lower margins than expected

o Fixed prices are turning into losses

o You are the low price leader in a high-tech market

o Larger companies won’t consider you because of amateur pricing levels

o Your business is project oriented

o Your value exceeds your price

© 2010, David Stelzl

Traditional thinking says that more sales will lead to a higher income.  Here is one more example demonstrating the deception in this type of thinking.  I frequently come across sales people working for smaller VARs, selling into small mom & pop companies.  These customers don’t spend much, so the deals are smaller, yet the VAR model was built on high-involvement sales; making calls onsite, taking people out to lunch, and perhaps performing demos or providing evaluations of the products being represented.  The problem is, they are transactional, and so volume becomes a focus.

So let’s say each deal is priced in the neighborhood of $1500 (which is typical),  and most of the deals are product install.  For argument sake, we’ll say the product is two-thirds of the deal, with a half  day install.

Total Deal Price: $1500

Margin: $350 (Assuming ten points on product and the balance on services)

Income based on 10% payout: $35

(and all if this assumes that the rep priced the services correctly and didn’t go over)

So how many of these transactions do you need to make a reasonable income?  With a 30K base, you would have to do about 166 of these each month to make 100K annually!  You can extrapolate from there, but the point is, you don’t want more deals, you want larger deals, recurring deals, and margin-rich deals.  Stop selling transactions and start solving big problems.

In a recent discussion I had with a young entrepreneur, he asked, “But can this company afford the larger project?”  Great question!  If it’s central to his Twenty Million Dollar business, he can.  If it’s just some new cool technology, he can’t.  So once again, you have to ask, “What problems am I solving, and how much are they worth?”

© 2010, David Stelzl

P.S.: Happy New Year Everyone!

Vendor to Adviser

December 20, 2010 — 2 Comments

If you missed my teleseminar last week on moving from Vendor to Adviser…Here are some examples of how I’ve turned mundane deals into profit-rich, consultative relationships:

  • A firewall upgrade opportunity referred by a vendor/partner turned in large profit and product.  Rather than going in with quotes and features, I presented cybercrime trends to an executive VP, identified their mission critical applications, data, and some process, and showed them how current trends are attacking companies similar to theirs.  The meeting ended with an agreement to perform a simple assessment, which was then expanded to a $65,000 contract.  From there we spent over a year implementing security controls, locking down operating systems, and eventually signed a three year security management agreement.
  • A firewall replacement opportunity from a non-active client turned into a larger assessment and perimeter security initiative with dual-authentication and application security consulting.  In this case, the client wanted to review competitive quotes.  Rather than responding with numbers, we called a meeting with the VP of operations, reviewed mission critical applications, and discovered a need for stronger application security and authentication for users who are members but not employees of the organization.  We proposed a simple assessment which closed for $35,000, and demonstrated the need for two-factor authentication, intrusion detection with event correlation, and upgraded various components of the perimeter as well as website security for the application in question.
  • An intrusion detection opportunity with a newspaper company turned into a larger policy consulting project putting us in front of all major company stake holders.  Rather than responding with numbers we were able to show the need to identify company policy in order to properly place and managed intrusion technology.  This effort led to a portal based policy server, intrusion prevention technology along with managed event correlation.  Future projects were easier to win with our new executive level sponsorship.
  • A large network project was put on hold at a major southeast university.  Instead of giving up, I was able to convince them to conduct an operational efficiency and risk study on the need for new network equipment.  This allowed us to gain entrance to all major stake holders positioning us for future project business.
  • At an educators symposium I was offered a breakout session to speak for free.  I used that platform to present trends on cybercrime, approached being taken by large organizations, specifically in the education/university space, and was able to follow up with one of the attendees with economic buyer status.  Our team conducted an assessment for $125,000, and then leveraged that relationship for introductions throughout the southeast.  Similar projects followed in North Carolina, South Carolina, Georgia and Florida, many of which required remediation efforts.
  • A similar speaking opportunity was given to me at a CLEC symposium for NC, SC, and VA.  Similar results followed the educator symposium.
  • A small staffing role was awarded to us to install some server technology in a large multimillion-dollar financial application project.  By researching their proposed plan we were able to show how their approach was not going to produce the results they were looking for.  At the risk of losing our position on the project, we proceeded with recommendation on how to change the program, putting us at the helm of a 3 million dollar initiative to role out a lending application nationwide.

You get the idea.  Taking existing product opportunities, free speeches, and by proposing contrarian approaches, a savvy sales person can move up.  One who has taken the time to stay on top of trends and developed consulting skills, can move to a consultative, and highly profitable position within the organizations they are already calling on.

© 2010, David Stelzl

After attending and speaking at dozens of channel partner meetings and hundreds of reseller workshops I’ve had opportunity to interview and speak with many business owners and sales people on the topic of value – just how much value is there in attending these events.  Listen to what I’ve learned about channels, resellers, distributors, and vendors…

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When little gadgets like the iPad command greater attention than just about anything you sell, the technology business is in trouble.  That is, unless you have something greater than the product to vend.  It was bad enough that half the emails I was receiving said they were sent from the iphone (which we Verizon customers still don’t have), but now the other half are coming from the iPad!  Where are we headed?  I’m changing my signature to read, sent from my MacBook Pro, which supports more apps, has a bigger screen, and consumes more power! (Right about now I am loving the fact that I upgraded from Microsoft Windows earlier this year.)

The real issue of course, is that the product can’t be the center of attention.  If you you work for Apple, perhaps your real value is innovation.  If you are a reseller it must be intellectual capital.  If you work for just about any product company, you had better have some niche, or you’ll be what Geoffrey Moore once called the Chimps, always trying to steal market share from the Gorilla.  Or, perhaps you’ll learn the same lesson we all need to learn…that the message, the marketing, and the intellectual capital are more valuable than just about any product.  Certainly in the long run this is true.

© David Stelzl, 2010

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