Innovative Visions

While maintaining our original business model for telecommunications contract and negotiation management (where our clients receive free management and consulting services from IV), Innovative Visions, LLC is considering adopting a new stance for the IT hardware and software reseller market. We are hoping to get some active feedback on this proposed model, before launching. This service is in the fashion that the customer always comes first. Here are the details of this strategy and how it can impact your business. Please let us know your thoughts and feelings about this subject and if you would like to retain IV’s services in this area, then contact us by any means convenient to you.

Problem:

The IT hardware and software market is a commodity market where increased competition creates a need for added value, hence the term Value-Added Reseller (VAR), to differentiate from the next VAR calling on the phone. The problem is that most VAR’s aren’t offering anything new or innovative and they are still paid by the manufacturers and distributors and not by the customers they serve. Although their interest may be to serve the client, ultimately they serve whoever pays them. Forms of revenue for VARs include markup on the front-end (this is the ONLY part paid for by the customer), rebates on the back-end, associated (or unassociated) marketing dollars and spiffs ranging from $5 per unit to trips to Cancun for sales reps, management, buyers, marketing and anyone else who can influence the sale. This misdirected loyalty creates an environment where the customers’ needs, although taken into account, are often foregone because the manufacturer will pay for the rep to gamble with the family at a casino all weekend, if the deal goes their way.

History:

As you know, most manufacturers of hardware and software depend on Value-Added Resellers (VARs) to distribute and sell their product. In some cases these VAR’s purchase the products directly from the manufacturers, however the majority of products go through a two-tier distribution channel before getting to your door. This is done to allow each party to concentrate on it’s core competency whether that be designing and manufacturing, distribution or sales, service and invoicing. For these various services, each party retains a fee based as a percentage of cost in the form of a markup. The distributor generally retains between 2-4% on each product they sell to the VAR. VARs, on average, make between 9-55% on products (obviously depending on the product category). Although most companies will get a fair price from their resellers, this is generally only obtained after hard negotiation, increased sales volume and constant price checking with the competition. This work can be time consuming, costly and exhausting, diverting your attention away from more critical tasks associated with your business. However, even after all of that work, you the customer may still get an inferior product for your needs solely because a competing manufacturer pushed incentives into the deal to influence the decision.

Experience:

This situation creates the potential to save time and money, while ensuring that a trusted, independent party will look after your needs first and foremost. This is where Innovative Visions can help. Jake Carey-Rand, President and Founder of Innovative Visions, LLC, has been active in the IT hardware and software reseller channel since early 2002. Trained by industry veterans who created the channel, his primary focus has always been on the customer. Although at times frustrated by the misaligned loyalties, his work has always remained consistently focused on the customer. Jake started working for a Fortune 1000 VAR selling in excess of $2 million per year and pushing as many boxes as possible out the door and moved to managing complex relationships with smaller, regional VARs with more mobility and flexibility. Throughout this process he has developed a deep understanding of the IT channel, its players and the technical and financial structure on which this channel operates. His focus is entirely on his clients and their needs.

Opportunity:

Since 2002, Mr. Carey-Rand and Innovative Visions have primarily helped clients by providing free technical and sales consultation. Historically this process starts by finding the right technological solution to a business problem, then moves to finding part numbers, pricing, proposal, managing the sale and the very important follow-up. Of course for any “value-added” service there is an inherent fee built into the associated cost, as previously discussed. This fee is the markup the VAR charges to the client. Anywhere from 9-55%, depending on the product, plus the distribution % on the back-end (and don’t forget those incentives). But in this system of doing business, the customers interests are only as important as the added money the VAR is able to obtain. The system is inherently backwards and not created to serve the clients’ interest at all.

Proposal:

IV proposes managing your purchasing process for you in order to save time, money and reduce complexity. The level of service, attention to detail and technical and industry knowledge only stand to get more client-focused by following this new model of serving customers. Wouldn’t it be nice not to have to worry about whether or not the cost of that server is fair because you know your broker is independent, knowledgeable and tough? What about not dealing with the complexity of finding part numbers, associated peripherals (such as memory, hard drives, cases, etc.) and instead concentrating on your core competency of running your department and company? Innovative Visions will work with you to ensure your purchasing decisions are correct, the technology is the right solution to solve your problems and you are getting the absolute best price possible. These services will cost you no more than you would have otherwise spent, because the fee is based on expected annual savings to your company by maintaining IV’s independence.

Please let us know your questions and comments either in the form of a comment or email.

I have always had mixed feelings about Dell the company, not the man. Michael Dell is to be applauded and recognized for the tremendous vision and work needed to bring his namesake to the level of success is has attained. From a strategic and business perspective, few people will argue that Dell changed the PC business and has revolutionized the model by which computers are sold. It was all pure genius. Dell’s cost-cutting strategies and built-to-order model forced industry stalwarts IBM, HP and others to refocus on who their clients were and to ultimately build a better, cheaper machine. IBM got fed up with trying to compete and instead sold of its PC business to Chinese giant, Lenovo, leaving them the kings of enterprise software and services. HP, not having the services and software business to rely on, was forced to re-evaluate its hardware channels, cut costs in R&D and ultimately rework its internal structure to accommodate the changing tides. This is all good… to a point.

With last week’s abrupt announcement that Michael Dell was back in the driver’s seat and long-time CEO, Kevin Rollins was out, analysts, investors and industry insiders were forced to re-evaluate their position yet again. For years, Dell’s “direct” model worked like a charm in cutting out the middleman and associated costs. However, they eventually realized it can sometimes be cheaper to outsource your sales, invoicing, customer service, etc. (just like they’ve done for years with their R&D and manufacturing). Dell’s R&D budget is nothing compared to what IBM and HP have spent over the years to ensure compatibility, reliability and standardization. And this started to hurt Dell… more on that later. Rollins realized he had to include the channel to some extent to take advantage of the customer base and economies of scale; however he never really made a full effort to do so. CDW, the largest of the channel VAR’s, had worked up a deal with Dell, but it was supported poorly and, like the smaller VAR’s soon realized, Dell was in it because it had to, not to increase its business and footprint.

Back to the R&D… As Michael looked on, Rollins had to increase Dell’s customer service and support personnel due in part to growth, but also something else which they won’t readily agree with: Dell’s lack of full R&D investment, outsourced channel agreements and innovation have finally caught up with them. It costs a lot to support faulty hardware, pissed off customers and all of the other customer service functions associated with ANY PC business. So, after more than two years of losses in stock value and market share, what will Michael Dell do differently to correct Dell’s path? Obviously, with such a big move announced so suddenly, there are a number of good articles written on the subject recently. Peter Burrows, of BusinessWeek.com, wrote of Dell’s return to the company on Friday. Michael Kanellos, of CNET.com weighed in on the issue on Thursday.

Apparently first on Dell’s list of things to do is going back to the proven way to raise your stock price and generate some “change-buzz”: Cutting costs. The Austin American Statesman released an email yesterday (and a great story which accompanies it), detailing newly announced management cuts and a new bonus structure going back to 2006; primarily the strategy is that there won’t be much in the way of bonuses for 2006. I’m sure there will be more announcements to come, especially in the wake of the SEC’s continued investigation into Dell’s accounting processes. But, will Dell go back to a direct-only model, or has HP made enough of an impact to force Dell to do a deal with the devil and embrace the distribution channel and all that it has to offer? After all, the opportunities lie in services and in order to take advantage of this opportunity, Dell will have to at least court the MSP and VAR channel for a time. Time will tell and although I have nightmare stories of dealing with Dell as an influencer and MSP, perhaps they will make the right moves and regain their title from the glory years.

Throughout my years of experience in channel building, management and development I have come across the good, the bad and the really, really ugly in vendors of all shapes and sizes. Some of them sell routers designed to work with cable/DSL modems, when you actually have full T1’s coming into your offices. Others develop Microsoft licensing schemes bordering on the insane, not to mention illegal (a legal liability). But there are plenty of vendors out there who are really, really good at what they do; from analysis and design to procurement or delivery and installation, to the ongoing management. There are gems in the haystack. But how do we determine who’s who and more importantly, how do we decrease the impact on your bottom line profitability and efficiency, resulting from a potentially bad decision?

Do you get new vendors on a referral basis? Perhaps your rolodex goes back through 20 years of industry experience and that is enough to fulfill your needs… Well, however you accomplish this task today, this world is changing at a new rate of speed.

First, let’s look at the different type of vendors that exist today. There exist the hardware and software “value-added” resellers or VAR’s, also known as box-pushers (such as CDW, Insight, PC Connection, etc.). Then there exist the IT management shops who will help the SMB customer manage its Exchange network or remote connectivity environments (such as All Covered on a national scale or the thousand other shops built like it around the country). Additionally, there are CLEC’s spread across the country (not often known by name, they will resell blocks of phone minutes at a discounted price). Then we get into the “managed service” providers, or MSP’s. This is where the water gets muddied and the quality of service you will receive can take your business to new, previously unimaginable levels, or embarrass and throw your company’s technology (and consequently business environment) into a brick wall. Let’s try to avoid this scenario, shall we?

Michael Vizard, from eWeek’s Channel Insider, helps to navigate the unknown of the MSP world for channel partners (i.e. the VAR’s, IT shops, CLEC’s and of course MSP’s) in his recent column entitled, “A Managed Services Means to an End.” While making some rather good points about what is most important, this article is of course written for the traditional VAR or “solution provider” and their desires to move into the managed services space; primarily because without additional channels of revenue they will die by their own hand of horribly low hardware and software margins.

Let me stop here for a bit and explain a couple of things about how the VAR channel works (and additionally what most every other channel is modeled after). First tier is the manufacturer. Second is the distributor (Ingram, Tech Data, Synnex, D&D, etc.). Third are the VAR’s (and at times the IT management shops). By the time you get to the third level (from whom most companies will purchase their hardware and software, telecommunications services, etc.) there is little difference in service or price. It essentially comes down to your sales rep’s ability to manipulate the process as best he can. There is a constant fight to keep declining margins from toppling their strung-out sales’ forces and therefore they need to diversify into other offerings whenever possible. Buyer beware…

This is where, as Vizard points out, VAR’s can use a platform (such as Silverback, N-Able or Level Platforms) to create packaged, managed services for remote management, design, backup and recovery, etc. However, due to the nature of their business structure, VAR’s cannot accomplish this task or actually sell ANY of these services without SKU’s. So, the feared “C-word” or “commodity” comes into play here as it always has in this environment. In other words, if you have sku’s, than anyone can sell it, thereby reducing the increased competition and reducing any possible margins which once existed for them. While trying to diversify their portfolio of services, these “channel companies” are creating another commodity channel which will self-destruct, just like the rest of them.

As you can imagine, this is becoming a growing problem for companies needing to determine who to use in order to complement or replace their existing capabilities. How will these VAR’s (and other “MSP’s”) complement your business? Do they know your environment? Your competition? Your short and long-term business strategy? These are very valid questions which must be asked every time we venture out for additional help. Why do you think IV is in business?!? The potential savings or chance of disaster makes the stakes very high for all involved. Perhaps we can be considered a Channel Broker, as I mentioned yesterday, but as long as that definition is defined without concrete walls; because, to quote a fairly famous musician from the last 60 years, “The times they are a-changin’”.

Yesterday I was reading through one of the 15 million RSS feeds I have set up in my reader, NetVibes. As you know, it is a full-time job to keep up with everything that is going on in the world of technology today. However, NetVibes has done a great job of at least filtering out most of the crap quite easily for me. But that’s not what I have to say today (although if you aren’t already using NetVibes, I do highly recommend it). There was one particle article which caught my attention more than most, as it related pretty directly to what I do on a daily basis.

Deborah Rothberg, of ChannelInsider.com, briefly discussed the fast-growing trend of IT executives using what she called “Channel Brokers” to help manage their environments. This, according to Forrester Research, is a great way for CIO’s and CTO’s to concentrate on more pressing, less confusing things other than the estimated half-trillion-dollar-plus multiyear outsourcing deals they all have. As I was reading through the various examples of “Channel Brokers” Rothberg and Forrester mentioned, I realized this is what I do! (Well, almost….) It’s amazing how new titles can just creep up on you sometimes… Here is a good way of summarizing what they define as a Channel Broker:

“Advisory firms help customers with the strategic decision-making that precedes a transaction, making sure that the sourcing goals are tied clearly to business objectives. Advisory firms are also hired to pace the march to a signed contract and in some cases, helping to ensure a successful launch, according to the report.”

However, there is so much more than that! A Channel Broker will do a lot to improve your bottom line (and hopefully help correct that ulcer), but if a company is going to ask for help managing it’s contracts (whether we’re talking about hardware, applications, moves/changes, telecommunications, M&A or whatever), do they really expect the “Channel Broker” to just manage the process, perhaps oversee the implementation and then bugger off? I don’t really think that’s a valuable service. Without a doubt, ensuring that your technology environment agrees with your business objectives is crucial (and we certainly do as well), however what also do for you is to actually manage all of those complex relationships for you long after the implementation is complete.

Forrester discusses that this is a growing market (we like hearing that), but with good reason! With the complex landscape constantly stretching before every executive, they have to manage the company’s strategy, bottom line, employees, infrastructure, etc. So wouldn’t it make sense to keep IV and our bag of tricks, knowledge and partners on your hip to assist? I just hope this title of Channel Broker can be expanded to ALL areas of technology AND to the process after the sale (where the majority of costs come from: the management part). This WE call: Managed Services. It’s more than just brokering a good deal and ensuring everything is set up properly, it’s about creating a process by which you save money, time, effort and trips to buy Tums!