Selling through multiple channels is often a great strategy in technology sales & marketing. Done properly, a company can fully exploit its hard-earned intellectual property through channels. One popular channel to sell B2B software and hardware is the Value-added reseller (VAR) channel.
VARs are the distribution holy grail for many startup tech companies.
With a great many startup software and hardware companies, building a VAR network is the first thing they want to do. This is typical when the founding management team primarily comes from a technical background. They are technologists who have created a great product. They realize they don’t have a lot of experience selling or marketing. Most of the startup money is targeted at developing products. Why not just recruit a bunch of resellers to market and sell their product for them? Sounds great, doesn’t it?
Unfortunately there are few strategies that are more flawed and always to failure than this one.
Let’s contrast the realities of the VAR channel, against this simplistic notion above:
What VARs don’t do
1. VARs DON’T market. At least not YOUR products, anyway (they may market their services). The first flaw in this strategy is that it is based on a gross misconception of what a VAR does.
2. VARs don’t create new markets. VARs are sell into established markets and further expanding growing ones. Missionary sales, new markets, categories and products–not so much.
3. VARs don’t sell a wide variety, or a large assortment of products. In fact, VARs are focused on actively selling VERY FEW products–if they focus on selling products at all.
4. VARs aren’t motivated by product margins.
5. VARs don’t not exist to help your company make money.
If you’re not a sales or marketing professional with experience working with the VAR channel, you’re probably very confused by this list. Then what does a VARs actually do? And why is it worth dealing with them at all?
Repeatedly you will see technically-oriented startup CEOs pursue the VAR channel as their exclusive distribution channel, without understanding the points in the list above. They will fail miserably, and they will then scramble to begin selling through some other means. They will swear off the VAR channel forever:
“Those !!@#$%^^* resellers are good for nothing. They want a big cut of your margins, add no value in return. I’ll never work with them again.”
However, the VAR channel is a major force in the technology business. If you know what you’re doing, it can be used effectively by your company. Let’s take a more realistic look at what VARs can do:
What VARs do
1. Above all, VARs are in business to sell their own high margin services. That is how they put bread on the table. This revelation may discourage some, but you must understand and respect this, if you hope to have success. The one exception is the “core” product, discussed later in this article.
2. VARs are very interested in things that apply to their own vertical focus. Most successful VARs these days have a very tight vertical focus.
3. Many VARs act are “thought leaders” for their corporate customers. Consequently they are interested in “what’s new” in the market, so they can stay on top of trends. This means that they will sometimes spend a lot of your time talking, but never find the time to actually “sell” your product. In the busy world of the small VAR, client demands and selling the core product and services soak up all time.
4. VARs are often product evaluators and “aggregators” of purchases for their corporate clients. Corporation can thus have a single vendor point of contact for their technology purchases, greatly simplifying their purchasing process. This makes them a very important part of the purchasing chain for many corporations.
5. If they really “sell” products at all, it is usually into one or two “core” products that they have built their service offerings around. If you aren’t a product that pulls services, forget about high mindshare with VARs.
6. When it comes to “non-core” products, VARs are driven by demand in their installed customer base. They won’t add in new products that they don’t see a demand for, unless they are really techie, early adopter types. And the techies will add a product, but never actually sell it to their customers.
7. The VAR channel is excellent at fulfilling demand for great new products into their installed customer base.
8. VARs can be an excellent partner for a vendor in installing, configuring and offering first level support. This enables a vendor to leverage existing VAR infrastructure, rather than building out a large field organization.
Given the points outlined above, below are some “best practices” to follow when building a VAR channel:
Best practices in the VAR channel
• Sell your new product directly at starutp. Even if direct sales are strategic in the long run, it is critical to establish that the product works, and can be sold successfully. If you can’t sell your own product, no VAR will be able to either. Optimize and systemize the sales process, test your end user price points, and build a reference account list. Only then should you begin to approach VARs.
• Product marketing is your responsibility. Don’t think VARs will market the product for you. Remember, VARs are great at fulfilling demand among their existing customers–and very poor at creating it among new customers. You must position products in the market and create demand–if you don’t, your channel efforts will fail
• Treat VARs like the valued business. If you sell direct, don’t “steal a deal” just to make a few more points on one sale. Nothing is more short-sighted. The VAR will not do business with you again, and word gets around fast. You risk wasting all the hard work building your network. When in doubt, cut the VAR in on the deal. If you don’t feel he’s adding any value, eliminate him from your network after the deal. But don’t use your low opinion of a particular VAR to justify cutting him out of the deal. You risk cutting off your own nose in spite.
• Be realistic about what VARs can do for you. If you are a non-core offering, be happy if they “make it available” to their customer base, rather than expecting them to actively sell. Remember, VARs are key influencers of their clients. Just being available to endorse your product if a customer asks is of value.
• Provide a reasonable margin, but don’t throw margin away hoping it will motivate a VAR to push your product. It won’t work, and you’ll just leaving money on the table that you could use to create demand instead.
Phil Morettini specializes in high tech industry issues.
• Don’t over-distribute by signing up more VARs than your market will support. Even though great margins might not make a VAR push your products, erosion of margins to near zero will cause a VAR to eliminate it. It’s better to leave a few deals on the table, than de-motivate your entire reseller network, because they are 6 competitors are bidding on every deal.
That’s how to approach, and even more importantly, how NOT to approach Value-Added Resellers.
Phil Morettini is President of PJM Consulting, a management consulting firm providing general management, marketing and business development services and advice to software and technology companies worldwide.
Tags: SDNN
Comment by: Sean Turk Posted: July 16, 2009, 9:35 am
There are some good points raised here and having built a VAR network for a major US manufacturer and now working for a VAR, I have a broad view from both sides of the fence. One aspect that Phil has missed is the basics of developing your customers - in the direct and indirect channels - you will only gain loyalty and increase sales by building the relationships within the VARs. It’s easy to identify which geographically placed, or strategically positioned VAR is best placed to offer maximum market penetration, so I would alway start with those first. Once the key players are winning deals with your products, you will soon discover that others will want a piece of the action, which then gives you ongoing leverage to ensure that its YOUR company that is promoted for any bid/presentation to the VAR’s customers.
The sales basics always remain the same - Engage your customer, gain credibility, ensure the customer gets good service, BE HONEST and you will succeed.