Savvy Partners Are Just Around the Corner By Marcia Kaplan
Published in VAR Business magazine, 12/15/97
| In work, as in our personal lives, things often run more smoothly when we have a partner. When there's too much to do and not enough time, it's nice to have someone else to lean on. And when our partner excels at a skill that we lack, teaming up provides better results. |
With the rapid rate of technological change, VARs are finding that they can't provide every solution their clients need. "You cannot be successful in any business if you try to be all things to all people; you lose focus," says Paul Jarvie, vice president of marketing at ASAP Software Express in Buffalo Grove, Ill. which has offices in 23 markets. But VARs don't have to walk away from potential business; allying with another firm that specializes in complementary specialties makes good business sense. "Our core business is the provision of software licenses. If the client wants help desk support, asset management, or training, we outsource."
Results of the VAR Business survey of VARs that engage in partnering indicate that technologies VARs are most likely to provide in a partnering arrangement are networking and Internet/Intranet services, with Internet services jumping substantially over last year.
Partnering has become so necessary that the Business Technology Association (BTA), an organization of business equipment dealers, VARs, and systems integrators, has developed a seminar, "The Greatest Singles Party Ever — Building Relationships for Profit." The seminar covers the qualities companies should look for in partners, compensation arrangements, and partnership agreements. BTA president Carol A. Wylie, a systems integrator herself at RoyCorp in Carson, Calif., believes partnerships allow VARs to keep customers they might otherwise lose and increase revenues without increasing overhead.
Changing industry trends have contributed to new alliances and virtual corporations, according to Wylie. As traditional analog office machines became obsolete, the National Office Machine Dealers Association (NOMDA) merged with the Local Area Network Dealers Association and eventually the name became BTA. By partnering with VARs, traditional office machine dealers can hold on to customers without having to retrain themselves.
NetTeCH, a BTA sub-group, is the vehicle for partnering. Bob Whiton, president of the Orange County, Calif. chapter as well as managing director of Network Solutions Inc., says it behooves VARs to "ally ourselves with companies with complementary skills." Whiton recommends partnering when a firm has more work than it can handle. He adds that rapid changes in technology make it impractical for any one VAR to be expert in all areas. Customers want very specific Internet solutions and Whiton finds his firm teaming up with ISPs and e-commerce consultants to meet customer needs. Currently, 25 percent of Network Solutions' revenues are attributable to partnering and Whiton sees this increasing.
John Hennessey, manager of the Internet resource center at Computer Resources Group in San Francisco, Calif. provides temporary staffing and consulting to Fortune 1000 companies as well as VARs. The company is usually called in by other VARs in need of technically skilled people. But Computer Resources Group occasionally calls in boutique consulting companies to meet a client need.
"The Internet has opened up new opportunities as some others have dried up due to commodization. Web proliferation requires a broad range of skill sets to provide a solution. Now you have to work with two or three partners," says Hennessey.
Stellcom Technologies, Inc. in San Diego meshes a growing systems integration business with its professional staffing offerings. Stellcom partners with other Microsoft Solutions Providers. "Stellcom is a development house with few implementations skills," says Dave Lynn, director of systems integration. "Partnering reduces our risk and allows us to offer a complete spectrum of services. We have a track record with three or four companies that we feel comfortable working with," declares Lynn.
Partnering is particularly prevalent in San Diego because many defense companies have eliminated non-core functions and outsource those tasks. Lynn believes customers are convinced that the best solution can be had when several companies are involved.
GERS, another VAR in San Diego, focuses exclusively on the retail market. It has ten vertical software templates but still needs to partner with software developers for such specialties as bridal registry software. GERS works on an exclusive basis with one company in each vertical market. No money changes hands among the partners according to vice-president Dennis Conforto; the client is referred to the partner and works with each firm separately. The benefit to GERS is an increase in retail market share. Ninety percent of GERS' clients integrate other packages with GERS' core software and 50 percent of new transactions require partnering.
Financial arrangements vary widely. Some VARs simply take in another VAR on a project without any fee, hoping the other firm will return the favor.
ASAP structures its relationships so that it gets about a ten percent fee from partners it brings to an engagement. Jarvie points out that the sub-contractor is spared any sales and marketing expenses. ASAP acts as a general contractor, getting full payment from the client and paying the sub-contracting VARs.
Stellcom's Lynn says that 70 percent of the firm's revenues come from other companies bringing in his firm as a sub-contractor. Stellcom accepts a lower margin in exchange for a reduction in project risk.
NetTeCH members usually sub-contract with one another with the lead VAR marking up the services to the customer. The sub-contracting companies are visible to the client although the lead VAR receives payment from the client.
Pat Gallagher, sole proprietor of Data Logic Systems in Menomonee Falls, Wi., has been partnering with the same firm for ten years. Gallagher, a networking VAR, teams up with North American Computers for hardware sales and repairs. They usually bill each other at cost and split the profit, with the customer paying the lead VAR. Ten to fifteen percent of Gallagher's revenues are attributable to this arrangement.
Gene Mazurek of Bancroft and Masters Inc., Redwood City, Calif., a VAR that specializes in LAN/WAN design and implementation, says other VARs that furnish vertical market application software usually call his company into an assignment. These complementary arrangements involve no sub-contracting, with each partner billing the client separately with no additional fee. About 15 percent of the company's revenues come from partnering. Such arrangements, according to Mazurek, provide incremental business but not higher profits.
Most VARs interviewed for this article say that partnering does not affect profitability but it does increase revenues and number of clients and provides a better solution for customers.
Interaction with client
As partnering has become more common, VARs are more likely to let the client know that other firms are doing some of the work than they were a few years ago. No VAR reported negative reactions to sub-contracting from clients.
For example, ASAP's clients know they are dealing with sub-contractors but are unperturbed. They rely on their ongoing relationship with ASAP which is ultimately responsible.
Computer Resources Group used to make sure the fact that it was partnering was invisible to its direct clients. Now Hennessey introduces the other VARs as his business partners. "Customers understand that you need additional expertise." But Hennessey always tells clients if he has not worked with the partner before.
GERS' clients often suggest both the partnering arrangement and the partner according to Conforto.
Finding a Partner
Thirty six percent of VARs responding to the survey said they found quality partners via word-of mouth, with customer referrals accounting for 27 percent. Some VARs make most of their contacts at trade shows while others rely on the Web to find potential partners. Others consult vendor lists of companies that have met certification requirements. Having a certification from vendors such as Microsoft , Oracle or Novell gives greater assurance that the partner is technically capable.
Some VARs prefer to be found by others. This works particularly well for software developers. "Partners find us in trade magazines, on the Internet, and through recommendations from hardware vendors," says Midge Brown, v.p. of marketing at Seattle-based Eaglesoft, a developer of inventory control software used in warehouses. Consultants who have clients that need such software handle the installation and Eaglesoft avoids project management responsibilities. The customer pays a licensing fee to Eaglesoft.
Karl Schultz, sole proprietor of Systems Consultants in Gardena, Calif. looks for partners that have networking expertise. He often finds partners on a list of Lotus Notes developers provided by Lotus and he always seeks out Novell certified engineers. In Shultz's arrangements, the other firm is a sub-contractor and is invisible to the client, usually a small business. Partnering allows Shultz to offer a more complete solution to the client. "When you're a single person company, it's impossible to do everything."
Once VARs find a compatible partner for one project, they like to extend the partnership into a long-term relationship. It's less risky to deal with a company with a track record. And the key to maintaining a good relationship is to have frequent face-to-face contact says Stellcom's Lynn. "We don't shop around," declares Jim Kelton, president of Software Unlimited in Mission Viejo, Calif. "We work with the same people again if we like them."
What To Look For in a Partner
Eaglesoft's Brown and ASAP's Jarvie agree that a potential partner should have good general business sense combined with knowledge and experience in the required technology. Responsiveness to the customer keeps a project running smoothly with fewer glitches.
Kelton says that it's best to partner with a local firm and one that has at least a few employees. He has been burned by sole proprietors who didn't have enough knowledge and he advises VARs to check the references of all potential partners before joining forces. But he adds that a reliable partner can "bail you out when unemployment is low and you don't have the expertise in-house."
Conforto suggests that partners should have a track record and a client base. He also recommends investigating the financial stability of potential partners
A surprising number of VARs say they still rely on a handshake agreement with their partners. Others such as Computer Resources Group use a written contract that has a non-compete clause, an indemnity clause, and a requirement for liability insurance. And Stellcom has a brief terms and conditions contract with an 18 page addendum.
GERS has no contracts with its software partners because the partners work directly with the client and GERS has no project management responsibilities.
Few VARs said they had a bad experience with partnering. One once provided an engineer who had difficulty finishing a project within budget.
But there are some warning signs of possible trouble. Hennessey says a company that tries to take over the project immediately is not a good partner. Another sign is a company that proposes a solution without talking to the client first.
Survey results show that partnering contributes an average of 20 percent of VAR revenues. But that does not reflect the large amount of partnering that does not include financial remuneration. And alliances will increase because as Hennessey remarks, "No one company has all the answers anymore."
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