Storage resellers beware the SMB market

The SMB market has great financial appeal to storage suppliers, but storage resellers who follow suit should heed these warnings before investing time and money.


George Crump, Storage Switzerland
 

 It seems like every storage manufacturer or supplier I speak with lately wants its storage resellers to focus on the small and midsized business (SMB) market. I will not regurgitate all the statistics available on the potential of this market, but needless to say, on paper, it's big. I'm just not convinced it is a market for value-added resellers (VARs) like yourself to invest in.

Why are storage suppliers moving into the SMB market?

Revenue. The numbers are there. If you can capture share in the SMB market there is a sizable revenue pay off. However, notice storage manufacturers are not going after the SMB market themselves; they can not afford to do so because the size and number of transactions are too small, making it too expensive to send salespeople to call. As a general rule, if a market is too expensive for your storage suppliers' salespeople, it is too expensive for you as the storage reseller.

Secondly, and this may sound cynical, it allows storage manufacturers to direct storage resellers to a market that becomes entirely their responsibility. In other words, you would not have to worry about your supplier competing directly in a larger account with you. Keeping you busy with the SMB market allows them to spend time on the "more important" and larger accounts, basically distracting you to eliminate channel conflict.

What SMB market challenges will storage resellers face?

First and most surprisingly, the SMB market is pretty well served. Catalog and Internet-based resellers all sell data storage solutions now, and much of their business targets the SMB. Most VAR companies that try to focus on the SMB market are smaller, with fewer than five people, and have trouble balancing the data storage prospect, sales and installation equation. Catalog-based resellers have well-known Web sites, and, well, catalogs that are mailed to thousands of small businesses every month. They have large telephone-based sales teams that answer inbound calls. Most storage resellers I know would fall out of their chairs if a new customer called them on the phone asking for something. VARs are dependent on their own telemarketing and manufacturer-supplied leads; typically they can't dedicate enough time to be successful at telemarketing, and storage manufacturers tend to be equally unsuccessful providing enough leads to keep storage resellers happy.

The attractiveness to the SMB market is that there are thousands of SMBs. Be picky. Try to focus on the "M" part of the SMB -- medium-sized businesses.
George Crump
Storage-industry veteran

The second big challenge is that the sales cycle is just as long as selling to large accounts. SMBs are likely to want to look at more storage technologies and emerging technologies than larger companies. This gives you the opportunity to be considered for the account, but not without many other storage suppliers being weighed alongside you.

An SMB is less likely to have a dedicated storage administrator; the IT staff members wear many hats. Some of those hats may not even be IT related, so getting the SMB decision maker to make a decision can be yet another a challenge.

Finally it comes down to economics. A $50,000 purchase by an SMB is more important to that company's existence than a $500,000 purchase by a Fortune 100 company. Also the actual owner of the SMB is often involved in the IT spend. These factors further slow the purchasing process and create pricing pressures. Many SMBs do not have a specific IT budget set aside for these types of purchases. And keep in mind SMBs are on average a greater credit risk than more established companies.

Since the average selling price is lower in the SMB market and the sales cycle is as long as larger companies, you must have many of these projects active at any given point in time. This leads to a higher number of lower dollar transactions -- and a more expensive business model.

Is the SMB market worth storage resellers' time?

Maybe. You have to be selective and realistic with what you are going to get from the SMB market. My first word of advice is to keep trying to sell into large, major accounts. Don't allow storage manufacturers to exclude you from major accounts or discourage your involvement. If you find a net new opportunity in even the largest of accounts, most manufacturers will work with you in spite of potential disputes over what is net new business and what is not.

I recommend to always reach agreements on the rules of engagement before you introduce a storage supplier's product at a customer's site and keep knocking on the doors of the big guys. I would also ask suppliers how they are going to handle a situation where the customer asks to deal with the supplier directly or another VAR.

The second path to major accounts lies in working with a few emerging technology suppliers. Do not pick up every iSCSI supplier out there. I find it works best when you align with one only. Also don't pick the "small solution" guys. Work with storage manufacturers offering high-end solutions that will give you no conflict at accounts, where your mere introduction is seen as value-add. Find that new emerging technology with a niche to get you in the door. Become known as the company that not only introduces new technologies but actually knows how the technology works. This will involve installing and learning it in your lab. Understand how it integrates into the customer environment and how it can make other processes better. That makes you more than just an introducer.

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There are at least 20 such manufacturers you could be working with right now. As examples, companies like Permabit (disk archiving), InMage (business continuity) and BakBone (backup software) have small internal sales teams with no history of direct transactions. Don't count on this type of storage supplier for leads. If you are willing to create your own leads, leverage their unique technologies to earn business in major accounts.

All this said, you will probably need to spend some time at SMB shops. How can you do this profitably? Think about charging for the initial visit. You may think I'm crazy, but this is not an out-of-the-box concept. Many professionals in other industries charge for their time. Why should you be any different? Maybe provide the initial meeting at no charge, but bill them for your time if you then provide them with your credible storage purchasing and planning knowledge. You are going to provide a valuable service of guiding them through a maze of storage suppliers and technologies, so why not get something in return?

If you are not going to charge for such a service, you must be particular about which SMBs to take on. The attractiveness to the SMB market segment is that there are thousands of SMBs. Be picky. Try to focus on the "M" part of the SMB -- medium-sized businesses. I still find current storage utilization to be a good rule of thumb when determining who to talk to, but also pay attention to how fast data is growing. Your criteria may vary and there are always exceptions, but I find that pros-pects need to have more than 1 terabyte (TB) of storage currently, and they must be growing their storage needs by 25% year over year to be viable customers. As a storage reseller you live for the repeat sale. If the business has had the same 100 gigabytes (GB) of data for the last five years and they do not see any significant growth coming, it might make more sense to find someone else.

Prospecting for SMBs is hard work, too. In fact, I have found it just as hard to get in touch with a SMB as it is to get in with a Fortune 500 company. They all have voice mail, they are all busy and they don't want a sales call any more than the next guy. In-terestingly though, they do seem to have a better network of contacts. I find them much more willing and able to provide referrals. I hear salespeople complain all the time about having to make cold calls, at the same time they do not work hard for referrals. If it means not having to do cold calls, I'm not going to forget to ask for referrals and neither should you!

While you can not and should not ignore the SMB market, do not automatically exclude yourself from the larger accounts. The process is the same regardless of account size. With proper planning and focus you can service both markets well.

About the author: George Crump is a 20-year veteran of the storage industry. Working for both integrators and suppliers, leading both sales and engineering teams, and taking on roles including CTO, he has developed a wide range of expertise in the market. For additional information on selling storage solutions or for general in-formation, please email him directly at georgeacrump@mac.com or visit his Web site for more articles and content: Storage Switzerland.

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