Small value-added resellers (VARs) need to learn to improve operational efficiency as they grow, especially in a down economy when there's no margin for error. If an engagement isn't managed correctly the first time, a business may not recover from the loss of time, effort and money.
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So, where can VARs turn to learn best practices? Solution providers' peers are one such resource, and to that end, Heartland Technology Group (HTG) has built a model around such peers. It's worked to build groups of 12 non-competing VARs and systems integrators that help each other with best practices, lessons learned the hard way, and, if needed, some tough love.
Members meet in person a few times a year to exchange advice and best practices, but it's more than friendly chitchat: Participants are not only required to reveal sensitive information about their businesses, but they're also tasked with evaluating each other, and many firms don't make the cut.
However, participants say the VARs that stick to the program have a chance to improve every aspect of their business, from vendor partnerships to customer support to employee management.
Brad Schow, general manager of Compudyne Inc., a Northern Minnesota VAR, said when Compudyne signed up for the program it was undergoing a lot of changes and needed a lot more guidance on business structure, processes and best practices. His firm joined the third HTG peer group in 2006, and has since grown from 27 to 42 employees.
"HTG got us on board with a bunch of other companies running into the same issues and challenges," Schow said.
How HTG peer groups work
Peer groups like HTG's do require work. VARs can expect to come to each quarterly meeting prepared to present progress on business goals set out at the last session. The idea is to identify issues, solve them and move on. Rinse and repeat.
"We use the survivor model," said HTG CEO Arlin Sorensen (his own company, Heartland Technology Solutions, formed the first peer group with several other VARs in the post Y2K/dot-com bust of 2001. HTG is a separate LLC, operating on a non-profit basis.) "Each group polices itself," Sorensen said. Members are evaluated by their peers in areas such as attendance, preparation, participation and sharing, and those that don't meet the group's standards are no longer included. Sorensen said there's a 5% to 8% churn among members every quarter.
The 12 members of each group are from different regions. Groups previously met for two days in separate locations, but they now meet at a common venue each quarter, adding programs for VARs with common interests, regardless of the particular group they are in, and sharing information and ideas across groups. (The July meeting, a five-day event in Dallas, drew some 400 executives from member companies.)
VARs can apply for membership online. They are interviewed by phone and come to their first meeting as guests, but prepare for it as if they were veteran members. Group membership requires a unanimous vote. HTG forms new groups as they gain a sufficient number of new members. Members must be willing to divulge financial and other confidential business data, and have to sign non-compete agreements.
Each member must develop, present and stick to four plans: a business plan, a personal leadership plan, a life plan and a business disaster recovery plan. In effect, the group serves like a board of directors, evaluating progress and offering assistance when management runs into trouble.
"The group forces you to look at your goals, to set a business plan," said Jeff Howard, president of Arlington, Texas-based Networking Results (NetRes) Inc., a managed-services company that's grown from three to 25 people since he joined a HTG group in 2006. "I don't want my accountability partners to beat me up."
"It's easy to start believing some of your own rhetoric for why you don't get things done as owner," said Schow. But it's a different matter "when other people are looking at your business and wondering why you are stuck and why you are not growing."
How peer groups improve VAR business
This approach formalizes the ad hoc or casual peer group activity that small companies seek in conjunction with their activities in business and professional associations.
"When a group of business folks go to a conference, most will say their most productive time was spent networking at the bar," said Paul Myerson, senior channel analyst for Milford, Mass.-based Enterprise Strategy Group. "The goal of these peer groups is to bring this environment to small VARs servicing IT customers."
The peer groups can help small VARs improve their businesses in a number of areas, including:
Customer sales and service -- As VARs grow, their customer operations become more complex, both from a sales and service perspective.
"We already had great customer service," Howard said. "We learned how other companies scaled and got bigger without customer experience being hurt." For example, he learned that he needed to hire a dispatcher and have a help desk person who could answer fast, one-off questions.
Peer groups provide marketing assistance, help members with wording of materials and develop presentation templates and collateral for sales efforts. They also share best practices on tools such as professional services automation (PSA) software, which may be new to many growing VARs. Inside HTG, groups can tackle subjects like marketing and sales strategies, selling managed services, and sales staff management and compensation.
Finances -- HTG provides financial benchmarking. Each quarter members can compare their financial and operational results against their past performance, other members of their group and best-in-class companies in their business category. The reports are issued by management advisory firm Service Leadership Inc.
Members learn how to move to new financial models as their businesses grow. For example, Schow said, his company moved from a break/fix operation, in which it was easy to match revenue to technical employees to fixed service contracts, which require a new way of thinking about how efficiently employees are being utilized.
"We never had to put our business hats on before to think about those kinds of issues," he said.
NetRes' Howard said he has learned tactical finance, such as how successful VARs handle invoices or charge for hardware. Members help each other with operational matters, such as improving accounts receivable and cash flow.
High-level subjects include SWOT (strength, weakness, opportunities, threats) analysis, risk management and bidding strategies.
HR and administration -- Peer groups provide guidance on performance agreements with employees, setting clear expectations and helping them grow professionally. Everything from how to treat people to creating forms and processes around interviews and reviews is covered.
Vendor partnerships -- Small, immature VARs often have a lot to learn about how they and their vendor partners can help each other. HTG members talk about how they used to regard vendors as adversaries, someone to argue with over margins when they should be grateful that their products and services are being sold.
Their colleagues around the table set them straight: Vendors will help out their business partners if the same courtesy is returned to them. VARs should take time to learn and support their business goals and marketing strategies, and demonstrate that they can win customer confidence in implementing the vendors' products and services.
"You have to work to help vendors achieve their goals, and then you become relevant and important to them," Schow said.
Some vendor-related issues the peer groups tackle include optimizing professional services automation tools, vendor engagement and relationships or maximizing the value of the Microsoft Partner Program and improving distributor relationships. The peer groups may be investigating profitable new technologies, such as a general IT solutions provider looking to expand into new security offerings, or they may have taken care of firewalls and desktop antivirus, and perhaps that was once enough. But there are new opportunities, for example, in unified threat management, which has largely replaced simple firewalls in SMB environments. Customers who are facing PCI DSS requirements and are concerned about state data breach notification laws are suddenly concerned about encryption, Web security and application firewalls. What vendors offer the best programs? What do VARs need to ramp up to sell and support their products? What kind of service opportunities does the technology present?
A small VAR may want to know about cloud-based security, such as popular email security services. What's the profit and revenue model? How do I market the advantages to customers? Other group members, or a company from another group, may have experience in these areas or access to resources.
"We saw that other companies had real vendor relationships and were getting marketing money," Howard said. "We enhanced our vendor relationships, which, in turn, helped us get better margins."