Hidden Cost of SpecializationBy Lawrence Walsh | Posted 2010-04-28 Email Print
Vendors such as Hewlett-Packard, Symantec, Dell and others are pushing solution providers to adopt technical and vertical specializations. While many of the programs have zero to low cost of entry, staying in good stead requires significant investments by solution providers.
U.S. small and midsized businesses spend more than $57 billion a year on IT goods and services, of which Hewlett-Packard owns a 20 percent market share. The key to increasing that share, says Meaghan Kelly, HP's vice president of Channel Sales Development & Strategies, is solution providers focused on small business.
At this week’s HP Americas Partner Conference, Kelly announced a temporary lowering of the bar to the HP SMB Elite program. For the next four months, solution providers that produce at least $250,000 in annual SMB sales with HP will qualify for the program. After Sept. 1, the entry requirement will revert to $500,000 in annual HP SMB sales.
Sales volume isn’t the only requirement for this program. Solution providers also must complete two sales and technical training courses, which are provided gratis by HP through Web-based resources.
"The actual cost of entry is zero, except for time in training, and all the sales training is online," says Kelly, vice president of HP’s channel sales development and strategies.
It’s a pretty good deal, considering that once a solution provider is in the Elite program, they will gain access to new products, market development funds, sales, and technical support and special pricing.
But there is a catch. Solution providers entering the program during this promotional window will have 12 months to increase their HP SMB sales to no less than $500,000. Those that don’t surpass that mark will run the risk of being tossed from the program. Privately, some HP executives say they won’t disqualify solution providers from the program so long as they’re showing substantial, positive growth.
But what does it take to build substantial or even moderate growth? What does it take to become a true specialist in a technology, vertical practice or market segmentation?
Vendors such as Symantec, Oracle, IBM, Dell and Microsoft have announced or are planning to announce specialty programs in which their partners can earn access to special initiatives, advanced products, services opportunities and support if—and only if—they attain certain certifications and status. The benefits beyond what the vendors provide in support and special pricing, they say, is that solution providers will differentiate themselves from peers and make it easier for end users to select providers for their specific needs.
As theories go, specialization is a good one. Everything the vendors say about specialization is true. If you look across the channel community, you’ll find numerous solution and service providers that are laser focused on a particular technology or market segment. Focus gives them the means to discriminate against unprofitable opportunities, stick to a business and growth plan, and deliver quality, expert services.
Growth comes at a cost, and that’s the hidden secret within these specialization initiatives. Solution providers choosing to participate are committing to growing their business and, more specifically, the unit sale of the associated vendors. Achieving growth will come with cost in terms of training staff, acquiring new sales talent and product, developing new customers and markets, and fulfilling business. These are not small ticket items.
When Symantec turned over its professional consultative services to channel partners earlier this month, Americas channel executive Randy Cochran was explicit in saying that only a fraction of its partner community had the resources and capacity to provide these services. And, he added, even they would have to invest in new sales and engineering resources to take full advantage of the market opportunities. Adding fresh sales and engineering talent requires two things: time and money—time to find, hire and onboard the talent, and money to pay for it. By some estimates, new hires such as these cost solution providers as much as $50,000 to $100,000 before the first dollar in revenue is produced.
In the case of the HP SMB Elite program, HP is asking participating solution providers that come in over the lower bar to basically double their SMB revenues in one year’s time. A quarter-million dollars doesn’t sound like a lot of money, unless that’s the totality of what you’re generating in sales today. Undoubtedly, SMB-focused solution providers doing $250,000 in HP sales today would be doubling down already if it were an easy task.
Something vendors rarely talk about in specialty programs is the built-in loyalty—or as some would say, dependence— they create. Many solution providers carry multiple, competing vendors in their product portfolio. If solution providers can’t scale their resources to build sales volume to meet program requirements, they must shift resources and attention away from other vendor products. Oftentimes, this results in a growth in unit sales for the specialization vendor, but doesn’t help the solution provider grow his business. In fact, it makes the solution provider more dependent on the single-source vendor.
Solution providers considering or being prompted by vendors to "specialize" should ask themselves the following questions before jumping in:
- What is the level of investment for achieving performance expectations?
- How many new salespeople, technical or engineering resources are needed to meet expectations?
- Will the existing customer base provide the needed sales volume?
- Where will new sales leads and customers come from?
- What are the products that will sell best and fastest?
- Do the program benefits outweigh the investment requirements?
- Can the sales volume be sustained in the long term?
- Will one vendor specialization hurt relationships with competing vendors?
- Will the specialization produce enough of a profit to make it worthwhile?
Specialization does help solution providers differentiate themselves from the competition and define their value proposition to end-user customers. The benefits provided through vendor specialization programs help solution providers through support and special pricing. But solution providers must be aware of the hidden costs—direct and indirect—that comes from racing into these programs.
LAWRENCE M. WALSH is a vice president and market expert specializing in security and channels at Ziff Davis Enterprise. His blog, Secure Channel, follows security technologies, vendors and trends in the channel. You can reach him at email@example.com; and follow him on Facebook and Twitter.