Giving Credit to Solution Providers
Since the onset of the recession, big vendors and financing companies have pushed generous financing and payment terms to make it easier for end users to purchase hardware, software and even services through the channel. Still, the majority of solution providers continue to finance sales out of their own pockets, loans from local banks and credit cards.
Lack of understanding, it seems, is the enemy of credit and financing. At least that’s believe of John Marks, founder and managing director of Coach Capital, a financing firm that caters exclusively to solution providers.
"You can start a credit and lease discussion with a CEO or CFO, but you can’t start that conversation with an IT manager," Marks says.
Marks is no channel neophyte. Until March, Marks was chief executive of JDM Infrastructure, a highly successful, multimillion-dollar Midwest solution provider. He sold his business of 25 years to ASI. Rather than staying with the new company, Marks moved on to focus on his other venture—a company that helped make JDMI a success—Coach.
Marks founded Coach Capital as a whole separate business with the sole purpose of being JDMI’s exclusive financing arm. With the support of Coach, JDMI sales reps were able to bundle hardware and software with credit and financing, making it easier for customers to buy. Coach made it easier for JDMI to package, since reps could lower prices on hardware because they could make up the difference on the financing end through fees and payment terms.
"In this economy, the first question out of a rep’s mouth should be how do you intend to pay and is leasing an option?" Marks said. "Financing is the thing to get more sales done."
Leading with financing and credit options has been the mantra of Cisco Capital, Dell Financing, IBM and Microsoft for more than a year. Microsoft will do more than $1 billion in financing this year, and Cisco has committed more than $2.5 billion in capital to partner financing. Cisco has identified more than $23 billion in refresh opportunities that it’s willing to help finance sales. But despite vendor advice, solution providers are reticent to lead or engage in financing talks.
Vendor channel executives often speak about the need for solution providers to change the conversation and the people that they speak with in client engagement. By switching their focus on business managers and corporate executives, they can engage in more meaningful discussions about business objectives and how technology can facilitate goal attainment.
The success of businesses like Enterprise Infrastructure Management of Ohio and Business Technology Group of Manhattan is that they’re client engagements begin with identifying business objectives and mapping processes before engaging in discussions about technologies. As EIM’s Matt Garst says, technology usually doesn’t enter the sales discussion until the third or fourth meeting, if then.
Marks believes that is the missing ingredient from the sales and financing discussions among solution providers. Many of the vendor financing arms contract credit through GE Finance, CIT and other financial services companies. They provide capital to allow end users to buy from solution providers, but don’t provide the know-how and insights to use financing and credit to their advantage.
"Having someone in the channel financing who knows the channel and knows how to source products at better prices is a tremendous advantage," Marks says.
The biggest selling point Marks makes is the financing model that made JDMI successful. Not only did the symbiotic relationship between JDMI and Coach Capital get JDMI more sales, but also created natural recurring sales cycle between reps and clients. As clients wanted to upgrade, they would often call the financing company to check lines of credit. When financing deal came to term, reps would get notification to check out renewal and upgrade opportunities.
"Financing helps control the customer’s buying habits on the second buy," Marks says.
It’s the sort of financing-sales cycle Cisco and other credit arms have been advocating with limited degrees of success since the beginning of the recession. Marks says he didn’t realize this model until he realized and accepted what his business really was: a financing business. Now, solely as the proprietor of Coach Capital, Marks is hoping to help other solution providers understand the true value and propose of their business.
"Being a solution provider just isn’t enough," Marks says.
Lawrence M. Walsh is vice president and group publisher of Channel Insider. Read his research reports at [CI] Perspectives.