In The modern VAR - it's time to transition from professional services to a 21st century business model, I laid out eight issues VARs must overcome. The change can't happen soon enough. The gap between ERP VARs and the customers they serve has never been wider:
The way customers buy has changed dramatically, but the way we sell and support hasn’t changed at all.
Cloud ERP customers expect a different kind of partnership with their VARs. The choices for VARs are: modernize or become irrelevant, with a trail of underperforming projects in your wake.
The next question is the make-or-break: how do you get started? How can a traditional VAR change to meet the requirements of this new paradigm and the modern customer of today?
The first thing we must do to change an entrenched behavior and culture is to acknowledge who must drive the change. We need to look to the VAR Principals, Owners, or Executives (POEs).
Looking back, many of the ERP VAR organizations in existence today got their start in the mid-to-late 1980’s. For the first time, we had broken free of the “glass house”, and the cost of computing (i.e. the IBM personal computer) was low enough that even mid-market companies could make use of the technology to manage their businesses. Amazing new software products like VisiCalc and Lotus 1-2-3 were revolutionizing finance and accounting departments, and the first accounting solutions began to appear (Real World, ABM, GreatPlains, Open Systems, etc).
Fast forward 30+ years. Now you have a high percentage of VAR POEs who are not thinking about taking new risks. They don’t wake up in the morning contemplating wholesale changes to their organizations. Most are thinking about retirement. Their businesses, while not in hyper growth, are, in fact, profitable. So why make the change?
This is an incredibly important question. Why indeed? Thousands of VARs around the world still get the majority of their revenue from on-premise software and services. They provide yearly support contracts to their clients. The same software and service contracts that have been in place since the beginning.
Transforming a model from professional services to an annuity-based, deferred revenue model is hard. But the upside is phenomenal - both for VARS and for customers.
This is why a Modern VAR makes the change. As a POE you must determine: am I up to the challenge? The answer needs to be ‘yes’.
Challenge accepted. How do I become a Modern VAR?
You’ve said ‘yes’ to the challenge, so the next question is: what has to change?
To succeed as a Modern VAR, you need to acknowledge that your current model hinders the behaviors, priorities and activities that must occur in an annuity stream business.
Consider the following:
Professional services businesses focus on a statement of work (SoW). Everything is defined in this statement of work and any deviation from the SoW requires a change order. In addition to the change order, consultants also charge by the hour, so even asking simple questions has a negative impact to the customer/client.
The SoW is the definition of a project. Professional services companies focus on projects – in some cases to such an extent that the project has more mindshare than the actual client. Professional service companies have meetings every week to discuss the status of their open projects. Are they on time? Are they on-budget? The discussions do not revolve on the client and their needs. The project has a start date and an end date. Once complete, the project is done. The vast majority of client interactions are done.
During the sales cycle, a VAR spends a great deal of time working with a CEO or CFO. During the implementation, they spend very little time with the CEO or CFO. They cash their checks, but they don’t validate that the CEO is happy with the project to date. The CEO may not actually realize any return on investment until months after go-live. And that can be after a nine-month implementation(or more). Lots of money out, not much value in. And we wonder why the relationships fail.
The project is made up of billable hours. And the measure of your profitability is determined by the utilization of those available billable hours – per consultant. The goal, of course, is to eliminate non-billable hours. The consultants almost never stop and just talk to their client. They don’t bring in pizza on a Friday afternoon to have a friendly discussion about how things are going. They can’t. That would impact their utilization numbers and possibly impact their compensation. You don’t make partner by having non-billable hours. Who cares that the client is frustrated by our model? Who cares if their experience is a bad experience? As long as we get all of our services dollars billed and paid (in year one), we’re successful.
However, the Modern VAR is 180 degrees separate from this model. This cannot be stressed enough. Nothing about what is defined above works in the successful and Modern VAR model.
The Modern VAR understands that they can no longer focus on billable hours. Prospects today want to research, but your web site has very little information available. They can’t find information,articles, whitepapers, blogs, testimonials, videos, etc. If they can’t find it on your web site, what are they doing? Your model is actually incenting your prospects to find someone else! Why? Because all this packaging of content is non-billable time. Who is going to do it?
The same is true after customers buy. There is almost no self-service available to help your clients self-implement. I have asked hundreds of VAR owners a simple question, “How much of any implementation is the same?”They all have the same answer:up to 70%. If this is true,then why can’t we package the70%? Customers will pay for real value.They are tired of paying for services they could perform on their own. But, at this point, you have no self-service.
- The Modern VAR understands that the days of discounting software are over. In the professional services model, you discount software and you protect your services. This is 180 degrees opposite of what the Modern VAR MUST do. The model requires that you never discount the subscription. That is the component of the relationship that will exist forever.
If you discount your subscription, it could impact you year after year for as long as that customer remains with you. Your consultants need to create additional value in the form of intellectual property (IP) that can be delivered as a subscription 1,000 times over. It is not about a project that is paid for once.
- The Modern VAR understands that they need managed services. Maybe you provide month-end close assistance, year-end assistance, training for newly-hired replacement employees, weekly “lunch-n- learns” or “ask the consultant”. All of this is part of your “value pack”. The prospect is willing to pay a monthly fee for these services because they have real value. Questions are free – not billable.
For a VAR in need of transformation, these changes won’t happen overnight. But at Acumatica, we see the results of modern VARs – we could not go to market without them. We also see how customers return to that VAR with new requirements, long after the initial go-live. That’s the “lifetime value” model that’s emerging.
It is up to the principal, owner or executive leadership to provide and drive the behavior changes that must occur if VARs hope to succeed in the 21st century. Once the behavior changes, you can start to focus on the most important issues impacting your business success: the prospect/customer experience.