Someone Else Who Gets It

I write often on the importance of working strategically and through partnerships with vendors. HBR (Harvard Business Review) posted a great piece from Tony Hsieh, the CEO of Zappos.com, that made me stand up and cheer. Zappos sees it the same way as HTG does. Vendors are not the enemy and need to be treated like our best friends – as partners we cannot live without – as keys to our success – as critical components to a winning strategy. This article entitled “A Lesson From Zappos – Follow the Golden Rule” really hits the key points and says it better than I – so take the time to go and read this in full.


I do want to call out a few key statements in this article:

• Ultimately, each party is out for the same thing: to take care of the customers, grow the business, and be profitable.


• We found it much easier to create alliances when partners aligned themselves to the same vision and committed to accountability


• It all begins with the Golden Rule: Treat others as you'd like to be treated


• We realize the importance of communication, and if our partners are trying to reach us, we need to be responsive


• If we created true transparency in our business, not only would they help us, they'd benefit as well


• Negotiations at Zappos are a bit different as well. Instead of pounding vendors, we collaborate


• We know there’s no way we could’ve achieved our success as a company without our vendor’s commitment and passion, so every year, we like to show a little gratitude


• All of this is because of the trust we’ve built….we respect and value our relationships

I could not have written this article any more clearly than Mr. Hsieh has done it. We truly grow and succeed based on how well we are able to build and maintain and nurture our relationships. We want to focus on the customer, but I am here to scream that there are equally important relationships with our vendors and distribution partners. And the sooner you learn that – the sooner you will start to truly grow and succeed. If you don’t get it – as the article states – you will like find the “death spiral” most retailers find.
Relationships matter; and few are as important as those you build with your key vendors. Get them right, invest in them wisely, and they will take you far. Fail here and you can start planning for your next job!

Distribution’s Role in Success

This is the third blog post based on the keynote I delivered at the SMB Alliance event hosted by Ingram the end of August in Charlotte. The topic of this post is focused around the importance of distribution in the success of a VAR in the IT channel. This is based on our experiences in growing HTS and watching other successful VARs build their companies.

Distribution Was a Key Factor

At SCCI, my original company and parent organization today, we made a strategic decision to go deep with Ingram. Our purchasing is almost all done through this relationship, and our participation is primarily with their programs and resources. This decision was not about price. While their prices are competitive with the market, they are not necessarily the cheapest place to source products and services. On any given day you can call around and get better prices, that is if time is not of any value. The decision was based on value and the exact same fundamentals we preach to our clients every day. Don’t make decisions on price (if you do you probably won’t buy from us) but make decisions based on the value that we bring to the party. That is how we need to approach our distribution relationship. Focused on value.

So What Value Does a Distributor Bring?

For us it was based around four key areas:
1. Resources available
2. Investments made
3. Programs offered
4. People involved

There is no doubt that our “all in” decision has been a huge success factor. We have grown from less than $500K in 1990 when the relationship began to over $16M today and Ingram has been a key success factor in our growth. There is no doubt that we would be nowhere close to our current situation without that critical decision.

So How Have We Put the Pieces Together

Not only do we consolidate our purchasing, which gives us pricing but more important relationship, we take advantage of as many of the services and resources available to us as possible. Here are some that we leverage and have used to fuel growth:

1. Tech Support – our sales model leverages Ingram tech support to quote all our solutions or complex products. Every quote goes through tech support for solution validation. This gives us the ability to return product if it does not meet the customer needs. RMAs are down over 1.5% which is huge given our volume. No more long nights listing open box products on Ebay.

2. Solution Center – Our sales teams have made over a dozen trips to Buffalo or Santa Ana to leverage this resource. Every visit results in immediate and long term sales that are significant. You have the opportunity to expose your prospect or clients to a vast array of technologies in an offsite and highly focused environment and good things happen there.

3. Technology Assessment Program (TAP) – a mid market assessment tool that helps probe for opportunities. We have used this tool with over 50 of our clients and it always generates a long term strategy that leads to significant opportunities. It is the gift that keeps on giving.

4. IMSN – the Ingram Micro Service Network provides a mechanism to expand our service delivery. Both by receiving service tickets that drive revenue, and leveraging skill sets or engineering talent that we are not able to afford or don’t have available. They handle the transactional activity and we just do the work.

5. Communities – Ingram offers a number of these, most notably VTN and SMBA. Our company has grown significantly because of our involvement in these groups. They provide the opportunity to connect with peers and industry executives.

6. Agency Express and CAP funding – Ingram has great resources to help grow our company leveraging marketing investments made by vendors. These programs allow us to expand marketing resources and they work with us to create our own marketing plan. It is valuable and enables us to reach into the market with quality information and campaigns.

7. People – this is definitely the greatest value Ingram brings to the table. They have great people all over their organization that understand the channel and how to help us succeed. We leverage them for help with strategy and planning, procurement and marketing, sales and technical issues. They help us make things happen every day.

Far too many VARs get stuck on pricing and split their purchasing all over the place based on the deal of the day. My advice is to find a distributor you can partner with and go deep. Go all out. Make them part of your team and include them in your day to day business. They really can help you succeed. HTS and HTG are where we are today because of the deep investment we have made in Ingram Micro, and the equally deep investment they have made in us. We have many relationships that go 10 or more years deep and truly bring value that cannot be measured in dollars. So take a hard look at how you are doing business with your distribution partners. Are you really getting all you can from them? Or do you need to pick one and go deep?

So who needs a distributor

I was in NYC this week to serve on a panel for the GTDC (global technology distribution council) http://www.gtdc.org/. This group consists of 32 of the leading distributors of IT products worldwide and this was their Wall Street briefing. The room was filled with disty execs from Ingram, Tech Data, Synnex, Bell Micro, Arrow, Avnet and others as well as a room full of Wall Street investors from the large players. The audience was there to determine the health of distribution and determine investment strategies for the coming year. I came in a sports coat and no tie and was about the only one there not is a black suit and tie. Sort of didnt' fit but they still let me serve on the panel.

There were three panels during the morning session. The first consisted of four specialty distributors, the second a panel of resellers, and the third the four broadline disties. When we went through the introductions it was questionable why I was up there. Reseller number one did over 1 Billion in sales last year. Reseller number two a mere 950 million. I was number three with a puny 17M and the fourth on the panel was a services reseller who did about 4M in revenue. So it was quite a variety to say the least. The main focus was on the economy and how we see our customers impacted. These investors wanted to know if things were going to be impacted by poor purchasing. We have not seen that in our customer base and the overall feedback was that resellers are optimistic about the year. We certainly are at HTS.

It was a good experience and I learned a lot about distribution I did not know. These guys obviously play to Wall Street. One thing I have really began to understand is the power of Wall Street to control the behavior of our distributors and vendors. They cause unnatural activity around month, quarter and especially year end. These guys have the ability to take the stock price down in a heartbeat and there is a real concern about keeping the folks on the Street happy. Seems like the CEO's and other key leaders in the IT sector are very focused on that.

I did learn some facts that are pretty amazing. The GTDC members did over 100B in sales last year (yes that is B as in Billion). So for me to think I have a lot of impact on these guys is just plain crazy. They experienced 14% growth and their gross margin was 8%. They have been making a shift to more value add for us as resellers which is the same thing we are trying to do with our customers. They have a bit over 5% of their sales in operating expenses and that leaves them a little over 2% in margin. Their overall operating income grew by 23% year over year which is good - we need these guys to stay in business or we are all out of work.

Some other interesting facts were as follows:
Desktops grew at 10.6% on a 1B sales category. And people think the desktop is dead.
Notebooks grew at 14.4% on 3B in sales.
Storage grew at 6.8% on 1B in sales
Warranties grew at 72.8% on 1B in sales. There is some real action on this one.

The most amazing statistic I heard was that the 100B in sales from the disties is out of a total sales bucket of 1T (T as in trillion) so they are only getting today abouit 10% of the total technology sales worldwide and the general attitude was lots of optimism as there is certainly plenty of upside for them.

So I encourage you to show some love to your distribution partner(s). Our strategy is to consolidate our purchasing primarily to Ingram and go deep in our relationship with them. We don't buy on price but on value. That is how we sell, so it only makes sense we are consistent and focus on the relationship and value rather than the price. We actually practice what we preach to our customers and it is working out quite well for us. Far too many partners think they have to get the lowest price on the products they are reselling. We just don't find that to be true at all. Splitting your purchasing among a number of sources dilutes the relationship and ultimately the value that a disty can provide. Take a look at how you run your purchasing. Incent people to bring in the most value to your organization and customers, not the lowest price. Price can be extremely decieving and often does not reflect the reality of what value a distributor can provide. We do have a second disty that we use if product is not available to us - now we are aligning with Synnex for that role - but it only happens when we can't source it from our primary. Our purchasing people don't waste time getting competitive prices - they consolidate all our purchases and place the order. That alone takes a lot of cost out of our model and is a part of the value we get from single source purchasing.

Hug your disty - we need them as much as they need us!