The Channel Challenge

Can a reseller earn a good living as a hardware distributor - sometimes termed a ‘box shifter’ - any more? This is a question that has been exercising the channel for many years. The answer is almost certainly ‘no’; there are margins to be made on pure product sales, certainly, but unless a business is one of the largest product distributors in the field then making a small amount on each box isn't going to work.
It would be useful to get rid of some of the snobbery that arises when talking to some of the channel about 'box shifting' before starting. The business of moving hundreds of systems around Europe and delivering them, undamaged, in a timely fashion and to the right place, is a respectable one.
The box shifter problem
The box shifter can still be a problem, though. In the view of Joe Gallagher, director of Xerox corporate premier partner Xclusivesolutions, it’s possible to lose business to people selling more cheaply than you. “We have cases in which we do the consultative bit and recommend a product then the customer goes and buys from one of these box shifters,” he says. Charging for the consultancy is not an option either. “The reality is that it's competitive and difficult to charge for that level of consultancy.”
The phenomenon is not unique to the IT industry, he says. Many people go into a showroom, find a television they like, type the model number into Google and find the cheapest price. “Really if you're looking at a commodity-led market, that's what's going to happen.”
His answer is to accept that there will be people looking at the sub-£3,000 market for a system will go to the product resellers. He adds, though, that the resellers at the low end are themselves feeling the pressure. “We’re developing service revenue,” he says. “Whilst we can’t charge for consultancy up front, I know that if I've got a relationship with someone that lasts three years that's going to give me three to four times the profit over the contract term enabling us to build a service proposition and improve customer loyalty.”
Gallagher isn't positive about resellers wanting to expand their business by adding value and service in this way unless they had it in their business plan early on. "If you think of some of the businesses who stack them up high and move them very quickly, it’s difficult to convert that to a services or consultative led approach. Some of them don't even want to talk to people; they prefer to negotiate with their mouse!” And as soon as there is a problem they push the customer to the manufacturer, he adds.
Adding value
Not everybody agrees. Paul Frank Bom, director of iXware, used to work for IBM which itself went through the move from unit sales to service sales. First he points to territorial differences depending on where someone operates. Can a box shifter make money, he is asked: “Not in Western Europe or North America but it’s different in Central and Eastern Europe or Asia Pacific, for example," he says. In those areas as well as some of the African countries it's quite possible to make a straightforward unit sale and leave it at that.”
And the cultural shift to adding significant value is not insurmountable, he suggests, but it’s not easy either. “Other companies have managed it, so it can be done. We work with smaller resellers who have made - or are making - the transition very successfully. Time and resources aren't the major constraint though; what determines success is the degree to which management sets the direction and follows through.  Reward schemes are perhaps the simplest example, where rewarding ‘undesired behavior’ will encourage the same. Rewarding people for making the transition will always achieve the best results. It is, in fact, far easier for a small organisation like a VAR to make such a transition than it is for the larger corporations.
“You have to be prepared for change and accept that you'll lose some of your sales people. Some will relish the change but others, who'd rather sell stuff and forget it, will no longer fit into your organisation,” says Bom.
Integration
One of the essentials in making the transition is something that is relatively straightforward to learn. Eric Gee, managing director of Paper River, has been selling solutions for years and thinks it's more important to understand the business processes than the technology in a particular sale, however. Being Ex-Hewlett-Packard, he spent a lot of time understanding Independent Software Provider solutions and how to integrate them. This sort of work has increased rather than decreased.
“The demand these days is for integration into the full business process,” he says. This means not only understanding how the devices work and integrate and how the applications work with them, but their purpose and position in achieving a corporate goal. Gee's own organisation has built its focus around capturing information on paper and making certain that the process is repeatable and scalable.
This is based on decades of learning. Organisations looking to change to a value-add sale rather than a straightforward device sale will be able to do the same but there are things they need to bear in mind, he says. “The trick is that when you start an organisation you need to build it around what’s happening,” he says. “The device itself can be about one tenth of the expenditure on a sale, which a lot of lower-end businesses don't appreciate because they're very device-centric.”
The business process, the interface on each device to be linked and the marketing that goes around that - these are the specialist areas.
Communication
An element of a successful solution sale that attracts little attention is communication, he says. A business like Xerox researches and develops a solution and a company like Paper River assimilates the concepts and applies them to a customer's need. “There is a lot of communication and knowledge needed to bridge the gap between the two,” he says. “A good business process consultancy acts as the conduit between manufacture and customer.”
Recruitment is therefore a vital part of the equation. “If you look at an organisation like Xerox, they’ll have an account manager who will be good at putting a lease together, financing, working out the cost, progressing an order, liaising with third parties – it’s critical that we have the right people who aren't salespeople but who are customer facing,” he says. “The most important thing is that if we get an opportunity that person has to relate the concept to the commercial team and explain what the customer is about and what they want to achieve.” Unlike Bom, he believes this is easier to achieve in a smaller business where there is more scope for agility - but he doesn't underestimate the difficulties.
There will always be box shifters and for many people that is a good thing. Home-based businesses whose equipment fails at the last minute are grateful to be able to go to a supermarket and replace a basic laptop or printer with something that’s good enough to finish a particular piece of work. The margins are pitiful on that sort of business, though, and someone needs to be turning over many millions of dollars before a significant profit can emerge.
The issue that product resellers face is just how to change their business to address a market that wants either a rock bottom price or a full solution. It can be achieved through training, selective recruitment and a cultural change, but it should never be assumed that the transition is easy.