VARs can still find opportunity in the channel provided they embrace a transition in their business, according to Arlin Sorensen, VP of peer groups at ConnectWise.
Speaking with CPI at IT Nation Connect in Orlando, FL, Sorensen said that while there is still a future for VARs, it is not in a product-only business.
"There's a ton of opportunity for VARs, but they're going to have to transition. It's going to be tough to just be a product guy - you'd have to sell boatloads of stuff."
VARs need to be thinking about how they can work with their vendors more effectively, how they can "leverage every program dollar" and how they can create business value and make themselves a viable proposition should they want to exit their business at some point.
"I think there'll always be a place for them because vendors need people that can sell big volumes of product, but what they're not going to be able to do is create a lot of business value in their company if they're strictly doing the product side," Sorensen said. "They may be able to make a living doing it, but they're not creating value in their company, and when they get to the point they want to transition, there's not going to be a long line of buyers because there's just not a demand, nor is there long-term viability"
This is why VARs must develop the services side of their business, he said - and not by simply buying up an MSP to bolt on to a VAR business.
"VARs have seen their gross margins decline for the last few years. It's getting harder and harder to make money on a product-based business, even with some installation services and the like. And they've been watching the managed service guys do increasingly better. There was a period of time where some of the early adopters felt like they just go buy an MSP to bolt on and it would fix all their problems. But this doesn't work because it's just too small of a piece of their business and their sales teams and everybody else is used to making money by selling product."
VARs specializing in a vertical or with a particular vendor are the ones that are "doing okay", Sorensen noted, but they too need to look at how they can ensure recurring revenue flowing into their business.
"We're always going to need products and a lot of the VARS doing okay today are very specialized. They're delivering specific-vertical kinds of solutions or they're working specifically with a vendor. The Cisco VARs, for example, are doing okay. You've got a lot of healthcare VARs or VARs in other verticals that are doing okay. But they're not thriving because the margins are tough, and they can see the opportunity to learn how to really run a recurring revenue service business," he said.
He added that though VARs are "great" at project services, this is also an area where margins have declined.
To help members of ConnectWise Evolve tackle this, the peer group is rolling out a VAR-based community group that will advise product players on how to successfully transition part of their business to a services business.
"We've had a number of partners come to us and say, ‘Okay, we give, we need help. Show us how to transition and teach our teams'. And they're not ever going to be managed service providers, but they're going to have more balance in what they deliver to the marketplace, because the margin is in services, not in selling products."
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