Why VARS and Other Resellers Fail Lack of Differentiation

for VAR Business - January 31, 2002

You hear a lot about how the IT market is tight. Fees are dropping. Contracts are harder to get. What does this suggest? How about more competition chasing fewer customers in the existing markets? It might be time for something new.

As the owner or manager of a reseller or consulting firm, you have a basic choice to make. You can pull back and ride out this difficult period, or you can use this disruption to your advantage. You could take this opportunity to create and dominate a new market.

New markets offer some wonderful attributes. Because they are new, you have no competition. As the only player in the market, you have room to experiment. You can price to the needs of your customers, instead of to rivals. This usually brings you higher margins. For some owners, the best news about the idea is that you can get the satisfaction of creating something new.

This need not be expensive. FedEx and Palm Computing were both started with almost no cash. AOL created a new market without investing in a lot of new technology. I studied hundreds of new market successes and failures to write "Creating and Dominating New Markets," and I can tell you five success strategies that have worked to reduce the risk. If you want to enhance your chances of success, and do so at a lower cost, heed these key lessons.

Don't assume a new product will build a new market. New markets come from solving problems that really perplex customers, not problems we wish would perplex them.

The first company to try something does not always create a market. The key is first to market acceptance, not first to market. The first to solve the problem as the customer sees it usually wins.

Play to one, but not both, of your two strongest qualities. You may know your products well (if they are not too new) and your customers well. Create a market using the knowledge of one, but question the basics of the other. If you use neither, you are missing a strength. If you choose both, you run the risk of being too firmly defined by your past.

Involve your customers in "self tailoring" your product. AOL succeeded where others failed, at least partially because they made the customer a part of the product. Customers can tailor their experience, and AOL can watch and learn from that. Don't just provide the product; let your customers adapt it.

Perhaps the most important success practice is to invest in the right problems. Not technologies,problems. We recently surveyed 400 owners and managers to identify the top two operational issues they faced that day. We wanted to know what issues would be most likely to create purchases. At the time, the country was beginning a recession, and, accordingly, you might expect their No. 1 answer to be "cost control." It wasn't; that appeared only 1 percent of the time. What topped the list? The most common issues were day-to-day functional problems, internal to the business,roadblocks that kept the business from being able to go after revenue.

In the survey, about a quarter of the executives were most concerned about revenue and market-positioning issues. This problem focuses on the external view,problems around making deals happen, marketing to groups of customers and ensuring that the committed revenue actually arrived. If you work to solve cost issues for customers, and that is not a top problem, should you expect to be rewarded with a high- margin business? No, you should not. But, if you can identify a top problem that no one else is solving, you have an opportunity to grow your business and your sense of satisfaction while others retreat. With smart operational choices and considerable customer involvement, you can create that new market, and then work to dominate it.

The choice is yours: You can retreat or you can take advantage of disruption.