A VAR's Tale: How To Grow Cloud And Product Revenue Together

While a lot of VARs are expanding their focus on cloud computing -- and rightfully so, as Forrester expects that market to hit more than $241 billion by 2020, up from $40.7 billion last year -- some are doing so at the expense of their traditional product business. That doesn't have to be the case, said David Powell, vice president of managed services at TekLinks, a Birmingham, Ala.-based solution provider.

TekLinks' overall revenue increased 23 percent to $66 million in 2011. Its cloud and managed services business increased 52 percent, while product sales increased 23 percent for the same period and field engineering revenue was roughly flat. TekLinks expects cloud/managed services and product sales to grow at similar rates in 2012 too, Powell said.

The key to growing both sides of the business is investing in education to properly train employees to have both conversations, and also convincing customers that you can provide whichever form of technology that best fits their organization, Powell said.

"When we formalized our strategy around cloud and managed services, we had to do a lot of education on how to present it and how to uncover opportunities. The internal phrasing we used is managed services is about the 'what' not the 'how.' Some customers just want the what, they want their e-mail to work. They don't care how. The traditional resell pitch was the how, with 10 gigabit switches, SAN and blades. The managed services and cloud discussion doesn't add value with those technical details," Powell said.

TekLinks has the same sales team sell cloud/managed services and hardware products, in a parallel conversation with customers, Powell said.

TekLinks expected to see some cannibalization of its hardware sales once it ramped up its managed services business, but that did not occur, Powell said.

"It's more of what's the best fit for customers. What's the best way to address something vs. let's hammer the managed services square peg into the round hole," Powell said.

Another key to success has been talking to customers about business problems instead of technology, Powell said. "If we can be in alignment with their business problems and where they're headed, we can tailor a solution. We can talk a hybrid model. Customers are more comfortable with those discussions about a best fit."

TekLinks has an advantage over hardware-only VARs that tell customers the cloud isn't secure or wont' work and cloud-only players who tell customers not to keep anything on premise, Powell said.

"Because we are flexible and have that hybrid approach, it's about business needs and solutions," Powell said.

TekLinks also doesn't carry a broad line card, focusing both its reselling and cloud efforts around Cisco Systems, Citrix Systems, EMC, Microsoft and VMware.

TekLinks has invested in three data centers, two in Birmingham (one that just opened last April) and another in Hattiesburg, Miss. Those investments were not small but they have paid off by keeping control and keeping customers comfortable, Powell said.

"Each one, we've learned from. The [newest] one is relly slick. We even have air conditioning and power vendors bring their customers in to see what we're doing over here," Powell said.

Next: Make Cloud An 'And' Discussion, Not An 'Or' Discussion

About 80 percent of TekLinks' revenue comes from existing customers. The cloud and managed services growth is indicative that the VAR regularly expands that business as clients become more comfortable.

"It's kind of like a gateway service. People will move one thing to the cloud and then get comfortable with that and say, 'Let's move something else offsite,'" Powell said.

In 2012, TekLinks plans to add new compliance and security service offerings to get even closer to customers, Powell said.

"It's important to continue to innovate," Powell said. "Some [customers] are ready to move certain workflows to the cloud. Let's move backup and e-mail to the cloud then maybe a hardware sale to support something else internally. It becomes an 'and' discussion instead of an 'or' discussion."