ScanSource CEO Baur On Finding The Best Intelisys Partners, Early Cloud Wins And A Path Towards IoT

Baur On The Record

Less than 18 months removed from its Intelisys acquisition, ScanSource is charging into 2018 with a focus on recurring revenue, broadening its line card and helping partners better understand their customers.

The 25-year-old, Greenville, S.C.-based distributor has sunk significant investments into market research and end-user surveys over the past two years, CEO Mike Baur told solution providers gathered at the ScanSource Global Partner Conference, which the company hopes will help partners expand the range of products and services they sell into their existing customer base.

"They say 'you can't screw it up. It's got to be a service or offer I know 100 percent I can trust someone to do,'" Baur told CRN. "Simplify my life and work with a trusted partner. Simplify and trust. Those are the two driving words behind all the things we're going to do in 2018."

In an interview with CRN, Baur discussed how ScanSource is working to help hardware-focused partners shift toward more recurring revenue streams and M&A activity in the distribution space – including Ingram Micro's purchase of POS specialist The Phoenix Group. What follows is an edited excerpt of that conversation.

How much crossover are you seeing from your legacy partners to the Intelisys business? Has that been a difficult adjustment for them?

We're learning, like Intelisys knew before we acquired them, that it's really hard. The hard part is identifying the profile of the VAR that's most likely to succeed. Intelisys has been selling to VARs for a while. They would have had limited success. It's primarily limited by the ability of that VAR organization to be structured in a way that they can add this new technology and deploy it. They almost have to be of a certain size and structure.

What sort of solution provider do you think would best adapt to selling Intelisys?

If a VAR is too small, I think it's too difficult. They've got to have scale and resources that they can dedicate to the effort. If you can't dedicate people, and you're going to just add this to what you already have, it's not going to work. It's too hard, and the payoff is two to three years from the time you start. That runway is long, too long for a small VAR. They just can't wait.

What's being done to make the transition easier for some of those larger partners?

Intelisys did some clever things to try to shorten the ramp with their advanced commissions program. Still, they've got to be big enough to be able to dedicate resources to absorb that cost for a while, and they've got to have the owners who say, 'We're going to make this an investment, not just a quick hit.' Even if it's recurring and high margin – everybody sees it – it takes two to three years. That's like forever in the channel. Nobody says, 'I want to do something, but I'm okay not getting paid for two or three years.' What we're doing this year, we won't see the results for another year-and-a-half.

Does ScanSource have anything else planned to grease the wheels for partners that want to build telecom and cloud service practices?

We've got several things Intelisys had already started. We have an online training program to help a VAR decide who they should train early on. We have Intelisys Cloud University. Intelisys has built the content – it's very good. Intelisys' experience has been, if a VAR goes through that university and gets one of their individuals certified, then they have a much higher chance of then learning more and being successful. We started a program called Super9, and there's a version of it just for VARs. This is a group of about 54, so six groups of nine peers, who then meet monthly. Their goal is to help each other.

How new is the Super9 program? Are partners grouped by geography?

The first effort was last year. We expect to do one more, slated for March or April. We put them far enough away from each other so that there's no likely competitor. They're generally geographically dispersed, and they have a group where they can help each other. They can say, 'Are you struggling with what I'm struggling with?' They can share ideas about compensation plans. How do you compensate your sales reps when they're not generating enough commissions yet? How do you do that? It's a week-long event populated with curriculum, some of it driven by us and some of it driven by vendors.

You mentioned adding new vendor opportunities around the communications business. Which carriers and vendors are driving more growth?

The early success we had with ShoreTel led when Mitel acquired them. Mitel saw the ShoreTel program, where they shifted a lot of customers to a two-tier model, and said, 'Hey, we like it.' They want to do more of that. That gives us a lot of confidence that a Mitel program will go down a similar path as ShoreTel. That's just starting. It's early days. A lot of partners in the US are buying direct from Mitel. Here's a two-tier model option for you. They're not going to force them. We've got to earn our way. We've got to convince them, 'We can do some things that you're not getting today.' We'll get them better support working directly with ScanSource than Mitel.

How many partners could that add to the ScanSource ecosystem?

Hundreds of partners. Many of them were not big partners of ScanSource because they were very focused on Mitel. Only a few were ShoreTel already. There's very little crossover. We think it's substantial, but the problem is always 'when.' It will take us several quarters before we can really report on how well that's going.

Looking at your comms business, where do you see the best long-term opportunities for partners? Cloud services?

Looking at what end customers want, there's a bias toward, 'Bring us some choices. Make it simple.' The Intelisys cloud offerings are a significant opportunity for growth for our channel partners. Whether that's with our existing customers like RingCentral, or some of the hosted voice guys, those will be the easier places to start. Those will be in our wheelhouse to sell through our channel. Then of course there's infrastructure via the cloud, and other opportunities. Everybody wants to talk about cloud still. I think that's where we'll go first and really try to put together a more comprehensive cloud story for our channel to sell. What Intelisys has been doing and what ScanSource was doing in cloud, we have to put some more investments there to launch that in a bigger way. More to come.

You mention that the transition could be a long one for partners. But how much urgency is there given that many end users are deciding what will and won't go to the cloud right now?

We're learning we can see progress faster with SMBs. They'll make cloud decisions faster than an enterprise customer because they don't have an IT staff anyway. (They say) 'If this is easier, I'm all in. Simplify it, and I want to work with a trusted partner.' We're going to put more effort on the SMB side and prove the concept to the channel. Then that'll give them confidence to sell to enterprise. I think we've got to get some early wins. We can get them in SMB. Enterprise, that's a long sales cycle. Our goal is to go to SMB first with a cloud offering.

Which SMB verticals could provide some of those early wins?

The vertical we have the most experience with is retail. We've got a tremendous retail VAR base. We've got a lot of really strong long-term partnerships and trusted relationships. That's probably where we would go first.

Between that and the Intelisys and POS Portal acquisitions, do you see the weight of your business shifting more toward the SMB than it has traditionally?

I would say yes. POS Portal has proven to us that they can go to the SMB much easier than midmarket and large customers, which always have a longer sales cycle, and you run into direct sales forces from the vendor a lot more. SMB, it's kind of [under-served]. It's sad, but it's true. There's many more targets, but it's harder to make a lot of money there. You need scale. That's where distribution can help.

You're a few months removed from the POS Portal deal closing. How has the integration gone?

We've found very few obstacles. It's more opportunity and getting the traditional ScanSource VAR management team working with the portal, integrating them together so that we can go to market together. Today, we go to market separately. As a sales organization, we have to bring some of our sales expertise together. That's still yet to be done.

Have you begun enjoying some of the synergies from that acquisition?

POS Portal was able to assist a lot of the tablet POS ISVs. They've done a great job helping those companies enter the market in a way they couldn't without POS Portal. They have a program for tablet ISVs that allows them to give us a private label version of a portal. The customer has their own white label version of POS Portal that their end-users can select products from. Then POS Portal handles all the configuration and delivery on the back side. If something doesn't work, you have a tech support person talking directly to the merchant. It's going tremendously well.

Ingram Micro just announced that it's acquiring a POS-focused business, The Phoenix Group. Thoughts?

They're a competitor of POS Portal. We know who they are. They're one of the three or four companies that does what POS Portal does.

How do you feel ScanSource is competitively positioned in the distribution space now?

We spent the last two years doing market surveys and studies with the end user. Out of that came a strategy that said we need to be doing what we've done with hardware, add more vendors, add connectivity offers a la Intelisys, add payment solutions particularly for the SMB channel, and add managed services capabilities, which we're still working on. They all lead up to providing a more complete solution where the customer wants. Once we get all those pieces in place – hardware, software, recurring bill activity, specialty services like payments – all of that becomes part of the Internet of Things. We build a portfolio that allows us to become a true IoT company, as well. That's where we end up.

That move toward IoT interesting, but also unsurprising. IoT is pretty hot right now.

Yeah. But it's hard to figure what is IoT. For us, it's all those pieces together. We're generally playing at the edge of the network with our traditional business, because we're selling scanners and handsets. At the edge is where you're connected. You have sensors, and our traditional barcode business is all about RFID and sensing technology, which is how IoT works, as well. We've got the right channels and business partners who can help us attack that. They understand what the end customers want. We just have to keep adding these capabilities.

Where is the easiest point of entry to the IoT market for ScanSource partners?

They have software competency. They're providing software that drives the need for hardware and connectivity. They're talking to the end users about whether they host the software in the cloud or not. So we have channel partners with very good domain expertise in health care, manufacturing, distribution, and retail. Those are the places that will play the best. We don't have a need to go find new customers and partners. We have a lot. We think we just have to help them fill up their solution set.

So then will you be adding sensor or chip manufacturers to your line card?

They're not asking us for the sensors or chips yet. That'll be down the road. But that'll come. That's on the list of things we have to add. Today, we don't have the demand yet, but it is going to come, and we'll be ready for it.

Do you foresee more M&A activity soon, or would you rather focus further on maximizing the benefit ScanSource draws from the Intelisys and POS Portal deals?

We still have plans to do more. We still have acquisitions in our plan if we can't build it ourselves from what we have. I do have a sense of urgency. We have very clear targets of where we want to be as a company. There's always a limit to how much you can digest at one time, for sure, but our appetite's still pretty big. We're still interested in acquiring more ways into that solution set.

Are we going to see more M&A-driven upheaval in the distribution space at large?

There's going to be more M&A. Not necessarily by the big distributors of each other. There is going to be more M&A to get more pieces of the solution. Do you acquire it or build it? With POS Portal, we were even already in that business, and we weren't even close to accomplishing what they were performing. In some cases, you have to acquire some domain expertise and build it from there. I think you're going to see more, smaller companies acquired – like Ingram and The Phoenix Group – to expand the solution set.

Any other major messages you want to get across to partners this week?

I think about it from the customer view, and that's something we've never had to do. We've never had to think, 'What does an end user want?' We've always said, 'What do Cisco and Zebra think the end user wants? Let's go sell it.' We find we're getting a clearer picture of what we need to have based on what customers want. That's new for ScanSource. We want to help create demand. We want to find what demand is out there, and find the products, services and solutions. Because we've already got a channel that trusts us. They're saying, bring it on.