Traditional ERP VARS Are Dead – They Just Don’t Know It Yet

lester burnhamMost ERP VARS are whiling away their slow hours  complaining incessantly about software publishers.

I should know because to some extent I’m guilty of participating in the mutual complaint sessions.

Like the character Lester Burnham from American Beauty, I think most VARS will be dead in a year.

They just don’t know it yet.

Margins = gone.
Protected sales channels = gone.
Traditional marketing  = ineffective.
Existing client base = eroding

What’s the solution?

Two words. Special Sauce.

Value Added Resellers (VARS) that have something unique to offer (aka special sauce) will thrive.

Those that don’t will enter into a race with each other to become unhappy low cost solution providers. They’ll barely eek out a living.

It’s all about the “special sauce” that YOU add to the mix. Without that uniqueness you’re in an ugly race to underbid the rest of the  VAR market.

The State Of The VAR Market – Brutally Honest Edition

This week on my private Sageresellers discussion list we had an interesting email exchange. The summary is shown below and outlines what I see as the problem in the ERP marketplace.

While I’d like to say that this problem is only related to one software publisher – I don’t think that’s the case. Whether you’re selling Sage or Microsoft or SAP or even QuickBooks – the problem is the same.

The market has changed. Sadly I’ve found most VARS think (pray) that it’s coming back soon.

Fat chance. At least not for services they’ve been used to marketing to customers.

If they think customers are sitting eager to pay $5 to $10,000 every year for basic maintenance upgrade labor – they’d better think again. The customers of today have grown in the “The Google” era where their off-the-shelf software has been maintained and upgraded for them at zero cost. Customers are getting smarter. They don’t want to keep paying for basic ‘monkey’ labor to upgrade their ERP every year. At least not unless they are getting some tangible benefits from the upgrade.

Most successful VARS today are pursuing niche markets where they  add what I call their  “special sauce”. This is a value add that NOBODY else can provide — most importantly nobody that a customer can easily find themselves with an Internet search.

If you’re still trying to service customers based on being a low bidder – welcome to the one way ticket to obsolescence.

Today’s VAR needs to have special sauce which comes in many forms – typically custom programming, expertise in a niche market that cannot easily be found elsewhere, extreme technical competency.

Here’s one part of our unedited chat that  nails the state of the current VAR marketplace.

Why ERP VARS Would Be On The F-d Company Web Site If F-d Company Was Still Around

Many thanks to Mark Chinsky for allowing me to re-post the message below.

Low-to mid-market ERP would be on the F-d company website if that website wasn’t F-d. Beyond a self paced average paying, high stress long hours job, there is no way to build real wealth unless you are 15+ years in the business with in excess of 300 clients that do a fair amount of activity.

In addition, you need to have Intellectual Property, i.e., your own vertical or add-ons that you can charge recurring maintenance on and you need a team in place that allows you to take a vacation and have the place still run….AKA, you need to be a Sage Business Partner like DSD, Blytheco, etc, etc. Even the top 5 aren’t likely to see a multiple beyond 1 times revenues for their business IMHO unless something radically changes.

In the Sage MAS channel, there is at most room at the table for 10 to 20 VAR’s that I would consider successful (and relative to Sage, I’m definitely not one of them since I sold my business back in 1999 and I sure don’t regret) Successful being the criteria above and making in excess of $400k in adjusted Income. (that’s a minimum).

There will be plenty of VAR’s that ‘make a living’ and there is nothing wrong with that. 95% of America ‘makes a living’ but I started in this industry with the goal of being a ‘success’, achieved it once in 1999, but can no longer find ANY viable path to get there again. I’ve tried adding a completely different product (SAP Business One.) And it’s ‘fine.’ But not going to make a material impact on the bottom line versus sticking with MAS90.

If you enjoy this ‘industry’ the only hope I see is finding a ‘related’ industry (aka Special Sauce) , whether it’s CRM, Business Intelligence, Medical software….Whatever, but pure ERP play’s just seem to require too much sales cost investment for too few billable hours and require too many expensive and hard to find people to deliver the service relative to the rates you can get and the # of businesses buying new systems.

Now yes, the economy really sucks, and probably will continue to do so from our perspective for another 9 to 12 months, but even before the ‘crash’ I felt one reaches a ‘glass ceiling’ in this industry that doesn’t seem breakable. The only guys that have ‘grown’ seem to have done so via ‘acquisitions’ that usually mean little money changes hands and a previous ‘owner’ trades relatively worthless equity in turn for a salary and benefits package pretty close to what they were taking out of the business before.

The goal of the ‘acquirer’ is to get bigger, get better margins, be able to spread marketing costs more efficiently, and to hopefully, if they close their eyes and click their heels enough, sell the puppy and have a comfy retirement.

Commenting is open. Does anybody disagree?

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Comments

  1. I just love that picture of you Wayne.

    Where did you get the “Mr. Smiley” bags?

    Where did you get that “Lifestyle Consultant” tagline.

    Now, thanks to DSD we get to be both “Lifestyle Consultants” AND we get to be in the PC, too!

    Life is good in the slow lane.

  2. I just love that picture of you Wayne.

    Where did you get the “Mr. Smiley” bags?

    Where did you get that “Lifestyle Consultant” tagline.

    Now, thanks to DSD we get to be both “Lifestyle Consultants” AND we get to be in the PC, too!

    Life is good in the slow lane.

  3. Another well known VAR used it as a slur against me in a public discussion forum.

    I adopted the name because I think it perfectly shows how out of tune most of the big guys (and publishers too) are.

    The image is one that I found off the Internet. It’s from the movie American Beauty.

  4. I agree with this article. there isn’t much room for growth left.

    I am working on a business intelligence tool with the entire business model on-line.

  5. Wayne, interesting stuff as usual, BUT…

    may I hazard a remedy. KILL the BILL-able hour!

  6. Wayne, I couldn’t agree with you more. When VARS get the idea that helping companies strive for efficiency and productivity is more important than selling theuir clients more modules, they might stand a chance, not until. I posted a page on youtube.com a couple of days ago titled “UNERP A Parallel View With the Traditional ERP” and was testing search rsponses and ran acreoss your article. You and your readers may be interested in taking a look at this video.