How Low Can You Go?

How much easier would it be to make a sale if you could offer a potential customer up to a 90% discount? That's the value proposition that Spectrum Communications (Corona, CA) offers its clients in the education market. How do they do it and still make $36 million in annual sales? The answer is simple, according to Spectrum VP Russ Reshaw: Get someone else to pay for it.

In 2000, the U.S. Department of Education allotted $958 million for K-12 education technology and education technology research. A total of $2.25 billion has been earmarked by the FCC (Federal Communications Commission) for the E-Rate program which provides technology grants to poorer schools. That's in addition to the funds allocated by state governments and other federal sources, such as the National Science Foundation. In targeting the education market over the past seven years, Spectrum has gained considerable knowledge about state and federal grant programs for technology education. Spectrum, which realizes about 75% of its revenue from the education market, employs a group of five individuals who focus on public sector projects and serve as a sales team, doing their own research on available subsidies and assisting with the sales cycle. Most of these individuals have a technical background, and the head of the group spent many years as an IS director for a large school district.

Pursuing schools is definitely worth the investment in personnel and resources. "A campus environment is hierarchical, like wiring a small city," comments Reshaw. "First it's classroom to classroom and back to the main office. Then each individual school's LAN (local area network) is connected to the district's WAN (wide area network). Hit one site and you hit the whole network. They like to have one person to point the finger at."

From that point, a VAR can find services that get him back in the front door. For example, the federal government subsidizes Internet filtering, and many schools opt to outsource this task rather than have a technician on staff. Spectrum also provides network monitoring services and its own data center for its education clients.

Though the acceptance of data centers by education customers isn't widely accepted right now, Reshaw views it as a future market opportunity. VARs may be able to maintain an ongoing relationship with a school district through ASP (application service provider) or other hosted services like data centers. Most schools don't have the IT expertise to maintain a network and already leave much of the network management to VARs anyway. The dynamic nature of school needs, based on population shifts, applications, or administrative requirements, calls for a scalable solution in an environment that doesn't traditionally adapt quickly. An ASP solution would ease software upgrades. Choosing thin client access may also reduce the troubleshooting associated with PCs. Teachers spread across locations could share curriculum databases or other content. "Schools have the need, but they have to develop the trust," comments Reshaw. He believes that as market awareness grows and the ASP model gains acceptance, schools will begin to feel more comfortable.

Use Public Information To Prequalify Prospects
Spectrum has identified three levels in the education market. At level three, the best that can be expected at an education site, a school has a good network accommodating a significant number of seats and may be ready for IP telephony and VPNs (virtual private networks). Reshaw believes that video on demand will be a lucrative future growth market for schools at this level since a Fibre channel backbone already exists. At level two, most of the building is connected, trenches have been dug and the infrastructure is there to connect to other buildings. Surprisingly, there are still some level one schools out there that have nothing at all.

Existing infrastructure isn't necessarily the criteria Reshaw uses to identify potential customers. That's where his research department comes in. School subsidies are based on income. A good indicator of this is the percentage of students who qualify for free or reduced lunches. Spectrum's initial target is a school with 90% or higher participation in the lunch program. Before a Spectrum salesperson even approaches a school, he researches what infrastructure is there, what the potential need is, and how much grant money a school might qualify for. "School administrators are budget-oriented. It's not like a private enterprise that can invest disproportionately to prepare for future needs, so you have to guide them a bit." A Spectrum rep can then come into the client site with a specific proposal and a plan to pay for it. Since schools are publicly funded, information about them is open to everyone. Finding out the ratio of free and reduced lunches may be as easy as doing an Internet search on a state's department of education Web site.

"Administrators are under a lot of pressure to get technology into their schools and move to level three or beyond. Even if they already have an infrastructure, they have to keep it up. They don't have in-house expertise and they don't want to pay for it. Helping them secure subsidies is a natural fit." This approach allows VARs to actually become involved in the funding and educate the client. However, some laws prohibit a paid consultant from profiting from an implementation. That means that integrators may have to walk a fine line.

A Market Where Advertising Isn't Effective
Of course, a VAR has to get his proposal in front of the right person and each school district has its own organizational structure. Because Reshaw has found that this is one vertical where advertising is not effective, reaching a decision-maker means asking questions and getting introductions from existing clients to establish name recognition and a comfort level. Often a superintendent is the most likely candidate, but in districts with a business manager, he/she may be a better contact. "Sometimes we just track down the one overworked IT guy who's trying to keep the whole district up and running."

Like most VARs who target a single vertical market, Spectrum attends industry-specific trade shows, but Reshaw says big shows don't hold much value other than to learn about products and technologies. Magazines like School Planning and Management, which targets superintendents and IT staff, and E-School News, which covers funding and political trends are important resources for staying in touch with the market.

Fear of long sales cycles may discourage many VARs from pursuing an education contract as they envision endless school board meetings and bureaucratic decision-making. Reshaw admits that selling to a school may require some presentations depending on the customer, but he adds there are ways to speed the process. One of these is to be approved by the state as a prequalified vendor. Though the process varies from state to state, it allows providers to submit estimates that are exempt from a competitive bidding process.

Despite decreased IT spending in many markets, it appears that education will continue to provide opportunities for VARs. One of the tenants of the Bush administration's education reform policy outlined in his "No Child Left Behind" report is increased funding for technology as well as an initiative to make the process of securing grants and subsidies easier.