Extend Your Security Sales Reach

Are you afraid to go outside your business comfort zone? It's only natural to feel that way when new business opportunities come along. In fact, it's wise to skeptically validate new opportunities. But, there's a point when some businesses are paralyzed by skepticism — they refuse to leave their comfort zones to trek into uncharted territories. That is certainly not the case with Luke Walling, president of Walling Data Systems, Inc.

This year, Walling expects to grow sales to $7 million, a gain of 75% compared with 2007. However, it's not the 75% sales growth that's the most interesting thing about this VAR — it's the business diversity the company has embraced to achieve that growth. For instance, this year, Walling plans to grow his general computing, networking, information technology consulting, and managed services sales while simultaneously ramping up his software distribution business. Walling clearly is  experiencing sales growth with his approach to pursuing diverse business opportunities. However, is that type of diversification right for you? Is it even realistic to consider? Walling's experiences may help answer those questions.

"Fourteen years ago, I founded Walling Data Systems, Inc. as a 'white box' systems builder in my basement," says Walling. "We grew to become a trusted local VAR, selling and servicing our white box PCs in two retail locations, while providing additional value such as custom configurations, networks, consulting services, and managed services."

Those products and services provided Walling with a base of loyal local customers. He still offers those products and services today, but has changed the company's main focus to network security. "Our customers have driven that change," explains Walling. "Very few of them have the expertise on staff to manage security on their networks. By listening to our customers, we recognized the security sales opportunity and took steps to fill that void." One of those steps happened in 2000, when Walling took on a line of Internet security products from AVG Technologies (formerly Grisoft).

Can You Become A Security Software VAD?
In three years, Walling developed into a high-volume reseller of AVG, selling the software, installing it, supporting it, and selling the annual software updates. In 2004, Walling's relationship with AVG developed from a vendor/VAR relationship to a two-tier distribution model in which Walling resells AVG products to other VARs. In fact, Walling was the first authorized distributor for AVG products in North America. In addition to the AVG software, Walling also provides training, support, and consulting services — making the company a VAD.

How can a small company like Walling compete with big distributors? "We don't really compete with distributors like Ingram Micro," answers Walling. "Recently, Ingram Micro announced an agreement to distribute AVG software. We won't encounter any significant issues with our existing and future reseller customers as a result of AVG and Ingram's agreement. We provide the flexibility to get special deals done easily, something that may not be possible for resellers that work with big distributors." For example, Walling negotiates VAR discount levels from the first purchase without requiring long-term volume commitments.

Any VAR that sells software licensing knows what a challenge it can be to configure different licensing combinations. Walling makes that process easier by providing specialized licensing for his VARs. Recently, an education VAR landed a deal for one of its customers that already had AVG licenses. The customer wanted to renew a license, move from AVG Network Edition Anti-Virus to AVG Network Edition Internet Security, and add 100 licenses to its existing license count. Walling was able to handle this request during the call with the reseller without any intervention from AVG. "That type of flexibility and speed can be challenging for larger distributors," says Walling. "In addition, many of the larger distributors are not interested in customized license deals in smaller quantities."

Make no mistake; the addition of the VAD portion of the business has not been without challenges. "We've had a lot of adjustments to make to handle the sales volume of being a VAD," explains Walling. "Prior to becoming a VAD, we were handling 30 to 50 local calls per day. From January to March this year, we took as many as 800 incoming calls per day." To handle that call volume, Walling graduated from a couple of POTs (plain old telephone lines) to a Nortel Business Communications Manager (BCM) system fed by a PRI (Primary Rate Interface) with 23 incoming phone lines. "When we hit our call peak, it took half of our employees just to handle the calls," says Walling. "However, our average call volume is normally 250 to 300 calls per day." This year, the company will move into a new facility owned by Walling and will hire additional technical support staff to take more calls and minimize hold times during peak call volumes.

To further enhance communications between locations, Walling plans to use VoIP (voice over Internet Protocol) extensions (phone extensions that use the Internet for connectivity) to communicate between offices and to route overflow of incoming calls to another location. There should be no cost involved in adding the VoIP extensions, since the Nortel BCM already supports VoIP, and Walling will have IP connectivity between buildings.

Read more about VoIP at the VoIP Resource Center at BSMinfo.com.

Surprisingly, Walling says that handling the incoming calls for software distribution is easier than handling local retail support and break/fix calls. Walling explains, "Our incoming VAD calls are one-to-many relationships. For example, one VAR could sell 1,000 AVG licenses to an end user. That's one call to sell 1,000 licenses. On the retail side of our business, it might take 1,000 transactions to sell 1,000 licenses." Another bonus to software distribution is that many products are now delivered electronically — eliminating the need for huge warehouse space to store products and speeding product delivery to VARs.

As a VAD, Walling provides reseller customers with value-added services such as product training and support — for free. In fact, the VAD encourages its customers to call Walling rather than contacting the vendor. "Yes, all of this costs money," says Walling. In fact, providing software support is the biggest single expense for the company. "And yes, margins are substantially lower than if we sold to end customers [usually 10% or less]," he admits. The distribution business accounts for approximately 65% of Walling's annual revenue. Are you still looking for the upside of being a VAD? Read on.

Develop A Nationwide, Vertical Market Reach
"Even though the margins aren't huge, the VAD business has given us a nationwide reach that we could not achieve as a local VAR." Why? As an authorized distributor, Walling benefits from AVG's lead-generation programs and advertising campaigns. New VARs interested in specialized applications for AVG products often are directed to Walling by AVG. Currently, Walling distributes noncompetitive products from AVG, Acronis, Cymphonix, and Kerio.

The VAD business also has extended Walling's ability to reach more deeply into vertical markets. "Once we became a VAD, we learned that the nationwide education market is a very strong opportunity for our AVG reseller partners," he says. Interestingly, some of the demand for AVG products in education is driven by the AVG Free Edition — antivirus software available for free to anyone at www.avg.com.  "Many educators use the free edition at home and then tell their respective IT departments about the product. That creates a grassroots demand and sales leads for us," says Walling. "We often pass those leads along to our resellers, further strengthening those relationships."

Walling's VARs can expect to earn between 20% and 40%, regardless of the vertical. It takes only $5,000 of cumulative purchases to reach a 40% discount level. "If VARs come to us with a $4,000 initial purchase, we often will advance them straight to 40%," explains Walling. "Our goal is to triple our reseller base in the next five years, increasing our coverage specifically in the areas of education and government."

Create Operating Units To Increase Focus
At this point, you may be thinking that this entrepreneur is so involved in diversification that he really doesn't have the focus needed to be successful. That's not the case. In fact, his goal is to split each of his business offerings (e.g. white box, distribution, managed services, retail break/fix) into separate operating units this year. He explains, "As we continue to grow, I want the valued team members of each unit to be focused on their core offerings only. I am convinced that each operating unit will stand on its own while generating cross-technology sales opportunities for other units."

Walling also has reached a point where he will have to do something he's never done before — hire sales teams for each operating unit. "We've never been a company that had to actively sell in the traditional sense," says Walling. "All of our marketing tools have been designed to drive people to us. We've never made a cold call." Those marketing tools include direct mail with customer endorsements, postcards with specific calls to action, online campaigns, search engine optimization, magazine advertising, and a growing number of customer referrals. Is it best for you to focus on a single technology solution or diversify like Walling? Only you know your entrepreneurial skills well enough to make that decision. However, if Walling's 14 years of success and 75% sales growth this year are any indications, diversity just might provide a business advantage VARs are looking for.