By Robert Cooper, Wildix
Being a Jack-of-All-Trades might get a VAR short-term cash, but to create a business that lasts, you’ll need expertise and services that work to your strengths.
On a grand scale, you can label nearly any VAR in one of two ways: as a generalist, or as a specialist. Conveniently enough, the difference between the two is straightforward. Generalists are the telecom businesses that try to do it all, the proverbial jack-of-all-trades; they see all sectors of the market as an opportunity, and they try to expand in all directions at once. Specialists, meanwhile, focus on one skill or element of technology—ideally one that's highly in demand in their market—and dig deep into that niche. Rather than pursue every possible market trend, they invest time, effort, and capital into that one core strength, and they make that skill the pillar of their business.
Now, the advantages and disadvantages of these two types of VARs are numerous, to say the least. But where the discussion gets simpler—and more relevant to growth-oriented VARs—is when we narrow the topic to establishing a business with financial longevity.
Because now, in the globalized market the VAR currently faces, the only way to build a lasting telecom business is to be a specialist. And the reason why comes down to one word: valuation.
By "valuation," I of course mean the overall value of your business, as a lasting entity. For any business (and a VAR in particular) to achieve high valuation, they must have not just growth and profitability, but consistent growth and profitability. Frequent investor in telecom distributors Evergreen Services Group, for example, specifies that they prefer acquiring MSPs that have 50% of their profits from recurring revenue, 85% customer retention, and "double-digit recurring annual revenue growth." So, to achieve high valuation, a company must have a solid hold over a wide customer base, a steady stream of predictable profits, and clear indications that it will continue to grow year after year.
These are lofty figures, to be sure, but understandably so—they represent a business that thoroughly understands its present market and how to operate therein. What's more, as difficult as these figures are for a VAR in general to achieve, they're outright impossible to achieve as a generalist.
To explain why, I should point out that differentiating yourself as a jack-of-all-trades in UC&C today has become a losing battle; try it, and you'll be delivering no true business value to the end customer. This means all that separates you from any of the other generalist businesses out there—including the global brands currently dominating the conversation—is price, which will lead you down the death spiral of cutting and cutting margins to stand out. This is a vicious, losing cycle for any business.
But the alternative, being a specialist, provides just the path to success that investors like Evergreen seek. Consider that a specialist inherently provides differentiation, which equates to value: they solve a particular business problem like no one else can, using expertise at a level of development no one else possesses. With specialization, a VAR offers a marketable asset with distinct, differentiating value. After all, delivering expertise is a service that now has and always will have value; the ability to consult with a customer, advise them, and then install and maintain a solution tailor-fit to their specific issues brings both a clear need for a qualified professional and a clear return on investment.
Really, this is great news for the VAR, because consulting with and advising businesses in this way is a continual strength that they hold over global competitors. By acting as a specialist, you play to that strength, leaning into it to deliver more value and demonstrate your business's worth within your local market. However, if you act as a generalist, you effectively throw this advantage away, all for negligible gain.
So, at this point, we might ask what specialization looks like at a realistic level, implemented by real businesses. One example would be preparing businesses to enable their employees to securely work from any location, on any device, while providing business continuity. Another would be the ability to consolidate all collaboration- and sales-relevant applications into one desktop interface. But these are just examples; your niche must be specific to you.
It must be stressed that the best way of finding and drilling into that niche is with the assistance of a compatible vendor. This is because specialization isn't simply about technology; it also requires strong business relationships, particularly with a vendor that's capable of empowering your own business's process of specialization. Stable businesses simply do not arise without partnerships, purely because of the difficulty of enduring market shifts and disruptions on one's own. It will always be more to a VAR's advantage to work alongside a vendor with similar business goals and ideals if they want to turn a lasting profit.
The more important piece here is that, once you find your niche, predictability in your business becomes all the easier to achieve. Furthermore, as significant as that predictable revenue is in the short term, it's doubly important for establishing continual growth, and therefore high valuation. Again, these results are simply out of reach for the generalist; as a business that invests in dozens of markets that won't differentiate them alongside one or two that will, they set themselves up for failure, particularly once they must face better-equipped competition. For the specialist meanwhile, predictably growing revenue is the direct result of their ability to solve specific business issues.
Further down the line, what we'd hope to see from this strategy is a lasting customer base, one simultaneously varied enough and high-revenue enough to indicate lasting profitability. The importance of this result can't be overstated; the profitability we've gone over up to this point, recurring and otherwise, all comes from a customer base you can claim a firm hold over.
Now, none of this is to say that building a telecom business with lasting value is anything close to easy. On the contrary—it's always going to be uniquely challenging. But that's only because creating a lasting business is never without pitfalls, and never comes without hard work. Really, the bigger point here is that building up a specialist's business may be challenging, but at least it's still feasible. With a generalist approach, meanwhile, it may be possible to gain some profit in the short term—but that's not the solution for building something to last.
For the small business, growth, in any meaningful capacity, cannot come from rolling the dice across various market subsets and hoping to strike it lucky. Rather, a VAR must find profitability in being a meaningful pillar of their own business community, in a bespoke manner that no big-name brand can match. Dig out your own niche, achieve high skills in it, and establish a firm grip on a wide customer base; it's only through these strategies that you can build a business strong enough to weather out the competition.