Sharpen Your Networking Sales Approach
This VAR is reinventing the way it sells networking products and services, leading to projected sales growth of 22.7% this year.
Do you remember 1989? The Exxon Valdez ran aground and spilled 11 million gallons of oil. The Berlin Wall came down, the Cold War ended, and Network Solutions, Inc. (NSI) was founded in Granger, IN. Although you may not recall each of those historic events, Larry Tadevich, president of NSI, remembers the latter most fondly. It was Tadevich who cofounded NSI in 1989 with three employees who sold and installed data communication equipment such as modems, statistical multiplexers, terminals, and print servers. Those of us who were VARs in 1989 recall that we could still make 30%-plus margins selling hardware and software. Ah, the good old days.
Fast-forward to 2008. NSI still specializes in networking, offering the latest in UC (unified communications) and networking solutions. However, that's about the only thing that has remained the same. Hardware margins are now single-digit in many cases. NSI has 47 employees, and Tadevich projects the company will exceed $20 million in sales revenue this year. The company is also in the midst of a complete business makeover — changing from a traditional networking VAR to a professional services-driven business — a 180-degree change in direction. Tadevich says there have been many successes during this transition, but it's the roadblocks he faced (and still faces) that make his a story a must-read for all aspiring services-centric businesses.
Change What Drives Networking Sales
What do you depend on to generate the majority of your sales — products or services? From 1989 to 2006, it was networking products that drove the lion's share of sales for NSI. "Typically, we would lead with products such as Cisco routers and switches," explains Tadevich. "We were most interested in selling the hardware, and services were often an afterthought." That business model was successful for NSI when hardware margins were 30% or more, but as margins began to shrink, it became harder for the company to maintain profitability by focusing purely on hardware sales. It was time to focus on selling services, and that's exactly what NSI did in 2006.
"It wasn't just the shrinking margins that drove us toward that change," says Tadevich. "We recognized the critical impact that converged networks [voice, video, and data on the same network] would have on our customers. Network solutions are more complex and more business-critical than back in 1989. To design, install, configure, and support those networks, we knew we had to hire experienced network engineers. To pay for those engineers, we had to charge more for our services. That was hard to achieve without doing a better job of selling our professional services."
No longer was the focus on selling the hardware. The focus changed to selling networking services to solve customers' business problems. "Four years ago, a customer called and asked for two network routers," explains Tadevich. "We sold the routers, delivered the products, and asked if the customer needed help installing them. Today, we take a consultative approach by asking to learn more about the customer's projects and business objectives." By learning what the business problem is, NSI can potentially sell consulting services up front to ensure the customer is really getting a solution that solves its business challenges. Thus, NSI increases its chances of adding sales while becoming a trusted advisor. "By asking about the business objectives, we would learn the customer was adding a branch office," says Tadevich. "Instead of selling just two routers, we could potentially sell an entire package consisting of consulting services, a VoIP [voice over Internet Protocol] phone system, Web content filtering products, and managed services. It's a simple concept. We sell the value of our services first, and the products are sold as a part of the services."
Prepare For Objections, Internal And External
The concept may be simple, but execution of that concept has proven to be anything but simple. According to Tadevich, NSI faced objections from both customers and staff during the transition. "Our customers were accustomed to a 'pay more for the hardware and get the required engineering services thrown in for a nominal fee' model," he says. "We also were fighting a fear factor within our sales team. Our employees did not understand the need to change the business model; therefore, they were slow to adapt and somewhat resistant."
To address concerns with customers, NSI had to do a better job of articulating its value proposition. The first change was to target a different audience. "When you're selling routers, the IT manager is the right audience," explains Steve Tadevich, director of marketing for NSI. "When you're selling solutions to business problems, that conversation has to take place at the C-level." In order to achieve that goal, NSI started by sending sales employees to manufacturers' sales training and began a regimen of internal training classes. However, training was just the beginning. "Once you get to the C-level, you must be able to speak in terms that will keep the executives' interest," says Larry Tadevich. "My salespeople weren't necessarily comfortable talking to the CEO." That's when it's time to ask some questions and practice the art of active listening. (Listen for meaning — the listener checks with the speaker to see that a statement has been correctly heard and understood. The goal of active listening is to improve mutual understanding.)
There's no magic to the questions; however, Larry Tadevich advises to position those questions for your C-level audience. For instance, CEOs probably don't care about the products you would install to keep their network secure. But, they are more apt to care that your solution could help them to avoid potential lawsuits. Try asking, "Could you stay in business if you lost your network to a malware attack? Could you provide an audit trail of e-mail in a legal discovery process? Do know how much your slow network is costing you in lost productivity? Finally, I would love to learn more about your business. Can I buy you lunch? Perhaps we can help you achieve your business objectives while helping you to avoid mistakes we've seen your competitors make."
In a recent example of how hard it can be to change employee mindsets, a customer asked NSI to perform a network assessment. The NSI salesman, still thinking in the old frame of mind, put together a quote thinking about how the customer might react if the price was too high. "Our salesman didn't have a clear understanding of the value we would deliver, so he wasn't prepared to sell based on the true value," says Larry Tadevich. "I suggested that the salesman include a detailed network analysis — highlighting the specific networking services that we would deliver — as part of the quote." By showing the customer the total value of its services up front, NSI was able to close the sale for $10,000 more than the salesman's original quote. Because of the detail provided, the customer thought the project was a bargain at the higher price. "We've had some difficult conversations with employees and customers during this transition," adds Larry Tadevich. "But, our employees are doing a better job of selling our value, and our customers are seeing that they have less risk working with NSI than with our competition."
Find Ways To Generate Recurring Revenue
One way to add value and retain customers is to provide services beyond those included in the initial networking implementation. Most of us have heard the statement, "Eighty percent of sales success is just being there." Providing managed services such as remote monitoring is a way for you to continuously "be there" while generating recurring monthly revenue.
NSI is just starting to ramp up its remote monitoring capabilities. The company is delivering its managed services from its offices (no expensive NOC [network operations center] required). NSI uses N-able managed services software to proactively monitor customers' networks. In the past, all network break/fix services were offered in a reactive mode — another big change in direction for NSI. In addition to NSI's network monitoring capabilities, the company also generates recurring revenue by selling Smoothstone hosted VoIP solutions (see sidebar on page 40). Today, managed services account for less than 5% of NSI's annual revenue. However, that percentage is expected to double by the end of the year.
According to Larry Tadevich, it's too early to declare NSI's transition to a pure-play services provider a success. However, indications are that NSI is on its way to becoming a professional services-centric networking company, making 2008 nearly as memorable as when the company started in 1989. How will you remember this year? Will 2008 be another year when you settle for status quo, or will you remember this as the year you improved your sales model, generated recurring revenue, and achieved double-digit growth?
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