HOW TO BUILD A BETTER VAR NETWORK.

"The VAR channel is one of the great mysteries of life," says Liz Coker of Channel Tactics. "Every six months, there's a new group of companies who jump into the business, and no one's really sure what category they fit into." The latest "value added" resellers include Web site developers and ISPs, she says; they join an already diverse community of more than 100,000 corporate resellers, system integrators, small developers, and consultants. "Potentially, it's a vast pipeline."

But getting software into this VAR pipeline is a very different process from launching a retail product, says Coker, a channel expert who was once Merisel's director of marketing. "A corporate reseller who provides help desk support isn't in the same business as a system integrator who customizes high-end software," she notes. "VARs are easy to find--the hard part is to find ones who'll be successful with your product."

Coker recently offered these tips on how to build a VAR network:

*Start with customer referrals: There's a shortcut that will help identify the best prospects for a VAR recruiting effort: Simply ask customers and prospects for the names of their preferred suppliers. "People tend to buy products from resellers who support those products well, and they're usually quite willing to pass along their names," says Coker.

*Create a real service opportunity: As product margins decline, resellers have become much more interested in building their service and support business, Coker points out. "Service used to represent 25% of an average VAR's revenue mix; now, it's 50% or more." VARs especially like advanced training and certification programs that provide a competitive advantage, she adds.

*Create demand, not leads: "The VAR business has become just like retail--you have to generate the demand," says Coker. VARs will work hard on closing a deal, but they expect more than a bare list of sales prospects. "You need to qualify your leads: Find out when the customer is interested in buying, whether they have a budget in place, what signing authority they have, and how many units the sale really represents."

*Share the glory: "VARs always welcome a chance to look good in front of their customers," Coker notes. "They like to bring vendors along on sales calls and take part in seminars and trade shows." VARs also like vendors who invest in brand-building advertising and public relations programs, even if the VAR isn't specifically mentioned. "It's always easier to get a foot in the door when you represent a well-known company."

*Don't count on recruiting a few big partners: The vast majority of VARs are small resellers with revenues in the $5-$10 million range, Coker notes. Rather than invest the effort necessary to build a network of small VARs, many software companies start by pitching big consulting and integration firms like EDS, VanStar, and Arthur Andersen. That's almost always a lost cause, she says. "Usually the biggest VARs will only take on a product if they see a really big, multi-year service opportunity."

*Let VARs hit the jackpot: "You can't say to a VAR, OWhen you build a customer up to a million dollars in sales, we'll take them back as a house account,'" Coker warns. "It's okay to say up front that some customers--say, the Fortune 1000--are off limits to VARs. "But don't change the rules later in the game."

*Avoid price wars: Especially when shrink-wrapped versions of a product are available through retail channels, VARs need a way to compete effectively on price, Coker points out. "Otherwise, they'll get squeezed out by anyone who qualifies for volume discounts." Legally, it's possible to extend special VAR discounts in return for extra services or coverage of special markets. "If you want successful VARs, you can't give an absolute price advantage to high-volume resellers."

Liz Coker, director of channel marketing, Channel Tactics, 4845 Pearl East Circle, Boulder, Colo. 80301; 303/413-9780. E-mail: [e-mail].