The evolution of IT buying groups – TubbTalk03

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Traditionally, IT buying groups leverage the strength of their members buying power to negotiate stronger buying terms with IT Vendors and Distributors.

The evolution of IT buying groups

I was recently invited to visit with the Network Group, a UK based co-operative of IT businesses who, as I was to learn from my visit, have developed into a community that provides much more value to their members than just discounts from Vendors and Distributors on products and services.

In episode 3 of TubbTalk, I talk with Phylip Morgan, Managing Director of the Network Group and discuss its origins, its membership and its goals for the future. It was an eye opening insight into the evolution of IT buying groups that I’m sure you will find interesting.

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Transcription

Richard:                 Hi there everyone. Richard Tuck here again with another interview and today I’m joined by Phylip Morgan, the managing director of the Network Buying Group. How are you doing, Phylip?

Phylip:                   I’m doing superbly. You?

Richard:                 Yeah, very well indeed. Well, thank you for inviting me to join you in one of your member meetings here today. I came in with some preconceptions of what the Network Buying Group and buying groups in general are. I thought they were all about maybe just driving down costs on products and services that you offer vendors but clearly it’s a lot more than that.

So, I will go into what my impressions of the group but perhaps you can give us a little background for people who are not aware of the Network Group – what it is, what they do, and what it brings to their members?

Phylip:                   So, the Network Buying Group ceased to be a buying group around 2010 actually. We went through a whole branding exercise and Network Group has been growing since 1994. It’s been called NBG for centuries, millennia, really.

So what happened in 2010, specifically, is there was a need from a lot of our resellers to go away from purchasing. And at the end of the day, you and I know, Richard, it’s only so far down the food chain you can push the prices of it. Take this glass. If we import it from China, we can reduce it down so far.

So is it better for somebody running a small business to focus all their energy in trying to buy that more cheaply and you can only go so far and you hit the law of diminishing returns or is it better for us to help each of the small businesses to sell more of the glasses so that we can make more money that way? So that’s what we did.

We are not a buying group anymore. Part of what we do is procurement and the large contracts we got with vendors that are very, very meaningful are at the two major areas of our business that most people are involved in our community now, because of the relationships and the collaboration. You just experienced one of five events that we hold annually and the other area of our business is the marketing support that we give the resellers to grow in particular aspects of their business in certain categories or markets they will execute in.

Richard:                 And so, I’ll say that my preconceptions of what the group was and that’s radically changed today. Based on what I’ve seen, there’s a sense of community and a sense of community spirit from the people who are in attendance here – IT solution providers. Tell me a little bit about the type of members you have in the business because it’s not just IT solution providers. You’ve also got retail aspects things as well.

Phylip:                   That’s right. So, I’m tasked with growing the group. At the moment, we have just over 50 IT resellers, at the moment. Half of them are retailers. So they have either bricks and mortar or online model. And they supply to end users consumer products.

Then the other half of the group are B2B solutions resellers. They probably don’t have a retail store and they probably don’t have an online model. They’re solutions resellers that are moving towards money services more and more as we know where the market is going.

So, we serve these two areas in one community. And that’s the key way that we drive the business forward because if we’re dealing with Microsoft, they want to sell us both of their products aren’t they. If we’re dealing with Symantec, they want to sell the full as well as the enterprise products. So it allows us to have relationship with some of the vendors but also hit both categories both as a retailer and as a B2B reseller.

Richard:                 That also must come with challenges as well. So you’ve got a room full of 50 or 60 mixed resellers here today some are doing retail, some are doing IT solutions and manage services. How do you make sure that you cater for the needs of everyone?

Phylip:                   There are some things that would apply to any reseller or small businesses regardless. The closing talk we had today was on how we respond to failure and mistakes when it happens. That applies to both areas, whether you are a retailer or a B2B.

What we do in the mini sessions that you will experience in the morning and the break up sessions that you experience in the afternoon, we split both of those groups up into hitting the agenda at the areas of the business that they want to look at. So today, we were covering sales in the afternoon session and we were covering sales.

We were actually looking at the roles of the salesperson in the retail environment and looking at the role of the salesperson in the B2B solutions environment – same topic, but delivered different content in a different way to serve the needs of those resellers.

Richard:                 I actually sat in the sales session for B2B resellers. I thought it was a phenomenal session. It was run by your colleague David. There was a lot of energy in the room with all the companies sharing in a real and open spirit at that. The successes they had and the failures that have taken on salespeople, lessons that can be learned, things like that.

And I think that’s what really drives it home to me. This community was so much more than my preconceptions of it.  That the members of the community are quite tight knit and they are ready to help each other succeed. Do the vendors that you engage with perceive your community in that same way that, you know, it’s a lot of members together trying to help one another grow these businesses?

Phylip:                   We all know that business is driven forward, whether it’s a high level or a low level, is driven by people and the partnerships that they have. So, we find our role as a group is to enable those relationships. Yesterday, you were at the networking event with us and last night and we had vendors engaged about. We invite our supply chain, we invite our distribution partners, and we invite our vendors into that circle of trust.

What we’ve been wanting to do is to build deep, meaningful relationships because if a vendor and a distributor understand the needs of the reseller and you can bring that to work at a point where they are all paid, that’s where success comes from. In a fast moving environment that we are in, the market is changing so quickly. How can you do that when you got 50 odd resellers from all over UK and the channel island, etcetera?

What we do is we enable that by bringing it all into one place. So here we are on a glorious sunny day they’ve flown in from Gibraltar, Jersey being part of this community obligated to attend. So you don’t get an option to say, “I’m sorry the dogs aren’t well and I’m not going to come today.” You’re committed to the community and that’s what builds the deep meaningful relationship both with vendors and each other.

That’s the biggest one you’ve experienced today. And then when there are good, meaningful relationships with people and you drive those deep, people get honest. They get honest with their feelings, “I’m really, really struggling with this,” instead of what you find in relationships on the surface. People will talk about, “It’s great. I’ve just secured the 48-grand deal this week,” or whatever. And it stayed on that level instead of where the real guts of relationship works is when we’re sharing challenges together and get through those.

Richard:                 That is so important isn’t it? The amount of people you and I have perhaps bumped in at networking events, “How’s business going? Yeah, it’s brilliant,” and then the next week, you see they’ve gone out of business because they’re not honest enough. They don’t have the relationship to say, I’m really struggling at the moment,” so I did notice there’s a huge degree of honesty amongst your members which was really refreshing.

Let’s talk about community side of things. Communities are a very difficult base to manage as a whole. So, you’ve got your work cut out as a managing director managing this community. I definitely got the sense that the network group members almost manage themselves but talk me through that process a little bit.

You clearly go for quality as opposed to quantity in the number of members that you have. Do you have requirements for members coming in? You’ve already alluded to the fact that you have this commitment that people tell. For anybody watching or listening to this today, what should they expect as requirements for joining the network group?

Phylip:                   Absolutely, there are huge, huge criteria that we’re looking for in order to keep the model pure. You and I have learned some things about culture. Culture is something that you create. It doesn’t happen and yet, you know, we’ve got to have a clear vision of the future that we want for an organization.

And if we don’t create that vision for the future, then somebody else is creating that future for us. It happens by default. So we take very seriously the type of culture that we are building here.

As we grow it, we need to grow it without losing the bits that work. So in order for that to work first of all, we are looking for resellers that will work with one another in a collaborative way. There are not many people that actually share this, Richard. You’re very open guy. You speak openly about things that work and things that don’t work for you. Not everybody is a sharer.

And so the first key criteria that we’re looking for is how does somebody feel about being in a room of other people sharing what they do in their business? In fact, we’ve got two new resellers joining us today and are pulled over when they’ve been in the room and realized, man, we’re going from a leather head set share this morning all of these kind of strategy of what he’s doing and I couldn’t believe he’s sharing that. But he’s endorsed as a new reseller so he doesn’t mind. So, one of the key criteria we’re looking for is that you’re a collaborator.

The second is that you’re based no more than thirty miles from an existing reseller. So we think that’s enough for you to have a slight pass that you would be the trusted reseller in that area. There may be some little cross over but, you know, you’re not buying next door.

So we’re looking for a key retailer and a key B2B reseller in a key geographic location. And then when it comes to governance that we hire on, I’m afraid to join this group, you must be profitable in three of the last five years. We understand that business is making investments sometimes. And that will allow them to dip underneath that for taxation and other purposes we get that but you need to demonstrate good profitability in three of the five years.

And if you are a retailer, you have to be turning over 800K a year or getting to there. So if you’re innovative, we will help you through that process of a B2B reselling. You’ve got to be turning over 1.2 million or more.

So believe it or not, that leaves me with or us as a business, with a very, very small number of resellers between geographical area. The collaborative nature of that person and the other criterion, governance, etcetera. It means that quite often, resellers would want to join us don’t. Last year, we turned down 160 applications of people who wanted to join us.

Richard:                 So, fairly high qualification criteria for resellers to join the group, what about the vendors? Vendors are a big part of the network group as well. Talk me through, what do you look for in a vendor and which vendors you’ve got at the moment?

Phylip:                   So I can talk maybe not specifically about certain vendors by means. Some of them I’ve mentioned earlier in this conversation and we can’t afford to avoid. But the strategy of the group is we need to give our customers a choice. We use what we call preferred vendor status. So, anybody that’s running a business of making their own choices as to why they sell whichever particular solution they have for a vendor.

We say that when we book commercial arrangements with a security vendor, the proposition for that security vendor representing the volume that’s in our group. So across the resellers that we have at the moment, because we make the criteria high our largest resellers is just over 40 million. So across the whole estate of network group, we turn over just over 380 million in this small group of people that you’ve met here today.

We expect the vendor to put commercial terms in place that reflects that volume within the group. So we would talk to companies like Microsoft, etcetera. They would give us enhance commercial terms that reflect that and that’s a name that we can ill afford to avoid.

When it comes to, say PC or tablet devices obviously there’s two or three brands that we could pick. We would have say, two preferred suppliers for laptops and two preferred suppliers on that device at the moment and then we negotiate good commercial terms that stand by themselves. So you, as a reseller, could turn around purchase one or two of those brands to give your customers a choices and these are the ones that fit the criteria of our group.

They will tend to be not on price. They would be on the overall proposition. So if we say those that are on a corporate PC like Fujitsu or a Lenovo. Those are the two brands that we use because of their commitment to us. So if you’re a reseller what we would say is we would want you to lead on the Fujitsu and Lenovo brand because it stacks up and because you get better commercial pricing. You’re getting support from the guys you’ve met last night, the senior account managers, for these people that wherever you’re flying from you can have a relationship with them and build a partnership.

You can have a good plan with them and you can take it forward. But if you want to sell another brand as well then go sell if you want to but you’ll be nuts based on the commercial pricing that you have from us on the other two.

Richard:                 Yeah, makes sense. What about resellers? We’ve talked about a couple of the benefits they get from the group – the community, the relationship with vendors. Share some of other benefits that you feel that resellers will get when they join the Network Group?

Phylip:                   How can you put a value on collaboration and learning? I mean I’ve spent thirty minutes with you last night discussing a few things that I’m just thinking, “Wow! You’ve put that to work on your business.” So I don’t know how you value that benefit. It’s very, very hard to do.

In terms of marketing support that we do obviously in helping people go to market and enable that, that’s very, very powerful but there’s a range of other services in terms of cloud services, infrastructure services that we provide as well. As well as lots of regular businesses access to legal services in a cheap way, access to direct interfering systems and all of our other services.

But to be honest, they’re not the main reason you would be part of this group. You would be part of this group in order for the collaboration and the learning. So that you can do more, better, fast, different. You’d be part of this group so you can get access to the marketing that we do and the underlying commercial terms that help you compete against the people in the market. Those are the primary reasons. Everything else is a bonus.

Richard:                 Now, the Network Group has been there for how long?

Phylip:                   It’s been going now in our 21st year. But it’s a cooperative. So when you talked earlier, just something for me to mention, when you talked earlier about the engagement that bought into the organization. We are a cooperative.

So if you are a reseller from Birmingham and you wanted to come and join the group, you would join the group with a joining fee that you would pay. There’s a membership fee on a monthly basis. But after three months, what we would ask you to do is if you like what you see and you want to stay within the group, we would ask you to purchase shares within the company.

So if you have a look at the BG Limited online, the company’s host, you will see there’s a company with a list of shareholders who are the resellers. What that does is gives us ownership. The way our structure is driven is I drive the mandate of the resellers.

The resellers mandate is driven from feedback and interaction of what we want to be looking out. For example, the sales event that you were at this afternoon that’s been driven from the need from the resellers that say this is what we want. That’s been taken into the executive office there are lots of topics that people have, the executive direction to us in terms of the management team in terms of this is what we want.

Then we go away and create the content and you experienced it this afternoon. So that’s the way it’s driven. That cooperative nature that you’re not a victim of some other person’s agenda because lots of vendor partner programs are like that. I mean, they change their tenants don’t they? So, being part of the community that you can decide what the future looks like, that’s just gold, isn’t it?

Richard:                 Yes, I can see why so many new members are so very passionate about it. I was barely aware of the amount of passion and the engagement here. All the pieces sort of fit into place when you explain exactly the way the community works.

Phylip:                   Indeed.

Richard:                 You’ve been in the Network Group for four years now?

Phylip:                   Since 2010 February.

Richard:                 What have you seen change within the network group and the wider IT industry in that time? Just a small question there.

Phylip:                   Okay, so staying away from BYOD and all of this kind of stuff. Okay, so let’s cut to the chase. What is the real challenge? We can talk around a lot of the effects that are up there but we just come from one of the harshest downturns that we’ve experienced ever. So I think what I seen happen in the group over the last four years is us moving from being an organization to actually being a community.

And where you want to back each other, where you want to support each other, where you want to work together, relationships like that are really, really powerful. I have that in my life. You have them in yours as well with the people that are around us.

I think that the biggest change that I’ve seen in these people are getting together, watching each other’s backs, supporting each other because some of the resellers go through some challenging times. I’ve seen one reseller go down and spend time with another. And in fact, I think in the end of the meeting today, you saw an announcement being made for stack due to one of our younger partners here. We’ve got half of the resellers going away to Leeds on a stack two. That’s a real meaningful relationship.

I think the biggest thing that I’ve seen aside of all the commercial stuff is more meaningful relationships, not in the fluffy kind of way but in a real, we’re-in-the-trenches-together. And I think for us strength in numbers is our strap line and I’ve seen our numbers grow but I’ve seen the strength of what we are as a group grow far, far stronger and deeper.

Richard:                 And very clear to see from just attending for a short period of time. Now going forward with the group, what do you see is the evolution of the group? Where do you see the group moving forward and how are you going to adapt to the changes in the migrant IT industry?

Phylip:                   Moves quick, doesn’t it?

Richard:                 It does.

Phylip:                   So we’ve seen a lot of back to some BYOD bring your own device managed print services. And the whole managed services rack. I did an article recently in terms of the way we see the market and the B2B space going towards devices or MDS (Managed Device Services) that we think that more and more people will actually one day erupt. So they will want the desktop PC or the server.

They want the whole thing wrapped up with AV, the managed service, security, everything in one thing for more buying for all of these devices. There might be some BYOD element on the mobile end of it but, you know, BYOD is not so much a corporate desktop and server. You know, I’ve never seen a BYOD server yet.

We see the market working that way and we see more and more of the challenge in the cloud piece of the vendors wanting to hold those relationships and I think I say with caution again to all the vendors, particularly to some of the big ones, at this moment that are looking in security space and in the applications space looking to take these businesses direct. I think it was Churchill that said that we are nation of shopkeepers I think here in the UK.

The SMB channel here in the UK is very, very strong and I think the vendors will do themselves no end of harm if they continue on these journeys here in UK. In the US, and for other places in Europe. I think those are the changes that we are navigating first of all – that it moves quickly. We’ve got to enable and equip our resellers.

Secondly, I think the other thing that I’m challenged with personally with the executive board is as we get bigger as a group, there are more relationships. And when a community gets larger, the dynamics change. So, you know, when we’re crossing from 30, to 50, to 70 to wherever we get to, the board is viewing to get to 100, we think that the vision of wherever you live in the UK, you’ll be no more than 30 miles away from a NGIT reseller will be fulfilled.

So for us to do that, to manage a group twice the size. And I said to you yesterday, leading leaders are like herding cats. The challenges of a group twice the size is going to be fun but I’m up for it.

Richard:                 Clearly. But I have no doubt you’re going to do really well with it to be honest. Thanks for your time today, Phylip. For anybody watching or listening today who thinks Network Group sounds like a good idea that it might be able to help their business, how do they reach out to you? How do they get in touch?

Phylip:                   Absolutely, so you can go and visit the NBG website at nbg.co.uk and we’ve also got Facebook presence and Twitter presence. Myself, I tweet about pretty much everything in life so @PhylipM, if you wanted to follow me. I’m keen to take any engagement whatsoever. A phone call, a voicemail, however somebody wants to engage.

If you’re an IT reseller out there and you find it challenging then come and join a pile of people that are really strong, working together and we can add value to one another. Because you have got some of the answers for our resellers to help them go forward and equally they might be able to help you with some of the challenges that you are having as well. So, I would just love it if it’s good quality resellers that you fulfill our criteria, if you would just drop your line and get in touch. As long as you can stand by and chat.

Richard:                 Well, Phylip, it’s been a genuine pleasure spending time with you and your community today. I wish you all the best. Thanks so much for time.