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Reevaluating the Timing and Costs of Developing Channel Relationships

- March 15, 2011 - 0 Comments

This post is a first in a series we’ll be featuring from Beth Vanni, Vice President of Amazon Consulting. Amazon Consulting is a partnering services firm dedicated to helping companies elevate the impact of partnering. Beth has over 25 years of experience in technology sales and marketing, with a specialty focus on partnering strategies and supporting operational plans.

A ‘perfect storm’ brewing around the issue of channel development

A variety of economic and industry innovation conditions are currently combining to create the “perfect storm” of channel development issues between IT vendors and their channel partners.  These include:

– A rash of disruptive technologies entering the market

– A slowly rebounding economy within a still-uncertain global environment

– Continued industry consolidation among vendors and solution providers

These market conditions are complicating the way in which technology vendors and solution providers engage to grow their mutual success.  If vendors are not prepared to meet these conditions with clearly defined partner value propositions, a clear coverage and capacity plan and comprehensive onboarding processes for their channel partners, their indirect revenues will likely suffer (and are).  Conversely, if solution providers aren’t prepared to intelligently navigate the vast array of vendor’s sales, technical, marketing and services programs and support materials, they won’t realize the rate of return they desire and will waste precious resources during the process.

In recent exclusive channel research entitled conducted by Amazon Consulting entitled “From Rookie to Rock Star:  The Cost and Timing of Developing Channel Partnerships,” we explored the relationship between vendors and channel partners along this issue of the costs and timing of developing a new partnership. 

The highlights from this research that we think are relevant to Cisco solution providers include the following:

1.     Both groups experience a fairly significant “80/20 rule” of revenue leverage.   More than half of the solution providers have one or two vendors which make up 75%+ of their  annual revenues, and these relationships are longstanding (7+ years).  However, they are also still selling 4+ product lines on a purely opportunistic basis, as customer demands dictate. So, they are highly leveraged with a few big, well established lines, but are they getting all the benefits from the vendor’s programs aligned with that level of investment?

2.     Solution providers said they’d invest for up to 6 months before realizing revenue on a new technology or vendor line, and another third are willing to invest for up to twelve months.  Yet 54 percent of solution providers want a 2x (or greater) ROI on their vendor investment in the first year.  So, the appetite for investment is still there, but ROI expectations are higher than we’ve seen in the market in the last 5-7 years.  Are the vendors clearly articulating both the opportunity AND investment to their channel partners when they announce a new technology?  And are channel partners applying a bit too much brand loyalty to new technologies from existing vendors without looking at the unique ROI opportunity with each new investment?

3.     Solution providers say that the most critical resources needed from vendors are in the technical and sales training/certification stage, followed by active selling and marketing stage.   The majority of solution providers (75 percent) say the best support they are getting from vendors is indeed at that training and certification stage and the worst is at the point of building solutions followed by ongoing support after initial training is completed.  So, is there a “cliff” of vendor support at which solution providers stall their development?

The image below illustrates a worst-case scenario for solution providers when they apply only very limited investment in a vendors’ technology.  An all-too-common scenario is for the vendor and their channel partner to try to accelerate from very basic program involvement and training straight to trial selling, without the benefit of taking advantage of any sales teaming and mentoring or  in building some unique solution or repeatable service which differentiates the partner in the market.

Five essential tips for solution providers, based on this model of a maturity vendor/partner relationship:

  1. Know what you are getting into – Be very clear from day-one on Supplier  investment and ROI expectations
  2. Go deep on the numbers – Establish a separate P&L for all major Supplier lines
  3. Know your competition – Understand your required value-add before investing in a new Supplier line.
  4. Marketing investment is a must – There is vendor money to be had, but it’s harder to get.   Invest in dedicated marketing resources (or outsource this).
  5. Relationships reign – more than ever, proactively working vendor and distributor relationships will allow you to rise above the noise to get your fair share of support and economic benefit.

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