At a recent channel strategy conference in San Jose, the keynote speaker Chris Doggett, VP Channels from Sophos (security software) focused his presentation on managing partners throughout their lifecycle.  The crux of the presentation presented a formal methodology that Sophos uses to identify where partners are in their lifecycle, measures their potential, and helps to plot a contact and support strategy for each as they evolve.

I was fascinated by this as partner lifecycles is a topic we are conscious of, but it is my experience that very few companies have a formal process for scoring, segmenting, and supporting partners at each phase with an appropriate investment strategy.  Investment, in this case, considers  manpower time, $ investment via promotions and programs, training and any other resource drain.  Why am I fascinated? Because without such a system in place,  marketers practice some combination of the following methods to classify their partners and make adjustments in the investment levels of an individual partner:

• Assume that the large are going to get larger and the small will stay small. They design their CAM assignments and investment strategy accordingly—even though it may be difficult to get a higher share from the large ones, or identify the true potential in smaller partners. Many of companies to relay solely on sales volume for medallion assignments are practicing this method.
• Rely on qualitative feedback from CAMs and/or gut feel for how investment practices should vary for an individual partner
• Assume there are two phases to partners:  Start-up (new partners), and Mature (partners who for no other reason are beyond the start-up stage).  And, like accepting “Friends” on Facebook, have a philosophy that having more is always better than less.

Neither of these approaches seems scientific or defensible, does it?  Plus, if you practice one of these methods, you are probably over-investing with some partners, and under-investing in others—which translates to gross inefficiency.  Maybe we accept this inefficiency as status quo because we’ve always done it this way but it’s one of those things that are on the list of rainy day items to address the second we get some free time.

The model used by Sophos, as presented by Chris, assigns scores to partners based on a number of criteria. Those criteria, including their target levels include,  Pipeline Converted (better than 30%), new deals opened vs. leads (1:25), % new deals opened by partners (50%), Team engagement (40%) and gross margin on closed deals (15%+). The score is assigned to each partner who is otherwise plotted on a quadrant of Revenue $(Y axis) and Investment $ (X axis).  Without getting too complex for this blog, those who improve those number from period to period, and improve sales warrant further investment as they are classified as a Growth partner. Those who remain static are identified as Mature and assigned a maintenance program, and those who remain flat or decrease in sales, and don’t improve their performance benchmarks are classified as at risk investments for further review.  One of the things that is surprising here is the number of large partners who are assigned to maintenance mode, because there is simply no opportunity for growth via further investment.

We are not saying that the criteria and process is directly transferrable to you,  and while clearly oversimplified, the point is that Chris has designed a quantitative way to score partners and provide a foundation for identifying which partners should deserve more attention from his staff and budget, and equally important, those that may be cut back or simply maintained.  Considering the resource constraints imposed on most of us these days (read: the need to do more with less), that would be a good thing.

The Effects of SaaS, the Cloud, and Managed Service Providers on Channel Models

CCI speaks with XO Communications Vice President for Channel Development and Strategy, Tom Gorey, in the monthly eNewsletter Channel Management Insights.

Channel models are due to shift again. The growing trend away from "buying systems" to "renting solutions" on a fixed-fee or pay-per-use basis is one driver. So is the emergence of the "Cloud." The use of managed service providers as a channel type is also a major catalyst for this shift. Whose channel models will have to change in response to these developments? Simply put, everyone's -- vendors', distributors' and resellers'.

Vendors will have to gain a greater understanding of channel partner models, review compensation practices and rethink the importance of branding. Distributors will have to put together not only prepackaged bundles but the right packages, and redefine their relationships with resellers. And resellers will have to decide whether they will maintain their role of selling these prepackaged solutions or become distributors themselves, which may be more feasible than ever before.

To find out more about this dynamic time, how to take advantage of the key drivers behind it and the necessary evolution of the channel model, Channel Management Insights spoke with XO Communications Vice President for Channel Development and Strategy, Tom Gorey. The following is a summary of that interview.  

CCI: How are SaaS and managed service providers changing the reseller model?

Gorey: Single SKU transactions will become monthly subscriptions that will bind the reseller to the underlying service provider, or cause it to become one. There's a financial impact to both of these responses.

In the first scenario, resellers become consultants. Intellectual property is what they sell, and they no longer finance inventory. Pricing to end customers is a different paradigm, and resellers may have far less control over price. The distributor will make more decisions, and the reseller will customize the solution for end-users. In addition, the statement of work will evolve around value-added services that are complementary to, but not the core of, the managed service being provided. That changes the marketing value proposition.

If the reseller becomes a provider, this will have an impact on how its business is financed. For example, instead of financing inventory and receivables for a short cycle, a reseller selling services on a typical three-year cycle is going to have to manage cash flow reflecting the combined billing of multiple clients over a longer term. The rule of 78s applies. This change could be profound in today's credit markets.

CCI:  How will the Cloud contribute to changing the reseller model?

Gorey: The Cloud ties into sales funnel functionality. It's not a Siebel product in a back office; it's a subscription for service that resellers can integrate into other things their end customers use. Resellers have been selling boxes to move bits of information; with the Cloud, they won't.

CCI: What should vendors do now to prepare for these changes?

Gorey: Vendors have to review their channel partners to understand their business models better than they have in the past. For instance, larger VARs that tend toward efficient fulfillment models without supporting services are likely to have a more difficult transition. Education and support for business planning through these transitions would likely be good investments now. 

Also, now is a good time for vendors to review compensation models and contract structures to their channels, if they're going to host services and pay agency fees. They should also review how these changes will impact VAR internal compensation models within their businesses. Past efforts at converting traditional go-to-market methods with compensation models based on receiving the proceeds of a sale upon billing have been problematic when combined with compensation from vendors paying residual fees over the life of the contract. Though many of these programs pay out higher over a standard product life cycle, the loading of revenue over a typical three years versus upfront creates focus differential.

Employee turnover mitigates the value of longer payout cycles at higher overall gain. If an employee isn't there to collect, or in the same position, those higher returns never materialize. Vendors and resellers need to understand that, and potentially create different payout programs for transitions.

Another issue to consider with SaaS is branding. Since resellers will be selling functionality, the vendor's name may not be on the product; the reseller's name could be. The hard drive people already lost their identities in the personal computer market, as an example. Computer companies sell drive capacity, not brands. Intel is the exception because it puts a sticker on products. Even so, many people buy processing power, not necessarily the Intel brand.

CCI: How will resellers have to adapt to these changes?

Gorey:  Resellers have the same issues mirrored in the vendor community, plus they'll be at the cutting edge of the integration of services models into legacy systems, where services models and traditional implementations meet. A premium will be placed on resellers that understand the ecosystem of related vendors where integration has been initiated and APIs are in place.

Differentiation is also a concern. When potentially thousands of resellers are presenting solutions from one provider, and that provider sets a price point, how do they differentiate themselves? Training, implementation, services and tying the product into legacy systems are some examples. They also have to be relevant, with a defined value proposition.

In addition, they have to pay attention to the generational change in the workplace. The next generation will expect different things where they buy or work. They don't know the siloed way of doing business, and they expect collaboration inside and outside the company. Plus, they don't need to own anything physical, just functionality.

CCI: In this new dynamic, who owns the client? 

Gorey: Good question. That depends on who provides the invoice and whether the customer looks at the reseller in the same way as before. Issues will also arise around who takes the first call from the client when things break or when the client doesn't understand how to use functions. Will it be the VAR or the application vendor? Will the application vendor understand the context? And where will the client fall in the hierarchy of response on service intervals?

In addition, resellers will have to choose between owning the invoice and customer, or owning the consulting, which will create a number of other issues in how they define their businesses. For instance, if the vendor pays an agency fee for representation, what are the responsibilities of the reseller to the client? Does that change when the client is no longer the one paying the reseller, but the vendor is instead? Is that different when the reseller performs as an outsourced IT provider versus selling to a client with its own IT staff?

CCI:  What shifts will be necessary for pre- and post-sales support requirements?

Gorey: Decisions need to be made for where the first call goes when something breaks, who's responsible for the repair or restoration of service, how communications are handled and at what frequency, and what happens if a customer buys other services from a different reseller or direct from a different service provider and requires interoperability.

In addition, there are financial implications. I'll leave the revenue recognition question to the financial experts who can articulate that better than I can, but there's a difference in receiving income in the first year as a traditional hardware and software license sale and in receiving a revenue stream that extends beyond the first year to two-year, three-year and even longer contract terms. There are also nuances in the services model since longer-term commit contracts that are common in this area don't allow a client to suspend services and still function, as a customer can by delaying a planned hardware or software upgrade. The monthly subscription charge and the services contracted continue.

CCI: What is the scope of the change -- how much and how fast?

Gorey: We're in the beginning stages where the hockey stick is ready to take off. Right now, we're in a bad economy, where people are examining assets and looking for safe bets, efficiency and options. They're more willing to accept input from resellers that can help their businesses survive or grow. Companies that understand the users' needs and how business is changing are capitalizing on their knowledge and experiencing double-digit growth. 

I expect to see a substantial amount of change within the next 24 months, enough that the world will look very different from today. Providing functionality, not a box, and delivering it through the Internet changes everything.

Tom Gorey is vice president for channel development and strategy at XO Communications, a $1.48 billion facilities-based telecommunications services provider. Prior to joining XO Communications, he served three decades in technology companies including a CBS Broadcasting specialty division, Ingram Micro, GTE, Qwest Communications and MCI.

For the past five years, Gorey has been a key driver in XO's indirect channel as the company turned a stagnant sales and revenue channel into annual double-digit growth in both areas, including very strong growth through the recent economic recession. He has a bachelor's degree in architecture with a minor in physics from the University of Washington.

This article was originally published in Channel Management Insights- a monthly e-newsletter from CCI featuring articles and insights related to channel marketing- click here to subscribe.

Having just returned from a recent channel marketing conference in San Jose, my usual self would summarize some key learnings and insights. That would be pretty easy to do as I was the host of day-two and as such was requested to take copious notes. The reality is, that there was essentially three key take-aways, only one of which I’m going to write about today. (I’m sorry, but the other two will have to wait for future editions—and besides, they emphasis points made previously in this blog).

There was great quote from a delegate during a standard post-presentation Q/A session:

“There is no silver bullet channel program.”

Amen, brother. This is one of those points you instinctively know, but somehow don’t articulate quite as clearly as someone else—a truly “duh” moment.

Why is this point so profound? Because I can’t tell you how many channel marketers, that despite having the title of “Senior Manager”, “Director”, or even “VP” come to me and say: “I want the same _____________ program that works best for your other clients”. Fill in that blank with your choice of programs—SPIF, MDF, Rebate, Deal Registration, Lead Management….. whatever. In fact, that just happened to me yesterday when talking with a client about their trade-in program. The bad part is that the request is always followed by an anxious moment when I fumble in my attempt to say for the um-teenth time that “There is no such thing, the program design is really based on your objectives and requirements”. No matter how subtle or bold I say that, or what words I chose to use, I get the same look on the subjects face as if they just saw a ghost—or heard their mother in law tell them that they are “no longer good enough for their daughter”. (Note, just to be clear, that last statement was never expressed to me so I don’t really know the feeling first hand—but I hear it’s horrific). You see, this otherwise “Senior Manager” was hoping we would say: “OK, we’ll have it ready for you in the morning”.

I can honestly say that despite how may ____________ (again fill in the blank) programs we do, no two of them are alike—even a little bit (really!). For instance, just take the aforementioned trade-in program: Do you really require physical return of the merchandise? Or, is this just another disguised incentive program where a serial number plate or certificate of destruction would do? Is the incentive based on what’s purchased? What’s traded in? or both? Who gets paid? End user? Reseller? Either? Who receives and validates the trade-in? Trust me, the list of variables goes on and on and on and on……….But that’s the easy part. The process really starts with your objectives, defining key metrics to validate program performance against goals, and special parameters and processes you specify. But even then, the ideal recommendation would have to consider things like: what you are doing now, what has or hasn’t worked in the past, what competition is doing in specific and the industry is doing in general, what geographies the program encompasses (for regulatory review, logistics and currency issues) and again---on and on and on and on. But wait, there’s more….your market and product have a lot to do with program design as well. For instance, are you a core technology, or a commodity product? Are you an industry leader or follower? Do you have to “buy” business or is there already a strong demand? The answers to these questions have a big impact on your program, and address why Microsoft can do what they do, yet Tier 4 switch company can’t seem to pull it off when they try to do the same thing.

Instinctively you already know this though, don’t you?