By Jay McBain
On the surface, recruiting channel partners seems to be a straight-forward task. After determining your business requirements, you market to partner prospects at tradeshows, through the media and directly. When you gain their commitment, you then set off to train and build capabilities, change their behaviors and hopefully reinforce their performance to the next level.
Not so fast.
With over a half a million partner prospects world-wide, there are a number of challenges including language, legal and regulatory. Once you have cleared these, the different business models, product focus, competitive entrenchment and vertical industry specialties require a nuanced approach.
Whether you are looking for increased geographic coverage, skill capabilities, sales capacity, brand commitment, or solution connectivity, recruiting is one of the hardest thing a channel management team does.
Ok, I already knew it was difficult, how do I get started?
Segment potential partners by size before you start profiling. It will save a ton of time and allow you to target effectively.
Ultra-large partners look and act like Fortune 500 companies (and in some cases are). You won’t be able to call the CEO and close quickly. It will take months, if not years, to work through the multiple layers.
Large partners are also likely entrenched with competitors and have well defined business models, legacy practices and can be slow to move as well.
To put this in perspective, in the United States, a partner would need more than $20M in revenues to be in the top 500 (according to CRN, The Channel Company). In Canada, on the other hand, $5M of revenues will get you in the top 100 partners (CDN).
So what is the secret to segmenting?
Channel Partners are individual businesses. They need to drive revenues, control costs, and after cost of goods sold (COGS), the largest expense is personnel. Salaries differ by employee type and country, but a similar pattern exists across the entire channel.
The average margin of these businesses can differ by many factors including business model, geography, and management skill. The range for traditional VARs can be in the single digits, Managed Service Providers closer to 20%, and software/service led companies can even reach close to 30%. There are always variances to these, but statistically it is a reasonable place to start.
Therefore, take a potential partner, look up the number of employees they have in Linkedin (actual people – not what range they say they are in), multiply by the average salary in their region ($50K is the average for most G20 countries), and you now have enough information to back into their revenue.
For example, let’s take a IT VAR prospect with 15 employees. Multiply 15 by $50,000 gives $750,000 in salary costs. With personnel accounting for 75% of expenses, this VAR would have about a million in revenue margin dollars. Assuming this VAR runs about 15% margins, it would sell about $6.6M total revenue.
Knowing what your product mix produces as a percentage of channel sales gets you further towards the recruiting holy grail: Share of Wallet.
Recruiting is an art and a science. The good news is that Big Data is driving the science side of the equation. If you are still recruiting the same way you did years ago, it is time to look at it differently.
Understanding Partner Models
CompTIA, the world’s largest IT Association, identified these 12 Channel Partner models for 2015.
Though ongoing convergence is sharply blurring the lines between distinct partner business models – everybody’s doing a little bit of everything, it seems — the following identifies a set of individual models that have marked the channel ecosystem:
1. VAR / Solution Provider
To date, these are probably the most universal of terms to describe the majority of channel companies. VARs primarily resell products, while solution providers deliver a broad footprint of technologies and solutions. Solution providers sell within specific vertical(s) and/or to end-user focus or to several different verticals with no specific end customer focus. Services are often transactional, project-oriented or break/fix. The company’s revenue comes predominantly from integrating and selling hardware, software and services, including both cloud-based and on-premises solutions. They also rely on myriad types of rebates, discounts, margin points and other resources from the vendors they partner with. They do not normally retain title to product, while VARs normally do.
Consulting is typically part and parcel of every channel business type, but for some it is the primary specialty. Revenue comes predominantly from design- and planning-based consulting with a mixture of IT and business consulting. Title to product is not usually taken. Value comes from their ability to integrate and support technologies as well as determining product and brands, which has grown in importance with the proliferation of cloud solutions that can overwhelm end customers with choices. Consultants may serve as brokers, vetting various cloud providers, SaaS, IaaS and PaaS offerings for end customers.
3. Systems Integrator
Like solution providers, systems integrators have been bedrock category of channel business for decades. Revenue comes predominantly from design- and planning-based consulting with a mixture of IT and business consulting. Integrators often serve larger enterprise companies and they, themselves, are on average at the top-end size wise of channel firms. Traditionally, they realize approximately half of revenue from consulting services and 40% from IT services in design, implementation and post-transaction consulting. They differ from an IT consultant in that they also take title to product.
Independent software vendors (ISVs) develop proprietary software applications and solutions, including cloud-based SaaS offerings for sale either direct or indirect through their own channel. ISVs run the gamut from giants like Microsoft and Oracle to small applications players creating a single cloud piece of software. Revenue is derived in a variety of ways: selling software licenses, one-time sales of packaged applications and/or recurring payments for hosted or cloud-based software solutions or tools.
5. Direct Market Reseller
A direct market reseller (DMR) earns revenue by selling directly to consumers online or via the phone without a physical storefront operation of any kind. On the business to business DMRs include companies such as CDW and PC Connection; business to consumer counterparts include companies such as Amazon. DMRs are high-volume fulfillment specialists and constitute a market niche that sits between conventional big-box retailers such as Best Buy and distributors such as Ingram or Tech Data. They typically take orders for thousands of IT products from vendors across the industry. Deals are transactional.
6. Managed Services / Managed Print Services Providers
MSP/MPSP revenue comes predominantly from delivering recurring IT services provided on a contractual basis to maintain customer computers, networks, software and/or cloud-related solutions. The MSP assumes responsibility for the proactive management, monitoring and maintenance of the IT functions and/or systems covered by a service-level agreement (SLA) with the customer. Service is primarily handled remotely from the MSP’s data center, where techs mediate problems as they arise. Services also can be delivered either on-site at the customer’s data center or via a third-party NOC to which the MSP has negotiated access. Managed services differs from other types of IT that are billed on a recurring basis (such as a SaaS solution) in that there is a formalized expectation of ongoing technical support. Typically MSPs also conduct conventional IT sales of product and services alongside a managed services offering. Billing occurs in a variety of ways: per user, per device, flat rate monthly, etc.
7. Cloud Provider
A cloud provider is a company that offers some component of cloud computing – typically IaaS, SaaS or PaaS – to businesses and/or individuals. Today, the public cloud market is consolidating around a handful of major players such as Amazon, Google, Microsoft, IBM and Rackspace. Smaller channel companies that fall into this category may be using those public cloud providers on the back end for infrastructure and compute support, but for their own business model be building private clouds for their customers. Private cloud development includes selling any on-premises infrastructure that may be necessary to support the implementation. Revenue is generated through recurring pricing.
8. IT Distributor
Distributors act as an intermediary between tech vendors and the channel firms that resell their software, hardware and other services and solutions. Essentially the hub in the tech go-to-market supply chain, distributors have morphed from basic product fulfillment entities to the channel to more complex organizations that provide training, support, financing and billing assistance. Since 2010, market-leading distributors Ingram Micro, Tech Data, Avnet, Synnex, Arrow and others have created cloud-reselling programs around emerging technology offerings to accommodate new market realities. Additionally, some have made investments in telecom services aggregation, reflective of the convergence of the traditional IT channel and the agent-based channel that sells carrier services to business.
9. Custom Systems Builder
Also called ‘white-box’ resellers, these firms generate revenue predominantly from designing, building and delivering their own brand of hardware infrastructure. Most typically these products are custom-built laptops, desktops, servers and other pieces of hardware.
10. Web Developer
Web developers’ revenue comes predominantly from development of Web sites for businesses and individuals. They typically handle all programming aspects of creating a Web site, including HTML programming, creating graphics, links, and other related tasks of building Web sites. Mobile application development is fast-becoming an in-demand sweet spot for those specializing in this business model, as more and more companies need their Web sites to be mobile-friendly for use on smart phones and tablets.
11. Telecom Services Provider
A telecommunications service provider (TSP) is a type of communications service provide, including competitive local exchange carriers (CLECs), incumbent local exchange carriers and mobile wireless communications companies. Revenue comes predominantly from providing network services (NSP), Internet services (ISP), or VoIP services. They generally take and retain title to product.
12. Telecom Agents
Telecom agents represent the indirect channel middlemen and front line for the major telecom carriers. They include master agents, which serve a role similar to IT distributors in aggregating carrier services that can then be delivered by an ecosystem of sub-agents and independent agents. Those latter two groups sell recurring revenue-based contracts with end user customers of voice/data telecom services.
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