Channel Partners? What's in it for me?
Having spent my entire career working with business partners of one sort or another, it is second nature to me. I realise it’s not the same for everyone, so I thought an article reminding us why we make our lives more complex by introducing an extra party into the supplier-customer relationship.
Why add the complication of partners?
The first thing to say is that those of us in the partnering business don’t think of partners as adding difficulty or complexity to our efforts. We believe that business partners deliver their own value. Without this contribution, our ability to satisfy end customers would be impacted.
What if the partners add no value?
If that is truly case, then you need to take a good look at your partners and your partner programme. Most often, partners can and do add value but that is either not understood or not effectively communicated. Finding the win-win and win-win-win position is the key to success. You can read more about this in my blog post "How do we win-win-win?".
Who's doing the work here?
If there were no partners involved, either someone else would need to provide the same added value (and most likely the same degree of complexity) or we would deliver a worse service and consequently expect to win fewer sales.
Assuming we don’t want to provide an inferior service or sell less, the question boils down to who should provide the added value: should we do it ourselves or should we partner with someone else to help us?
Can't we do this ourselves?
Every company has a unique set of strengths and weaknesses. No company, not even the largest, can do everything themselves. Understanding not just the strengths but also the weaknesses of your company is the key to understanding the role of partners in helping you.
There are typically many areas where a partner has something of value that your company does not. For example: sales capability, market presence, existing customers, complementary products and services. Working with partners who can mitigate your weaknesses and fill in the gaps in your offering help you present a stronger, more flexible offering than any single company.
Why not build it ourselves?
The first and most obvious case for working with a partner is when your company is unable to provide the added value because you don't have that capability. But, why not build it yourself?
If your partner already has the capability, there's a time-to-market advantage of using something that's already existing, tried and tested. To build it yourself, you would need to consider the cost (capex, opex and opportunity cost) of the resource required, the risk involved and the impact of the time delay.
- How quickly can you assemble the resources required?
- What business would you have lost during the time it takes to develop and test your offering?
- How would the market have moved on in the meantime?
- Will your offering be as acceptable as an established solution (that will also have moved on)?
- How flexible will your offering be once it's built?
Utilising an existing capability reduces cost, risk and time to market.
Why would a partnership be more flexible?
Working with a number of business partners provides a range of capabilities to address various business opportunities. The most appropriate combination can be selected for each scenario.
Partnerships can typically be created and formalised more quickly than building your own new business capability from scratch. So, when new markets and opportunities are identified, a partnership can provide a more responsive and flexible solution.
What about the cost?
To invest in additional capability within your own business incurs cost. This could be the capital expenditure of setting up such a capability in the first place, the operational cost of running it and the opportunity cost of what else could have been done with the funds or resources.
Working with business partners shares that cost. That's if investment is needed at all. Where your business partner already has the capability, then no capex, opex or opportunity cost need be involved. Typically, channel partners receive their payment from the customer rather than the supplier. In situations where the supplier pays (for example, in exchange for a referral) this is usually on a percentage of revenue so if there's no win, there's no cost.
What about the revenue?
If there's only so much revenue available, then why would you want to share it with a channel partner? In a well-structured channel programme, partners deliver additional revenue in 3 key areas:
- Finding and winning opportunities that would otherwise be lost.
- Adding more value to opportunities.
- Enhancing customer satisfaction to win longer term business.
What's this about the long term?
Increasing the number of companies and people actively looking for opportunities to sell your product or service is a good start. Ensuring that they are educated, equipped and motivated to do so is better still. Spreading your search over a wider terrain means you are more likely to find scenarios suited to your offering. Working with those who know the terrain well, know where to look for opportunities and make the most of them is key to success.
When everyone wins from a successful engagement, everyone is motivated to perpetuate the relationship and win more engagements. You can read more about this in my blog post "How do we win-win-win bigger?".
Independent advice and feedback
Everyone knows that businesses need to grow and adapt to survive and thrive. Business partners are a great source of advice and feedback. Better still, channel partners have direct experience of your offerings (unlike management consultants or non-executive directors, for example) and can be independent since they are not (usually) paid directly by you.
With a vested interested in helping your business succeed, channel partners can contribute vital insights from an external perspective and can help develop and refine your value proposition.
When should I partner?
Every situation is different but here are some example scenarios (from the perspective of a small-medium software or services provider):
Sales. Most established channel partners have invested heavily in, and spend a large proportion of their income on, effective sales capability. It's typically taken them years to create their sales methodologies, structures and teams. Instead of attempting to build your own sales operation, potentially in competition with an established operation, why not figure out a win-win model for your companies to work together?
Marketing. Likewise, established companies will have a marketing capability but crucially, they will also have an audience they have built up over time. Channel partners let you tap into that audience without having to build it from scratch yourself.
Market presence & branding. Credibility is built over time and comes from a consistent, powerful message. You can leverage that by forming a partnership with those who have already invested in their market presence and branding.
Customer relationships. Quality channel partners have built durable relationships with key customers. It takes time to build that trust so instead of trying to create trust, why not work with someone who is already trusted?
Supply contracts. For larger end customers and public sector bodies, relationships are typically formalised in supply agreements that are too difficult, time consuming or onerous for smaller companies to engage in.
Complementary offerings. Whatever it does, your offering cannot do everything that a customer needs to run their business. Forming a partnership with a channel partner that has a complementary offering enables you both to better address customers overall needs.
Complementary services. Likewise, your company cannot offer all the services that a customer needs to make the most of your offering in their particular situation, industry or geography. Working with appropriate channel partners helps plug the gaps in your capability.
Joint offerings and bids. Sometimes, a number of disparate offerings are required to satisfy a customer's requirements. Where it's not possible or practical for you to form partnerships with the other companies, channel partners can take on this role.
Integration capability. Software and services very rarely work in complete isolation. They need to be integrated with other systems and processes to deliver value. Channel partners with previous experience of integration targets and existing processes can help smooth the customer journey to acceptance and successful operation.
Specialist knowledge. You may well have delivered and installed your solution previously but implementing with a new customer, culture, industry or geography can be daunting and challenging for a smaller outfit. Channel partners already familiar with both the customer and your situation can help meld the disparate parts into a cohesive solution.
Shareholder value. Expanding your market coverage through channel partners is likely to grow your recurring revenues and hence the value of your company.
Reduced risk. Similarly, extending your sales teams, delivery capabilities and reach (geographically and logically) reduces your dependence on individual customers, markets, companies and territories.
Mediation and resolution. Inevitably, challenges arise during the lifecycle of any solution. Experienced channel partners can act as trusted advisors to mediate and resolve issues to the satisfaction of all concerned.
Mergers and acquisitions. Many mergers and acquisitions arise between companies that have previously worked together in some form of partnership. The experience enables each party to appreciate the value offered by the other and make better informed decisions on business transactions.
The bottom line.
Any time that your partner has something you do not, and which your customers want, is a good time to consider partnering. My recommendation is to forget features and limitations; focus on business outcomes that deliver value for all concerned.
Ash Madden is Founder and Director of Madden Associates Limited, the Specialist Channel Sales & Partnering Consultancy