Why is your channel strategy failing?
Omniom is a revenue consulting company which that means we are often called in to talk through and put together plans to diversify revenue streams to hedge risk and “fix” broken channels, this means adding more business development through the “Channel” and putting a growth ready channel strategy in place.
The channel in this light will be referred to as a network of interested partners that can resell or bring revenue in some way to your product and service. The channel is a very broad concept that includes everything from technology and integration partners, to OEM and resale partners. These channel programs are typically neglected in mid-size companies, like ACME, and not maximized in large enterprise companies, for reasons we will get into below.
When we started working with ACME corporation, who is a medium sized CRM vendor, the first thing we did was start by taking a quick peek at their partner page and looking at what level of detail and effort went into their channel ecosystem. When we look at most companies channel strategy we typically start by taking a quick look at their partner website because quite a bit of information can be learned very quickly how the website is structured and what technology is already in place.
For most mid sized companies like ACME this usually equates to a page or two of multi-colored logos that may be classified into categories but more than likely just a description of the partner and a link back to their website. If this is the extent of the entire partner ecosystem we know we have quite a bit of work to do because even though we respect SEO as much as the next company, backlinks and logo swapping is not an ideal strategy and will never make your company any money through the channel.
We also know that most partner programs are woefully understaffed and most companies have not caught up with the latest channel technology trends that can turn their fledgling program into a world class channel friendly company.
In this case, as in many cases, we work with, ACME’s needed to diversify their revenue stream because direct sales made up 95% of their business on a single product company. Their software had options and upgrades but with a total dedication to direct sales you end up relying on one source of revenue performing well quarter after quarter, and if sales leadership or reps change it can add quite a strain on overall sales.
Considering their channel only made up only 3% of revenues they wanted to find out why and then put an action plan in place to fix it. We spent quite a bit of time with ACME and will describe some of their issues below that that tend to be prevalent in the industry and some of the main drivers behind a channel plan that is failing.
Issue #1 – The afterthought of the channel
When we met with ACME’s CEO and the executive team we did our typical analysis of the enthusiasm directed toward the channel and then compared it to the overall enthusiasm of the company. What we noticed is that the executives were clearly impressed with the technical nature of the product and thrilled by their sales and marketing efforts and at a complete loss as to why the channel was producing such poor revenue. The product had grown 15-27% over the last few years using direct sales and they all felt that given the right strategy and customer awareness they could double the company’s year over year, while the channel had floundered and produced very little revenue.
ACME is a revenue justification company, meaning, they fund areas that have quantifiable revenue and grow out those portions of their business, so in this case because the channel brought in 3% of the overall revenues they received 1.5% of the budget, which equated to two semi-dedicated channel employees and a partner website with the rest going toward marketing and trade-shows.
When there is a lack of revenue or a dynamic leader we see a Phenomenon develops we call the afterthought of the channel. Because the channel makes up so very little of the revenue and has no one fighting for them from an executive position they are put in the afterthought category.
Afterall, companies run on revenue and when you are a small contributor without a voice your department is often categorized as less strategically important, which can be a huge mistake with the massive potential of channel revenue.
Issue #2 – An old Log Swap Ecosystem
Omniom is a data driven company which means we are not as interested in the initial reasons of a partnership and more interested in the net outcome over time and predicted net outcome over time potential. When we looked at ACME’s partners we wanted to know when the partner was signed up, how much revenue they produced and what programs were in place right now that would produce revenue in the next 90 days.
Not surprisingly many of the companies had been acquired over many reps over the years and for many different reasons and only 5% were actually producing revenue. This was clearly a logo swap partnership that was built on a multi-tiered strategy that had been put in place a long time ago and never really tweaked. What was expected was that every new channel rep hired would be put into an archaic system and asked to go produce revenue.
When contacted most partners didn’t even know why they were partnered with ACME or who owned the relationship, clearly another red flag. Partners need to care to sell your product, and with a lack of dynamic partner driven strategies in place they just forgot about ACME and used them for line fodder.
After weighing the potential business and reaching looking at age of last touches we decided that they needed a complete channel strategy revamp, to help them and their partner ecosystem modernize their network.
Issue #3 – Technology Investments
Acme is a company that spent considerable time thinking about and investing in their core technology. A cloud based solution provider targeting mid market and enterprise clients they had the technology in place to monitor, deploy and analyze every aspect of their client’s onboarding and usage. They could get a client up and running on a fully deployed CRM system touching almost every part of their business in just under a week, a truly amazing accomplishment.
When we look at the channel we noticed right away their lack of technology investment which was just as obvious to their partners and hampering their channel reps. For all the power of their fully automated CRM system the channel reps were still tracking partner deals by spreadsheet and partners had no access to a modern channel ecosystem to register deals or learn about the product, they just went through the same channels as the direct customers.
This was obviously hurting them because online systems can automate key partner requirements like deal registration and add very important metrics that can be used at a later point for predictive sales processes. Also, automated processes act as the first line of customer enablement and interaction allowing them to get deeper into your ecosystem to learn and grow and tracking key people in your partner organization. Acme was missing out on this massive potential of partner data which is something they would need to change quickly to start growing the channel.
Issue #4 – Lack of Strategy
The channel at ACME was a bit of forgotten team with only 3% of the revenue and a very small budget there was never a concentrated effort to increase and enhance the channel. We discovered that ACME’s strategy was built around the previous VP of sales efforts to get more partners to resell their CRM system 10 years prior. This strategy had become single focused and watered down over the years and the current channel reps were incentivized only on resale revenue.
Partners were recruited solely on their ability to resell ACME’s CRM and competed with the direct sales force which created stress between the teams and a lack of respect for the channel. After all who wants their deal to be gobbled up by a channel partner, so the direct reps would routinely undercut partners on pricing to get the deal. This was compounded by the fact that the resale partners were getting harder to recruit, and with more tools on the market than ever ACME’s level of partner discounts was not helping to recruit net new partners.
Acme obviously had to adjust their compensation plan to help direct sales promote the channel and vice versa, and make sure all three groups were paid adequately. This caused anxiety in the beginning but after analysis of potential future revenue, it only made sense to incentivize both reps and implement a revenue based tiered partner discount program.
Acme had a larger problem with the strategy because they had no plans or focus in place to build out the robust OEM, Solution Integrator, Technology, Federal, and international channels. These channel are amazingly robust and could add serious levels of diverse revenue to the channel but would require complete focus and investment as well as a detailed strategic view of where and what partners they would like to go after.
Issue #5 – Changing the Channel Perception – Investment
The channel sales reps reported to the VP of inside sales and rarely communicated with the field and because of compensation had a different sales call than the rest of the team. The executives really never concentrated on the channel and only gave it a cursory glance when any partner related topic came up. All of this solidified why this channel model would never work in its current state and needed some drastic changes.
Looking at the channel at its current state of revenue was short-sighted and only occurred because of the perception of the channel had not be invigorated. Once the CEO started listening about all of the other channel and potential a drastic change started to take place.
Investment needed to happen to build out the technology of the partner ecosystem, and new leadership and experience reps needed to be brought in to fit the different segments of the channel ACME had decided to go after.
Internal enablement is just as important to external enablement because the old dynamics of a competing low revenue channel would not apply in the future and the perception would need to be modified and both sales teams would need to work together to become successful.
In this case, ACME had quite a bit of work to do. This was before any data driven activities could help them become more predictive and partner analytics could be used to help find better partners and sell more deals. Acme only had 3% of their revenues through the channel because they had an archaic channel strategy as well as the lack of investment and concentration on the channel.
Once they realized how well their product was positioned as a channel product their entire perception and concentration on the channel produced amazing results.
Today when you visit acmes partner site you will see robust onboarding processes, multiple dedicated verticals, and complete partner automation and training processes. They have truly built a world class channel ecosystem on the scraps of nothing and see the success in terms of happy partners and much greater revenue.
Sean Gately is the founder of Omnion Technology Group, Inc. Omniom Helps companies create new revenue streams and CREATE strategic revenue plans. Omniom helps with end to end channel strategy and outsourcing and actively works with groups to build new business development channels through strategic partners.