Posted By: Larry Walsh, The 2112 Group /
We're excited to share a guest post from Larry Walsh, CEO and Chief Analyst of The 2112 Group.
Your partners are optimistic about 2017, with the majority expecting to grow their businesses by 6 percent before the New Year’s Baby makes another appearance.
How are they expecting to produce these positive returns? Mostly through the expanded sales of products and services already in their portfolio.
According to The 2112 Group’s annual 2017 Channel Forecast study, partners’ growth investments are pointed in three places: expanding sales of existing products and services, adding more professional services (mostly around existing products and services), and creating new services based on vendor products.Partner investments in what they know best is hardly unexpected. Partners are creatures of habit and following the paths of least resistance. If they find success with a product or service, they typically stick with it rather than risking expansion that usually comes with new expenses.
The development of professional services isn’t surprising either. Product margins – including those around cloud computing – continue to compress. Professional services, according to the Channel Forecast – have the healthiest expanding margins for partners. So even if a customer doesn’t need a product in the partner’s portfolio, the partner can make money by supplying professional services.
A large part of the reason behind partners investing in the tried-and-true is risk management. Expanding sales and professional services capacity around existing vendors and products is capitalizing on past investments. Expanding beyond into the unknown means putting money, profits, and viability at risk. Moreover, partners are extraordinarily risk-averse.
The problem with partners is they don’t often see a dollar invested as an opportunity with the potential for multiples in return. Rather, they worry too much about not getting the dollar back or what to do if they need that dollar before the returns pour in. This conservative posture reflects a lack of operational and business maturity. Partners don’t necessarily plan for growth, as other 2112 research finds only 45 percent of partners set annual sales goals.
Helping partners find their way to growth is the vendor’s responsibility. And showing partners new-and-improved products (complete with lemon-fresh scent) isn’t the way. Vendors need to paint the economic picture for partners to show why expansion into new goods and services is worth the risk. Vendors need to quell partner fears by minimizing risk exposure.
Just how does a vendor do that? Mostly with math.
Math is a channel-centric vendor’s best friend, as it will show the level of investment and effort required by partners to make money with a particular product or service. Margins aren’t important as the total cost of partnership and sales volume required to cover costs and produce a positive return. Too often vendors speak to partners about rich margins with no consideration of costs. As such, partners find they must make significant up-front and ongoing investments that reduce their ultimate returns.
Moreover, vendors need to plan with their partners. Partners aren’t planners. Much of a partner’s success is opportunistic. As many as 60 percent of partners, according to 2112 research, don’t have business plans or growth strategies. By planning with partners, vendors can help instill some managerial and operational best practices that result in more positive returns for everyone in the value chain.
Vendors like to think great products are the catalyst of well-performing channels. Truth be told, partners need more than a product to motivate their performance. Data and planning are two ways of showing partners growth opportunities.
The 2112 Group is a specialist in channel research and strategy. Our analysts are experts at helping vendors develop channel growth strategies, optimized working relationships with partners, and development of channel enablement resources. For more information about 2112 services or to obtain a full copy of 2112’s 2017 Channel Forecast Report, send e-mail to firstname.lastname@example.org.