Profit By Upending The SMB Channel

By Richard Chambers, President, America’s Return Inc.

Economists have an expression — “pushing on a string” — to refer to an influence that moves things in one direction but not another. Engineers know that if you pull on a string, rather than push it, you’ll get a connected object to move. So why does an IT channel filled with engineers and economists continue to act as if vendors can get end users to move closer to them by pushing on the distributors and resellers who are the strands of its channel string? Let’s look at how all the parties can pull together to succeed in the SMB channel.

Vars and MSPs are in tune with SMB customers opting for a mix of on-premises hardware and cloud services in hybrid IT environments. Most VARs are committed to a path of progress that has them increasing their cloud offerings. Meanwhile, MSPs that have more completely disrupted the traditional IT hardware channel still find their optimal profitability occurs when product sales are as high as a quarter of their revenue. OEM vendors and distributors are adapting with more service offerings while trying to be as sticky as possible with their traditional SMB product channel. But there’s a lag in repurposing the tactics that worked well with enterprise partners. The better that VAR/MSP executives understand the SMB goals of the vendors, the strategies of the distributors, and the limitations of competitors, the more they can leverage channel resources to their advantage. Let’s look at the industry model of how vendors and distributors aim to win your business, how those plans often appear aligned against you, and what you can do to win support to grow your business.

HERE’S HOW THE CHANNEL WISHES IT WORKED

• VENDORS. To grow, vendors see the massive SMB market as key, relying on their reach of small VARs and MSPs who can sell servers, storage, and networking offerings composed for hybrid IT settings. Because of the sheer scale of the market, vendors turn to distributors who have broad coverage with these partners.
• DISTRIBUTORS. Vendors invest in the distributors’ marketing programs to promote their brand and engage with partners. One common approach is to staff a group of product management funded heads—distributor employees who exert influence internally and with partners. These champs function as a vendor extender providing education and configuration/quoting services and are potentially the partner’s best resource for growth.
• VARs/MSPs. Vendors invest in technical education programs to enable the partners to pursue opportunities competently. Getting certified through live classroom instruction or online gains you access to partner program benefits. The vendors reward upward progress in partner program levels with additional investments in frontend discounts, back-end rebates, demo gear, etc., to incentivize the partner to create pipeline and close more deals.
• SMB END USERS. Finally, vendors invest heavily in demand generation programs reaching out to prospective end-user customers through call centers, digital marketing campaigns, and events, making the discovered leads available to prime the partners’ pipelines.

You will see this model in nearly every two-tier distribution channel operation, with different product manufacturers and software vendors offering minor variations. Vendors have woven the strands of this model into a unified string running from their closest distributor partners to the resellers they are to influence, and beyond to include the end users upon whom the entire channel depends. Resources are invested in the channel — pushing on a string — in the hope of getting enough of you SMB-focused middlemen to seize the opportunity and move the end user. However, successful momentum relies on another famous economic force: Adam Smith’s “invisible hand” of self-interest. If you don’t feel your interests are being served with the current model of channel sales enablement, it’s time for you to get a grip on how the system really works and act for your own gain.

HERE’S AN UNFORTUNATE REALITY

• VENDORS. They face a relentless trend toward commoditization along with stiff cloud-based competition, resulting in lower margins, hence tighter MDF allocations and narrower dispersal of funds beyond the highest-medallion partners. This constrains the budgets available to distributors tasked to reach the broad SMB partner base.
• DISTRIBUTORS. They run a basis-points business and need vendor funds to profitably engage in enabling partners. While all have the best intentions, vendor-funded heads often become quote machines churning out bills of material that are valid configurations at a technical level, but are produced at a pace that often leaves little time for assessing their appropriateness to end users’ desired business outcomes — hence, stalled deals. Any free time for these subject-matter experts (SMEs) is often spent managing traffic on partner certifications, deal registrations, or compliance on demand generation programs. These talented champs — potentially available to assist your enablement —are often in a self-perpetuating cycle of trying to hit revenue targets to support back-end funding upon which their own salaries rely. Further, distributor salespeople can be tempted to look at the vendor funding buckets as piggy banks for grants to cover price reductions on deals, despite those investments having been made to enable a channel to sell the vendor’s value message.
• VARs/MSPs. The premier-level partners—the ones that don’t need a lot of enabling—are the typical beneficiaries of the lead programs, a legacy of enterprise-level programs where rewards are handed out to a very small set of highly certified partners. Conflicting with the vendor’s goal of increasing SMB breadth is this fear of risking hardwon leads by handing them over to entry-level partners. However, it doesn’t take a deep scratch under the surface to note that smart reps getting the leads know how low-hanging fruit retires this month’s quota. Leads which require longterm nurturance may be neglected, even though the end users are often at an early stage in their buying journey and therefore more likely to be candidates for a partner’s professional advisory services. Meanwhile, a nonpremium level partner eager to perform those valuable assessment services may be hesitant to invest in a vendor’s technical certification program because of slow ramp-up time or fear of losing employees once trained. Even when the partner staff gets their diplomas, and perhaps some leads, the graduates may still lack the solution sales skills to appeal to executives or to know how to pitch recurring revenue in a hybrid IT solution.
• SMB END USERS. Those who have expressed interest in a vendor’s solution but are in an early decision stage may be neglected or mishandled by untrained reps, resulting in inaction or opting for a different vendor who has offered them a better customer experience.

The result of these miscues is a discouraging ROI on the vendor’s SMB breadth initiative, a reduced appetite for greater funding of that pursuit, lost opportunities for SMB VARs/MSPs to profit, and an increased concentration on enterprise and high medallion partners. But just as you disrupted the way users engage with IT, it is in your power to make the SMB channel work better at all levels.

HERE’S HOW TO MAKE THE CHANNEL WORK FOR YOU

You can become the force that reforms how the channel approaches partner enablement for SMB breadth. It starts with a vision of how the channel might better achieve its aims through you and requires that you act to influence the vendors and distributors toward engaging with you seriously.

• VENDORS. Look for vendors that aren’t just pushing money into the channel for traditional programs hoping to influence end-user behavior. Seek vendors who pull the end user through the channel into the vendor’s fold, through support for demand generation programs, partner certification programs based on delivering business outcomes, and distributor resources equipped to support a solution sale beyond price/availability quotes. Most top-tier vendors can provide this kind of support for you if you are prepared to make matching commitments. Perhaps you now insist that a vendor-agnostic position better fits your trusted advisor narrative, but that stance comes at a price. You can certainly remain responsive to end-user preferences, but unless you have the scale to pull off multiple-line expertise at high partner medallion levels, you will remain in vendors’ peripheral vision, an unlikely target for discretionary vendor support.
• DISTRIBUTORS. Assess your distributors’ resources for creating net profit for you in more ways than simply lowering your cost of sales. Certainly, make wise use of web pricing tools, but recognize that an aggressive lowest-price approach will freeze you in a vendor/shopper relationship, held at arm’s length. On the other hand, a strategic relationship with your distributor can offset a few acquisition basis points. You may gain revenue by participating in free marketing campaigns or by engaging in special invitation events with influential vendor staff. You might also reduce operating expenses by outsourcing some of your internal processes for marketing, engineering, logistics, and credit through partner loyalty programs. These benefits, as with those from the vendor, are best found through a loyalty commitment to a distributor attentive to your needs.
• VARs/MSPs. Make a case to your distributor and vendor reps that completing the certification programs beyond the entry level should be rewarded with leads from the vendor’s demand generation programs. Commit to a solution sales or lead nurturance training program if a vendor offers one, or trumpet your own firm’s willingness to work the hard leads, not just the easy ones. Grill your distributor to find the SMEs aligned to your solutions, so you can pursue opportunities together. Focus on sharing deals early in the end user’s buying journey. After all, most MSPs’ conversations are on topics so far in advance of hardware acquisition that you will have little competition for deal registration. The biggest gain from the disty SMEs, though, is the knowledge transfer. Rather than your company’s buyer having the primary relationship with a distributor sales rep, forge the connection between your solution sales reps and the distributor SMEs. The mentorship creates vendor “champs on the cheap” in your organization — a marker of high worth in the very subjective eyes of vendors and distributors picking partner investment targets.
• SMB END USERS. Be cognizant that demand generation programs typically fail to penetrate beyond a superficial level of BANT-qualification (budget, authority, need, timing). Lead generation is often a brutal, thankless task performed by thick-skinned call center reps, who are so relieved to have live conversations that the remotest interest is taken as a potential opportunity. Your job is not to dismiss these efforts, but to get to work with a sharper assessment. Should you be offered some sample leads, pursue them at a higher executive level; ratchet the deals back to better define requirements rather than push forward with superficial quotes. I tell my student reps to hunt for “The Good, The Bad, and The Money”: the desired positive business outcome, the current frustrating conditions, and the financial implications of each. In the worst case, your report back to the vendor will mark you as a partner worthy of additional at-bats.

Help yourself by helping vendors achieve SMB breadth goals. Commit to nurturing leads that have been pulled in your direction. Pull opportunities into your distributor SMEs’ pipeline for trusted advice on solving your end users’ needs, rather than just for seeking quotes on price/availability. Learn your vendor channel reps’ names, and demonstrate to them your will to grip the string and help pull. The result will be better ROI for the vendor, justifying increased investments in distributor SMEs, solution sales enablement for partners, and broader demand generation aligned to you. And you will be better-equipped to profit in hybrid IT with satisfied long-term customers, the basis for recurring revenue

DR. RICHARD L. CHAMBERS is the president of America’s Return Inc., provider of The S.A.L.E.S. System, an SMB channel sales development program helping OEMs, distributors, VARs, and MSPs sell solutions with higher profit in less time.