Marriage made in Heaven?

30 March 2006

Building a third party sales channel will help extend your reach, but it's a big challenge. How do you convince sceptical resellers to sign up - and how do you make them effective?

Are you ready to open up your customer database to your third party sales partners? Do you have a training programme that gets new resellers up to speed quickly - but without distracting them from their day job? And do you have a business proposition that actually makes new partners sit up and listen?

If the answer to any of the above is 'no', you may find it harder than you thought to build an effective third party sales channel. The tight margins that resellers operate under, combined with a tough corporate purchasing environment, mean that convincing third parties to work alongside you can be a big challenge. It's one thing to sign up a bunch of business partners - it's quite another to get them to sell effectively.

Relations between IT suppliers and their third party partners have long been volatile, impacted by the fast-changing dynamics of the industry and the differing interests of the players. Fifteen years ago, when the direct sales model had already taken-off in the UK, resellers could still make decent margins simply by doing little more than shifting boxes, be it software disks or hardware. Even then, however, relations between vendors and their channel partners were occasionally rocky, marred by disputes over co-operative pricing agreements, battles over lead distribution, and concerns about conflicts between resellers and vendors' direct salesforces. Today, the landscape has been transformed by years of relentless margin pressure, the emergence of new online and retail business models, and a subsequent shake-out of both the distribution and reseller markets. Many of the tensions between vendors and their partners, however, persist.

Neil Robertson, CEO of high availability and disaster recovery company The Neverfail Group, has more than twenty years' experience building channel sales through organisations such as Misys and Great Plains (now part of Microsoft). He argues that you have to be 'slightly schizophrenic' to run a channel properly because you're selling your idea to two parties - the customer and the reseller - with slightly conflicting interests. Not only do you need a product sold at a price customers are prepared to pay, you also need to offer the reseller something more profitable than they're already selling. In other words, you're not offering a product to the reseller - you're offering a business proposition.

When you're setting up a channel, this means recognising the dynamics of the sales model from the reseller perspective. 'The channel is pretty jaundiced about taking on new products, because about one in five succeed,' he says. With complex products and services, the reseller will often have to take experienced sales and implementation people off the road to learn about the product - and then hope that the salesperson will sell something quickly enough while the implementation team still remembers everything they've learned. So you need to have a good story - and you won't necessarily have a lot of time to tell it. It's not unusual to find that you have just fifteen minutes at the end of a business lunch to explain your entire product strategy and the channel proposition.

Tackling these kinds of issues may require a closer partnership than entrepreneurs expect. George Fletcher, marketing director of Multiplicity, has more than 25 years' experience in IT marketing, working at a range of companies from US-owned Nantucket Software (purchased by Computer Associates in the early 1990s) to Popkin Software (bought by Telelogic last year). He argues that some channel management techniques are relatively straightforward in principle. You need a good fit between the organisations in terms of expertise and target markets, and the product has to be state-of-the-art - large companies are pitched so often with different kinds of software that resellers need to be sure they're not pitching ideas that have already been rejected.

Increasingly, however, he also believes that the breadth and depth of the partnership will be critical, particularly when it comes to two-way information exchange and involving the reseller in marketing. 'In reality, there's always some degree of suspicion from both parties,' he says. 'The vendor is suspicious that the reseller isn't actually doing what it's supposed to do, and the suspicion for the reseller is that the vendor is not providing all of the information it needs and all the leads it could get. There's always a Chinese wall between the people who are part of the company and people who are part of the reseller - I've never really understood it.'

Ideally, he argues, channel partners should have access to the vendors' customer management systems, even if only on a restricted basis. He points to his experiences at Popkin Software, where the company's Australasian distributor worked increasingly closely with the company and was consulted on everything from white papers to product positioning. The more it became involved, the more successful it was. 'If you regard your partner as a resource within your company, you'll be successful,' he says. 'There is a level of integration that should happen.'

Neverfail, meanwhile, has rapidly expanded its own channel by keeping things simple. New resellers are asked to commit in principle to a 'Fast Start' programme in which sales, technical pre-sales and engineering staff all get certified within thirty days. There's also an understanding that the reseller will establish a sales pipeline within the same timescale for the company's Microsoft-based products and services. All of its business - from product distribution to training - is carried out online, and as a result the bulk of certification testing tends to be done by individuals outside normal office hours rather than distracting from their day-to-day work.

Neverfail also tries to make the reseller qualification process as easy as possible to minimise its own costs. In effect, it feeds off Microsoft's third party selection processes, only dealing with Microsoft-accredited partners. From that point, qualification comes down to whether the relevant employees can pass its online certification testing - and with a 45 per cent first-time failure rate on its exams, the criteria are stringent. Ultimately, by reducing its selection workload, it ensures that the size of the channel is limited only by the number of partners it wants to work with in any geographical area.

By Keith Rodgers, Webster Buchanan Research