Soft Economy? Strategies in Uncertain Times

April 10, 2008 at 11:21 pm Leave a comment

By Diane Krakora

We recently gathered 20 or so people from 18 companies to discuss partnering strategies in a soft economy.  We opened the discussion with channel executives from companies such as Adobe, BEA, Google, Intuit, NetApp, Oracle, Sun Microsystems and our host, VMware, by asking how they were planning to leverage partners differently in the economic downturn.  And after a few minutes of blank stares, we realized we asked the wrong question. The initial question should have been are you seeing an economic downturn? I’m a little perplexed by the mixed signals I continue to receive.  Most of the participants indicated their revenues were still growing and they continue to invest at pre-downturn levels. I don’t know who is exaggerating or if we’re just waiting for the shoe to drop, but when I turn on the evening news every night, they tell me the sky is falling. I’m not one to play chicken little,  but which is it?  Strong sales and profitability in the technology sector or recession for average consumers. And, can we be having both? Are we just talking ourselves into a recession or is it just around the corner and the tech companies aren’t  feeling it yet?

With that question still very much unanswered, we pressed on to discuss how these vendors were engaging partners differently in 2008. Three themes emerged.The first and most prominent theme was to focus more specifically on where the vendors were spending their channel budgets. The consensus was that the budgets to engage, empower and manage partners were not decreasing, but where those monies would be applied was undergoing greater scrutiny. A general direction voiced by the attendees was to move the funding for partnering program deal registration, MDF, partner-to-partner collaboration –  back to a contra-revenue model, away from relying on operating expense funds (marketing dollars). To be able to apply the funds in a more focused way the attendees were concentrating more in 2008 on profiling the partners.  Knowing their partner community, their target markets, size, staffing capabilities, product sets, technical specialties, sales strategies and business profitability models, allows the vendor to select specific initiatives for targeted partner characteristics. Is a partner capable of generating new business or servicing a specific set of customers? Is a partner a generalist and thus can sell and support a broader spectrum of solutions or are they specialists, with deep knowledge on just a few technologies? The attendees indicated this type of deep profiling allowed them to conduct better business planning with the partners and measure each partner on specific success metrics such as net-new customers, driving a total solution or customer satisfaction.

The second theme of change that emerged was a broadening of the types of partners engaged. This diversification included managed service providers and a focus on small and mid-sized businesses. However this year there seems to be more distinction and segmentation between small and mid-sized businesses. This was evidenced as we heard the attendees say mid-market partners and small  business partners’ more than just lazily lumping these diverse customers and markets into one SMB category.

However broadening the type of partners engaged made some in the room very nervous. Many vendors already see upwards of 90% of their sales driven by 10% of their partners’ and the remaining 10% of partners barely producing any sales. When plotting per partner sales this would graphically look like a spike rather than a long tail.  The long tail partners enrolled in the program but producing few sales concerned many of the participants.  Those partners draw resources from the vendors, and those resources are being wasted. This relates back to the first theme of focusing resources more specifically.  How can you support a long tail of partners drawing resources and not producing sales and balance that with trying to spend budgets in a more focused way? Partner-to-partner networks were suggested as a potential way to address the long tail.  Several attendees believed that helping partners work together to build repeatable and scalable solutions could reduce the length of the tail.

The third theme on what vendors are doing differently in the soft economy was a return to focusing on building great products and enabling partners to deliver services. In theory that sounds great and just what the vendors should do. Let the partners provide consulting, installation, configuration and support services for the solutions they are selling. This is what several of the attendees who reported strong sales were planning for 2008. However in a soft economy (if we’re  having one), I don’t  believe this strategy of focusing in on building great products will come to bear. When (and if) times get tough, the vendors will be looking for every dollar they can find. And the fight over high margin services will propagate between vendors and solution providers.

We closed the session with a discussion of challenges the audience felt they were facing in 2008. What is keeping them up at night? Time seemed to be the enemy of most in attendance. Time to launch a new program. Time to prove the value of partners to executive management. Time to educate field sales on partner value before they are dropped. And just the overall pace of business in 2008. Not enough time. Time is tough, even if these executives didn’t think the (economic) times were tough.

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Entry filed under: Industry Perspective.

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