Channels Within The Channel

More than half (56 percent) of the VARBusiness 500 does up to 24 percent of their business through partners or subcontracting. One-quarter does up to 50 percent of their deals with peer cooperation. And an amazing 12 percent conducts between 75 and 100 percent of their transactions and extended engagements with or through intrachannel partners.

Historically, VARBusiness' annual State of the Market surveys have found that solution providers earn between 20 to 25 percent of their revenue through peer partnerships. The level of partnership activity among the VARBusiness 500 reflects its importance in both closing and fulfilling product and services deals.

Nowhere among VARBusiness 500 companies is this principle more true than at SoftwareONE (No. 146), which does an astonishing 70 to 75 percent of its business through partnership. Intrachannel partnership is "the cornerstone of our business" and the driving factor behind its 34 percent growth in 2006, says Keith Ackerman, the company's CIO and vice president of marketing.

SoftwareONE is somewhat unique, in one respect: Its partnership model is to take work from prime contractors, not to act as a prime. SoftwareONE started as a Microsoft large account reseller, and gained expertise in developing software solutions and managing software licensing.

The company doesn't develop accounts or try to take ownership away from the primes; it simply acts as an agent that provides the necessary software support that adds value to the prime contractor's business.

Skeptics may say that partnership enables a competitor or rival to grow its business at your expense, or that collaboration and cooperation actually limit your ability to grow your business later.

"The key to any partnership is knowing who is doing what in the relationship," Ackerman says. "We're not out to steal their business, so our partners often relinquish more business to us." n

Partnership Best Practices

Nearly all of the VARBusiness 500 companies are engaging other solution providers to extend their technology, geographic or vertical market reach. Nearly one-quarter of the largest solution providers in North America do as much as 50 percent of their business through partners.

Intrachannel partnerships are a tremendous way to augment resources and add value to customer engagements. And choosing the right partners isn't trivial. Solution providers who rely on partners say that finding the right partners and developing trusted relationships is essential to a partnership strategy.

The following are partnership best practices recommended by solution providers experienced in intrachannel partnering.

1. Seek complementary partners. You want partners who can deliver technology skillsets and vertical practices that you either don't have or are unwilling to develop. It's often less expensive and more profitable to partner than to build a new business practice.

2. Know your partners. Your partner isn't a separate company; they're often representing your business to the customer. Get to know their history, management, finances, operational/business philosophy and culture, and extended relationships with vendors and customers. You should only partner with companies that share your values and work ethic, and have a sound reputation.

3. No one-off relationships. Reward good partners for solid performance and value-added services by having an ongoing relationship. Partners don't often bring new business into a relationship, but they will deliver high-quality work if you continue to deliver business to them. The quality of work often varies with one-off relationships.

4. Define the relationship. All partnerships should delineate each party's scope of work, expense and revenue responsibilities, and liability for mistakes and shortcomings. Partnerships should also have noncompete agreements to limit conflicts and exit clauses for when the partnership is no longer needed.