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CRN: Do you think the economic conditions of the last few years have contributed to that, in the sense that there just isn't enough good financing options for the channel?
Gilroy: Yes, I do. And I think the move to the cloud has exacerbated it. I personally think that in particular the entrepreneurial partners worry about the balance sheet more than anything else. When they wake up in the morning, the P&L is the second thing they worry about. The first thing they worry about is cash -- making payroll, making rent and preserving cash. Entrepreneurs in general, not just in the channel, are cash conservationists by their DNA. That's what makes them entrepreneurs. So I think in the cloud, and in fast-growth partnerships like with SAP, we need to figure out with partners and potentially with distribution what the playbook is today for capitalizing the channel. The traditional way of capitalizing the channel would be getting credit lines through distributors. But with complex software that's a little bit more complicated.
CRN: Are distributors interested in changing that model? It seems like IT distribution has its sights set on the cloud and becoming cloud aggregators. Do you think they're interested in the software?
Gilroy: I do, and I think their models are going to have to evolve. I think financing is going to be more important. As opposed to a few years ago when logistics was their core competency, today distribution is evolving to where logistics is still core but financing -- creative, flexible financing -- becomes even more critical than the physical logistics.
CRN: Once you've identified healthy balance sheets, what's next?
Gilroy: Well, recruiting isn't the cheapest thing in the world. It requires you to be more diligent about who you recruit. We use objective analysis and some subjective analysis to go through a number of lenses. The first lens is about whether or not the partner has the technical competency, the vertical expertise and the market presence that we're looking for. Yes. Then, do they have the balance sheet, the cash, and the financial wherewithal to be able to stand up an SAP practice and make investments? Yes. Then you get into the subjective stuff. Does their leadership team have scalability? Do they have vision? Do they have risk profilers? And you get through those lenses and you start having a much higher ROI on your recruitment instead of just signing up anybody and seeing who sticks. Recruitment is just too expensive and time-consuming to do that.
CRN: But with all that analysis and filtering, do you have to devote more people to the process?
Gilroy: Not really, no. It actually frees up people because what we used to do is sign up everybody, and then eventually purge a lot of them. And then you have a bigger problem that takes up even more people; the channel could get a bad reputation. Let's say you sign up Partner A, you put them out into the field, and then they don't deliver or don't know how to make a sales cycle or don't make investments ahead of revenue. Well, then our field teams say, 'Who they heck is this partner? This partner stinks!' And then they start saying, 'The channel stinks. They screwed up this deal, they can't run sales cycles, they're not creating any demand, and they rely on us to do everything.' Then I have to defend the channel. Experiences like that taint the whole channel for some people. There's a lot at stake when you're spending around $150,000 per partner on recruitment, sometimes $200,000. And it's not just the financial loss for the partners that wash out. It's the reputation of the channel internally.
But now we're going in with new recruits that are really serious partners and can be off-payroll extensions of us in the market. So there's a whole bunch of reasons for doing it. And you don't have to put more people on recruitment; it's just the opposite. If you have higher productivity, you have higher yield.