What Is Vendors' Role In Raising Solution Provider Profitability?
For those of you who may not have met Day and/or Watson in person, both are passionate about the channel. They clearly enjoy working with solution providers, and given the importance of the channel to Microsoft, they are in highly visible and influential positions in the company.
Day is focused on partner profitability and believes we ought to strive for a channel that defies the failure rate we see in small business as a whole.
I haven't checked government statistics lately, but we all know the number of small businesses that fail each year is very high, especially in the first year of operations. Day believes the industry ought to make a real effort to push that number much lower in the channel than it is in business overall.
I agree. In fact, it is one of the reasons the CMP Channel Group launched the Institute For Partner Education and Development, where part of what we do is educate solution providers on how to run more successful businesses.
Although it's not unheard of for vendors to cite partner profitability as an area of concern, it is rarer than it should be. It's been my experience that this is never a concern of vendors that have a significant direct-sales effort.
For that reason, it is particularly encouraging to hear the issue addressed by a company like Microsoft, which has the resources to make a difference.
To be fair, Microsoft is not the only vendor that has brought this up. Cisco, for one, has focused some real resources on the issue.
The question I posed to Day was, Is it realistic to expect the channel to beat the odds and achieve a high success rate?
CMP Channel Group studies show that the average VAR has been in business more than 11 years. I don't have statistics on what the failure rate is, and this is an area in which we need to do more research. CRN has done some basic research around the financial operating performance of solution providers in an attempt to determine the makeup of successful VARs. Needless to say, studies such as this are difficult to do because most small private companies have little desire to show their financial data.
In a few weeks I will be closeted away for three days with a group of solution providers as part of our yearlong Channel Elite MBA program, which we run in conjunction with Babson College's Entrepreneurial Studies program.
We'll go through a business simulation in small groups over the three days, which is always an eye-opener for all involved. The simulation deals with all issues related to running a business and shows the value of marketing—something that is often overlooked by small businesses.
All this talk and effort means solution providers should be excited about the growing focus on making the channel more profitable.
But it's important to remember that profitability is more than simply margin. We also need to look at how a product or solution enables attachment of other products and services.
Running a more profitable business also means thinking about how marketing can drive top-line revenue, which in turn allows a business to scale and get higher margins on escalating sales.
If more vendors focus on this issue, then maybe we will see a business success rate in the channel that is higher than government statistics tell us the overall average is. It wouldn't be the first time high-tech showed the world there is a better way to do something.
Make something happen. I can be reached at (781) 839-1202 or via e-mail at [email protected].