Rules of Enragement and Other Partner Pandemonium

The night of the seminar arrive and I headed over to Cambridge. By the time "HyperLink" officially started that night, the seats in the conference room were full and people were actually standing at the back of the room. I'm terrible with numbers, but I'm guessing there were more than 50 but less than 100 people in attendance. I was pumped up but at the same time quite tense. I hadn't actually spoken in front of a crowd since playing a tyrannical school teacher in a fifth grade play on Christopher Columbus, so this was somewhat new to me.

I was in good company, however. My fellow panel members included Colleen Shea, director of marketing at ChannelWave, a partner relationship management software company based in Cambridge; Matt Rath, channel sales manager of PegaSystems, a business process automation software maker also in Cambridge; and Jeff Weiss, founding partner of Vantage Partners, a Boston-based firm specializing in business relationship consulting services.

The seminar began with John posing a simple question: Is the channel more valuable in a soft economy or less? It wasn't until later on in the discussion that we really got to the bottom of that riddle. At first, the panel members discussed common partner pitfalls and ways to build successful relationships. Here are some of the more popular topics and discussions:

Rules of Enragement

It never occurred to me how ridiculous the current trend of vendors rolling out so-called rules of engagement is until I was sitting on this panel with dozens of solution providers in front of me. Jeff brought up an interesting point early in the discussion about how channel partners need to develop a road map with their vendors right from the beginning to figure out where, when and how the reseller is going to play. Thus, you devise rules of engagement first, and then you go to market. This isn't how it works, however, which is why I've re-dubbed this trend the "Rules of Enragement." Vendors usually wait until things get so bad with their partners that they can no longer ignore the horrific problem of channel conflict.

Two examples illustrate this quite well: Hewlett-Packard and Microsoft. By most accounts, HP's Hard Deck policy has been successful at reducing channel conflict by names exclusive accounts for VARs. But the Hard Deck was implemented only after partners got so fed up with competing with them for enterprise business that many solution providers took their business elsewhere. The same goes for Microsoft. Once a model of channel success, the company waited until partner complaints were so loud that the company was forced to create a partner playbook to keep Microsoft Consulting Services from stealing solution providers' business. So the lesson is if partners get enraged enough about channel conflict, the vendor might actually solve the problem and come up with rules of engagement--something that should have been step one.

Human Touch

Colleen said despite the hype around PRM software, technology wouldn't solve all the issues of building a successful partnership (a very candid point considering she works for a PRM vendor). The two companies must establish an ease of doing business to make the partnership works, she said, and that comes with building solid relationships between the people involved. A vendor's channel managers should be familiar faces--not revolving doors--that the partner can get to know and trust. There should be a constant open line of communication between the two sides as well.

In talking about channel managers, I brought up a point for the vendors in the audience, of which there were some. The advice was to never, ever put someone whose background is in direct sales in charge of a partner program. You must trust me on this. It doesn't work. Managing your own employees and dealing with independent companies are two vastly different arts. Mixing the two is like drinking tequila and Guinness and then wondering why you woke up with your head in a public toilet the next morning. A vendor that is serious about building a successful partner program must get the right people to lead, people that understand the channel's needs and wants. Anything less than that will end in failure.

Dangerous Deals

Many audience members inquired about how to set up a partnership once the solution provider gets the attention of the vendor and they agree to meet. All four of us on the panel cited the importance of doing homework before going to the negotiations. Solution providers have to have a clear idea of what they want out of the relationship because you can be sure the vendor knows. The vendor might offer lofty revenue goals or very loose contract terms, Jeff said. This could leave the partner in a very undesirable position if the vendor begins to tax for missing sales numbers or decides to charge the partner more for reselling rights. Matt stressed the magnitude of learning the technology involved and knowing exactly what kind of solution the partnership can bring to market before you sign off on a relationship.

All of this sounds incredibly obvious, doesn't it? It seems like simple logic and the stuff that we all learned in grade school. Learn to crawl before you walk, and so on. But people get caught up in the hype and they lose focus. They get so excited about a powerhouse partnership that they just have to rush the deal and make a big announcement so that Wall Street gets buzzed and sends their stock price soaring. This kind of process neglects the technology involved, which is supposed to drive the alliance in the first place.

The best advice we had as a panel, I believe, was telling smaller solution providers looking for traction with big vendors to start with the technology. In other words, target a specific vendor with compatible technology, concentrate on that vendor's product line, and develop a turnkey solution for the product that will add value. Having a tangible solution ready to go will help get the vendor's attention when the VAR inquires about partnering. And after the solution is demonstrated to a customer or the vendor itself, both sides will have a much clearer vision of the potential market for the solution and opportunities of the partnership before the negotiation stage. Again, obvious stuff, but you'd be surprised about how much of this information escapes people in today's cutthroat, hyper-paced industry.

Marketing Madness

My favorite moment of the night came when one of the audience members suggested a method for building a successful partnership: start by keeping the relationship simple and limit activity to joint promotions and advertising, measure the market interest that comes from the campaign and then work your way up to developing and deploying actual solutions. In other words, begin with a marketing alliance. That way, he reasoned, the two companies involved won't spend a lot of time and money building something that won't be fruitful for either the vendor or the reseller. Not a bad idea, I said, except that with no matter behind the alliance other than billboards, commercials and trade show booths, you end up with a "press release partnership" and those rarely go anywhere. I gave an example:

"Does anywhere out there remember B2BX3?" I asked. Before I could elaborate and mention the names of IBM, Ariba and i2 Technologies, several audience members chuckled. They knew.

"B2BX3" was an alliance formed in 2000 between Big Blue and the former B2B software powers Ariba and i2. The objective of the once-famed alliance was apparently to combine the best parts of the three companies to provide an end-to-end B2B solution for enterprise customers. And boy, did the trio promote the hell out of this alliance. I think I saw more advertisements for B2BX3 than Fox's "24" during last year's World Series.

The problem was B2BX3 never went anywhere. The alliance crumbled pretty much before it got off the ground because Ariba and i2 were competing for the same territory, and while IBM could offer powerful support from its Global Services unit, the technology giant didn't have any B2B software of its own. So this dysfunctional family had no real business being together, and I think they realized this fact. The three companies went off in their own directions and soon, we began to see less of "B2BX3."

By the time the B2B software market collapsed in the spring, with Ariba, i2 and fellow B2B power Commerce One hit with dreadful quarters and layoffs, the alliance was officially over. And I can't think of one single "B2BX3" customer. Not one.

I told the audience that marketing alliances such as these remind me of all the times I see a great movie trailer or preview and get really excited for the movie only to find months later that the actual film is crap. The audience laughed again. Public speaking isn't so bad after all.

As the questions continued to roll from the audience, I began to notice a trend. Many of these people seemed perplexed as to why vendors had become so nasty to the channel. Even after the seminar ended and the quickest two hours of my life came to a close, I was still turning the riddle over and over in my head. It came back to the question John posed at the beginning of the seminar: Is the channel more valuable in a soft economy or less?

For solution providers, and even some vendors, this is a no-brainer--the channel is more important. For a lot of vendors that are trying to trim their budgets and keep costs low, the channel is ideal. Partners serve as an extended sales and integration force for companies that usually have to reduce their workforce in a recession. It's the same model for a lot of software start-ups. In the early stages, an up-and-comer will court solution providers because they channel is really all they can afford. They simply can't grow quick enough alone because they don't have the money to build a super sales team overnight. In addition, the channel adds value. Solution providers often bring technological expertise, market knowledge and a proven customer network to the table for vendors.

But it began to occur to me that a soft economy or recession isn't exactly the best environment for the channel. In fact, it's the worst. That may sound like a completely obvious statement--of course solution providers suffer when the economy goes south--but the reasons were different than I previously thought. Sure, the channel took a hit because in a recession customers pull back their dollars for IT spending. But there's more to it than that.

If someone were to hold a gun to my head and ask for a definitive answer to John's question, I'd say the channel is less important during a soft economy. It's not because I truly believe it's less important, but rather because many vendors believe it's true. Take any large, brand-name vendor. Blank vendor is a multibillion dollar corporation with thousands of employees and customers. It's a publicly traded company which means, first and foremost, it has an obligation to its shareholders, which also means its primary objective above all others is to make a profit. If selling direct and cutting out its resellers will do that, believe me, the company executives will do it without a moment's pause. If it can earn more money by building its own consulting force and ditching the channel, then the company will jump on it like a hawk on a prairie dog. In a soft economy, companies look for any way possible to reduce cost and maximize the bottom line. And sometimes vendors think the way to do that is to scale back on the channel, reduce investments in their partner programs and sell more of its product direct. Again, I think it's the wrong move. The channel adds value (see "value added reseller") and brings vendors to places they usually cannot penetrate. But hey, I don't run billion dollar software companies. I just write about them. But what I've seen lately proves my thesis.

A lot of vendors out there have IBM envy. They want to have the number one IT services firm in the world and make tons of money selling their software/hardware and then make even more money integrating and deploying the stuff. But here's the catch--even IBM, with more than $33 billion in annual services revenue, sees the need for a channel. And it's not just an ordinary channel. IBM PartnerWorld employs tens of thousands of resellers, integrators and ISVs. No company is an island in this industry.

Yet the problem persists, and I'm not sure why. Maybe it's the competitive nature of this industry. Perhaps it's simply the nature of capitalism. But I do know this--the economy is cyclical and when the upswing comes either this year or next and it's time to expand territory again, these vendors will woo VARs harder than Major League Baseball teams pursued Alex Rodriguez. They'll wine and dine. They'll give mea culpa. They try anything to get VARs in their corner again. And they're going to be hoping, wishing, and praying you, the solution provider, forgot all about their misdeeds when the economy was soft. So my advice is this: don't forget. And watch your back now, because there isn't a single vendor out there that would hold its so-called loyalty to the channel higher than the potential to increase profit margins by going direct and leaving its partners out in the cold.

And my advice to vendors is to think long and hard before they jettison the companies that got them to where they are today. Because the channel isn't going away, and if you shun your solution providers, they'll likely end up in the arms of your competitors.