Solution Provider Profitability Isn't Just The Vendors' Responsibility

At last week's XChange 2004 conference in Chicago, we gathered 125 vendors and more than 325 solution provider organizations to debate these issues over four days of meetings, seminars, presentations and private discussions.

While there is always plenty of debate around what vendors should do, we ought to focus more on what solution providers need to do.

I don't have any statistics on just how many solution provider organizations were started by technically astute individuals compared to those founded by people with a business background. But based on my 20 years of covering high-tech channels, my educated guess is that most were started by those with technical backgrounds. And as we all know, it's a combination of technical and business aptitude that makes for a successful organization.

Wherever your expertise lays, there is vastly more opportunity to acquire ongoing technical training than there is to get business training. As important as your technical capabilities are, in the end it's your business savvy that will be responsible for your profitability.

From a vendor perspective, Cisco has done more work in the area of partner profitability than any other supplier I know of, all with the objective of helping its partners become more profitable. Cisco is correctly betting that a more profitable channel is better for the company. I couldn't agree more, but it isn't entirely up to the vendor community to tackle this issue.

And, by the way, profitability isn't just an issue of better margins on product sales.

Sure, better product margins are good for everyone, but margin degradation is something that is often a condition of the free market system. It frequently lies outside the control of solution providers and vendors alike. What is in your control, however, is the ability to structure your business properly and invest in areas that will drive sales and profits.

Are there things vendors can do better to help? I've often said they ought to take the money they waste generating sub-par leads for the channel and use that money elsewhere. Trouble is, solution providers continue to ask for leads when vendors solicit feedback on what they can do for the channel. In the end, there is only so much money that can be invested by vendors; money that goes to collecting leads is not going to be spent on other areas. You need to stop asking for leads, in my opinion, and instead ask for access to business training.

CMP's Institute for Partner Education and Development (IPED) recently launched an elite MBA program for solution providers in conjunction with Babson College, which has a very large entrepreneurial study program.

As part of our recent on-campus training, IPED and Babson ran a simulation study where groups of solution provider students were involved in an exercise of building a company. The eye-opener for most of the participating solution providers was the realization of how important marketing is to the success of a company. In a maturing market, how you position yourself often makes the difference in whether a client wants to engage with you or not.

My point is that your profitability could be increased through an understanding of what you can do better as a business owner and by your efforts to become familiar with some things you may not be doing at all. In the end, we can't blame the vendors for all the profit issues in the channel. In any case, it's up to you to fix it.

Make something happen. I can be reached at (516) 562-7812 or via e-mail at [email protected].