About-Face: Security Start-up Cuts High-Profile Channel Chief

Palo Alto Networks, which last fall recruited Trend Micro's channel chief to come to the start-up and help it roll out a major channel push, has abandoned that push and shown that high-profile channel executive the door after just three months on the job.

Nancy Reynolds in October joined network security vendor Palo Alto Networks to head channel operations after leaving a position as vice president of channel and SMB sales for the Americas at security giant Trend Micro. But as the economic picture grew darker in the fall, Palo Alto Networks' venture capitalist backers grew nervous.

The decision to eliminate Reynolds' position of full-time channel chief was not made lightly, said Palo Alto Networks CEO Lane Bess. Bess, who will take over Reynolds' job functions, said that the decision to eliminate the channel chief position at Palo Alto Networks was made in response to growing concerns from venture capitalists funding the Sunnyvale, Calif.-based start-up, who felt that the company's channel wasn't growing fast enough to warrant a global channel leader of Reynolds' caliber -- and salary -- despite the fact that Reynolds' was hired to recruit partners and build a channel program.

"One thing was really clear. In the current economic situation, we're not scaling to the level of Nancy's considerable talents," Bess told Channelweb.com. "The things that Nancy has to do to help Palo Alto get to the next stage are so much smaller and such a lower utilization of her time right now. It really comes down to, 'Are we going to fully utilize Nancy's time and her as a resource at the stage we're in in terms of channel size?'"

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Probably not, venture capitalists at Greylock Partners, Globespan Capital Partners and Sequoia & Capital told Palo Alto Networks. So far, Palo Alto Networks has received at least $64 million in venture capital funding.

The network security company is still a start-up with a total of 78 partners in North America, 25 of which are generating the bulk of the business. Despite Reynolds' termination, Bess said that he planned to grow the company's channel. Throughout 2009, the company is aiming to recruit at least 35 more partners.

Reynolds first worked with Bess at Trend Micro, where Bess was executive vice president of global sales. Bess left Trend Micro in July to head the up-and-coming Palo Alto Networks. Two months later, Reynolds shook up the channel when she announced that she, too, was giving up her five-year career at Trend Micro to join Bess at Palo Alto Networks -- a company that was starting to turn the heads of reviewers and bloggers alike in the security community-- in a collaborative effort to launch its channel program.

"She was excited about building on what we did over at Trend Micro," Bess said. "She called me. We talked. And I said, 'I'd love to have you help out at Palo Alto.'"

At the time, Reynolds thought the move would catapult her career from the Americas to something more global in scope. "It's time for the next step in my career," Reynolds told Channelweb.com at the time of the move. "I want to make a difference no matter where I go."

But in light of a plunging stock market and rapidly dissolving lines of credit, venture capitalists soon began to scrutinize the funding they allocated, and IT start-ups were increasingly required to account for every dollar they spent, Bess said. The VCs suggested that the company eliminate Reynolds' official role as a full-time employee to reduce headcount and costs. Also in an effort to streamline the business, Palo Alto Networks made a 10 percent cut in December, which included the elimination of a few sales and clerical positions, Bess said.

"The current venture community, as a whole, is dealing with something they've never dealt with before," Bess said. "In that environment, there's acute attention within the venture community to make sure they're maximizing the utilization and intelligence of the hires they make."

And, according to Bess, one channel leader for just one small start-up didn't seem to be a prudent use of VC investment dollars.

For his part, one Palo Alto Networks channel partner said Reynolds' departure shouldn't change how they deal with the security start-up. "We're sad and sorry to see Nancy go, but from a day-to-day basis, our relationships are with the regional channel folks," said Babak Pasdar, CEO of Bat Blue, an IT security and communications consulting firm based in Clifton, N.J. "Changes happen, quite frankly. I don't think any one person is going to stop the Palo Alto momentum, period."

Another partner said that regardless of the channel snag, as long as Palo Alto product quality remained strong, he would continue to do business with the company. "If our clients weren't pleased, we wouldn't be pleased," said Jim Vanderzone, owner and vice president of sales for Sun Management, based in Arlington, Va. Palo Alto Networks "delivers on the stuff they were bragging about," he said. "The marketing meets engineering with these guys."

But in an effort to retain Reynolds, Bess negotiated with VC firms to leverage her skills across "multiple portfolios." Reynolds thus far is slated to work in a consulting role on a contractual basis for several start-up companies -- including Palo Alto Networks -- to help them cultivate their channel programs. "The joint recognition is that there's probably more she could do," Bess said. "[The VCs] are about maximizing their investment."

As a consultant, Reynolds is likely to serve as a kind of channel adviser that will map and grow channels at several start-ups. Bess added that he anticipated working with her on a regular basis, perhaps weekly.

"One of the things I'll be doing will continue to be a voice for the partners. That is so critical," Reynolds said.

However, which start-ups Reynolds will be working with remains to be determined over the next several weeks before she officially leaves her Palo Alto Networks post at the end of January.

Meanwhile, Bess is not intending to fill Reynolds' position, and instead plans to oversee much of the company's channel operations along with his duties as CEO. Bess said he hoped to eventually rehire Reynolds at Palo Alto Networks, as the company scales up in size and gains channel partners in later stages.

"[Reynolds] is someone who's going to work with me full time again," Bess said. "[Reynolds] is my channel partner. That hasn't changed."

And whether or not economic conditions will allow Palo Alto Networks to reinstitute its channel leadership remains to be seen. In the meantime, Reynolds is prepared to pursue new opportunities if something should arise.

"If things do well, then a year from now I'm a lead candidate to jump back in," Reynolds said. "If something comes up before then, then we'll leave on a good note. I owe it to myself to look outside of Palo Alto."