Breaking up with a vendor is seldom easy. As a reseller, you poured your energy, time and money into the relationship. And your reputation with customers rides on whom you recommend.
So breaking up is a weighty decision. Consider a conversation that starts like this:
“We have to talk,” you say at your annual vendor review.
“What’s on your mind?” your soon-to-be erstwhile vendor says, shifting a bit in their chair.
“It’s not working out. It’s not you, it’s me. We want different things; our roadmaps have diverged. I’m going to start seeing other vendors.”
A humorous dialogue but a scenario regularly played out across the channel. There’s any number of reasons partnerships dissolve – technology shifts, strategic redirection or festering miscommunication.
For Lorenzo Coppa, it was Adobe’s strategic redirection that led to the relationship diminishing.
When Adobe launched its Creative Cloud software subscription service in May 2012, it obsoleted boxed sales. Coppa, instrumental in selling businesses on the Adobe suite for nearly 20 years through his Melbourne reseller City Software, was sanguine about the change.
“I’m surprised it took as long as it did,” Coppa says. “It was apparent in the early 2000s that software would be rented. We looked at our thinking about how to adjust for more than a decade. It’s a bit like a mobile phone, going from selling a box to selling a contract.”
Annual perpetual licence or boxed sales growth was strong, peaking at about $4 million revenue in 2011. While City Software is still an Adobe reseller, sales are well off the peak.
“In Adobe, there was a camp saying, ‘We invested so much in the channel, are we going to sacrifice that revenue stream for a direct and channel hybrid model?’ It’s probably the right decision [to go direct] because Adobe didn’t have competitors. Some of how the channel got managed was a bit rough [but] I probably wouldn’t have made a dissimilar decision.”
And although Coppa has sympathy for the software makers migrating to cloud and subscription services, he says “it’s important to understand the role the channel has in making decisions about what [customers] buy”. That’s because disinterested resellers become competitors, as he proved by luring Quark Express customers into Adobe’s camp in the 1990s (see box on p. 36).
As in the City Software case, often the break-up isn’t apparent at first; like a long-wedded couple who drift apart. It’s these relationships that are most fragile, open to the shiny excitement of a new and disruptive vendor with a clear technology advantage, good communication and fresh sales pitch.
Diverging roadmap
Robert Ek was reselling a great Linksys PBX solution to his small-business customers, and then Cisco bought the smaller vendor. He was happy and his customers were happy, with a solution that was well supported and met all their needs.
But following the Linksys acquisition, Cisco discontinued the smaller vendor’s solution and proceeded on a cycle of discontinuous upgrades to Cisco’s PBX. This left Ek, Go Systems’ founder, and other SMB resellers scratching their collective head about the roadmap, he says.
“They kept bringing in new technology every year; and not upgrades but a completely new platform. There was a small group of us who got together and eventually all abandoned Cisco’s PBX. We were about the last.”
Ek also points to the certification pain as a contributing factor in his defection. “For the Cisco certification, we had someone out [of action] for
a week-and-a-half each year.”
He’s much happier with the replacement Shoretel solution that has easier certification requirements and is a better fit for his SMB customers, he says.
Channel Dynamics analyst and founder Moheb Moses says relationships are “never 100 per cent perfect… You have two different objectives: the vendor tries to sell
its product and a reseller tries to sell its services,” Moses says.
“The time to break up is when the negatives outweigh the positives.”
Those impacts might be financial, the vendor’s actions start costing too much; poor product, especially a consideration for managed service providers who absorb these costs; and burdensome certification.
Moses says it’s time to reconsider when a vendor threatens the reseller’s customer relationship.
“That’s worse because when a vendor’s actions affect profitability it’s bad on one deal but when a vendor’s actions impact your relationship with your customer”, it’s structural and difficult to resolve.
Next: how and when to break up
Marriage counselling - how and when to break up
Managing a vendor break-up is nuanced. Can you remain ‘friends’? How do you message the change to your customers? What about certifications? Here are ideas that borrow from human relationships:
1. Don’t argue in front of the kids (Telling your customers)
While it’s tempting to vent your spleen to customers, Coppa says don’t make
a ‘knee-jerk’ reaction.
And Moses advises taking the customer’s perspective. “Be open with the customer and say, ‘We now have a relationship with the vendor that we don’t think will support you. And now we have better technologies and we’d like to talk about migration.’ ”
Stay ethical and dispassionate, says Canalys channel analyst Jordan De Leon. “A pitfall is letting the customer know there’s trouble with a vendor. You don’t want to get them involved … don’t let them think you’re unstable or there’s a problem,” De Leon says. “You don’t want to badmouth the vendor no matter how sour the relationship is. Just say we’re moving on.”
Tech Research Asia analyst Mark Iles asks resellers to be honest with themselves about why they’re heading away from a vendor: “Are you doing it for yourself or for your customers?” He says that if the reseller “can’t make any more money” from an existing vendor relationship, it’s better to tell customers they have instead found a “better fit” elsewhere, rather than rake over the details of the split.
2. It’s not me, it’s you (What’s wrong with the vendor relationship?)
Is your portfolio of solutions still competitive? Just ask yourself, were you to initiate a relationship with this vendor today, would you still pick their offerings?
“Look at win ratios; is the solution best of breed? Are there new vendors? If you’re not winning deals, that’s a considerable consideration,” says Iles, who was also former A/NZ vice president of US networks vendor Juniper. He says this is especially true for resellers under transformation: “If you’re selling managed services to SMEs you can hide the technology”.
Resellers shouldn’t stay with difficult vendors, says De Leon. Vendor account managers that are hard to contact and confusing partner programs commonly leave resellers looking elsewhere. “The lack of ease in doing business is a huge inhibitor,” De Leon says. “For channel players like HP, Microsoft and Cisco, partnering
is in their DNA. It’s very easy to earn
a dollar, get certified and trained.”
3. Staying faithful (How many partners?)
Most resellers can only manage a top-tier and a second-tier vendor, says Iles. “You rarely find someone handling Cisco and Juniper but you’ll see someone with Huawei and Pure Storage. They’ll have premium and cost-budget streams”, especially at the value end for their own managed services offerings. He says that tier-1 vendors are most vulnerable to upstarts like Huawei, especially as reseller business models shift to commodity services.
4. Going to couple’s counselling (The review process)
Iles says many resellers don’t have a formal approach to weaning vendors but the customer review is a time to slip the cord. “They should have an annual review” of their vendors and “communicating that to the customer should be part of the justification process”, he says.
The review with the vendor is also a good place to air grievances, says Moses. He advises cool heads: confirm where issues lie, set clear rules of engagement and consequences for breaches. Vendor account managers or direct sales managers might be asked to justify their actions and acknowledge mistakes. “An apology makes us feel good in the short term but if you lose that $700,000 deal there’s a big gap; you want action.”
And at each annual review, the reseller should ask themselves, “Do they want to do business with the vendor?” asks De Leon.
Next page: The partial break-up
5. Going separate ways but living in the same house (The partial break-up)
Even after a split, customers are on the old vendor’s equipment, you’ll still have legacy skills (for a while) and the customer’s roadmap will take time to realign. So you might need to calve off the old business or transition it.
“A lot of partners will decide not to break up because they want the logo on their website,” says Iles. “A lot of partners will shy away from forcing the break-up conversation and that leads to the vendor pulling the plug.”
And as much as vendors won’t sit still and watch you take a customer off to dance with another partner, customers won’t want to raise new purchase orders, either. So it becomes necessary to take a longer view of the break-up and manage the old vendor out of the mix.
6. I can’t handle your philandering ways (Your vendor poaches your customers)
Vendors’ direct sales teams might conflict with indirect channel aims. Moses relates the story of a reseller that had a relationship with a niche storage vendor acquired by a bigger vendor that had a hybrid, direct/indirect model. “This is a partner who sold a lot of gear and they like the product. [The acquiring vendor] gave every indication they would work with the partner but on several occasions has gone to the end user and put in a big offer, lots of services and discounts and said we’ll sell that direct.”
Yet it was the reseller who convinced the customer to buy the storage solution years before the acquisition. “That partner has lost the current deal and future revenue and services. Those things give you opportunities when you’re on-site to upsell other things like archive-as-a-service, backup or security and all the things around a storage solution.”
The vendor has damaged their partner because it “reinforces to the customer they don’t need to partner”, Moses says. Although the vendor has won a sale, it’s a pyrrhic victory because the reseller is moving its other customers off the vendor. “This doesn’t help anyone. When you screw over your channel they don’t just sit there, they have gone from being a partner to competitor.”
Despite this, Moses says, “you can absolutely have a direct model working alongside a partner model” but when rules of engagement are flaunted, resellers should go elsewhere.
De Leon says a reseller is unlikely to defect over a single misstep “because entering a program takes investments but a series of bad channel practices will lead to a divorce. Like any break-up, it’s a sequence of events”.
7. We should see other people (Seeking new vendors)
Smart resellers are always looking at new vendors to see how they affect their strategy or integrate into their offerings. Tech Research Asia’s Iles says many disruptive vendors are pre-IPO and looking to show quick revenue gains but, because they’re short of cash, need a strong channel so are willing to go further for business than incumbents.
And when such a disruptive vendor enters the frame, it’s not too difficult for a reseller to extricate themselves. “The reseller can’t drop the vendor outright; that’s bad business practice,” says De Leon. “They should scope out vendors and slowly start investing in the replacement vendor, meet revenue requirements, get the right competencies in that vendor program, assign and allocate staff.”
Moses says contracts are no impediment to dumping a vendor. “All that happens is you sell less of the product, promote it less and when someone [on your team] leaves, you don’t hire with the vendor’s certification.”
Alert vendors will step up to save the relationship or face declining sales. But by now, the reseller wouldn’t care if they fall down the rankings because they’ve already moved on. Moses says, “there’s no contract that says you must sell my product; the splitting up part is really easy.”
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