Channel leaders

The conversation uncovered many common themes, from effectively supporting partners with margins and rebates, to adding and removing partners, to managing channel conflict.

GUESTS

• Neville James, Channel director ANZ, NetApp
• Belinda Jurisic, Channel sales manager, ANZ, Citrix
• Leo Lynch, Channel sales director, Enterprise Business Group, Huawei Technologies
• Craig McGregor, Director, channel sales, Check Point
• Stevie Walsh, Alliances manager, Rackspace
• Julie Woodward, National sales manager, B2B channel, Brother International
• Moderator: Steven Kiernan, Editor, CRN

Partners can be quick to throw away margins

Our latest program was released in May. It is around partners being rewarded for bringing new business. We give a very healthy margin to partners who bring opportunities. Our new pipeline from partners in under six months is well over $10 million. And we are able to say, “Here is pure, channel-led business”, where before you couldn’t actually tell what a channel partner had brought versus what a rep had quickly put into Salesforce.

The first thing I saw was partners did not realise the money was for them and we were giving it away. The partner principals were saying, “Yes, this is fantastic”. But the reps were going, “Oh, there’s my prize for distribution. I’ll just throw this much margin and walk it out the door.”

CRN: Does anyone else contend with this problem?

Julie Woodward, Brother

Absolutely, that is a massive challenge for us. We’re at a very early stage of having launched a program, say, six months ago and trying to onboard partners in this space. We’ve also quite a mix of distributors as well, so trying to manage that pricing at distributor level, then trying to provide an advantage, based on this particular type of specialty, it’s definitely been challenging. We’ve taken the softly, softly approach and just tried to tweak things as we go along.

Back-end rebates can avoid margins being thrown away

We’re trying to get the improvement in margin, but back-end it through the services side of the partner’s business. Most of our rebates in this current year focus on very large cash cheques, in a roundabout sort of way, to subsidise services activity.

I guess it doesn’t stop the rep, but instead of just discounting up front – for example, on a half million-dollar deal – you’ll probably get a $60-70,000 rebate, but it’ll come back through as a services subsidy. It is trying to change the mindset around what the price needs to be to win the customer, versus what the margin will be that accrues to the actual partner. Time will tell whether it works or not.

Leo Lynch, Huawei (pictured)

Partners select vendors and vendors select partners, but unless we are adding value to the end user customer, it doesn’t mean anything at the end of the day. You’re just going to run down to price and get channel conflict and stuff that we talked about earlier.

As long as people are adding value in the equation then I think it’s okay, but otherwise it’s just a race to the bottom and everyone’s margin just gets eroded. I think that’s the key issue here. People just chasing the largest deal in the market and putting in a bid, that doesn’t help anyone.

Hardware vendors can help partners sell as-a-service

One thing keeping us heavily occupied at the moment is this tsunami of consumption-model demand from customers and via them, from channel partners. We recently launched our NSW GovDC initiative. For two years the NSW government has said you’ve got to go into GovDC. Partners have never stood up much, if any, services in there because it’s very expensive. We’ve decided to put our own gear in there. It cost us well over a million dollars.

We basically have a wholesale service that only gets sold through partners to try to get over this. It is per cents, per terabyte, per day. Pure opex, which is a real challenge for a hardware vendor. It is basically a wholesale white-labelled service that only partners can sell to try to get over that investment hurdle for the channel partners. If the model proves successful, we’ll probably replicate it a lot, all over the place.

The program can help vendors beat ‘brutal competition’

I’ve been on board just over 12 months. I was brought on to manage a shift away from our traditional consumer roots towards more SMB and solution-type sales. We’re starting to bring more products to market that have more specialised applications. We’ve got some mobility solutions products and workflow management devices.

Beginning and launching a new partner program was a challenge, but we’ve done a fair bit of research, and we’re quite hands-on with our partners in trying to understand what they want out of the partner program. The print industry is brutally competitive at times. It’s about, “what can we offer that’s slightly different or what can we bring to the table for these partners?” We are trying to limit the number of partners, trying to find the right partners, rather than opening it up to everybody.

Privately owned vendors can take the long view

We really started the channel from scratch 18 months ago. We brought on two new distributors. We brought on partners. When I came on board we had 18 active partners. By the end of last year, we had 60. This year, we’ll probably have about 80.

We went from 66 percent to 90 percent through the channel. That 10 percent is our proprietary 5G carrier business. Anything that’s enterprise is 100 percent channel. In fact, if someone wants to take something direct, I have to sign it off. Then my manager has to sign it off.

We went from zero to No.1 in carrier worldwide because we gave up our margin and gave it to our partners. We’re using that model, which allowed us to grow in the carrier business, in the enterprise business. We see this as a longer-term view. The other great thing about working for a private company and a Chinese company, you have a five-year plan, not a quarterly plan.

Those extra dividends that you’re not giving back to Wall Street go straight back into R&D. We spent $8 billion on R&D last year.

Some partners influence a deal without even selling

Ours is an expensive practice to be in. Hardware, and particularly storage, is not a cheap practice to have to resource for. We have a ‘less is more’ strategy. I think 93 percent of my revenue went through 25 partners last year. I don’t have a long tail of small partners doing little bits and bobs.

I don’t see that changing, to be honest. Until you get to a certain critical mass, it’s quite hard to make money – given all the resourcing for pre-sales, post-sales and so forth. The thing that is changing, though – and it could be specific to our area around data centre and cloud – is there’s this proliferation of partners that influence outcomes now, especially around application development. There are these little satellites of ecosystems growing up around my large partners. They have no desire to take title or transact a NetApp purchase order – none whatsoever. But they’re quite instrumental in whether our product gets selected over our competitor’s.

Coming up with strategies to engage them, have them part of the family, reward them… you have to come up with more creative ways to reward that, because they’re actually not in your value chain officially.

The partner with the highest sales is not always most important

In my experience, lots of vendors fall into the trap of, “This partner does the most revenue, so they’re the most important” and so on. In customer land, generally that is the case. Our most important customer is one that spends $20 million a year on us. Our next most important customer is the one that spends $19 million.

In partner land, I think that’s a big mistake vendors make all the time. For me, it’s about the partners that are proactively driving incremental business – which I define as business we wouldn’t have otherwise come across – versus just doing fulfilment‑only kind of stuff. Without compromising any of our existing partnerships – because they all provide an important role in our ecosystem – there have been some partners that have done a lot of business with us that is just fulfilment-only stuff at high margins. Now we’re saying, ‘We’d like to keep those high margins up because we’re a high-margin vendor for you, that’s great, but here are our expectations now.’

Channel conflict is easier to manage with alliance partners

Stevie Walsh, Rackspace (pictured)

On the channel conflict side, it’s always going to be a challenge in a channel role and it’s really about how you manage that and how you address that. One of our core values is transparency in everything we do. It can be confronting for some organisations when you go in and say, “Here’s how I’m going to interact with you.” It’s been really important to have the right level of relationships all the way through business.

Me and my alliance managers and the vendors, we’re very tightly bound. We almost form this organisation that sits in the middle of our two organisations. Then sales managers know sales managers, reps know each other, country managers talk to each other. So if there is a potential for conflict, people can address that.

I’ve found it is easier to address in that alliance landscape because you’ve got a couple of partners, you’re very focused around them and you have that level of depth of their business. It is probably more challenging when you’re talking about scaling and having a wide selection of partners.

Belinda Jurisic

I think [alliances are] a piece in the partner ecosystem that is definitely becoming stronger. More and more, we’re seeing partners partnering with other partners to get that skill set. It’s the same thing for us from a global alliance perspective. It’s a critical component of being more relevant to channel partners, to ensure you have a very clear relationship and strategy.

Vendors should show commitment before demanding it

Craig McGregor, Check Point (pictured)

Early engagement in the sales cycle is really important. Channel conflict becomes really hard at a deal level when it’s nine-tenths of the way through the sales cycle and three partners all think they’ve added value. It’s part of my role to make sure that doesn’t happen, to build the structure and processes early in the sales cycle with our reps.

It doesn’t mean we’re dictating to the customer who they buy from – of course that’s customer choice – but we should get off the fence and we should have a preferred partner based on the value they are offering in that customer engagement. We should be articulating that to the customer Here’s the irony from my perspective: lots of vendors in the channel go to customers and say, “You can buy from anyone, here’s all our partners, knock yourself out.” But the one thing we ask our channel partners is to not be as agnostic as they currently are. “Just go in with us, don’t go in with our competitors.”

The irony for me is lots of vendors do exactly the same thing to channel partners that they are asking them not to do. It’s a big cultural change within Check Point. We’re going to be less agnostic. We’re going to be less agnostic in front of the customers around preferred partners based on a set criteria we have, not just because it’s someone’s mate.

Then the key is early discussion with all of the partners, not just the preferred one. The preferred partner is the easy discussion, right? “Hey we’re in with you guys”. The hard discussion is with the other partners. You have to give those partners the respect to go and build their own competitive strategy, even if that is independent of you. That’s the only way to build trust and rapport.

Nothing wins credibility like ‘dying’ with the partner

Neville James, NetApp (pictured)

From my perspective, channel conflict is one of the easiest things to deal with. As long as your deal registration process is absolutely robust – as boring as it might sound. I keep counselling sales guys in particular, don’t say ‘yes’ too quickly – you’ve got to be prepared to die with the decision you are going to make.

Ultimately your channel conflict, your deal registration process or how you’re perceived is not measured by when you say yes. It is when you say, “Yes, I’m prepared to die with the person and lose.” That’s when you really get street cred and respect – not just from the partner you might lose with, but also the other ones. It gets around – “Wow, they deal-registered these guys, they went right to the line. They lost the deal, they didn’t flip, they didn’t move or anything like that.”

To me, as long as you can maintain a level of consistency around that, you’ll have very little channel conflict because you’ll have transparency or certainty of behaviour, which is probably the most important thing.

One of the key things is, do your due diligence on who you’re going to say yes to. First in, best dressed will always bring you unstuck.

Digital agencies are influential partners in public cloud

Stevie Walsh, Rackspace (pictured)

One thing that massively influences where workloads are placed is from a development side. If an organisation has chosen a digital agency or a development shop and their devs or even their internal development teams are more comfortable with one platform over another, that will largely dictate where they want to go.

If a client’s moving through a new project that is greenfield, they’ll probably make their choice on that digital agency or that front-end partner first. That will largely dictate the platform that they choose and then, once those things are formulated, they will be thinking, ‘Who’s the best partner to help me run this over time.’ That’s the conversation we get into.