Myth-Stakes of Partner Building 105: (a) PLM VAR channel partners thinking that traditional forms of “value added” will protect their business model from being disrupted, then disintermediated, and finally obsoleted. (b) Software solution providers believing that channel partners can successfully add all the value needed if their partners act just like a smaller cloned version of themselves.
In my last Alliance Alchemy post I claimed that the traditional VAR business model was suffering if not collapsing within many maturing solution segments (e.g. CAD, PDM, CAM, CAE, PPM, EDA, etc.) of the $40B global PLM market. I also submitted that this is not all bad news, but an opportunity for the channel to evolve its value proposition to a higher level that is more profitable and sustainable over the long run than just “selling” a product.
Since then I have heard several reasonable challenges to my claim with examples cited of solution providers celebrating growth in their channel programs and indirect revenues. I have no doubt there are numerous successful partnerships in many PLM markets, whether they be Value-Added Resellers (VAR), System Integrators (SI), Consulting Service Providers (CSP) or new hybrids that I have coined as Value-Added Collaborators (VAC). In future posts I will be examining what makes some of these channels more productive than others.
Yet, I maintain that successful partners who meet or exceed the business expectations of their ownership, customers, and solution providers are relatively rare, and the trend is not good. The evidence speaks for itself when you look under the hood of the PLM economy and see much consolidation and merger activity within the channels. The reasons for this aggregation are not surprising. Most believe that larger scale is needed for financial viability of partners, even with the risk of loss of focus and diluted value added.
In my last post I shared just a few of the organizational functions and technical competencies in which solution providers and customers alike expect their partners to be proficient if not exceptional. These are all considered the classic elements of value added that partners bring to the dance in one form or the other. A more complete list includes the following:
• Expert knowledge of the products they resell and support
• Familiarity with underlying technologies and trends behind these products
• Digital infrastructure and skills for supporting and training users
• Consulting methodologies and best practices for implementation and integration
• Sales savvy and pre-sales skills
• Commercial account management acumen
• Territory familiarity and access to it
• Relationships with targeted customers at multiple levels
• Intimacy with business drivers, trends, pains, and needs of key industries
• Proficiency and reach of field marketing
• Financial agility to survive through long investment and procurement cycles
• Sensitivity to global business culture norms with international partners and customers
Wow, are we kidding ourselves? Many large enterprise solution providers struggle to master and perform in all of these functions with any consistency. Yet, somehow they have convinced their investors, partners, customers, and analyst media to believe that most of these competences can be acquired and then scaled up or down to match whatever size the partner may be for whatever their customer base requires.
Ironically, solution software providers and their reseller partners who grossly underestimate the competencies required to be successful may actually be accelerating the disintermediation of the channel. Providers across PLM markets have spent years investing in partner recruitment, product training, sales enablement programs, and other forms of channel education and empowerment. Yet the results have been very mixed.
Often, the cost and time required to make a channel deliver at even modest levels is so huge that executives often ask why they are trying to sell thru a channel at all. A frequently cited reason is that the cost of sales is lower and margins higher when letting the channel take down small to midsize business (SMB). This is very vulnerable value added. There are many tales of conflict not just between different channel partners but between partners and the hungry sales force of their own solution providers who often claim as the deal gets closer that the partner does not have what it takes to win competitive business.
An exception of course are wise solution providers who chose from the start to sell all or part of their product portfolio exclusively through the channel. Ditto for those providers who use channel partners as their sole agent in international territories instead of operating wholly owned subsidiaries. But SaaS and cloud delivery platforms may still have the last word.
It is no secret that many small to mid-size partners are being consolidated with the match-making encouragement of their OEM solution providers who know the channel business model is very difficult to make work, especially at a small scale. The hope is that scaling up a partner’s size will allow them to invest in mastering all the competencies required. However, scaling down the aperture of market focus to develop greater expertise in fewer domains may prove to be more achievable than scaling up to chase all things for everyone.
It did not use to be this way. In the early stages of many PLM market segments, just a willingness by a partner to call back a small customer and demonstrate one product out of a portfolio of many on the price list was all that was needed to secure a purchase order. Those days are over, though some have not gotten the message.
Our PLM industry needs to surrender the fantasy that partners can master all the competencies needed for success as if they were a small clone of their OEM solution providers. As soon as we let go of that myth both sides of the channel can be freed to innovate and evolve to a more sustainable business model. One that rewards right-size partners who have hyper-focus on a limited number of targeted industries, solution markets, technical competencies, and software products, including those new or yet proven from unknown ISVs. This in turn will incubate a level of expertise that fuels partners with the deep insights to deliver greater value to their customers than even their OEM solution providers can imagine.
Read more in this series of Alliance Alchemy posts from PLM Alliances by
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