Profiling for Exclusion

Does this sound like your company?

“I am a small desktop and hardware reseller that primarily services local, small businesses. My business is profitable, but growth is stagnant—and that doesn’t concern me. I have a good group of employees that I can easily manage. And, while I could expand my business with new products and expanding my geographic reach, I don’t want to make investment or sacrifice my personal life.”

If so, watch out: you’re not the solution provider vendors want. You are what many have come to call “lifestyle VARs,” or solution providers who are content with low to zero growth that is reflective of a self-sustaining business model.

The days of massive channel programs and mass partner recruitment are drawing to a close (if they haven’t done so already). Vendors, regardless of specialty or size, are looking for partners that will grow rapidly to support their revenue and profitability expectations. If you’re not growing or willing to grow, vendors are going to steer clear of you.

The issue is cost. All of the major vendors are trying to unlock the secret of tapping the vast sales opportunities in the mid- and small-business ends of the market. The problem they all face is escalating costs; the further down market they go, the more cost of sales increase.

This is where the channel comes into play. Solution providers tend to sell to like-sized organizations and smaller solution providers have the foothold in regional and local geographies. Leveraging the channel, in theory, controls the cost of sales as the model shifts from the low volume, high margin sales of the enterprise market to the high volume, low margin sales of the midmarket and small business segments. Solution providers extend the reach of the vendor’s sales force by providing access to the local markets.

The North America channel is dominated numerically by small, local solution providers who service the types of accounts coveted by vendors. In theory, the masses of small solution providers should be the perfect conduit to the midmarket and small businesses. The reality is that lifestyle and low-volume VARs won’t provide enough sales and volume to warrant the support they’ll require—and demand—from the vendors. In other words, the ROI argument isn’t strong enough.

Vendors are increasingly shaping their channel programs so that only the strongest, growth-oriented solution providers get the lion’s share of resources, incentives and support. Moves made over the past year by Cisco Systems, Novell, BMC Software and Hewlett-Packard impose greater requirements and expectations upon their partners to weed out the non-performers. Channel initiatives such as metrics for attached sales, specialization requirements, steeped certification provisions and high performance expectations quickly separate transactional partners from dedicated business partners.

Large vendors, in particular, are profiling their partners to minute detail to understand as much about their business model, sales capacity, geographic reach, technical proficiency and account penetration as they can. Vendors then use this information to plan and map their sales strategy and coverage models. If solution providers are not providing value or do not have the potential to provide value, vendors will steer clear.

Smaller vendors aren’t immune to optimizing their channel programs. While conventional wisdom holds that vendors—particularly smaller companies and those new to the channel—should always be recruiting and amassing an army of resellers to go to market on their behalf, the reality is that even smaller vendors are looking for the best partners so they can maximize their resources and channel ROI.

Qualifying solution providers and only partnering with the best means vendors are looking at their resellers as assets and only willing to invest and deal with those that will provide the best return. Solution providers will need to decide whether they want to be an asset to their vendors or slug out a living until the gravy train stops running.

Lawrence M. Walsh is editor of Baseline Magazine and regular columnist for Channel Insider.