Strength in Channel Numbers

 The senior management team of a solution provider company typically suffers from an inferiority complex when they think about dealing with their vendors because the manufacturer typically dwarfs them in size and is led by industry titans who are hailed on Wall Street for delivering steady returns on investments.

But what many solution provider executives often forget is that the collective channel is many times the size of any given vendor, and many of the so-called leaders of the industry have very little understanding of the dynamics of the channel.

In a new book called "Channel Excellence" by Axel Schultze, the founder and former CEO of Blue Roads, which provides channel application software as a service to the vendor community,  has collected some interesting factoids that show just how formidable the channel really is in our industry.

For instance, it may interest you to know that Gartner predicts that indirect sales will drive 65 percent of all the industry’s revenue by 2010. Worldwide Schultze, who was also a founder of European distributor Computer 2000 that was later sold to Tech Data, estimates that there are about 1.25 million channel organizations worldwide with about 250,000 of them operating in the United States.

You might think that given these numbers vendors would be a lot more on top of their channel games, but as Schultze points out most of the executives at vendors from the CEO and CFO on down came up through the direct sales ranks. As a result the sales teams and processes that make up the 1.25 million channel organizations in the world are a bit of a mystery to them. And worse yet, they don’t have a lot of visibility into what amounts to a giant black hole that generates a lot of revenue in ways that are less than predictable.

You might also imagine that in a world where compliance with any number of financial regulations is becoming critical, this lack of visibility into the channel is becoming a big problem. The first part of that problem is tactical in nature. Because most vendors have been more comfortable tracking their direct sales, their internal IT systems and processes are not especially tuned to track and measure channel sales. A lot of them are working on this issue, but as we have all seen, this exercise frequently turns out to be a trip down the financial rabbit hole that requires vendors to rewrite their financials systems.

 The bigger problem, however, is that most channel organizations don’t get a lot of benefit from providing vendors with the data they need for these systems. If anything, they get penalized by having to incur more overhead to collect and process that data. And most of the approaches that vendors have taken to induce solution providers to share this data have been long on punitive consequences and short on actual incentives.

And, of course, when they actually do get that part right, they then tend to fall into the trap of thinking of the channel as something they own rather than a mass collection of companies that are selling 50 different products at a time. And as far as the channel is concerned, which vendor is part of the package on any given day is as much luck as science. As a result, they tend to forget how much little things like a deal registration program that actually works really means to people trying to make a sales goal every month.

Personally, there are a lot of things to take issue with in this book, including the fact that Schultze, currently the CEO of Xeequa, a startup pushing a social network for the channel, doesn’t think that solution providers generate demand and therefore should not be part of a vendor’s marketing plan and his assertion that vendors can never successfully have both an indirect or direct sales model working in tandem with each other.

But what we can probably all agree upon is the first of what Schultze calls is 20 Golden Rules for the Channel: Unless the channel program has a clearly identifiable executive sponsor within the company, the channel will remain “a stepchild of the corporate family and a costly and frustrating undertaking.”  In the meantime, the next time vendor tries to overwhelm you with fear and awe, be sure to remember who the real boss actually is.