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Avoiding Risks in Channel Partner Relationships

By December 1, 2008Article

Many software companies are finding that their channel partners influence a significant percentage of their business growth. The need to deploy this growth strategy is becoming increasingly important with the uptick in switching to the SaaS and cloud models enabling software firms to enter new markets (industries and geographies). However, even though the use of channel partners is increasing, some software companies are not fully reaping the benefits, as in the following examples:

  • They use channel partners only on an opportunistic, ad hoc, deal-by-deal basis, not leveraging the full potential of this highly effective growth strategy.
  • They experience gaps in their anticipated return on investment (ROI) in channel partners.

Improving your company’s capabilities in channel partner management depends on three steps to mitigate risks:

  1. Avoiding the pitfalls in channel partner relationships
  2. Knowing how to turn transactional channel partners into strategic partners
  3. Managing the relationships so they yield more value

Let’s begin by identifying the top two pitfalls.

Pitfall #1: Selecting the wrong channel partner

This is more than understanding whether to choose a reseller, value-added reseller (VAR), system integrator, OEM partner, agent or sales influencer. Selecting the right partner is risk filled without first determining the needs to be achieved by the alliance. The best choice for a channel partner not only will have the competencies to meet your needs and expectations but also will have an ethereal fit (values, ethics) with your company. Needs could be factors such as geographic location, subject matter expertise (especially among system integrators), or expertise in understanding millennium-generation issues. You will also want to assess each potential channel partner on the following aspects:

  • Has a high level of interest in working with your company
  • Allows for a win/win orientation and collaboration
  • Creates opportunities for new ideas; is future oriented

Pitfall #2: Inadequate planning and understanding of needs

Undertaking the growth strategy of selling software through channel partners requires thorough preparation. Having a clear understanding of needs and expectations from your channel partners is the first step in reducing misunderstandings and conflict between partners. There are several aspects to determining needs, as follows:

  • Identify your company’s needs (weaknesses) from the channel partner. Be sure your list includes task/deliverable needs as well as relational expectations (see more discussion on this below).
  • Identify what your company offers to a channel partner.
  • Identify the channel partner’s strengths, what it offers your company.
  • Identify your channel partner’s needs and expectations. Ask your channel partner to prioritize them to be sure you understand the level of importance to the channel partner.
  • Share your task/deliverable needs and relational expectations with your channel partner, prioritizing them so your channel partner understands the level of importance.

Turning transactional channel partners into strategic partners

What’s wrong with operating with channel partners on a deal-by-deal basis? Nothing. These partners may bring your company instant gratification in terms of revenue. But you miss greater opportunities for innovation and increased market share by not working with a strategic partner.

The software industry is becoming an organic network or ecosystem, and that’s where the value of strategic partners lies. With a strategic partner, you have a group of people who not only sell your products but share with you their ideas, feedback, and imagination. This sets off a chain of creative energy and can lead your company to the next innovation, the next strategy for increasing end-user adoption of your products, deeper awareness of vertical trends, and additional knowledge of enterprise spend opportunities.

Sharing their imagination and ideas is a key benefit of working with strategic channel partners. If your company can imagine something, it can create it – unless you’re stuck in your company’s cultural mindset and can’t move beyond it because of the psychological boundaries that the culture creates. Partnerships break through those kinds of boundaries and help companies – and the people who work in them – see things they may have never seen before.

Working with a strategic partner rather than a project-basis partner requires partnering. Partnering is comprised of two components:

  1. Using a defined process for achieving your objectives
  2. Building trust in the relationship to ensure it achieves your objectives.

Strategic partners take an approach that enables them to navigate short-terms needs but also operate from a tactical roadmap to enable the high-level long-term vision.

Harnessing joint creative energy sparking from a strategic partner relationship requires trust and openness between people and businesses. It requires carefully managing the relationship with partnering excellence so that it will yield the anticipated benefits.

Managing strategic channel partners requires operating from a holistic framework that focuses on the relationship itself as much as the output.

Most channel partner relationships fail when there is a lack of balance between accomplishing the task (successfully completing the goals and objectives of the partnership) and building a healthy relationship (trusting, mutually beneficial).

How balanced is your relationship/task component with your channel partners? Do you manage by focusing on leadership skills that create positive ethereal energies (vision, values, ethics, behaviors) between you and your channel partners, or do you focus on the transactions and manage the relationship based on the output (products, services, tactics, processes)?

The top enabling factor in a strategic channel partnership relationship is trust. In fact, the more strategic the relationship is, the more you need to be able to trust the channel partner. However, trust is a two-way street, and being a trustworthy partner is as important as identifying a trustworthy channel partner.

Here are some aspects for evaluating the level of trust with your channel partner. They are segmented into the two management approaches: task or relationship.

Six aspects of trust

A. Based on task (successfully completing the goals and objectives of the partnership)

  • Commitment to keeping agreements.It is important that partners keep their agreements about what they’ve agreed to do, and when and how they will do it. This allows each partner to focus on their own contribution with the confidence that their partner will deliver too.
  • Contribution.Contribution is the sum total of how each partner adds value to the partnership. It is important that people feel the value they add and the benefits they receive are equitable for their contribution.
  • Collaboration. Partners need to feel that their opinions are listened to and respected. This is taken to be a measure of the value they bring to the partnership and it also represents their ability to get their needs met. Collaboration builds loyalty to the relationship. Open and irresolvable conflict can result if a partner feels “left out” or powerless.

B. Based on building a healthy, mutually beneficial relationship

  • Commitment to the partnership.A high level of commitment to the partnership creates focus, creativity, and synergy among the partners. Commitment is measured by what each partner “invests” in the partnership in terms of time, energy, money, risk and intellectual property.
  • Communication.Partners need access to accurate and complete information relevant to the partnership. The larger the number of partners, the more important it is that the infrastructure supports communication among all of them.
  • Consistency. As a partnership develops, the partners learn how each other thinks, acts and reacts. It is important that each partner feels he or she can predict the behavior of the others as this predictability builds trust and facilitates communication, decision making and productivity. Conversely, erratic behavior creates confusion, distrust and undermines the effectiveness of the partnership.

Building internal capacity for managing a channel partner relationship

It is important to have a clear understanding of the internal roles within your business when working with channel partners. This ensures there will be consistency and agreement from leadership in implementing and sustaining the channel partnership. Of course, there may be a difference in the depth of interaction depending on the type of channel partner (a system integrator vs. a VAR, for instance); but generally an effective framework is to build three internal teams responsible for sponsorship, operations and implementation.

Sponsorship team. These are the top-level executives who are responsible for the strategic development of the partnership. In addition to establishing the vision and mission for the channel management, their role in the alliance would include such aspects as:

  • Understanding the economic proposition – current and future
  • Conceptualizing future strategic possibilities and alignment
  • Ensuring operational alignment and capability issues
  • Securing resources for the alliance
  • Setting expectations
  • Setting priorities
  • Managing internal political issues

Operational team. This team is responsible for implementing the channel objectives and overseeing the integration of the work the channel management team is charged with doing. Their roles and responsibilities would include such aspects as:

  • Developing organizational integration plans
  • Developing the cultural and partnering capabilities of the people who will be working together
  • Managing budget and growth
  • Building relationships between channel management team members
  • Solving problems using a win / win orientation
  • Communicating with the Sponsor Team on progress, concerns and issues
  • Looking for new opportunities for growth

Implementation team. This group includes the people who interact with channel partners on a regular basis. They are often from cross-functional disciplines, such as engineering, marketing or sales. Their responsibilities would include:

  • Developing functional integration plans
  • Developing the cultural and partnering capabilities of the people who will be working together
  • Enabling operations to achieve the objectives of the channel
  • Building relationships between channel team members
  • Monitoring metrics
  • Looking for new opportunities for growth

Partnering excellence improves top-line growth

Software companies are becoming organic networks and can grow dramatically by propagating connections with channel partners. Strategic alliances – when managed with partnering excellence – produce astonishing results at filling gaps between growth goals and current capabilities when companies trust each other.

Using the processes I’ve described in this article not only will arm you with decision factors and the necessary knowledge for eliminating the risks but also will help you create and sustain profitable relationships with channel partners.

Stephen M. Dent is the founding partner of Partnership Continuum, Inc. working with companies, leaders, and other individuals as they build excellence in partnering capabilities through Partnering Intelligence to help their companies improve performance.