Vendors can profile the perfect partner and still get nothing in return. The difference comes down to economics, not attributes.
By Larry Walsh
Every vendor Channelnomics deals with — formally and informally — has some idea about what its ideal partner profile is. The partner has the technical acumen to sell and support its products, the customers that need or could buy the product, the capacity to market and create demand, and the discipline to sell the product.
Profiles can get broader or more granular, but the underlying idea is always the same: The partner has what the vendor thinks it needs to reach customers and accelerate sales. There are services and applications that purport to identify partners based on their attributes to reveal which are ideal and which aren't.
That's the fallacy of ideal partner profiles. It's what we at Channelnomics call "Schrödinger's Partner."
If you're not familiar with the origins of this term, it's based on the famous thought experiment called Schrödinger's Cat. Austrian physicist Erwin Schrödinger postulated that if a cat is in a box, it's both alive and dead — you won't know until you open the box.
Channelnomics adapted this idea to the channel because vendors too often treat profiling as an end in itself. The reality is that a partner may have all the right attributes, all the right capabilities, and all the right customers — but may not be interested in a relationship with your company. Profiling alone won't tell you anything; opening the box the partner resides in is the only way to tell.
The challenge vendors face is that a good product and alignment with partner attributes aren’t enough. Partners need to recognize that the opportunity is lucrative enough to justify the investment and effort required.
New vendors and products represent risk to partners. It takes time and effort to develop a new practice around a vendor or product. Partners want — or should want — to know the numbers before they make any commitment.
The current economics of the channel are tilted in favor of the vendor. Partners earn a fraction of what the vendor makes on each transaction, and vendors often assume the difference gets made up through attached opportunities — professional services, managed services, and attached sales. The problem is that most vendors never quantify those opportunities. They never show partners the math.
That's the gap vendors need to close. They need to look at the go-to-market opportunity from the partner's economic perspective: Define the total economic opportunity, subtract the cost of attainment, and show the partner the probable return on investment — including those attached opportunities, quantified rather than assumed. Profiling can explain why a partner should want in, especially one that already has most of the adjacencies to support the opportunity. But do the financials actually work? If they don't, the partner won't bite. (Well, at least a good partner won't.)
Consider a partner that checks every box on a vendor's ideal profile — right vertical, right customer base, right technical chops. On paper, it’s a perfect fit. But if that partner can't see a clear path from investment to return — how much it costs to skill up, how long before the first deal closes, what the attached service revenue actually looks like — it'll sit on the sidelines regardless of how well it matches the profile.
Here’s one example. A vendor Channelnomics was working with was trying to convince a high-profile partner to join its program, but the partner was resistant. While it had the skills and capabilities the vendor sought, the opportunity wasn't appealing. The partner said the program was too expensive. The vendor, incredulous, asked Channelnomics to take a look. Our analysis found that the partner would make virtually no money on the transactions because of all the compliance costs baked into the program requirements.
And a second. Channelnomics conducted an analysis for a hardware vendor that wanted partners to sell more but was struggling amid intense pressure from competitors. We analyzed the cost of partnership for the major companies in its cohort. We knew our client would have the best numbers, since it had the lowest program requirements. Even so, the client was stunned to learn that its best-in-cohort transactional profit was just 1.5%, compared to 0.5% to 1.25% for its competitors. It couldn't believe partner margins were that low. The program requirements didn't just eat into partner profitability; they left partners almost nothing.
Dispelling the doubt about whether a new investment is worthwhile for a partner takes understanding the full commitment of skilling up on a product, the cost of taking a product to market, mapping the ecosystem opportunities and quantifying the costs, and then aligning all of that to the market opportunity. If the numbers are favorable, you'll have an easier time convincing partners to buy into a relationship with you.
Nothing will eliminate the mystery that is Schrödinger's Partner. But you can shorten the odds. Do the math, define the total opportunity, and spell out the economics in terms of a true equilibrium. That's how you finally open the box and find a partner who's alive and ready to sell.
NOTE: Want to go deeper on Schrödinger's Partner? It's one of the ideas I explore in my upcoming book, “The Channel Equilibrium,” available on Amazon in December. Watch Channelnomics for details and pre-registration for the release.
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Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert on the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide.
