By Larry Walsh
I’ve been sharing this simple concept all year: “No matter how good you are, how well-known your brand is, how good your products are, you can’t go to market alone. Every company is dependent on someone else to satisfy its customers’ needs.”
Now, this isn’t a new idea; it’s the foundation for ecosystem sales models and value propositions. By definition, a go-to-market ecosystem consists of two or more companies going to market together in collaboration to create a product for the customer that has a value greater than the sum of its parts.
Vendors understand this. In fact, many of the vendors that Channelnomics talks with rely on the ecosystem effect to provide the value-add sales opportunities for partners that increase the value and return on the partnership investment. Vendors have long presumed that attached sales bolster the profitability of their partners.
Partners recognize and accept this paradigm. They see the same thing as their vendors. Through the sale of other vendors’ products, they’ll be able to increase the value of their average sales and enhance profitability through blended margins.
What many aren’t talking about, though, is the conflict that vendors create for partners in their ecosystem models. While vendors recognize that they’re not the be-all and end-all for the customer, they also don’t want partners selling other vendors’ products.
Antitrust and anticompetitive laws generally prevent vendors from dictating who partners can work with. Exclusivity requires so many conditions and concessions on the part of a vendor that it becomes cost-prohibitive.
Instead, vendors will frown on partners, holding back resources and investments to enforce virtual exclusivity. In practice, that can mean tighter market development fund (MDF) eligibility, higher tier requirements, slower deal registration approvals, or less access to the vendor’s best people for partners that carry competing products.
It’s an example of vendors playing a zero-sum game: A partner must lose something for the vendor to win. The vendor believes it’s in a winning position, but it’s actually weakening the relationship by eroding partner satisfaction and trust. At the same time, the vendor is doing exactly what it’s trying to avoid — providing partners with the motivation to explore other go-to-market relationships with more favorable conditions.
What motivates vendors to want partner exclusivity? In a nutshell, sales. They want partners thinking of them first and always, opening doors with customers and pushing transactions — particularly net-new accounts. They don’t want to get slowed down by having to share partners, much less opportunities, with other vendors.
Collaborating with other vendors in ecosystem sales often comes at the expense of time. Each vendor needs time with the customer. The customer needs time to review and evaluate each offering, even when it’s being presented as part of a system. Often, a vendor will go to the customer with an offer to close its deal and have the other vendors catch up later. Worse, vendors fear that partners working with other vendors will bring the alternative into an account, building a beachhead for future sales that could end up displacing them, the incumbent.
But here’s the thing: Customers care nothing about the channel and ecosystem dance. They just want systems that will improve their businesses and operations. And this is why vendors need to accept positive-sum games — situations in which the respective actors work toward each other’s best outcomes. Those actors (vendors and partners operating in an ecosystem motion) accept that, while they may not get everything they want, they will get a positive return. When they’re genuinely collaborative, they build trust so that they don’t need tricks or exclusivity to get their return.
Trust is an absolute necessity when playing positive-sum games. Ecosystem players need to build that trust through experience, discovering that they get better returns as they continue to go to market together. All the deals may not have the same outcome, but they’ll all be positive. And, over time, the balance sheet will show a better tally than going alone would.
Partners know the benefits of positive-sum games. They know that they can contribute more when they have the latitude they need to navigate ecosystems. It’s vendors that need to accept this premise: Even small wins will produce progressively better returns over the course of a partner relationship.
So what should vendors do differently? Stop paying for loyalty with threats and start paying for it with economics. If you want a partner to put you first, define what “preferred” means; put a number on it in rebates, funded resources, or priority access; and show the partner the math. Partners that choose you because it pays will stay longer than partners that stay because they fear what happens if they leave.
NOTE: The concept of positive-sum games in channel and ecosystem sales models is one of the major topics in Larry Walsh’s forthcoming book, “Channel Equilibrium,” which hits Amazon this December.
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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.