When to Fire a Partner?
Whether you are a vendor or a Solutions Integrator (VAR, reseller, agent, system integrator) or any kind of channel partner, there will come a time when you question whether it is worth the effort to keep going or end your relationship. There is no easy answer to this question. The recent third annual CompTIA "State of Channel Study: Channel Conflict and Deal Registration Trends” sheds some light on this topic, providing hard numbers on why companies go their separate ways. Based on a survey of 350 U.S. IT companies, the CompTIA study found that:
- 21 percent of the channel partner firms reported an increase in channel conflict
- 36 percent of channel partner firms reported that this has a negative impact on their business
- 55 percent of the negatively impacted firms added new vendors
- Younger firms less than four years old are more likely to drop vendors
Channel conflict has been on the rise, and not surprisingly, the younger companies with less invested in the relationships are more prone to firing their vendors and replacing them with others. The following four scenarios may help you have “the hard” conversation with your partner, and may result in a decision whether or not to "fire 'em."
1) Your business objectives are not aligned. For example, you sell into the enterprise space and your strategic vendor partner announces a new "strategic account" team or list and is increasingly competing with you for services revenue. The vendor may be too significant to your business for you to part ways, but you need to take a hard look at your business and make some decisions. Frequently these types of changes may be temporal, but you don't want to be stuck with a large payroll and a line of credit on your house while waiting them out. Quietly meet with their competitor but don't fire 'em.
2) There are cultural and personality issues that are disruptive to your relationship. There are a lot of egos involved in the sales process, particularly for technically-opinionated engineers and sales people who think they are the most important person in the room and the conflict that results is part of the channel sales process. You should always attempt to resolve the issues that arise from this normal conflict, and may need to engage your management teams to work towards a resolution. Keep in mind that the relationship your company has with your partner company is bigger than the personal relationship between individuals. If the differences are ultimately insurmountable, it is really a management decision whether or not to sever the relationship. Let the VP or owner make the call whether to fire 'em.
3) You are increasingly competing with your partner. An example of this would be a key vendor partner that is facing eroding market share and loosing technology leadership. You the reseller have worked with them for years but rather than loose business at your key customers you are now selling their primary competitor. This is a tenuous situation that is rife with conflict. On the one hand you have had a prosperous relationship for many years with a company and on the other you are now engaging with their competitor in the accounts that you may have been introduced originally by the vendor. You could choose to do what is best for the customer at any cost and deal with the issues as they come up. This may work if the vendor is not that strategic to your business but if they are more than 50% of your revenue you owe it to the partner to have a difficult conversation with them. Better that you initiate it than they do. Sit down with their local team and senior management and spell out to them some technical or business reasons why you have formed a relationship with their competitor. Explain to them you would rather not have done so but this is why we felt it was required for us to maintain and grow our business. I.e. they have x product or feature that this customer wanted and you don’t or we lost this customer and all the service revenue that comes with it because we led with your solution. You will continue to have conflict but at least you can sleep better at night knowing you treated them the way you would want to be treated.
4) One of the parties (most likely the vendor) has a frequently changing business model. This is a very common scenario today, as many vendors are moving to Opex/Cloud/SaaS models from traditional Capex/hardware/software sales, but their partners may be resistant to make this move. Most reseller sales people are compensated based on gross margin and are not incented to sell recurring revenue, which is creating conflict. The vendor needs to understand their partner compensation model and offer some sort of solution to this problem. The reseller partner also needs to accept this change and make adjustments to their compensation model as well to address the issue. This change is imminent, particularly because customers are demanding it. If you can't find some sort of middle ground, it may be time for both parties to look at other partnerships.
As evidenced from the CompTIA study, the trend is not good in terms of increasing channel conflict. Conflict can result in having difficult conversations with your partner that may lead to decisions on whether to sever your relationship. Our advice is the old adage "cooler heads prevail." It is never wise to make emotional decisions in business. Try to separate the emotions from the bigger picture and never make the decision alone.