Partners Just Don’t Invest in Their Businesses

Vendors and service providers selling into the channel often wonder why they hit strong resistance even when they demonstrate high ROI potential. The simple answer: Most partners are risk-averse.

By Larry Walsh

A typical entrepreneurial formula for success is pretty simple: Identify a need for a large addressable customer segment, develop a unique product or service, and bring that offering to market as quickly as possible before competition appears.

The channel is a market ripe for innovative products and services. Tens of thousands of partners have customers with the same needs – hardware, infrastructure, services, and tools to improve operational efficiency, generate sales, and ensure high satisfaction among accounts.

Unfortunately, the channel as a market segment is a black hole that routinely lures innovative entrepreneurs into the abyss.

Over the past couple of weeks, I’ve had a number of conversations with a common theme: Why don’t partners invest in their businesses even when doing so could offer a definable benefit to their businesses?

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Here are some questions that demonstrate a lack of investment by partners:

1. Why don’t partners buy into resources that demonstrably lead to more sales?

2. Why don’t partners adopt technologies that improve operational efficiency and reduce costs?

3. Why don’t partners invest in the transformation of their businesses to address evolving market needs and remain relevant?

I could add many more similar questions to the list, but I think you get the point. The answer to these questions: Partners are extraordinarily risk-averse.

For years, I’ve joked about the birth of partners – particularly resellers. “How is a partner born? Two ways. One, someone gets laid off from (INSERT LARGE VENDOR NAME HERE) or, two, a couple of tech geeks escape their parents’ basement.”

The joke is funny because it’s true. The 2112 Group has spent years studying the dynamics of partner development and growth. We’ve found that partners more aligned in structure and operations with vendors – and particularly those started or managed by former vendor executives – are larger, more resilient to disruption, and more prone to invest in resources, sales and marketing, and evolution.

Conversely, partners focused on technical skills (i.e., the vast majority of channel companies) are typically smaller, have lower and less consistent rates of growth, and invest only the minimal amounts necessary to maintain functional businesses. And, of course, they’re risk-averse.

So, what does “risk-averse” mean from an investment perspective?

Business-oriented partners understand that it takes money to make money. When they invest in resources, they have expectations of the generated returns. If the investment fails to meet those expectations, they cut off funding and shift attention to other investments. And they typically spread their investments across multiple resources to distribute their risk exposure and increase their potential for high returns.

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To technology-oriented businesses, a resource that costs $1 represents a dollar that’s lost forever. They have a hard time seeing the $1 investment as a potential for a $5, $10, or $25 return. As far as they’re concerned, the dollar spent is a dollar that’s unavailable for immediate operational needs. As a result, they run lean, under-resourced organizations. And the few investments they do make are typically not given the support required to produce the full benefit.

The cold reality of the channel, no matter where you look, is that about 90 percent of partners fall into this non-investing column. Vendors have enough challenges trying to transform their businesses and go-to-market strategies without having to slow down to educate and cajole partners into investing in their own organizations. Instead, vendors need to factor this low-investment barrier into their strategic planning and devise ways of working around the risk-averse partners.

Larry Walsh, The 2112 Group

Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.