The Ill-Founded Temptation of Going Direct

Channel partners have many shortcomings and problems, but value to vendors and their go-to-market strategies isn’t among them.

By Larry Walsh

Nothing gets to market without multiple hands touching it and guiding the way between the source and the end customer. According to the World Trade Organization, about 70% of all goods flow through indirect channels to get to market. And that number is probably much higher if one applies the broadest definition of a channel.

The sense in the market, though, is that the vendor community is looking to shift more – or all – of its sales direct. Some executives, chief revenue officers, and stakeholders (Wall Street and private equity, for example) believe taking more business direct is the key to reclaiming margin, reducing costs, and improving customer satisfaction. After all – as the attitude goes – no one can sell a product better than its manufacturer.

Many companies are feeling the pressure to go direct out of fiscal concern, especially amid an uncertain and cloudy economic forecast for 2020 and beyond. The reality, though, is that vendors can’t simply shun the channel and expect to cover the total addressable market effectively.

In conversations with channel chiefs, the pressure to reduce the channel’s importance is palpable. The non-channel leadership and investor stakeholders see partners as a drain on resources, an unbalanced expense relative to the return, and not reliable enough to deliver on their growth expectations.

Several times this year, 2112 heard from vendors that complained about how channel partners are driving down average sale prices and contributing to margin compression because they can’t sell their products effectively. Others talk about how partners are dragging down vendors’ overall performance by chewing up training and technical support resources because they can’t operate independently. What’s more, vendors look across the breadth of their channel ecosystems and see inconsistent sales performance.

While the channel has many problems, value to vendors isn’t one of them.

More times than not, vendors imprint their internal problems on channel partners as a diversion or an excuse for their own shortcomings. It’s far easier to blame channel partners for the challenges and losses vendors experience than to reflect on the issues within.

Vendors often will complain that partners don’t generate enough sales opportunities on their own and rely on external lead generation and sales support. The reality: Many vendors create the conditions that constrain partners from uncovering opportunities and developing sales through their own internal sales compensation plans, antiquated systems, and restrictive distribution policies.

Vendors will say partners’ performance is inconsistent, that partners can’t market and sell. En masse, this is true. But the high-performing partners – the top 20% – in any channel program are quite capable and motivated. Overdistribution and the inclusion of too many underqualified partners feed the poor perception.

Also, some vendors believe partners will become irrelevant as more business shifts to the cloud and marketplaces. While it’s true that product sales will shift, the power of partners to influence sales and customer experiences will expand. Vendors can’t address all of customers’ needs on their own. Vendors and customers need partners to provide the pre- and post-sales support that make sales and renewals happen.

Doubting or questioning the value of channel partners isn’t an unhealthy exercise. Periodic inspection of why a vendor sells through the channel is necessary to keep strategies, programs, and relationships fresh. Acting on the worst perceptions of the channel, however, because they’re easy to articulate, is a temptation that few vendors can afford.

Larry Walsh is the CEO of The 2112 Group, a business strategy and research firm servicing the IT channel community. He’s also the publisher of Channelnomics, the leading source of channel news and trend analysis. Follow Larry on Twitter at @lmwalsh2112 and subscribe to his podcast, Pod2112, on iTunes, Google Play, Spotify, and other leading podcast sources. You can always e-mail Larry directly at lmwalsh@the2112group.com.