- April 27, 2020
- Posted by: Larry Walsh
- Category: Blogs
Many resellers and service providers don’t have the cash reserves to weather a prolonged economic downturn, revealing how finances are just as important as technical certifications.
By Larry Walsh
Technology vendors across the industry raced to provide partners with financial tools and buffers to weather the COVID-19 economic downturn. The prevailing strategy: extending credit and payment terms. Many vendors believe they can help partners by supplying funds to customers that enable purchasing to continue.
There’s nothing wrong with that idea. It’s worked before and, in many cases, will work in the COVID-19 era.
The pandemic, though, is revealing something shocking about the state of partners that many vendors don’t take into consideration: Their fiscal health might not be as good as It should be.
According to a recent study by 2112, “COVID-19 Pandemic Impact on Channel Partners,” one-third of partners have less than two months of cash reserve to buffer their operations against cash–flow disruptions and sales downturns. One in five has a month or less of cash on hand. And 14% don’t even know the state of their finances.
The best practice is to have at least three months of cash to cover routine operating expenses.
Some may say that 35% having three to six months of cash reserves and 19% having more than six months of cash is a good thing. Without a doubt, it is.
The trouble with all these numbers is they’re all based on normal operating circumstances and the occasional rainy day. Partners reserve cash with the expectation that sales and revenue may dip with economic fluctuations. They’re not prepared to handle situations in which sales stop entirely or customers – particularly those with long-term service contracts – withhold payment.
The U.S. Chamber of Commerce says up to 25% of all businesses will fold as a result of the economic disruption. Among small businesses, 43% say they’re three to six months away from permanently closing if the economy doesn’t improve.
Without a doubt, COVID-19 will claim the lives of thousands of businesses – solution providers among them – in the United States alone. The situation is similar in Europe and parts of Asia, where COVID-19 and the mitigation measures are forcing businesses to shut down or curtail operations. Some vendors are bracing for as much as 20% of their partners to fail. If no one is available to buy technology, solution providers will starve.
At 2112, we’ve preached for years the need to improve partner business acumen. We’ve tracked over the past decade how partners – regardless of their size, age, specialization, or model – don’t have sound business management practices. As an industry, we joke about how partners are terrible at marketing and sales. The truth: They’re subpar at many things that make a business a business.
Let’s talk about the current state beyond cash reserves. According to our research:
47% of partners don’t have a business plan
58% don’t have sales plans or revenue goals
73% don’t have marketing plans or resources
While many vendors are talking about focusing on customer experience and business outcomes as a metric of partner performance and value, most continue to emphasize attributes such as revenue productivity and technical certifications. Few vendors require partners to demonstrate business and operational capabilities that would compel changes in their managerial behavior and fiscal health.
Partners continue to ignore solid business practices and behaviors because they’re required by vendors to invest in activities such as certifications and specializations that, ultimately, have limited bearing on customer consideration and purchasing decisions (with a few exceptions).
Vendors need to start requiring that their partners have a minimum cash-on-hand reserve, particularly if they’re engaged in selling, delivering, or supporting cloud and managed services. Vendors should require partners to obtain a DUNS number and develop credit scores. (The data universal numbering system, or DUNS, was created by Dun & Bradstreet and assigns a unique nine-digit identifier to a business.) And vendors should require partners to submit annual business plans to demonstrate strategic direction and governance.
How much of a difference will non-product, non-technical partnership requirements make for partners? In reviews that 2112 conducted of partner performance, we’ve found that partners with business plans – regardless of what’s in the plan – tend to grow two to five times faster than partners without plans.
COVID-19 is revealing that the channel must think beyond technology attributes and consider more about what makes a good business. If partners have sound businesses, they’ll likely make better investments, operate more efficient organizations, and produce better outcomes for vendors and customers alike.
The 2112 Group offers services for developing partner value propositions, assessments and self-diagnostic tools, and enablement programs. For more information about how 2112 can help develop your partners into better businesses, e–mail firstname.lastname@example.org.
SPECIAL NOTE: The 2112 Group is continuously studying the impact of the COVID-19 pandemic on the channel and is making all of its topline research available for free. Please visit 2112 Resources to download the complimentary reports.
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 email@example.com.