- October 26, 2020
- Posted by: lmwalsh
- Categories: Industry Trends, Strategy
Partners say they’re already delivering quality as a value proposition; they need help mitigating risks to enable growth.
By Larry Walsh
An interesting topic popped up in a side conversation at last week’s Acronis Global Cyber Summit, the virtual installment of the vendor’s second customer and partner event. During the speakers’ lounge portion, of which I was a participant, we started talking about vendor expectations of partners to deliver high-quality and -value experiences to customers. Surprisingly, the managed service providers in attendance said that goal was at odds with their vendor experiences.
Over the past few years, vendors have shifted their focus to the delivery and measurement of customer experience. As more vendors pivot their sales strategy and models to cloud-based subscriptions, customer experience becomes paramount. No longer trapped in expensive rip-and-replace options to change vendors, customers have the latitude to change their infrastructure and software providers with relative ease. Keeping customers satisfied is a means of ensuring high retention rates. And high retention rates mean strong, reliable recurring revenue.
Stable recurring revenue is why many vendors are shifting their channel programs to include provisions that require partners to focus on customer experience as an objective. Correspondingly, customer experience is becoming a measure of partner performance and a way to determine which partners get access to higher incentives and support resources.
But in the Acronis speakers’ lounge, MSPs objected.
Already Delivering Quality
From the partner perspective, the idea that resellers, integrators, and, particularly, MSPs need to focus on quality is somewhat absurd. The partner value proposition remains what it’s always been, the delivery of value on top of the vendor product.
Back in the mid-2000s, when managed services first became a thing, the nascent providers of remote monitoring and management applications sold partners on the idea that services were the means of recapturing product margin compressed by commoditization, creating stable revenue cycles and defraying the costs of expensive and time-consuming on-site support calls.
In a way, the early managed service vendors – Level Platforms, N-able, ConnectWise, Autotask, and a host of others – were visionaries. They were selling the idea of the cloud and service models long before it became fashionable among the big tech companies.
An underlying message of these early managed service peddlers was that MSPs couldn’t rely solely on providing customers with activity reports to demonstrate value. They said they would need human touch and evidence that their monthly payments were generating something in return.
The need to demonstrate value prompted me to publish the “Half-Life Value of Managed Services Law,” which states that the customer’s perceived value of any service decreases by half for each year of the engagement. The law states that a customer paying $100 for a service today will think it’s worth only $50 at the end of year one and $25 at the end of year two unless the provider continuously and visibly demonstrates the value of the service.
That diminishing value challenge makes the vendor’s sudden focus on customer experience somewhat laughable since it’s always on the agenda.
Conflict of Customer Experience
Partners may recognize the customer experience imperative. They understand why vendors are focused on it as an objective. But smaller partners say that customer experience mandates are at odds with vendors’ other requirements: revenue productivity and growth.
Vendors – publicly traded companies, especially – are fixated on growth. The drive is relentless. Meeting shareholder and stakeholder expectations requires not just growth, but strong growth that expands the value of investments. Through growth, vendors get more money to build on the programs and operations that feed the machine for further growth. It’s a never-ending cycle.
The measure of growth is money – bookings, sales transactions, market share, and revenue recognition. Vendors look to partners to contribute to their growth by capturing new accounts, expanding existing clients’ utilization, and retaining customers at renewal. Customer experience is great, but revenue rules.
Partners say that growth demands run in the face of customer experience. Partner thinking on experience and growth is almost like Heisenberg’s Uncertainty Principle: You can deliver growth or deliver a quality experience, but you can’t do both simultaneously.
The MSPs in the Acronis lounge bristled at the idea that vendors could penalize them for not delivering growth in favor of quality, which is the underpinning of their value proposition. As far as they’re concerned, they’re the shepherds of the vendors’ brands. Through low-volume sales and high-quality engagements, they’re protecting the vendors’ base.
If vendors make customer experience a requirement for vendor rewards and support, partners say they need to decrease growth or revenue expectations. They need a way out of the paradox. They need vendor support to deliver quality, but they can’t deliver quality if they focus their energy and resources on growth.
Heisenberg Knew Nothing About Business
The channel isn’t particle physics. Heisenberg would never apply his uncertainty principle to channel programs or partners. Protons and electrons have no relation to business, which can execute on quality and growth simultaneously. Partners, unfortunately, don’t always see it that way.
Vendors often derisively call no- and low-growth resellers and MSPs “lifestyle partners.” The term invokes images of business owners that skim off the revenue provided by vendors, more concerned about their vacation homes and expensive hobbies. In truth, low-growth partners make choices out of inexperience, lack of direction, or aversion to risk. It doesn’t make them bad, but it does limit them in the eyes of their vendors. As the partners will point out, customers are satisfied despite the lack of vendor appreciation.
Risk aversion is a serious issue in the channel. Partners don’t have the financial resources or buffers of vendors. According to 2112’s COVID-19 Pandemic Impact on Channel Partners report, 30% of solution providers had two months or less of cash on hand. The best practice is three months’ cash reserve.
So it’s little surprise that partners often shy away from extending themselves to facilitate growth when they can’t afford the risk – in actuality or perception-wise.
Vendors, arguably more mature and well-rounded organizations, know the adage that “it takes money to make money” is true. Moreover, vendors understand that not every venture is a winner. Risk is endemic to business, and even the best ideas and products can fail. Making sound investments and mitigating risk is the key to success.
If vendors make the customer experience a partner program requirement and maintain that growth is a persistent objective, they must do a better job of helping partners understand the cost-benefit of doing both and provide clear pathways to success.
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 firstname.lastname@example.org.