January 1, 2008
By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

Fine-Tuning the Channel

The title of this magazine is CRM, not PRM

, but the two concepts -- different as they are -- deserve to be considered together. Both, obviously, are about managing relationships; both can lead to great success if handled well, or disaster if bungled; both have a number of technology solutions built around making the respective processes easier. Most important, channel partners fill a crucial void: Customers who purchase your product or service through the indirect channel see no real distinction between you and your partners -- the partner, in effect, is you, or at least your immediate proxy; and that partner is basically your customer contact. CRM's purpose is to manage direct sales engagements between a salesperson and a buyer. The process involves collecting and sharing data throughout the customer lifecycle, from lead to prospect to close, and becomes, by the end, one-to-one in nature. PRM, on the other hand, is designed to manage business relationships between multiple independent partners and a main vendor, a one-to-many model. Thus, PRM is about aligning business processes across the entire value chain: vendor, partner, and customer. These two disciplines can (and should) work together, but they are not the same thing, according to the founder of channel management software provider BlueRoads, Axel Schultze, who examined the CRM/PRM disparity in an "Experts On Call" article in this magazine back in 2004: "Comparing the difference between managing customer relationships and partner relationships is similar to comparing the difference between a bus and a plane," Shultze wrote. "Both are designed to carry passengers from one point to another. However, a bus is designed to travel on land, and a plane is designed to travel through the air. Putting wings on a bus will not make it fly." Who Needs a Channel? In August 2006, AMR Research reported that an estimated 70 percent of companies earn most of their revenue through indirect channels such as dealers, agents, value-added resellers (VARs), wholesalers, and distributors. Different verticals, of course, have different approaches: Auto manufacturers operate through independent and competitive dealers, for instance, while insurance companies have local agents authorized to sell policies. Even within a single vertical, there can be differences: Business-software vendors, for example, typically operate through VARs, but there are a number that use retailers. The companies best able to take advantage of indirect sales are those "who understand what they do well and what they don't," according to Jim Dickie, a partner with research firm CSO Insights. "They must have the maturity to ask themselves, 'How do we hand off business to somebody who excels in what we don't?' " It might seem redundant to say so, but if you have a channel, you need a channel program. There's no point entering into business arrangements with a vendor that doesn't provide information and support. Channel partners deserve and demand the same support structure that you provide to your own direct sales force. "When a rep comes back from a meeting, he has a piece of paper; we want it to be an order, but usually it's a to-do list," Dickie says. "A direct rep has the info to act on the list, and knows whom to call. The channel rep probably doesn't." Partner support is so necessary because customers demand more than a simple transaction -- the value-added part of the phrase exists for a reason. It's not enough to be a middleman, especially in the technology arena. "In the past, customers fell in love with the technology itself," Dickie says. In the good old days, he adds, "ACT! sold like hotcakes. Not because of the partners -- often in spite of them." Today, that disconnect simply won't fly: If a customer looking for insight and influence into a product doubts the partner's connection to the manufacturer, that customer is going to look elsewhere. So how can a partner who isn't intimately familiar and in regular communication with the vendor possibly be able to provide any extra utility? What Are the Challenges? One of the first things companies must deal with when constructing a partner deal is making sure the arrangement is sensible. "The success of any channel strategy is predicated on planning -- the main goal of which is to reduce conflict," Dickie says. "What's a win-win-win? Win for me, for customers, and for partners." Channel conflict is a major barrier to success, because a partner who feels competitive with the vendor has no motivation to communicate up the chain. It'd be like siding with the enemy. You don't want your partners thinking your sales force is going to steal their deals. "Smith Barney has a sales force, but also works with advisors. The sales force may see them as competition, but Smith Barney corporate sees them as partners," Dickie says. Having partners just to build a long list is pointless; having them overlap your own core competencies can be disastrous. Dickie suggests companies slice their channels in clearly defined ways, such as geography. Skill sets are another good way -- if a partner is good at selling tablet PCs into medical venues, for example, that's what you should rely on that partner for, and you shouldn't chase that particular portion of business yourself. Another part of the challenge is motivating and supporting partners to excel. Lead generation is one of the ways in which you're most valuable to your partners, pointing them to new business. Configuring solutions for them to further customize is another. The list can go on and on, but it all boils down to opportunity management -- making it so easy and profitable for them to work with you that they'd be hurting themselves not to. "Partners aren't 100 percent dedicated to you," Dickie says. "If you don't make it easy, they'll sell something else." Solutions Just as with driving a car, the best way forward is to focus down the road, not on what's right in front of you. "Take your eyes off of the immediate," says Ed Kless, senior director of partner development and strategy for Sage Software, a company that sells its CRM products almost exclusively through channel partners. "The question has changed from, 'How can we help you close business this month?' to 'How can we, as a publishing organization, make your business better?' " So, while it's important to invest in PRM technology, the real investment is in PRM itself -- the concept, not the coding. "It's not a technology problem, it's a relationship problem," Kless says. "Our goal is helping partners with strategy. You've got to have great products and support already -- it's the ante for being at the table." If channel programs exist to help partners, you should provide any help you can. Pricing programs, hiring assistance, and training courses that go beyond the scope of your product all can help bring your partners closer to you. Kless notes that it's no accident his title is about partner development and strategy. Sage offers several programs to its partners, he says, including a leadership academy and a consulting academy, because it's strategically sound to develop partners' ability to excel. "Focus on expanding their business," Kless advises. "Software implementation is an accidental industry. Nobody comes out of school saying, 'I want to implement CRM products for a living.' We teach the basics of what it means to be a consultant to influence decisions and ask great questions." Social media is another area of expansion for the best partner programs -- Salesforce.com, for example, just introduced a social networking feature to its platform. "A lot of learning inside a company happens around the water cooler; you don't have that with the channel," Dickie says. "Build that water cooler -- the partner social network -- so that channel partners can post, discuss, and build a community. They'll discover that it's an asset, not a place to give information to the competition." In closing, Dickie reiterates the importance of having a living, breathing, evolving program as opposed to a static portal where the "partner stuff" goes to die. "Products and partners have ups and downs; you must constantly reevaluate them," Dickie says. "Not just for one channel -- every channel. Not as a one-time event, but continually." SIDEBAR: In the Network We posed several questions to members of LinkedIn, a social network of professionals. Here are some responses: Why should a company employ channel partners, and what companies are best positioned to take advantage of a third-party sales channel?

"Because it is a great way to reach a huge number of new prospects from a source they already know and trust. Channel partners are a great way to extend your marketing efforts. Also, because you have a relationship in place, they know how to support your product and can be an advocate." -Misty Khan, President and CEO, Advena Artemis

"Quick market entry -- building a network of partners assumes the local market contacts are established or easy to develop and the business can take off with minimum cost and maximum results. Flexible companies, with good communication programs in place, structured operational processes, and strategic planning...are always going to derive the best results [from] partner programs." -Ruxandra Dariescu, Managing Director, avanTARGET

"For a growth company, a third-party sales channel can be a lower-cost approach to expanding your sales force, and if the channel partners are well known and respected in the target markets it can provide your company a legitimate profile within -- and reduce barriers of entry into -- new markets. It also reduces the cost of setting up a new channel partner, making your channel a scalable ecosystem of partners. However, a company needs to have a proven and easily repeatable sales process, as channel partners usually are not interested in helping you define that process." -Troy Wing, CTO, Forcelogix What makes a good partner program? And what do you have to consider when building one?

"We are still working on our VAR program, but I think what has helped me most is to have a good working relationship. I get referred into a lot of clients by IT support vendors -- they know that I will support them and we can speak each other's language during installation and support phases." -Misty Khan

"[The] first element to consider is the criteria of selecting partners. Make sure there are individual partner targets and the support tools are in place. Good programs involve long-term management, regular communication, regular reviews, and a lot of new customers signed up." -Ruxandra Dariescu

"The key is low cost of sales. First you need to identify, within your own sales group, the bottlenecks to revenue growth. This could be new verticals, or geographical issues. Then, when qualifying prospective partners, you need to assess whether what they bring to the table (resources, reputation, prospects) will solve these bottlenecks. Any noncompete terms must have expirations and 'out' clauses for missed targets, to apply pressure on nonperforming partners and to give you the option on selling into the same markets. From the partner's perspective, equitable margins, achievable but [sizable] targets, long enough noncompete periods, repeatable and trainable sales processes, and low cost of sales will make the program attractive. Regular communications, training, and a good and informative partner portal all help. Another key -- and probably obvious -- point for a successful partnership is that the service or product you are selling is complementary to the core competencies the partner offers." -Troy Wing SIDEBAR: The View from the Other Side of the Fence All partnerships are fraught with conflicts and complications. Your channel partners don't have to love you -- but they do have to feel as if the relationship at least benefits both sides a little. Resting on the notion that partners remain steadfast out of loyalty or desperation is a surefire way to end up with "channel conflicts" that have nothing to do with salespeople stepping on toes. Several CRM vendors have some version of a Business Partner Advisory Council (BPAC), which, at its best, can serve as a sounding board for new features being developed, and a venue for airing feedback -- either constructive or simply critical. Brenda Brinkley, of Texas-based Epiphany Inc. (not to be confused with the software firm acquired by Infor), has been a partner with NetSuite since 2002 and is a member of its BPAC. She says that the most important trait that partners look for from a vendor is "a good product that's a great fit for the market," but, she adds, true partnership runs deeper. "We have to feel there's a real, long-term value," she says, adding that "the ability to have relationships with product management...and to be more than just a partner who sells [the product] is huge." But no marriage is perpetual bliss. Some missteps are simply vendor-side growing pains. "The relationship has had some rocky moments as NetSuite has ironed out their program," Brinkley says, adding that it's very good right now. Other problems are more endemic. NetSuite, she says, "still has and will not get rid of what I call 'a conflict model' -- having a channel and direct sales force in 100 percent competition with each other.... We've found ways to work around this, but there are still times when it's painful." Business-solutions firm MTSI has partnered with Siebel since 1998 and with Oracle since 1999. Now, according to MTSI President Balasubramani Ganesh, the firm is focused on providing implementation and integration services on various Oracle/Siebel applications. Ganesh says that he wants a partner to "examine how we can better service the customers and add more value to the customer [to] solve real-life, real-time customer problems," and cites communal benefits that a successful vendor-partner team can derive in demand generation and in setting up customer advisory councils. "We're [also] looking for better ways of creating opportunities for our clients and prospects to network," he says. "Ideally, [the relationship] should be transparent to our customers," he adds. "The best scenario is that we go in as a single team -- not [as] two different companies -- and help resolve problems." In a perfect world, he says, there would be more transparency through a combined approach. "Success" doesn't always mean parity or equality, though. In the end, the results are all that matter: "We're able to leverage each other's sales and marketing strengths," Ganesh says. "We've been able to help each other out and take care of customers together." --Joshua Weinberger If you have channel partners -- or you've ever been one or bought from one -- chances are you've got a good story to tell. Share it with us by sending an email to editor@destinationCRM.com. Contact Senior Editor Marshall Lager at mlager@destinationCRM.com.