Is the cloud killing your business?

Is the cloud kiling your business?

Is the cloud kiling your business?Cloud adoption is accelerating and it is also in the process killing many businesses. I read today an interesting blog entry “Are Cloud Vendors Cutting Out the Channel” and this article explains in great detail what is happening on the marketplace in respect to channel partners including value-added resellers (VARs) and MSPs. I remember vividly when Steve Ballmer suggested strongly a few years ago that Microsoft partners should really start adopting the cloud and a couple of years later, he stated that it might in fact soon be too late as the competition is already doing it. Pure channel partners with a business model to resell without adding any value will disappear from the markets.

I have recently talked to quite a few channel partners and the common message that I heard was that the markets are getting tougher and having a business without having a specialty or vertical experience might in fact kill the business sooner than later. I am seeing this also among software vendors that are refusing to adopt the cloud model. There are thousands of new pure SaaS entrants that want to be new market leaders in their domain and many end user organizations are refusing to go with the old-fashioned model where IT departments are the only part of organization that will be buying software and services. Based on the blog entry today, Tiffany Bova from Gartner concludes that many IT consumers are now “front-office buyers” from departments such as sales, marketing, finance, and human services. These departments are bypassing the centralized IT and this type of “uncontrolled” buying pattern will continue going forward in my opinion.

Microsoft management has been vocal to its partner network that every partner should by now be looking at cloud transformation and Kevin Turner (Microsoft COO) expressed his concern during Microsoft Worldwide Conference in Houston (July 2013) that only 3 percent of the company’s channel network was actively selling cloud services and this included products such as Windows Azure and Office 365. These numbers will change with time and I am convinced that there will be many partners that will experience the pressure the hard way. If the channel partner starts too late with the transformation, it might become irrelevant and have the wrong type of personnel with skills that do not match what the market wants. I am sure that somebody reading this blog will not agree with me, but I have seen already now quite a few channel partners that do not know what to do going forward. There is a real need to reboot the business model and rethink how the company will be surviving in the future.

I forecasted a couple of years ago that Sony will not survive the competition of e-books and devices due to many factors, Amazon Kindle being one of them.  A few days ago, I read that Sony will be exiting the business. Sony had its own e-book format and I was one of the ones that spent hundreds of dollars in books, which now will be converted to Kobo Android devices. I have no intention to buy any new devices. The reason I am sharing this is that even large organizations are forced to change the business model every now and then and consumers make wrong bets on the horse that they should be riding.

When I look at the global markets and what is happening around us, the change has accelerated in software domain and it has taken many by surprise. I would not be surprised that we hear bad news from many large industry dominant players in the software space that the transformation into new generation solutions has failed and consumers and businesses have adopted technologies that are more nimble and easy to use. It is very dangerous to ignore the trends and even more dangerous to think that market leadership means anything without hard work to maintain it.

A Case Study – Creating a VAR Development Program

This blog entry continues on my first blog entry where I concluded that the channel does not work for the ISV, it is the ISV that has to ensure that the channel has the tools to become successful with the solution itself.

In my second blog entry I highlighted a case study of a successful ISV that was able to grow its business by doing the channel development by identifying an impactful approach where the VAR channel felt that it was a win-win situation for both sides.

In this blog entry I am high lightening the VAR development program (Phase 1) that SolidWorks created for its channel and as I stated in my previous blog, this program was almost like a mini-MBA where the ISV wanted to facilitate and help its VAR channel to run its business more effectively. The program that David Skok highlights in his blog entry as phase 1 of the development program is divided into two main areas: Business Management and Sales Management.

VAR Channel Program-001

From the picture above, the channel assessment was reviewed from these two perspectives and each of these perspectives are divided into smaller components that have relevance specifically when running a VAR business.

Cash is king as they say and I have also experienced this as an entrepreneur. What ISVs tend to forget is that somebody has to fund the activity to build the funnel of the solution that the ISV wants to sell. So lets review the typical steps that we expect to happen when an ISV signs up new channel partner:

  • The ISV wants to ramp up the activities immediately once the deal is signed, which means that VAR technical and sales team needs to be trained and educated of the intransiences of the product and learn how to take objections from the target prospect market segment.
  • The ISV expect the VAR channel marketing team to dedicate resources to start building the funnel and sometimes forgetting that there are other products that they might have in their portfolio.
  • The ISV Channel Account Manager puts effort in getting things going as he/she is the one that will have the pressure of getting first deals going and to ensure that he/she meets the budget.

With all of the effort that has been put into the joint effort, the VAR finally signs its first deal and now everybody can be happy. On top of this, the deal is very sizable and this makes the VAR a bit nervous as there are some financial risks that it now has to carry as it carries the paper with the end user organization.

The project starts, everybody is working hard on getting the client happy but sudden and unexpected issues comes up in the implementation. The customer tells the VAR that it is unacceptable and they will not pay until the software has been fixed. The VAR tells the customer that they do not have the means to fix it as it is the ISV that carries that responsibility. The customer tells the VAR that that is not their problem, the responsibility is with the VAR as that is whom they bought the solution from.

As the invoicing relationship of the solution delivery is between the VAR and the end user organization, the VAR runs into issues as an invoice has already been issued from the ISV and they want to get paid.  This puts the VAR management to sweat and now they really understand the consequences of this and need to do something about it.  The ISV wants to get paid, but the channel partner has not got paid yet. Worse than this, the software included bugs that the VAR can’t do anything about and has to wait for a fix. The ISV still wants to get paid, no matter what as its view is that this issue has nothing to do with them. I am sure you get the scoop of the vicious circle.

If the ISV is reasonable, they will work with the VAR and the end user customer to get it right, but unfortunately I have seen cases where the VAR has really run into a wall. I can’t imagine how that feels as I run my own business every day and have to consider risks and rewards when conducting the business. In large organizations with huge cash piles, this might not be a problem, but for the majority of ISVs, SIs and MSPs, this could be a huge issue.

The scenario above describes some of the areas where the VAR has to pay special attention when running its business. The number one in business management side is cash flow and how to manage it when dealing with ISVs and purchase management overall. I have run companies with high growth and one of the most pressing issue seems always be cash flow. People want growth, but with growth you need cash flow. Sales in your books does not mean that you have money in your bank account. Having lots of receivables might feel good, but you can’t feed your family with receivables.

The second area is “Sales Capacity” where typically small VARs become the victims of their own success. Skok concludes that a typical successful VAR is where the business owner is number one in sales, but one person does not scale up to grow the company. There needs to be more than one to scale the business. If the owner becomes the gatekeeper, then that becomes the bottleneck for the growth for both the VAR and the ISV.  What a VAR needs is a strong sales manager that can scale the sales, follow and create processes and the owners should keep away from that (my observation).

Also, what is typically undervalued among VARs and ISVs is market research and what sales people tend to use as an excuse for poor sales is that the “market segment is saturated’. Good research includes information about market size, market share, historic customer growth rates and sales coverage etc..

According to Skok, one of the most difficult task that VARs are struggling with is the requitement. I can really believe this. The key for success is to build an interview process to identify the right candidates and even if you become good at this, you will still fail. I have.

What an ISV might see with its channel is that VARs are hiring new employees, but there are more leaving the company that coming in. So what will happen is that the VAR has new people that are learning “the ropes” and then the ones that have learned are leaving for different reasons. The VAR ends up having a situation where the skills don’t meet the demand of the market.

One key thing that is often ignored is to ensure that the employees have a good view of their professional development,  like sales people having strong  product training, presentation training, and  sales management training.

And finally, and probably one of the most difficult tasks: how to manage and review the pipeline that everybody presents to the management. How should the VAR and ISV ensure consistency in the pipeline? One of the key things for both ISV and VAR is to create a standardized view on the pipeline, not based on each and every sales persons personal definition which is typically biased to his/her own preferences.

The question is what kind of deliverables can an ISV and VAR expect from both Business and Sales Management exercise? The way Skok defines them is in following way:

VAR Channel Program-002

It is obvious that each one of these need to be worked on and each ISV will have to estimate how much to put effort into this exercise. Also, what something might work for one organization, could be very different for another.

The next phase of this case study I will discuss about the way that the case study ISV segmented and categorized its VARs and their ability to grow. Stay tuned for more.