When a large company is approached by a small company about being a channel partner, the mistake agents of both parties tend to make is to operate in simultaneous self-interest rather than mutual interest. At first read, one might wonder if there is a difference. Here’s how self-interest alone often plays out. The agent of the large company wants to make sure there is a large royalty, and that the small company’s solution does not compete in any way. The agent of the small company is all too happy to grant a large royalty as long as the financials make sense. Beyond that the agent of the small company wants to ink the deal as quickly as possible so that the small company can begin seeing the benefits of having a large channel partner “motivated” by generous royalties. But the resulting agreement often lacks a collaborative strategy to increase the sales of both company’s solutions. The royalty alone is simply not a great enough motivator, and the absence of a strategy leaves the newly-inked channel agreement hollow. This result is all too common. Below is a detailed description of what happens and what can be done about it.
Common Problems of Anemic Partnerships
Sales Executives. Large company sales executives receive no commission—or at most nominal commission—for partner company product sales. They are even less likely to have their quota retired by sales of a partner company’s products.
Sales Enablement. The large company’s field enablement organization does little to nothing to promote the partner company’s products or train the sales force in the partner’s value proposition for target customers.
Sales Management. The large company’s sales managers question any product bundle that includes a third party solution, and will pressure sales executives to divert any customer budget to “up-sell” the large company’s own add-on solutions such as professional services. Sales executives will also be chastised for spending time speaking with the partner company, instead of talking to potential customers.
Marketing. Joint marketing is limited to (i) a booth at the large company’s premier events, and (ii) permission to name the large company as a partner in promotional collateral.
From the point of view of the large company’s leaders, they want their sales executives solely motivated to sell the large company’s own products. The large company gladly takes and pockets partner royalties, so long as they do not think their own solution sales suffer. As such, a large company’s management team only wants its sales executives to sell the small company’s products when bundling such products make the deal happen for the large company’s products. The result is that the partnership with the small company is merely convenience and not a true partnership.
Negotiating a Vibrant Partnership form the Beginning
(or at least at Renewal)
A small company needs to resist the urge to ink any partnership deal quickly without going to the other extreme and either losing or substantially delaying the relationship. There is always the renewal in a year or two if things cannot be ideally structured the first time or even at the first renewal. Since the one thing the large company wants during this negotiation phase is a generous royalty, the royalty rate needs to be traded for what will motivate the large company to act in mutual interest: Sales incentive and marketing incentive.
Commissions. Ask for your company’s products to appear on the large company’s commission schedule. Ideally, such sales should likewise retire quota. This may be difficult to negotiate but it is important to at least ask. If refused, the next request would be the right to compensate the large company’s sales executives in some way, such as a quarterly and/or annual award for the highest sales of the small company’s products. Use this time to brainstorm for creative solutions that will work for both companies.
Soft Dollars. Set aside some—or even all—royalties to be paid in soft dollars rather than cash. The soft dollars can be used to fund joint field marketing events. Such events can be extremely successful because potential customers view events sponsored by more than one company as industry neutral and are more likely to attend. The larger company gets more relevant attendees while the smaller company gains access to the larger company’s contacts. As the soft dollar balance grows, field marketing teams will find creative ways to host more events.
Promotion and Training. Schedule training and promotion for a venue in which the large company’s sales executives are unlikely to skip the event. Offer to have your Founder, CEO or CTO speak briefly at the annual sales kick-off with a break-out session offered for more advanced training. These do not necessarily need to appear in the contract if they can be formally scheduled during the negotiation process. Smaller events such as quarterly regional sales meetings can also work well. When finalizing the contract or renewal, ask to be introduced to the regional vice presidents for such purposes.
Connecting and Collaborating. Get introduced to as many key stakeholders at the large company as possible. A great way to do this is with a “kick-off” meeting or conference call. Depending on how large the company may be, meeting every sales and field marketing executive may not be possible at the kick-off meeting. If the company is particularly large, focus on getting introduced to the line managers and make sure your kick-off presentation will excite them about how the partnership will drive more sales for the large company’s solutions, not your solutions.
What Can Be Done Prior to Renewal
At any given moment, however, a small company is neither initiating nor renewing a channel partnership and must operate with any agreement in place. Fortunately, there is still hope. Here are some things that can be done to improve the value of the channel relationship.
Informational Lunches. Everyone loves food, and people are going to stop to eat anyway. Schedule informational lunches at headquarters and regional offices. Those who show up get free lunch. Those who stay until the end get yummy desserts. The small company should deliver a forty-five minute or shorter presentation that explains in what situations bundling the small company products with the large company solutions will improve the competitive position of the large company to make more sales and/or larger sales.
New Opportunities. If the relationship with the large company is exclusive in that the small company is not partnered with any of the large company’s competitors, the small company should be perfectly comfortable selling a joint solution and then bringing in the large company’s sales executive after an opportunity is qualified. As the small company’s sales team gets to know the large company’s sales team, they can even ask what target customers have been particularly difficult to penetrate. If the small company can penetrate at least one challenging account, word of the small company’s value will spread throughout the large company’s sales organization.
Joint Marketing Events. Even if not funded by soft dollars as mentioned above, marketing teams may be in a position to jointly craft anything from online to multi-city events that will attract prospects in common to both companies’ advantage.
Premier Large Company Events. Attend the large company’s premier events and socialize the stakeholders. By showing up, the small company can distinguish itself as a committed partner rather than simply a name on a list. Sales and marketing executives can be engaged individually at convenient moments in a low pressure venue. Likewise, every business card can receive a courtesy phone call or email after the event is finished.
Channel partners can be a great source of business for growing companies when structured and managed effectively. But such partnerships only begin when a channel agreement is inked. The work that follows is what makes the partnership truly vibrant. If you have further thoughts on this subject, please comment below.
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