The demands and expectations on publicly listed entities differ greatly from those in private hands - but does a change of name on the title deeds have any impact on how a vendor engages with the channel?
The security and networking sectors have seen a raft of relatively young vendors float on the stock market in recent years. Ian Kilpat-rick, chairman of VAD Wick Hill, claimed he has seen many who have run their business prudently before, during and after an initial public offering (IPO). But for others the process “can be a massive distraction”.
“Sometimes, pre-IPO, a vendor’s behaviour changes to cut costs and increase sales,” he explained. “A vendor that we compete against experienced an issue after they did not manage to get an IPO; having already pushed their price down to pump up sales, they are now having to change it back. An IPO can go well for people, but it can also go dreadfully.”
Kilpatrick also argued that a high-pressure sales ethos focused on meeting quarterly expectations is not solely the domain of publicly held firms.
“By preference we would partner with a company that is overachieving - in which case they do not worry [about missing quarterly numbers] - or those that are looking for long-term growth. It is all down to investor expectations, [and we want to work with] those that are strategically focused for growth, rather than those that are just focused on the next quarter end.”
C-View Technologies makes software that helps vendors manage their channel operations, and the firm’s co-founder Gregory Smith agreed sales pressure on public companies at quarter-end can contribute to partners seeing their margins go down “in the race to zero”.
“A key angle here is whether or not business strategy is held hostage to the quarterly performance cycle,” he said. “Public companies focus too much on the current quarter at the cost of longer-term strategies that private companies can explore without shareholders challenging this. Giving large discounts at the end of a quarter to get the deals in that quarter is a great example [of this].”
But working with publicly owned manufacturers can have its benefits. MTI’s core partners include giants VMware, Cisco and EMC, and the VAR’s marketing director Richard Flanders outlined that the openness of listed companies can be positive for the channel.
“It is helpful for us in some ways to understand what those companies are going to come up with, in terms of the development plans, because they have to be that much more forthcoming with what their plans are,” he said.
Flanders added that when smaller vendors undergo an IPO, the resultant publicity can be a boon, as seen with Palo Alto’s recent IPO.
“It has definitely had an impact on our business. We have seen an uptick around firewall [sales]; anything that improves the profile is, ultimately, welcome,” he said.
The MTI man has a better understanding than most of what the IPO process entails, having worked for VMware when it went public in 2007. He explained that management processes become more demarcated and, perhaps, less entrepreneurial.
“We went through a cultural change in that people’s roles became much better defined,” said. “It was not all hands to the pump any more; we were governed by a framework.”
Barrie Desmond, group marketing director at distributor Exclusive Networks, agrees that the process of going public necessitates a manufacturer taking a more granular approach to management.
“Speed is key in terms of our go-to-market proposition; with a lot of start-up companies we have access to the CEO, CFO or CTO,” he said. “It is just harder to get decisions made [when a vendor goes public] - there are layers of middle management. The relationships do not necessarily become weaker, they are just at a different level. [Typically] we will still have access to the vice president of Europe.”
Desmond explained that his firm splits vendor partners into three groups: new and emerging, where the partnership focuses on channel enablement and recruitment; growth, where services revolve around demand creation and market-making; and core, where the relationship progresses to focus on brand positioning and accreditation. It is at this point that margins may start to erode somewhat, he claimed.
Terms of endearment
Michael Keegan, managing director of Fujitsu’s Technology Solutions division, claimed that being publicly quoted - particularly on the comparatively less-stringent Tokyo market - has benefits for the vendors’ partners.
“We are a long-term strategic partner committed to the IT industry and in a completely different situation from most of our technology manufacturer competitors and a lot of the people owned by private equity funds; I think that is a huge advantage,” he said. “If you are a reseller, you want to be dealing with us as we are not subject to all those pressures. We are long-term committed and do not take silly short-term decisions.”
But Keegan was not surprised that his rival might be open to advances from private equity suitors.
“I can quite understand why Dell wants to hide from the stock market - their valuation has gone down since 2006 and there is an issue for them there,” he explained.
Glyn Heath, chief executive of VAR and ISV Centiq, pointed to the transparency of a relationship with a listed vendor and the level playing field afforded to all VARs as a key benefit.
“The contrast with privately owned vendors can be significant,” he added. “But both [public and private] approaches allow resellers to take advantage of all the opportunities and support available to them. So long as it is clearly communicated to channel partners what exactly the agreement requires of each party, whether that is a one-page document or in some cases three folders’ worth of documents, it does not matter who owns the vendor.”
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