Over the last few months we have spoken to a number of vendors who are looking to either start off in the UK & Ireland or expand their market here and you wouldn't believe how many times we have asked the question: "What numbers do you think you will do in the next 12 months?"
Only to be met with: "About £1m."
You may wonder why alarm bells ring when we hear this, and the reason is that this is typically a number that people think you want to hear; it sounds respectable, but all too often this number is plucked out of thin air with no real thought or "channel science" applied to it.
On a recent call, [ABCD Services director] Ryan Compagnone and I were talking to a vendor and when we asked the question around expected revenue in the next year the answer was £800k. This was worked out with genuine best intentions based upon:
· Current revenue
· Current pipeline
· Partner interaction and opportunity creation
· Reasonable partner growth without losing focus on existing partners
· Ensuring current partners continue to make money from the solution
· Market trends
When speaking to this vendor we believed their number was accurate. For some big vendors out there, this number is a day's revenue but if anyone has worked with a genuine fledgeling vendor the first one million dollars/pounds/euros are the hardest you will ever have worked.
In those early days, it's about building credibility, opportunities and pipeline without a huge marketing machine or channel strategy behind you.
Having worked with some of the big channel vendors and emerging vendors I can tell you which is the most difficult - I would urge everyone at some point to work with a start-up as that experience is invaluable if you can carry that onto more mature vendors or channel roles.
On the flip side of this, however, only last week Ryan and I were on a call with two people from a vendor and we asked two questions:
1. What is your current UK & Ireland revenues?
2. Where do you see them being in the next 12 months?
The answers were:
1. Well, they've been a bit all over due to what's happened with COVID. And the numbers we have done are not a true reflection on the market, but I cannot give out exact numbers.
2. Well over £1m, possibly over £3m.
Now, at this stage alarm bells start ringing; if you don't want to discuss your current numbers - even approximately - that may mean you aren't overly happy with them.
We understand you may not want to give exact numbers but something is amiss if, as a vendor and a partner in the UK, we cannot discuss some high-level numbers. In 12 months' time we will have seen the UK business anyway, so will know first-hand the business levels.
But the second answer is even more concerning.
£1m-£3m is quite a wide scale. It's amazing if a vendor can overachieve by such a large percentage and we know it has happened many times, but for every time it has happened there are 30 times it has not.
When we started drilling into the numbers - based on the next year's target of "£1 Million", for argument's sake - the sirens were well and truly going off as this is the conversation:
"What's the average deal size?"
"Ok, so that's between 10 and 20 deals per year closed to hit minimum number?"
"Yes, that's right, we think we need about 80 opportunities to hit this number."
"Ok great, how many partners were you expecting to work with this year?"
"Errm, 15, maybe a few more."
"Ok, so you are expecting each partner to close maybe one deal each in the next 12 months?"
"Yeah, we do. Some may do more, some will do less, but that's our plan."
"If we do that, do you think those partners will really value your relationship based on maybe doing one deal per year at approximately £50k-£100k revenue? Looking at that from a partners perspective - assuming they retain 25 per cent - that's somewhere between £12,500 and £25,000 GM per year. If a partner turns over £10m per year, how important do you believe you are to their business?"
"Errrm, well it's about the partners doing the work now and they will then see the rewards in years two and three."
"Hmmm, that's not really how this works. Partners need to justify quite early in a relationship that their efforts can create a tangible pipeline that will eventually turn into business. If they don't see that, their efforts will go to the next challenger vendor or existing core products. Don't you think it would be better to focus on fewer numbers of the correct partner rather than many that aren't correct and will make no money from it?"
"No, we need to show we have recruited partners as that's part of our strategy that we have promised to our CEO."
"Ok but that strategy is wrong. Wouldn't you rather have a strategy that works with partners who give a s**t about you rather than implementing a strategy that's wrong but ticks a box at your end?"
"This is what worked for us in the past and we will do it again."
"Was that in the UK?"
"No, but we have experience of building channels in other territories."
"Ok we wish you well. Let's speak in a year when you need to rethink your strategy."
Obviously, some of this isn't word-for-word, but this was the general gist of how the call went and is a good example of how numbers are thrown together without any specific thought as to how the channel makes money from their efforts.
As our team speaks to vendors and advises them on their strategy to grow a channel, we stress that the CEO (based somewhere not in the UK) probably doesn't care about partners making money from their solution.
ABCD does care; we know what works, how to get partner buy-in and ultimately let them see rewards for their efforts. If a vendor doesn't take this into account, the partners will not be partners for very long.
In the channel, it's about being honest upfront and maintaining credibility. This takes a long time to build but can be lost very quickly.
If we knock on your door with an approach from a fledgeling vendor what I can tell you is that the channel strategy has been thought out, the numbers today and for tomorrow will be accurate and part of our role is to know your business, so we only approach you with vendors that suit your profile.
This process won't work for every vendor, but for us, it will work with every vendor that wants to build a successful channel.
Chris Walsh is managing director of channel lifecycle services firm ABCD Services. This article first appeared on LinkedIn.
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