The Channel Challenge

Part 1: Obstacles to services partnerships
by James A. Alexander, Ed.D. 

Organizations serious about selling services often must look to channel partners to help them reach their services objectives. However, under what circumstances is it a good idea to use channel partners to deliver services? How about selling services? How do you decide which types of services they should sell and/or deliver? 

And when it comes right down to it: Who are your channel partners? 

Depending on your situation and your industry’s nomenclature, your potential services channel partners might be called distributors, wholesalers, dealers, value-added resellers, manufacturer representatives, system integrators, consulting firms, independent services organizations, independent services providers, or in some cases, direct competitors. These channel partners may range from one-person shops to multinational corporations. Furthermore, in some situations, it makes sense to consider your customers as potential services channel partners if they have the capability and the desire to self-service your offerings themselves. 

So as you build and broaden your services capabilities, what is the best way to deal with existing channel partners whose primary focus has been product sales? How do you minimize competition with existing channel partners who already offer the services you are building and planning to deploy? What are the criteria for selecting partners in situations where it makes no sense for you to go direct? Read on to find out more. 

Traditional use of channel partners 

It is important to remember that in the majority of situations, companies first looked to channel partners to help them sell more products. Properly selected and managed, motivated channel partners helped companies sell more products cheaper and easier than they could do on their own. 

In a traditional partnership, your company’s emphasis is on getting your channel partners capable of selling your products the way you want them sold and keeping them motivated to sell your offerings, and not your competitors’ offerings. 

The concerns with services channel partners 

Services channel partners are different than traditional channel partners. That’s why services executives often identify “effectively finding and managing services channel partners” as one of the more difficult aspects of running the services business. Research (see Figure 1) confirms this, revealing that services operations’ biggest critical issue is dealing with channel challenges. This probably doesn’t surprise many of you. 

Research respondents specifically cited such concerns as two-tier distribution channel conflict, balancing disparate goals between partners and the services organization and sales channels that do not know how to or do not want to sell services. 

Challenges of finding and keeping strong services channel partners 

In considering the right services channel partners for your needs, you must address several issues. 

1. Complexity 

In some situations, your organization is responsible for selling services, and all you need is a competent, reliable service provider in a specific geography or industry. In other situations, you may look for someone to sell your services while you deliver them. 

In still other situations, you may want your services channel partner to both sell and deliver your services. Or you may want your channel partners to sell and/or deliver certain services but not others. You may also prefer that the mix of services (start-up, uptime or professional services) vary by geography, market, industry or type of customer. 

And, of course, your potential services channel partners will vary in their existing services capabilities, their desire to deliver services and their motivation to sell services, depending on their history, business strategy, goals and opportunities. Furthermore, just like your organization, their capabilities, strategy and motivation will also vary by industry and location.

 You must consider dozens of variables as you decide how to sell and deliver services in different scenarios. 

2. Reputation at risk 

In situations where you have a third party delivering your services, no matter what the name on the services provider’s shirt, your customers think of it as an extension of your organization. Hence, customers relate a good service experience with your services channel partner to your organization, but they also hold your organization responsible if they are dissatisfied with the channel partner’s performance. 

A few bad experiences from a few channel partners can have a major impact on the reputation of your services organization, and can negatively impact your company’s overall brand. 

Like it or not, your image is directly tied to the performance of your channel partners. 

3. Maintaining quality control 

Getting people to do what you want, how you want and when you want is never simple, but it is much easier when they work directly for you. Getting people from another organization to consistently deliver services up to your standards is tough. This becomes a bigger issue when you are trying to deliver a global service quality standard around the world using multiple channel partners. 

For example, it may be next to impossible to find services channel partners in certain remote locations such as Sahara Africa, let alone assure the quality services performance of their actions. Moreover, difficult terrain, extreme weather and the customs and laws of some third-world countries add to unpredictability, high costs and an increased probability of not achieving planned performance standards. 

Maintaining consistent quality around the globe is the Achilles’ heel of the services executive. 

4. Creating competitors 

When you introduce another organization to your business model, educate staff on your products and train them to effectively and efficiently sell and deliver your services offerings, you run the risk of creating a future competitor. 

Things change. Plan for the best, but prepare for the worst. 

Sometimes you may not know who the customers are. If your organization has relied on distribution to sell products in the past, you may not know who your end users are. The emphasis may be on getting resellers to first buy, and then sell, your products, and not much else matters. 

In this scenario, the only service concerns your organization would have are keeping warranty costs to a minimum and making sure the resellers meet minimum levels of customer satisfaction. Hence, your organization may not see the need to develop a database of product end users. 

Without an accurate database of your installed base, effectively selling and delivering services is almost impossible. 

5. Resistance from existing partners 

Ponder Point: When you change the rules, expect lots of protest. 

In finding services channel partners, you may first want to consider your existing channel partners as candidates because you already have a relationship with them, and your existing agreements may require involving them. In addition, you may get pressure from the sales organization to give this group the right of first refusal, as they want to do nothing that jeopardizes product sales. 

Yet, remember that the focus of the majority of your existing channel partners was and is to sell products, period. The primary components of your agreements with them are all about product sales volume. This is what your organization has wanted and focused on, possibly for decades. 

Most of these partners have a product-centered culture (like your organization once had or currently has) and don’t want to deal with services. They see it as a distraction and a detriment to running their business. Hence, they will resist your overtures or requests or demands that they now build services capabilities and/or selling services competencies. 

On the other extreme, though, within your existing channel partners, you probably have a small number that already recognize the value of services and currently sell and provide the services you are trying to expand into. 

In fact, in the past, your organization may have encouraged these channel partners to aggressively build and sell services independently, as your company had no interest in services. Therefore, these select few of your existing channel partners will now see you as trying to compete with them for “their customers.” Of course, they will resist your advances, as they perceive that you are changing the rules and trying to move into their turf. 

Here is an example: Back in the “good old days,” a client sold, through resellers, a highly profitable proprietary product to the tune of roughly $300,000 per box. A few start-up services were “thrown in” to secure the sale and make sure the box performed as required. 

Since the product addressed mission-critical functions, the client easily sold and delivered uptime services, again at envious profit margins. If the customer had any other needs “beyond the box,” the reseller took care of them by providing professional services. Never mind that these “additional needs” often amounted to seven figures. Roles were clean and straightforward. Profitable growth was relatively easy and predictable. Life was good. 

Over just a few years, however, the former $300,000 proprietary product evolved into a $30,000 open-systems box, competing against a plethora of cheaper choices. The once-easy uptime services sale became not so easy, since products were more reliable, and similar, “just-as-good” uptime services were offered at lower prices, putting pressure on profit margins. 

So the client decided that its only hope of growing the business at acceptable levels of profitability, aside from acquiring or being acquired or dramatically altering the business focus, lies in expanding into professional services. It appeared to be a challenging, but doable, task. 

But wait … professional services businesses are built on strong client trust, and trust centers on relationships. In this case, the reseller still owned the client relationship. To advance the professional services initiative, the client invested the time to create new customer relationships, aggressively compete for account control and manage conflict on several fronts, as former “partners” now viewed the client not only as a competitor, but as a two-faced, turncoat, back-stabbing competitor. This was a very difficult situation that never reached the hoped-for goal. 

On the one hand, the majority of your existing partners flat out don’t want to sell services or provide services. On the other hand, you have a few existing partners (usually some of your best) that now see you as wanting to compete with them. Of course they will feel both protective and possibly frightened at your new services strategy. Getting their cooperation is a tough challenge. 

As you’ve seen, there are lots of obstacles to getting services channel relationships done right. However, knowing where the potholes are makes finding the path a lot easier. 

The next article in this four-part series, The Channel Challenge — Part 2: Using Services to Build Distinct Competencies, will add further guidance to this complex issue. 

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This article is adapted from Seriously Selling Services, the new book by James “Alex” Alexander. Visit our blog at http://www.seriouslysellingservices.com/. 

About Jim Alexander

Jim Alexander is founder of Alexander Consulting, a management consultancy that creates and implements professional services strategies for product companies. Contact him at 239-671-0740, alex@alexanderstrategists.com, or visit http://www.alexanderstrategists.com/.