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A Blueprint for Strong VAR/Vendor Relationships
William Blake, the English poet and painter, has been quoted as saying, “He hasn’t an enemy in the world—but all his friends hate him.” That statement applies, all too often, to the relationships between suppliers and their channel partners—distributors, dealers, VARs, integrators, and others that are in an intermediary role between suppliers and end customers. Some years ago, I worked on one project on which, during interviews, both parties to a large supplier/channel business relationship described the other as a blood-sucking weasel. This was an extreme case, but most firms involved in such relationships probably can cite an example where that statement applies.
Fortunately, such characterizations are neither necessary nor inevitable. I have seen many instances of partner relationships in which both parties gain from the association—and recognize it. Recently, I spoke at a conference attended primarily by technology integrators, firms that provided high-end solutions to complex challenges faced by their customers in business and government. Their firms were staffed by experienced professionals skilled in networking, software, communications, and various applications. The customers they served were mostly Fortune 1000 businesses and similarly-sized government agencies and not-for-profit organizations in fields like education and healthcare.
Each of these integrators worked with a variety of technology suppliers, including many large well-known firms that produce various hardware, telecommunications, and software platforms that the integrators brought into the solutions they delivered to their customers. As such, the integrators are key customers for those technology providers, and for the technology partners, these integrators are critical channels into important end markets. Over the course of the discussion, several integrators shared examples of contributions that had been made to their firms by technology providers that had generated a sense of loyalty to those organizations.
A Focus on End Customers
One extreme example that was shared, involved a situation when, in the midst of a large and complex project, a majority of the project team members resigned to start their own firm. Because of the specialized skill sets involved, the integrator managing the project knew they couldn’t re-staff in a timely enough fashion to ensure success on the project. To their surprise, one of the technology providers with which they were working came to the rescue, deploying a team of strong engineers onto the integrator’s project team. The project was completed successfully, the technology integrator rebuilt his staff, and, in the words of the president of that company, “I learned what a real partner was like.” He went on to say that no competitor could possibly ever convert them from this relationship regardless of the incentives that they offered. “We’re loyal for life.”
This example reflects one of the most important characteristics of healthy supplier/channel partner relationships, namely a shared and primary focus on the end customers served by the “team.” Unhealthy relationships are often characterized by distrust about end customers. The channel organization typically fears that the manufacturer will cut them out by going direct, especially as an end customer begins to buy more and more. And the manufacturer fears that the channel partner will try to substitute another product or even their private label brand, especially if the end customer is a big buyer. But best-in-class partners to these relationships realized that success starts with a happy and satisfied end customer, and that it is a shared responsibility to achieve that outcome. In the example provided by this integrator, the only question on the table for both organizations was about how to deliver on the commitment that had been made to the end customer.
To deliver at a high level of quality to end customers requires proactive planning by the supplier and the channel partner. Each party must know its roles and responsibilities, and also recognize that the other party has their own roles and responsibilities that are critical to success. Sometimes the lead role falls to the supplier, sometimes to the channel partner. But in business markets, especially the complex one, both parties are critical to success. The partners that openly discuss end customer relationships and put a plan into place are the ones most likely to succeed. To have such discussions, the relationship must have a foundation of trust, familiarity, and strong touch points, all of which require attention on an ongoing basis.
Success with end customers almost always requires a focus on the services that are important to the end customers. When there is sound business logic to participating in a customer chain that involves as a structure of the form supplier/channel partner/end customer, it often is because the end customer values services from both the supplier and from the channel partner. The supplier, for example, might provide technical services linked to the products that they are supplying, and often is required to customize products for specific end customer applications. The channel partner, on the other hand, might provide traditional services such as those associated with distribution, and also services involving the integration of products from multiple manufacturers, applications development, commissioning, and other high-value contributions.
We find that successful relationships between supplier and channel partners involve attention to both categories of services. The role each organization plays with respect to the end customer and the coordination of services to ensure that they are effectively and efficiently delivered must both be managed to realize success and avoid duplication, inefficiencies, or competition between the two organizations.
Create Value to Capture Value
A second case study was provided by an integrator that had faced a declining market, one where the trends facing that firm pointed more towards extinction than towards continued operations. He reported that one of his technology providers came to them, explained that they recognized the situation, and offered to extend the relationship into a new vertical market where growth prospects were much stronger. This executive provided the following observation: “This just blew my socks off. We weren’t in any way an obvious choice for this, as there were other firms in our region already in that market. And there was no legal reason why they couldn’t have gone to one of those other firms. But [the technology provider] said we’d been a great partner, that they knew we would deliver, and they wanted the relationship to continue. And they put their money where their mouth was, investing in helping us to get up to speed and collaborating with us—actually leading us—as we got going in the new segment.” He went on to conclude “That’s my definition of loyalty. They were loyal to us. We’re going to be very loyal to them.”
There are two important lessons about building strategic relationships between suppliers and channel partners that can be learned from this case study. What this case study underscores is the fact that these relationships are business relationships, and both parties must recognize that the relationship will remain strong only as long as it makes economic sense for both parties. “Create value to capture value” is good advice in all business markets. It is essential advice for suppliers and channel partners that aspire to shared successes.
Both parties must recognize and invest in creating value for the other party, not just as a good citizen, but as the route to capturing value for the firm’s own shareholders. While this case and the one described earlier involved a supplier contribution, there are as many examples of channel partners taking the lead role in problem solving. And there are many examples of strong supplier/channel teams that openly admitted that the economics of the relationship wasn’t working, and sat down, took off their company hats, and figured out a solution to the problem.
Routes to Value Creation
In any business relationship, there are three routes to value creation. First is the possibility of increasing volume. Sometimes this involves capturing a greater market share. In other instances, it can involve expanding the market by introducing new elements to the offer, frequent services, or solutions packages. Second is the possibility of reaching a higher price point, either by motivating movement up the “Good-Better-Best” spectrum or by motivating the purchase of adjacent products and services. Third is the possibility of improving the bottom lines of the two organizations by efficiency increases or simply taking costs out of the system. In strong relationships, there is an open discussion as to the strategies that the two organizations can implement to create value through one or more of these routes.
In the case study provided above, the technology provider created a route to increased sales for their channel partner, and, in the process, gained the loyalty of an organization that they knew was highly skilled and able to ensure strong end customer relationships. The outcome was a clear win-win success story.
But there is a second lesson in this case study, and that is the fact that investments often have to be made in order to realize these shared gains. In this instance, the investment involved several dimensions—training, collaboration on sales calls, etc. Best-in-class partners know that success doesn’t just happen, and are willing to step up to the bar and make the investments necessary to achieve the growth and profit gains that can come from a strong and effective relationship.
It is interesting to contrast the relationships among “blood-sucking weasels” with those that create “win-win” outcomes benefitting both firms. Clearly, the latter is the preferred outcome, but the former is all too common. A focus on end customers and the recognition of the importance of the relationship making strong business sense to both parties are two critical elements that contribute to strong, profitable co-destiny relationships. I began with a quote from William Blake, and will end with one from Ralph Waldo Emerson: “The only way to have a friend is to be one.” It is often hard to be a good partner in a supplier-channel relationship, but the payoff can be enormous from making the commitment to do so.