Moving Your Technology Channel Partners To The Subscription Model
Written by Carlo Tortora brayda di Belvedere - CEO Gorilla Corporation
Originally posted to Forbes
There is little doubt that the subscription business model is the way forward for the technology industry. The advantages are numerous for the customer as well as for the manufacturer.
In channel partnerships, the sales and distribution channel is the enabler for the model to work. These partners own the customer relationships; they have the intimate knowledge of their clients; they can add tremendous value through their services and know-how. That's why 53% of B2B SaaS companies sell through the channel and achieve 5% faster growth rates than companies selling direct, according to the Cloud Software Association.
On the other side of the partnership, the technology channel can be broadly categorized in three clusters: the traditional value add reseller (VAR) channel selling on-premise, the newer "born-in-the-cloud" sales partners selling subscription services and the ones in transition between the two models.
The challenge is that most of the technology channel is still oriented toward the on-premise sale model rather than the subscription model.
Since most channel partners are in the SMB space, it is harder for them to migrate their business to the subscription model successfully. Individual consultants can pivot with agility, and large organizations will be able to harness more easily the capital required to hire change agents and undergo that change. Another factor to consider is that most channel partners have been in existence for years, if not decades, and have deeply established business practices and, even if willing, cannot quickly revolutionize their systems and culture.
Partner Changes for the Subscription Model
For many technology vendors, the change from on-premise technology to the subscription model is a business imperative. As such, they are often at an impasse about how to achieve that transformation in their channel.
The company functional tracks that need changing are numerous, such as:
- Sales culture. This is a big one. On-premise type deals are usually significant and bring about sizeable commission to the salesperson. When a sales team suddenly loses its ability to achieve its on-target earnings monthly, the problems begin. The subscription model takes the lump sum that the deal is worth and spreads that out over a year or sometimes three. This creates a cash vacuum for both the channel partner and its sales representatives. Making a sales team undergo this change is complex, costly and risky. A better way is to help your channel partner introduce the subscription model in parallel with the legacy "business as usual" model. This means hiring dedicated and experienced "as-a-service" salespeople. Hiring afresh is a better approach since you do not have to force culture change in the sales team or put them through the financial squeeze of not making money for themselves in the way they are accustomed.
- Back office systems. The channel partner's ERP, or accounting systems and their CRM, need to be recalibrated to account for subscription levels or variable consumption. All the CRM and ERP product tables need to be reformulated, and the accounting team would need to be retrained to work in a brand-new way.
- Marketing assets and websites. These would also need a critical overhaul. At the core, one needs to re-tool the value proposition and find the right co-branding message with its chosen vendors.
- Customers. The customer must always be at the center of any change strategy, and the B2B customer today wants the option to buy solutions off the website or via a B2B marketplace. The vendor and its sales partners must be seen as "easy to do business with," and this requires a significant pivot from the traditional brochureware use of a sales partner website. Many channel partners will not have the marketing skills to undergo all this innovation.
- Executive bandwidth. Finally, and most importantly, not all vendors realize how scarce and precious management time is for the channel partner. CEOs of channel partner companies are pulled from pillar to post, satisfying clients, employees and bearing the responsibility of making payroll, come rain or shine. At the same time, these leaders are constantly catching up with the frenetic pace of technological innovation. Changing the business model is a tall ask for a vendor to make to a channel partner, even if it is for its own good.
Given all these considerations, it is obvious why the idea of business model transformation is overwhelming to most CEOs. The way to make this work is to support them and reward their loyalty with your unshakeable commitment to helping them through this transformative journey.
A Framework for Success
Here is a proven framework. Help the channel partner tackle three insurmountable challenges: cashflow, management time and operational business processes, including the dreaded marketing overhaul.
Vendors with large channels can leverage their negotiating power to achieve smart financing deals for the partners; these can be driven through Small Business Administration lenders and in partnership with distribution for the smaller partners. These deals can be packaged and made available to the channel partners, subject to underwriting, of course. Loan capital with a three- to five-year term might make all the difference in allowing the partner to brace for change.
The next crucial step is to provide the partners with a cloud transformation expert or a subscription model-specialized executive. Subject to leadership approval, this consultant will engage department heads and run through the transformational blueprint to drive the necessary change in all departments — in particular, to create a parallel cloud business unit without disrupting the legacy business. Moreover, this change agent would have access to the vendor's channel marketing agency, which would take care of the website and new digital marketing assets and advise on turnkey actionable strategies.
It all sounds expensive, and it is. But the expense is eclipsed by the profitability, predictability and the enormous growth in your stock value that comes from the benefits of having a large subscription model channel. Why not find out more in our completely free Whitepaper, download here.
Subscribed Partners can be a useful addition to your channel, bouying your revenue and supporting with great effect. Need any help with your channel partners and creating a great offer for a move to a subscrption model? We can help, get in touch today.