Distributors...Who needs 'em?

Vendor Major Account Rep: "Distributors are nothing but finance and warehouse. They add no value."

SI Sales Rep: "I am so sick of paying that Disti TAX. All they do is add cost and slow things down."

Just the other day, I was giving a lift to someone that I had recently met. It turns out that he had previously been a Senior VP for a global IT vendor. When I mentioned my background in IT Distribution and the workshops that I am running, he quipped, "I have never understood why IT Vendors need Distributors, anyway."

I took the opportunity to give him my perspective on the value that a proactive, focused distribution organisation can bring to a vendor; be they a hardware, software, hosted or cloud vendor.

Not five minutes later, he was agreeing with my hypotheses and even suggesting ways in which Distribution partners may be able to solve some of the problems that IT vendors have in their cost, reach, depth and scale in the market.

FIVE MINUTES!!!

When I explained some simple truths about the cost and increasing complexity of sale for an IT vendor for any opportunity outside their high-touch, nominated accounts, he completely got it.

It is all about the cost of sale.

A Scalable Path to Market

The vendor has both a responsibility and a right to have a high touch engagement model for opportunities and accounts that it considers to be strategic to their success. Any Channel Partner that thinks they can sell the vendor's technology better than the vendor themselves in high value opportunities possibly needs to have good look at their pipeline statistics to prove this. A discussion for another time is the path the vendor takes to transact that sale: some will transact them directly and others will use the Channel for their strategic opportunities.

In approaching the market, however, the mid market, commercial and Small Business markets are increasing in relevance, particularly for commodity cloud offerings, such as UCaaS. The cost to serve these opportunities, however is too great for a vendor to maintain.

Vendor Sales Team Behaviors

When a vendor has salespeople that have a target mapped to a geographical, vertical or lateral market territory, there is a huge tendency for the smaller sales to take up a disproportionate percentage of their selling time. There are lots of reasons why, so I wont go into that here. The result is that an Enterprise rep may spend way too much time on smaller opportunities instead of doing the valuable development work that goes along with large, enterprise sales. (Often it may be the remuneration structure that governs this behavior, but that is another post for another day).

The symptoms of this problem for the vendor present very clearly, and include:

• Lack of new pipeline entries
• Lack of progression of existing pipeline opportunities
• Salespeople justify not making target because of the overhead of looking after smaller sales
• Salespeople spending too much of their time in administrative tasks, working from home or spending time in the office
• Reducing market share in nominated markets
• High Value people bogged down in low value tasks
• Long lead times from Order to Delivery

It is suffice to say that the smaller sales opportunities get in the way of making target, when the vendor sales people are managing them. This doesn't even look at the administrative costs of managing a customer directly, which would be considerable if truly understood and measured.

Not only does the Enterprise Sales target suffer at the hands of low value tasks, but the vendor becomes constrained in their efforts to scale to the rest of the market, while their competitors make hay.

The Indirect Go To Market Model

In a recent engagement with a vendor that was looking to move from a hybrid direct/indirect model, we determined that their cost of sale per revenue dollar was a clear ratio of Direct - 1.24:1.0 - Indirect. This means that it cost the vendor 24% more in time, resource and headcount to manage new customer orders directly than it did to manage them through Distribution. Even more interestingly, the after sale work involved in managing the large, enterprise deals that the vendor was taking directly was more expensive per dollar of revenue than an equivalent sale managed through an indirect model. The customer satisfaction of directly managed customers also proved to be lower than those looked after in an indirect model.

As a part of the process, we work shopped the tasks, resources and demarcations involved, should the vendor move to a 100% indirect model. This is outlined in the diagram below:

If you look at the green arrow to the left, you will notice that we have focused on the increasing ACCOUNT value, rather than simply a single opportunity value. Often, a small sale into a large account deserves the attention of a vendor Enterprise Rep, because the account represents significantly more value over a longer period of time.

Having an indirect model frees up the time of the enterprise rep to be able to focus on account development. the Distributor manages all of the 'tasks' associated with turning a customer order into fulfilled, booked revenue: the all important measure of success for vendor.

Bank and a Warehouse

If it only took me 5 minutes to turn the head of such a competent and experienced veteran of the industry, why is there this persistent and pernicious belief that Distributors add no value, outside "a bank and a warehouse'?

If you look at the purple column in the GTM model above, many, if not all of the items can be applied to the complete gamut of sales; from the largest enterprise sale that may need global currency management, through to the smallest sales where the customer needs just 5 more cloud licences to get them through a capacity hurdle.

In short, there are lots of reasons why Vendors' efforts in the marketplace can be greatly enhanced through partnering with a proactive, outcome focused Distribution Partner. Who needs 'em?.....I believe that most do.

ChannelTHERAPY specializes in helping IT Vendors build more productive relationships with their downstream supply chain partners. Please join the discussion with your comments, or contact ChannelTHERAPY directly for more insights into Building Productive Relationships via the IT Channel.