By: Dann Anthony Maurno
Microsoft vigorously encouraged partner-to-partner (P2P) relationships at Inspire 2017 as a mechanism for building the Dynamics footprint worldwide. But in two sessions at Inspire, Harald Horgen made the startling claim that just 10 percent of ISV/reseller partnerships work, and asked “What other industry accepts a 90 percent failure rate?”
Horgen is president of Bellevue, Wash.-based The York Group, and since 1993 has helped B2B firms build profitable partner models. At Inspire, he addressed how to define an ISV P2P strategy for enterprise partners, and how to build a winning channel with the Microsoft partner ecosystem.
He recapped his thoughts with MSDynamicsWorld about how to ensure a successful partnership, starting with matching expectations.
MSDynamicsWorld: You estimate that only 10 percent of channel partnerships succeed; what, to your mind, goes wrong?
Harald Horgen: There’s a complete mismatch in the expectations going in.
The channel partner wants a product that sells itself. They want the ISV to generate leads, and they don’t want competition from other ISVs or other partners in the market. They want services revenues and they want a big margin.
The ISV wants a partner that goes out and sells the product and never calls the ISV for support.
There must be considerable risk to the channel partner, who’s counting on big margins and no competition.
The biggest risk factor is the ISV, who doesn’t understand the risks and the investment that the partner’s expected to make on behalf of, in many cases, an unknown product in a new market. ISVs are technology focused and go to market thinking “We spent five man-years building a fantastic product; the channel has the easy job, all they have to do is sell it.”
The channel thinks, “Now I’m expected to make an investment in sales and marketing and build a brand that doesn’t exist in our marketplace,” so there’s a market risk associated with this.
There’s also a very real exit risk that Johann in Germany builds out a successful business on that product in Germany, then the US company cancels the contract and sets up a direct operation and takes it over; or increasingly, they get bought by another big vendor like Oracle, IBM, or Microsoft that opens up the distribution of that product to a much broader range of resellers. So the channel partners build up a business for someone, and they ultimately lose the rights to that product.
The next level of risk that a partner takes on is the relationship, a vendor risk. Johann goes into Deutsche Bank with a new product, and Deutsche Bank takes sixty days to go through a technical evaluation, and they come back with six pages of questions and the ISV from the US can’t be bothered to follow up and provide the answers to the reseller.
That is fundamentally why it doesn’t work; the ISV doesn’t understand all the risks and investment the partner needs to make, because so they’ll go in and find 10 to 20 partners in a territory, hoping that it’s a numbers game, and nobody has a real incentive to make that product work.
It is a fundamentally flawed business model.
You’ve described two kinds of relationships – strategic and portfolio.
The outcome is very binary. Either the relationship becomes strategic and the channel partner builds a real business around the product, or they don’t.
On the one hand, the partner adopts and builds a business around it and makes it strategic; they become self-sufficient, with their own sales and marketing, and they understand the technical support aspects of it.
Or, it just ends up being in the portfolio. They respond to enquiries from customers that require that functionality, but don’t have a clue how to sell it or support it, and they bring the vendor in, which increases the vendor cost for each transaction.
A typical channel partner may have 30 products in the portfolio, but two strategic products that drive 90 percent of their business. For them to make the level of investment in a new product to be that Strategic #3 is a real disruption to their internal business process.
So the negotiation between the ISV and the reseller has to create a process by which it becomes less disruptive, or gives the channel partner a real, financial incentive to disrupt what they’re doing today.
Is there any compelling reason to have an opportunistic ISV relationship?
Yes, because for every channel partner, the majority of the portfolio will be opportunistic solutions.
The typical channel partner has 30 products in their portfolio but only two of them are strategic and drive 90 percent of their business. Just about every partner has a relationship with vendors as referral partners or lower-tier partners, because customers might ask for that [capability].
It makes sense for both the ISV and the channel partner as long as it’s a product that doesn’t require a lot of sales training, technical training, or ongoing support. So, as long as the transactions can be done on a self-service basis by the channel partner.
But most products sold into the enterprise space require more than just self-service. They require engagement by the ISV, who gets involved much more deeply in the transaction than they expected, while the partner still gets their 30 or 40 points.
We see this a lot in Dynamics where someone in Norway or Denmark or Holland gets calls about their vertical market solution, calls from Indonesia, Vietnam – all over the world. Dynamics is a very complex solution, the vertical solutions tend to be very complex, and there’s no way that partners are going to become self-sufficient unless they really commit to going through sales training technical training and start selling volumes of the product where they can learn how to do this on their own.
So Dynamics partners end up with a lot of channel partners around the world and each one of those relationships cost them money.
So a portfolio partnership is rarely a low-cost “Partner Lite” relationship.
No, it’s not. In the Dynamics space, it’s very dangerous to have portfolio partners. Not so much for the channel partner because they’re really operating as a referral engine, so they might get an inquiry for a solution for retail or for apparel or for food, and they know an ISV in Holland they can call. But then they they rely on the ISV to provide the sales support and close the sale and provide the implementation support. There’s very little investment on the part of the channel partner, but channel partners won’t go out and proactively sell something that they’re not comfortable that they can sell and support it. So it just sits there being reactive.
In Part 2: Revenue objectives, the ISV’s responsibility to prove itself, One Commercial Partner and the Microsoft Partner Center.