Ecosystems and channels in transformation mode

I have lived and breathed software channels my entire career. I learned how they worked as a young product manager for Finland's second-largest software ERP company. My channel career took off when I became head of development for a Finnish data warehousing/analytics company, where we built channels in Western Europe and the US. I learned what it takes to get a channel partner interested in your solution and what win-win means. I also saw bad channel behavior, such as software vendors abusing their channel partners. I decided early on that it would not be how I would treat partners. Around 50-60 % of our revenue came from the channel when we sold the company I was CEO of.

When I became the chapter President for the International Association of Microsoft Channel Partners (IAMCP) Dallas Fort Worth, I immersed myself in the Microsoft ecosystem, learned how Microsoft partners made money, and saw what they faced in running their businesses. The exposure to IAMCP made me a board member of the international chapter and, eventually, the global president of the IAMCP organization. At the time, IDC estimated the partner-to-partner business to be around $11 billion with a network of thousands of partners. I also got a chance to open international IAMCP chapters such as Finland, France, India, etc., and these in collaboration with Per Werngren (5x IAMCP Worldwide President), who can be regarded as one of the founding fathers of the IAMCP organization.

Besides the past work, my last two years have been spent educating senior partner development managers for a software company by helping to build joint technology roadmaps and business models with their technology partners and also working on multiple research papers in partnering best practices that include tens of calls with different country organizations worldwide to really understand where the region was with its partners, and what lessons there were to be learned when working with partners in those respective countries.

I'm sharing this background to give you an idea of my 30+ years of involvement in the channel and its importance in my career. I recently came across a great LinkedIn Newsletter from Larry Walsh with Channelnomics. Walsh gives his perspectives on what he learned from the channels in 2024 by working with numerous technology vendors, distributors, and partners worldwide. I want to take his 12 thesis and describe some of my experiences relating to the 12 topics below. I strongly recommend reading Walsh's LinkedIn newsletter article to learn about his perspectives on the same topics.

Walsh lists 12 lessons from 2024 that he would like to highlight, and they are as follows:

1. Legacy is a Powerful inhibitor
2. Complacency is Comforting
3. Decisions Require Real Evidence
4. Strategy is Meaningless Without Execution
5. Tools are Useless Without Strategy & Planning
6. De-risking the Go-To-Market is Imperative
7. Speed is Elusive
8. Always Strive for Simplicity
9. More Isn't Better
10. People Always Matter
11. No One Can do It All
12. Value is the Story

I am using some of the lessons above and providing thoughts around them.

Loving Legacy and Complacency can kill your business

I have worked with tens of channel partners and their leadership teams, and the biggest inhibitor is the resistance to change. Thousands of channel partners are accustomed to running their channel business with margins from software vendors that used to be up to 50%. These margins are long gone; if the channel partner did not adjust their business model early enough, they are out of luck. Every channel partner will face what TSIA calls the "Fish Model," where the revenues will decrease, and costs will increase when the channel partner moves from one business model to another. There are no shortcuts; every organization needs to go through the change. The leadership team and owners need to agree and get aligned for the change or perish as an organization.

It is easy to become complacent when the company is doing well. Why change the business model when the company is still making money? That is a fallacy many organizations are now facing with the advent of AI. Automation is changing, for example, managed service providers (MSPs), which is one reason why acquisitions are happening where larger MSPs are buying smaller ones. Survival as a small MSP is not easy today, especially when these small organizations must invest in new AI, cybersecurity, and many more practices.

Evaluating the Appeal of the Channel/Partner Program

As many organizations have quoted in their materials, data is the new oil. Running a channel business requires systems and solutions to generate data that becomes the foundation for decision-making. Nothing is new about that, but with growth, organizations tend to "lag behind" with metrics, leading to decisions not based on facts.

Software vendors especially need to ask themselves whether the channel/partner program is appealing enough for the partners to invest in and create a profitable business. Software vendors tend to forget that channel partners must invest in the program without guaranteeing success or return on investment - none. It is the same as asking an organization to sell my workshop services without paying anything for the work and only paying if there is success. The channel partner needs to see the potential for success in investing in the software vendor. Walsh puts it well in his article in the following way:

Strategies provide a roadmap, a foundation for your plans and models, but their success hinges on the channel organization's ability to implement and execute them effectively. Without the dedicated commitment and enthusiasm of the vendor organization and the channel team, any channel strategy or program will likely be ineffective.

Is the software vendor organization easy to deal with?

Software vendors have high expectations of their channel partners. I recently reviewed the channel partner programs of several global brand-name software vendors, and my conclusion is that each one of these programs will require considerable investment from the channel partner. Several organizations, such as Microsoft, have moved into a point-based system where the channel partner is evaluated based on three main criteria: performance, skilling, and customer success. Each of these three dimensions will guide Microsoft in what kind of investments Microsoft will give to its partner. The requirements are much more challenging than when I entered the Microsoft ecosystem years ago, so the channel partner must make an investment decision to build a Microsoft practice and want to be considered by Microsoft.

Partnerships are not built overnight

Partnerships are still based on trust and knowing people. Channel partners invest in technologies, but at the same time, the people behind the technologies must be people that the channel partners can trust. Can we rely on the software vendor to be consistent from year to year if I invest in them? That would be a typical question to ask. How will the software vendor treat potential channel conflicts? How easy is the software vendor to deal with? The unfortunate reality is that vendors often design rules that favor themselves by adding complexity. My strong advice to software vendors that want to build a channel is to start early, as it will take time to build the trust and confidence with the channel partner.

Walsh concludes in his article:

"Ease of doing business drives productivity more effectively than monetary rewards or incentives. Partners are more likely to work with vendors that are easier to deal with, even if it means slightly lower profits. Vendors should commit to continually simplifying their partner programs and relationships to enhance partner engagement. "

I easily agree with this statement as I have been on both sides of the aisle: a software vendor and a channel partner.

More Isn't Better

A key lesson I have learned when being a channel partner and a leader with a software vendor organization. The motto should be: Quality over quantity. It does not matter if you have lots of partners if they don't produce. On the other hand, as Walsh states in his article, if you have a few good partners that invest in their businesses, develop new capabilities, and craft unique value propositions. Those are the types of partners that you want to have. The 80/20 rule still applies, at least in my experience.

Humans Still Matter

I have spent almost twenty years with partner development and channel managers, and their role is still crucial for both the software vendor and the channel partner. PDMs typically build the business case with the channel partner and are also the "bridge" to get others in the software organization involved when needed.

I have worked especially with Microsoft global ISV PDMs for the past 17+ years, and I have seen the importance of what they do and why they matter to the software vendor, the channel partner, and the customer. In some cases, they act as the business owner of the case, carrying all of the responsibility for the success of the software vendor and the channel partner organization.

No One Can Do It All

I wholeheartedly agree with Walsh that no organization typically covers all aspects of a customer's solution needs. The premise of the International Association of Microsoft Channel Partners (IAMCP) is to partner, and partners will form alliances with other partners to fulfill customer requirements. IAMCP focuses on educating partners on what it means to build a better together story where the value is larger than the value of any of the partner organizations by themselves. Not even Microsoft can provide all the customer solution needs, so thousands of independent software vendors are building solutions on top of the Microsoft platform.

My recommendations for channel partners and Vendors going into 2025

1. Embrace Change and Innovation

Resist the comfort of legacy systems and complacency, as these can be significant inhibitors to growth and sustainability. Channel partners must be willing to adapt their business models to stay relevant in the rapidly evolving software channel landscape.

2. Focus on Quality Over Quantity

Instead of trying to be everything to everyone, concentrate on developing deep expertise in specific areas. This specialization can set you apart in a crowded market. Craft unique value propositions highlighting your specialized skills and addressing specific customer needs. Vendors should help their channel partners with how their solutions can enhance the channel partners' business models. Channel partners should evaluate what it takes to become successful to drive the business for the vendor and what it takes to become successful

3. Invest in Data-Driven Decision Making

Implement robust systems to collect and analyze data about your business performance, customer needs, and market trends. This data becomes the foundation for making informed decisions and evaluating the success of your channel partnerships. Ensure that your internal solutions are able to track the progress with key metrics that is used for decision-making.

4. Build Strong Relationships

Partnerships are still based on trust and knowing people. Invest time in building relationships with software vendors and other channel partners. Choose vendors who offer appealing programs and demonstrate a commitment to channel success. Strive to build a win-win relationship where everybody wins, including the customer.

5. Vendors - Strive for Simplicity and Ease of Doing Business

Focus on making your processes and interactions as simple and straightforward as possible. Channel partners are more likely to work with vendors that are easier to deal with, even if it means slightly lower profits. Continually simplify your programs and relationships to help you engage in partner engagement.

If you are a channel partner or a vendor, I would love to hear your perspectives where you see the channel moving in 2025.

Yours,

Dr. Petri I. Salonen

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