Right now IT resellers are going bust at the rate of 15 a week in the UK and similar patterns are emerging across Europe and the US. Some commentators are talking in terms of 1 in 6 resellers being in trouble and many of those that are clinging on are relying on overdrafts as a permanent source of finance
Credit insurers are withdrawing or reducing cover for the major distributors limiting their ability to provide extended credit to their reseller customers for those all-important big deals with large/medium corporates.
No matter who you talk to, there is a consensus that the channel is going to undergo another shakeout and there will be many losers and fewer winners.
So what is a vendor to do to protect its market access? And what are account mangers to do to ensure the shakeout doesn’t leave them falling short of sales targets?
Here is a five point checklist to help vendors and their account managers to navigate successfully through the worst of the recession:
- Get close and personal – In tough times, the business changes long before the effects show up in any management information so you need to be talking to the management to understand how close they are to the situation: Do they have figures at their finger tips? Do they know the weekly cash “burn rate”? Do they know what sales they need to be able to make the payroll? If you have key resellers that are struggling, you need to be in weekly or even daily touch.
- Talk Pipeline – Two things happen to the pipeline in times of low confidence: deals get cancelled and deals slip backwards. In many ways it is the deals that slip backwards that are the bigger contibutors to downfall. Management clings to the hope that the deal will come in, so they don’t take action quickly enough. The pipeline needs to be mapped over the next few months in terms of the revenue they will bring in each month. Overheads burn up cash by month, so income needs to be projected in the same way. Be very wary of resellers that talk in terms of a pipeline of total £100ks or £ms. That’s not relevant. What matters is how the pipeline looks for income contribution next month and the month after that. Then see what it looks like if the biggest deal slips back one month…and how long will the cash hold out? As a vendor, you need to make sure that you are doing everything to ensure that when deal lands, the income can flow as fast as possible. It’s one thing to see business slide backwards through on the demand side…but unforgivable if the causes are on the supply side.
- Deliver tough love – Most business fail just as they start taking the tough medicine they should have swallowed months before. By the time they finally realise just how dire the situation has become and tinkering won’t cut it, there isn’t time to do the right thing. So as someone who knows the business but is on the outside looking in, you can help force your partner’s management team to face reality and take decisive action….early. Become an objective and dispassionate advisor and you could make the difference to some of your key partners.
- Be a Marriage Broker - Even if you follow the first three guidelines, it’s almost impossible to predict the winners and losers (and size of partner is no guide in these extraordinary fast-changing markets). So do the next best thing and help bring complementary partners together, even if only to deliver a single deal or project, to increase their chances of survival. Both partners will remember and appreciate the support, winning loyalty and greater management confidence.
- Don’t do things by halves – Do your risk assessment of each partner and then act with commitment. If you think they are good for the next few months, then give them the support they need. Don’t strangle them with reduced credit or impose self-protective measures. These will only change the risks and bring about the very situation you were trying to avoid. Equally if you have worries, then don’t offer partial support. Pull credit, cut off supply, withdraw account management. Just take the time to explain what caused you concern as you go and tell your former partner what has to happen before they should get back in touch. You can then focus your attention on those partners you think are worth backing without distraction. It’s tough, but essential. And your hard action could just force the management of the weak partner to take decisive action and save themselves.
Finally manage your own expectations. You will not get every judgement right. No one does. Even venture capitalists, who make a living on these kind of judgements only expect to get 50% right at best.
If you want more help on understanding the economics of channel business and specific types of channel partner, you can find it in the book: Distribution Channels published by Kogan Page on ISBN 978-0-7494-5256-8.