Latest / Partnerships Unraveled / 008 - Distribution - The Dos and Don'ts to make distribution work for your scaling channel

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008 - Distribution - The Dos and Don'ts to make distribution work for your scaling channel · Partnerships Unraveled

• 0:07
  Welcome back to Partnerships Unraveled.
• 0:09
  The podcast where we unravel the mysteries of partnerships and channel on a weekly basis.
• 0:15
  My name is Rick van den Bosch and I'm the CEO and founder of Channext and I'm here here together with Channext's VP Partners.
• 0:20
  Alex Whithford. Alex, how are you doing today?
• 0:23
  Yeah, really excited to be back.
• 0:23
  Rick.
• 0:25
  Yeah? Do you think the topic of the day fits your experiences well?
• 0:30
  Yes, well, something I know and love, right?
• 0:32
  Distribution.
• 0:32
  Been working with distributors and for distributors for coming up on eight years now and I think it's one of the most interesting places to learn the channel from.
• 0:43
  Yeah, I fully agree there.
• 0:44
  And to be honest, I'm also very excited for today's podcast and what we're going to discuss today because I think I still have a lot to learn about distribution as well.
• 0:53
  So don't mind me if I ask some extra questions.
• 0:56
  It's not just for the listener, also for my own interest, but very much looking forward to this topic.
• 1:02
  Well, yeah, eight years, that's what, two degrees?
• 1:05
  So if I don't know my stuff now, I'll never learn it.
• 1:08
  So, yeah, feel free to quiz me and we can go from there.
• 1:12
  Yeah, great.
• 1:12
  And I think, to be honest, the question that I would like to start with is why distribution?
• 1:17
  If you would have to put yourself in the shoes of a vendor, why would you look at distribution and what are the advantages of actually working with distribution?
• 1:26
  Sure.
• 1:26
  So I think what's a good place to start is maybe where distribution has come from and why it was used originally.
• 1:32
  So distribution is born out of two major issues, which is finance and shipping – import, taxes, those sorts of things.
• 1:42
  You can imagine if you were a manufacturer and you made a product and you needed to sell it to partners or to end-users.
• 1:49
  We've got to import it into a country, you've got to house it in a warehouse and then you've got to ship it out.
• 1:53
  That level of complexity is a lot of cost for maybe a small line manufacturer.
• 2:00
  And so then a distributor would typically recruit quite a lot of small line manufacturers, hold the product on their behalf, worry about import cost, tax, all of those complexities.
• 2:09
  And that's sort of where distribution was born out of and still some of what it is today.
• 2:14
  But then you can imagine the smart distributors started to work out, hang on, there's some extra value-added services we can offer.
• 2:22
  And then the smart vendors started to pass down some of their responsibility, things like sales enablement, for example, down to their distributors so that they could take some of the heavy lifting off them because they had local language, the relationship to the partners, that sort of stuff.
• 2:40
  So it's born from logistics, but then has grown into much more value-added services.
• 2:46
  I think that's actually interesting.
• 2:47
  Indeed that from a logistics perspective, one of the most expensive things in hardware is of course having stock.
• 2:53
  Whether it's at the vendor side or whether it's at the partner's site.
• 2:56
  And I think that's where distribution really played a crucial role in the middle of it.
• 3:00
  They kept the stock both for the partners, but also for the vendors.
• 3:04
  And as soon as the partner got an order, that's when things really started to work in progress.
• 3:08
  So you really saw with many, many vendors, and still actually today, even the managed partners of vendors in hardware still buy their products through distribution, right?
• 3:18
  Yeah, exactly.
• 3:19
  I think we're sort of numb to it now because we've got businesses like Amazon, so things like next day delivery have become commonplace.
• 3:29
  They certainly weren't 10, 20, 30 years ago or 50 years ago where distribution sort of came from.
• 3:36
  But yes, that's why the Tier One, the top managed partnerships buy from distribution.
• 3:41
  Because the expectation is well, I still need next day delivery, I still need those managed services, I still want the level of relationship, I want the rebate, I want everything else that comes along with distribution.
• 3:52
  But I also want the direct management of the vendor.
• 3:55
  So those high-value partners are in some way, they've got the best of both worlds.
• 3:58
  They've got some of the hugs and kisses from the vendor, and they've got that really tight relationship.
• 4:03
  But they're benefiting from all of the surplus services, and typically they have a very good buying price.
• 4:08
  Right?
• 4:08
  They've got good buying power because their economies are scaled.
• 4:11
  They're buying a lot of products.
• 4:12
  So they pair one distributor off against the other and try and maximize the level of service and price that they're getting from all parties.
• 4:19
  Yeah, and thinking about that, I think from a hardware perspective, it makes a lot of sense.
• 4:24
  But what I find very interesting is that I see so many SaaS vendors so far as a service vendors also aiming at distribution and making sure they grow through there.
• 4:33
  But if I think about it conceptually with SaaS, you go to the website, you put in your credit card and you're off.
• 4:40
  Right?
• 4:40
  And still so many vendors are looking at doing that through distribution as well.
• 4:44
  Could you maybe give a bit more insights there?
• 4:47
  Like why are SaaS vendors – actually you were running it when you were ahead of distribution, EMEA for Zoom.
• 4:52
  Why did Zoom choose to go all out on distribution as well?
• 4:56
  Yeah, so there's a couple of key reasons you look to distribution.
• 4:59
  I think distribution can almost be summed up as the same reasons you'd go into Channel, right?
• 5:05
  Because the reasons are the same for both.
• 5:06
  You want a partner network, you want penetration, you want local language and skills.
• 5:11
  And distribution allows you to shortcut a lot of that process.
• 5:15
  Because rather than me directly recruiting, I don't know, 500 partners in the UK, I can go and recruit one distributor who does that work for me.
• 5:23
  And so the benefit and the cost of that is that I can shortcut all of that work, but then I've got to make sure the distributor is capable, willing and prioritizing my workflow over competitors.
• 5:35
  So you manage both of those things together and from there you can really start to work on scaling far more effectively.
• 5:43
  But distribution does work in that way.
• 5:46
  So thinking about that, like distribution indeed, like you look at them partly also to really get insight into which partners are already there in that area and instead of having to go through all those partners one by one, you actually have a one to many approach where you build a very strong relationship with one distributor and via them you can get into contact with maybe thousands of partners in a certain region and go to market together.
• 6:12
  Yeah, exactly.
• 6:13
  I think a really logical way to frame it is I think I've got a very good idea of how the channel works, a very good idea on product.
• 6:20
  Maybe I develop the next great thing.
• 6:22
  How do I launch in Asia?
• 6:24
  I have no idea.
• 6:25
  I don't know who the partners are, I don't speak the language, I don't know the law, I don't know the tax.
• 6:30
  I've got no framework to really, really penetrate that market effectively.
• 6:34
  So how would you do it?
• 6:36
  Like, that's a really difficult question to answer and maybe I've got the best new product in the world and we're going to be super successful and the only thing I need to worry about is go to market.
• 6:45
  Well, I can hire people.
• 6:45
  Absolutely.
• 6:48
  That takes time and you've got to worry about the right quality.
• 6:51
  And if you don't know the language, you don't have the office and you don't have anything of that set up.
• 6:55
  It's quite slow to do that.
• 6:57
  But there are four or five global distributors who will allow you to sign one contract and effectively penetrate 70% of the world almost immediately within months.
• 7:10
  Right.
• 7:10
  That is a shortcut.
• 7:11
  And really to shout out a few of those partners Tech Data Synnex, Westcon, Ingram, Arrow, those partners will allow you just to shortcut that market very, very quickly.
• 7:23
  You then have a load of challenges when you go into businesses like that because they sell thousands of vendors.
• 7:28
  How do you generate focus, how do you generate demand?
• 7:30
  What's your sales and marketing strategy to support those efforts?
• 7:34
  But conceptually it will allow you to get into that market and shortcut a lot of legal work that you need to do.
• 7:40
  For example, some countries won't let you sell into that country unless you have a legal entity.
• 7:46
  Okay, you're going to go and have to set up legal entity and all of those all you sign one distributor do all of that for you.
• 7:51
  Another reason you bring up cloud why sorry, one SEC.
• 8:11
  Especially I think it was around 830 or something, I don't know if it's important for you at the recording.
• 8:22
  Thank you.
• 8:23
  I do know where we are.
• 8:23
  Bear with me.
• 8:25
  Yeah.
• 8:29
  You talk about cloud and SaaS businesses using distribution.
• 8:33
  One of the common infrastructures that cloud distributors can focus on is billing infrastructure.
• 8:40
  It's not so simple as, oh, we'll just go on to the website and buy it because then it's not tied to the partner, it's not tied to the distributor, and it won't actually be counted as a channel sale.
• 8:51
  And so you're reliant on partners to have their own billing infrastructure, which if you're an MSP, yes, but loads of It partners don't have any level of billing capability.
• 9:01
  And so what clever cloud distributors are doing are building multi tier billing engines which allow the partner just to register and then get access to their entire cloud marketplace and the billing infrastructure to fit it.
• 9:14
  And suddenly you can do all sorts of usage, billing and per seat and monthly versus annually.
• 9:20
  It's actually a very complicated piece of work to do and those distributors allow you to do that dynamically.
• 9:26
  So again, why choosing one of those large broad line cloud distributors is so valuable is you're shortcutting months and months of operational, legal and financial framework and you can just get into the nitty gritty of sales, marketing, technical enablement.
• 9:44
  So looking at that, like for the advantage for partner of working in such a way when you're a SaaS vendor with distribution is that they can buy it in their own currency, probably, but also that they can buy like multiple vendors at once for one.
• 9:58
  Because even in SaaS, they're always building a solution, right?
• 10:00
  If they do a cyber security managed service contract, then they'll take five different vendors and together with their hours create one solution so the end-user is secured in the proper way.
• 10:11
  In this way they can actually buy it in their own currency, but also really have everything in once and give a full proposal to the end-user.
• 10:19
  Yeah, to me it's actually a great example.
• 10:22
  And you can build one sort of hypothetically very quickly around why vendors should look at channel, not just channel, but distribution.
• 10:29
  Because let's imagine you've got four SaaS products that integrate into a solution that are all billed slightly differently, some per month, some per seat, some by consumption.
• 10:39
  You then need a hardware solution.
• 10:39
  So you pick security.
• 10:42
  So let's say SD-WAN and networking and all sorts of stuff.
• 10:46
  You need to then base that on premise servers.
• 10:48
  You need those to be delivered globally and all up and running within a three week cycle.
• 10:53
  That's a really complicated project to manage.
• 10:56
  Well, one distributor might be able to sell all of that and FYI, finance all of it.
• 11:01
  So it comes into one monthly bill and shipped globally and managed all the tax, all the import duties done effectively.
• 11:08
  Now, I challenge any SaaS vendor that doesn't work with the channel to be able to build that solution.
• 11:14
  They can't.
• 11:14
  Right?
• 11:15
  And this is when you start to talk about key enterprise opportunities, not SME, not Midmarket, but key enterprise ones.
• 11:23
  Why channel is so important because the enterprise has the expectation that you're able to do all of those things.
• 11:29
  Because frankly they're used to that level of service.
• 11:32
  And so for SaaS players to effectively service that market, distribution is a very key vehicle to make that happen.
• 11:41
  Yeah, I fully agree there. I think if I look at a lot of SaaS vendors, they are mainly originating from the US.
• 11:46
  Of course.
• 11:46
  So that's where they were selling.
• 11:48
  You don't really have all kinds of different structures, taxes, etc.
• 11:51
  Although it does differ per state.
• 11:54
  I know, but then you go to EMEA or you go to APAC and the game is completely changing.
• 12:00
  You have twenty/thirty amount of languages, you have all kinds of different tax systems, you have kind of different legal systems, et cetera.
• 12:10
  And it's almost impossible to do that on your own.
• 12:12
  And I think that's why you see mainly I see it a lot as well, cybersecurity vendors, other SaaS vendors who go to EMEA and APAC, that's when they are going all in on distribution.
• 12:22
  Yeah.
• 12:23
  And in fact, channel can be a great defensive standpoint.
• 12:27
  So one of the examples that we've talked about from just a full business perspective, you had Airbnb launch in the US, did a really good job and then suddenly you saw European competition come up and be created, basically steal their idea.
• 12:43
  But just think, hang on, we can capture this market before Airbnb land.
• 12:47
  That's why developing a global channel leveraging distribution is so critical.
• 12:52
  Because if you go and build a good product but you're really slow to capture the global market because you don't have the infrastructure in place, the channel infrastructure, someone else is going to take your idea and just capture Asia.
• 13:04
  And then suddenly you're now having to fight war on two fronts when instead you could simply just roll the projects out, roll the sales out globally.
• 13:13
  Because you've used the shortcut of market penetration that is channel and distribution.
• 13:19
  Yeah.
• 13:19
  And if you look at those stakeholders, so you got the vendor, you got the distributor and the partner.
• 13:24
  How would you say that the roles and responsibilities are divided.
• 13:28
  Like if you would look at it from a vendor perspective, you're building your channel program, maybe including distribution.
• 13:35
  So how would you put those three stakeholders and what are the responsibilities of each of them?
• 13:41
  Well, that's actually a great point.
• 13:43
  What you want to do as a vendor is define it.
• 13:46
  So there are lots of different ways you can do this, right?
• 13:49
  You can put all the incumbency on the partner and the distribution is just facilitation.
• 13:54
  They're just doing import, they're just doing tax, they're just doing the SaaS automation, whatever that is, and the vendor does nothing.
• 14:00
  You can then roll it completely the other way.
• 14:02
  And I've seen other vendors design it like this, where the vendor does all the work and the distributor just finds and recruits the partners and the partnerships just find and recruit the end-users and it almost works as like facilitation.
• 14:18
  Now, both those systems are viable if well designed and well implemented.
• 14:22
  But it's up to the vendor to decide what they want and then to break down what's their ideal end-user, what's their ideal partner and what's their ideal distributor and then develop and recruit those accordingly and build the necessary engagement, marketing, sales automation behind those to make it a success.
• 14:43
  Yeah, I fully agree there.
• 14:45
  I think if I think about that, that's what it really works like is a lot of impact is made in how good is your end-user awareness.
• 14:54
  Like if you think about those roles and responsibilities and what I see oftentimes one of the hardest things is actually getting the attention of the distributors as well because they are also looking and focusing towards where they can make the most revenue.
• 15:07
  So if your end-user awareness is really high so for example Zoom, then you can see that all the distributors want Zoom because they know with that we can make a lot of impact.
• 15:15
  So then it makes sense to put more and more responsibility to the local distributors because they will run it and the partners will come, the end-users will come and you have to facilitate them in the best way possible.
• 15:26
  But if you are actually having maybe a bit lower end-user awareness, then you want to keep it a lot more in your own control because there's so much more to do there and it's a lot harder.
• 15:36
  Like if distributors, if it takes a while to actually get that traction, then the attention can also dose off a little bit.
• 15:43
  So the better you keep that in your own control and facilitate the go to market and then really partner with the distributors to get in contact with the partners, to get in contact with partners with the end-users and build momentum in that market, that's when you can start shifting the responsibilities more and more to the distributors.
• 16:02
  What do you think about that?
• 16:04
  Yeah, I think it's become quite trendy to sort of recruit distributors and then just say oh there you go, it's up to you, you've now got to deliver.
• 16:11
  That's just not true.
• 16:11
  Right?
• 16:13
  You can't just put the onus of responsibility on a partner in the same way you wouldn't go and hire a junior sales rep and go cool, can you hit my call to number now?
• 16:22
  No.
• 16:22
  There's a whole load of process that goes into that onboarding, enabling, training, making sure they understand your go to market, your fit, their roles and responsibilities, having that well defined at a partner program level at a channel leader level and then pushed through your own organization into the wider channel network is critical for success.
• 16:44
  Yeah, I couldn't agree more.
• 16:46
  I think from that perspective, I think we had a good look at what are the advantages of working with distribution.
• 16:53
  And to be honest, I think if you really want to scale EMEA or APAC, your only option is to include distribution as well.
• 17:00
  But I think it's also good for listeners to look a little bit about what are the pitfalls or the risks of working with distribution?
• 17:06
  And when I look at that, to work with them and really scale it long term.
• 17:10
  I think what's sometimes difficult is that what I see a lot is that there's a lot of turnover in the employees, in the distribution.
• 17:17
  So you get traction, you really get starting building momentum, but then your champion within the distributor leaves and you need to start all over again.
• 17:25
  Or at least that's what I hear from vendors, that they sometimes feel like that.
• 17:28
  So I think maybe we can dive into that one a little bit.
• 17:31
  The second one is don't really have a lot of control.
• 17:35
  Or like that feeling of not being in control because you don't know the partners or the resellers of the distributors oftentimes.
• 17:43
  So because of it, like, I once spoke to someone who said, I really am scared of what happens.
• 17:49
  Almost all my revenue is there.
• 17:50
  Like what happens is everybody turns away all of a sudden.
• 17:55
  And I think maybe to start with those two to dive in a little bit.
• 17:58
  What can you do to prevent that from happening?
• 18:01
  Yeah, so in terms of high turnover, a really good example is I recommend that people go to distribution.
• 18:09
  If you're starting out a sales career, for example, it's very, very easy if you're good to get promotions right, very regularly.
• 18:18
  So that exact thing that you're worried about is maybe you sign the distributor and you're really pleased because you've got an absolute superstar crushing their number.
• 18:27
  They're doing a brilliant job supporting your vendor.
• 18:29
  The chances are they will either get promoted or headhunted either to a vendor or to a competitive distributor.
• 18:38
  And there is a high turnover, there just is because frankly, distribution salaries are much tighter than in the partner world or the vendor world because they're the entity that makes the least money, to be frank.
• 18:49
  And so, yeah, people move a lot.
• 18:51
  And so you would do the same thing that you would do for managing those people as you do for managing junior talent.
• 18:59
  You make the job simple, right?
• 19:01
  So you boil it down to its simplest components because then you're removing the need for super high-quality talent.
• 19:09
  And you do that by making sure all the content is available, making sure there's a very, very clear plan, making sure it's actionable.
• 19:16
  And that all of that drives impact.
• 19:18
  As long as you gear your strategy from a sales perspective in that way you will be successful regardless of the talent and it's much easier to train people very quickly so you can mitigate that churn risk.
• 19:31
  So you create a very strong process so you can easily onboard new employees from distributors in it as well and make sure you can cascade that throughout EMEA for example, to all the distributors and from there on it doesn't really matter.
• 19:44
  Of course it's always a pity when there's high turnover but you need to make sure that your processes are so robust that you can easily continue working with such a distributor.
• 19:54
  Yeah and a word of advice to all you sort of vendor specialists within distributors they are looking to hire you if you are good.
• 20:03
  Right, I see it happen time and time again.
• 20:06
  It's a bedding in ground where people do the first three, four years of their career as a distributor, smash it as a vendor specialist and then hey presto they end up at that vendor.
• 20:16
  So yeah, my advice to all of those young people working really hard, keep your head down and you can land at one of those vendors and then you really get that acceleration both in salary but in terms of where you can end up down the line.
• 20:29
  Yeah, it's true, it's happening time and time again where you see people from the distributor they're going to vendor or the other way around as well.
• 20:35
  I think that's fun about the channel.
• 20:36
  Like once you're in, you'll never go out, right?
• 20:38
  Yeah never annoy anyone, you might end up working for them.
• 20:42
  Awesome.
• 20:43
  And then maybe the second pitfall or risk where you don't know the partners of your distributors like what are things where you can be cautious of or how can you fix that in the best way that you are cooperating but not completely reliant?
• 20:59
  Yes.
• 20:59
  So if vendors are worried that distribution controls their partners and they don't have the level of contact or information, there's one way to solve that effectively data.
• 21:09
  Right, so have a partner portal where all your partners have to register, ensure that the distributor is sharing all sales entities and that's embedded into Salesforce.
• 21:18
  I can't tell you how many poorly designed channels I've seen and that's because there's managed and then there's a bucket and they don't even have access to understand the granular data of how many partners are in that bucket and what each of the spend is against those partners and all the relevant data that corresponds to that.
• 21:37
  You need to be able to track all of that effectively and you can work on an agreement with your distributor that they share that data once a month for example.
• 21:44
  That's really important because what the idea behind distribution should always be is that you are have a managed pool of partners.
• 21:53
  80/20 rule that 20% will do 80% of your revenue.
• 21:56
  But you're looking for the next new partner to join that list.
• 22:00
  And distribution is a fantastic filtration system to work out who are the key partners that should be promoted.
• 22:07
  I fully agree.
• 22:08
  I think from there on, it's like your scouting vehicle, right?
• 22:11
  If you would look at it from a football perspective, you're continuously looking who's the newest talent, who might eventually play in my first...
• 22:21
  Well, yeah, not just that. It's actually Premier League championship.
• 22:23
  It's all the leagues down and you've got all of the contributors through those and you can start to work very actively and start to do far better partner segmentation.
• 22:31
  So we know that partners, you know, have some sort of medal status gold, silver, bronze, and you're able to reward partners based on certification, sales-out, marketing activities to get promoted up and in turn receive better buy prices or whatever it is that you're incentivizing those with, good channel design can get you to have a far more active and focused effect.
• 22:52
  Not just on your 20%, but all the way through.
• 22:55
  And there's one thing I would like to add there which I really want to emphasize.
• 23:00
  Unmanaged partners should not equal unknown partners.
• 23:04
  And I think that's a misconception sometimes.
• 23:06
  Like, I know my distributors and they handle all the rest.
• 23:09
  But you want to know who those partners are.
• 23:11
  And that's why it's so crucial to cooperate with your distributors and to make sure that, indeed, those partners also register with your partner platform, that you help them, that you enable them to do marketing, that you train them.
• 23:24
  You want to be involved there.
• 23:25
  So yes, your distributors are managing your partners one-to-one on a daily basis, maybe, but you want to know who are they, who are the biggest talent, you want to scout, who can level up in tiering, etc.
• 23:37
  So make sure that you know your unmanaged partners very well.
• 23:41
  Yeah, absolutely.
• 23:42
  Your unmanaged partners are a key asset.
• 23:44
  One, they're 20% of your revenue, right?
• 23:47
  So look after them.
• 23:48
  And two, the next key performer and the next hotshot will be somewhere in that list.
• 23:54
  I can't tell you how much I'm seeing it in the market today where the traditional big partners aren't going to be the traditional big partners for the next product wave because they've got an entrenched sales process.
• 24:07
  They sell a certain segment of product and as the market changes, as it becomes far more SaaS orientated.
• 24:13
  We weren't talking about MSPs ten years ago.
• 24:16
  Now they are the key buzzword for any SaaS player.
• 24:19
  And suddenly you're saying, oh, hang on, these much younger, different formatted teams are actually starting to win.
• 24:25
  And they were in that unmanaged list and people weren't paying attention.
• 24:29
  And it's only new vendors that have built new lists that suddenly people are saying, oh hang on, these partners that I never cared about because they didn't really do much number and I never thought to send a channel account manager in to have a proper chat.
• 24:40
  Well, actually they're selling a lot, just of a different product set.
• 24:44
  The distributor is fully aware because they see the revenue of both arms, but these vendors aren't aware because they're not actively tracking that information.
• 24:51
  My father actually used to work in distribution as well.
• 24:54
  He always tells me about CoolBlue and Central Point in the Netherlands here they are two companies who are doing more than a billion in revenue nowadays and they were the first to actually embrace e-commerce.
• 25:05
  And at the beginning, everybody was like, yeah, there's something there, but their revenue is not that good yet, or something like that.
• 25:10
  So everybody let them go a little bit, but they went all in and then you really could see where the attention flows, the revenue will follow as well.
• 25:18
  And that's super interesting, I think, to keep thinking, OK, how can I scout the next top talent ?
• 25:23
  And that's what your continuous mindset should be when you are working with distribution.
• 25:28
  Yeah.
• 25:28
  And reach is how you do that consistently.
• 25:32
  Right.
• 25:33
  If you're only going to go and recruit one partner a year, your conversion rate has to be incredible.
• 25:38
  But if you've got a filtration system, which is we're going to have a thousand partners, we're going to very actively manage 200, the next 200 are going to get somewhat managed and then there's a bucketing system and yet you're much more likely to catch those people.
• 25:53
  But partner program design is what's critical through that because I can't tell you how many partners in that bottom 40% don't like the vendor because they feel like they don't get any love and support.
• 26:06
  And it's not to say you can afford to just put people on them all the time, but the right level of content that supports them is how you get them to buy in effectively.
• 26:17
  Yeah, it's true.
• 26:18
  And that's what you should continuously think about, I think, maybe as the last risk or pitfall before we go to the next topic.
• 26:25
  There's also this thing, of course, that oftentimes almost all the distributors that you want to work with are already working with probably your most important competitors as well.
• 26:35
  So how do you make sure within distribution from a vendor perspective that you stay top of mind there?
• 26:40
  Yeah, I think it's and look, I've worked at distribution, I know this is true.
• 26:45
  There are two ways to grow.
• 26:47
  You grow with the existing vendor and you go and win net new deals that no one's heard of or you share shift.
• 26:53
  Right.
• 26:53
  And that is by going to get a competitive vendor's business or a competing distributor's business, neither of which helps the vendor.
• 27:03
  Right.
• 27:03
  And so it's super critical that you make working with you better than working with your competitor.
• 27:11
  And then it doesn't matter if your distributor is selling both.
• 27:14
  In fact, it's actually a positive because you'll see that share shift start to happen more and more effectively.
• 27:20
  But it's a double edged knife, right.
• 27:21
  You can suddenly, if you're winning, it's great, if you're losing, it's really bad.
• 27:26
  And so it puts the onus on program design and channel design to be even more effective.
• 27:32
  And the winner takes all, right?
• 27:33
  That's what we see as we look at Meta and Google and Facebook and all these businesses.
• 27:38
  They are winning 80% of the market, if not more.
• 27:42
  And so as long as you're super confident that your channel design is better, you're going to win.
• 27:47
  And so you do that by ensuring, are we easier to do business with?
• 27:51
  Do our partners enjoy working with us?
• 27:52
  Do they make money with us?
• 27:54
  And are they going to win more often with us?
• 27:56
  Answer those four questions.
• 27:56
  Do it effectively.
• 27:58
  And actually the fact that the distributor sells your competitive vendor is a good thing.
• 28:03
  Yeah, that's a really good way to look at it, I think.
• 28:07
  And usually we're really thinking about how can we do that in the best way?
• 28:11
  But by facilitating that optimally, that's how we will really make all the distributors win.
• 28:16
  Yes.
• 28:16
  Remove the friction, which we've spent a lot of time talking about on previous episodes.
• 28:20
  Go have a listen if you haven't.
• 28:22
  Remove the friction and it's not just they enjoy working with you more, it's they will work with you more and you'll steal other vendors businesses, which at the end of the game is the game.
• 28:33
  Right.
• 28:34
  There is only so much money to spend at end-users, and so it very much becomes a wallet-share conversation.
• 28:40
  Are they going to buy your product or are they going to buy the competitors' down the road?
• 28:44
  And partners are the ones that influence that flow the most at a macro level.
• 28:48
  So make sure the partner wants to position you.
• 28:50
  And distribution is a fundamental way to get in front of the partner more effectively.
• 28:55
  But then program coordination is how you win that conversation more often than not.
• 29:00
  Yeah, I was just thinking maybe it's cool that we like kind of build a use case together.
• 29:05
  Let's say you're a vendor from the US, a SaaS vendor, and you want to enter the EMEA market.
• 29:11
  And you think, okay, distribution, I'm looking at that.
• 29:13
  Like, where would you start?
• 29:15
  Just maybe create a little playbook.
• 29:15
  Now we're here.
• 29:19
  Sure.
• 29:19
  So the first question if in this imaginary SaaS vendor is to understand how much end-user demand share, what's the tailwind I'm working with.
• 29:27
  If the tail wind is enormous and I've been there, right?
• 29:30
  I've been at Zoom during the pandemic where we had as big a tailwind as I think anyone's ever seen, then you want to go broadline.
• 29:37
  You want to get mass-market penetration, mass-market facilitation, speed to mass market is critical because you've got inbound demand and lots of it, and you want to capitalize quickly and capture the market.
• 29:51
  To clarify broadliners, those are Arrow, Ingram Micro, Tech Data, Westcon.
• 29:55
  Distributors like that.
• 29:55
  Yeah, exactly.
• 29:56
  The largest in the world.
• 29:57
  The largest in the world.
• 29:59
  There's four or five in the world depending on exactly what your sort of technology stack looks like.
• 30:05
  But that broadline coverage.
• 30:07
  That broad market coverage is what's going to help you enter markets quickly.
• 30:12
  Yeah, because that's what we talked about in the beginning.
• 30:15
  They have the legal entities, they can do all the distribution for your local currencies, etc for.
• 30:19
  So you can go very quickly to a lot of markets.
• 30:22
  However, if I'm a SaaS vendor and I have almost no inbound demand, I'm targeting specialized distributors, typically geographically located, who can introduce me to the right proactive partners who are going to take my products to end-users, do demos, do proof of concepts, get us introduced to deals, often.
• 30:43
  Typically much smaller, but typically far more focused.
• 30:47
  And I think what I see is a very positive side effect of the smaller distributors is that oftentimes turnover is a lot lower there as well.
• 30:55
  Yeah, absolutely.
• 30:56
  Loyalty within that base, both of partners and of staff is much, much tighter.
• 31:02
  Some of those are family-run businesses.
• 31:02
  Right?
• 31:04
  In fact that's where I started my career– and that makes a massive difference to talent development, talent attrition, and you can spend a lot of time cultivating that loyalty and then even when you get that bit of channel incestuous and suddenly that person is running UK sales for this new SaaS vendor.
• 31:22
  That's what you love to see and build.
• 31:24
  So to summarize, high end-user demand, you go for broad liners and you go as far as quick as possible.
• 31:31
  But if you know that there's still a lot of work to do to develop the market, then you go for more specialized distributors, value added distributors who are probably more focused on a specific region as well.
• 31:43
  I think if we look at that, probably most SaaS vendors are in the second group, right, where you need to really build and develop the market.
• 31:50
  So if you found out, okay, my end-user awareness, I need to develop that together with distribution and partners.
• 31:57
  So you're going for the specialized ones.
• 31:59
  What's the next step?
• 32:00
  Well, there's actually a third category which I didn't prep you on, so apologies for derailing the entire podcast.
• 32:06
  But the third category is there is no end-user demand, but we have a fantastic integration. And so that's a really common story.
• 32:15
  So let's say just to pick a couple of names out at random.
• 32:18
  Let's say I've got a product that integrates with Microsoft and actually it's a new type of thing and we're really confident, and in fact in the US there's been an amazing uptake.
• 32:29
  Then I would align myself with the Microsoft strategy.
• 32:33
  So I'd go and find the Microsoft distributors, I'd go and find the Microsoft partners and almost scale over their channel because you've got a really clean sales process and so that can remove all the friction almost instantaneously.
• 32:47
  Because you can walk into end-users very easily.
• 32:50
  Because you can say, hey, we work with Microsoft this is our integration, here's how we work.
• 32:54
  Therefore you just want to go and speak to the distributor that's selling the most Microsoft and the partners that are selling the most Microsoft.
• 33:02
  And what's interesting about the way those teams are constructed, they are constructed as Microsoft teams, right?
• 33:07
  So not the product, the actual organization.
• 33:10
  And so what you'll see is Ingram has a Microsoft division and then the largest partners have Microsoft teams and they're not just selling Office 365, they're selling all the integrations that tie in with that.
• 33:22
  And there's bespoke financing and automation that's involved with that story.
• 33:28
  So if you are a partnerships- driven organization, look at your ICP but also look at who you're partnering with and see if you can shortcut building a channel by scaling with them.
• 33:41
  Yeah, I think that's really smart actually because also partners love that as well.
• 33:44
  Like with integration that always comes configuration, implementation, etc.
• 33:49
  So they can build their services on top of it.
• 33:51
  Partners will always love to put multiple products as their solution towards an end-user versus just pushing one product out.
• 34:00
  Yeah, exactly.
• 34:01
  It's easier for the end-user, it's easier for the partner and it's easier for the vendor.
• 34:04
  It's win win win.
• 34:06
  I think a good example of this is what you see especially, indeed with the hyperscalers, with Amazon Web Services, with Google Cloud and Microsoft Azure.
• 34:14
  That's where you see a lot of vendors actually tying into their strategy.
• 34:18
  So for example a Snowflake or a company like that who is actually building on top of that because they are reading out the data that's stored over there.
• 34:27
  And if you align it to that, you see it scaling so quickly.
• 34:31
  I think literally Snowflake is one of the highest value-rated startups in the world at the moment and growing like crazy.
• 34:38
  They are only founded ten years ago.
• 34:40
  I think that's where you can really see if you tap onto a company that's already have a very strong channel, but also that's scaling still very rapidly.
• 34:50
  I think that's important to look at as well.
• 34:52
  Then you can really shift gears and get it into the hyperscale mod us yourself, so to say.
• 34:57
  Yeah, I think we should do a future podcast around how you drive that sort of hyperscale sales process, but a really good one for people that don't fully understand that market.
• 35:08
  Those businesses like AWS and Azure, they get paid on usage and so the whole game becomes two parts.
• 35:15
  One, how many end-users can I get to buy the storage from us?
• 35:20
  And then the second part, which is actually the really fun bit, how do I drive usage up?
• 35:25
  So a great example would be Zoom is based on AWS, right?
• 35:29
  So during the pandemic, I think Zoom was the most used product on AWS globally.
• 35:35
  Makes sense.
• 35:35
  But if I'm a Microsoft player, I want to sell Azure-based products so that it drives up Microsoft consumption.
• 35:43
  And so it's such an easy model.
• 35:46
  If I've built a product that's based on Azure and partners get to monetize that storage usage, I'm just doubling down on that whole sales process.
• 35:54
  So I go straight to the distributor because they also get paid on usage and I go, here's how we're going to impact your usage data here's my sales methodology.
• 36:02
  Introduce me into your largest partners who are going to introduce us to the largest end-users and I build a super dynamic, aggressive sales strategy.
• 36:13
  That's really good. I never thought about it like that.
• 36:14
  So the partners get double margin because on the one hand they sell your products, so they get margin on that product on a monthly basis.
• 36:20
  But your product drives usage so they'll also earn more with Microsoft or with AWS or Google cloud.
• 36:27
  And stickiness drives up retention.
• 36:29
  All the data says if you sell more than seven products into the same end-user, risk of churn I think drops down to something like sub 5%.
• 36:36
  And so you're hitting all those key factors.
• 36:39
  Put yourself in the partner's position.
• 36:41
  If you took that message that I've given you to them, how much more likely are they to work with you? Because you're putting them first.
• 36:48
  And we can train distributors to have that conversation at scale.
• 36:52
  And this is where the filtration system comes in.
• 36:54
  Go and speak to all your partners and then just do that first meeting without me.
• 36:59
  Once that first meeting has happened, every nibble you get chuck it back to me and I'll run it as a distribution game.
• 37:04
  Now that's the sort of scaling and market penetration that you can do just by hiring, say, four distribution managers across Europe – multiple language covered– and suddenly you can be speaking to thousands of partners about a dynamic sales strategy.
• 37:19
  Yeah, I'm just thinking out loud right now.
• 37:22
  So I think if you look at that, either you have high end-user demand, or integration, or you want to scale through an integration partner.
• 37:31
  Usually integration partners, especially if we talk about Microsoft, AWS, etc.
• 37:35
  They work with a broadliners so they'll direct you to the broadliner bucket.
• 37:39
  If that's not the case and you are really going to develop the market on your own, then you're probably going all in on the specialized distributors.
• 37:47
  Yeah, exactly.
• 37:47
  And if you need to focus on the specialized distributors having a super clear understanding of market fit and how you are going to make their life easier either by making more money, making the sales cycle easier by attaching a product, whatever that looks like and then you need to go and do the same game that we've discussed in previous podcasts.
• 38:06
  Find your typical end-user, find out what partners they buy from, then find out what distributor they buy from.
• 38:11
  You can work it back and suddenly just by speaking to two or three end-users, you've got an interesting partner map.
• 38:18
  Then you can walk it back to the same distributor and then suddenly you can flood the market.
• 38:22
  Because you're not just speaking to two or three partners, you can start speaking to hundreds.
• 38:26
  Yeah.
• 38:26
  It's just as we discussed in episode two.
• 38:29
  If you haven't listened to it, I would definitely recommend it Remove the friction.
• 38:33
  It's exactly the same for distributors as for partners.
• 38:36
  In every part of the journey, you want to remove the friction.
• 38:39
  And once you got the distributors fully on board, you want to work with the distributors to remove the friction of the unmanaged partners.
• 38:45
  And I think that's how you scale your distribution channel.
• 38:48
  Yeah.
• 38:49
  Partnerships and channel can be summed up by making life easy.
• 38:52
  Right.
• 38:52
  And I think that's half of the battle is people misunderstand brand loyalty.
• 38:59
  People are loyal as long as it's useful, and it's got to be useful consistently, and people will find the easiest way to make money.
• 39:07
  So it doesn't even matter if the opportunity is huge.
• 39:10
  At a macro level, ease of doing business is what's critical.
• 39:14
  Yeah, wherever you are, it doesn't matter whether it's in channel indeed, or in the end-user market.
• 39:18
  That's what you should continuously think about.
• 39:21
  Yeah.
• 39:21
  Amazon is not the cheapest, it is the easiest.
• 39:23
  And that's Amazon sells products typically at 30% markup, I think, on market average.
• 39:28
  But next-day delivery, it's got all my card details.
• 39:31
  I don't need to worry about it.
• 39:33
  Just click Buy now, it's there tomorrow.
• 39:35
  I'm paying for the privilege of ease of use.
• 39:37
  I'm happy to pay a premium for it.
• 39:37
  Yeah.
• 39:41
  I think last but not least, also may be fun to look forward a little bit.
• 39:45
  So what do we think?
• 39:46
  What does the future of distribution look like?
• 39:48
  Because I heard you hear multiple kind of things about it.
• 39:52
  Right.
• 39:53
  From the US you hear distribution is dying, is it still relevant.
• 39:56
  In EMEA, APAC we hear completely other things, but where do you see it going just in general?
• 40:02
  Yeah, it sounds like you're trying to prod me to say distribution is dead after working there for eight years, which I'm certainly not going to say.
• 40:08
  I think we're going to see distribution rapidly evolve.
• 40:11
  If I'm honest, if I look at networking as a great example, that was the biggest– it's where Cisco made all this money in the late nineties and early two thousands.
• 40:21
  Right.
• 40:21
  That was the biggest advancement for tech.
• 40:24
  But that's almost become basic.
• 40:27
  Like the wires are laid, the plumbing is in.
• 40:30
  Now it's become software defined over the top.
• 40:33
  So we're going to pivot to a far more software-orientated business.
• 40:37
  There's only so much cabling you need to lay before everything just becomes virtualized.
• 40:41
  Right.
• 40:41
  And data centers are virtualized, almost everything.
• 40:44
  So the requirement for distributors to hold and ship product is going to massively reduce over the next ten years.
• 40:51
  So a lot of their value is going to reduce as well.
• 40:55
  So it's going to become a much leaner type of organization that focuses far more on enablement, on value-added services and that's where they're going to provide their value.
• 41:07
  What's going to be interesting is what you can automate outside of distribution and therefore where their value sits.
• 41:16
  I absolutely think they will have a value because if I look at a type of model called Master agency, which is effectively where rather than recruiting a distributor who transacts deals for you, the master agent just recruits partners, partners just recruit end-users and the vendor contracts directly with the end-user.
• 41:35
  And it's more like a multilevel marketing right.
• 41:38
  You're able to filter out all of this stuff and just find deals and that's done for lots of cloud communication.
• 41:44
  And then they get a referral fee.
• 41:44
  Exactly.
• 41:47
  They own commission for the lifetime of the contract, typically.
• 41:50
  Now you can understand why the partner is going, well, hang on, I don't transact the revenue, that's annoying.
• 41:55
  Some partners, especially – I know quite a few, one or two-man businesses who are multi, multi millionaires because they knew the right end-users and they closed the deal.
• 42:03
  They would have never had the level of finance to be able to transact a $40 million deal, but they didn't need to.
• 42:12
  The vendor contracted with the end-user and they got a 20% commission payment for the lifetime of that deal.
• 42:18
  That's a massive payment.
• 42:20
  And those deals are real and relatively frequent.
• 42:23
  And so you can understand how that's almost distribution.
• 42:27
  But reimagined.
• 42:27
  It's taken away all of those barriers because actually for a lot of cloud business it's not necessary.
• 42:33
  So I think we're going to see the evolution of that business.
• 42:37
  And for any budding entrepreneurs, I would look in that space because to me there is a lot of market potential there for SaaS vendors who want to move really, really quickly and actually just care about the key components, which is, are you going to look after my partner?
• 42:53
  Can you introduce me into markets quickly?
• 42:56
  Is it easy to transact?
• 42:57
  If you can help there and you don't have all the old legacy entrenchment, thousands of personnel, and you can just help me achieve what I need to achieve quickly, I'm probably all-in.
• 43:08
  Yeah, I think you're right there.
• 43:10
  If I think about it doesn't matter where it will shift to from a logistics perspective or transacting, et cetera, but where you can always provide value as a distributor and where vendors will always keep looking for is like, what's the shortest route to success?
• 43:24
  And if you know a lot of partners, if you have strong relationships with them, it's still the people to people business we're in today in the channel and it will stay forever.
• 43:32
  So if you have those relationships, you can introduce vendors quickly to those partners and start building momentum.
• 43:38
  That's where you can keep providing value.
• 43:40
  And then I fully agree with you looking at new models as well, like master agents, et cetera, that's eventually from whether you are a master agent or a distributor, that's where you provide the value by bringing them, the vendors to the partners and then with the partners to the end-users.
• 43:55
  Yeah, exactly.
• 43:55
  I think that we're going to as we pivot into this SaaS world and really, I think 90% of our purchases are all going to become software defined at the end of the day.
• 44:05
  Right.
• 44:05
  You can only iterate and improve the hardware.
• 44:08
  There's a limiting factor.
• 44:09
  The iPhone 14 is not much different to the 13, not like the three to the four.
• 44:13
  There was huge jumps in progress.
• 44:15
  We're now seeing minimal differences.
• 44:17
  The improvement comes in the software that's embedded in it.
• 44:20
  And so we're going to see that same change cause a huge change to the channel, which is we don't need the same sizes of organizations.
• 44:28
  The true is the same of partners.
• 44:30
  We don't need huge partners, we need focus partners who deliver immense value.
• 44:35
  And those leaner organizations are going to be incredibly profitable and it's going to be an interesting market and I'm really excited to see what happens.
• 44:44
  So maybe to summarize in one sentence, go niche or go home.
• 44:47
  Whether you're a distributor or partner.
• 44:50
  Yeah, well. Niche, I think go value or go home.
• 44:52
  Right.
• 44:53
  You've got to focus on where you can deliver value.
• 44:56
  And there is huge value to having massive, massive reach.
• 44:59
  Right.
• 44:59
  If you want to move really quickly.
• 45:02
  But for other vendors, that massive reach isn't helpful.
• 45:06
  Massive focus is.
• 45:06
  Yeah, really good.
• 45:08
  So I think for today, to be honest, there was a lot of value in this, at least for me.
• 45:12
  I learned a lot of new things about distribution.
• 45:15
  I think we delve deeper into why work with distribution and how to do it successfully.
• 45:19
  The advantages, the disadvantages, where do you start?
• 45:23
  So how do you decide with what type of distributor am I going to work and then how to scale it successfully?
• 45:28
  And the thing I particularly liked was at the end also a bit of a look into the future because there's a lot going that's going to change, that's the thing for sure.
• 45:37
  So I think yeah, thank you for listening as well.
• 45:41
  Thank you today, Alex, and if you enjoyed this podcast, please share it with your colleagues, send us a DM on LinkedIn and hope to see you next week.