We are working with a vendor that is transitioning its portfolio of products and partners to be more annuity or XaaS orientated. This includes evaluating their partner enablement material and approach so either existing or new partners could successfully sell the Cloud or XaaS solutions. Our findings suggest that using the same enablement material and approach that is used for “perpetual” products will not give partners the skills necessary to successfully drive and build an annuity revenue stream.
The world has changed
Product knowledge and application training, both sales and technical, is still vitally important in both a perpetual or cloud world. However, there are some significant changes to the way business is being done today. With the world moving more towards an IT on demand or Cloud computing environment, this shift in business model should be considered in any up to date enablement program.
Partner enablement is essentially about ensuring the partner has the skills (ideally self sufficiently) to identify a potential customer, sell the concept, design the correct solution, deploy or implement the technology and of course be able to provide adequate first line support, profitably.
This requires two distinct partner enablement strategies. One would be focused on the field personnel, and the other on the back of house or the overall business.
Firstly, at the field engagement level enablement programs or skills development should now cover the following:
Annuity financial skills and selling style
It is quite a different skill to sell a subscription and/or a managed service at $5,000 per month compared to a lump sum of $100K for a chunk of hardware. Understanding the financial calculations and implications both internally and for the customer is vitally important. Furthermore it is critical to understand the business impact for the customer in going from CapEx to OpEx based IT spending. This may mean adjusting the selling or customer engagement style with different key (financial, product, service(s) and partner value add) messages being required. Vendors talk about customers transitioning to the cloud, however the partner sales person’s business and financial skills training is usually given little if any attention.
Selling to the LOB, not just IT
In today’s world with cloud, XaaS and business productivity apps, it is not just the IT department making the purchasing decision. It is often the LOB or other functional areas. Today’s account manager needs to have the broader account development skills to adequately map, cover and engage with a wider range of people, and of course with different value add messages. This is very different when compared to selling to the IT manager or department. It is far less of a traditional technical sales approach and more of a business outcome approach, all the while still being cognisant of the technology implications for the business. This type of selling skills training is rarely, if ever, provided to the partner sales person.
Customer lifecycle management
The perpetual world was often centred on the large one off or anchor sale. In the cloud, XaaS, or annuity world the name of the game is incrementally building the monthly billing revenue over time. As we mentioned in the previous month’s article, understanding the true value of the customer and their revenue potential as well as ongoing incremental up selling or cross selling is just as important as the first sale. Therefore, the customer engagement, selling and account management approach has to alter to one that is more customer lifecycle centric. This means the sales skills and supporting partner marketing messaging need to transition to one of continuous engagement, rather than being “deal” centric.
Secondly, at the partner organisational level there needs to be a different enablement approach to assist partners in transitioning their VAR business model to a service provider business model. The enablement approach required should cover the following items:
Financial planning, cash flow and working capital
One of the most significant challenges for a traditional VAR in switching to selling XaaS/Cloud are business and financial based, not technology based. We have explored this challenge In previous articles through discussion of the Rule of 78 to explain the concept of recurring or annuity revenue. .
The challenge for partners is the transition gap between building the monthly billed revenue fast enough to cover the lost revenue and margin from a traditional perpetual sale. I.e. $5k per month at a margin of say 50% vs a $100K sale at a blended margin of say 25% with services. Typically, this time frame is between 12-18+ months.
Therefore in this recurring revenue acceleration accumulation period, the business needs enough working capital to fund day to day operational activities. It also needs enough cash to fund any other additional investments required to on-board a new annuity customer i.e. new communications links, servers, co-lo costs etc.
Our experience working with a range of mid-market VARs looking to, or being in the process of making this adjustment to their business, is that they need specialist help or coaching so they can “work on the business not in the business”. Being a XaaS/Cloud reseller or service provider is a completely different business model to the traditional VAR/professional services business model. Furthermore the transition can be potentially very bumpy for those that don’t know where or what to look for.
Reward and compensation options
Along similar lines as the point above, new sales remuneration structures need to be put in place to focus on, drive, and reward the growth of the annuity revenue stream. There are various compensation models a partner could look at, but any model should reward a combination of new sales as well as growth of billed revenue.
Additionally as we have commented previously on the need for Customer Lifecycle Management, XaaS/Cloud partners may well require a different sales skills mix of both “hunters” and “farmers” to be successful in the longer term. Many partners will again need help to ensure they have the right mix of skills and/or hire or re-deploy (and measure and reward) their staff effectively.
Systems and automation, especially billing
While Excel may/can work as a provisioning and annuity billing system, we would not suggest that it is best practice!
Luckily, today there is now a range of third party orchestration, provisioning, billing, management, and Help Desk options available as either standalone or cloud based offerings. Selecting and then integrating these into the new business processes of being a services provider compared to being a traditional VAR is not easy, nor perhaps inexpensive!
The choice of products or technologies the partner is basing the core of their XaaS or Cloud business on will influence the choice of systems and automation options available to them. Ideally, this is where these key or core vendors have a role to play in ensuring their products work with (via APIs and testing) major third party automation systems. In addition to this they must also collaborate with these third party providers to help to ensure the partner can effectively and successfully integrate them into their business. Accurate, flexible, and scalable billing is not a “nice to have” but a core competence of any successful XaaS/Cloud service provider.
Enablement is about providing and helping the partner to be able to sustainably sell, deploy, manage, and support an appropriate solution. The industry is very good at traditional sales and technical training and certification. However, in the transition to a XaaS and Cloud based annuity business where traditional VARs are becoming service providers, there is still a long way to go to ensure they have the necessary help and skills to be able to successfully navigate this change of business model and the opportunity it brings. Channel Dynamics has recently launched a range of partner transformation workshops to get partners businesses “match fit” to make this transition successfully. For more information on these workshops contact us today.