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How vendors can manage channel partners through Covid-19 crisis
- 26 March, 2020 09:00
Joergen Jakobsen (DaneAsia Consulting)
During my career, I have had the ‘fortunate experience’ of managing large partner ecosystems during a period of crisis, such as the Asian financial decline of 1997, the SARS outbreak of 2003, the Indian Ocean earthquake and tsunami of 2004 and the global financial crash of 2008.
Therefore, I have received lots of questions from vendors regarding best practice in managing partner relationships during this period of Covid-19 uncertainty.
While all guidance should be taken in the context of each individual situation, below is some general advice and ideas vendors should consider adopting during such testing times.
Keep long-term objectives in mind
Firstly, it’s important to internalise that the industry will get through this crisis, just as it has before. Therefore, keeping a long-term perspective is important to avoid making decisions that could be of short-term benefit to your company, but in the long-term might not be the correct decisions to take.
When assessing your partner ecosystem, it’s crucial to realise just how important they are to your business today and how important they will also be 5-10 years from now. The partner ecosystem is a key asset and a significant investment to most vendors, with years spent selecting, curating, developing and supporting such a network.
Therefore, vendors must think about how to preserve and protect this ecosystem to ensure a strong network exists once the situation normalises and customer demand picks up again.
Although the Covid-19 crisis is very acute, it’s my belief that this is a crisis that will pass. However, it’s a big speed bump with significant risk to both partners and vendors. But it’s also an opportunity to show leadership and compassion to protect business partnerships and do what is right to support partners, which will help both customers and vendors to get through this crisis in a better shape than otherwise.
Understand Covid-19 impact on partners
The current crisis provides five key challenges to partners, which are:
1 - A decline in revenue as many customers defer or cancel spending plans
2 - Severe pressure on EBITDA as a direct impact of the declining top-line. Take note that the partner ecosystem tends to be more sensitive to declines in top-line given a lower margin business model compared to most vendors
3 - Increase in accounts receivable (AR) with negative impact to cash flow as customers delay payment
4 - Change in operational processes as employees work remotely
5 - Potential drop in employee morale due to increased uncertainty and potential lay-offs
In addition, it’s important to stay very close to partners during this time as situations might quickly evolve and the need for vendor support could evolve alongside. Therefore, increased (virtual) engagement on a 1:1 basis or through advisory board settings will be especially important during this period.
Now is the time for vendors to also show that they understand the business of partners (PQ), that they have the knowledge and insight to help (IQ) and that they have the compassion and willingness to do so (EQ).
In return, it’s also the time for partners to communicate closely and in a transparent manner with vendors as it relates to each specific situation. In the short-term (as well as long-term) this closer relationship will help both partners and vendors to successfully navigate this crisis period.
Supporting partners in the short-term
Vendors should consider how they can support partners in the short-term to help overcome immediate challenges, which includes evaluating the following actions:
1 - Support partners to maximise revenue retention:
a. If the vendor has a hybrid go-to-market strategy, prioritise indirect sales versus direct sales where possible
b. The vendor can provide customer solutions with deferred payment solutions to minimise impact to the CAPEX budget of a customer, such as as-a-service solutions and extended trial periods
c. When required, support partners in customer engagements to help retain business for the long-term. Showing up (even if it’s virtually) is never more important than in time of crisis
2 - Support partners to handle EBITDA challenges:
a. Help partners with low-cost or free of charge vendor technology for international use, especially related to increased investment in remote working capabilities
b. Allow MDF investment to be converted to support vendor dedicated head counts for a temporary period - return on investment on marketing and business development is limited during this time anyways. This will help partners retain critical talent
c. Review all performance-based compensation for partners. Revenue targets will not be met during this period and these programs should be changed or suspended accordingly
d. Manage partner inventory to be at conservative levels to reduce a partner’s working capital being tied up in vendor inventory and / or support partners with vendor funded inventory for a period of time
e. Vendors should also be very sensitive to partners receiving an adequate margin for sales. Now is not the right time to squeeze margins
3 - Support partner cash flow challenges:
a. If the vendor has financial capabilities to do so, it’s important to evaluate how they can support partner cash flow and working capital challenges. The most direct way is to extend the accounts receivable terms to partners with good payment history - this will be a significant help
4 - Review and if required enhance virtual engagement processes with partners:
a. Ensure all online and virtual processes and capabilities are in place and up-to-date to handle remote working engagements between vendors and partners
b. Support partners if possible to test and enhance online capabilities - potentially with low cost or free of charge vendor products and solutions
Supporting partners in the mid-term
Alongside thinking about the short-term and handling the immediate crisis, now is also a good time to start planning for how best to re-accelerate business when the market settles.
1 - Given that most customers are not engaging on sales cycles, the sales and pre-sales employees will be less busy. Therefore, instead of laying off these employees, work with partners on helping to invest in these people so they can become even more capable and effective when the business returns to normal. This includes updating skill sets through training and certifications
2 - Plan with partners on how best to transition into re-acceleration mode. Work on business intelligence capabilities related to a customer base to plan the best sales programs to be launched as the market prepares to engage again
3 - Due to a slowing down of business, a crisis is often a good time to evaluate strategies, programs and policies. Ensure go-to-market frameworks are optimised to be in the best shape possible upon the market coming back
4 - Plan how to reverse the temporary crisis measures put in place to divert more of this investment back to business development activities
Managing partner related risk
During a crisis period there is increased risk related to partners that vendors must plan for.
1 - Financial risk: The most obvious risk is bad debt as some partners might not have the capital structure to survive a crisis. It’s important that vendors understand the level of financial risk partners might be facing and plan for mitigation in the appropriate manner.
This could be through insurance, collaterals, inventory or asset claims, even direct invoicing to end-customers or other similar measures. The most effective way to manage such risk is by having strong and trusted relationships with CEOs and CFOs of partners
2 - Competitive risk: As competitors implement crisis programs with partners, vendors must understand what these programs are and the risk they might pose from a refocusing perspective
3 - People risk: Although few companies are hiring during a period of crisis, some are laying off people. Vendors must seek to protect the high value people within partners, such as dedicated vendor employees who are highly skilled in specific products and solutions
4 - Risk of doing nothing: Should a vendor decide to do nothing, this could entail significant business risk. The worst case would be the default of a partner (who otherwise could have been saved) which could lead to loss of customer engagement or the loss of a dedicated vendor person within that partner. Alternatively, doing nothing could lead to partners focusing investment and resources towards alternative vendors who are offering support.
This crisis will come and go over time. One day, the market will look back and consider Covid-19 as yet another ‘black swan’ or ‘speed bump’ on the journey. However, vendors must expect that the future will bring new and unexpected crisis’ that will need to be handled.
This is good practice in terms of capturing learnings to ensure preparedness ahead of the next crisis. As Winston Churchill one said: ‘You should never waste a good crisis’.
By Joergen Jakobsen - DaneAsia Consulting
Joergen is a board member, business advisor, and consultant leveraging more than 30 years of experience in the global technology industry, with 25 years of leadership experience in Asia Pacific and Japan. Joergen holds in-depth expertise around digital transformation and cyber security, alongside extensive experience managing various business models across hardware, software, as-a-service. cloud and channel business models.