DOES SIZE MATTER? *when choosing a channel partner*

Sometimes smaller can be better!

When choosing a channel partner, finding the right fit is a top priority for an OEM (Original Equipment Manufacturer). Sometimes it's even more important than producing innovative products.

But what defines a fitting channel partner? Is it the size of the company? Its years in operation or financial capability? Is it Its people and regular clientele? A mix of all? Or could it be something else?

In my experience, what makes a channel partner a great fit is its people’s dedication, knowledge, focus, experience, leadership, reach, and transparency. I was fortunate enough to spend the last seven years working closely with channels management and sales leaders in many market-leading organizations of different domains, sizes, levels of local presence, and go-to-market strategies. During these years the small companies I lead were constantly being recommended to principals for being a strong channel partner. Another repeating pattern was that quite a few OEMs broke off from their historical relationships with large size agents and signed up with the companies I worked for as their new channel partner despite the huge difference in size.

When I asked the channel managers why they were interested in working with us, and why they left their prestigious large size channel partners in the first place, some of the answers were along the lines of:

1. Our yearly revenue is considered small, insignificant, and said to be not worth the headache for large distribution companies.
2. We are not getting the attention and dedication that we think our products deserve.
3. Our existing partner makes 10 times our revenue by selling a few units/projects for X Company/OEM.
4. Our partner is not investing enough in hiring or training the sales force, despite making great margins and commissions.
5. The company is old and not as agile or flexible as we want.
6. The salesperson dedicated to us is not professional enough, or not presentable enough.

Yet, some of the most shocking answers reflected a complete lack of transparency, integrity, and compliance on the channel partner side. Here are a few real-life examples:

• We found out that the channel partner forged our sales invoices to prove to his customers that he was not making close to 100% margins.
• Our paid “share” of the cost of a joined marketing campaign turned out to be the actual full cost of that campaign!
• Our partner turned out to be vendor agnostic!

In short, the channel partner should be as eager to win business, and more knowledgeable about the market in his territory than the OEM’s own sales team. The partner’s sales team should also be at least as technical and presentable as the OEM’s own salesforce. Thus you will quickly find that hiring the right channel partner is as important and perhaps more difficult than hiring a direct sales force since it's practically hiring a full company (distributor or sales representative) that you can’t control fully. You want to sign a sales rep agreement with a company that you will be proud of, and at the same time a company that will go to war for you in order to put your product in front of all potential buyers. It’s a balance that is not easy to find, and experienced channel managers and sales leaders know that very well. What they look for is:

1. Knowledgeable sales force, and willingness to train and hire the right people.
2. A partner should not be too small, or too big. The OEM's product should potentially generate at least 10% of the partner’s profit, but not more than 60%.
3. Willingness to take commercial and investment risks.
4. Willingness to invest in marketing, stocking, demos… etc.
5. Willingness to invest in expanding the territory.

Now do not get me wrong, I am not saying that all large size channel partners are bad. It depends on whether your product would generate enough profit (not profitability) to keep them interested, focused, and motivated or not.

Looking at it from the channel’s perspective, they don’t have a product know-how, they don’t manufacturer, and their rights to sell can be easily withdrawn. And therefore they will spend their efforts and time only with principal partners that can be trusted, and that can generate enough income to keep their company going.

The OEM/Partner relationship is like a good friendship. It will last long if both parties shared the same background, and had the same interests and motivators. Size does not matter in this case!