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The Partner Channel Podcast Episode #19

How Consumption Based-Selling is Impacting the Channel

Show Synopsis

In this episode of the Partner Channel Podcast, Daniel Graff-Radford sits down with Robert Saxe from nVision to discuss how consumption-based models are impacting the channel. Robert Saxe also describes how to keep partners engaged in this ever-evolving ecosystem. 

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The Script

 Daniel Graff-Radford: Welcome to the Partner Channel podcast, the voice of the Partner Channel community. I’m Daniel Graff-Radford, the CEO of Allbound, really excited to be here with Robert Saxe, who is nVision’s Managing Director. Welcome, Robert. Thank you for being on the show.

Robert Saxe: Thanks for letting me be here.

Daniel Graff-Radford: Do you mind starting off by walking us through your background in the channel and how you ended up at nVision?

Robert Saxe: Absolutely, Daniel. So I started nVision about 15 years ago, and it’s actually kind of hard to believe that we’ve been in business for 15 years, I think last year was kind of a lost year, but a pretty busy year in the channel. We’ll talk more about that, I think, as the session goes on prior to starting nVision. I actually worked on both sides of the channel. So I started my career at IBM and my division, network outsourcing, and our division was ultimately acquired by AT&T and post-acquisition. I ran a big part of the IBM Channel for AT&T. And then a few years later I joined a startup that happened to be an evolving value-added reseller or system integrator. And I ran a geographic business unit and we were a partner to Cisco Avaya. I’m going to date myself and say Nortel at the time as well. So so I’ve worked on both sides of the equation and just through time and opportunity, I had an opportunity to get into consulting. And 15 years later, here we are.

Daniel Graff-Radford: That’s great. A lot of people look at how Channel works today, and you really do have a history with your career of how it was built and why it is what it is for those people. Before we get into that, which I’m really excited to talk to you about, do you mind telling any of our listeners that don’t know what Nvision is? What is nVision and what you guys do now?

Robert Saxe: Perfect. Thank you. So nVision Consulting. We’re a management consulting firm, so we’re based here in Chicago, but we do work globally. In fact, pre-pandemic, we’re probably about 40 percent of our business was actually with clients or with both vendors and partners that had overseas operations. So we’re kind of a boutique management consulting firm. We’ve got six core competencies that include business strategy, routes to marketing channels, new product, and portfolio management, program management, or what I call initiative acceleration, digital transformation. And customer success, so so that our business really started in the channel and kind of evolved in each of those different. Think of it as a hub and spoke kind of in each of those different bespoke areas as the channel, as the requirements of the channel has evolved and as channel partners have evolved as well.

Daniel Graff-Radford: That makes a lot of sense. And, you know, one of the things that I’ve been excited to talk to you about from our prior conversation was how this evolution is happening with customers that you’re working with and companies that we’re working with, that everything is becoming something as a service and anything as a service sort of concept. And, you know, this is a big change. So you’ve worked on that as a VAR and with VARs and you’ve worked, you know, with integration partners and service partners and with different companies as people pivot their company and their offerings into more of a consumption model. Can you help us sort of think about what that’s doing to impact channel partners and how to how companies are trying to keep them engaged in that change?

Robert Saxe: Sure, sure. I think this is probably what we hear people use the term kind of inflection point, right? I was on a call last night. Someone use that term. I actually think this is probably one of the biggest inflection points kind of in the industry right now, where we’ve got kind of a perfect storm of customers that are demanding new ways to consume technology. Right. New ways and new consumption models. We’ve got vendors like Cisco and Microsoft and Dell and others that are out there that are reacting. Right. But as they figure it out, a lot of different moving parts are occurring and they’re not always occurring kind of in unison. You’ve got the product houses and business units and these vendors that are not always in sync with the channel leaders or finance or services or even evolving customer success organizations. And then you’ve got the channel who are probably the closest to the customers on a day to day basis at least, and they’re unclear their changing role and how to make money. As you know, things kind of shift to the cloud or cloud type consumption models. In fact, in just the last year alone, the year, the year of the pandemic, we’ve had four or five clients where the product side of the business and then new customer success organizations were making assumptions that were not really realistic for the channel or for customers. And they also were not necessarily channel-friendly. So if if you’ve got channel leaders that are listening on this podcast, my best advice would be to engage and even drive these discussions earlier, sooner than later, because the business is transforming.

Daniel Graff-Radford: What do you mean by that? Like, what’s an example of something where, you know, a company wants to change to something as a service and they weren’t that. And it’s not really making sense for their channel. What’s an example of how that could go badly and the types of engagement that they should be asking about?

Robert Saxe: Sure, I’ll give you an example, but I won’t use specific names, right, so this past summer, I was working with a software asset management company, and they had both an on-prem solution as well as a cloud-based solution. Part of their on-prem solution involved business partners kind of investing in their technology and then and then kind of reselling that technology as an embedded managed service and that that worked well over time. Right. But just given the market transition, this company, this vendor wanted to offer a cloud-only type of solution as well. They had customer demand for that. And so they started to develop this cloud-only solution, basically software as a service type of solution. And they made some assumptions about how to price it. They made some assumptions about how it would be delivered. But all the while, the channel and the channel leaders were not really involved in that equation until the very end. Right. And so from a pricing perspective, this vendor wanted to price it, you know, very similar to how they used to price it when it was on-prem solution.

Robert Saxe: But the value equation changed the value equation between the vendor and their customers, between the vendor and their partners, and then between the partners and the customers. All of that changed. And it just did not make any rational sense. And then from a board of director’s perspective, the margin expectations for this new offering were way higher because of the assumptions that were made earlier in the cycle. They were not really factoring, you know what? They’re going to have to pay their channel to take this new solution to market in a way that would make that the channel profitable and have it make sense for the channel. They also did not really consider how the channel could differentiate itself. And this is a big problem we see in the industry right now when new software or solutions are being delivered as a service or in the cloud by a vendor, what role does the channel play, and what opportunities does it channel have to differentiate? Because that’s where they’re going to make their margins and make their money and ultimately be profitable.

Daniel Graff-Radford: I think this is important you know, just to sort of break down the money side of this, I think for some of our listeners, we probably have some people that are used to selling a big-ticket enterprise item or seeing things move to a cloud offering are trying to balance all of these items and how to keep people engaged. So let’s keep the math simple. If we have one hundred thousand dollar enterprise item getting sold through a channel that has a 20 percent margin going over to that channel partner and now the product team and board of directors and CEO are excited to convert that hundred thousand dollar item into a consumption-based model that is, you know, maybe committed for a year, maybe not maybe committed for two years. The commitment time is now very different because they haven’t paid upfront for this, number one. Number two, even if the math is all evened out at eighty-three hundred dollars a month or whatever the right number is, when and how do you pay this channel partner where they were used to having, you know, money upon payment to you know, to the vendor that had the hundreds of hundred thousand dollar thing. And so one of the things that that we all need to sort of think about is when we’re planning these conversions into, you know, anything as a service cloud or consumption offering is, you know, if you want this ecosystem to thrive and survive and keep selling your stuff and using their amazing relationships and possibly helping you implement these things and so forth to sort of think about when you pay them, how you pay them, what their expectations used to be, what they should be in the future. And if other people are working with them in a more lucrative manner, are you going to lose mindshare with those channel partners? And, you know, I love the idea.

Robert Saxe: Let me just interject, too, in that it even goes like this without adding complexity. Right. Just it even can go kind of a layer deeper that in that if I’m a if I’m the owner of a partner business. Right. I might have some credit facilities or I might have some bank covenants or even some investment facilities that require a certain, you know, income level or a certain cash flow or a certain, you know, revenue objective. And if I and if I missed that, because now I’m spreading out payments over twelve or thirty-six months, for example, I might be put into a situation where my own covenants or credit facilities are in jeopardy. And so I guess as far as vendors are making these decisions, they just have to really understand kind of the economics of the channel and what the implications are and which partners they might invest in to help them through these times, you know, and which ones may or may not make the transition.

Daniel Graff-Radford: You know, a lot of people look at the AWS service and how they move people’s big-ticket item around hosting into a consumption model. And if you go back to the very beginning of that, many people made fun of them because they were running this thing basically at the margin. And every time they had a new economies of scale, they provided a discount. And you can see how now, you know, based on pricing, service, ease of use, all of these items, people have moved to AWS and they seem so smart today. But back in the beginning, that transition and thinking about gross margin, you know, a lot of people questioned Amazon on that. And if you’re a product manager or a channel leader and you’re looking to make this transition, there’s going to be this awkward period of the economics need to be different. And you need to help manage with your CEO and your investors when you hit that point of that 70, 80 percent gross margin with everyone getting paid the right amount. And it’s not on day one. And you know that, you know, having people sort of remember that that transition was hard even for the behemoths that are today but weren’t back then, you know, and that that could be a helpful thing to think about.

Robert Saxe: Absolutely, I mean, I think there’s there’s going to be a whole bunch of new new economic models, the latest thing that I see happening and maybe some of your listeners are experiencing this, too, is that is that they’re. You know that the focus where I see a lot of attention going right now is, is it like these hybrid cloud environments where you’ve got kind of a mixture of on-prem and cloud and customers want to continue to have a cloud consumption model and vendor is going to continue to offer a and as a service type of model. But now you’ve got actual physical capacity, whether it’s routers or switches or storage devices or whatever it is, either in a data center or on a customer premise, but it’s being purchased and consumed in kind of a shared risk cloud model. And that yet is another economic inflection point. Right. It’s an interesting way of is that the vendors responsibilities, the customers responsibility, is it the partners responsibility? We’ve seen different models. I mean, I think HP is probably farthest along with with their Greenlake offer. But you’ve got Cisco, you’ve got IBM, you’ve got a lot of other companies, a lot of other vendors that are beginning to play in this space and offering different consumption and economic models for all parties involved.

Daniel Graff-Radford: Do you have any sort of advice for the person that’s looking over the chasm and thinking about making the leap from a fixed price and sharing to this consumption model any sort of successes and failures you’ve seen that you want to help them avoid or to focus on?

Robert Saxe: Well, I think probably the best advice would be or in the best advice that comes to my mind, right, would be No one is be transparent with your partners so your channel might not like the direction you’re taking in the short term or even in the long term, but they’ll respond to it. Right. And if you’ve got a good partner relationships and good ecosystem relationships, they’ll respond. You just have to be really clear about what role you want them to play and where there are opportunities for them to make money and honestly also where they shouldn’t play. So I do think being transparent is one thing. I also think really involving. So if you’re looking at it from a vendor side and you’re the product manager or product house or leader, I think you have to involve sales. You’ve got to involve channels. You know, you’ve got to involve services because they play a role in a changing and evolving role. But they play and the channel has to maybe a channel advisory board plays a role as well. And just making sure that there is alignment and that there’s an economic opportunity for all of those or that opportunity is clear for all those different parties. And then I’ve not yet seen a perfect, you know, revenue sharing system evolve or I’ve not really seen a perfect new model. I think we’ve seen different industry thought leaders. You know, you’ve seen Cisco do things, you’ve seen HP do things, you’ve seen Microsoft. And obviously, AWS do things. There’s a handful of players there, always the market leaders that are out there that are kind of ahead of the curve. But I’ve not yet seen a perfect model evolve for all parties involved. So I think we’re going to continue to see a lot of transition and a lot of activity until there’s a little bit more balance and until we see how the market really shakes out.

Daniel Graff-Radford: I think that thinking about it almost in a time basis, it’s going to make the most sense for people. So just like you’re advising, bring your partners in early as you’re starting to talk about your channel leader is aligned with your senior executive team on what these goals are that you’re promising on an economic basis. Make sure that those economic promises align over whatever the right period. It might not be a short-term period to get to that, that there might be a process there. And then lastly, if you’re thinking about what you’re sharing on the revenue side, you know what will keep people interested? And is that still aligned or not? And then if that’s not as aligned, what will that mean to your top-line revenue? If these partners are now working with others with better alignment? And so I think those are all really good things to think about. And as always, we want to wrap up with our final four questions here. And if you had a superpower, what would it be and why?

Robert Saxe: I think the ability to fly. I just think that would be super cool and super efficient as well. So I’ve always wanted I fly a lot in airplanes and so if I could fly maybe locally or something and get from point A to point B a little quicker and, you know, see things from a different perspective, I think that’d be pretty awesome.

Daniel Graff-Radford: That sounds great. And one mistake and one success that you or someone else has had in the channel that we could all learn from.

Robert Saxe: Well, I think a mistake, and I don’t know that I alone have had this, but I think, look, as a consultant and as someone that owns a consulting firm, you have to work for your client and kind of execute on the things that they want you to execute on in many cases. And I think a bit earlier in our days, we got involved in some projects where we needed the channel to move as quickly as the vendor wanted to move. And making I think the mistake is making an assumption that the channels aren’t always aligned to the vendor’s interests or vice versa. And what the vendor wants to do is good for the channel. And I think I think more often than not, you know, the interests are everybody wants to get to the same endpoint, but there’s a different way of getting there. And the fact is, is that the channel has a mind of its own. They’ve got a business plan and a business model of their own. And in order to make any kind of channel initiative work, you’ve got to establish that alignment kind of at all levels in terms of a big success. I would say that I myself and my firm, we were actually a part of all this stuff that we’re discussing around as a service and kind of the transition to as a service. We were working with an industry leader, a global industry leader very, very, very early on to drive and empower kind of a transition to recurring offers, a transition to software as a service and a real big services focus throughout the lifecycle and on customer success. And we were involved in that probably three or four years before they were the fancy buzzwords of the industry. And so I think for us, that was probably the biggest, biggest success.

Daniel Graff-Radford: I think those are great things to think about. So when you don’t have alignment with your channel partners, it is just truly horrible feeling when you realize that it’s not working and not just on the economics, but on the relationship. Everyone’s sort of agreeing to things as they think it’s going to work. Right. And then on the success side, being part of a wave of something, but on the front end of it and watching it evolve and feeling like your fingerprints are on it is a wonderful thing. And now for our listeners that are thinking about one day getting to a point where they’re a leader of channel programs and helping people in the way that you do, what is a book that you would recommend that would help them? Could be anything to do with business or outside of business that you think people should read.

Robert Saxe: Yeah, so probably my favorite business book is a book called Execution: The Discipline of Getting Things Done, and I, unfortunately, I forget exactly who the author is or was, but that’s been a book that I probably read 20 years ago and I kind of refer back to today. There’s one other book that I that also comes to mind, and it’s called 3D Negotiating. I was actually on a business trip down to Brazil and I was sitting next to another consultant and just trading stories. It all turns out he owns a negotiating company and he was on a way cooler business trip than I was. But he’s an author of his name is David Laks, and he was your author of 3D Negotiating. And really what’s behind that book is really doing all the diligence before you get to a negotiating table. And when I think about the work that’s done in the channel. Right, if you’re a channel leader, you’re always negotiating, you’re always working with your product, you’re always working with your services organization, you’re working with your CFO to get funding, and then you’re working with the partners. And sometimes they’re all happy and sometimes nobody’s happy. And so I think that that book and really just when you start to think about all the different kind of table setting that you have to do before you actually start a formal negotiation, I think that that was a really good book as well. That’s helped me in business.

Daniel Graff-Radford: Those are great books. Thank you for recommending them. You know, across this conversation, we’ve talked about being at this inflection point, different changes that are happening in the channel what do you think five years from now are the changes that are happening today that people should really be focused on if they’re working the channel?

Robert Saxe: So I think and again, this might be something that we did some work on probably a little bit ahead of our time and even now, I think we’re going to see more and more ecosystem relationships evolve in the channel. Right. I think customers have gone from wanting things on-premise and look, on-premise stuff is probably not going away, but certainly, things are being consumed in a cloud. And with cloud consumption models, I think there are new economic models that are evolving. And I think at the end of the day, customers want solutions that solve their business problems and no one vendor can do it all. There’s a handful of S.I. partners that do a really great job of that. And there’s a bunch of like regional partners in every geography that probably do a really good job of that. But the one thing that they have in common is they work with an ecosystem of partners. And I think five years from now, we’re going to really start to see a lot more partner-to-partner ecosystem relationships and maybe take in multi partner solutions to market become much more of a trend that we’ve seen up until this point, I think a lot of people and a lot of companies have tried, but I think that the market’s going to force the enforced economics, enforce the discipline of our bringing these solutions to market. And that’s my prediction.

Daniel Graff-Radford: I think that makes a lot of sense. You know, I feel like these ecosystems of partnerships are going to happen to forge your own or have someone else forge it and try to live within it. And either way, it will be there for you. Well, I want to thank you, Robert Saxe from Nvision for joining us. And I want to thank our listeners for listening to this podcast. And if you like the Partner Channel podcast, please subscribe anywhere that you listen to podcasts.