The Partner Channel Podcast | Season 2, Episode 6
How Your Channel Can Thrive in an Economic Downturn
Tune into our latest episode with Larry Walsh, CEO & Chief Analyst at Channelnomics as he speaks with Tori Barlow, VP of Marketing at Allbound, about ways your channel can thrive during an economic downturn.
- How the channel can defer risk in a downturn
- The importance of using automation to optimize
- How to pivot effectively as a channel leader
Tori Barlow: Welcome to the Partner Channel podcast, the voice of the Channel. I’m Tori Barlow, VP of Marketing at Allbound. Excited to be here with Larry Walsh, CEO and Chief Analyst at Channel Nomics. Welcome, Larry. We’re excited to have you today.
Larry Walsh: I am. Great to be here, Tori. Thanks.
Tori Barlow: A few call outs about you that I would like to share with our audience. You founded a Channelnomics in 2010, just on the tail end of the last recession. You’re the host of the podcast Changing Channels. You recently launched a new magazine Channelnomics Quarterly. It’s a journal for channel professionals. You are an award winning journalist and writer. You’re a frequent speaker on the channel event circuit, and you counsel technology execs and channel chiefs around the world on market trends and channel strategies. I’m just going to pause to take a breath because it’s a lot. So you have a lot going on.
Larry Walsh: You know, I thank you for for going through that. I never know what to say whenever somebody is talking about me, because I don’t I honestly don’t recognize that person. I mean, I’m sure if we went down and created a list, there’s more to say. But it’s a very polite way of saying, I’m old.
Tori Barlow: We’re just excited to chat with you about your experience. You have a wealth of knowledge in the channel. Today, we’re diverting a little bit from what we’ve been talking about on our podcast series, and I really want to talk to you about the potential of the economic downturn and really how that impacts the channel. You and I had a conversation a week ago or so and we tossed around a few ideas, thoughts. But you really want to gain your perspective on how channel leaders can really prepare and manage a channel and thrive during a potential recession. So to kick it off. My first question is straightforward is a solid channel program the secret to prepping for an economic downturn?
Larry Walsh: It is. So let’s dispense with one thing first, which is potential for a recession. There is no potential for a recession. There will be a recession if we’re not already in one. Several economists have already said that we’re in a technical recession, which is to say is that they believe we’re already entered into recession conditions, but we have not met the definition of two consecutive quarters of of negative GDP. Whenever you hear, and you’re going to hear a lot of this now particularly because we’re going into midterm elections here in the US, there’s a lot of parliamentary elections going on across Europe. There’s a lot of hand-wringing over these issues. So the politicians are not going to be good sources of truth about economic conditions for awhile. We will have a recession whether or not it starts this year or next year. Not quite sure. My guess is, is that the Fed will call a recession in September. Now to your other question, which is, are our channel programs an effective measure or effective means to to combat recession conditions? Or can they help insulate? Yeah, they can.
Larry Walsh: The beautiful thing about the channel, which sometimes gets lost in the conversation, is that it is about risk deferment. And what I mean by that is that when you’re a direct organization and you build an infrastructure for selling and supporting customers through your own resources, then everything you do is fixed cost, whether or not it’s performing. So you still have to pay those sales people, you have to pay those support people. You have to build and operate warehouses. You have to buy the trucks and you have to fuel them. And all that is happening whether or not a product gets sold. And with the channel you only get, you only have to pay when they do something. So the more you shift into the channel, particularly in down economic times, the less the less fixed costs you have are, the more you’re diverting from fixed to to variable. And that’s a good thing. And I think that that, you know, having a well constructed, a very focused and mission oriented channel program will be highly beneficial and sought after by a lot of companies out there as they start to see the indicators turn red.
Tori Barlow: Yeah. It’s a really good point. When you and I chatted briefly, you mentioned that channel is a great starting point for prepping for a recession. But you also mentioned another key point, which is automation within the channel. And when I look at J. McMahon’s tech stack, which I think is he’s coming out with a new one not too long from now, what is your viewpoint on automation specifically within the channel? And can you talk a little bit about that?
Larry Walsh: So, Channelnomics, one of the things that we do is we design channel programs for companies. So we are either building them from scratch or we’re helping to optimize them when they need updating. And we are strong proponents of automation of of of automating many of the processes because we know from our research that automation is a key towards ease of doing business or removing friction from the relationship, the go-to-market relationship, with partners. Our research tells us that the easier you are to do business with, the more share of wallet and performance you get from your partners, and the difference is huge. It’s three x to five x, versus those are more difficult. And the conversely, you end up having to pay vendors that are more difficult to do business with, end up having to pay 30 to 40% more in compensation to motivate partners to get the same level of performance or a comparable level of performance. So the the indicators are all there. The thing really about the thing about automation is, is that it’s not necessarily a human replacement. And this is also part of our point of view is that, you automate to make processes simpler or to put a, a veneer of simplicity over of a complexity, because channels are rules. The channel program is just a set of rules by which you define how things are going to work.
Larry Walsh: And, you know, what are the operating parameters for which partners can sell and interact with your organization, or to unlock or earn benefits. And by automating that, you can really make complex systems look simpler. And in doing so, you can then free up human resources to actually work those relationships. So I wouldn’t necessarily say automation would ever be a replacement for humans, although sometimes it might do that. In some cases are many fewer people to do certain things but not to replace it. As far as the tech stack goes, it’s a bit of a myth. And you know, I think that, you know, and we hear this frequently, you know, if if you ever if anybody’s ever interested, please give me a call. We have an entire deck around the myth of the channel automation stack. It’s not to say that there aren’t useful tools out there, but it’s not a stack. It’s a collection of different applications that perform different functions that that optimize. It can, in certain instances, optimize specific use cases and specific functions. But it’s not a stack. It is a collection of tools. And those tools are used by different people in different ways within an organization. Absolutely imperative that you leverage those tools. But they’re not you know, I wouldn’t ever call them an end to end system.
Tori Barlow: No, I think that makes a lot of sense. And Larry, you know, most companies and sales orgs will require some sort of shift in focus to become more efficient during these turbulent times. How should channel leaders pivot effectively?
Larry Walsh: First of all, I think the channel leaders really need to get a grasp of their own cost to serve, and understand what are they trying to manage during an economic downturn? There’s the partner experience, the partner relationship, and then the vendor organization, the vendor experience. The first thing to do is get your own house in order. Understand what is the physical strength and weaknesses of the channel organization relative to the rest of the organization? Understand what it is that your organization is expected to contribute. One of the things that we often talk about is that a channel organization or a channel program is a service bureau of sorts. And its customer is not the partner, its customer is management, it’s its own company. So the channel programs should be a net exporter of goodness. And whether that’s revenue or reduced cost or some other material contribution to the organization, servicing the partners is a means to accomplish that goal. So it’s like the partners in that equation is actually secondary. So get your own fiscal house in order. Understand what your cost to serve are, see where you can maximize value out of existing resources. Take Allbound for instance; are you using Allbound to its maximum potential? Are there other things you can be leveraging out of Allbound that would actually result in either a net increase in performance or a net decrease in expense? And ultimately, that’s what you need to be managing on the inside.
Larry Walsh: On the outside, that’s when you have to start leveraging these same resources to better prepare and enable the partners, helping the partners to understand the conditions in which they’re going to be selling, helping them to understand the changing mindset of the customer, the change in priorities, getting the partners ready to be insulated against disruptions. Whether it’s a fiscal disruption or a physical disruption, because we’ve had both of those. One of the things we found during the pandemic, which was astounding; the average partner had less than three months of cash reserve available to operate. Best practices is 3 to 6 months. They had, in many cases, I think it was more than a third of the partners had less than two months of cash on hand. So think about it, you know, 6 to 8 weeks away from going out of business. So do they do you have the right the right financials or credits of vehicles available for them when they need it and going forward? And that’s one of the other lessons we learned out of the pandemic as well, is that immediately after we started going into lockdown, vendors and distributors were committing billions of dollars in lines of credit and extended payment terms so that the partners could continue to sell. And so it really helping the partners understand their physical their fiscal exposure is really paramount and then changing their M.O. around how they should be positioning, how they should be selling, what is the true value proposition? Going forward, the way we see this and this is even predates all this talk about a recession.
Larry Walsh: We started tracking this last year, the economy, the global economy, but particularly in developed regions like North America and Europe, was already transitioning to a quantitative qualitative standing. So the economists talk about this is the difference between quantitative growth and qualitative growth. Quantitative growth is where we’re creating new things, which results in a a higher rate of growth. You invent a smartphone. Oh, it’s a whole new segment. And that new segment has nothing but, you know, greenfield to go across. We’re going into qualitative growth now, and they expect this to be going on for the better part of this decade to where there is going to be no new categories or ‘new new’ hyper-growth categories. And we’re going to be focusing on optimization, which means we’re going to have lower rates of growth. How does that translate into the channel? Well, that means that there’s going to be a lot of optimization. We just talked about using channel management automation to to create more efficiencies within channel programs. The same thing is going to have to happen within the customers. How do we position the partners to use technology to help their customers optimize so that they are being more efficient and more effective saving money and then opening up revenue opportunities? That’s going to be the game, the name of the game for the next at least five years.
Tori Barlow: I think the phrase economic downturn can seem scary or create fear in some folks. But when I look at this economic downturn compared to 2008 to 2010, there are drastic differences in what’s going on in the economy. I think there’s a lot of opportunity for channel leaders to thrive now more than ever. What are some key takeaways or just one way you can think of that? Channel leaders can thrive during this potential downturn
Larry Walsh: Transparency. Can’t tell you how much partners appreciate transparency. And I’m saying that because people listening will say, “oh, okay, so you’re going to be open with them or you’re going to communicate with them.” It goes beyond that. It’s opening up information and and being honest and and direct with the partners. Partners have told us I’ve I talk with partners around the world every week and they say the same things is that they’re their big boys and girls. They can take bad news. What they need is information. They need to know what. So what have we been dealing with for the past eighteen months? Well, actually, don’t blame the don’t blame the pandemic. The supply chain issues were happening well before the pandemic hit. They want to know where product is. So if you’re talking about manufacturing out of Asia, making sure that you have transparent systems so that the partners know where inventory is and where their orders are and how they can communicate down to their customers. They want to know where their opportunities are going to be, where are they going to play versus where the vendors are going to play. They want to know what roadmaps are coming, what product roadmaps are, what is the new thing that they can they can plan for and bank on for their next go to market planning. So when I say transparency, I mean real open communications from up and down the stack so that the partners know from a strategic level down to a down to an operational level, what they can expect, when they can expect and what they need to do. So I think transparency is the one thing that will really help grease the wheel, if you will, on on on the machinery, even as a down cycle economy is grinding it down.
Tori Barlow: How Larry is Channelnomics helping vendors?
Larry Walsh: So we’re doing a number of things; we’re helping a number of vendors understand the capabilities of their partners. We do a lot of partner profiling and a lot of channel trend work for our clients. We just launched a new service called CFO: Channel Financial Optimization, which we are going in and helping our clients build basically Channel PNL so they can understand their fiscal health and do better financial planning and better and better strategic planning and understand the implications of their decisions. But we’re also just making everyone aware of the conditions we’re walking into. And so we’re doing a lot of briefings and preparing a lot of trending materials to be able to help everyone understand where things are relative. Relative to the economy and how the channel relates to that.
Tori Barlow: And where can people go to learn more?
Larry Walsh: Just come to our site on Channelnomics.com. We do have materials that’s available for for everyone, for the public. And if you can’t find it, just shoot us a note and we’re always happy to have conversations and help people.
Tori Barlow: That’s awesome. Larry, you are so knowledgeable in the space. It’s always a pleasure chatting with you and hearing what you guys are doing over at Channelnomics. Thank you to our guest, Larry Walsh, CEO and Chief Analyst at Channelnomics. And thank you to you, the listeners for joining us here at the Partner Channel podcast. If you like what you heard, subscribe to our podcast episodes wherever you like to listen to podcasts.