6 Reasons Why Channel Partners Are the Key to the Mid-Market
Has your business decided to try to move into the mid-market? There are lots of sales strategies to help you break in, but one key piece that’s sometimes overlooked is channel partners. Here’s why.
Who is the Mid-Market Customer?
Each supplier defines Small, Mid, and Large/Enterprise segments differently. Both Gartner and IDC define midsize companies as having between 100 - 999 employees. Gartner also adds a revenue component, defining mid-market as having between $50M - $1B in revenues.
IDC’s February 2018 report forecasted that Small and Mid-sized Businesses will spend over $600B in 2018, with over two thirds of that figure coming from the mid-market.
This is not a figure any supplier can afford to ignore.
With these impressive numbers, it’s not surprising to know that the mid-market customer expects to be treated like a large customer. After all, their technology expenditures are a significant portion of their overall budget.
We’ve seen three major mistakes occur when vendors completely fail at selling into the mid-market.
The first is when they don’t create, communicate, or adhere to clear rules of engagement setting out clear expectations as to mid-market responsibility. With no clarity as to who (partners or direct) is responsible for this market, they have either major gaps or mass confusion.
Another flaw is thinking that their direct economics can scale down into the mid market. Here they fail to realize that they can’t afford to replicate the same model (with the same set of resources) behind a mid-market sale as they do in a sale to a large or enterprise customer.
The biggest failure to launch that we’ve seen is when a supplier lumps the entire huge mid-market under one homogeneous umbrella. They fail to recognize that this market has multiple sub-segments. A supplier has to develop a thoughtful strategy for each sub-segment of this market that is relevant to them. A few notable sub-segments are size, industry, and geography.
Obviously, a vendor needs to consider how they will serve a mid-market company with $50M in revenues differently than one with $1B. These bookends of mid-sized companies will have different complexities, needs, and decision making processes.
Why Suppliers Need Partners to Meet the Needs of Mid-Market Customers
A strong channel partner program can be the key to helping you reach this critical market, helping you touch all segments, from the smaller to the larger end. Here’s why.
#1 Suppliers can’t afford to sell to the mid-market directly. Partners can.
We’ve worked with many suppliers who have strong direct sales teams who are primed to serve their largest customers and accounts. In fact, they have the direct sales motion down to an art and a science.
They typically appoint a dedicated team of employees who each play a role in guiding a large end customer through a complex sale, from the initial meeting through to getting the most out of the solution, including all of the interim steps in between: demonstrations, product selection, pricing, installation, deployment, support, and service.
With fewer employees than a large enterprise account, a mid-market customer will simply not have the same buying volume as a larger customer. This has implications beyond the initial sale - they will also have fewer systems to update, fewer add-on services, and fewer hardware and software dollars.
This means the model a vendor uses to sell to large customers will not be economically feasible in the mid-market.
The majority of partners don’t have the same economic structure as suppliers do, so partners can generally sell to the mid-sized customer at a lower cost than suppliers can.
Suppliers need to identify which partners can best serve this market. To do this, start by creating an economic model so your partners know how much up-front investment is required (marketing, training, demo units, etc.), what type of margins are likely on the hardware and/or software, and what the typical services and support multiples are.
This doesn’t have to be a complex formula, but a brief business model should be discussed to give the partner a solid idea of what they can expect.
With this information, the partner can make the decision to sign up, invest, and commit with the vendor. They can now determine their break even point and understand cash flow implications.
We’ve seen partnerships get off to a strong start when a joint business plan is co-developed up front based on this modeling work. This document spells out target customers by size and industry, along with commitments and investments both the vendor and partner will make to generate demand in this space.
#2 Suppliers can’t afford to service the mid market. Partners can.
After a sale, every customer expects support whenever and wherever they need it. They want to make sure their solution is implemented fully, and that any questions or issues are resolved quickly.
Suppliers can assemble a powerful team to troubleshoot issues for their large customers, but the cost model to service the enterprise customer will not scale down into the mid-market.
This is where partners come in again. Additionally, with lowering margins on hardware and software, partners rely on services and support opportunities to generate profit.
Just as in the sales function, the key to success in terms of support and services is for the vendor to clarify the opportunity for their partners. What types of services are relevant and attractive to mid-market customers? What is a typical ratio of sales revenue to services revenue?
Setting clear expectations up front avoids disappointment and frustration down the road.
#3 Suppliers can’t be an expert in every single industry. Partners can.
When a vendor hires a direct rep, that person might be hired on as a generalist (across many industries or products) or a specialist (deeply steeped in one specific industry or product solution).
Mid-market customers expect their vendors to be well versed in their vertical industry. They want the confidence of knowing their supplier understands the terminology, requirements, and regulations in their industry, whether mining, chemicals, healthcare, or retail.
If you’re selling to a mid-sized automobile parts company for example, you better be able to talk the talk. What terms, acronyms, and jargon do they use? What does their supply chain look like? What are key elements that they might need in an ERP or CRM system? What associations and influencers are critical? What future technologies do they need to know about that might impact or disrupt their business?
Ditto with healthcare, retail, forestry, mining, and all other industries. You need to know this information when meeting with the senior leaders at your customers, otherwise you will be walked out of the door.
But how can a vendor effectively sell into multiple industries? There is no way for a single individual to be an expert in multiple areas. Again, you could hire multiple direct reps, each with expertise in a particular vertical industry, or you could recruit partners who specialize in various industries.
Vendors need to do their due diligence here. Many partners will say they have expertise in all verticals, but our experience is that a partner is more likely to be peaked in only a few.
Test their industry credentials by asking for customer references or by reviewing what they’ve sold into their installed base of customers in that industry.
#4 Suppliers can’t afford to be in every single geography. Partners can.
A similar situation occurs when you look at a geographic coverage map. Customers want to a personal relationship with their sales reps, especially as their deal size increases. They also expect rapid and local assistance, no matter where they’re located.
A vendor can’t hire a person in every city to serve all of their mid-market customers, but they can work with partners to massively increase their coverage.
This gets even more nuanced when you overlay vertical industry needs with geography. Vendors can start by creating a heat map, or a territory map that shows where they have coverage and where they have gaps (white space) by location and industry. Closing the biggest gaps becomes the priority, and this map gives vendors the characteristics of the partners they need to recruit.
#5 Suppliers can’t put together an entire solution. Partners can.
A direct rep typically sells her or his own company’s products. But, in many cases a customer needs to surround those products with other hardware, software, or services to create a bespoke solution.
Partners have the ability to put together all of the components to meet their mid-market customers’ unique needs. As an example, a partner who is peaked in manufacturing knows the key components required for a complete manufacturing mid-market solution.
#6 Suppliers can’t afford to be flexible in the mid-market. Partners can.
Other aspects of putting together a complete solution might include flexible and innovative financing, trade in/trade up deals, special pricing, flexibility in legal agreements, or other concessions.
A huge deal with an enterprise sized customer might warrant special consideration. But, vendors can’t make concessions for smaller opportunities or customers. They may not be willing to take the credit risk, or their policies only allow them to be flexible for deals over a certain value.
Partners are experts at structuring deals for their target mid-market customers. Whether legal, financial, or other, they can propose creative solutions that meet their customers’ needs.
Partners are Your Best Bet to Reach the Mid-Market
Most suppliers cannot afford to take their direct model down market into the mid-sized customers. The economics simply won’t scale.
Partners are an effective route to market to reach the mid-market. They bring sales and services expertise, industry knowledge, and local intimacy to the mid-market.
Partners take the core products from key vendors and surround them with ancillary hardware, software, and support to ensure their customers have complete solutions that fully meet their needs. They also know how to creatively structure deals for this customer segment. Partners can help you exponentially grow and scale your sales reach and coverage.
Vendors still need to do their due diligence to engage the right partners. It’s your reputation on the line no matter who sells your product. Look at your white space, recruit the right partners to fill your gaps, and give them the training, tools, and resources they need to effectively meet the needs of the mid-market.