The Sub-Agent Dilemma

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

The Sub-Agent Dilemma

Fresh off coming back from Microcorp's annual partner event (and 30th Anniversary party), I am reflecting on conversations with the partners.

Some are wondering what vendors to look at. Who is real and who is not. Who will be around to pay commissions in three years?

Hint to one data center company: Don't tell partners that you are owned by a private equity firm famous for cashing out. That isn't a way to win our minds or orders. Also, do NOT tell partners at a master agency event that they can go direct with you. WTF?!

In the past month I have been asked numerous times if Microcorp is for sale. The answer: "As a member of the Microcorp Advisory Council, I can assure Microcorp is not for sale but actively looking to buy!

Since the ScanSource deal, a couple of master agencies have announced that they were investing in the business and want your business. (see HERE and HERE.) One sub-agent seemed upset by this and called in fear-mongering. Is it?

The VAD space is in turmoil. All of them are seeing revenue drop. All are trying to figure out how to take advantage of cloud and MRR to shore up revenue erosion. ScanSource gambled on an easy fix - buying Inteisys - except that their stock tumbled afterwards.

If you haven't worked with a VAD, it isn't exactly the same as what Agents know as a Master Agency. VADs are more automated and focus on logistics and distribution of licenses and hardware. Sales isn't about co-selling, but product information. There isn't a whole lot of need to order track a software license or a server. VADs run on co-marketing dollars and razor thin margins. Masters are labor intensive. The hand holding that the agents and VARs will need to navigate selling telecom, cloud and managed services will be a shocker for the likes of ScanSource.

The upset sub-agent must not understand what every Agent I have ever talked to does: Diversify your income streams because everyone gets screwed in this business. . If ScanSource held you to a firm partner contract with quota and activity requirements - or at some point stops paying your commission - what do you do? It will cost you almost a million dollars and years of your life.

It's about mitigating risk. No one has a crystal ball, but you can take steps to give yourselves a safety net. You don't have to, but it is sound business practice.

The other dilemma, which kind of caused all this, is the lack of new partners. The VAR segment has shrunk in the last 4 years. Too long to go into now, but with moves that Microsoft and Cisco made, some partners opted to pivot out of the VAR space. Others made the move to MRR as an MSP with a lot less emphasis on hardware sales.

At the same time, price erosion resulted in commission decline. Meanwhile, not many new faces are entering the channel. At every channel event - I have been to 4 in the last few months - the number of folks under 45 is a fraction of those partners over 45. This business is getting old.

At the same time, more vendors are entering the marketplace for cloud, managed services, IOT, analytics, blah, blah, blah. More vendors but not more salespeople. We are at a point where the channel is the cheaper option for sales for most vendors and carriers. In the UCaaS space half of new mid-market logos come from channel partners. The cost of sales via channel is lower than the cost of a direct sale. But without new blood in the channel, what happens in even 5 years?

More vendors coming into the space with even the same number of partners just doesn't work out mathematically. Verizon is aware of the problem and is working on it with partners. But they seem to be the only one, because it seems many are looking globally for sales right now:

AVANT hires a UK channel manager. Intelysis goes to Europe. Tech Data is buying Avnet's technology solutions group for $2.6 billion to expand into Asia.

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