How vendors can manage channel partners through Covid-19 crisis

Outlining best partner practices for vendors during market uncertainty

Joergen Jakobsen (DaneAsia Consulting)

During my career, I have had the ‘fortunate experience’ of managing large partner ecosystems during a period of crisis, such as the Asian financial decline of 1997, the SARS outbreak of 2003, the Indian Ocean earthquake and tsunami of 2004 and the global financial crash of 2008.

Therefore, I have received lots of questions from vendors regarding best practice in managing partner relationships during this period of Covid-19 uncertainty.

While all guidance should be taken in the context of each individual situation, below is some general advice and ideas vendors should consider adopting during such testing times.

Firstly, it’s important to internalise that the industry will get through this crisis, just as it has before. Therefore, keeping a long-term perspective is important to avoid making decisions that could be of short-term benefit to your company, but in the long-term might not be the correct decisions to take.

When assessing your partner ecosystem, it’s crucial to realise just how important they are to your business today and how important they will also be 5-10 years from now. The partner ecosystem is a key asset and a significant investment to most vendors, with years spent selecting, curating, developing and supporting such a network.

Therefore, vendors must think about how to preserve and protect this ecosystem to ensure a strong network exists once the situation normalises and customer demand picks up again.

Although the Covid-19 crisis is very acute, it’s my belief that this is a crisis that will pass. However, it’s a big speed bump with significant risk to both partners and vendors. But it’s also an opportunity to show leadership and compassion to protect business partnerships and do what is right to support partners, which will help both customers and vendors to get through this crisis in a better shape than otherwise.

Understand Covid-19 impact on partners

The current crisis provides five key challenges to partners, which are:

1 – A decline in revenue as many customers defer or cancel spending plans

2 – Severe pressure on EBITDA as a direct impact of the declining top-line. Take note that the partner ecosystem tends to be more sensitive to declines in top-line given a lower margin business model compared to most vendors

3 – Increase in accounts receivable (AR) with negative impact to cash flow as customers delay payment

4 – Change in operational processes as employees work remotely

5 – Potential drop in employee morale due to increased uncertainty and potential lay-offs

In addition, it’s important to stay very close to partners during this time as situations might quickly evolve and the need for vendor support could evolve alongside. Therefore, increased (virtual) engagement on a 1:1 basis or through advisory board settings will be especially important during this period.

Now is the time for vendors to also show that they understand the business of partners (PQ), that they have the knowledge and insight to help (IQ) and that they have the compassion and willingness to do so (EQ).

In return, it’s also the time for partners to communicate closely and in a transparent manner with vendors as it relates to each specific situation. In the short-term (as well as long-term) this closer relationship will help both partners and vendors to successfully navigate this crisis period.

Supporting partners in the short-term

Vendors should consider how they can support partners in the short-term to help overcome immediate challenges, which includes evaluating the following actions:

1 – Support partners to maximise revenue retention:

a. If the vendor has a hybrid go-to-market strategy, prioritise indirect sales versus direct sales where possible

b. The vendor can provide customer solutions with deferred payment solutions to minimise impact to the CAPEX budget of a customer, such as as-a-service solutions and extended trial periods

c. When required, support partners in customer engagements to help retain business for the long-term. Showing up (even if it’s virtually) is never more important than in time of crisis

2 – Support partners to handle EBITDA challenges:

a. Help partners with low-cost or free of charge vendor technology for international use, especially related to increased investment in remote working capabilities

b. Allow MDF investment to be converted to support vendor dedicated head counts for a temporary period – return on investment on marketing and business development is limited during this time anyways. This will help partners retain critical talent

c. Review all performance-based compensation for partners. Revenue targets will not be met during this period and these programs should be changed or suspended accordingly

d. Manage partner inventory to be at conservative levels to reduce a partner’s working capital being tied up in vendor inventory and / or support partners with vendor funded inventory for a period of time

e. Vendors should also be very sensitive to partners receiving an adequate margin for sales. Now is not the right time to squeeze margins

3 – Support partner cash flow challenges:

a. If the vendor has financial capabilities to do so, it’s important to evaluate how they can support partner cash flow and working capital challenges. The most direct way is to extend the accounts receivable terms to partners with good payment history – this will be a significant help

4 – Review and if required enhance virtual engagement processes with partners:

a. Ensure all online and virtual processes and capabilities are in place and up-to-date to handle remote working engagements between vendors and partners

b. Support partners if possible to test and enhance online capabilities – potentially with low cost or free of charge vendor products and solutions

Supporting partners in the mid-term

Alongside thinking about the short-term and handling the immediate crisis, now is also a good time to start planning for how best to re-accelerate business when the market settles.

1 – Given that most customers are not engaging on sales cycles, the sales and pre-sales employees will be less busy. Therefore, instead of laying off these employees, work with partners on helping to invest in these people so they can become even more capable and effective when the business returns to normal. This includes updating skill sets through training and certifications

2 – Plan with partners on how best to transition into re-acceleration mode. Work on business intelligence capabilities related to a customer base to plan the best sales programs to be launched as the market prepares to engage again

3 – Due to a slowing down of business, a crisis is often a good time to evaluate strategies, programs and policies. Ensure go-to-market frameworks are optimised to be in the best shape possible upon the market coming back

4 – Plan how to reverse the temporary crisis measures put in place to divert more of this investment back to business development activities

Managing partner related risk