Experience Matters In Success, Profitability

By Larry Walsh, Editor-in-Chief, Channelnomics

Editor’s note: In light of a special editorial partnership, CMR is publishing a recent article from Channelnomics, written by Larry Walsh.

It doesn’t matter if you’re talking to a $1 billion integrator or a Main Street VAR, the goal of every business in the channel is growth and profitability. While not every solution provider can enjoy the same level of success, research by The 2112 Group reveals that higher rates of growth, revenue and profitability often goes to those with greater levels of experience in business management and development.

Most solution providers, systems integrators and managed service providers (MSPs) are proud of their technical acumen, and with good reason. Vendors reward their partners based, in part, on technical certifications, domain specializations and sales volume of specific products. Talk with vendors about their field engagements with partners, they’ll often say they conduct co-selling to ensure partners are correctly positioning their complex products to end customers.

Solution providers, in general, often pay short shift to business management and business development skills. The average solution provider has scant sales teams, and little marketing and business development resources. As a result, true growth is often made more challenging or stunted.

Common sense says this axiom should be true. The 2112 Group, publisher of Channelnomics, sought to quantify it as part of its regular research. The results of our inquiries don’t guarantee that business acumen produces greater degrees of success. Nor does the research say solution providers without experienced business managers will fail. What it does say are solution providers who have seasoned business managers do tend to grow faster and be more profitable than their counterparts.

To measure business acumen, 2112 asked solution providers if they had former vendor executives as part of their management teams. The presumption is managers with vendor experience would come with a certain level of business administration discipline. Surprisingly, a majority of solution providers have managers with vendor experience; a reflection of the number of solution providers born from vendor ranks. However, 44% have no vendor experience among their management teams.

No surprise that solution providers with higher revenues also have more ex-vendors on their management teams. Virtually no solution provider with more than $25 million in revenue has no former vendor as part of their management team. Conversely, the smaller solution providers are dominated by management teams with no vendor experience.

The same holds true for solution provider profitability. The majority of solution providers with gross profits greater than 20% have at least former vendor as part of their management teams. In fact, no solution provider with margins greater than 60% is devoid of vendor experience in their management and operations.

When it comes to general rates of growth, solution providers with little to no vendor experience expanded their businesses at less than 10% annually. Solution providers with two or more vendor-experienced managers had growth rates better than 25% annually.

Having experienced managers in business development and administration is no guarantee of success. But the 2112 research does paint a clear picture that having such people with business backgrounds and skills does pay off.