Bruce Stuart: Selecting a cloud business strategy that works

Current research about the cloud or recurring revenue readiness of the reseller channel is telling us that of the 25-30 per cent of the partners that have transitioned, 25 per cent of them are executing a Type D or Type E strategy.  To a classic or traditional reseller this strategy is potentially very dangerous.

The Type D and Type E strategy is purpose built for the cloud and recurring revenue models.  As a result they have no “unsuitable” investments that drag down the return on the invested capital that they are deploying.

Type D-Born cloud/SaaS reseller…grow cloud/SaaS-this strategy is the reselling equivalent of the Salesforce.com strategy.  You will have the benefit, as a “green fields start-up” of no incumbent cost structure, no inappropriate organization structure and no group of unsuitable personnel. On the other hand as a pure startup you will have no initial customers until you begin to acquire them as a result of your investments in marketing and selling.  This option will need capital to be in place to invest in the marketing, sales and technical salaries until the portfolio of annuities created begins to cover the costs and then create cash surpluses.  Current investment levels are in the range of $125,000 to $175,000 per employee in the first year with payback periods in the 18 to 36 month range.  These Born cloud/SaaS businesses are being created as free-standing entities with no ties to any traditional reselling organizations.  In some cases these businesses are set up and financed as corporate divisions of existing on premise software resellers. Given lots of autonomy and insulation from the cost allocation algorithms of the transaction centric parents these recurring revenue driven businesses are turning in superlative performance at acquiring and growing new customers.  This is an excellent opportunity to create something of value for the next generation without diluting your ownership of the parent.  It also represents a potential exit or retirement strategy for “50 something” owners who want to have something valuable then the “mother ship” to sell in five to seven years.

Type E-Born cloud/SaaS…complement with traditional on premise business- This strategy will provides full coverage for your clients regardless of how they wish to consume a particular solution.  This strategy is the likely end state for reselling businesses that start out as a Type D (“Born cloud/SaaS”) businesses.  The on premise components of the portfolio can be sourced using alliances with resellers and partners still engaged in the on premise part of the market.  For example an alliance between a type E (“Born cloud/SaaS…complement with traditional on premise) business and a Type A business (“born traditional partner… stay traditional partner”) or a Type B (“born traditional partner…complement with cloud/SaaS”) will be very workable alliances and result in sound businesses.  Unless handled properly the Type E strategy can become problematic as the sales force compensation models of the traditional business and the cloud/SaaS business create equity issues in sales forces that are proving difficult to resolve.

Type F-Do nothing is a strategy that is likely to sentence your business to an always hungry never starving existence.  This strategy is a slow (or maybe fast) liquidation strategy depending on how fast your installed base deserts you for suppliers that can offer and deliver cloud/SaaS based solution.  As many as 25 per cent of the resellers in your market are likely pursuing this strategy.  Are you one of them?  If so, is it time to do something about it?

Selecting a cloud business strategy is a structural response to a structural change in the business environment in which you operate.  Think through what you want you business to look like in its post transition state.  Develop a business plan.  Plan the work…work the plan.

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About Channelcorp

Margaret and Bruce Stuart founded Channelcorp in 1989.  The firm is a global leader in the assistance of reseller, distributor and vendor clients. Channelcorp specializes in the business model transformation that is required in the face of the structural changes to recurring revenue driven business models in the worldwide IT business (www.channelcorp.com/services.php).  Channelcorp publishes and sells four industry- leading books and 12 white papers (www.channelcorp.com/publications.php).  This independent firm has delivered consulting and executive education to vendor, reseller and distribution clients in more then 40 emerging, developing and mature markets around the world. (www.channelcorp.com/workshops.php).  More than 25,000 channel professionals from around the world subscribe to the newsletter Channelcorp intelligence (www.channelcorp.com/newsletter.php). 

 

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Jim Love, Chief Content Officer, IT World Canada

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