Show Me the Money Part 1

Kevin McGrath is a firm believer in the importance of sustainable, profitable growth, and that was the message he drove home to an estimated 200 key vendor and channel executives in his keynote presentation prior to CDN’s Channel Elite Awards event in North Toronto.

While this message is not entirely new, in his presentation entitled “Show me the Money,” the President of Intuition Consulting of Singapore highlighted some of the challenges facing IT channel partners. The main discrepancy within the IT channel, he pointed out, is that half of the companies are doing well, while the remaining 50 per cent are not. His presentation aimed to solve the critical question, “how can the remaining 50 per cent improve their cash flow and their business models to be more lucrative?”

The key secret to attaining sustainable profitable growth, according to McGrath, is quite simply, “know your business.” Clearly identify your basic business. Specifically, know your strengths and know your weaknesses. Know where there are holes that need to be filled and fill them with partners or with experts in that field.

Once your key business strengths and weaknesses have been identified, the main caveat is to manage your business in order that it makes you money. In order to manage it effectively, measurement tools have to be put into place. How should you measure your business success?

Three strategic questions exist at this point:

Who is your addressable market?

What is your value proposition?

How do you manage your resources?

By pinpointing the answers to these three questions, channel partners and the vendor community can clearly identify and measure their success.

(I’m not convinced these questions have to be answered in order. For many organizations, I can clearly see that defining their value proposition first, would then result in pinpointing their target market. Though, for some business models, having a target market already interested in your product or service certainly helps define the value proposition.)

Within the channel community, it is up to the individual organizations to identify and outline their brand, their differentiation and their value proposition. One of the areas, which can be somewhat muddy is that of defining and delivering this message, as some organizations rely heavily on the vendors to do this. But, McGrath argued, it is “up to you to deliver it, not up to the vendors.” After all, it is your business. “It doesn’t belong to the vendor.”

From an operational standpoint, managing resources is critical to the success of any organization, since “small changes to our cost structure have a dramatic effect on our bottom line.” The other main consideration is that refining resource management is “not a reflection of discounts or rebates,” but rather a core component of doing business.

From the vendor standpoint, McGrath stated, “the value you provide to the channel player delivers to the customer, that the customer is will to pay for, enhanced by its differentiation.” Essentially, you need to define your value proposition to refine and define your brand.

From there, McGrath focused on two measurement tools: ROIC (return on investment capital) and ROWC (return on working capital.) Consider how your business is funded. He noted that one of the major challenges for the IT channel is that many organizations are funded by individual shareholders, whereas vendors enjoy backing from the banking community. The basic reality of shareholders, he reminded the crowd, is that they are greedy. They want to see a return on their investment, quickly. As a result, corporations tend to minimize their successes, in order to “minimize rate of return” provided to the shareholders.

Next week in part two of Show Me The Money, McGrath outlines how solution providers inadvertently minimize their growth opportunities.

Michelle Warren is an analyst with Partner Research of Toronto

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