The Rise of Shadow Channels – Part 2

Jay McBain 2016 Square

Last month in part 1, Jay McBain looked at the factors behind the rapid shift to public cloud and SaaS based technologies by business leaders. With line of business (LOB) professionals now making the majority of technology decisions, partner business models that were built around traditional hardware, software and services sales are having difficulty staying relevant.

We know that business leaders are increasingly relying on new influencers when making technology decisions. The rise of these new influencers, or shadow channels, include:

1 SaaS consultants and implementation partners. Thousands of new partner companies have been created to add value around SaaS platforms. These are line of business experts who understand cloud-driven best practices and have gone deep with very few vendors. Examples of ecosystem players include Salesforce in sales, Marketo in marketing, Netsuite in finance, and Workday in HR.

2 Industry-based professional services firms broaden to offer IT. In an effort to expand their own businesses and offer a full-service suite in front of the customer, many ancillary service or consulting companies supporting nearly every industry are becoming technology companies. Accounting, legal and marketing firms are examples of industry-specific professional services firms that are quickly transitioning to software and IT services companies. By the year 2020, more than 80% of accounting and marketing firms will be indistinguishable from traditional IT channel partners.

3 Independent Software Vendors (ISVs) provide additional specialization. There are thousands of software companies that have been built inside large SaaS ecosystems. They add value to business leaders as they take generic platforms and customize them to their sub-industry, segment, or geography. Some of these companies are unicorns – valued at over $1B in the market – and focus on adding tools, customized workflows and specialized industry solutions.

4 “Born in the Cloud” companies find niche in delivering integration services. With a business model tuned to project based revenue, these firms add value to business leaders by providing back-end integrations, security, backup, disaster recovery, compliance, and a host of other critical services to make a complete solution.

5 Start-ups looking to disrupt traditional industries. The B2B startup community has found business leaders to be receptive to hyper-targeted products that are focused on specific business problems. These business leaders tend to be less risk-averse than IT departments, and be willing to test products that are specialized around their business objectives. There is a massive funding and support structure built for these B2B start-ups including angel networks, venture capital and private equity.

Jay McBain

Jay McBain

Learning about these influencers will help channel professionals build a program that will be visible, motivating and profitable. Vendors must look at their product fit among the different lines of business and understand who the influencers are. It would be risky to assume that all current partners will make a smooth transition into this influencer role because:

• B2B Marketing is a weakness. Most partner businesses are run by technicians that lack the sales and marketing skills to expand beyond the IT department – even at customers they have served for years. Vendor market development funds (MDF) are restrictive and don’t tend to encourage investments into making this transition either.

• They lack sophistication. The channel has been working on becoming more specialized for over ten years with inconsistent results. Technical skills combined with industry and geographic knowledge doesn’t provide customer value unless it also comes with repeatable experience around specific business outcomes by department.

• They may not have the will to change. Technology channels have shown a high degree of resiliency in the past 35 years. Taking advantage of new technologies and leveraging new business models has made these companies thrive. However, the average age of the channel is increasing and 40% of partner owners are looking to exit by the year 2024 (CompTIA). Millennials are not buying or building enough of these businesses to replace the retiring partners who may not have the energy or will to transform one more time.

To succeed with business buyers and get on the radar screen of new influencers, tomorrow’s successful vendor need to focus on business outcomes and:

1 Recruit new shadow channels to augment current partner program. To influence the influencers, you must understand the communities that shadow channels participate in. Knowing what they read, where they go and who they follow is important in building your recruitment and development plan.

2 Revise B2B marketing plans that reach beyond the IT department. Raising visibility with business leaders and providing air cover for these new shadow channels is critical to improving your consideration rate. Develop collateral that is customer-obsessed and focuses on a specific business problem by sub-industry, line of business, technology, segment and geography.

3 Deliver new self-service tools for business leaders and influencers. Aim to reduce the friction in the buying journey. You can gain immediate competitive advantage by becoming more transparent in process and deploying external tools to aid in the customer buying journey.