Brian Jackson - stock.adobe.com
Is it worth taking a risk in the channel?
There may be hesitation in the channel when it comes to making risky decisions, but is risk needed if the channel is to grow? We ask a range of experts to weigh in on the topic
The channel is historically very risk averse is not a statement you’d normally associate with the technology industry – after all, it’s the same industry that popularised the term “bleeding edge”.
Yet Carolyn April, vice-president of industry research at CompTIA, is unequivocal in her belief that the channel’s aversion to risk “often keeps channel companies the same size year after year. They are not willing to take the risk.”
Her comments were made at the recent launch of CompTIA’s State of the channel 2024 report, which found that only 23% of channel businesses described themselves as having a “high risk tolerance”.
Tom Henson, managing director at Emerge Digital, says: “It’s understandable why some might perceive the IT channel as risk-averse – and in some cases, it is. However, it’s a mix; some vendors are eager to innovate, while others are more reserved.”
Adopting new technology can be complex and time-consuming, so many partners must weigh up the potential benefits with the investment of time and resources. “MSPs [managed services providers] are also wary that, with the constant advancement of new technology, today’s best can quickly become outdated,” adds Henson.
He argues that there are pros and cons to this approach. While it ensures stability, it can mean running the risk of missing out on innovation. “From our experience, clients prefer forward-thinking firms, and for those in the channel which are too risk-averse, it may prove difficult to keep up,” he says.
Henson admits that Emerge Digital has taken chances on disruptors with mixed results. “However, overall, it has been positive, and any failed ventures have taught us valuable lessons, shaping our approach to new tech. Ultimately, the channel will be shaped by what customers want and need, and it’s our job to be on the pulse of all new, emerging tech so that we can advise on and implement new solutions for our clients.”
Chris Shaw, UK&I and SA country channel manager at AvePoint, disagrees with April. “Most channel companies are not risk averse, they’re just very particular about who they partner with and which technologies they invest in,” he states.
This seems a fair point, with Shaw citing the example of a new vendor or market emerging where it’s quite clear that channel companies should analyse the space and players to determine alignment.
“Growth in the partner community is driven by spotting customer need and opportunities to build services that really address those challenges – whether it’s data backup, AI [artificial intelligence] readiness, information governance or otherwise,” adds Shaw.
Hayley Roberts, CEO at Distology, agrees that risk-taking is in the eye of the beholder. “Risk taking is incredibly subjective, not just due to the nature of the channel business – be it vendor, reseller or distributor – but also to the individuals and groups that own and run it,” she says.
The general perception is that because tech is fast growing, companies must take obvious and visible risks, but we have seen very recently that this isn’t always the case.
“The channel has seen knocks and a downturn based on the macro economy and customers being less willing to spend, especially on new software,” says Roberts. “There is definitely a note of caution in the channel from what I have observed, which is sensible in slightly more uncertain times.”
Nevertheless, channel business owners such as Roberts take risks in developing the strategy and making decisions every day, even if they don’t consider themselves to be risk takers. “I believe it is a bold statement to suggest channel businesses generally are not taking risks,” she adds.
Appetite for risk
Ross Teague, CEO at Nebula Global Services, is not surprised by the 23% figure. For many years, the technology channel was a vendor-led marketplace with manufacturers in control of defining the rules of engagement and predominantly working in silos with their channel partners to go-to-market with technology-led solutions.
This meant channel partners didn’t need to become high-risk businesses because they followed a formula governed by the vendors they partnered with. “Trying to introduce anything different was like swimming against the tide, so the majority of companies simply stayed in their lane and were very successful as a result,” Teague says.
The negative connotations associated with the word “risk” could also account for some of the reluctance to be perceived as a risk taker. The fear of failure is strong.
He agrees with Roberts that business leaders manage risk at all levels on a daily business. “Everything we do in our lives carries an element of risk, so it is the decisions we make that mitigate that risk,” he says.
Perhaps channel businesses are exercising caution because they don’t want to risk the relationship they have with their customers. Teague accepts that “there have been many successful companies in the technology channel that have taken a more cautious approach to running their business. For every maverick business that succeeds, many others fail, so this isn’t a one-size-fits-all process.”
Product-led businesses often fail when they migrate to a solution-led trusted adviser approach without the necessary tools and processes to equip their team with this level of transformational change, according to Teague. Some of the risk aversion may be down to the short-term quarterly or annual focus on ROI because the channel has been built on the distribution of marketing development funds (MDF) led by the vendors. But channel companies should also be looking to the medium and long-term impact of building brand equity.
“It’s similar to when a political party comes into office, and they can only impact short-term, transactional projects before their term expires, whereas there should also be a focus on the big picture, transformational, long-term projects,” Teague says. “Only then will companies come to realise that, if managed correctly, a little risk can bring significant reward.”
Ann Keefe, regional director, UK and Ireland at Kingston Technology EMEA, is adamant that the channel is not risk averse at all, with some companies investing in new technology and others taking a more cautious approach. “Resellers can’t afford to sit still. I don’t know any who think they should stay the same simply because they are doing a good enough job with their customers. They always want to do more and to grow,” she says.
Keefe believes the appetite for change can vary according to company size. “Those that are big must consider their responsibility to shareholders and might move more slowly, while smaller resellers can be nimbler,” she says. “This might impact on their appetite for risk from time to time, but it doesn’t mean they are doing nothing. This is a dynamic industry with a dynamic channel.”
Stefanie Hammond, head nerd at N-able, doesn’t agree. “In my opinion, I don’t think channel companies start out being risk-averse, but they evolve to becoming risk-averse over time,” she says. Many MSPs and channel companies started because someone decided to venture out and start a business of their own.
“Being an entrepreneur and walking away from a stable workplace to start your own business is a core trait of risk-tolerant individuals. Being an entrepreneur requires strength and fortitude that many individuals do not possess,” Hammond says. But once the company gets going, and the reality sets in that they need to start selling their product or service to gain customers to keep their doors open, “these entrepreneurs can quickly become more risk-averse, because their customers are making them so”, she adds.
In the case of security, for example, new technologies require MSPs to make proper investments in them. “They need to purchase them, learn how to use them, and then learn how to go out and start having quality customer conversations,” says Hammond.
But if an MSP lacks vision and clarity around market trends and is more focused on using price to win new clients, it may be hesitant to make investments in newer types of security technologies, because it feels customers won’t pay for them, she adds.
Hammond believes that trying to get customers onboard before they can expand the business is an incredibly risk-averse kind of mindset. MSPs struggle with discussing risk with their customers and positioning the value and benefits an advanced security offering will bring to their organisation.
“Instead of dealing with the pushback head-on, they will accept the customer’s response of ‘I don’t need that’ or ‘I won’t pay for that’ and permit them to remain with the status quo,” she says.
They could be sacrificing monthly recurring revenue and increasing the amount of risk the customer transfers over to them, “all because the MSP was worried that if it pushed for it, it would end up losing the client and the monthly revenue they were generating”.
Caution vs optimism
On the issue of whether caution is the better part of valour, Innes Muir, regional manager for MSSPs, UK, EIRE and RoW at Logpoint, says: “Nobody gets fired for buying the leading vendor solution, and there’s a reason for that: confidence. For the partner looking to add a new solution to the portfolio, key concerns are: is it robust, does it do what it says on the tin, and is it going to integrate with the customer’s infrastructure?”
But new entrants can steal a march on dominant players by building effective relationships with partners and winning them over. “Partners are not about to share their crown jewels, aka the customer base, without some concrete assurances that the solution will meet their expectations,” says Muir.
The current economic situation is influencing the willingness of channel businesses to take risks. Budgets are tight and partners are erring on the side of caution because they “don’t want to upset or risk losing the goodwill of their customers, not least because there are plenty of rivals out there looking to jump in” says Muir, adding: “Whether customers and their partners are in a position to invest in something new right now, given that the market seems to be holding its breath, seems unlikely, meaning there will be few making brave decisions at the moment.”
Perhaps many channel companies are content to stay the same size because they are confident they can support their customers the way they are?
“A partner will always work within their comfort zone, whether that is a specific vertical market or the size of customer they target. It’s their bread and butter,” Muir says, adding that they are not risk averse when it comes to keeping up with the competition, however. “Reflecting demand and keeping pace with the competition are the key channel drivers today, and it’s why we’re seeing a renewed focus on service propositions.”
Teague agrees that recent global, macro-economic scenarios – such as the Covid-19 pandemic and supply chain issues – may have driven business leaders towards caution over optimism. He says that he understands and respects this approach at a moment in time when leaders “perhaps pivot slightly from aspiration and focus on business security and stability”, adding: “However, as Covid-19 becomes more of a distant memory and the global geo-political landscape settles, I believe we will see an unwinding of this approach.”
Perhaps partners are happy to stay the same size because they have reached a point of maturity where they can get along very nicely, assured that they will be needed by vendors to help deliver changes at the right time and with the least amount of risk.
Teague says: “I believe there is a lot of truth in the comment that business leaders of channel companies want to control growth based on customer experience and don’t want to grow too fast and negatively affect quality. I’m almost certain this is true of most businesses in the channel, and again a philosophy I agree with.”
But there are other challenges to growth, such as new customer acquisition, market conditions, quality and quantity of available talent and changes in technology economic models. “I believe most business leaders in the channel are looking for growth, but perhaps are adopting the principle of not wanting growth at any cost,” Teague observes. “If they cannot achieve it to the overall betterment of the business, they will maintain their status quo until they believe it’s the right time with the right market conditions to make a push for growth.”
Is that being risk averse or is it just being savvy? Whatever it is, it’s hard to argue that it’s wrong. Maybe the 77% who don’t have a high risk tolerance might have a point after all.
