On July 6th, 2009, one of Sage Software’s largest resellers abruptly announced they would shut down operations. Two months earlier, the reseller, MIS Group, had been awarded Sage’s Top Business Partner for the second year in a row. Sage’s channel management team was completely blind sided by the announcement. This sent Sage into a scamble to support their current customers and salvage a large amount of pending sales.
The MIS Group had chosen a growth strategy that was underpinned by financial engineering. Over a period of 3 years, they had acquired several of Sage Software’s partners. At the time, Sage had no issues with the mergers. If they had been using the channel management model below, alarms would have sounded much earlier.
We routinely find a lack of leading indicators which allow a firm to predict their future success. This is a considerable risk to firms that derive much of their revenue from the channel. Management can use a composite leading indicator to rank their partners and detect issues on the horizon. This model was recently shared with me by Daniel Brousseau of The Vendee Group, LLC.
The composite leading indicator is made up of (3) weighted inputs:
- Partner’s opportunity pipeline
- Partner’s relative growth rate
- Partner’s market share
Set your weights for these three depending on the dynamics within your own industry and the disparity between partners in sales, growth or market share.
By charting a partner’s revenue contribution against the composite indicator you can discern real insight. In the chart above, Revenue has been steadily growing over the past 5 quarters but the composite leading indicator has been declining. The pipeline could be drying up, their market share may be declining or their relative growth rate has slowed compared to their peers.
I spoke with someone who worked for MIS Group during the shut down and they confirmed that the pipeline had significantly shrunk in the quarters preceeding the shut down.
Channel management executives are equally responsible for revenue growth and risk management. Use the model above as a first step towards avoiding one type of black swan event.