That was a generation ago. Fast forward to today, and the VARs in each type of SaaS solution, be it infrastructure, software, cloud, or business, are split into three types:
- Monsters (global partners)
- Medium Market Winners (usually in one or two markets)
- Lifestyle businesses (closely held private company)
While every major tech company – Microsoft, Salesforce, Apple, ServiceNow – and others, has partner programs, my perspective in this article is focused on Microsoft since I have been a major partner for three decades in four business, the latest being a partner with Microsoft Dynamics.
In that context, here’s a deeper look at these partner types. “Monsters” are a small number of global consulting firms whose clients are some of the largest organizations in the world. Monster companies have deep, multi-faceted relationships with their clients who seek ongoing consulting to optimize IT solutions.
Monster companies can scale to meet client requests, but they’re not agile. The lack of agility is due to their layers of bureaucracy and matrix management models. This leads to a natural avoidance of liability at the exec level. Because these organizations are layered, they are likely to have inexperienced consultants on the front line to assist clients. These consultants are more likely to take orders than consultants to businesses. As a result, they “sell” the client what is demanded and are likely to add very few clients in any given year. They don’t have a classic selling culture.
Bottom line is there is a mixture of “value added” to Microsoft by a Monster partner other than scale and access to large enterprise (which may be enough). In addition, some Monsters outperform market growth because most reflect the market — in addition, these companies that are typically sold to the public force vendors and clients for their own revenue on client solutions.
Hundreds of thousands of “Lifestyle” businesses are at the other end of the spectrum with no size, limited growth, few advanced skills, and limited reachable ambition. They are small, closely held businesses with a narrow cadre of clients. These Microsoft partners have deep, lasting relationships with clients. In many cases, they act as an extension of the client’s staff. While they add value to the client, they are not adding value to their own company. This is why I categorize them as “Lifestyle” businesses. They offer the owner a good living, but these owners rarely reinvest profits in their companies. Their growth tends to be stagnant, and they are not structured in size. Many clients have completely stuck with them for years – and some have grown with them. Lifestyle companies often don’t grow very much and rarely expand Microsoft’s footprint in a particular industry, such as healthcare or media and entertainment unless unintentionally.
Between the Monsters and Lifestyle businesses is the sweet spot for Microsoft in its partner program. These mid-sized “Market Winners” are some strong players with advanced skills that they can apply to clients. They build size, drive superior market growth in revenue and by industry or capability, and are agile, flexible, culturally and entrepreneurial.
The middle group of Market Winners brings new technology to market, drives the majority of developing new clients, and is loved by vendors because they don’t force vendors for their own profits like Monsters do. They have market power to deliver, but they are not controlled by public markets.
However, Monsters are swallowing mid-sized Market Winners in extreme heat, which in the long run isn’t always healthy for Microsoft’s ecosystem unless those Monsters adapt to be as agile and entrepreneurial as the businesses they buy. Unfortunately, there is limited evidence of this. What is needed are more mid-sized market winners, and the most effective way to get there is through M&A-bringing together so many Lifestyle partners (with deep-rooted relationships with clients) to create more Market Winners like QUANTIQ, Tribridge, eBecs, Content and Code, etc. In most cases, mid-sized Market Winners don’t reach that status organically (without getting it), but M&A is confusing. Vendors need to help.
Microsoft, like other vendors, has spent years developing partner recruiting programs and while there are hundreds of thousands of partners, there are too many not the right ones that can drive change, growth, awareness. and exceptional service. The sweet spot is the middle now; there are hundreds of companies in the middle or sweet spot that can be even faster.
Microsoft and other vendors need to adopt and promote a platform to help these lifestyle companies buy or sell to create more Market Winners. Microsoft can help this process by understanding what really drives success and helping build these winners as opposed to just recruiting more partners.
The closest thing I saw here was among the IT ExchangeNet, (ITX) marketplace in the US. I love the model and I strongly believe that vendors need to give the ITX marketplace in every country a network of experienced scale-up executives to help those businesses thrive.
Stuart Fenton is the Founder and CEO of Woolf Partners, a group of leaders experienced in scale-ups, turnarounds, offshoring, financial services, and IT services, delivering advice and investment to organizations looking to grow value of equity radically. Stuart most recently founded QUANTIQ in 2014 as a partner in Microsoft Dynamics 365, acquired by Avanade in November 2021. He was previously President of EMEA/Asia for Insight Enterprises and Vice President for Micro Warehouse Europe/Canada (part now of CDW).