Leonard Iventosch is an industry veteran who has led channel and partner strategy at NetApp, Isilon, EMC, and Nimble, and is an advisor to Qumulo. In this interview, he shares how a well executed channel strategy can delight customers, grow the top line, and increase margins (!).
Whether you carry a binary view (channel-wins/we-lose), or you’re inviting channel partners to grow the pie, are you being intentional about it?
Is there anything you’d want us to know about storage as we dive into the channel strategies that you led at NetApp, Isilon, EMC, Nimble, and Qumulo?
The main idea is that we want to get close to someone who’s selling something strategic. For enterprises today, it could be security and cloud. Storage is usually way down the stack. It’s usually not the #1 thing on the CEO or CIO’s agenda, it’s may be closer to #10 or #12. At NetApp, about 20 years ago Tom (Mendoza) was able to make a compelling pitch about why storage was a strategic decision. In most cases however, we thought about who makes the most strategic sale to the customer.
If it’s not the most strategic thing in the portfolio, how does one influence the channel to sell something like storage?
I’d say better technology, reasonable economics, and maintaining account control by keeping the customer happy. Better technology meant that partners would want to work with us otherwise we’d eventually beat them in the market. This wasn’t a threatening stance because the customer would eventually catch up to its benefits. But once a partner loses the ability to influence storage purchases, the customer may not buy servers and networking from them either and the partner risks losing account control.
In the early days, we also sweetened the pot with more margin or rebates than the entrenched competitor. It’s generally easier to sell what you’ve already been selling. The amount of effort required to sell something new is always greater.
What were initial conversations like? How did you get in the door?
I was never interested in proving how great I was without better technology. At Isilon, we won, we grew, and we got acquired because we developed great technology. Over time, Qumulo developed a leading edge over Isilon and is doing to Isilon, what Isilon did to EMC.
Apart from better technology, we offered a compelling business opportunity: (1) A ready market that was proven with our own sales organization identifying customers who would buy. When companies go 100% channel-led out of the gate, that’s just a fulfillment channel. To get the larger partners, you had to show 500-2000 customers who’d buy the product. (2) We also had to show compelling margins with a sizable services opportunity attached to it.
And finally, we had a culture of inviting. When I joined EMC as the head of Americas channel, the channel hated them. We had to change the culture in both directions. At NetApp, when VMware was coming on to the scene, we created a relationship with them, brought them into opportunities, and offered an enormous rebate program out of our own pocket. If you were a NetApp reseller, and you could show a VMware opportunity, you’d get 8-9 pts of rebate from NetApp. It was a love fest between NetApp and VMware, and the relationship is probably better than VMware and EMC even today.
AWS has never viewed channel as a driver for success. In many cases, we did well working with their competitors because the resellers wanted to maintain account control. Partners in general want to accommodate AWS to not lose control of things, but don’t necessarily want to bring them in.
How does the margin sharing impact the overall business model? Doesn’t the customer not pay for the baked in cost of the channel?
EMC took a very black and white view of things: ‘if the channel wins, we lose and the customer loses’. If the customer perceives that they’re going to pay more through a channel partner, they will ask to buy direct. So there can be friction when they want to get a price cut.
As an analogy, how successful would you be if you buy your Ford from Dearborn, MI. Would they fly in someone to service it? If your solution requires changes, say integration with your security infrastructure, or you need complementary services, the storage vendor won’t do that. Overall, the question to ask is: how committed are you to your customer’s success?
We stood behind our partners to ensure customer success and we wouldn’t undercut them. We would eat the cost of the channel partner. It was not an increased cost because it led to delighted customers. It enabled integrating our technology into their environment and helped deliver services that we couldn’t. Some Fortune 500 companies want to buy direct (they have internal orgs for installation and basic services), though most customers are fine working with someone, even if it’s just contractual.
It’s also worth noting that the vendor who allows partners to sell their services enables the partner’s highest margin offering (often as much as 40%) whereas it is almost always the lowest margin offering from the vendor.
We’ve also tried some alternative shots at customer success. Qumulo has developed significant momentum with a dedicated Customer Success team. But this doesn’t necessarily scale. At some point the engineers will be spread thin. Nimble had Infosight, which monitored and alerted on changes in the customer’s environment. We would preemptively ship replacement nodes and/or inform the customer that there was something funky with their environment when we thought it wasn’t a storage issue. Other vendors would say, ‘that’s not my problem’. But when the customer engages Accenture for their environment, Accenture owns the problem.
Was there any specific messaging or guidance that helped scale the channel?
Our goal was to understand what would encourage the partner to dedicate time to us. We used a carrot-and-stick approach. If they took an hour per week to train on our stuff, we’d make it worthwhile for them. But they also understood that if they lost the ability to sell storage, then they were open to losing everything else in an account. Our intention was not to play to their fears but to their goal of maintaining account control. We’d say, ‘We want to go through you for our customer’s sake and our sake. Here are the things we’ll do to make it attractive for you.’
The partner’s biggest wedge is usually services. When I was at NetApp or Isilon, our competitor, EMC, competed with them on services. We’d get out of the way and enable our partners to sell their own services. Our pitch was always to help our partners make the pie bigger, not asking them to shift from their current storage solution to ours.
Over time, if the partnership became a great success, those partners would naturally start moving their EMC business to us. To jump start a partnership – again using EMC as the competitor – we’d suggest that we build a campaign to go after the accounts where EMC was selling direct and locking them out of storage in their own accounts. That’s where the targeted account rebates would come in.
We coached our account execs to never initiate the conversation with trying to shift existing business, and to always lead with growing the margin and growing the pie.
Any thoughts from when things didn’t work out?
Some partners would say, ‘We can’t risk our relationship with EMC or Cisco (or whoever the incumbent vendor was)’. These partners would decline to bring us into these accounts. We told them that if EMC could punish them so much, then they have a business model problem with an over-reliance on EMC.
Sometimes they didn’t have the resources. To bring in a new product, you have to increase the number of hours of training or not do training for existing products. They’d ask us to come back six months later. When we returned, we showed them their own customers that we had sold to. It was important to be gracious though. We’d say, ‘How about we partner on the next one?’
What were the metrics that you used to monitor and grow the channel business?
My goal was to increase profitability. At one point, 25% of the Isilon business was through the channel and margins were about 57%. We eventually increased channel mix to 65%, grew the top line, and grew margins to greater than 63%.
How do partners make 20% margin and you still increase the margin? When the direct sales representatives come under pressure, they drop the price. It causes a small drop in your overall margin. But a small absolute cut in the overall dollar amount is a big hit to the partner’s revenue and margin. We advised our sales org to let partners have the pricing conversation. They care more about price and sell more value.
The channel also improved our sales efficiency. If an Isilon rep, for example, was on average selling $2.5 MM of storage per year, and the increased channel contribution raised his or her productivity to $3 MM, that resulted in an enormous benefit to the company, not to mention the sales rep!
Applying some of these ideas to customers running in the public cloud today where most services are fully managed, do you feel this leaves less for partners to own in terms of customer success? How should we think about the value they add now, the size of the overall pie, and their margins in the public cloud context?
I would say that the public cloud definitely poses a threat to resellers on many levels. First, if they are just selling storage to that customer, they are already in trouble, as AWS and others have done a great job in commoditizing storage. And to the extent that a partner has been selling a lot of services around on-premises storage solutions, that’s a problem as well, because that’s going away.
As AWS was becoming more and more dominant, many of the successful partners I worked with were not trying to fight the inevitable move to the cloud but were trying to become the essential trusted advisor around that move. Which apps should move to the cloud and when? Which apps (for security or other reasons) should never move to the cloud? What is the right timing for the move? Who is the best vendor to work with to ensure that we have a successful cloud migration (Qumulo for example!)?
Yes, makes sense. Thank you for the great conversation today. There’s still a lot to do here, and we’ll continue to watch how channel strategies evolve with the public cloud…
Thank you, it was great chatting!