Private Equity and M&A is Focusing the Channel

Last year the buzz around Channel Partners Expo was all about who was buying who and what is this “partner roll-up thing” all about.   Now that the dust is settling a bit, and the M&A announcements are starting to die down the remaining partners are putting their heads down and wanting to get to work.   There is a new understanding of what success looks like in the channel and it’s no longer about 2 AM Trust but a focus on building a clear direct line to success.

“There isn’t anything I couldn’t have accomplished this week from a video conference. The rest of it has just been a distraction”, says one top-performing Trusted Advisor about the Channel Partners Expo. As you walked the halls of this year's Channel Partners Expo there was an overarching feeling of focus and structure to meetings and conversations over what we have felt in years past.  Multiple top channel leaders shared their feelings about how the new focus felt as they held conversations with Trusted Advisors and their determination to grow revenue.

One meeting I was a part of, between a supplier and a Trusted Advisor, was an hour-long conversation about the Trusted Advisor’s business model and vertical targets.  Together, they strategized and educated each other on the struggles that vertical was having and what technologies the Trusted Advisors were currently selling into that market.  The supplier shared insights about how to upsell and cross-sell with those existing products and how they could layer on an additional level of support and technology to bring value to the customer.  Making it a seamless sales conversation from one side to the next and giving the Trusted Advisors a full stack solution to provide to their target market.   The takeaway was some collaborative tasks to better understand the space, commitments to integrate into the current technology stack and develop case studies and white papers around the feature and product set.

Several conversations at the expo were around, "Why does it feel like the ecosystem matured overnight?"  According to a few partners, they shared their new understanding of what possible exit strategies are now available to them.   Private equity has given serious business owners a way to exit the industry and a future they didn’t originally perceive when starting the business.   As we come together as a community and build out a very structured business model of how Technology Services Distributors can help you enter the market, suppliers will help you sell, upsell, and cross-sell, and Private Equity and others outside the industry money will give you a business model to exit, the ecosystems will take on a life of its own by attracting people outside the industry.  These people will be able to see the fully matured business model and know if they invest in it, a return will happen when they are ready to exit.

This industry was founded on the backs of proven sales leaders who made their way and learned products and the ability to sell them through the direct sales model.   Then, incentivized by recurring revenue and evergreen commission, they became entrepreneurs and business owners.   It was widely accepted that this business model was a “Lifestyle Business”.  Meaning, that this business was going to be with them the rest of their lives and maybe even handed down from generation to generation.   Years ago, I’d have conversations with the seasoned Trusted Advisors about retirement plans.  They would tell me that they were going to “Fly this plane up as high as they could for the next few years and let it glide down over time with minimal effort” which would generate recurring revenue for an estimated 10+ years before they saw significant churn.

Now with Private Equity entering the marketplace, there is a new possible target for success. The new standard and the different business models of buyouts and roll-ups are generally available from the dozen or so groups working on a roll up business model.  These are widely known from the thousands of conversations that almost every Trusted Advisor has had over the last few years with these potential buyers.  A lot of the Trusted Advisors now have developed a specific future goal in mind of what success looks like.   There is a sense of urgency and newfound vigor as they begin to see those mentors and industry veterans that they have looked up to for years, cash out their equity, or join a roll-up and band together for hopes and commitments of a second and possibly a bigger equity event.

“It’s forcing a maturity in the market” is the consensus most of us came to this week.  Success metrics have changed.  The KPI's are different. New goals have been stated and made and Trusted Advisors are now looking for the other facets of the industry who are serious and competent in helping them build a business.  Almost as if the channel community is excited and reinvigorated with the idea of other exit strategies and PE money is available to them.

What does this mean for the rest of the facets of the industry?  It means we need to also put our heads down with a new vigor.   Together, focusing on creating and building new strategies, we give our teams the ability to execute on a solid business model.  When this industry bands together we have seen amazing things happen.  This industry is founded on the ability to work together and create a common goal.   That effort, which only started 40+ years ago, has already birthed hundreds of multimillionaires, created tens of thousands of jobs that clothe and feed individuals and families and built friendships that uplift and promote the well-being of each other.  Let’s not stop there, we can do so much more.

Welcome to the new Channel 2.0™.