John Henderson, president/CEO of Frank Lynn & Associates, Inc., has encountered numerous companies facing the following quandary: how to grow sales by adding new sales channels without alienating existing resellers and risking the current revenue they generate. Many companies take the easy way out they avoid a confrontation and attempt to fix the existing resellers.
Smart Business asked Henderson to discuss how manufacturers and service providers should address this problem.
What is wrong with trying to ‘fix’ existing resellers to drive new growth?
Trying to fix existing resellers is an option. But if you look at your market dynamics, you will likely find that your end customers’ needs and their buying behaviors have changed, and new channel players have emerged to meet their needs. Sticking with a reseller that no longer satisfies your customers is not a recipe for growth. It is very hard for a reseller to recognize this shift in customer requirements until it is too late.
Can managers take action to help their resellers recognize that changes are occurring?
Yes, but only with a subset of your resellers. Many are independently owned and represent either a first-generation owner who believes he or she is too old to invest and take risks, or a second-generation owner who doesn’t understand the business and/or is reluctant to change.
But most companies have a mix of resellers and some can deliver the desired growth. We have a process to classify resellers based on their ability to grow. The categories are:
What are key characteristics of self-growing and growable resellers?
Self-growing resellers have a business plan that defines how to grow their business. These resellers often are run by entrepreneurs with growth goals that align with the supplier’s goals.
Growable resellers have the desire to grow and are willing to invest, but may need assistance from the supplier to succeed.
If you ask the right questions, you can effectively and accurately categorize your resellers. We use a diagnostic tool for that purpose.
How should a company’s sales force work with these three types of resellers?
While members of the sales team may believe they need to spend time with non-growables due to poor performance, by definition, it is highly unlikely they will change to help you achieve your growth goals.
The sales force also should limit its time with the self-growing resellers they will continue to make their contribution and you will go along for the ride.
The best return on your sales efforts will come from focusing on the growable dealers.
If a company does decide to replace a poor performer, how does it minimize the risk?
Several critical steps need to be taken including an assessment of your legal risks in terminating existing relationships. But the most important place to start is by assessing customer needs. This will help define the reseller characteristics.
The risk can be measured as well. Ask the customer this question: ‘If your existing reseller no longer provided you with our product, would you buy the product the reseller offers, or would you switch resellers to have access to our product?’ The answer provides great insight to the risk exposure.
JOHN HENDERSON is president and CEO of Frank Lynn & Associates Inc. in Chicago. Reach him at (312) 558-4828 or firstname.lastname@example.org.