Research published today by Investec shows that too few tech businesses are taking advantage of developing effective ecosystems of sales partners (their channel programmes) to achieve scale-up growth rates. While IT companies have forecasted an average annual growth of eight per cent over the next three years, too many are missing their potential to achieve scale-up growth of 20 per cent or more with poor channel performance a major contributing factor.
Only 32 per cent of responding companies hit or exceeded their channel sales target while 52 per cent expressed frustration, expecting to have to significantly change their channel partner network in the near future. The risk is that simply switching partners won’t fix the core problem. The channel is a two-way partnership where transparency, strategic alignment and mutual support are the real sources of value.
Commenting on the research findings, Junya Iwamoto, Associate Director at Investec said: “Too many tech companies only view the channel as a means of distribution, and this is seriously damaging opportunities for revenue growth. There needs to be a cultural shift of listening and taking action on the advice that channel companies provide. We know from working with technology leaders that they spend time and energy building a vision, developing intellectual property and getting viable products to market. Once they have that laser-like focus on strategy, it can be hard to shift their mind-set and accept feedback from third parties. That doesn’t just hamper scale-up opportunities – it can hurt existing business. Having a dedicated research and development team hardwired into the channel programme is essential.”
Investec commissioned independent market research company Vanson Bourne to survey 250 IT leaders across the UK in August 2018 to better understand their use of channel relationships as a source of business growth. Companies ranged from SME to enterprise scale businesses with an average of £106m in annualised revenue. The channel is an ecosystem of sales partners taking technology to market. It can include distributors, resellers or IT contractors advising and implementing technology infrastructure, as well as managed service providers developing service wrappers around vendor products or services.
The report states that IT leaders who see the two-way nature of channel partnerships understand that this can help them contextualise opportunities and develop new products and services that will reveal scale-up opportunities. Insight can manifest into developing extra functionality, new ways to support sales, roll-outs or systems integration. Or it could be investment opportunities to open new verticals or geographies. The research proved the impact of the channel, with businesses that deem their channel programme to be ‘highly successful’ grossing £50 million from their top five channel partners per year, compared to just £16 million for unsuccessful programmes.
Junya concluded: “The impact of a successful channel programme can be significant. Our research showed that when successful, IT companies can capture over three times more revenue from their largest partners when compared to unsuccessful channel programmes. Culture change, getting better at listening and to treat channel companies as genuine partners are probably the most significant steps a tech leader can take if they dream of achieving scale-up growth.”
During 2018, Investec completed a number of successful IPOs including the largest ever Investment Trust IPO, with the admission of Smithson in October 2018 raising £822.5m. Throughout the year Investec used its balance sheet to provide significant equity underwriting support to enable clients to undertake transformational transactions, such as ITE’s £300m acquisition of the events business of Ascential.
In 2019 to date, in the Technology sector, Investec has raised £100m for Blue Prism, one of the UK’s fastest-growing public tech companies, and jointly raised £160m for GB Group plc to fund a US acquisition and increase its presence in the North American market.