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Relayware Partner Relationship Management

Wasted Effort and Wasted Opportunity: The Hazard of the 80/20 Rule

Posted on December 17, 2013 by Chris Bucholtz

Some truisms are true primarily because there’s no way to really measure them. They have what Stephen Colbert describes as “truthiness” – they feel right, and that’s all that counts.

The Pareto Principle passes the “truthiness” test – it feels right, and it’s supported by widespread anecdotal evidence to the degree that it may as well be right. The Pareto Principle is also known as the 80/20 rule, and it’s applied to everything from farming to supercomputing.

It comes in different guises, but for the channel it can be defined as this: 20 percent of your channel partners deliver 80 percent of your revenue. And, in return, 80 percent of your efforts are dedicated to taking care of that crucial 20 percent of your partners. That means extra attention, more MDF funds and other motivation, greater marketing and training help, and a more closely managed relationship.

In the channel, the 80/20 rule can become distorted. In many cases, it can become the 90/10 rule or even the 95/5 rule, for reasons that are easy to understand.

It makes perfect sense to cater to the partners that are delivering results. They’re paying the freight, and they’re making the channel managers look like they’re succeeding. Shifting your attention from those partners may seem like killing the golden goose.

But here’s the reality about the top tier of your partners: they’re not doing gangbusters business because of you. They’re bringing in the big numbers because they’re motivated, knowledgeable and organized. Your efforts do indeed help them, but the reality is they need your help less than other partners in your channel.

So sticking to the 80/20 rule (or the distorted 90/10 or 95/5 rule) feels like the right thing to do, but actually hamstrings your efforts to expand your business. In a conversation we had recently, Forrester analyst Tim Harmon (primary author of the recent Forrester Wave report on PRM platforms)  was adamant about the need to break out of this thinking. Your gold and platinum partners are clicking on all cylinders – they’re keeping up with training, marketing efficiently, and efficiently closing the leads you pass to them. They know how to do this. Your silver-level partners, however, may not. They’re the ones who can most benefit from additional help from their vendors; they may still be learning the best ways to resell your products and the opportunity is ripe for you to help them.

The goal should not be to have a few high-performing resellers at the top and a lot of plodding, underperformers that make up the rest of your channel. The goal should be a channel with a lot of high-performers at the top and a tier of up-and-comers below them that will get better as you help them become the performers you and they both want them to be.

To do that, you have to get away from Pareto Principle thinking – and, perhaps more critically, alter the Pareto Principle-based behavior that’s so easy to slip into. The only way to distribute your efforts effectively is to have a channel management system in place to segment, analyze and evaluate partners, and to have a strategy in place to provide assistance and education to all your partners to degrees that map to their current and potential future value to your business.