By Rick Stern, CEO, Nitel USA
In an April blog, I shared my ideas for a supplier rating system agents could use to evaluate the merits of carriers and resellers. After all, most other industries have tools aplenty to help consumers make informed buying decisions. It’s interesting that you can nitpick every detail of a $100 pair of shoes and compare them to 50 other similar pairs before making a decision, but when it comes to staking your reputation on a partner, you’re basically left to word of mouth and chance.
I laid out a plan for a rating system that would give partner programs a score based on a number of criteria – financial position, reputation, operational performance and commissions, to name a few.
Since that blog was posted a lot has happened. We’ve seen a handful of bankruptcies in our industry while a handful more seem to be teetering on the brink of financial ruin. Now, anyone who has been part of this industry for more than five minutes knows that these companies will not just turn to dust overnight. They will be saved by a buyer or investor or simply receive new life after enduring a lengthy restructuring process.
Customers should experience very little impact. That’s the good news. Customer interests and service continuity are priority No. 1 during a restructuring process. Vendors, agents, contractors and other creditors are much more vulnerable. In the case of agents, commissions can be delayed or withheld and contracts can be renegotiated. As an agent, you can find yourself waiting in line for a judge to determine how much the company can pay you.
A comprehensive, industry-wide evaluation system is at the heart of reducing risk for telecom agents and their customers. Until somebody creates one, there is some basic information every agent should request before ever getting into evergreen clauses, commissions or any of the typical contract conversations. For the sake of this blog, I will focus on reseller metrics since, as a reseller myself, that is the area where I can provide the most expertise:
- Revenue-to-Headcount Ratio: This number is a good indicator of how well a provider keeps their overheads in line. While it can vary greatly, in the case of a reseller, a revenue-to-headcount ration of $250,000:1 is about as low as you want and $600,000:1 is much more stable.
- EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization): Be careful of companies that try to give you an EBITDA number as a measure of profitability. EBITDA can be a good metric for companies with large capital expenditures that are in growth mode (carriers), but understand that companies with positive EBITDA numbers may not be positioned for long-term viability.
- Cash Flow Positive: For any company, positive cash flow this is a good measure of stability. Simply put, cash flow positive means that a company can meet all its financial obligations with the revenues it generates during the course of the year.
- Current Ratio: A current ratio compares your monthly expenses to the amount of cash you have in the bank. So, for instance, if a provider’s customer decides not to pay (because of a dispute, bankruptcy, etc.), how long can the provider cover its monthly expenses before they run out of money.
- Back-Office: Does the provider have adequate quoting resources? A provisioning team? A reputable NOC? A billing department? What about commissions people? Remember, the deeper you get with a provider, the more you will need to lean on these departments to ensure your clients are satisfied and you get paid.
- Financial History: Has the provider ever filed for bankruptcy? What is its credit like? Does it pay commissions on time?
Understand that numbers can vary greatly from company to company, especially when comparing businesses that operate their own network, resellers, or the vast majority of companies that fall somewhere in between.
The bottom line is this type of transparency is good for the channel. At the same time, entering into a business relationship armed with the right amount of information is plain smart. It also forces accountability on carriers and resellers. Until benchmarks are set and a rating system is created, protect yourself by doing your due diligence. Your customers and your bank account will be glad you did.
Rick Stern is the founder and CEO of Nitel, Inc., which has evolved from an agency to a master agent to a nationwide reseller. Prior to building Nitel , now listed in the Inc. 500 and recognized by Crain’s Chicago Business as the 5th fastest growing company in Chicago for two consecutive years, Stern cut his teeth in the telecom business as a direct sales person for Sprint and later as an agent manager at WorldCom. Stern earned a bachelor’s degree in telecommunications from the University of Florida and is a graduate of Harvard Business School’s Executive Education Program. He also is a member of the 2011-12 Channel Partners Conference & Expo Advisory Board .