By Rick Stern, CEO, Nitel Inc.
In the telecommunications business, the game is always changing. The smart players look for partnerships that add value. As the head of a reseller, in the current environment I am frequently asked by master agencies to enter into an equity plan arrangement. I would like to take this opportunity to shed some light on the subject from the provider side.
Creating valuation and sharing in equity of a company you are not an owner of or a founder of requires a significant contribution and commitment. In my view, agencies first should demonstrate their ability to provide the reseller a significant return on that equity.
When equity plans first started, they were an innovative way to incentivize agents to sign on and work harder for a reseller. The plans gave agents the opportunity to share in the growth of a reseller through equity in the company. The specific amount of equity was dependent on the agents monthly sales.
From a resellers perspective, equity plans are appropriate when the master agent acts as a business partner, committed to pushing the resellers products (either exclusively or with a revenue commitment) and growing their companies mutually. For example, if an agency demonstrates the capability to produce 15 to 20 percent of a resellers new revenues on an annual basis, then that agency is probably in the right ballpark in seeking an equity arrangement.
At Nitel we offer a limited equity plan to a select number of agents who show us the commitment to be significant contributors to the company. As the provider, we offer: brand, products, technical support, provisioning, billing, collections, vendor audit, 24/7 NOC, customer service, and more and incur the costs associated with providing these value-added services to the customer. A master agency that acknowledges the real costs of supporting the customer, and seeks to partner with us in a mutually beneficial business relationship that brings in new revenue, positions itself for an equity stake.
As a reseller, we also have to weigh the tradeoffs between working with a particular agent and hiring more internal sales representatives. An agency that can outproduce some of my strongest internal performers may be worth a look for an exclusivity arrangement with a revenue goal.
A master agency planning to request an equity stake should position itself as a partner to a reseller. At the same time, the provider should be open to equity plans that make sense under the right circumstances with the right people.
Start from a position of fairness and everybody wins.
Rick Stern is founder and CEO of Chicago-based Nitel Inc., a provider of telecommunications network services. Any opinions expressed above are his own and not that of Nitel or its agents, employees or customers. He also is a member of the 2010-11 PHONE+ /Channel Partners Conference & Expo Advisory Board.