Peer-to-Peer Blog: When Equity Plans Work Best

Rick SternBy 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.

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