What’s a funded head you may ask.
A funded head is a human resources who works for a reseller or distributor that is fully or partially funded by the vendor.
A common occurrence in the past when vendors wanted a dedicated resource in a certain territory but didn’t have an entity on the ground to support the management of that resource.
We’ve had funded heads before in distributors in the US and China, one doing partner development and one doing strictly renewals in China.
It’s a very quick way to indirectly increase your headcount because they report to both the vendor and the company that they are employed by but they work to the targets set by the vendor.
We know of distributors that have heads funded by the vendor to a large scale and to the point where up to 50% of the headcount in the distributor are funded heads.
Adding funded heads gives the vendor a local specialist, in the same time zone without having to invest in setting up an office there.
The business that these funded heads generate is still transacted through the company that the funded head is employed by and this company still takes the same margin.
Isn’t the money made through transactions supposed to be spent on headcount though?
It certainly is. That money made from margin is there for them to increase the reach of your company and thus increase sales. The problem sits when there are multiple vendors for the distributor or reseller to handle. How do they split the time of the employee? It’s going to be split across vendors right?
The funded head model removes this obstacle by supplementing the salary to ensure that total or partial dedication is given to a specific vendor.
The more dedicated a person is to a specific vendor, the quicker that vendor accelerates.
New vendors into a market can benefit to putting a funded head in place too so that the risk is diminished for the distributor / reseller and there is some investment there from the vendor prior to revenue starting to flow. This puts more risk on the side of the vendor than the partner in country but does show commitment from the vendor side to support the operations.
How much should be funded by who?
Funded heads come in all ranges. From a small percentage of the salary covered to a fully funded head with 100% of their salary being paid by the vendor.
When we have done it in the past, we have run 50% funded heads at the start to test the water and see how much traction can be made before fully committing to a dedicated funded head.
It’s worked out well for us in the past but the volume of business needs to be there to be able to support it. Especially at distribution level when you are investing up to 50% in margin as well as the cost of the funded head.
The birth of the outsourced companies?
First we need to know what a funded head can be funded to do. It’s not only for business development and new business but it can also be used for a technical resource, renewals specialist, marketing manager.
With outsourcing companies cropping up for every single arm of the business processes, it’s easy to see why how distribution is trying to be phased out and ultimately the funded head.
Data is easy to come by these days with these outsourcing companies acquiring lists of potential customers and partners and doing outbound activities against them.
No need to give margin away to the distributor as well as pay the funded head when you have an outsourced partner doing your business development in country alongside your outsourced marketing agency.
In the outsourcing world we now see in country options for:
- Channel development
- Channel marketing
- Direct lead generation
- Social media management
- Local payroll companies for employing remote workers
Put all of these together and you have a lot of what a funded head can do without losing any margin to a distributor.
Granted, you need to pay a retainer for their services but this could work out significantly cheaper than paying margins.
You can run individual campaigns over a set period of time doing it the outsourced way in order to get you an advantage in a specific market before taking over the reigns and working it 1-tier with your team.
Where the model falls down
Scaling the model is difficult in terms of supporting the new business generated in these regions. The true value added distributor will offer support in region for the partners whereas on the new model, everything would have to be direct.
One of the biggest gripes of resellers is the lack of support that comes from the vendor so cutting that distribution layer contributes to that pain point.
We also have the issue of a lack of single point of contact which you would get from a distributor.
Everything needs to be orchestrated from the vendor with the same outcome except there is a lot more admin in the outsourced way.
The bottom line
Funded heads are still around and being utilised. A selection of major distributors require that you have a funded head in there before they will do anything for you. The mid range distributors work a little differently and generally don’t require the funded head thing.
If you want to scale your team quickly with dedicated bodies pushing your products in specific countries, it can be a good way to go. You have a single point of contact for a region with good visibility in progress without having to aggregate data from multiple sources like in the outsourcing model.
You would need to pay margins as well as the cost of the funded head which can get costly over time depending on the traction being made by the funded head and the average deal size.
Funded heads are great for differences in time zones when you don’t have people in the country that can support those time zones. They can become a true extension of your team if done right but it can also be a costly mistake if done wrong.
Are the outsourcing companies going to replace the need for distribution / funded heads altogether?
Will all business in foreign markets be handled by outsourced companies and support handled by the vendors?
Will distribution be here in 2030 in its current form with the funded head model not being disrupted?
Time will tell….