IT resellers and service providers are constantly looking for ways to get an edge on the competition in this fast-moving industry, and savvy channel companies are looking for inspiration in unexpected places.

Enter David Zhao, the CEO and co-founder of NXT Factor, a Manhattan-based digital marketing firm. When Zhao went looking for a business model, he turned away from the burn-and-churn world of big name corporate clients. Instead, Zhao decided that NXT Factor could offer the most value to SMBs and local entrepreneurs that didn’t have the resources for an in-house marketing department. These clients know they need a digital presence, but are hungry for an outside person to execute for them. They need to outsource their marketing functions. In essence, they need a third-party CMO.

Sound familiar? It should. In today’s business landscape, it isn’t just IT functions that SMBs need help with. Whereas an IT channel company might recommend, set up and manage telephone, internet services and business applications, Zhao and his colleagues provide similar assistance with social media, digital outreach and grassroots campaigns…and they’re raking it in. In just three short years, Zhao and his team at NXT Factor have captured more than $2 million a year in revenue, with clients garnering more than $20 million in revenue in 2015.

So how is NXT Factor cementing itself as a different kind of channel company, and how can resellers and service providers benefit from its success? Here are three critical lessons we learned from Zhao himself:

  1. SMBs are Ripe for Scalability: Apart from his passion for helping to develop a healthy crop of small businesses in his hometown, Zhao said working with SMBs really allows NXT Factor to get in on the ground floor of an organization, where they can begin to profit alongside their client. Once NXT Factor establishes itself as a “Virtual CMO,” it effectively forms a symbiotic relationship, where both companies depend on the other to profit and thrive. “When you see small businesses, mom and pop shops and average individuals with full time jobs building project they love, it’s quite an awesome experience,” said Zhao. “At the end of the day… small business brings so much importance to a community in much larger ways than corporate [ones] can, and we need to support that infrastructure.”
  2. Channel Companies Can Provide Hidden Value: Many of the clients Zhao works with come to him with a great idea for a product or service but little to no business experience. Using his background as a student at the Wharton School of Business, Zhao is able to help these individuals take their product to new audiences and handle the backend marketing tasks, so clients can work on improving their product. “All these brands that we help out are all small and medium-sized businesses that are really impacting the community,” he said. “We’re the incubator to really get them to where they need to be, where they can focus on building their products and managing their inventory and creating better products for their customers. We’re focused on bringing their products to as many people as possible.”
  3. Diversification is Key to Long-Term Success: Despite his success in working with local SMBs and entrepreneurs, Zhao said NXT Factor is nowhere near ready to settle into a single niche. Currently, Zhao is working to start a restaurant chain in the Midwest, and the company is dabbling in application development. NXT Factor is also in the end stages of securing a marketing partnership with Yelp, which will allow them to gain even higher visibility on social media. Zhao hopes to keep NXT Factor nimble enough that he can experiment in many different areas to both test where he can do the most good and where his company can drive the maximum amount of revenue – a good lesson for any channel partner looking to expand their business.