TITLE PAGE
Building Successful Partner Channels in the software industry y !ans Peter Bech
E"#$%SE&E"TS (hen &icrosoft ac)uired "a*ision in +,,+ there is no dout that the /rice they /aid was hea*ily influenced y the *alue of our channel /artner eco0syste12 I can thin3 of no one etter suited than !ans Peter to write a oo3 with the title Building uccessful Partner Channels2
Preen #a1gaard4 Co0founder and CE$ of "a*ision 5Predictale growth and 1ar3et leadershi/ through inde/endent channel /artners are on e*ery software industry CE$ and sales e6ecuti*es7 1ind2 !owe*er4 it is rarely achie*ed2 (ith 8Building Successful Partner Channels5 !ans Peter Bech /ro*ides a great tactical a//roach toward reaching r eaching this goal29
Torulf "ilsson4 Product E6ecuti*e4 :is1a %etail4 $slo4 "orway 9!ans Peter Bech has een at the forefront de*elo/ing indirect channels in the software industry for 1ore than three decades and his trac3 record is i1/ressi*e2 I7d highly reco11end this oo3 to anyone searching for the route to gloal 1ar3et leadershi/ in the software industry29
;usuf Soner4 School of &anage1ent at the t he Saanci
To3e >ruse4 ?ounder and CE$ at Billy4 San ?rancisco4
E"#$%SE&E"TS (hen &icrosoft ac)uired "a*ision in +,,+ there is no dout that the /rice they /aid was hea*ily influenced y the *alue of our channel /artner eco0syste12 I can thin3 of no one etter suited than !ans Peter to write a oo3 with the title Building uccessful Partner Channels2
Preen #a1gaard4 Co0founder and CE$ of "a*ision 5Predictale growth and 1ar3et leadershi/ through inde/endent channel /artners are on e*ery software industry CE$ and sales e6ecuti*es7 1ind2 !owe*er4 it is rarely achie*ed2 (ith 8Building Successful Partner Channels5 !ans Peter Bech /ro*ides a great tactical a//roach toward reaching r eaching this goal29
Torulf "ilsson4 Product E6ecuti*e4 :is1a %etail4 $slo4 "orway 9!ans Peter Bech has een at the forefront de*elo/ing indirect channels in the software industry for 1ore than three decades and his trac3 record is i1/ressi*e2 I7d highly reco11end this oo3 to anyone searching for the route to gloal 1ar3et leadershi/ in the software industry29
;usuf Soner4 School of &anage1ent at the t he Saanci
To3e >ruse4 ?ounder and CE$ at Billy4 San ?rancisco4
C$P;%IG!T
@ !ans Peter Bech +,
al3reitestrasse F4 ,,H Jrich4 Swit=erland4 htt/Kwww2usiness1odelgeneration2co1 2 TB> Pulishing Dan acti*ity of TB> Consult !olding A/S Strand*eNen F+O +H, >la1/enorg #en1ar3 C:%K #>HHFO www2t3/ulishing2co1 ISB" F0F0HQ00H D>indle *ersion
#E#ICATI$"
In 1e1ory of Gian1aria $dello
TABLE $? C$"TE"TSK
Title Page Co/yright #edication ?oreword y Preen #a1gaard Ac3nowledge1ents Cha/ter 0 Introduction (ho is This Boo3 (ritten ?orR (hat is ;our SituationR #efinition of Business &odel and En*iron1ent Characteristics (hat is a Software Co1/anyR (hat is a Channel PartnerR (hy This Boo3R !ow &any Partners do we "eedR Cha/ter + 0 Boo3 Su11ary Cha/ter H 0 Conce/tual ?ra1ewor3 The Two Pers/ecti*es The Internal Pers/ecti*e The E6ternal Pers/ecti*e The Business &odel The Channel Cha/ter O 0 (hen to Ta3e a Channel %oute and (hen (hen "ot to Ta3e the Channel %outeR Touch Le*els "o or Low Touch &ediu1 Touch !igh Touch Cha/ter 0 The Chanel Partner Progra1 The Business Partner Agree1ent The $Necti*e of the Channel Partner Progra1 Su//orting the :alue Chain The Channel Partner Progra1 as a %ecruit1ent Tool Strategy (or3sho/ The Partner PL Certification Training &ar3eting and Sales Incenti*es and %e/orting ?ind (in &a3e >ee/ Grow Su//ort
Le*els of Su//ort The Su//ort Syste1 The >nowledge Base Product &anage1ent $ngoing Channel Partner &anage1ent Incenti*es Product &argin &ar3eting #e*elo/1ent ?unding D&#? Sales Perfor1ance Incenti*e ?und DSPI? ?unded !eads Platinu14 Gold and Sil*er Business #e*elo/1ent The Channel Partner Portal Channel Partner E*ents Cha/ter Q 0 Channel Partner %ecruit1ent #efining the Ideal Partner Profile #e1ogra/hic Pro/erties Sociogra/hic Pro/erties Psychogra/hic Pro/erties Co1/etitors and $utliers The Channel Partner %ecruit1ent Process The Short0list "on0core &ar3ets The Changing #yna1ics of Channel Partner %ecruit1ent %e cruit1ent International Channel Partner %ecruit1ent The A*erage %ecruit1ent Cycle Strategic Channel Partner %ecruit1ent Cha/ter F 0 Channel Partner &anage1ent The Stars The Growth Potential The %est The Partner %elationshi/ &anage1ent Syste1 Partner Account &anagers Cha/ter 0 Switching fro1 #irect to Indirect Ste/ $ne 0 S/litting our Co1/any in Two Ste/ Two 0 Building the 8#istriution5 &uscle Cha/ter 0 Channel Conflicts ?ro1 #irect to Indirect ?ro1 Indirect to #irect (hite Lael and 8$E&5 Custo1ers $*er0Penetration is "ot a Channel Conflict Cha/ter , 0 #istriution Tiers in the Channel Structure International #istriution Susidiaries :alue Added #istriutors Cha/ter
0 Software as a Ser*ice Software Should e ?ree of Charge Si1/licity #efeats Co1/le6ity &oile Pay As (e Go Gi*es ?ull Insight Cashflow Custo1i=ation and Integration &argins and Custo1er %elationshi/s Incu1ents and Insurgents A//endices A//endi6 A 0 The Channel Business Partner IS: %eseller :A% #istriutor :A# $E& and (hite Laeling Sales Agent Syste1s Integrator Susidiary oint :enture ?ranchise &aster ?ranchise A//endi6 B 0 The Business &odel :alue Pro/ositions Custo1er Seg1ents Channels Custo1er %elationshi/s %e*enue >ey %esources >ey Acti*ities >ey Partners Dsu//liers Cost The Business &odel En*iron1ent >ey Trends &ar3et ?orces Industry ?orces &acro Econo1ic ?orces &anaging the Business &odel En*iron1ent E6tending the Business &odel En*iron1ent Potential Concluding Business &odel %e1ar3s A//endi6 C 0 Sa1/le Business Partner Agree1ent Prea1le 2 #efinitions +2 %ights and #uties of the Business Partner H2 "ature of the %elationshi/ O2 Sale and %e/orting 2 $rders Q2 Prices
F2 Pay1ents and #eli*ery 2 (arranties and #isclai1er 2 Ad*ertising4 Pro1otion and Training ,2 #iscontinued Products 2 Prohiition Against See3ing Custo1ers $utside the Territory +2 Trade1ar3s and Sy1ols H2 Confidentiality and Trade Secrets O2
?$%E($%# B; P%EBE" #A&GAA%#
(hen &icrosoft ac)uired "a*ision in +,,+ there is no dout that the /rice they /aid was hea*ily influenced y the *alue of our channel /artner eco0syste12 As you 1ay 3now4 the "a*ision that &icrosoft ac)uired was a co1/any for1ed y the 1erger of "a*ision Software and #a1gaard #ata in +,,,4 the latter a co1/any started y 1y rother and I in H2 ?ro1 the *ery first day oth "a*ision Software and #a1gaard #ata decided to ta3e an indirect route to 1ar3et and although our first generation /roducts were not designed with the channel /artner in 1ind4 oth co1/anies released /artner enaled /roducts in the late ,Ws2 "a*ision Dnow #yna1ics "A:4 Concorde XAL Dnow #yna1ics XAL and XAPTA Dnow #yna1ics AX were all designed as international /roducts allowing the channel /artners to e6tend the functionality4 integrate to other /roducts4 /erfor1 custo1i=ations and deli*er all sorts of /roduct associated ser*ices2 hese conce/ts accelerated the /roliferation of *alue0added /roducts and ser*ices de*elo/ed y our channel /artners and created an eco0syste1 reaching into corners of the 1ar3et that we would ne*er ha*e drea1ed of ser*ing2 The "a*ision and #a1gaard eco0syste1s eca1e the asis for 1any new and successful co1/anies that e1/loyed thousands of /eo/le deli*ering *alue to thousands of custo1ers all o*er the world2 $ur Nourney fro1 young start0u/s to 1ature co1/anies too3 /lace in a /eriod of sustantial change with trends that were ery hard to /redict and we constantly had to adNust our strategies and change our decisions when our e6/ectations for the future /ro*ed to e inaccurate2 ?iguring out how to grow and 1anage the channel was so1ething we had to learn along the way and it was y no 1eans a straight road fro1 A to B2 here is still no handoo3 for how to uild channels in the software industry and I therefore welco1e !ans PeterWs initiati*e in docu1enting his e6/erience and insight with channel /artner eco0syste1s in this oo32 Pro*iding general guidelines for channel uilding and 1anage1ent in the software industry is not an easy tas3 gi*en the ra/idly growing di*ersity of /roducts and 1ar3ets and the enor1ous changes in technology and en*iron1ent that are dra1atically different co1/ared to when we started out2
AC>"$(LE#GE&E"TS
The idea for writing this oo3 co1es fro1 a series of wor3sho/s that I conducted for the E6ecuti*e #e*elo/1ent
for the software clusters co1/anies in the 9TETSoft ProNect5 and s/onsored y the Tur3ish &inistry of Econo1y2 I de*elo/ed a series of white/a/ers for the wor3sho/s and was urged y I&&IB to docu1ent the entire content of the wor3sho/s in a oo3 for1at2 This oo3 entitled Building Successful Partner Channels in the Software Industry is the first of two oo3s4 with the ne6t eing entitled Entering ?oreign &ar3ets in the Software Industry currently /lanned for /ulication in +,Q2 The drafts ha*e een thoroughly re*iewed and co11ented on y a tea1 of suNect 1atter e6/erts including &oha11ad Adi4 %egional Sales &anager at SE#C$ in ordanY #ic3 Bryer4 President of Sales Builder Inc24 Toronto4 CanadaY Pa1ela Ca1/agna4 /rinci/al at BL Consult in Istanul4 Tur3eyY ?ran3 &eiNer4 Progra1 &anager with :an&eiNel Auto1atisering4 wolle4 The "etherlandsY Torulf "ilsson4 Product E6ecuti*e with :is1a %etail4 $slo4 "orwayY Gian1aria $dello +
4 E6ecuti*e Partner with TB> Consult in &ilan4 ItalyY Per Steen Pedersen4 /rinci/al at S&P &anage1ent4 Co/enhagen4 #en1ar3Y Bo Snyder4 Editor0in0Chief with Channel &edia Euro/e Ltd24 Brussels4 Belgiu1Y Paul Sols3i4 /rinci/al at AI& International4 Seattle4 State of (ashington4
C!APTE% I"T%$#
(elco1e to 1y oo3 aout how to eco1e a gloal 1ar3et leader through inde/endent channel /artners2 In this introductory cha/ter I will ta3e you through so1e funda1ental )uestions that I a1 always as3ed y 1y consulting clients when I run 1y wor3sho/s and that I also regularly recei*e in 1y 1ailo6 ased on 1y on0going writing on the suNect2 Any oo3 needs to choose etween the /ronoun 8he5 or 8she25 I fli//ed a coin and 8she5 won25 Throughout the oo3 I will use 8she5 and 8her5 instead of 8he5 and 8his25 LetWs get started2 (!$ IS T!IS B$$> (%ITTE" ?$%R
I ha*e written this oo3 for B+B
software industry e6ecuti*es and their o/erational staff with co1/anies that ha*e chosen or are considering ta3ing the indirect channel route to 1ar3et leadershi/2 Is the a1ition of achie*ing 1ar3et leadershi/ then a /rere)uisite for reading the oo3R "o4 it is not2 It is4 howe*er4 a /rere)uisite for eing successful in the software industry2 The 1ar3et leadershi/ a1ition is e*en 1ore i1/ortant when we consider a go0to01ar3et a//roach through inde/endent channel /artners2 If we do not ha*e the a1ition of achie*ing 1ar3et leadershi/ in our industry then I cannot reco11end the indirect channel a//roach ecause it will not wor32 his state1ent is ased on 1y H years [ of /ersonal o/erational e6/erience4 ut it is also su//orted y co11on sense2 Channel /artners /refer to wor3 with the 1ar3et leaders and not with un3nown rands2
(hen channel /artners choose to engage with an un3nown software *endor they do so antici/ating that they are Noining a winning tea1 for the future2 By Noining early they can enNoy surfing the steadily growing wa*es as the software *endor uilds her rand4 eco1es recogni=ed and 1ar3et de1and shifts fro1 eing /ush0dri*en O
to eco1ing /ull0dri*en
2 Tell a channel /artner that we ha*e no a1itions of 81a3ing it ig5 and see what their reactions are2 Channel /artners are not interested in doing usiness with software co1/anies that lac3 1ar3et leadershi/ a1itions4 ecause that 1ay lea*e the1 in a cost0inefficient /ush0dri*en /osition fore*er2 hus4 the /ri1ary oNecti*e of this oo3 is not Nust to teach you how to uild a channel2 The oNecti*e is to teach you how to eco1e the gloal Q
1ar3et leader4 if you ha*e chosen to ta3e the Nourney through inde/endent channel /artners2 he oNecti*e is 1ar3et leadershi/2 The channel is 8Nust5 one of the 1eans of getting and staying there2 (!AT IS ;$<% SIT
&y fellow country1an SZren >ier3egaard said the following aout educationK 8\ if real success is to attend the effort to ring a 1an to a definite /osition4 one 1ust first of all ta3e /ains to find hi1 where he is and egin there2 F
5
The challenges you 1ay face uilding and 1anaging inde/endent channel /artners will differ sustantially de/ending on the nature of your usiness 1odel4 its en*iron1ent and your current situation2 !a*e you Nust startedR Are you well under wayR #o you want to switch fro1 a direct to an indirect a//roachR #o you already run an indirect a//roach4 ut are ha*ing challengesR #o you ha*e a standard or a /latfor1 /roductR #o you ha*e short or long sales cyclesR Etc2 #E?I"ITI$" $? B
As software co1/anies can e *ery different ani1als I will introduce a set of characteristics that I will refer to throughout this oo3 discussing the conditions that a//ly for the stages we are in and situations that we 1ay e facing2 In tale elow I ha*e chosen se*en funda1ental characteristics of usiness 1odels4 usiness 1odel en*iron1ents and channel de*elo/1ent stages in the software industry2
?igure K The se*en usiness 1odel and usiness 1odel en*iron1ent *ariations used to classify software co1/anies in this oo32
This oo3 is /ri1arily written for software co1/anies with a 1aturity Le*el + or H4 /enetrating 1ar3ets with a 1aturity Le*el + or H4 where there is an inde/endent channel at a 1aturity Le*el + or H4 where the custo1er touch le*els
and sales cycles are Le*el + or H4 where the *alue0add /otential is Le*el + or H and with a channel i1/ortance Le*el H2 All of the general fra1ewor3s descried in this oo3 will wor3 for all le*els of channels de*elo/1ent stages4 ut whene*er I 1a3e a state1ent or /ro*ide a rule of thu1 I ha*e software co1/anies with Le*el +0H ty/e 1aturity in 1ind2 If you are switching fro1 a direct go0to01ar3et a//roach to an indirect go0to01ar3et a//roach then this oo3 is definitely
for you although your current situation 1ay not 1atch with all the Le*el +0H scenarios in figure 2 Please let 1e stress that the oo3 is delierately not written s/ecifically for start0u/s2 !owe*er4 I do reali=e that 1any start0u/s are /ondering e6actly this )uestionK direct or indirectR I ha*e een in this *ery situation 1yself se*eral ti1es2 In so1e situations we chose the indirect channel a//roach and eca1e successful4 ut not without sustantial ho1ewor3 and usiness 1odel re0engineering along the way2 In other situations we chose the direct a//roach and also eca1e successful2 And in so1e situations we failed irres/ecti*e of which a//roach we too32 I elie*e a start0u/ can ta3e away *alue fro1 reading this oo34 ecause the channel considerations should e an integrated /art of defining and de*elo/ing the *alue /ro/osition2 !owe*er4 as a start0u/ we always need direct feedac3 fro1 our ulti1ate custo1ers2 (e cannot rely on only getting filtered 1ar3et feedac3 through inde/endent channel /artners2 If you are a start0u/ then I reco11end you read Ste*e Blan3 Ws oo3s too4 as he focuses entirely on start0u/s2 here are two 1easure1ents that I will use throughout this oo3 as they will eco1e increasingly critical in our ra/idly changing en*iron1ent ,
and ha*e a funda1ental i1/act on how to uild and 1anage indirect /artner channelsK Custo1er Ac)uisition Cost DCAC is the total cost D1ar3eting4 sales and /re0sales of ac)uiring a new custo1er2 ACAC is the a*erage custo1er ac)uisition cost2 Custo1er Lifeti1e :alue DCL: is the gross 1argin we can e6/ect fro1 a custo1er o*er the lifeti1e of our relationshi/2 ACL: is the a*erage custo1er lifeti1e *alue2
As the software industry is 1o*ing Dra/idlyR fro1 the /re/aid /er/etual license 1odel to the recurring suscri/tion 1odel4 careful 1anage1ent of ACAC and ACL: will e the 3ey to sur*i*al and /ros/erity2 If you are unfa1iliar with these changes I suggest you start with reading cha/ter efore continuing with the rest of the oo32 (!AT IS A S$?T(A%E C$&PA";R
;ou 1ay as3K (hat is a software co1/anyR I ha*e included a discussion on this suNect in A//endi6 A and will /ro*ide only the conclusion hereK In this oo3 a software co1/any is any co1/any /ro*iding a B+B /roduct and ser*ice where software is a 1aNor co1/onent irres/ecti*e of whether it is undled with hardware4 deli*ered as a /er/etual4 u/front /aid4 on0site license or deli*ered as a ser*ice through a rowser or an a//2 The /rinci/les /resented in this oo3 are uni*ersal for B+B software ased /roducts and ser*ices irres/ecti*e of the deli*ery for1at2
(!AT IS A C!A""EL PA%T"E%R
LetWs assu1e that we run a software co1/any2 To run our usiness we need to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers
2 To grow our usiness we need to 3ee/ scaling and i1/ro*ing the /roducti*ity of the ways that we find4 win4 1a3e4 3ee/ and grow ha//y custo1ers2 (e can do so y hiring a steadily increasing nu1er of sales and su//ort staff4 or we can con*ince so1eone else that they should find4 win4 1a3e4 3ee/ and grow ha//y custo1ers for our /roduct2 (e ty/ically call that 8so1eone else5 an inde/endent channel /artner2 (e 0 the software co1/any with the IP rights 0 then eco1es the 8/rinci/al25 Inde/endent channel /artners o/erate in their own na1e4 at their own e6/ense and at their own ris32
(e are dealing at ar1s length with our inde/endent channel /artners +
2 Later in the oo34 I will also introduce the distriutor H
role4 ut for now we will focus on the /rinci/al and her resellers2 Channel /artnershi/s in the software industry ta3e 1any for1s and sha/es O
and I ha*e included a descri/tion of the 1ost co11only used in A//endi6 A4 too2 (!; T!IS B$$>R
of the software industry2 ?or so1e software co1/anies the channel has een a 1aNor contriutor to gloal success4 ut for 1ost software co1/anies 1a3ing it wor3 re1ains a de/ressing and constant struggle2 Building indirect channels 1ay e co1/licated4 ut it is not really that difficult2 It is co1/licated ecause it re)uires an additional and co1/letely different layer of usiness /rinci/les co1/ared to the situation where we ser*e our custo1ers directly2 I elie*e this is the core of the troule 1any software industry e6ecuti*es face when setting out to uild a networ3 of inde/endent channel /artners that are su//osed to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers on their ehalf2 Software e6ecuti*es often grossly underesti1ate what it ta3es to recruit4 enale and 1anage inde/endent channel /artners2 &any software e6ecuti*es consider the inde/endent channel /artners as a readily a*ailale4 fle6ile and ine6/ensi*e sales resource and nothing could e further fro1 the truth2 I ho/e that y sharing 1y e6/erience and insight through this oo3 that 1ore software e6ecuti*es will 1a3e etter decisions concerning their channel strategies and their suse)uent i1/le1entation4 hel/ing the1 on the route to 1ar3et leadershi/2 I started uilding inde/endent channel /artner networ3s in Q2 Co1ing fro1 a s1all do1estic 1ar3et Q
I was forced to uild international channel /artner networ3s *ery early in the lifecycle of the co1/anies where I was res/onsile for re*enue generation and I also had to do it with *ery li1ited resources2 I learned that you do not ha*e to e ig to e s1art2 E*en s1all software co1/anies can uild /owerful inde/endent channel /artner networ3s o*er ti1e if they understand so1e funda1ental usiness /rinci/les2 ?ro1 F to +,, I was res/onsile for #a1gaardWs F
acti*ities in the Ger1an s/ea3ing 1ar3ets and in this ca/acity I had the uni)ue e6/erience of introducing and uilding the channel for AXAPTA
in Ger1any4 Austria and Swit=erland2 After the 1erger with "a*ision I was 1ade res/onsile for our Noint o/erations in Central Euro/e2 I left "a*ision in +,, to start 1y own usiness and in +,,H I ac)uired a 1aNor share of a &icrosoft #yna1ics AX reseller
and held the /osition as CE$ of the co1/any2 In this ca/acity I had inti1ate insight into the daily life of a *alue added reseller of a /roduct that I was /re*iously res/onsile for launching to inde/endent channel /artners in the Ger1an s/ea3ing 1ar3ets2 !a*ing ser*ed on oth sides of the tale hel/ed 1e to dee/en 1y understanding of the /rinci/al/artner relationshi/ and the co1/letely different usinesses that they run2 Since +,,F I ha*e een wor3ing as a 1anage1ent consultant and wor3sho/ facilitator hel/ing clients in the software industry with gloal growth including uilding networ3s of inde/endent channel /artners2 !owe*er4 as a 1anage1ent consultant I can only ser*e a few clients at a ti1e2 (ith this oo3 I ho/e I can hel/ 1any 1ore software co1/anies around the world 1a3e the right choices on how est to ser*e their custo1ers and grow their gloal 1ar3et share4 when they a//ly the indirect go0to01ar3et a//roach2 If your choice is to uild inde/endent channel /artner networ3s then I ho/e you will use this oo3 as the 81anual25 As I ha*e no interest in reco11ending that software e6ecuti*es in general ta3e a s/ecific go0to01ar3et a//roach the oo3 is not /ro1oting the indirect channel a//roach o*er any other go0to01ar3et o/tion2 This oo3 is su//osed to hel/ software e6ecuti*es that 0 for *alid reasons 0 ha*e chosen the indirect channel a//roach and su//ort the1 in getting it right2 !$( &A"; PA%T"E%S #$ (E "EE#R
Let 1e conclude this introductory cha/ter with a crucial )uestion that will hel/ clear u/ one of the 1aNor 1isconce/tions of what an indirect /artner channel a//roach is and what it is not2 !ow 1any inde/endent channel /artners do we needR The answer to this )uestion o*iously de/ends on how we define our 1ar3et and how 1uch 1ar3et share we are ai1ing for4 ut the indirect channel a//roach wor3s est if we ha*e a ig 1ar3et in ter1s of the nu1er of /otential custo1ers and when that is the case then we will need 1any channel /artners2 The answer also de/ends on what ty/e of /roduct D*alue /ro/osition we offer4 and the indirect channel a//roach wor3s est if our /roduct Dand *alue /ro/osition is a /latfor1 re)uiring channel /artners to add /roducts and ser*ices in order to deli*er the whole /roduct
+,
2 Then we can ha*e 1any channel /artners as each of the1 adds *alue to the s/ecific su0seg1ent of the 1ar3et that they ha*e decided to ser*e2 In this scenario the channel /artners do not necessarily co1/ete for the sa1e usiness and the 1ar3et saturation threshold is 1uch higher than if the channel /artners are co1/eting with the e6act /roduct for the sa1e o//ortunities2 I often hear software e6ecuti*es tal3 aout their channel /artner a//roach only to reali=e that they are loo3ing for one or two channel /artners to co*er a 1ar3et4 say4 the si=e of Ger1any2 This oo3 is not aout recruiting one or two channel /artners to co*er a 1ar3et the si=e of Ger1any
2 This oo3 is aout the situation where we need a hundred or 1ore channel /artners to secure a +,] ++
1ar3et share in Ger1any and a thousand or 1ore channel /artners to secure a +,] 1ar3et share in "orth A1erica2 The nu1ers ,, or 4,,, are not sacrosanct2 The crucial difference etween the scenario with 1any channel /artners and ust a few channel /artners is that in the first scenario we do not de/end on the indi*idual channel /artner2 Indi*idual channel /artners 1ay co1e and go lea*ing us unaffected2 If we ha*e the a1ition of 1a3ing it to gloal 1ar3et leadershi/ through inde/endent channel /artners4 then we 1ust acce/t that we need 1any /artners and that they will often e co1/eting for the sa1e usiness2 (e 1ay not delierately include the oNecti*e of 8o*er /enetration5 in our channel /artner recruit1ent rochure4 ut internally we 3now that to 1a3e it to 1ar3et leadershi/ we will need a ig channel /ro*iding a road 1ar3et reach2 If fi*e inde/endent channel /artners are co1/eting for the sa1e usiness then we /refer that they are doing it with our /roduct rather than with the /roduct of our co1/etitors2 It is that si1/le and this is the scenario that this oo3 is aout2 This oo3 is aout uilding large networ3s of inde/endent channel /artners 1a3ing us gloal 1ar3et leaders2 EnNoy2
C!APTE% + B$$> S<&&A%;
The software industry is full of are*iations and laels such as IS:4 SI4 $E&4 :A%4 :A#4 (hite Lael4 #istriutor4 %eseller etc2 I ha*e included 1y definitions and e6/lanations of what they stand for in A//endi6 A2 he discussion of when and how to eco1e the gloal 1ar3et leader through networ3s of inde/endent channel /artners re)uires a conce/tual fra1ewor3 and in cha/ter H I introduce the usiness 1odel and usiness 1odel en*iron1ent fra1ewor3s de*elo/ed y Ale6ander $sterwalder and ;*es Pigneur2 The introduction is rief and for readers who re)uire 1ore detail4 I ha*e an e6tended discussion on the fra1ewor3s in A//endi6 B2 I conclude that our usiness 1odels are co1/letely different fro1 the usiness 1odels of our channel /artners and that we need to 3now and 1aster oth to eco1e successful2 I also conclude that ta3ing the indirect route to 1ar3et adds a layer of co1/le6ity to our usiness 1odel as we lea*e the control of finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers to third /arties2 In 1y hu1le o/inion the direct and the indirect go0to01ar3et a//roach are not o/tions we can choose freely etween4 inde/endent of the nature of our usiness 1odel and usiness 1odel en*iron1ents2 In cha/ter O I discuss when the indirect go0to01ar3et a//roach is a//licale and ad*antageous and when it is not4 and I conclude that ta3ing the indirect route to 1ar3et re)uires that the channel is an integrated ele1ent of our /roduct offering and *alue /ro/osition and unfortunately not so1ething we can easily olt0on at a later stage2 (ith the decision to ta3e the indirect route to gloal 1ar3et leadershi/ we need to de*elo/ and 1aintain a channel /artner /rogra1 and in cha/ter I introduce and discuss all the ele1ents of this /rogra12 Although we need si1ilar ty/es of acti*ities when running our own 1ar3eting4 sales and i1/le1entation o/erations4 the choice of an indirect route re)uires 1ore well0defined /rocesses4 1ore for1al for1ats4 earlier announce1ent of act i*ities and e*ents4 longer lead ti1es for changes and co11unication and collaoration /latfor1s that are scalale and a*ailale +OF2 I also conclude that our /artner /rogra1 will change sustantially as we 1o*e fro1 early stage channel uilding to the 1ature 1ode where 1ost of our re*enue co1es fro1 e6isting channel /artners2 Cha/ter Q is de*oted to a discussion of channel /artner recruit1ent4 where I conclude that the initial /rocess is *ery si1ilar to the /rocess we follow when we hire to/ /erfor1ing custo1er0facing staff for oursel*es2 The ig difference is in the co1/ensation for1atsY where we /ay staff to /erfor1 their duties fro1 the day they Noin4 channels /artners will ha*e to 1a3e sustantial in*est1ents efore they rea/ the enefits of the coo/eration2 It is therefore 1ore difficult to recruit channels /artners than recruiting staff and it ta3es 1uch longer2 Also the dyna1ics of channel /artner recruit1ent changes as we 1o*e fro1 the early 1ode channel de*elo/1ent stage to the 1ature stage and I conclude that as soon as we ha*e the o//ortunity we should recruit as 1any channel /artners as we /ossily can2 (e let the1 de1onstrate where they elong in the channel /yra1id that I introduce in cha/ter F4 where I discuss channel /artner 1anage1ent2 I classify /artners as Stars D]4 Growth Potential D] and The %est D,] and discuss how we should 1anage each grou/2 As 1any software co1/anies consider ado/ting the indirect channel a//roach at a later stage after ha*ing a//lied a direct a//roach first I ha*e de*oted a full cha/ter to how this switch can e acco1/lished2 I introduce so1e si1/le sanity chec3s to *erify if switching is feasile or not and reco11end an a//roach for 1a3ing the switch successful2 Cha/ter defines and discusses channel conflicts and what we can do to 1anage the12 Cha/ter , e6/lains that distriution does not necessarily ha*e to e /erfor1ed y the software co1/anies the1sel*es4 ut in theory could e outsourced to a *alue added distriutor and I also e6/lain why that in /ractice this is difficult for us in the early stages of channel de*elo/1ent2 The changes occurring in the software industry where the cloud0ased software0as0a0ser*ice for1at co1/le1ents and often re/laces the /er/etual4 on0/re1ise and /re0/aid lice nse for1at has 0 and increasingly will ha*e 0 a /rofound i1/act on the role and re1uneration for1ats for inde/endent channel /artners2 I discuss these trends in cha/ter and conclude that the change in the cash0flow4 the increased co1/etition4 the di1inishing /ower of the CI$
4 the di1inishing cost of a//lication de*elo/1ent4 1oile co1/uting and the /reference for si1/licity o*er co1/le6ity4 all change the landsca/e for channel /artners and their /rinci/als ali3e2 lthough the for1al channel /artner agree1ent is /roaly the least interesting docu1ent in the conte6t of creating a channel /artner ecosyste1 I ha*e ne*ertheless included a sa1/le in A//endi6 C2 //endi6 # includes a further elaoration of the channel /artner PL4 which is a critical tool when recruiting and 1anaging /artners2 As the channels for reaching and co11unicating with our custo1ers are changing dra1atically I ha*e included a reco11endation for how to include the we and social 1edia in our channel /artner 1anage1ent effort in
A//endi6 E2 A//endi6 ? discusses the e6clusi*ity issue that 3ee/s /o//ing u/ all the ti1e and e*erywhere2 &y reco11endation is asically donWt do it4 ut when we do it4 then follow 1y other reco11endations2 ?inally4 I ha*e included a list of reco11ended literature in A//endi6 G2
C!APTE% H C$"CEPT
Throughout this oo3 I will use the usiness 1odel
fra1ewor3 introduced y Ale6ander $sterwalder and ;*es Pigneur in their renowned oo3 8Business &odel Generation 52 The reason for 1a3ing this reco11endation H
is *ery si1/leK The usiness 1odel fra1ewor3 gi*es us an o*er*iew4 a *ocaulary and a set of definitions that enale us to 1ore clearly define4 de*elo/4 understand and co11unicate our own usiness 1odel to our sta3eholders including our inde/endent channel /artners2 The usiness 1odel fra1ewor3 enales us to understand and consistently discuss the usiness 1odels with our inde/endent channel /artners2 The usiness 1odel fra1ewor3 /ro*ides us with a structured fra1ewor3 for discussing and i1/ro*ing the i1/act of our /artner *alue /ro/osition on the usiness 1odel of the indi*idual channel /artner2 The usiness 1odel fra1ewor3 O
also enales us to s/ea3 the sa1e language as we grow the co1/any and ring new staff 1e1ers and new channel /artners to the /arty2
T!E T($ PE%SPECTI:ES
$sterwalderWs usiness 1odel fra1ewor3 o/erates with two 1ain /ers/ecti*esK he internal /ers/ecti*eK the usiness 1odel Dthe can*as he e6ternal /ers/ecti*eK the usiness 1odel en*iron1ent Dthe four forces T!E I"TE%"AL PE%SPECTI:E
The internal /ers/ecti*e includes those ele1ents of our usiness that we control oursel*es2 The usiness 1odel is di*ided into nine areas or uilding loc3s that $sterwalder has nicely organi=ed in a gra/hic illustration called the can*as hel/ing the /eo/le in*ol*ed with defining and e6ecuting our strategy to ha*e the e6act sa1e /erce/tion of how their usiness 1odel wor3s2
?igure +K The usiness 1odel can*as
T!E EXTE%"AL PE%SPECTI:E
The e6ternal /ers/ecti*e includes all the ele1ents i1/acting our usiness that we do not control oursel*es2 (e call this /ers/ecti*e the usiness 1odel en*iron1ent2 The usiness 1odel en*iron1ent re/resents the ris3 that we 1ust 1itigate and the o//ortunities that we can ta3e ad*antage of and is nicely organi=ed into four areas hel/ing the /eo/le in*ol*ed in the usiness de*elo/1ent analy=e4 discuss and understand the e6ternal world using the sa1e ter1inology
and structure2 ?igure HK The usiness 1odel en*iron1ent
T!E B
A usiness 1odel descries the rationale of how an organi=ation creates4 deli*ers and ca/tures *alue2 (e select our target custo1er seg1ents4 we design our *alue /ro/ositions to est ser*e these custo1er seg1ents4 we choose which ty/e of relationshi/s we will ha*e with our custo1ers and we choose which channels we will use to find4 win4 1a3e4 3ee/ and grow our ha//y custo1ers2 (e call this /art of the usiness 1odel the 8 ?ront $ffice25 $ur front office acti*ities will generate custo1ers and re*enue2 In the 8Bac3 $ffice5 of our usiness 1odel we need to e1/loy certain 3ey resources that can e6ecute certain 3ey acti*ities deli*ering our *alue /ro/ositions to our custo1ers2 The ac3 office often uilds relationshi/s with 3ey /artners
and the ac3 office generates cost 2 T!E C!A""EL
As you can see in the usiness 1odel can*as illustration one of the nine uilding loc3s is the channel 2
?igure OK The channel is one of the nine uilding loc3s in the usiness 1odel fra1ewor32
The No of the channelDs is to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers2 In other industries the channel 1ay ha*e 1ore oligations such as i1/orting4 warehousing4 logistics and re/air4 ut as the software industry o/erates with *irtual /roducts the channels are /ri1arily engaged in e6tending the *alue of our /roducts and in 1ar3eting4 sales and su//ort2 he reason that so 1any software co1/anies fail to 1a3e the inde/endent channel /artner a//roach wor3 can e e6/lained using the usiness 1odel fra1ewor32 LetWs i1agine that we ha*e a direct channel a//roach and thus o/erate the channel with our own resources2 (e are in full control of all strategic decisions4 of /roduct 1anage1ent4 de*elo/1ent etc24 and we engage our own 1ar3eting4 sales and /re0sales /eo/le /lus we allocate the udgets re)uired to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers2
?igure K Ty/ical *alue chain in a Le*el +0H B+B software co1/any2 Please see A//endi6 A for an enlarged *ersion of this illustration2
E6a1/les of the acti*ities that we 1ay e underta3ing and constantly o/ti1i=ing are illustrated in fig2 2 $/erating the acti*ities and resources oursel*es gi*es us o*erall control2 (e can 1anage all /rocesses and resources in the constant effort of o/ti1i=ing the /erfor1ance of the co1/any including our channel o/erations Dhow we find4 win4 1a3e4 3ee/ and grow ha//y custo1ers2 It is entirely within our control to start new initiati*es4 1onitor /rogress4 ta3e correcti*e actions and engage and dis1iss resources2 (hen we decide to lea*e the res/onsiility for so1e or all of the acti*ities concerned with finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers to inde/endent channel /artners4 we introduce a layer of sustantial co1/le6ity2 (e are introducing an inde/endent third /arty usiness 1odel into our own usiness 1odel as illustrated in fig2 Q elow2
?igure QK The indirect channel re/resents a third /arty usiness 1odel in our own usiness 1odel2
Inde/endent channel /artners o/erate their own usiness 1odels and choose their own usiness 1odel en*iron1ents2 Building successful channel /artners re)uires that we understand their usiness 1odels and 1anage to align the1 with our own usiness 1odel2 $ur inde/endent channel /artners o/erate their usinesses according to their own as/irations4 a1itions4 oNecti*es4 s3ills and resources2 (e can introduce incenti*es and offer su//ort /rogra1s4 ut we cannot de1and or control how they should run their usinesses2 The funda1ental reason for the difference in our usiness 1odels ste1s fro1 the difference etween our custo1er *alue /ro/osition and the *alue /ro/osition of our inde/endent channel /artners2 E*en though we coo/erate with our inde/endent channel /artners with the oNecti*e of ringing our /roducts to well defined custo1er seg1ents we do not ha*e identical
*alue /ro/ositions2 Software co1/anies 1ust e technology dri*en and 1ust ha*e /roduct leadershi/ as their strongest strategic *alue ele1ent2
By nature the software industry is a *olu1e ga1e often with networ3 effects and 8winner0ta3e0all5 characteristics2 (ith negligile 1arginal /roduction cost the econo1y of scale enefits are enor1ous and in the long run the 1ar3et leaders ill crush their s1aller co1/etitors2 Software *endors always dri*e for *olu1e through 1ar3et leadershi/2
?igure FK Software co1/anies ha*e /roduct leadershi/ as the do1inant ele1ent of their custo1er *alue /ro/ositions2 $/erational e6cellence is a second /riority and with the 1o*e to cloud ased deli*ery for1at this co1/onent eco1es 1ore i1/ortant2 $nly *ery few software co1/anies ha*e custo1er inti1acy as a strong *alue ele1ent and if they do then they 1ust ha*e a direct channel a//roach2
$ur inde/endent channel /artners will ty/ically ha*e a *alue /ro/osition that is focused on the indi*idual custo1er with the oNecti*e of o/ti1i=ing the Custo1er Lifeti1e :alue2 Channel /artners 3now that selling 1ore to current custo1ers is 1uch 1ore /rofitale than ac)uiring new custo1ers and are therefore osessed y 1aintaining and e6/anding their custo1er relationshi/s2 They do so y sourcing /roducts fro1 *endors Dsuch as us and adding ser*ices or other *alue ele1ents that 1atch the needs of the indi*idual custo1ers in their target 1ar3et seg1ents2 (ith *ery few e6ce/tions inde/endent channel /artners ha*e Custo1er Inti1acy as their strongest *alue /ro/osition ele1ent and co1/ared to their /rinci/als they ty/ically ha*e relati*ely few custo1ers2
?igure K Inde/endent channel /artners ha*e custo1er inti1acy as their do1inant custo1er *alue /ro/osition ele1ent2 $/erational e6cellence in /roNect 1anage1ent is also i1/ortant4 while /roduct leadershi/ has insignificant i1/ortance2
The custo1er *alue /ro/osition of a co1/any is decisi*e for how to organi=e the rest of the usiness 1odel and as the /rinci/al and her inde/endent channel /artners ha*e co1/letely different *alue /ro/ositions they also ha*e co1/letely different usiness 1odels2
they ser*e our interests2 #oing so is ne*er a wal3 in the /ar34 ut when it wor3s it can accelerate our usiness li3e a ooster roc3et2 I will discuss later in the oo3 that the acti*ities and resources re)uired for recruiting4 1anaging and growing inde/endent channel /artners are not identical to the acti*ities and resources re)uired for de*elo/ing co1/etiti*e /roducts that are attracti*e to custo1ers and to the channel2 In /rinci/le software co1/anies 1ay outsource all the acti*ities associated with recruiting and running the channel to a s/eciali=ed third /arty4 ut there are reasons why that or3s etter in theory than in /ractice and I ha*e a discussion of these differences etween theory and /ractice in cha/ter ,2 he Ale6ander $sterwalder usiness 1odel tool gi*es us the fra1ewor3 to understand and 1anage the inde/endent channel /artner a//roach4 ut the indirect channel 1odel is always 1ore co1/licated to 1anage than the direct 1odel2 I ha*e included a 1ore detailed re*iew of the usiness 1odel and the en*iron1ent in A//endi6 B2 If you are not fa1iliar ith the usiness 1odel fra1ewor3 in a software industry conte6t4 then I suggest you read A//endi6 B efore you continue with the rest of the oo32 Let 1e conclude this cha/ter y )uoting 1y friend Per Steen Pedersen K If you ha*e enough 1oneyK go direct If you ha*e enough ti1eK go indirect It is a gross si1/lification4 ecause there are 1any 1ore /ara1eters to consider4 ut it stresses the fact that the indirect channel a//roach is "$T a fast route to 1ar3et4 ut if we ha*e the /atience4 then it can wor3 wonders for us2
C!APTE% O (!E" T$ TA>E A C!A""EL %$E T!E C!A""EL %$
Before , there were not 1any co11ercial transactions ta3ing /lace in the software industry without so1e degree of hu1an interaction2 The in*ention of the &acPC created a 1ar3et for shrin30wra//ed software that we could uy off the shel*es in co1/uter stores2 !owe*er4 getting our software to the shel*es of these stores was still an e6/ensi*e and cu1erso1e /rocess for us software *endors2 (hile consu1ers 1ade their way to the stores to uy software4 selling software to usinesses was always a No in*ol*ing sales/eo/le 1a3ing on0site *isits4 de1os4 /ro/osals and so on2 The Internet has changed e*erything2
T$
The Internet has enaled new usiness 1odels that the world hadnWt seen efore2 The usiness 1odel uilding loc3s that ha*e changed 1ost are /roaly The :alue Pro/ositions4 The Channel and The Custo1er %elationshi/s2 In this oo3 we will tal3 aout touch le*els in the usiness 1odelWs Channel and Custo1er %elationshi/s and I will distinguish etween H le*els of custo1er touch 2 Low Dor no Touch +
The "o Touch usiness 1odel is characteri=ed y the situation where custo1ers find us and /urchase online through /rocesses that we ha*e defined and 3ee/ fine0tuning2 "o hu1an and indi*idual interaction with custo1ers is re)uired to dri*e and scale the usiness2 Low Touch usiness 1odels are characteri=ed y situations where we 1ay need hu1an interaction in so1e of our custo1er ac)uisition touch0/oints4 ut we do not need an in the field o/erating sales force2 The a*erage sales cycles are ty/ically *ery short H
in "o or Low Touch usiness 1odels2 &ediu1 Touch In this situation we need an in the field o/erating sales force4 ut the a*erage sales cycles are shorter than + 1onths2 !igh Touch In this situation we need an in the field o/erating sales force4 and the a*erage sales cycles are longer than + 1onths2
!ow do these touch le*els affect our choice of channelR
?igure K Guidelines for when it 1a3es sense to ta3e a direct go0to01ar3et a//roach and for when it 1a3es sense to ta3e an indirect go0to01ar3et a//roach2
"$ $% L$( T$
(hen deal si=es are s1all and the functionality of the software is easy to understand then selling directly though the Internet 1ay e the 1ost /roducti*e scalaility o/tion a*ailale to a software co1/any2 !owe*er4 this o/tion is only /ossile if there is an e6isting or *ery latent de1and in the 1ar3et and the /otential custo1ers can easily find us2
In order to run a "o Touch usiness 1odel we 1ust e ale to answer /ositi*ely these four )uestionsK Are there already a sufficient nu1er of custo1ers acti*ely searching for solutions that our software co*ersR Can we generate enough O traffic to our we site where we can su//ort the custo1ers /urchase decisionR Can we /ro*ide custo1ers with a 8ris3 free 5 way to try our softwareR (ill custo1ers 1a3e /urchase decisions without any need for indi*idual su//ortR Can we 3ee/ and grow our custo1ersR he s1aller and less ris3y the /urchase decision eco1es the 1ore li3ely it is that we can 1a3e a 8"o Touch5 usiness 1odel wor32 &a3ing software a*ailale as a ser*ice has dra1atically i1/ro*ed the o/tions for designing 8"o Touch5 ased usiness 1odels2 (hen we can generate 8enough5 traffic to our we sites4 ut suffer fro1 low con*ersion rates then we 1ay consider offering e1ail4 chat or other indi*idual con*ersations with our /otential custo1ers2 (ith enough inound traffic there is roo1 for e6/eri1entation and o/ti1i=ation of the con*ersion rates2 &a3ing 8"o Touch5 usiness 1odels wor3 is a 1ar3eting and 8growth hac3ing Q
5 challenge and lea*ing this challenge to inde/endent channel /artners is guaranteed to fail2 (hen we cannot dri*e enough organic F
inound traffic to our we site4 when /aid0for traffic is too e6/ensi*e and the a*erage custo1er life0ti1e *alue can Nustify the effort4 then our ne6t o/tion is ty/ically outound telesales2 (hen we can find4 win4 1a3e4 3ee/ and grow ha//y custo1ers through outound telesales we still 1ay e ale to 3ee/ costs down to a*oid ha*ing to recruit and 1aintain an in the field sales force as we scale our 1ar3et reach2 If we are in a 1ar3et where the a*erage deal si=e is s1all and the sales cycle corres/ondingly short4 direct outound telesales 1ay e a feasile scalaility o/tion2 (hen our solution allows a free trytest *ersion that only re)uires little custo1er engage1ent4 then the outound telesales a//roach can e *ery /roducti*e2 !owe*er4 telesales is always a tough No that co1es with a lot of reNection2 It ta3es a certain /ersonality character to thri*e and succeed in this en*iron1ent and the e1/loyee churn rates in outound call centers are *ery high2 Building and running an effecti*e outound telesales a//roach also re)uires highly s/eciali=ed leadershi/ and 1anage1ent resources2 "o and Low Touch usiness 1odels seldo1 need inde/endent channel /artners to scale2 Co1/anies with such usiness 1odels are etter off a//lying a direct a//roach where they can fine0tune the lead generation and con*ersion /rocesses ith full control o*er resources and acti*ities2 &E#I<& T$
As deal si=es grow so does the co1/le6ity of the custo1ersW /urchasing /rocesses2 (hen the /rice tag grows and there is also a need for s/ecific functionality4 custo1i=ation and i1/le1entation ser*ices to 1a3e our /roduct wor34 then inti1acy and trust eco1e i1/ortant to our custo1ersW decision01a3ing criteria2 The sales /rocess of such Le*el +0H
solutions re)uires an in the field sales ca/aility while understanding and res/onding to s/ecific custo1er re)uire1ents eco1es *ital in dri*ing the sales /rocesses to successful co1/letion a*oiding the e6/ensi*e 8sil*er and ron=e 1edals 25 (ith increasing deal si=es and custo1i=ed solutions co1e increasing 1argins and the o//ortunity of sharing this 1argin with inde/endent channel /artners eco1es a *iale o//ortunity2 (e are now 1o*ing into the =one where the conditions and o//ortunities for scaling our 1ar3et /enetration efforts fa*or a usiness 1odel using inde/endent channel /artners with s/ecific do1ain 3nowledge4 estalished c usto1er relationshi/s4 au6iliary ser*ice ca/ailities and in the field sales forces2 This =one is also where4 traditionally4 channel /artners are already o/erating and thus are a*ailale for integrating our *alue /ro/osition into their /ortfolio2 As long as there is a certain deal flow and the a*erage sales cycles do not e6ceed + 1onths4 then a networ3 of inde/endent channel /artners 1ay e the est way to grow our 1ar3et share and eco1e 1ar3et leaders2 !IG! T$
&o*ing u/ 1ar3et4 where deals eco1e e*en igger4 ut also fewer4 1a3es the /endulu1 swing ac3 in fa*or of the direct channel a//roach2 (ith highly co1/le6 /urchase situations and only a few deals a year the inde/endent channel /artner a//roach is no longer a feasile o/tion for e6tending our 1ar3et reach2 The learning cur*e for new /artners eco1es /rohiiti*ely long and s/reading a few annual deals o*er se*eral /artners s/oils the ad*antages of the econo1y of scale o//ortunities for all the /artners2
In the !igh Touch =one we will 1eet the so0called syste1s integrators4 who 1a3e a li*ing off hel/ing large custo1ers with IT i1/le1entation /roNects2 If we are successful the syste1s integrators will e interested in the ser*ice re*enue o//ortunities associated with our /roducts and we 1ay choose to wor3 with the14 e6/anding our deli*ery ca/acity2
fro1 underta3ing direct third /arty /roduct sales acti*ities and it is therefore i1/ossile to sign the1 u/ as genuine channel /artners2 They are also dri*en y e6tre1e custo1er inti1acy *alue /ro/ositions and are therefore seldo1 geared for the re/etiti*e /roduct sales No2 Scaling our 1ar3et reach through inde/endent channel /artners is a feasile necessity in the &ediu1 Touch =one4 where there is a sustantial deal flow4 where the a*erage sales cycle is not longer than + 1onths and where indi*idual deals re)uire au6iliary ser*ices gi*ing the /artner 1argins fro1 other sources than Nust our /roduct2 The 1ore *alue add the channel /artners can /ro*ide the etter the /roailities for 1a3ing resellers successful4 1a3ing the1 stay loyal and hel/ing scale our 1ar3et co*erage2
C!APTE% T!E C!A"EL PA%T"E% P%$G%A&
Building an indirect channel essentially re)uires the de*elo/1ent of three asic fra1ewor3sK n ideal /artner /rofile channel /artner agree1ent channel /artner /rogra1 he ideal /artner /rofile is discussed in cha/ter Q while the channel /artner agree1ent and /rogra1 are discussed in t his cha/ter2 his cha/ter assu1es that we are in the Le*el Early &ode stage of uilding our channel and therefore do not o/erate and negotiate fro1 a /osition of /ower *is0^0*is our /otential channel /artners2 In this stage we need the channel /artners 1uch 1ore than they need us2 This cha/ter also assu1es that we ha*e a so1ewhat strategic and 1ission critical /roduct with a 1ediu1 touch usiness 1odel re)uiring an in the field sales force that can na*igate the /urchase /rocess of the /otential custo1ers2 T!E B
The Channel Partner Agree1ent DCPA is the legal docu1ent that we as3 the channel /artners to sign when we ha*e agreed to co11ence the usiness relationshi/2 (hen we decide to change the CPA we do not want an indi*idual discussion with our hundreds or thousands of channel /artners2 The CPA is therefore a docu1ent that we want to 3ee/ identical H
for all channel /artners and it is a docu1ent that we do not want to change *ery often2 The CPA often a//ears as a 8declaration of war5 ecause it is written y our lawyers and first and fore1ost has the oNecti*e of /rotecting our interests and ensuring that we always co1/ly with the local legislation2 $ur channel /artners always ha*e the /rerogati*e of sto//ing the usiness with us fro1 one day to the ne6t4 while we ha*e an oligation to deli*er and su//ort the1 within a certain ter1ination /eriod and therefore we need to /rotect our rights2 (e /refer to 3ee/ the CPA as short as /ossile and only co*er those issues that are really critical for /rotecting our usiness and IP% O
4 to ensure that we are law aiding and therefore we need to gi*e the lawyers a ig say2 The CPA is an i1/ortant4 ut not *ery interesting4 docu1ent2 As soon as it has een signed we donWt use it unless there is a se*ere conflict2 !owe*er4 I reco11end that co1/anies in early and growth 1ode
3ee/ the CPA si1/le and easy to understand2 All the ig software co1/anies ha*e CPAs that are co1/rehensi*e and co1/licated 8declarations of war5 and we 1ight as well ta3e ad*antage of our si=e and agility to use the CPA as a differentiation /ara1eter /ro*ing that we are 1uch easier to do usiness with2 I need to stress that doing usiness through inde/endent channel /artners is an area regulated y law in 1ost countries and we therefore 1ust co1/ly with the local legislation2 The oNecti*es of such legislation is to ensure that channel /artners are treated e)ually and fairly4 that we co1/ly with consu1er /rotection and other usiness regulations4 that we /ay our ta6es and any other go*ern1ent fees and that our acti*ities are not ha1/ering free co1/etition2 sa1/le Channel Partner Agree1ent is included in A//endi6 C2 T!E $BECTI:E $? T!E C!A""EL PA%T"E% P%$G%A&
The ter1s and conditions associated with our channel /artner relationshi/s are collecti*ely 3nown as the channel /artner rogra12 The oNecti*e of the channel /artner /rogra1 is to 1a3e it attracti*e and easy to do usiness with us4 enaling us to recruit and 1anage /artners to co*er the full /otential of our /roduct and achie*e our leading 1ar3et /osition2 The channel /artner /rogra1 shall su//ort the three stages of our relationshi/ with the channel /artnersK
?igure ,K The three stages of channel /artner de*elo/1ent2
The channel /artner /rogra1 1ust 1oti*ate /otential /artners into tal3ing to us and e*entually signing u/ to include our /roduct in their custo1er *alue /ro/osition2 It should 1oti*ate the channel /artners to in*est in the ra1/0u/ /hase4 showing /atience and /ersistence o*erco1ing the learning cur*e and their initial lac3 of custo1er references2 ?inally the /rogra1 should 1oti*ate the channel /artners to 3ee/ growing their usiness /ro*iding us with increasing re*enue4 and therey contriute to uilding a solid /osition *is0^0*is our co1/etitors in the industry2 S
?unda1entally the /artner /rogra1 1ust e designed to su//ort /recisely those acti*ities that we as3 our channel /artners to assu1e res/onsiility for2
?igure K E6a1/les of the ste/s and acti*ities re)uired to su//ort a custo1er ac)uisition /rocess that we 1ay as3 our inde/endent channel /artners to assu1e res/onsiility for2 Please see A//endi6 A for an enlarged *ersion of this illustration2
I strongly reco11end that we de*elo/ our own 8est /ractice custo1er ac)uisition /rocess5 efore we design our channel /artner /rogra1 as each ele1ent of the /rogra1 should su//ort a ste/ in this /rocess2 $ur channel /artner /rogra1 is the default /ath fro1 getting started to achie*ing return on the in*est1ent with our *alue /ro/osition and running a /rofitale usiness 8thereafter25 It should e fair and alanced4 re)uiring in*est1ents and focus fro1 us and fro1 our channel /artners4 otherwise it will not fly2 $ur channel /artner /rogra1 is not su//osed to e a free lunch where the /artners can ser*e the1sel*es as they /lease ithout any financial i1/lications2 !owe*er we should always 0 and with current technology it is also feasile to 0 deli*er as 1any of the ser*ices as /ossile in for1ats associated with the lowest 1arginal cost Q
/ossile2 The funda1ental /rinci/le is to deli*er high *alue that the channel /artners 1ust /ay to recei*e and then find ways to deli*er this *alue as ine6/ensi*ely as /ossile2 Thus our channel /artner /rogra1 shouldnWt e a /rofit center4 ut it shouldnWt e a loss center either2 T!E C!A""EL PA%T"E% P%$G%A& AS A %EC%
In the recruit1ent /rocess we will discuss how to get the usiness off the ground with the /otential channel /artners and our channel /artner /rogra1 should /ro*ide 1ost of the answers to this challenge2 The /otential channel /artners will
e6/ect us to ha*e a /lan and a /rogra1 and that we are ale to answer the funda1ental )uestions related to our /artner *alue /ro/osition4 including what it will ta3e to win the first custo1ers and secure a steady flow of usiness2 The /otential channel /artner 1ay ha*e her own ideas aout what should e done4 ut 1ore often than not those ideas 1ay collide with ours2 So1eti1es such differences are ased on genuine and factual issues4 ut 1y e6/erience is that they are *ery often ased on the /otential channel /artnerWs atte1/t to 1ini1i=e her u/0front in*est1ents F
4 /ushing the initiati*e4 in*est1ent and ris3 to us2 The ra1/0u/ ele1ents of the channel /artner /rogra1 1ust clearly s/ell out what each /arty 1ust ring to the /artnershi/ and also how the ill is s/lit2 The channel /artner /rogra1 1ust e docu1ented in a /resentation for1at that we use for discussing the usiness o//ortunity with our /otential /artners and in a for1at that we can lea*e ehind for their re*iew and consideration2 &any channel /artners will e6/ect us to 1a3e u/0front in*est1ents in their usinesses without any other co11it1ents than 8est effort5 in return2 (e will ha*e to 1anage such e6/ectations and 1a3e the1 focus on the long ter1 *alue of the relationshi/ rather than the short ter1 in*est1ents re)uired2 This is 1ore difficult and re)uires 1ore sales1anshi/ in the early stages of channel de*elo/1ent where we do not ha*e any4 or only *ery few success stories to share4 ut as we 1a3e /artners successful the resistance will wear off and our /ro1ises for the future eco1e 1ore trustworthy2 ST%ATEG; ($%>S!$P
If we are in a /osition where we can sign u/ 1any channel /artners in a short ti1e4 then we should do so and wait and see who /erfor1s well2 (e can then in*est our resources in the est /erfor1ing /artners2 I will discuss this o/tion in 1ore detail in cha/ter Q2 (hen we do not ha*e any4 or only few channel /artners and the ti1e and effort it ta3es to recruit new /artners is sustantial4 then we need the1 all to deli*er certain le*els of re*enue2 In this situation I reco11end insisting that the /artnerWs 1anage1ent tea1 Noin a strategy align1ent wor3sho/ defining the oNecti*es and for1ulating a /lan for 1eeting these oNecti*es including the definition of a few >PIs
ensuring that we can 1onitor /rogress and swiftly ta3e correcti*e actions 2 The strategy wor3sho/ should use an insight and a 1anage1ent align1ent tool such as :aluePartner ,
and the Ale6ander $sterwalder usiness 1odel and *alue /ro/osition can*as
4 which are si1/le and well0docu1ented fra1ewor3s ensuring that we share the sa1e ter1inology4 s/ea3 the sa1e language and use a co11on usiness de*elo/1ent 1ethodology2 (e should offer the for1at for and facilitate the or3sho/4 including /ro*iding a successful /artner ench1ar3 scenario to which we can refer4 to hel/ our /otential channel /artner understand the usiness o//ortunity and corres/onding re)uire1ents with our /roduct2 #e/ending on the co1/le6ity of our *alue /ro/osition we should allocate 0H days to the 1anage1ent wor3sho/ including an initial training session2 This will /ro*ide the attendees with a rief o*er*iew of the *alue /ro/osition4 the ideal custo1er /rofile4 the usiness 1odel and the ty/ical custo1er ac)uisition /rocess ensuring that we all understand the ter1inology and 1ethodology used2 I reco11end that the wor3sho/ ta3e /lace close to the channel /artnerWs /re1ises4 allowing as 1any of her staff 1e1ers as /ossile to attend2 The /artner /ro*ides the *enue for the strategy or3sho/ and assigns 3ey staff 1e1ers to attend the wor3sho/ and we /ro*ide the for1at and the facilitators while a channel /artner re/resentati*e should docu1ent the findings and conclusions2 It is reco11ended that this wor3sho/ e run efore signing the channel /artner agree1ent2 If it turns out that we cannot agree on the funda1ental strategic issues then it is *ery unli3ely that the /artnershi/ will wor32 Should we charge for the wor3sho/R I ha*e a funda1ental /rinci/le that says that the *alue of anything is e6/ressed y the /rice the custo1er is /re/ared to /ay4 1eaning that when we are not /re/ared to /ay for so1ething then it is ecause it has less *alue for us co1/ared to our other o/tions2 !owe*er4 in the early channel de*elo/1ent stage where we need the channel /artners 1ore than they need us4 the 1anage1ent wor3sho/ is the in*est1ent we 1ust 1a3e in e6/loring the usiness o//ortunity2 The channel /artner will in*est her ti1e and /ay for the /re1ises4 food and acco11odation and we will /ay our own e6/enses2 As the /ower alance shifts and /otential channel /artners start 3noc3ing on our door then we can reconsider the for1at and if we charge2 T!E PA%T"E% PL
The iggest challenge when recruiting inde/endent channel /artners is to ra1/ u/ her organi=ation and get the first deals
deli*ered to ha//y custo1ers2 %a1/ing u/ re)uires allocating /eo/le and 1oney to the /roNect and therefore a 3ey result of the strategy wor3sho/ is the discussion and de*elo/1ent of the channel /artnerWs PL +
for the usiness with our /roduct2 The PL is the result of how we organi=e and dri*e the other F ele1ents of the usiness 1odel2 (e 1ay set oNecti*es for what the PL should e in a certain future /eriod4 ut we can only i1/act the PL through the other F uilding loc3s2 nor1al high le*el PL will loo3 li3e thisK
?igure +K The Partner PL illustrates the cost4 gross /rofit and net /rofit strea1s associated with the 8/artnershi/25 All artnershi/s re)uire an initial in*est1ent and ha*e a learning cur*e2 %ule of thu1K The larger the future rewards are the 1ore in*est1ent and effort is re)uired u/ front2 Behind the PL is a usiness /lan s/elling out what should e done when and y who12
The issues we will discuss in the 1anage1ent wor3sho/ related to the PL areK (hat usiness /otential do we ha*e in a H0 year /ers/ecti*eR (hat will we reco11end that the channel /artner doesR !ow will we hel/ the channel /artner to eco1e successfulR (hat are the critical success factorsR (hat is the 8ti1e to first re*enueR5 (hat is the 8ti1e to /rofitR5 !ow 1uch 1ust we in*est now to ootstra/ the usinessR !ow 1uch cash do these in*est1ents re)uireR Inde/endent channel /artners are e6tre1ely sensiti*e to the i1/act on their PL and in general they are 1uch 1ore reluctant to 1a3e in*est1ents than software *endors are2 Software co1/anies are used to usiness 1odels re)uiring u/front in*est1ent for /roduct de*elo/1ent with /ayac3 fro1 license fees or suscri/tions with *ery high 1argin rates2 Inde/endent channel /artners are /roNect dri*en ser*ice /ro*iders with /eo/le on the ench and with s1aller 1argin rates2 &a3ing an in*est1ent in a new usiness *entures is 1uch 1ore difficult for the a*erage inde/endent channel /artner than it is for the software *endor2 o hel/ our /otential channel /artners re*iew the i1/act of uilding a usiness with our /roducts we 1ust rea3 down the PL in 1ore detail and 1a3e sure they are /re/ared to 1a3e the in*est1ents re)uired otherwise we are all Nust
wasting our ti1e2 I discuss the channel /artner PL in 1ore detail in A//endi6 #2 CE%TI?ICATI$"
As we start uilding our channel /artner /rogra1 and recruit the first channel /artners we will ty/ically de*elo/ our training /rogra1s first and then our certification /rogra1 1uch later2 I strongly reco11end re*ersing the order and start ith defining the certification re)uire1ents first and then de*elo/ing the training /rogra1 ne6t2 !a*ing the learning oNecti*es defined first 0 assu1ing a certain entry0le*el 3nowledge 0 our training /rogra1 will e 1ore logical and easier to 8sell25 It 1o*es the focus away fro1 the training itself and to the le*el of s3ills and co1/etencies re)uired to 1anage our /roducts /rofessionally2 $ur training /rogra1 is one way of ac)uiring the s3ills4 ut the channel /artners should always e free to ac)uire these s3ills through any other 1eans2 By starting with the certification re)uire1ents first we a*oid the tedious discussion with the channel /artners o*er training2 If we /ush training4 then the channel /artners will clai1 that they already ha*e those s3ills or that we should train the1 free of charge2 he certification itself should e 1anaged y an inde/endent organi=ation a*oiding any /otential sus/icion that we are twea3ing the re)uire1ents ased on /ersonal fa*ors and /references2 A certificate awarded y a recogni=ed inde/endent organi=ation will enNoy res/ect fro1 all the /layers in the industry and hel/ su//ort our rand *alue2 T%AI"I"G
E*en though our inde/endent channel /artners should e free to ac)uire the s3ills re)uired for certification where they /lease4 we 1ust offer a training /rogra1 for all the roles re)uired to 1aster and uild a usiness ased on our /roduct2 As 1entioned efore we need a condensed training /ac3age to e deli*ered as /art of our channel /artner 1anage1ent wor3sho/2 This initial training co1/onent e6/lains the usiness 1odel and how the channel /artners fit into finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers2 After the 1anage1ent wor3sho/ we 1ust 1a3e a training /rogra1 H
a*ailale for 1ar3eting4 sales and /roduct 1anage1ent staff so they can launch the /roduct and start the 1ar3eting and sales acti*ities2 Then we need a training /rogra1 directed at the technical /re0sales /eo/le and finally a /rogra1 directed at the i1/le1entation and /ost0sales su//ort /eo/le2 s 1uch of the training as /ossile should e deli*ered in an e0learning for1at ensuring consistent )uality4 acco11odating differences in entry le*el s3ills as well as 3ee/ing the cost of the training4 including e6/enses associated with tra*el and acco11odation4 at a 1ini1u12 The co1/le6ity of the /roduct andor the o/erational en*iron1ent 1ay re)uire other training for1ats with traditional classes and instructors2 The training should e deli*ered on ter1s and conditions encouraging third /arties to enter this usiness and free u/ our resources for other /ur/oses2 As soon as we ha*e a certain *olu1e of such acti*ities we 1ay /roacti*ely engage and certify third /arty training co1/anies to ta3e o*er our oligations enaling us to further scale our usiness2
&A%>ETI"G A"# SALES I"CE"TI:ES A"# %EP$%TI"G
Ensuring that the channel /artners actually allocates ade)uate resources in getting our /roduct in front of new custo1ers O
always /ro*es to e a 1aNor challenge2 %eferring to the custo1er ac)uisition /rocess descried in figure ao*e we need to ha*e /rogra1s in /lace to sti1ulate and su//ort each of the ste/s2 This section on 1ar3eting and sales incenti*es will discuss the fi*e 1ain ste/s in the custo1er ac)uisition and 1anage1ent /rocessK ?ind (in &a3e >ee/ Grow
?igure HK Ty/ical sales funnel with 1ar3eting acti*ities for creating awareness4 leads and sales /ros/ects for de*elo/ing and closing )ualified o//ortunities2
Building and 1anaging a /i/eline of usiness o//ortunities will always re)uire a se)uential series of in*est1ents and acti*ities as signed custo1er contracts unfortunately do not dro/ out of the s3y and land on our des3s2 Situations where we can short cut the AI#A
/rocess and use e6isting connections to head directly for the closing /hase are *ery rare and thus not a for1at that we can a//ly for scaling our usiness to 1ar3et leadershi/2 ?I"#
!ow do custo1ers4 that need what we ha*e to offer4 find our channel /artners and usR !ow do our channel /artners and e find custo1ers that need what we ha*e to offerR In the early days of 1ar3et /enetration where we enNoy little rand recognition in the 1ar3et and ha*e to /ush hard to generate a flow of o//ortunities we 1ust ta3e charge and sti1ulate the lead generation acti*ities for and with our
channel /artners2 Pushing the res/onsiility for uilding our rand and c reating awareness with the first channel /artners that we recruit is ris3y4 will not scale and 1ay /ro*o3e a re)uest for and endless discussions aout e6clusi*ity Q
2 There is no one0si=e0fits0all a//roach for uilding rand awareness and generating leads4 ut I strongly reco11end ha*ing a /rogra1 and a /lan in /lace that we can ada/t to the s/ecific re)uire1ents of each country or 1ar3et we enter2 I often 1eet software co1/any e6ecuti*es that are reluctant to in*est in traditional F
1ar3eting /ro1otion acti*ities and fail to understand how to engage with their target custo1er audience through the e and social 1edia /latfor1s2 &ost of these co1/anies rely entirely on the ho/e of uilding a 1ar3et /resence through the estalished custo1er relationshi/s of their inde/endent channel /artners2 This a//roach should certainly e /ursued as well4 ut if we do nothing else than I can guarantee that our usiness will not scale and lead to 1ar3et leadershi/2 (e will ha*e to wor3 to find the 1i6 of traditional4 we and social 1edia 1ar3eting acti*ities that engage effecti*ely with our /otential custo1ers2 A *ast 1aNority of consu1ers and usiness uyers chec3 their o/tions on the Internet efore reaching out to4 or acce/ting calls fro14 /otential su//liers2 ?ailing to show u/ on the radar of our 3ey target audiences is disastrous ecause it is e)ual to not e6isting2 "o one can do usiness with us if they do not 3now that we e6ist2 s this oo3 focuses e6clusi*ely on B+B Le*el +0H usiness 1odels I thin3 it is fair to stress that the *ast 1aNority of the /eo/le in our target 1ar3et seg1ents are actually listed on the Lin3edIn social 1edia /latfor12 By using the ad*anced search function on Lin3edIn we can drill down to identify co1/anies and indi*iduals that we would li3e to get in touch ith2 "e*er efore in the history of 1an3ind ha*e we had this le*el of trans/arency4 yet it see1s that only few software co1/anies understand how to use this resource for engaging with their /otential custo1ers2 Lin3edIn is not the only /lace where we can engage with /otential custo1ers4 ut it is now the /ri1ary source of infor1ation on /rofessional indi*iduals including our /otential /artners and our /otential custo1ers2 An old saying states that 8sales is 1ar3eting4 ut 1ar3eting /hone and call a 1ar3eting is not sales5 1eaning that if I /ic3 u/ the /hone /otential custo1er then she will 3now aout 1e and 1y co1/any when the con*ersation ends4 ut seeing an ad4 reading a log /ost or *iewing a *ideo fro1 1y co1/any 1ay not 1a3e her call 1e initiating a sales /rocess2 That is o*iously true4 leading a lot of /eo/le to the conclusion that we can sa*e the 1ar3eting udget and rely on our sales /eo/le calling /otential custo1ers2 The reason not all co1/anies in the world rely on only ha*ing ar1ies of sales /eo/le calling /otential custo1ers is that this a//roach is *ery4 *ery e6/ensi*e es/ecially when we use it for early 1ode scaling2 A 1i6 of traditional4 we and social 1edia 1ar3eting acti*ities and an acti*e sales force focusing on de*elo/ing the 1ature o//ortunities are re)uired to scale our usiness and grow faster than our co1/etitors2 It is eyond the sco/e of this oo3 to e6/lain how to use traditional4 we and social 1edia 1ar3eting channels to engage with our /otential custo1ers4 and if you are uncertain of how to do it I strongly reco11end that you engage so1eone who can hel/ you2 Being ignorant of the 1ar3eting disci/line is li3e sailing a shi/ without a 1a/4 co1/ass4 radio or GPS2 ;ou can sail4 ut it is unli3ely that you will e*er find your destination efore you run out of fuel and food2 I ha*e included a rief and introductory discussion on the use of the we and social 1edia in a /artner channel conte6t in A//endi6 E2 (I"
(hen we ha*e a steady flow of leads then we can start to de*elo/ the1 and 1o*e the1 through the /i/eline with our /artners2 Although our newly recruited channel /artners ha*e certified sales and /re0sales /eo/le they still ha*e no /ractical e6/erience wor3ing with our *alue /ro/osition /ro/osition in a real0life real0life sales situation2 To e on the safe side we should should 1a3e resources a*ailale in coaching and su//orting the channel /artners through the first cou/le of deals a//lying the sales tools we ha*e a*ailale2 s illustrated in figure our /otential custo1ers are ty/ically following a /urchase /rocess to assess the /ro/osals fro1 the *arious *endors and will select the one offering the est o*erall *alue /ro/osition2 E*en in situations where we ha*e acti*ated the need and there are no co1/etitors our /otential custo1er will still set u/ a /rocess *erifying that the usiness case associated with ac)uiring our solution is co1/etiti*e co1/ared to the other in*est1ent o//ortunities a*ailale2 Although these /urchase /rocesses and the eha*ior of the *arious custo1er re/resentati*es in*ol*ed are not co1/letely identical for all /roNects they are certainly not co1/letely different either2 Thus we ha*e the o//ortunity of de*elo/ing standard docu1ents and other sales tools addressing the 1ar3et challenges we 3now that they are facing and the concerns and the )uestions that the custo1er re/resentati*es will raise at the *arious stages in the /urchase /rocess2 (e can hel/ our channel /artners reduce the effort associated with the indi*idual custo1er /urchase /rocess and thus increase their sales /roducti*ity y offering sales tools that answer ty/ical custo1er c usto1er )uestions2 A//lying this a//roach
across the channel will hel/ reduce custo1er ac)uisition costs4 scale 1ar3et /enetration and grow 1ar3et share2 Channel /artners are *ery different and where so1e are self0su//orting fro1 the start4 others need a hel/ing hand2 (e therefore need to set a /rice tag on our sales su//ort to ensure that our channel /artners consider carefully whether they need us or not2 The /rice tag can ha*e the for1 of a reduced 1argin on our software rather than as3ing for cash /ay1ents4 ensuring that the cash flow i1/lication for the channel /artner is as 1ild as /ossile and that we also share the ris3 of losing the deals2 &A>E
In the Le*el +0H scenario a//lied in this oo3 the custo1er *alue /ro/osition around our /roducts usually includes a series of au6iliary ser*ices and co1/le1entary /roducts2 So that we can use the custo1er as a reference case and /ro*ider of testi1onials we need to ensure that the channel /artners can deli*er the co1ination of /roducts and ser*ices that 1eet or e6ceed the sco/e of the custo1erWs /roNect2 ?ailing to do so will hurt the /artner first and 1aye us ne6t2 If our /roducts are deli*ered in a /roNect conte6t we need to ensure that the channel /artners ha*e the s3ills re)uired to define4 1anage and deli*er successfully on the sco/e and that the standard /roNect 1anage1ent a//roach ties the access to our /roducts to the channel /artnerWs e1/loy1ent of certified resources2 Initially this will often lead to 1any discussions as we are facing the chic3enegg dile11a where the channel /artners 1ay e reluctant to in*est in the resources until they ha*e fir1 /roNects and they ha*e a hard ti1e winning and deli*ering a /roNect until they ha*e those resources2 $ften the channel /artners 1ay use freelance resources that are not /er1anently on their own /ayroll and in these situations we ha*e to e fle6ile until the channel has uilt the ca/acity to deli*er successfully with their own resources2 If there is a shortage of certain s3ills in the channel then we 1ay decide to hel/ de*elo/ and 1a3e these resources a*ailale to the channel /artners andor custo1ers until the channel has uilt the ca/acity2 This a//roach 1ay also e re)uired when we launch new 1odules or /roducts addressing seg1ents in the 1ar3ets where our current channel is not o/erating2 As we increase our 1ar3et share we will e6/erience situations where channel ca/acity eco1es the 1ain ottlenec3 to our growth2 ?or /roducts with long learning cur*es we 1ay gain little y recruiting 1ore /artners as they si1/ly 8steal5 the resources fro1 our current channel /artners2 In this situation we need to su//ort the influ6 of resources to the channel fro1 other sources2 Although 1any software co1/anies would consider this a 8ha//y troule5 situation it is not to our enefit that the channel has growth constraints and we need to acti*ely in*est in e6/anding channel ca/acity together with the channel4 such as i1/le1enting recruit1ent and retraining /rogra1s sourcing the resources fro1 other industries and 1ar3ets2 >EEP
As we grow our /artner channel and /ro*ide our custo1ers with a choice of resellers then our 1ain oNecti*e will e in ensuring that we do not lose the custo1ers to another software *endor2 That a custo1er wants to e ser*ed y another channel /artner is of 1inor concern to us other than that we need to 1a3e the transitions as s1ooth and easy as /ossile2 $ur focus is less on the indi*idual custo1er and 1uch 1ore on the 1ar3et facilitating the creation of an eco0syste1 where all our custo1ers are offered additional o//ortunities and added *alue fro1 third /arties2 If we can create an eco0 syste1 around our /roducts we will not only gi*e custo1ers 1ore o/tions and *alue4 ut also /ro*ide our channel /artners with o//ortunities for growing their usiness ased on our /roducts2 Eco0syste1 /roducts carry an enor1ous growth /otential as they offer custo1ers and channel /artners 1ore o/tions and 1ore *alue than self0contained stand0alone /roducts2 G%$(
Growing custo1er lifeti1e *alue is o*iously closely related to what we actually ha*e to offer the custo1er o*er the lifeti1e of the relationshi/2 (e 1ay 1a3e o/tions and 1odules a*ailale that our channel /artners can u/ and cross sell to our custo1ers4 ut the o/ti1al way to increase the CL: for our channel /artners is the eco0syste1 a//roach descried ao*e2 (e 1ay not get a share of all the additional /roducts and ser*ices offered around our /roduct4 ut as our eco0syste1 eco1es 1ore attracti*e to our /otential custo1ers and channel /artners we will attract 1ore of oth and 3ee/ the1 longer2 Eco0 syste1 /roducts are *ery stic3y and enNoy high custo1er and channel /artner retention rates2 (e can do 1uch to encourage the de*elo/1ent of au6iliary /roducts and ser*ices y offering certification and /ro1otion /latfor1s and y ringing our /artners and custo1ers together to for1 usiness relationshi/s2
S
Technical su//ort is hel/ing /artners to hel/ custo1ers use the /roducts they ha*e ac)uired and is ty/ically organi=ed as a se/arate organi=ational unit and cost center2 $rgani=ing and /ro*iding su//ort is e6tre1ely i1/ortant ecause our /roducts often /lay a critical role in the custo1ersW o/eration2 Custo1er and channel /artner satisfaction is closely related to the )uality of our su//ort2 (e can offer technical su//ort through *arious channels such asK A self0ser*ice we /ortal with access to our /roduct docu1entation A 3nowledge dataase with answers to ?re)uently As3ed Vuestions where channel /artners can i11ediately find infor1ation on the 1ost ty/ical /role1 areas A self0ser*ice we /ortal where the channel /artners can initiate a su//ort re)uest E01ail su//ort where channel /artners can send us their )uestions and issues $n0line chat Tele/hone su//ort $n0site su//ort LE:ELS $? S
Technical su//ort is ty/ically di*ided into three le*elsK ?irst line of su//ort is the direct interface with the custo1ers and is ty/ically the res/onsiility of the channel /artner2 This su//ort le*el should e ale to sol*e a//ro6i1ately F] of all custo1er su//ort in)uiries2 Second line of su//ort ta3es care of issues that the first line of su//ort is unale to handle2 The software *endor organi=es the second line of su//ort4 ut 1ay delegate this res/onsiility to a distriutor2 This su//ort le*el should e ale to sol*e a//ro6i1ately ,] of all channel /artner su//ort in)uiries2 Third line of su//ort is /ri1arily ta3ing care of errors or se*ere differences etween the s/ecifications and the docu1entation of the software2 This le*el of su//ort o/erates closely to the %# function of the software *endor and only a s1all fraction of su//ort issues should reach this le*el2 T!E S
$ur su//ort ser*ices 1ust e 1anaged y a dedicated su//ort syste1 ensuring that we 3ee/ trac3 of the indi*idual su//ort case4 enaling all rele*ant staff 1e1ers access to *iew and u/date the case infor1ation and /ro*iding 1anage1ent with 1etrics for follow u/4 escalation and /roducti*ity i1/ro*e1ent2 T!E >"$(LE#GE BASE
Instead of answering the sa1e )uestion o*er and o*er4 /rinci/als sa*e ti1e and 1oney y directing their channel /artners to an online 3nowledge ase efore ha*ing the1 su1it or o/en a tic3et or call su//ort directly2 A 3nowledge ase can also 3ee/ channel /artners u/dated with news4 announce1ents4 release infor1ation4 and /roduct u/dates2 >nowledge ases are co11only used to co1/le1ent a su//ort des32 Si1ilar to an ?AV Dfre)uently as3ed )uestions4 a 3nowledge ase is designed to organi=e and /resent your 1ost co11on technical )uestions or /role1s and an e6/lanation of how to sol*e the12 A 3nowledge ase usually stores trouleshooting infor1ation4 how0to articles4 user 1anuals4 and answers to fre)uently as3ed )uestions2 Ty/ically4 a search engine is used to locate infor1ation in the syste14 or users 1ay rowse through a custo1 classification sche1e2 P%$#
The /roduct 1anage1ent
function is res/onsile for 1a6i1i=ing the *alue of the /roduct o*er its life0ti1e2 The software industry is young with co1/anies do1inated y CT$s that are also founders2 S/litting their role etween %# and /roduct 1anage1ent is no easy tas3 and co1/ared to other industries software co1/anies ha*e een late
introducing for1al /roduct 1anagers2 #eciding to ser*e the 1ar3et through inde/endent channel /artners accentuates the need for strengthening the /roduct 1anage1ent function and introducing dedicated /roduct 1anagers2 (hen 1o*ing in to new 1ar3ets with new and different en*iron1ents the need for for1al and dedicated /roduct 1anagers eco1es e*en 1ore *ital2 (e are a 3ey /artner for our channel /artners and they ha*e a strong need to 3now what we will e offering in the future2 Thus there is a need for 8state1ents of direction45 8road 1a/s5 and 8release /lans5 allowing the channel /artners to align their own usiness and de*elo/1ent /lans with ours2 $ur channel /artners will also su1it an e*er0increasing nu1er of /roduct i1/ro*e1ent suggestions that need to e 1anaged and /rioriti=ed2 Channel /artners will e frustrated if they recei*e no res/onse to these suggestions4 which are often initiated y 1ar3et and custo1er o//ortunities that they co1e across2 (hen /re/aring new *ersions of our /roducts the /roduct 1anage1ent function assu1es res/onsiility for the eta or field testing /rocesses and wor3s directly with 3ey /artners on the integration4 co1/atiility and u/grade issues that need to e resol*ed efore the /roduct is released for launch2 $"G$I"G C!A""EL PA%T"E% &A"AGE&E"T
The /artner /rogra1 will define which ty/e of usiness su//ort our channel /artners are entitled to2 (hen we are in the early 1ode channel de*elo/1ent stage all channel /artners will recei*e close attention2 As we learn which /artners /erfor1 well and which do not we will graduate
the usiness su//ort accordingly2 I will e6/lain how we 1anage the /artner channel in 1ore detail in cha/ter F2
I"CE"TI:ES
Incenti*es /lay an i1/ortant role when running our usiness through inde/endent channel /artners2 (e use incenti*es to 1oti*ate and reward certain eha*iors in our /artner channel4 ut as the industry is constantly changing we can e6/ect to see 1aNor alternations to the ways we encourage and 1oti*ate our channel /artners2 There are three funda1ental reco11endations that I will 1a3e on incenti*esK >ee/ it si1/le and donWt change it too fre)uently2 &anaging incenti*es 1ay consu1e an awful lot of resources and only si1/licity and trans/arency can hel/ 1ini1i=e the ad1inistrati*e o*erheads2 (e 1oti*ate and reward /eo/le4 not co1/anies2 (e need to understand the difference of interest etween the 1anage1ent of the channel /artner and their o/erational staff2 So1eti1es they are identical4 ut often they are not2 $ur channel /artners should not only 1a3e a li*ing fro1 the 1argin associated with selling our /roduct4 ut fro1 running a usiness around our /roduct adding e6tensions and offering au6iliary ser*ices2 P%$#
To attract channel /artners 1any software co1/anies offer higher 1argins than the 1ar3et a*erage2 (hile channel /artners certainly will e6/ress e6cite1ent o*er high 1argins I thin3 it has only a li1ited i1/act on their eha*ior2 There are so 1any other *ariales in the usiness 1odel that the /roduct 1argin often only /lays a 1inor role for the channel /artner4 while on the other hand it often re/resents our only source of re*enue and /rofit2 E*en s1all changes in the 1argin will ha*e a significant i1/act on our /rofitaility as we grow the channel and 1o*e towards 1ar3et leadershi/2 &y reco11endation is to 3ee/ /roduct 1argins as low as /ossile and only /ro*ide higher 1argins against higher le*els of re*enue deli*ered2 !el/ing channel /artners in getting started and cli1ing the learning cur*e is 1uch etter su//orted with other incenti*es such as 8free5 sales and 1ar3eting su//ort co1/ensated y a lower 1argin on the deals2 &o*ing fro1 the /re/aid /er/etual license 1odel to the recurring suscri/tion 1odel the role of 1argins for our channel /artners will ha*e to e re*isited and funda1entally re*ised2 These changes are highlighted and discussed in cha/ter 2 &A%>ETI"G #E:EL$P&E"T ?<"#I"G D&#?
It is nor1al that a certain /ercentage of the /artnerWs re*enue with us is reser*ed for future 1ar3eting acti*es through a &ar3eting #e*elo/1ent ?und D&#?2 These funds are reser*ed for Noint 1ar3eting and /ro1otion acti*ities4 ty/ically on a ,, asis4 and often on acti*ities that we reco11end2 Channel /artners will often try to ha*e the &#? released for co*ering e6/enses that they ha*e anyway and therey 1a3ing a /ositi*e contriution to their 1argin rather than oosting 1ar3eting and sales acti*ities2 (hen we are in the early channel de*elo/1ent stage we will ty/ically delegate &#? allocation to the /artner account 1anagers4 howe*er as we grow the channel we will ha*e to eco1e 1ore /rogra11atic and o*er ti1e the &#? will ty/ically e reser*ed for ca1/aigns that we design and e6ecute and where the channel /artners can choose to /artici/ate2 SALES PE%?$%&A"CE I"CE"TI:E ?<"# DSPI?
SPI?s are acti*ities and incenti*es directed at the channel /artnersW sales /eo/le2 Software *endors are 3nown for organi=ing SPI? days where the staff at 1aNor resellers focus on the *endorWs /roducts and are rewarded for achie*ing arious ty/es of sales oNecti*es2 SPI? funds and acti*ities are 1uch closer to where the action is than the 1ore 1ar3eting oriented &#?2 (hen channel /artners are carrying /roducts that are co1/etiti*e to ours4 SPI? funds and acti*ities can e an e6cellent way of getting 1ore attention fro1 sales and /re0sales /eo/le2 ?<"#E# !EA#S
(hen signing on an i1/ortant channel /artner we 1ay acce/t or e*en /ro/ose /artial or full funding of Dty/ically sales resources ensuring focus and su//orting the channel /artnerWs PL in uilding her usiness with our /roduct2 PLATI"<&4 G$L# A"# SIL:E%
Estalished software co1/anies all ha*e *arious le*els of /artnershi/s with their resellers leading younger software co1/anies to elie*e that they need such a structure4 too2 In the early days of uilding a 1ar3et /osition through
inde/endent channel /artners we should not co1/licate 1atters with such le*els2 (ith only new and few /artners they ill all want to start at the to/ le*el and as we donWt want a /artner channel without any Gold Partners we will tend to agree2 The result will e a channel of Gold Partners only4 which inflates the whole conce/t and lea*es us with the challenge of downgrading the channel /artners as they fail to deli*er to the thresholds2 Start with a si1/le channel /artner structure and then differentiate later as the /artners actually /ro*e to /erfor1 *ery differently2 (e will ha*e to redesign our channel /artner structure and /rogra1 as we grow our /osition in the 1ar3et anyway and introducing channel /artner classes is certainly not the first thing we should do2 B
Growing our usiness is not sti1ulated y 1onetary incenti*es only2 E6changing est usiness /ractices4 ideas for new a//roaches4 /roducts and ser*ices and ringing channel /artners together who can enefit fro1 coo/erating often /lays a 1uch 1ore i1/ortant role than 1argin4 &#? and SPI?2 Sharing infor1ation and reaching out doesnWt co1e easy for 1ost of us as we are all are usy with our own indi*idual daily /riorities2 As the /rinci/al we need to orchestrate these acti*ities4 creating the /latfor1s for the e6changes as well as crafting the content creation and encouraging sharing through the *arious co11unication channels2 (ith the changes currently ta3ing /lace in the software industry usiness de*elo/1ent and collaoration acti*ities su//orting our channel /artners to uild stronger usiness 1odels will e 1uch 1ore i1/ortant than the /roduct focused 1argin4 &#? and SPI? incenti*es of the /ast2 I will discuss this in 1ore detail in cha/ter 2 T!E C!A""EL PA%T"E% P$%TAL
(e cannot run a usiness with inde/endent channel /artners without a considerale a1ount of co11unication and re/orting2 (e therefore need a /latfor1 for co11unicating and collaorating with our channel /artners on a one0to0 1any asis4 ut also on a one0on0one asis concerning usiness /erfor1ance4 s/ecific custo1er infor1ation4 co1/etence certificates4 usiness o//ortunities and usiness ad1inistration in general2 $ur channel /artners will need +OF access to all the ele1ents of our channel /artner /rogra1 as well as access to 1ar3eting4 sales and /roduct infor1ation2 They will need access to u/date their own co1/any /rofile infor1ation on internal and e6ternal we /latfor1s to hel/ the1 gain *isiility in the 1ar3ets as well as within our internal co11unities2 They will need to /lace orders and access and u/date account and custo1er infor1ation and they will need access to our 3nowledge ase and su//ort syste1s for access to our road1a/s and release /lans4 for /roduct s/ecific hel/4 for re/orting ugs4 incon*eniences and /ost suggestions for i1/ro*e1ents2 ust as our custo1ers s/end considerale a1ounts of ti1e on social 1edia so do our /otential and current channel /artners2 I discuss the role of we and social 1edia co11unication with our custo1ers in A//endi6 E4 ut we also ha*e a need for co11unicating and engaging with our /otential and current channel /artners through social 1edia and to enale our channel /artners to co11unicate with each other through social 1edia /latfor1s2 A 1odern channel /artner /ortal 1ust le*erage the /ower of social 1edia and social 1edia /latfor1s as these ha*e de1onstrated a 1uch etter aility to engage with the audience than the 1ore traditional 8intranets25 E1ar3ing on the indirect channel Nourney without a 1odern channel /artner /ortal will constitute a 1aNor scalaility arrier and will /ut a *ery ig )uestion 1ar3 against how serious we actually are with our channel a1itions2 C!A""EL PA%T"E% E:E"TS
Although 1uch can e acco1/lished through the channel /artner /ortal4 *irtual 1eetings and weinars4 we will still ha*e to ring our channel /artners /hysically together at regular inter*als2 Physical e*ents gi*es us the o//ortunity to uild genuine relationshi/s4 create energy4 1oti*ate and generate the feeling of elonging to a ig and war1 fa1ily or an i1/ortant and successful 1o*e1ent that is 1uch igger than the indi*idual /artner herself2 Attending channel /artner e*ents has /ro*en to e a *ery high /riority with the channel /artners oth for usiness and for /ersonal reasons2 In the early 1ode channel de*elo/1ent stage where we ha*e less than a hundred /artners or so we can ring the entire /artner channel together once a year in one /lace4 ut as the channel /artner co11unity grows we will need to s/lit the e*ents according to geogra/hy and No function2 ?or 1ost software co1/anies 1oti*ing the channel /artnersW e6ecuti*es and sales staff will initially ha*e the highest /riority and therefore the first e*ents we organi=e will e ai1ed at this audience2 !owe*er4 and es/ecially for eco0 syste1s o/erators4 we will soon see a need for ringing together the technical staff as well as the de*elo/ers2 he i1/ortance of ringing the /artners together cannot e o*ere1/hasi=ed2 To ensure that we otain 1a6i1u1 i1/act e o*iously also ha*e an i1/ortant No to do when we ha*e all the channel /artners together in one /lace2 (e need to
ins/ire the channel /artner co11unity and recogni=e the 1ost successful /artners2 Introducing and gi*ing awards for outstanding and re1ar3ale /erfor1ance has a tre1endous i1/act on c hannel /artner 1oti*ation4 one that they will suse)uently use for their own /ro1otional /ur/oses4 thus ins/iring other channel /artners to go the e6tra 1ile2 !owe*er4 facilitating the networ3ing o//ortunities for the channel /artners to 1eet each other and for1 usiness relationshi/s is Nust as i1/ortant as our own ins/irational oligations2 Channel /artner collaoration will ring additional *alue to our /roducts and i1/ro*e our co1/etiti*e /osition in the 1ar3et2 &a3ing other /eo/le wor3 in our interest is one of the eight 1aNor ways ,
of uilding strong usiness 1odels so if we ha*e that o//ortunity we should certainly use it to its full /otential +
2
C!APTE% Q
C!A""EL PA%T"E% %EC%
The /rocess re)uired for recruiting channel /artners is *ery si1ilar to the /rocess of recruiting sales re/resentati*es for our co1/any2 ?irst we de*elo/ a /rofile of what we need and then we go loo3ing for candidates2 (ith a long list of /otential candidates we underta3e inter*iews to shortlist the 1ost a//ro/riate4 which we then in*ite to the final selection e*ent2 By the end of the /rocess we negotiate the ter1s and conditions and sign the agree1ent
2 The challenges associated with channel /artner recruit1ent are also identical to the challenges associated with sales staff recruit1ent2 Estalished rands get a solid strea1 of unsolicited a//lications while un3nown rand na1es wonWt get any2 Estalished rands get tons of a//lications when ad*ertising4 un3nown rand na1es get *ery few a//lications4 ut 1ost often they will get none at all2 If we are in the early 1ode channel de*elo/1ent stage4 chances are that we ha*e no other o/tion than getting out there and 8headhunting5 our new channel /artners2 If we ha*e een engaged with headhunting efore then we will 3now that the iggest challenge is not only finding the /otential /rofiles4 ut also con*incing the1 to eco1e candidates for the /osition we ha*e o/en2 This challenge also a//lies to channel /artner recruit1ent and e6/lains why we ha*e to go through the /rocess of defining /artner *alue /ro/ositions and de*elo/ing /artner /rogra1s efore we are ready to e1ar3 on the channel /artner recruit1ent endea*or2 So unless our /otential channel /artners are also acti*ely loo3ing for what we ha*e to offer4 then we 1ust identify the14 initiate the contact and start the /rocess of con*incing the1 to in*est in a usiness relationshi/ with us2 ust as we donWt want to e1/loy sales re/resentati*es that turn out to e /oor /erfor1ers4 we donWt want channel /artners that are /oor /erfor1ers either2 As we grow our /artner channel4 /oor /erfor1ing /artners will affect us less4 ut in the eginning we 1ust focus and use our resources where they will /roduce results and si1/ly signing nu1erous channel /artner agree1ents isnWt a succe ss criteria in itself2
#E?I"I"G T!E I#EAL PA%T"E% P%$?ILE
(hen we recruit sales re/resentati*es for our own co1/any we ty/ically start with de*elo/ing the No descri/tion2 Based on the success criteria for the /osition we will first descrie the No res/onsiilities4 then we will list the /rofessional )ualifications we elie*e are re)uired for /erfor1ing the No and finally we will list the /ersonal )ualifications re)uired for the No as well as those for fitting into the culture of our co1/any2 In the No ad*ert we will also descrie the o//ortunities and enefits we offer the chosen candidates2 In the channel /artner recruit1ent conte6t the No descri/tion is called the ideal /artner /rofile and the o//ortunities and enefits we offer are called the channel /artner /artner /rogra12 The ideal /artner /rofile can e docu1ented according the categories listed in fig2 O
?igure OK The three categories of characteristics used for descriing our ideal /artner /rofile2
#E&$G%AP!IC P%$PE%TIES
#e1ogra/hic /ro/erties are co1/any related and can easily e loo3ed u/ in /ulicly a*ailale dataases or found through si1/le Internet research2 #e1ogra/hic /ro/erties includeK Location Industry ?inancial infor1ation Dre*enue4 /rofit4 alance sheet4 staff etc2 $wnershi/ details (esite Products and ser*ices offered Contact infor1ation S$CI$G%AP!IC P%$PE%TIES
Sociogra/hic /ro/erties are also co1/any related and ty/ically re)uire inter*iewing 3ey staff 1e1ers and include infor1ation such asK :alue /ro/ositions Current installed ase of custo1ers Business focus $rgani=ation
Current strategy and usiness /lans Characteristics of the installed custo1er ase PS;C!$G%AP!IC P%$PE%TIES
Psychogra/hic /ro/erties are /eo/le related and re)uire se*eral in0de/th inter*iews with the channel /artnerWs 1anage1ent tea1 and 3ey tea1 1e1ers and will /ro*ide us with infor1ation such asK E6/erience Business acu1en As/irations and a1itions Co1/any culture and *alues ilities and s3ills he inter*iewees will not list their /sychogra/hic /sychogra/hic characteristics in ullet /oint /oint for1at as indicated ao*e2 So1eone with usiness e6ecuti*e e6/erience 1ust /erfor1 the inter*iews and the *aluation of the characteristics 1ust e ased on the con*ersations held4 the nature of the co11unication and corres/ondence through the negotiation /rocess2 C$&PETIT$%S A"# $
The first issue with using the structured and logical a//roach for defining ideal channel /artner /rofiles is that we often end u/ identifying the channel /artners of our co1/etitors2 That 1ay or 1ay not e an issue de/ending on the s/ecific situation4 ut we 1ay e wasting our ti1e feeding the1 infor1ation that they will channel ac3 to our co1/etitors and use against us in the future2 (e ha*e to li*e with those conse)uences during the /rocess of identifying those that are /re/ared to Noin us4 ut we need to s/ot those that ha*e no genuine intention of considering the o//ortunity that we offer2 The second issue is that we 1ay define a /artner /rofile that no co1/any will actually 1atch4 1eaning that there is no e6isting channel that can ta3e our *alue /ro/osition to the custo1ers2 (hen we do not ha*e any4 or Nust a few /artners then we need to show fle6iility and acce/t that the channel /artner that we recruit 1ay not e a /erfect 1atch for what we would ideally /refer2 The third issue is that we will not find the outliers2 $utliers are those /artners that do not fit our ideal and rational /rofile4 ut ne*ertheless ha*e the leadershi/ /otential /otent ial to grow a usiness ased on our /roducts2 $utliers are al1ost i1/ossile to find4 so we need to 1a3e oursel*es *isile so they can find us2 (hen outliers reach out to us we need to a//ly a 1ore fle6ile a//roach and gi*e the1 the enefit of the dout2 $utliers with leadershi/ s3ills can e really /roducti*e2
T!E C!A""EL PA%T"E% %EC%
?or our core 1ar3ets we will o*iously ha*e declared our a1itions and /recisely stated our usiness oNecti*es2 %elying on rando1 unsolicited inound in)uiries fro1 /otential /artners is seldo1 enough to ensure that we achie*e sufficient /enetration ca/acity and 1ar3et co*erage4 and we therefore ha*e to identify and reach out to /otential /artners in e6actly the sa1e way as headhunters wor3 hand/ic3ing the 1ost )ualified candidates2 In the early stages of uilding our /artner channel I reco11end following this /rocess for do1estic 1ar3et channel
/artner recruit1entK ?igure K The si6 ste/s for recruiting channel /artners in 1ar3ets that we are *ery fa1iliar with2
As indicated ao*e the /rocess of recruiting channel /artners is *ery si1ilar to the /rocess of headhunting sales staff2 !owe*er4 with channel /artner recruit1ent there are always fewer candidates4 it ta3es 1uch longer than finding sales /eo/le4 we are dealing with a tea1 of /eo/le rather than single indi*iduals4 the retention +
rate for channel /artners is 1uch higher than for our own sales staff and we are not offering any co1/ensation /ac3age for the finalists4 ut rather we are as3ing the1 to 1a3e an in*est1ent against a /otential return in the future2 (here headhunting is so1ething we do once in a while and where we ty/ically engage an outside headhunter4 channel /artner recruit1ent is so1ething we do on an ongoing asis and where we 1ust ha*e our own H
resources assigned to /erfor1 the tas32 Based on our ideal /artner /rofile we can identify a long list of /otential channel /artners2 Sources of infor1ation for the long0list are usiness dataases4 the Internet and social 1edia O
2 The long0list should ha*e at least ten ti1es the nu1er of candidates that we /lan on recruiting in any gi*en ti1e fra1e in the area in )uestion2 "ow we /ic3 u/ the /hone and call the /otential channel /artners on the long0list to start the )ualification /rocess2 (e call on the CE$
of the /otential usiness /artners and if there is curiosity on her side we su1it our infor1ation /ac3age2 (e tell her that we will e *isiting in the near future and would li3e her feedac3 soon2 The ste/s 0H e6/lained ao*e4 where the )ualification /rocess starts with the contact followed y e6change of infor1ation4 should e concluded with a introductory 1eeting y the end of which oth /arties ha*e the asis re)uired to decide if they are /re/ared to ta3e the ne6t ste/2 &uch can e achie*ed through e1ail4 S3y/e calls and we 1eetings4 ut the final /re )ualification 1ust ta3e /lace in a /hysical face0to0face 1eeting2 T!E S!$%T0LIST
(e should e6/ect that aout half of the candidates fro1 the long0list will )ualify for the 8long5 short0list and we will ty/ically ha*e to *isit all the candidates on the 8long5 short0list once or twice to end u/ with the 8short5 short0list2 At the /ersonal 1eetings we will introduce our usiness /ro/osal4 including the usiness o//ortunity4 /resent the /artner /rogra1 and discuss our e6/ectations2 The channel /artner will /resent her usiness and her a1itions for the future2 After this 1eeting the /otential channel /artners will ha*e to consider if this o//ortunity is worthwhile /ursuing2 Li3ewise we will ha*e to consider if this usiness /artner has what it ta3es to re/resent our rand and /erfor1 her oligations successfully2 $ur oNecti*e should e to ha*e at least H0O /otential channel /artner candidates that are /re/ared to /artici/ate in an Assess1ent Centre Q
4 where we will /resent our /artner *alue /ro/osition2 The /otential /artners will then /resent how they will organi=e their go0to01ar3et effort and we will discuss if this usiness relationshi/ can wor3 to the 1utual enefit of oth /arties2 he last issue to assess is the 1ost crucial and also the 1ost difficultK The a1itions of the 1anage1ent tea14 their
1oti*ation for in*esting in our /roduct4 their /ersistence and their aility to 1aneu*re and na*igate through the ostacles and difficulties facing any new usiness endea*or2 #rawing a /arallel fro1 1anaging staff we also 3now fro1 e6/erience that when we ha*e to ter1inate so1eoneWs e1/loy1ent due to under0/erfor1ance the reasons are ,,] /ersonal and ,] /rofessional2 The e1/loyee has e6actly the sa1e /rofessional credentials as the day she started4 ut the /ersonal )ualifications were not ade)uate for translating the No acti*ities into a successful /erfor1ance2 It is e6actly the sa1e situation with channel /artners2 (e can chec3 the /otential channel /artnerWs /rofessional credentials4 ut ulti1ately it will e the /ersonal )ualifications of the 1anage1ent tea1 that will deter1ine /erfor1ance2 This /heno1enon is a serious challenge when we are not well /ositioned in the 1ar3et and the only re1edy I can reco11end is to recruit enough /artners to 1a3e the ris3 of under0 /erfor1ance of the indi*idual /artner as s1all as /ossile2 (e will now sign a Letter of Intent DLoI with those /otential channel /artners where we see a good fit and agree on the dates for the e6ecuti*e wor3sho/2 After successful co1/letion of the e6ecuti*e wor3sho/ we are ready to sign the channel /artner agree1ent2 "$"0C$%E &A%>ETS
(e are o*iously not acti*ely /enetrating our non0core 1ar3ets2 "e*ertheless4 as these 1ar3ets are ty/ically also non0 core for 1ost other software co1/anies we will often recei*e unsolicited inound in)uiries fro1 /otential /artners in such 1ar3ets2 Should we ignore these in)uiries or deal with the1R E6/erience shows that 1ost co1/anies choose to deal with such in)uiries2 E6/erience also shows that the outco1e seldo1 Nustifies the resources used2 &y reco11endation is to set u/ a defense /eri1eter and carefully )ualify in)uiries fro1 non0core 1ar3ets or /ass the1 on to so1e of our ca/ale channel /artners until they /ro*e they are )ualified enough for our attention2
T!E C!A"GI"G #;"A&ICS $? C!A""EL PA%T"E% %EC%
As we 1o*e into the growth 1ode of the channel de*elo/1ent stage4 we can change our oNecti*es and si1/lify the recruit1ent /rocess consideraly2 (e will still 1aintain and 1ost li3ely further di*ersify the threshold criteria for eco1ing a channel /artner with oursel*es4 ut as long as newco1ers 1eet these criteria we will sign the1 u/ without the elaorate /rocess of inter*iews4 assess1ent centers4 e6ecuti*e wor3sho/s and LoIs2 Ti1e will then show which of the new channel /artners ha*e growth /otential and we can then allocate 1ore resources to su//ort the12 As we increase our 1ar3et /enetration ca/acity and our 1ar3et share the strea1 of unsolicited inound in)uiries fro1 /otential channel /artners will also increase and we can refocus our outound recruit1ent efforts on filling out those areas in the 1ar3et here we still ha*e too little co*erage2 I"TE%"ATI$"AL C!A""EL PA%T"E% %EC%
International channel /artner recruit1ent ty/ically differs fro1 recruiting in our do1estic 1ar3et ecause of two issuesK #ifferent Business &odel En*iron1ent #ifferent &ar3et Position $ur recruit1ent /rocess therefore has an additional ste/2
?igure QK The se*en ste/s for recruiting channel /artners in unfa1iliar 1ar3ets2
(e will asically always ha*e two ty/es of con*ersations with our /otential channel /artnersK A /roduct related con*ersation A co11ercial related con*ersation
arrange1ents will always turn out to e costly in the long run as we will need to eradicate the14 clearing the way for a /ro/er setu/ that can enale us to ta3e ad*antage of the full /otential of our /roducts2 T!E A:E%AGE %EC%
!ow long should we e6/ect the outound /artner recruit1ent /rocess to ta3eR
?igure FK In the early 1ode channel de*elo/1ent stage the a*erage recruit1ent effort ta3es 1uch longer co1/ared to later stages and is often a Q0 1onth /roNect2
If we are 1o*ing into a new 1ar3et that we 3now nothing or *ery little aout then we should allow a cou/le of 1onths to /erfor1 a 1ar3et assess1ent to hel/ us understand if and how the usiness 1odel en*iron1ent is different fro1 where we currently o/erate2 (e can also decided to gather this insight during the inter*iews with /otential channel /artners4 ut they 1ay ha*e a *ery iased /erce/tion of the situation and with no inde/endent 3nowledge of our own we 1ay ha*e a difficult ti1e filtering /ersonal /erce/tions fro1 reality2 (e also ris3 ha*ing to 8/ull the /lug5 in the 1iddle of the recruit1ent /rocess when we reali=e that this /articular 1ar3et will currently e too tough to crac3 with the resources we ha*e a*ailale2 Conducting the 1ar3et assess1ent first 1ay sa*e us ti1e and effort in the long run and will under all circu1stances 1a3e us loo3 1uch 1ore /rofessional when we ha*e the first con*ersations with /otential channel /artners2 Putting together the long list of /otential resellers in a new territory will ta3e H,0Q, days de/ending on the ty/e of channel /artners that we are loo3ing for2 ?irst inter*iews and the resulting short list should ta3e no 1ore than H, days to /roduce2 #eciding on who to ring to the assess1ent center and 1o*ing to the Letter of Intent stage ta3es anything fro1 0H 1onths4 and getting fro1 the e6ecuti*e wor3sho/ to the signature stage nor1ally ta3es Q, days2 In total we 1ust e6/ect that the channel /artner recruit1ent in a new territory will ta3e Q0 1onths2 The only way we can s/eed u/ the /rocess is y lowering the thresholds and easing the chec3s that we /erfor1 during the recruit1ent /rocess4 ut the /rice we /ay is that there is a 1uch higher /roaility that 1ost of the channel /artners that we sign u/ will not /erfor12 That 1ay e acce/tale if we ha*e the ca/acity to sign u/ 1any channel /artners4 ut doing so in a new territory is difficult to 1anage and we ris3 that in s/reading our resources thinly they will all fail2 ST%ATEGIC C!A""EL PA%T"E% %EC%
There 1ay e /otential channel /artners that will add 1uch 1ore than Nust 1arginal re*enue to our usiness2 Such channel /artners could e recogni=ed rands4 successful with the /roduct of our co1/etitors4 o/erate in a 1ar3et seg1ent where we currently do not ha*e access or so1eone who would dro/ the /roduct of our co1/etitors if they switched to ours2 The ris3 associated with signing u/ strategic /artners is often *ery li1ited4 as they ha*e already de1onstrated that they ha*e the 1anage1ent s3ills and ca/acity to e successful within the do1ain where we o/erate2 It 1a3es good sense to /ursue such /artnershi/s4 ut we need to assign senior channel 1anage1ent resources to the effort2 The 1oti*ation to go with us is as strategic for the1 as it is for us and such decisions ta3e a long ti1e to /re/are2 These decisions are finally 1ade at the e6ecuti*e office4 ased on an assess1ent of the usiness case2 Strategic /artners always 3now the *alue they re/resent to us and we4 o*iously4 1ust e fle6ile if we want to ring such a /otential /artnershi/ to fruition2 !owe*er4 until we are a 1aNor /layer in the 1ar3et there 1ay e situations where a /otential channel /artner is si1/ly too ig for us and we ris3 eing crushed in the relationshi/2 Big co1/anies are /olitical ani1als4 with ureaucracies4 shifting /riorities and /eo/le 1o*ing in and out of /ositions2 Although we 1ay e flattered when co1/anies 1uch igger than ours are interested in us and although the s/readsheet with the usiness case loo3s *ery /ro1ising4 we should not ignore or underesti1ate the ris3 ele1ents2 They are interested in us for a reason and we 1ust /lay the cards to our ad*antage and not e carried away y only loo3ing at the i1/ressi*e rand na1e and the /ro1ising /otential2
C!APTE% F C!A""EL PA%T"E% &A"AGE&E"T
Inde/endent channel /artners do 1anage the1sel*es4 ut not necessarily to our ad*antage and not necessarily with our est interests in 1ind2 To 1a3e sure that we 1eet our oNecti*es and forge the /ath to 1ar3et leadershi/ we 1ust acti*ely 1anage our inde/endent channel /artners2 ll software reseller channels will gra*itate towards the structure illustrated in fig2 elow2
?igure K The ty/ical structure of growth /otential in an estalished /artner channel4 where ] of our /artners will grow y the1sel*es4 ] will grow if hel/ed and ,] has no growth /otential whatsoe*er2
T!E STA%S
A//ro6i1ately ] of our channel /artners will /ossess the aility to grow their usinesses faster than the 1ar3et without our su//ort2 The Stars set their own agenda and dri*e their own growth2 Their leadershi/ is a1itious4 they ha*e old as/irations and they ha*e the 1anage1ent s3ills re)uired to e6ecute their strategies2 $ur No is first and fore1ost to ensure that we are and re1ain an integrated /art of their core *alue /ro/osition and that any ostacles caused y us are re1o*ed as fast as /ossile2 (e should ha*e no a1itions to tell such channel /artners how to run their usinesses4 ut y 1aintaining e6ecuti*e relationshi/s we 1ay e ale to identify ways to grow together2 The 1anage1ent tea1 of a Star ty/e channel /artner need and a//reciate e6ecuti*e le*el in/ut fro1 the software *endor and do not want to 8waste ti1e5 on /eo/le without decision01a3ing /owers2 $ur Partner Account &anagers 1ust e well connected with the to/ e6ecuti*e tea1 of the Stars and use the liaison o//ortunities to uild and strengthen the ties with our own e6ecuti*e 1anage1ent2 The Partner Account &anager 1ust e6/lore all o//ortunities for strategic coo/eration and alliances etween our own co1/any and the Stars 1a3ing sure that the energy and /otential of the Stars fuels the growth of our own co1/any2 There is 1ost li3ely daily co11unication and acti*ities etween the Partner Account &anager and her Stars and there will e at least an annual strategy re*iew and /lanning or3sho/ and 1onthly or )uarterly follow u/ 1eetings2 T!E G%$(T! P$TE"TIAL
A//ro6i1ately ] of our resellers are genuinely a1itious4 ut they lac3 the 1anage1ent s3ills re)uired to grow eyond a certain *olu1e of usiness2 (ith e6ternal assistance they 1ay e ale to release their growth /otential and eco1e Stars2 S/otting channel /artners with growth /otential is i1/ortant4 ut often the signs are sutle and intangile2 They are al1ost always great /roduct /eo/le with wea3 or i11ature usiness 1anage1ent s3ills4 ut with a /ositi*e attitude and a curious 1indset2 To release the /otential we 1ust ha*e a general fra1ewor3 in /lace4 which we can continuously i1/ro*e4 fine0tune and scale4 allowing us to understand the shortco1ings of the indi*idual channel /artnerWs usiness 1odel and to hel/ her grow her usiness around our /roduct as the core co1/onent2 In ensuring that we treat all channel /artners e)ually4 such /rogra1s 1ust e generally a*ailale4 ut we can o*iously define the ad1ission criteria and the /rice tag to ensure that we get the right candidates into the /rogra12 (ithin such a fra1ewor3 our Partner Account &anagers eco1e coaches and 1anage1ent consultants when wor3ing with the channel /artnerWs e6ecuti*e le*el and senior sales /ersons when wor3ing with the channel /artnerWs sales staff in the field2 They will ha*e wee3ly interactions and there will e regular strategy re*iews and /lanning sessions /lus 1onthly follow u/ 1eetings2 ?ra1ewor3s for releasing growth /otential are e6/ensi*eY each /rogra1 1ust run for se*eral years and they will ha*e li1ited i1/act unless the channel /artners are highly 1oti*ated to Noin4 co1/ly with our re)uire1ents and in*est in the effort2 "o usiness de*elo/1ent /rogra1 can guarantee success y laying out a /redefined /ath and although the fra1ewor3 1ay ha*e our su//ort the outco1e is e6clusi*ely the res/onsiility of the indi*idual channel /artner2 To a*oid any res/onsiility for the final outco1e of such fra1ewor3s and to a*oid uilding our own staff of 81anage1ent consultants5 we 1ay assign such usiness de*elo/1ent fra1ewor3s to third /arty ser*ice /ro*iders4 where we hel/ design and fund the /rogra14 ut where the channel /artners contract directly with the third /arty2 T!E %EST
The re1aining ,] of our channel /artners are either without a1itions or their 1anage1ent s3ill sets are so wea3 that no e6ternal su//ort will ha*e any i1/act on their growth ca/ailities2 As all channel /artners start s1all
we need to 3ee/ an eye on their /rogress to decide when to reclassify the1 and increase the in*est1ent in their de*elo/1ent2 (e cannot waste Partner Account &anager resources in 1anaging channel /artners who do not ha*e any growth /otential_ The costenefit ratio will not Nustify the effort and the o//ortunity cost will e o*erwhel1ing2 lthough the 1aNority of channel /artners do not ha*e any growth /otential4 they still re/resent an i1/ortant source of re*enue4 are a 1ar3et co*erage resource and often ser*e as sucontractors to the 1ore successful channel /artners2 hey should /ri1arily e 1anaged through the /artner /ortal with o//ortunities for chat4 call centre and e1ail co11unication2 T!E PA%T"E% %ELATI$"S!IP &A"AGE&E"T S;STE&
&a3ing it to 1ar3et leadershi/ through inde/endent channel /artners re)uires a Partner %elationshi/ &anage1ent syste1 DP%&2 ust as 1ost co1/anies ha*e C%& /rocesses and syste1s to 1anage their custo1er relationshi/s4 an e)ui*alent a//roach is re)uired for 1anaging channel /artner relationshi/s2 he P%& su//orts the channel /artner relationshi/ 1anage1ent /rocesses4 thus we 1ust define these first and then i1/le1ent the syste1 afterwards2 There is no way we can enforce 8est0/ractice5 a//roaches and share crucial infor1ation aout our channel /artners4 their /erfor1ance and their issues if all the data is only in the hands of our staff who 1ay co1e and go2 Enforcing the syste1atic use of a P%& syste1 is a genuine leadershi/ tas3 in our own co1/any2 &oti*ating our channel /artners to use the syste1 is o*iously an e*en igger leadershi/ tas3 and the secret lies in si1/licity4 need and *alue2 &a3ing so1ething easy and si1/le to use is actually *ery difficult4 so we /roaly need to find software and assistance fro1 co1/anies that s/eciali=e in uilding such P%& syste1s2 If it is easy for the inde/endent channel /artners to find what they are loo3ing for y using the P%& syste1 then they ha*e less need for calling the Partner Account &anager or for gi*ing u/ and failing2 &anaging the incenti*es4 including the leads that we allocate4 the s/ecials ids we a//ro*e4 the &#? we 1a3e a*ailale and the e*ents we organi=e should o*iously only ta3e /lace through the P%&4 ensuring that our channel /artners eco1e fa1iliar with using the /latfor12 PA%T"E% ACC$<"T &A"AGE%S
The stages of starting4 growing and 1anaging a /artner channel re)uire co1/letely different s3ill sets2
Starting a channel re)uires sales1anshi/4 entre/reneurshi/ and usiness acu1en2 $ur channel recruiters and /artner account 1anagers 1ust thin3 on their feet and re0in*ent the Partner Progra1 as they 1o*e along2 They 1ust e in the front line with the channel /artners4 de*elo/ing the usiness and closing the deals2 (e need cowoys to start an indirect channel2 It 1ay not loo3 /retty4 ut the Nos get done2 Growing a channel re)uires lieutenants2 (e cannot change the Partner Progra1 and the Channel Partner Agree1ent for each new /artner and we increasingly need to treat channel /artners e)ually2 (e need /eo/le who can 1anoeu*er within the fra1ewor3 and not constantly change the fra1ewor32 !owe*er4 as we are still in usiness de*elo/1ent 1ode4 we need co11issioned 8officers5 to lead the endea*ors and re/ort ac3 on issues that ha*e gloal i1/lications and that we 1ust consider correcting in the continuous effort of i1/ro*ing our /artner *alue /ro/osition2
&o*ing into 1anage1ent 1ode where the ul3 of our usiness co1es fro1 e6isting /artners we need a 8Channel Partner &anage1ent ?actory5 for all the s1all /artners with little growth /otential4 while we need usiness consultants for the Growth Potential and e6ecuti*e cowoys for the Stars2 (e need senior usiness de*elo/ers for Channel Partner %ecruit1ent4 focusing on strategic relationshi/s while 1ass recruit1ent is now in the hands of 1ar3eteers with rich self0 ser*ice we /ortals2
C!APTE%
S(ITC!I"G ?%$& #I%ECT T$ I"#I%ECT
&any software co1/anies that start with ser*ing their do1estic 1ar3et directly consider switching to an indirect a//roach only when they need to set u/ regional satellite offices or 1o*e into foreign countries2 The 1oti*ation for these considerations is ty/ically the si=e of the in*est1ents re)uired for setting u/ and 1anaging re1ote o/erations and the co1/le6ity associated with o/erating in 1ar3ets where we ha*e little or no e6/erience2 (hile setting u/ and 1anaging re1ote o/erations is a *ery difficult and ris3y affair it is unli3ely that the change of channel a//roach is the right solution to this challenge2 There 1ust e *ery good reasons for why we ha*e chosen a direct a//roach in the first /lace and there 1ust e *ery good reasons for why we ha*enWt 1ade the switch in our do1estic 1ar3et efore we a//ly it so1ewhere else where our 1ar3et insight4 rand recognition and 1anage1ent ca/acity is 1uch wea3er2 !owe*er4 letWs assu1e that the switch is Nustified and that there is also an o//ortunity for 1a3ing the switch in our do1estic 1ar3etY what are the ste/s we need to ta3e to 1a3e it ha//enR The first challenge is that we ha*e no e6/erience with ta3ing our /roducts through a channel and we therefore ha*e *ery little e6/erience with what the usiness 1odel of our channel /artners will actually loo3 li3e2 The second challenge is that we do not ha*e the organi=ational set u/ for recruiting and su//orting an indirect channel and the third challenge is that our *alue /ro/osition is geared towards ser*ing custo1ers directly and we do not ha*e a /ro*en and *erified role for the channel /artners2 &y reco11endation is to therefore 1a3e the transition in two ste/s2 STEP $"E 0 SPLITTI"G $<% C$&PA"; I" T($
(e se/arate the custo1er facing acti*ities fro1 the /roduct de*elo/1ent and distriution
acti*ities2 In this way all our own custo1er0facing acti*ities eco1e our first 8channel /artner25
?igure K Switching fro1 a direct to an indirect go0to01ar3et a//roach will re)uire that we s/lit our co1/any into two e/arate usiness units2
The two usiness units should not ha*e the sa1e 1anage1ent and they should o/erate at ar1s length2 In this way the Product #istriution usiness unit is forced to de*elo/ the *alue /ro/ositions4 the s3ills and the co1/etencies re)uired for ser*ing channel /artners and they are forced to li*e on a PL that doesnWt re)uire /roNect re*enue2 If this is /ossile then we should e*en ta3e it so far as to 1a3e a di*est1ent ca/itali=ing the *alue of our custo1er facing acti*ities and hel/ in s/onsoring the e6/ansion of our /roduct and distriution acti*ities2 A di*est1ent will also hel/ con*ince new /otential channel /artners that they will not e6/erience channel conflicts +
with us2 If it turns out to e close to i1/ossile to s/lit the co1/any then chances are that we do not ha*e a usiness 1odel that is currently a//ro/riate for an indirect channel a//roach2 If we need /roNect re*enue to s/onsor our /roduct de*elo/1ent acti*ities then we are either still in start0u/ 1ode or we are not really a /roduct co1/any4 ut rather a ser*ice co1/any with a /roduct2 If we are a ser*ice co1/any with a /roduct4 then we 1ay e etter off carrying on li3e this or 1igrating to so1eone elseWs /roduct /latfor1 in the future2 (hen we are considering 1a3ing the switch fro1 direct to indirect then I reco11end 1a3ing the ao*e e6ercise in a s/readsheet first and if we cannot s/lit the organi=ation and 1a3e oth usiness units /rofitale 8on /a/er54 then we ha*e a genuine /role1 that needs fi6ing first2 STEP T($ 0 B
If the s/lit is /ossile then we can free the resources re)uired for channel recruit1ent and 1anage1ent2 (e 1ay also ha*e to reorgani=e our %#4 su//ort4 /roduct 1anage1ent and /roduct 1ar3eting functions to su//ort a channel /artner a//roach2 (hether there is a need for recruiting 1ore channel /artners in our do1estic 1ar3et o*iously de/ends on the 1ar3et share we enNoy2 A 1ar3et share of less than +,] will nor1ally call for 1ore channel /artners4 ut it really de/ends on the si=e of the 1ar3et4 the co1/etiti*e situation4 and the nu1er of deals acti*e at any ti1e as well as the o//ortunities for additional 1ar3et seg1entation2 he s/lit will actually e 1ost de1anding for the custo1er facing organi=ation that now has to change the *alue /ro/osition fro1 eing /roduct focused to eco1ing 1uch 1ore custo1er inti1acy focused2 The custo1er facing
organi=ation 1ust ha*e the freedo1 to 3ic3 out our /roduct if this is a etter usiness decision than staying with us2 It 1ust e u/ to us to 1a3e our channel /artner *alue /ro/osition 1ore attracti*e than that of our co1/etitors otherwise we stand no chance of winning new channel /artners anyway4 not to s/ea3 of re/lacing the /roducts of our co1/etitors2
C!APTE%
C!A""EL C$"?LICTS
(e define channel conflicts as the situation where our channels co1/ete with each other for the sa1e usiness2 ?%$& #I%ECT T$ I"#I%ECT
Channel conflicts often ha//en when we run a direct channel a//roach and want to reach new 1ar3et seg1ents through inde/endent channel /artners2 These ty/ical situations are when we ha*e a strong direct /osition in the enter/rise seg1ent4 ut elie*e that there is an o//ortunity for our /roducts in the 1id01ar3et also2 As the 1id01ar3et is huge with ery di*erse needs4 and as our rand 1ay a//ear so1ewhat daunting for a 1id01ar3et custo1er then it see1s o*ious to ta3e the indirect route es/ecially if there is already an estalished networ3 of inde/endent channel /artners ser*ing the custo1ers with si1ilar or co1/le1entary /roducts2 To 1anage this situation we will nor1ally introduce a 1ar3et seg1entation definition that clearly s/ells out where we o/erate directly and where we will not e in direct co1/etition ith our inde/endent channel /artners2 s the resources and acti*ities re)uired for recruiting and 1anaging inde/endent channel /artners are different fro1 those re)uired for ser*ing the custo1ers directly4 we would need to ha*e se/arate tea1s assigned to each channel2 lthough we ha*e defined the seg1entation *ery clearly we cannot /re*ent inound o//ortunities fro1 crossing our channels and *ery soon we will ha*e our own direct sales staff co1/laining that channel /artners are fishing in our own seg1ents and channel /artners will ha*e si1ilar co1/laints with traffic in the other direction2 E*en in situations where e use different channels for different /roducts there will e friction etween the two channels2 he situation descried ao*e a//lies to 1any of the ig rands in the software industry and is so1ething they ha*e to 1anage on an ongoing asis2 S1aller software co1/anies with s1all 1ar3et shares should a*oid channel conflicts4 as they can e *ery costly4 asoring 1anage1ent attention and /reNudicing the 1oti*ation for new channel /artners to sign u/2 ?%$& I"#I%ECT T$ #I%ECT
The e6act o//osite4 where we ser*e a 1ar3et through inde/endent channel /artners4 ut where new o//ortunities de1and a direct a//roach4 is also /ossile2 (e 1ay ha*e o//ortunities in 1ar3et seg1ents where our current channels ha*e no reach and where we fear that uilding an indirect channel first will ta3e too long2 In this situation we 1ay choose to 1a3e a direct 1o*e to secure fast /enetration and a /osition in the 1ar3et and then later4 if and when the channel 1atures4 we 1ay s/in off the acti*ity and return to our indirect channel a//roach2 (!ITE LABEL A"# 8$E&5 C
A white lael custo1er rena1es and re0laels our /roduct and ta3es it to 1ar3ets where it /leases her4 1ainly in direct co1/etition with our inde/endent channel /artners2 An $E& custo1er uses our /roducts as an integrated /art of a igger solution that she also 1ar3ets where it /leases her4 and /otentially in direct co1/etition with our inde/endent channel /artners2 As white lael and $E& custo1ers ty/ically enNoy 1uch higher 1argins +
4 they /otentially ha*e a strong /osition *is0^0*is our inde/endent channel /artners2 It is *ery difficult to 3ee/ the lid on hite lael and $E& deals in the software industry and such arrange1ents will ine*italy lead to channel conflicts with our inde/endent channel /artners4 who are /ro1oting our rand2 That 1ay or 1ay not e a serious issue de/ending on our /osition in the 1ar3et4 ut it will consu1e internal resources 1anaging the co1/laints and grie*ances fro1 our channel /artners2 !owe*er4 do we truly win additional 1ar3et y acce/ting white lael and $E& deals or could we co*er these 1ar3et seg1ents y acti*ely wor3ing with inde/endent channel /artners and enefit fro1 the additional rand recognition and awarenessR I reco11end that we carefully consider the long0ter1 *alue of white laels and $E& custo1ers if we also want to uild and 1oti*ate inde/endent channel /artners o/erating with our own rand2 I thin3 that
in 1ost cases we will find that white lael and $E& custo1ers do not wor3 well alongside inde/endent channel /artners2
$:E%0PE"ET%ATI$" IS "$T A C!A""EL C$"?LICT
Please note that we do not consider the situation where the channel /artners in the sa1e channel are co1/eting with each other as a channel conflict2 Although our channel /artners 1ay co1/lain aout o*er0/enetration they often tend to forget the enefits we all enNoy fro1 the 1ar3et leadershi/ /osition when custo1ers as3 for /ro/osals fro1 channel /artners carrying the sa1e /roduct2 Business and go*ern1ent /rocure1ent /olicies often dictate a rather strict 8re)uest for /ro/osal5 /rocedure as3ing se*eral *endors to su1it )uotations and it is one of the 1aNor enefits of o/erating a /artner channel that custo1ers ha*e a choice of su//liers for the sa1e /roduct2 $*er0/enetration occurs 1uch earlier if there is no *alue0add o//ortunity associated with our /roducts2 Products with no *alue0add are seldo1 good candidates for the inde/endent channel /artner a//roach in the first /lace2 The situation is also 1uch 1ore fragile for us as the switching cost for low *alue0add /roducts are corres/ondingly low2 It is therefore *ery difficult to secure ade)uate /enetration when ta3ing a low *alue0add /roduct through inde/endent channel /artners2 As the *alue0add co1/onent of a solution ased on our /roduct increases4 the ris3 of o*er0/enetration di1inishes as the inde/endent channel /artners ha*e o//ortunities for s/eciali=ation and differentiation2 As we de*elo/ the channel we will wor3 with the indi*idual channel /artner encouraging and su//orting her s/eciali=ation into hori=ontal and *ertical 1ar3et seg1ents and /ro1oting coo/eration where*er /ossile2 Although we cannot Dand should not a*oid a certain degree of co1/etition in the channel we are 1uch 1ore concerned with ha*ing our channel /artners co1/eting with our co1/etitors than with each other4 and we should /ut /rogra1s in /lace to su//ort this2
C!APTE% ,
#IST%IB
The acti*ities associated with recruiting and 1anaging inde/endent channel /artners are often called 8distriution25 In the /ast 1ost software co1/anies with Le*el *alue0add /roducts outsourced these acti*ities to inde/endent distriutors2 ?or Le*el + ty/e software co1/anies4 the traditional distriutors were ne*er an attracti*e growth solution and e*en though so1e software co1/anies started out this way4 1ost ha*e ended u/ ta3ing care of distriution
the1sel*es2 ?igure +,K #istriution is a se/arate disci/line that is not necessarily closely related to %#
As 1entioned in the introduction4 distriution e6cellence re)uires different 1anage1ent s3ills4 acti*ities and resources than /roduct e6cellence and theoretically it shouldnWt e i1/ossile to o/erate these two disci/lines in different /rofit centres and in different legal entities2 The reason that distriution re1ains an in0house core co1/etence for 1ost Le*el + ty/e software co1/anies is that lea*ing it to a third /arty often eco1es an intolerale ris3 on the Nourney to 1ar3et leadershi/2 This4 howe*er4 1ay change in the future2 t the Le*el H channel de*elo/1ent stage4 we are starting to enNoy 1ar3et recognition and ha*e a huge channel with a score of to/ /erfor1ing /artners2 (e ha*e a s1all grou/ of /artners with growth /otential and a large grou/ with no 1aNor growth /otential2 At this /oint in our de*elo/1ent4 the inde/endent distriutor o/tion see1s to 3ic3 in2 $*er the last , years we ha*e seen a re*i*al of the so0called *alue added distriutor whose core co1/etence is not logistics ut rather channel recruit1ent and 1anage1ent2 TIE%S I" T!E C!A""EL ST%
&any young
software co1/anies considering the indirect channel a//roach initially ha*e a si1/le 0tier structure in 1indK
:endor 0` Channel Partners D0` custo1ers Starting fro1 scratch we will ty/ically /ursue the si1/le 0tier set u/ first2 As our reach and the nu1ers of /artners grow e will enefit fro1 eing closer to the est /erfor1ing channel /artners2 (e will ha*e /artner account 1anagers located re1otely 1ini1i=ing tra*el costti1e and we also need re1ote staff dedicated to recruiting 1ore Dand 1ore strategic /artners2 If we loo3 at the successful +
software co1/anies with an indirect channel ased a//roach they 1ostly ha*e this inter1ediate structureK :endor !V 0` :endor CountryState Susidiaries 0` Channel Partners D0` custo1ers Growing the channel to 1ar3et leadershi/ re)uires that we ha*e resources on the ground in our core 1ar3ets2 As the nu1er of /eo/le in our co1/any grows4 and in order to co1/ly with local legal re)uire1ents4 we will ha*e to estalish legal entities in the *arious 1ar3ets2 he really successful software co1/anies ha*e this 1ature structureK endor !V 0` :endor %egional !Vs 0`:endor CountryState Susidiaries#istriutors 0` Channel Partners D0` c usto1ers (hich structure is re)uired o*iously de/ends on the si=e of our 1ar3et and which growth in*est1ents we can 8afford5 at any gi*en le*el of our co1/any 1aturity2 !owe*er4 if we ha*e a solution that addresses a large 1ar3et then it is unrealistic to e6/ect that we can achie*e gloal 1ar3et leadershi/ with a si1/le 0tier H
structure with a single o/eration in our do1estic 1ar3et and non0e6clusi*e inde/endent channel /artners all o*er the orld2 Although 1ost s1all Le*el software co1/anies can hardly i1agine a gloal o/eration with regional head)uarters and country susidiaries4 that is where the Nourney will lead us4 howe*er4 if we ha*e a1itions of gloal 1ar3et leadershi/2 I"TE%"ATI$"AL #IST%IB
As we 1o*e into foreign 1ar3ets nu1erous issues O
s/ea3 in fa*or of engaging local /artner recruit1ent 1anagers and suse)uently /artner account 1anagers2 (e 1ay /lace a luc3y /unch and recruit the first 0+ inno*ati*e /artners re1otely4 ut growing eyond that will re)uire so1e le*el of dedicated in01ar3et resources2 s there are certain critical acti*ities that non0e6clusi*e inde/endent channel /artners are notoriously dis)ualified to /erfor1 and also ha*e little incenti*e in doing4 we will ha*e to e6ecute these acti*ities oursel*es in each of the 1ar3etscountries where we choose to o/erate2 Such acti*ities areK &ar3et assess1ents4 co1/etiti*e /ositioning and the choice of /enetration strategies Product 1anage1ent and locali=ation Product 1ar3eting4 randing and awareness uilding Lead generation Partici/ation in 1aNor national and international e6hiitions and conferences #ata centre o/erations Dif we /ro*ide a cloud ased for1at and store custo1er sensiti*e data Building 1ar3et leadershi/ without anyone to ta3e care of these acti*ities will e close to i1/ossile and as the usiness 1odel en*iron1ent is different fro1 region to region and country to country4 we need to e1/loy the resources to underta3e these acti*ities2 There is a wides/read /erce/tion in the software industry that wor3ing with inde/endent channel /artners negates the need for regional organi=ations and country susidiaries2 That is not the case2 (hen /re/aring for the /ath to gloal 1ar3et leadershi/ through inde/endent channel /artners we 1ust consider what the lue/rint for the final setu/ will loo3 li3e and then re*erse engineer the /rocess to ensure we get to where we want to e2 he 1ain challenge we face when growing eyond our local orders is the difficulty in recruiting and 1anaging /artners ithout any local /resence in the new 1ar3ets2 Setting u/ this /resence re)uires in*est1ents aroad4 ut also a strengthening of our own leadershi/ and 1anage1ent infrastructure at ho1e to deal with our new and growing re1ote o/erations2 As our growth a1itions and the s1all window of o//ortunity /ush us to 1o*e into se*eral 1ar3ets si1ultaneously4 we 1ay not ha*e the resources a*ailale to do so2 The ris3 and uncertainty 1ay e of a 1agnitude that
endangers the life of our co1/any2 Thus sharing the in*est1ent and ris3 with so1eone who is etter /ositioned in the indi*idual 1ar3ets 1a3es a lot of sense4 and there 1ay actually e ways to do so2 Lea*ing the tas3 of uilding a 1ar3et fro1 scratch to a traditional distriutor on traditional ter1s and conditions is doo1ed to failure2 It is unli3ely that any third /arty will e /re/ared to 1a3e the in*est1ents re)uired to uild a 1ar3et only to get a share of the future re*enue2 !owe*er4 if we are /re/ared to share the *alue we create and the distriutor is /re/ared to allocate dedicated resources to a se/arate usiness unit4 and /referaly o/erate this unit in our na1e4 then we can define a /ull0clause where we can ta3e o*er the o/eration at a later stage2 In this scenario we are actually for1ing a Noint *enture with the distriutor and we are sharing the rewards of the results in ter1s of /rofits and e)uity4 too2 Such distriution Noint *entures 1ust e ilaterally e6clusi*e and can hel/ us accelerate the /enetration of large do1estic 1ar3ets as well as foreign 1ar3ets2 The challenge is to find indi*iduals or co1/anies that are /re/ared and olstered to for1 Noint *entures and that are also ca/ale of actually uilding the 1ar3et2 ?inding the right Noint *enture /artners can wor3 wonders4 ut tea1ing u/ with the wrong /artners will slow us down and 1ay da1age our /osition and re/utation within a 1ar3et2 Although this a//roach has een ta3en successfully in the software industry4 the circu1stances ha*e always een *ery situational2 Con*incing the first one or two Noint *enture /artners to in*est in our /roNect will e *ery difficult when we only ha*e E6cel s/readsheets and do not ha*e any real0life e6a1/les to su//ort our usiness case2 S
If we cannot find an ade)uate distriutor or a Noint *enture /artner or if we /refer full control fro1 day0one then we will set u/ a fully owned susidiary to run the acti*ities re)uired to uild the 1ar3et2 This is the traditional a//roach of
ust as 1any thought that the distriutor in her role as 8the 1iddle wo1an5 was a dying reed4 we see a re*i*al of the *alue added distriutors2 (e ha*e already discussed and concluded that distriution and /roduct de*elo/1ent doesnWt ha*e to reside under the sa1e roof4 ut why do we see this re*i*al Nust nowR Software co1/anies in stage and stage + channel de*elo/1ent will ha*e difficulties acce/ting the ris3 of outsourcing distriution and they will also ha*e a difficult ti1e 1oti*ating *alue added distriutors in*esting in channel de*elo/1ent when their rands are yet unrecogni=ed and 1ar3et /ull is non0e6istent2 !owe*er4 stage H software co1/anies with a large and 1ature installed ase of channel /artners 1ay e 1oti*ated to ta3e this /ath2 The ris3 to the *alue added distriutor is lower and therefore 1ore acce/tale2 :alue added distriution e6cellence is +] /roduct 3nowledge and F] usiness de*elo/1ent and 1anage1ent 3nowledge2 A dedicated and focused organi=ation is actually 1uch 1ore li3ely to eco1e an e6/ert in this disci/line than an organi=ation 1ainly focused on /roduct e6cellence2 All distriutors ha*e een s)uee=ed in their traditional logistic do1ains2 So1e of the1 ha*e de*elo/ed their *alue added co1/etences4 creating au6iliary re*enue strea1s and defending their 1argins *is0^0*is the *endors4 and they are now a*ailale to ser*e 1ore software co1/anies2 The software co1/anies on the other hand are also s)uee=ed y steadily
increasing co1/etiti*e /ressure and y the shifts fro1 the u/0front /er/etual license 1odel to the suscri/tion ased cloud deli*ery for1ats2 To co1/ensate they ha*e to shift the in*est1ents in channel /artner recruit1ent and the cost of channel /artner 1anage1ent to the /artners the1sel*es2 (ith channel /artner acti*ities eing only +] /roduct related4 a 1odel where all the cost of channel /artner de*elo/1ent and 1anage1ent has to e co*ered y the /roduct 1argin is si1/ly not sustainale2 If the *alue added distriutors 1anage to /ro*ide their channel 1anage1ent ser*ices in a cost effecti*e for1at I see o//ortunities for a growth scenario in the sense that software co1/anies will e /re/ared to outsource these acti*ities2 he channel /artners need to acce/t that they increasingly ha*e to /ay for the su//ort they recei*e and when they do so then the usiness case for growing an industry of inde/endent *alue added distriutors 1ight show lac3 figures on the otto1 line2
C!APTE%
S$?T(A%E AS A SE%:ICE
Cloud0ased SaaS is a deli*ery for1at2 !owe*er4 due to other changes in the 1ar3et dyna1ics this for1at will gradually refor1at the landsca/e for Le*el +0H ty/e *endors and their inde/endent channel /artners2 S$?T(A%E S!$
That software should e free of charge is not an o/inion4 ut a conse)uence of 1ar3et dyna1ics2 In any 1ar3et with /erfect co1/etition the /rice of any co11odity will gra*itate towards the 1arginal /roduction cost2 (hat is the 1arginal cost of /roducing an additional co/y of a software /roduct or adding an e6tra userR It is *ery close to =ero2 This is e6actly the /rinci/le su//orting usiness 1odels where the software is /ro*ided free of charge4 ut where the ser*ices or so1e e6tensions around the /roducts co1e at a cost2 The reasons that software co1/anies can get away with charging for their /roducts are differentiation in functionality4 1anaging co1/etiti*e /ositioning and the creation of custo1er /references2 All of us want to e on the de1and side of 1ar3ets with /erfect co1/etition4 ut none of us wants to e on the su//ly side and we therefore constantly differentiate through seg1entation4 additional /roduct functionality and 1ar3eting co11unication2 So far that has wor3ed well in the software industry4 ut the dyna1ics in our industry are changing ra/idly and our custo1ers ha*e also learned a lesson or two2 SI&PLICIT; #E?EATS C$&PLEXIT;
SaaS offerings ha*e started with easy to understand and ine6/ensi*e standard a//lications for the *olu1e 1ar3ets2 The enter/rise and S&B 1ar3ets ha*e een a//rehensi*e in e1racing the new for1at due to security4 /ri*acy4 sur*i*aility4 a*ailaility4 /erfor1ance4 custo1i=ation4 integration4 /ay1ent and SLA issues2 !owe*er4 as the co1/elling enefits of using the SaaS for1at also a//ly to the enter/rise and S&B 1ar3ets and as the issues 1entioned are eing addressed4 we will also see dee/ /enetration of the off0/re1ise ser*ice0for1ats into these 1ar3et seg1ents2 The ado/tion has already started with non01ission critical standard a//lications and will gradually 1o*e into the 1ission critical areas2 I e6/ect that the di1inishing cost of a//lication de*elo/1ent and the readiness of the enter/rise and S&B 1ar3ets acce/ting est /ractice usiness /rocedures in non0co1/etiti*e areas will /a*e the way for 1ore out0of0the0cloud standard a//lication functionality2 he rich functionality race is Dal1ost o*er and custo1ers increasingly /refer si1/le solutions with short learning cur*es4 little loc30in and no u/0front in*est1ents2 The CI$ residing o*er the organi=ationWs IT resources cannot 1aintain her gate 3ee/ing role as software eco1es a*ailale with no need for IT infrastructure4 no need for /latfor1 co1/liance4 no Ddes/erate need for integration and no need for Ca/E6 decisions2 As software /enetrates all corners of the organi=ation and eco1es a*ailale as descried ao*e4 the users the1sel*es will start to 1a3e what were /re*iously IT0de/art1ent /urchase decisions2 It is unrealistic to e6/ect that the Le*el +0H ty/e *endors will e ale to ser*e all these custo1er seg1ents directly2 The need for inde/endent channel /artners de*elo/ing *ertical and hori=ontal functionality as well as /ro*iding ser*ices will therefore continue and e*en increase4 although their roles and re1uneration for1ats will change2 SaaS will lower the thresholds for /enetrating new a//lication areas and channel /artners 1ust si=e u/ these o//ortunities and /ro*ide their software e6tensions and consulting ser*ices using the /latfor1s of their /rinci/als2 There will continue to e a need for es/o3e de*elo/1ent4 custo1i=ation4 integration and i1/le1entation ser*ices4 ut this is not where the growth will e2 I e6/ect that the need and de1and for usiness /rocess o/ti1i=ation ser*ices will grow steadily as enter/rises and es/ecially S&B custo1ers continue to in*est in using IT0technology to i1/ro*e the /roducti*ity of their o/erations as well as to i1/ro*e their custo1er relationshi/s2 But I e6/ect that B+B custo1ers will increasingly understand that there is a huge /roducti*ity o//ortunity in using usiness consultants with a//lication
software insight that can hel/ ada/t the usiness /rocesses to the software rather than the *ery e6/ensi*e other way around2 Inde/endent channel /artners with staff who ha*e oth industry do1ain 3nowledge and a//lication insight will e in high de1and4 and this is where the /artners need to go2 &$BILE
The iPhone changed the 1oile /hone 1ar3et and as the co1/etitors follow suit the change is ta3ing on tsuna1i0li3e di1ensions2 &oile is in itself a cry for si1/licity and s/eciali=ation that o/ens new 1ar3et o//ortunities e*ery day and si=ing u/ these o//ortunities will also ta3e the coo/eration etween the Le*el +0H software co1/anies and their inde/endent channel /artners2 It 1a3es no sense that each a// and ht1l solution /ro*ider should de*elo/ the entire stac3 fro1 scratch4 thus the /rinci/al/artner relationshi/ re/resents the fastest and 1ost cost0effecti*e go0to01ar3et a//roach for e*eryody2 Today too 1any inde/endent channel /artners lea*e the 1oile a//lication 1ar3et to s/eciali=ed insurgents4 1issing the o//ortunity of le*eraging their industry insight to e1race this usiness and re*enue o//ortunity2 The /rinci/als as well as the inde/endent channel /artners ha*e to get their act together if they want to ta/ into the growth of the 1oile a//lication 1ar3et and /re*ent the insurgents cli1ing u/ the anchor ro/e and ta3ing the entire shi/2 PA; AS (E G$ GI:ES ?
&o*ing IT out of the Ca/E6 udget is a godsend for the 1aNority of usiness custo1ers all o*er the world4 e*en when accu1ulated /ay1ents 1ay e6ceed the alternati*e u/0front loaded 1odel2 Co1ined with the o/tion of canceling suscri/tions at will the ris3 of IT0consu1/tion is 1o*ing fro1 our custo1ers to us *endors2 This is good news for all the reasons that I 1entioned ao*e and ad news if the custo1ers churn too fast2 !owe*er4 as we /ro*ide our software solutions in a ser*ice ased for1at we get so1ething in return that the on0/re1ise didnWt /ro*ideK insight2 (e can actually see how users are using our ser*ices and where they ha*e issues and challenges and with this insight we can do so1ething aout i1/ro*ing the *alue and 1ini1i=ing the churn2 This is a new disci/line for oth the software *endors and their inde/endent channel /artners4 ut not for their co1/etiti*e SaaS insurgents2 As the inde/endent channel /artners will continue to face the custo1ers they now need to learn data analytics and react to the >PIs on a regular asis and we as software *endors will ha*e to /ro*ide the tool0sets for re/orting on how the custo1ers are actually using the software and other IT resources2 CAS!?L$(
The 1ost o*ious difference etween the /er/etual /aid u/ license 1odel and the SaaS for1at is the cash flow /rofile2 Instead of /aying the full /rice u/ front and 1aye an annual 1aintenance fee the software industry has settled on offering SaaS *ia recurring suscri/tions2 (hen these suscri/tions are cancelale on short notice we introduce a ris3 ele1ent that 1ay or 1ay not ha*e an i1/act on the /redictaility of the cash flow de/ending on the stic3iness of our /roducts2 Solutions fro1 Le*el +0H *alue0add *endors are *ery stic3y and custo1ers will not Nu1/ shi/ easily and without a long 1igration /eriod2 The new cash flow /rofile is definitely a short0ter1 headache for e*eryone in*ol*ed e*en though I elie*e that the accu1ulated A*erage Custo1er Life Ti1e :alue will actually increase2 I a1 /re/ared to ta3e a et on the stagnation of the on0/re1ise Ca/E60ased IT for1at4 ut Nust as the 1ainfra1e didnWt die o*ernight4 Ca/E6 ased IT for1ats will /re*ail4 ut the growth will e elsewhere2 The enefits of si1/licity and of 1o*ing IT e6/enses to the $/E6 O
area are so huge that co1/anies will not want to 1o*e ac3 and new custo1ers will Nu1/ directly to the new for1ats2 (e will all ha*e to learn how to run our usiness 1odels in a /ay0as0you0go $/E6 1ode where cash flow is 1uch closer to the custo1erWs actual and successful consu1/tion of our ser*ices2 C
widely recogni=ed and I see no reason why SaaS /ro*iders should not want to dri*e in this direction in s/ite of the short ter10/rofit o//ortunities of ser*ing custo1ers directly2 &A%GI"S A"# C
Co1/ared to the /er/etual /aid u/ license for1at SaaS *endors offer lower 1argins4 not only due to the inclusion of the IT0infrastructure and the SLA oligations4 ut also ecause the co1/etiti*e /ressure uilds u/2 As the cloud ased SaaS usiness 1atures I e6/ect that the traditional 1argins as we 3now the1 today will disa//ear co1/letely and e re/laced y a finders fee lea*ing the inde/endent channel /artners relying entirely on the *alue of their own e6tensions and au6iliary ser*ices essentially eco1ing 1ini0IS:s4 i1/le1entation /artners4 syste1 integrators and usiness consultants2 he custo1er relationshi/ that in the on0/re1ise for1at resided with the inde/endent channel /artner will e di*ided etween the SaaS /ro*ider for the core /latfor1 ser*ices and the channel /artner for her added *alue2 !owe*er4 I also foresee that the SaaS /ro*iders will i1/le1ent 1ar3et /laces 1a3ing it easier for the channel /artners to /ro1ote their e6tensions and ser*ices4 increasing the *olu1e o//ortunity and lowering the CAC2 I"C<&BE"TS A"# I"S<%GE"TS
All the ig Le*el +0H software rands understand that the route to 1aintaining long0ter1 co1/etiti*eness and growth is not na*igated y cutting off their /artner channels and ser*ing their custo1ers directly2 !owe*er4 the co1/etiti*e /ressure is high and insurgents are in*enting new usiness 1odels dri*en y lean organi=ations and without any legacy for1ats to /ay attention to2 The Le*el +0H software rands will /ush their channel /artners to rely 1ore on e6tensions and the au6iliary ser*ices and less on the 1argins fro1 the suscri/tions and those /artners that 1anage the change will e ale to ta3e ad*antage of new ty/es of enefits offered y the *endors2 The s/eciali=ed insurgents will o*er/ower those channel /artners that learn too slowly2 That is not only a /role1 for the /artner4 ut also for the /rinci/al that now loses a /layer co*ering a 1ar3et /osition2 The /rinci/als as well as the inde/endent channel /artner has a strong co11on interest in figuring out how to o/erate in the new usiness 1odel en*iron1ent or they will all suffer2 SaaS and the cloud is not the end of the world for the inde/endent channel /artner4 ut it is certainly a dra1atic change in the usiness 1odel en*iron1ent that offers o//ortunities as well as threats2 The software industry is fairly young and has een faced with continuous disru/tion along the road2 The Cloud4 SaaS and 1oile deli*ery for1ats re/resent such disru/tions that will sti1ulate further 1ar3et growth4 ut which will also re)uire changes on the su//ly side of industry2 hose that ada/t 1ay sur*i*e and grow and those that resist and des/air will fail and *anish2
APPE"#ICES
APPE"#IX A Through 1y 1any years wor3ing with uilding networ3s of inde/endent channel /artners and consulting on the suNect I ha*e co1e across 1any entertaining and interesting definitions in the software industry2 To a*oid any confusion and 1isunderstanding I will gi*e you 1y definitions of the software industry Nargon related to the channel2 ;ou 1ay not agree ith 1y definitions4 ut at least you will 3now what I a1 tal3ing aout when I 1ention a certain ty/e of 8channel5 in this oo3 and co1/are the1 with another ty/e of 8channels5 or 8custo1ers25 T!E C!A""EL
In a usiness 1odel conte6t
the channel is the wayDs we ta3e +
our /roducts and ser*ices to our custo1ers2 (e asically ha*e two o/tionsK (e can ha*e a direct channel4 where we co11and all the resources re)uired on our own /ayroll2 (e can use an indirect a//roach using *arious le*els and ty/es of inde/endent channel /artners2 In the software industry the ter1 channel is often used to descrie the situation where inde/endent third /arty co1/anies resell the software *endor7s /roducts to the final custo1er and technically s/ea3ing this is wrong2 I reco11end ado/ting the usiness 1odel ter1inology and distinguish etween a direct channel a//roach and an indirect channel a//roach2 ust clai1ing that we use a channel doesnWt e6/lain if is direct or indirect2 In order to co1/ly with the usiness 1odel definition the channel 1ust /ro1ote our rand to the custo1ers2 The custo1ers 1ust /ercei*e the software *endor as their 8su//lier5 e*en though the deli*ery4 the in*oice and the su//ort 1ay e /ro*ided through an inde/endent third /arty co1/any2 If our rand is not *isile to the resellerWs custo1er4 then the reseller is not our channel4 ut rather our final custo1er2 E*en if our re*enue is tied to the re*enue of our custo1er we do not consider her a channel /artner if our rand is un3nown to the custo1erWs custo1er2 (hy do we distinguish etween indirect channels and custo1ersR (e do so ecause the relationshi/ with an inde/endent channel /artner is co1/letely different fro1 the relationshi/ with a custo1er2 A channel /artner li*es fro1 adding *alue to and reselling our stuff2 She has an oNecti*e interest in selling as 1uch as /ossile of our stuff and we can ha*e an intelligent and Noyful con*ersation with her regarding what it will ta3e to sell e*en 1ore2 A custo1er is using our stuff so1ewhere in her o/eration2 She is interested in getting our stuff at the lowest /rice /ossile and she is not interested in our re*enue and 1ar3et leadershi/ a1itions2 he con*ersations we ha*e with our channel /artners are co1/letely different fro1 the con*ersations we ha*e with custo1ers2 The transactional 1oti*es of inde/endent channel /artners and custo1ers are co1/letely different2 here is a grey area and that is the (hite Lael$E& usiness and I will discuss this later in this a//endi62 B
Although the ter1 8Business Partner5 indicates so1e 3ind of /artnershi/ this is al1ost ne*er the case when the ter1 is used in the software industry2 In the software industry the ter1 Business Partner is used casually for any relationshi/ where we wor3 together as third /arties each res/onsile for our own acti*ities and our own PL2 Throughout this oo3 I use the ter1 8inde/endent channel /artner5 to e1/hasi=e that channel /artners 1a3e their own usiness decisions ased on their own a1itions and as/irations4 their own usiness strategy and their own 1anage1ent ca/ailities2 (hen we entertain a direct channel a//roach we can hire and fire /eo/le as re)uired2 (e can set the direction of the usiness and we can 1anage the acti*ities to co1/ly with our a1itions and strategy2 The direct and the indirect channel a//roach are li3e night and day2 &oti*ating and 1anaging /eo/le on our own /ayroll *ersus 1oti*ating and 1anaging /eo/le on otherWs /ayrolls does not ha*e 1uch in co11on and that is why we clai1 to ha*e a third /arty
usiness 1odel inside our own usiness 1odel when we ser*e the 1ar3et though inde/endent channel /artners2 IS:
The ter1 Inde/endent Software :endor is used in the software industry for co1/anies that de*elo/ their own software4 which they ta3e to the 1ar3et under their own rand2 IS:s will often use software co1/onents fro1 other IS:s Dor o/en source co1/onents and thus eco1e target custo1er seg1ents for these IS:s2 &icrosoft started out as an IS: selling to other IS:s2 A//le sourced their first Basic co1/iler Dwith floating /oint integer fro1 &icrosoft2 "one of A//leWs custo1ers got e6/osed to the &icrosoft rand through this transaction and A//le did not /ay &icrosoft a royalty on each /roduct they shi//ed to their custo1ers2 Therefore A//le was not a channel for &icrosoft4 ut a custo1er2 (hen &icrosoft later 1ade $ffice a*ailale for $S X and sold the licenses through A//le4 then //le eca1e a &icrosoft channel /artner2 (hen IS:s are s1all with little rand awareness they 1ay /ro1ote that their software runs on the co1/onents of 1ore recogni=ed IS:s D/owered y &icrosoft SVL4 /owered y SharePoint or /owered y $racle e*en though they do not e*en resell these software co1/onents2 !owe*er4 as IS:s grow and gain 1ore 1ar3et awareness they will su//ress the /resence of third /arty co1/onents in their /ro1otion2 They will focus all their efforts on their own rand and in*est in 1a3ing the1sel*es inde/endent of other IS:s2 IS:s can also grow fro1 within the large :alue Added %eseller ecosyste1s2 A :alue Added %eseller of SAP 1ay ha*e de*elo/ed a *ertical add0on solution4 which she /roducti=es and sells to other custo1ers D/otentially thorough other :alue Added %esellers2 This is an IS: acti*ity4 which is often co0randed with the software /latfor1 on which it de/ends2 Because Inde/endent Software :endors ha*e a strong interest in /ro1oting their own rands and su//ress the rands of their su//liers they are not considered a 8channel45 ut rather a custo1er seg1ent in their own right2 IS:s selling to other IS:s ha*e a custo1er relationshi/ when the uying IS: does not /ay a /rice that is related to the re*enue she generates2 IS:s selling to other IS:s ha*e a channel relationshi/ when the uying IS: does /ay a /rice which is related to the re*enue she generates A"# the selling IS:Ws rand is trans/arent to the custo1er A"# the custo1er can use the software fro1 the first IS: inde/endently of the software fro1 the second IS:2 As you will conclude when reading the rest of this a//endi6 the second ty/e of IS: is asically a :alue Added %eseller2 ;ou 1ay find this e6/lanation acade1ic and it 1aye o*erly co1/licated4 ut I can assure you that it is crucial to distinguish etween a channel relationshi/ and a custo1er relationshi/2 %ESELLE%
The reseller is ty/ically 8Nust5 reselling the /roducts of the IS:s to the custo1ers2 The *alue of the reseller for the IS: is in 1ar3eting and sales 1a3ing it easy for the custo1ers to find the 1ost a//ro/riate /roduct 1atching her needs and 1a3ing it easy for the custo1er /erfor1ing the /urchase transactions2 S1aller IS:s4 es/ecially with standard /roducts4 go though resellers lea*ing the1 all the sales and 1ar3eting 8hassle25 The reseller 1ar3s u/ the /rice to co*er her cost of sales and /ro*ide a /rofit 1argin2 Although illegal in 1ost countries4 1any IS:s o/erate with a %eco11ended %etail Price on which the reseller is granted a discount2 The discount is ty/ically etween H, and O, /er cent and the discount will grow with the increase in sales of the software2 %esellers often carry 1any co1/li1entary and co1/eting /roducts ensuring that the custo1er ac)uisition cost is s/read across as 1any re*enue strea1s as /ossile and that the custo1er lifeti1e *alue is 1a6i1i=ed2 :A%
A :alue Added %eseller co1ines the software /roducts fro1 IS:Ws with her own ser*ices and her own and other /roducts /ro*iding total solutions for her custo1ers2 Initially the :A% has a clear interest /ro1oting the rand of her IS: /artners2 As the :A% grows her usiness she 1ay re/resent se*eral co1/eting IS:s and the IS: rand /ro1otion 1ay recei*e less attention co1/ared to the /ro1otion of the :A%Ws own rand2 !owe*er4 the :A% will always clearly co11unicate the su//ort of her IS: rands when this is i1/ortant to her custo1ers as in the :A% do1ain the custo1ers often choose the IS: rand first and the :A% second2 Because of the *alue add /ro*ided y the :A% the IS: can reach 1any 1ore seg1ents in the 1ar3et without ha*ing to in*est in /roduct features and 1ar3et co11unication for each and e*ery seg1ent2 Thus with :alue Added %esellers a software *endor can achie*e a 1uch wider reach as well as 1ini1i=ing the ris3 of 1ar3et o*er0/enetration2 :alue Added %esellers are 1ore loyal to their IS:s than si1/le resellers due to the in*est1ent in s3ills and add0on solutions they 1a3e o*er ti1e and the :alue Added %eseller is the 1ost elo*ed
indirect channel in the software industry2
%$The definition of a distriutor is so1eone who recruits and 1anages resellers on ehalf of the IS:2 The software 1ar3et was created y /ersonal co1/uters fro1 A//le and IB& and in the early years of the software 1ar3et /roducts were deli*ered in shrin30wra//ed o6es with the software on flo//y dis3s and loads of /rinted docu1entation2 Software /roducts needed /hysical logistics to get to the custo1ers2 A structure with a distriutor and resellers wor3ed well ser*ing consu1ers and usiness custo1ers and distriutors with a large networ3 of resellers were really *aluale to IS:s2 (ith the introduction of the Internet e*erything changed2 (ith the aility to deli*er the /roduct and the docu1entation electronically through the Internet the need for the distriutorWs warehouses and logistic ca/ailities disa//eared2 (ith the aility for custo1ers to search and find the IS:s and co11unicate directly4 the need for the distriutor as a logistics and also as a co11unication channel disa//eared2 The traditional distriutor is a dying reed in the software industry and is eing re/laced y a// stores and software /ulishers2 :A#
A :alue Added #istriutor is an inde/endent third /arty co1/any ser*ing the %eseller4 :A% and Syste1s Integrator co11unity with /roducts fro1 IS:s and the associated ser*ices re)uired for successful 1ar3et 1anage1ent2 The :alue Added #istriutor is essentially acting on ehalf of the IS:4 and the e1/hasis of the :A# is not on the logistics of distriution4 ut on the 1ar3et de*elo/1ent and 1anage1ent ser*ices they /ro*ide2 The :A# underta3es randing acti*ities4 recruits resellers4 trains the resellerWs staff and 1anages the resellers according to the guidelines /ro*ided y the IS:2 The large IS:s such as $racle4 SAP4 &icrosoft4 Adoe etc2 all ha*e susidiaries in 1ost countries in the world2 They all directly /ro*ide the ser*ices re)uired to recruit and 1anage the /artner channel and to 1anage the 1ar3et in general4 ut e*ery now and again4 they will also engage with :alue Added #istriutors2 S1aller IS:s 1ay not ha*e the financial ca/acity to o/en their own susidiaries fast enough and ha*e a strong incenti*e to assign the 1ar3et de*elo/1ent and 1anage1ent res/onsiilities to a :A#2 So1e 1ar3ets 1ay e too s1all to set u/ dedicated susidiaries and it then 1a3es sense for the IS: to assign his re/resentation res/onsiilities to a local :A#2 s distriutors are dying *alue added distriutors are growing2 There is a huge need for *alue added distriutors in the s1aller 1ar3ets4 ut also in larger 1ar3ets hel/ing new IS:s to get started fro1 scratch2 $E& A"# (!ITE LABELI"G
(hite Laeling 1eans ta3ing the /roduct of an IS: to the 1ar3et under a different lael2 The custo1er will elie*e that the /roduct originates fro1 the white laeling /arty and will not recogni=e the IS: as the originator of the /roduct2 n $riginal E)ui/1ent &anufacturer will source co1/onents fro1 IS:s4 e1ed the1 in her own /roducts and ta3e the full /ac3age to the 1ar3et under her own rand4 thus the su//liers to an $E& are in*isile to the custo1ers of the $E&2 $nly *ery /owerful su//liers such as Intel and &icrosoft can enforce an 866 inside5 randing /olicy2 &ost other su//liers ill ha*e to li*e with the anony1ity in the final /roduct and unless the IS: can get his lael on the co*er of the PC or 1aintain his own rand *is0^0*is the custo1er (hite Laels and $E&s are clearly not a Channel4 ut custo1er seg1ents in their own right2 I allow that they are not ty/ical custo1ers in so far as our sales to the1 are a function of their sales to their custo1ers2 !owe*er4 their custo1ers are not our custo1ers and our /roducts enNoy no rand affinityY they donWt e*en 3now that we e6ist2 I often ha*e heated discussions with 1y colleagues in the software industry on the nature of white laeling and $E& relationshi/s2 I consider $E& and white laeling relationshi/s as custo1er relationshi/s and not channel relationshi/s2 I dis)ualify $E& and white laeling /arties as /artners ecause they do not carry 1y rand to the custo1ers2 (ith $E& and white laeling /arties I cannot uild rand awareness with their custo1ers2 I cannot eco1e the leading /layer in any 1ar3et seg1ent though $E& and white laeling ecause I a1 0 and re1ain 0 co1/letely un3nown2 Thus $E& and (hite Laels eco1e 1y custo1ers and not 1y channel2 SALES AGE"T
A Sales Agent is an inde/endent third /arty co1/any Doften Nust a single /erson re/resenting the IS: in the sales acti*ities ai1ed at winning custo1ers or recruiting channel /artners for the IS:Ws /roducts2 :ery often the Sales Agent is already well estalished in the 1ar3et seg1ent in )uestion with good connections to /otential custo1ers and channel /artners2 In this res/ect the Sales Agent acts 1ore as an inter1ediary or a ro3er as his 1ain interest is 1aintaining his good relationshi/s with the /otential custo1ers and channel /artners rather than with the IS:s who co1e and go2 In other industries the Sales Agent ty/ically wor3s on co11ission only4 ut with long sales cycles this re1uneration conce/t doesnWt wor3 well in the software industry2 !ere the Sales Agent ty/ically wor3s with a fi6ed 1onthly retainer4 acti*ity ased onuses4 a co11ission on sales acco1/lished and rei1urse1ent of e6/enses2 Are Sales Agents channel /artnersR "o2 In the software industry Sales Agents ty/ically re/resent the IS: Doften with a usiness card /retending that she is on the /ayroll of that IS: and the final co11ercial relationshi/ is always etween the IS: and the custo1er2 In 1ar3ets with only a few4 ut large deals4 IS:Ws 1ay e re/resented y Sales Agents on a long ter1 asis4 otherwise Sales Agents are /ri1arily engaged y s1aller IS:Ws who cannot afford to hire their own sales /eo/le in a new 1ar3et2 S;STE&S I"TEG%AT
%$A Syste1s Integrator wor3s on ehalf of custo1ers hel/ing the1 integrate4 i1/le1ent and 1anage IT syste1s2 $fficially there is no for1al relationshi/ etween IS:s and Syste1s Integrators2 The software used y the custo1er is not ac)uired though the Syste1s Integrators4 ut through other sources2 If a Syste1s Integrator deli*ers /roducts to her custo1ers then she y definition eco1es a :alue Added %eseller2 his definition 1ay see1 tortuous4 ut there is a sustantial difference etween eing a :alue Added %eseller and eing a Syste1s Integrator2 The Syste1s Integrator is su//osed to e wor3ing e6clusi*ely for the custo1er2 The custo1er e6/ects that the Syste1s Integrator is inde/endent of econo1ic interests with third /arties2 The Syste1s Integrator cannot 1aintain her inde/endent status if she has a *ested interest in selling software on which she recei*es a 1argin2 Syste1s Integrators are not channel /artners4 ut rather a grou/ of co1/anies that ha*e an indirect influence on the decision 1a3ing /rocess with certain custo1er seg1ents and that are critical for deli*ering the au6iliary ser*ices re)uired for /roNect success2 (hat we consider Syste1s Integrators in the real world are often a co1ination of the IS:4 :A% and Syste1s Integrator roles2 There is no law against reselling so1eoneWs software4 de*elo/ing your own software and integrating other /eo/leWs software within the walls of the sa1e co1/any and 1any of the iggest Syste1s Integrators in the software industry now /erfor1 hyrids of all these roles2 S
A susidiary is a fully owned Dy the 1other co1/any o/eration res/onsile for certain usiness acti*ities2 Susidiaries are fully controlled y their 1other co1/anies and thus re/resent the 1ost direct and effecti*e way of i1/le1enting a gloal strategy2 !owe*er4 they are e6/ensi*e to estalish and run and they also re)uire a corres/onding 1anage1ent infrastructure at the head)uarter le*el2 ll the large IS:s ha*e gloal susidiaries ta3ing care of their usiness interests irres/ecti*e of whether they ha*e a direct or an indirect channel a//roach to the 1ar3et2 Large :A%s4 Syste1 Integrators4 :A#s etc2 also ha*e a head)uartersusidiary for1at for their gloal o/erations2 ny co1/any in the software industry affected y local re/resentation 1ust at so1e stage e /re/ared to estalish a head)uartersusidiary infrastructure if they ha*e a1itions for assu1ing /ositions as gloal 1ar3et leaders2 $I"T :E"T<%E
A oint :enture is a usiness setu/ with two or 1ore /arties sharing the in*est1ents4 1anage1ent and PL of an o/eration2 In the software industry front office oint :entures are often an inter1ediate ste/ when 1o*ing into a new territory where the inco1ing /arty rings the /roduct and the local /arty rings the infrastructure needed to accelerate 1ar3et /enetration and 1anage1ent2 oint :entures are not *ery /o/ular in the software industry2 Although oint :entures in theory offer 1any enefits4 they are difficult to estalish and o/erate when the ti1ing of the results are hard to /redict2 As the outco1e of the /enetration of new 1ar3ets y default is *ery hard to /redict4 1ost co1/anies /refer to a//oint an e6clusi*e :alue dded #istriutor in a new 1ar3et and then ac)uire this distriutor when the ti1e is right for a direct re/resentation2 ?%A"C!ISE
The franchise for1at so /o/ular in 1any industries has ne*er 1ade any sustantial inroad into the software industry2 he for1at o/erates with the ?ranchisee who faces the custo1ers and the ?ranchisor who holds the intellectual /ro/erty rights to the /roducts and usiness /rocesses2 The ?ranchisee ac)uires a license allowing her access to a ?ranchisorWs /ro/rietary 3nowledge4 /rocesses and trade1ar3s in order to allow her to sell a /roduct or /ro*ide a ser*ice under the ?ranchisorWs rand na1e2 In e6change for gaining the franchise4 the ?ranchisee usually /ays the ?ranchisor an initial start0 u/ fee and recurring licensing fees related to /erfor1ance2 The 1ain reason for the lac3 of success in the software industry is the traditional focus on the /roducts and 1uch less on the /rocesses re)uired to find4 win and 1a3e ha//y custo1ers Dthe *alue chain2 IS:s ha*e ty/ically not een ale to4 or ha*e e6/ressed little interest in /roducti=ing the usiness /rocesses re)uired to dri*e the full *alue chain2 I elie*e we will see 1any 1ore ?ranchise 1odels in the software industry in the future2 As the /roducts eco1e 1ore and 1ore ali3e and it eco1es steadily easier to catch u/ on functionality4 the /rocesses around the /roducts eco1es 1uch 1ore i1/ortant2 The e1/hasis will shift fro1 the /roduct itself to the /rocesses associated with finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers2 Getting 8est /ractice5 a//roaches i1/le1ented fast eco1es a critical /ath to 1ar3et leadershi/2 As uilding susidiaries fast is e6t re1ely ca/ital intensi*e and ris3y4 the ?ranchise a//roach offers an attracti*e alternati*e4 where the ?ranchisee has a clear u/side as o//osed to the salaried country 1anager2 I thin3 we will see the ?ranchise 1odel introduced at the :A# le*el first and then on the :A%%eseller le*el ne6t2 &ASTE% ?%A"C!ISE
A &aster ?ranchise re/resents the ?ranchisor and is res/onsile for recruiting and 1anaging ?ranchisees in a s/ecific geogra/hic 1ar3et2
APPE"#IX B This A//endi6 includes an in0de/th re*iew of the 1ethodology and *ocaulary that will hel/ us uild /owerful /artner channels if and when that route to 1ar3et is a*ailale2
T!E B
Ale6ander $sterwalder and ;*es Pigneur /ulished the oo3 Business &odel Generation in +,,2 The oo3 is /ri1arily ased on $sterwalderWs research DPh2#2 dissertation2 In the s/an of Nust a few years the usiness 1odel can*as and the for1ats used y $sterwalder and Pigneur ha*e s/read li3e wildfire all o*er the world2 $sterwalder and Pigneur didnWt in*ent the conce/t of 8the usiness 1odel45 ut they /ro*ided a /recise and consistent definition and 1ade the conce/t co1/rehensile and o/erational2
?igure +,K The usiness 1odel can*as2
(ith the usiness 1odel can*as we see the ig /icture instantly2 ;es4 this is a HQ,0degree de/iction of a usiness_ The s1all gra/hical icons su//ort our i11ediate understanding and our aility to 1e1ori=e the /icture2 It ta3es Nust + /ages to descrie the nine uilding loc3s that 1a3e u/ the usiness 1odel2 Each of the /ages is rich on gra/hics and is seg1ented into short /aragra/hs2 Co1/ared to 1ost other usiness oo3s we are in a co1/letely different and 1uch 1ore co1/rehensile uni*erse2
:AL
?igure +K The custo1er *alue /ro/osition is 1uch 1ore than Nust the /roduct2
(e ha*e a co1e a long way fro1 the day where we tal3ed /ri1arily aout our /roducts and ser*ices to the /resent day where we first and fore1ost tal3 aout *alue /ro/ositions +
2 The *alue /ro/ositions are o*iously ased on the /roducts and ser*ices we /ro*ide to our custo1ers4 ut instead of focusing on the features and functions of our /roducts and ser*ices we translate these features and functions into the enefits and *alue they create for our custo1ers2 (hen Geoffrey &oore /ulished his fa1ous oo3 8Crossing the Chas1 H
5 in he also coined the conce/t of 8the whole /roduct5 as the co1ination of /roducts and ser*ices re)uired for a custo1er to get the full enefit*alue of our /roducts andor ser*ices2 The software industry is full of usiness 1odels where there is a 1aNor difference etween the /roductser*ice and 8the whole /roduct25 ust thin3 of usiness /rocess o/ti1i=ation software that is worthless wit hout usiness /rocess standardi=ation4 i1/le1entation4 custo1i=ation4 integration4 training and su//ort2 As this oo3 is focusing on Le*el +0H *alue0add ty/e software co1/anies the *alue /ro/ositions are always *ery different fro1 the *irtues of our /roducts and includes such ite1s as do1ain focus4 insight and e6/erience4 custo1er testi1onials4 consulting and i1/le1entation ca/ailities4 solidity and 1ar3et /osition2 The /ur/ose of our *alue /ro/osition is to e6/lain to our ideal custo1ers the great *alue we can /ro*ide co1/ared to their alternati*es O
and the low ris3 that choosing us re/resents2 Le*el +0H software co1/anies always need two layers in their custo1er alue /ro/ositionsK he generic custo1er *alue /ro/osition is the /osition we ta3e when co11unicating to the 1ar3et2 This *alue /ro/osition will hel/ all /otential custo1ers understand what they can e6/ect fro1 us2 he s/ecific custo1er *alue /ro/osition is designed for the indi*idual custo1er as we engage in the s/ecific /roNect learning which e6act oNecti*es that our custo1er is /ursuing2 (hen we choose to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers through inde/endent channel /artners4 we then need to co1/le1ent our custo1er *alue /ro/ositionDs with /artner *alue /ro/ositions2 The inde/endent channel /artners 1ay e e6cited aout4 ut are ne*er 1oti*ated to in*est in the /artnershi/ y the *irtues of our /roducts /er se2 They are 1oti*ated y the o//ortunity to uild a /rofitale usiness with and around our /roducts2 The /artner *alue /ro/osition e6/lains this o//ortunity and how we hel/ 1a3e that ha//en2 $nly the 1a3ing of 1any successful /artners will 1a3e us successful2 Alas4 the res/onsiility for 1a3ing our inde/endent /artner channel successful re1ains on our shoulders2 (ith the declining cost of 1a3ing software and with the increased trans/arency /ro*ided y the Internet4 there are 1ore
software co1/anies with /roducts loo3ing for inde/endent channel /artners than there are inde/endent channel /artners loo3ing for software co1/anies with /roducts2 &a3ing it to 1ar3et leadershi/ with an indirect channel a//roach therefore re)uires *ery /owerful custo1er and /artner *alue /ro/ositions2 $nce we ha*e recruited the /artners we then need to understand their custo1er *alue /ro/ositions and 1ore often than not we e*en ha*e to hel/ the1 craft targeted and /owerful *alue /ro/ositions4 ecause that is funda1ental for success in the 1ar3et4 ut unfortunately also *ery difficult for 1ost 1ar3eters2
C
?igure ++K &ar3et seg1entation is crucial for all software co1/anies and lea*ing this e6ercise to the inde/endent channel /artner re/resents oth a ris3 and an o//ortunity2
(ho are our ideal custo1ersR #o we e*en ha*e to as3 that )uestion if we /ass the res/onsiility for 1ar3eting and sales Dand 1ore to inde/endent channel /artnersR I ha*e se*eral e6a1/les of inde/endent channel /artners who ha*e 1is0/ositioned a B+B software /roduct in the 1ar3et2 he agony of dealing with unha//y resellers and custo1ers is ti1e consu1ing and the da1age to the rand can e *ery high as ru1ors and the industry news 1edia /ic3 u/ on unha//y custo1er e6/eriences2 (here inde/endent channel /artners 1ay e6tend our 1ar3et reach they 1ay also ring our /roducts to seg1ents in the 1ar3et where there is a *ery /oor fit2 Partners 1ay /ush hard on us to retroacti*ely /ro*ide this fit ecause they are co1fortale in this seg1ent4 and the custo1ers4 who ha*e ac)uired our /roduct and e6/erience incon*eniences will do the sa1e2 he ris3 for SAP4 $racle4 &icrosoft4 IB&4 and other ig software co1/anies of /artners 1is0/ositioning their /roduct is negligile4 ut for the start0u/ and s1aller software co1/any it can e downright de*astating2 (hen we only ha*e tiny 1ar3et shares and only entertain a few /artners4 their 1ista3es will reflect ac3 on us2 That is not the case when we are a Le*el H 1ature 1ode co1/any with solid 1ar3et shares and hundreds or thousands of /artners2 Precise 1ar3et seg1entation and identification of the ideal custo1ers are critically i1/ortant on the /ath to gloal 1ar3et leadershi/ in the software industry when we choose the inde/endent channel /artner a//roach2
(e ha*e to e *ery /recise in defining our ideal custo1er /rofiles and wor3 *ery closely with our inde/endent channel /artners hel/ing the1 understand where they should focus their sales and 1ar3eting efforts2 This focus on carefully selected custo1er seg1ents is crucial4 es/ecially in the early days of our /ath to 1ar3et leadershi/2 The faster we can clai1 and e recogni=ed as the 1ar3et leader in a certain seg1ent the sooner we will e caught y Geoffrey &ooreWs /ro*erial tornado2 In the tornado we donWt need to worry aout getting custo1ers4 ut 8only5 to worry aout uilding de1and fulfill1ent ca/acity and that is a wonderful /role1 to wrestle with2
As a Le*el +0H 1ature 1ode ty/e software co1/any we delierately want to 1a3e sure that our channel /artners do not target the e6act sa1e custo1ers2 As we grow the nu1er of /artners we will first and fore1ost e concerned with ensuring geogra/hical 1ar3et co*erage2 The channel /artner that we first sign u/ in a geogra/hic 1ar3et will enNoy her solitude and e so1ewhat concerned when we a//oint the second channel /artner2
?igure +HK The indirect channel is a third /arty usiness 1odel in our own usiness 1odel2
The Channel is the choices we 1a3e for how to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers2 The word 8channel5 is ty/ically used in the software industry to descrie inde/endent co1/anies that assu1e *arious roles and oligations in ringing a software /roduct to the custo1ers2 The definition is rather road4 since the roles and oligations can *ary sustantially fro1 8si1/le5 reselling to syste1s integration4 solution de*elo/1ent on to/ of our software4 i1/le1entation in ter1s of consulting4 /roNect 1anage1ent4 custo1i=ation4 training and su//ort2 In order to co1/ly with the usiness 1odel ter1inology we should distinguish etween the direct channel a//roach and the indirect channel a//roach2 The direct channel a//roach 1eans e1/loying our own sales4 1ar3eting and su//ort resources and de/loying the1 in the acti*ities ai1ed at finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers2 The indirect channel a//roach 1eans contracting with inde/endent third /arty co1/anies that e1/loy their own de*elo/1ent4 /roduct 1anage1ent4 1ar3eting4 sales and su//ort resources and de/loy the1 in the acti*ities ai1ed at finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers Dfor the1 and us2 hus loo3ing at the usiness 1odel fro1 the /ers/ecti*e of a Le*el +0H *alue0add software co1/any the inde/endent channel /artners eco1e 1uch 1ore than Nust a 1ar3eting and sales channel2 The channel /artners for1 an eco0syste1 that enales us to reach 1uch further than we could e*er do on our own2 "o co1/any in any industry on the /lanet can acco1/lish the sa1e alone as they can acco1/lish coo/erating with e6ternal /artners and in the software industry inde/endent channel /artners not only e6tend the si1/le /enetration4 ut e6tend and co1/le1ent our *alue /ro/osition reaching into corners of the 1ar3et that we would ne*er e ale to reach alone2 &any software co1/anies eha*e as if they 8own5 their inde/endent resellers and can co11and the ways they should o/erate2 This /erce/tion and the associated eha*ior is one of the 1ain root causes for failure with an indirect channel in the software industry2 The inde/endent channel /artners are inde/endent enter/rises with inde/endent a1itions4
/ersonalities4 ac3grounds4 eliefs4 strategies4 *alue /ro/ositions and PL2 They 1ay e s/eciali=ed s1all and 1ediu1 si=ed owner01anaged co1/anies or they 1ay e 1ediu1 and large enter/rises with hired 1anage1ent and a road line of /roducts and ser*ices2 Each and e*eryone has their own agenda and issues and do not consider the1sel*es our channel_ They 3now that we define the1 as our channel /artners4 ut they o*iously stri*e to stay as inde/endent as /ossile 1ini1i=ing the ris3 associated with our choice of strategy and eha*ior2 In the usiness 1odel ter1inology our inde/endent channel /artners consider their software *endors their 3ey /artners4 i2e a /art of their usiness 1odel ac3 office2 (hen using the usiness 1odel ter1inology we also a*oid the 1ista3e of considering the inde/endent channel /artners as our custo1ers or our non0salaried 1ar3eting4 sales4 /re0sales4 i1/le1entation and su//ort staff2 I still hear software co1/any e6ecuti*es 1a3ing such state1ents and as I 1entioned ao*e nothing could e 1ore 1isleading2 Channel /artners are uilding their usinesses around reselling our /roducts2 They are not 8consu1ing5 our /roduct2 The usiness 1odels of the channel /artners are co1/letely different fro1 our own usiness 1odels as software co1/anies2 Channel Partners are not attracted /ri1arily y our /roduct and our custo1er *alue /ro/osition4 ut y the usiness that our /roduct can enale and facilitate for their usiness 1odel2 The usiness 1odel of a software co1/any and the usiness 1odel of her inde/endent channel /artners are not identical2 (hile we are a >ey Partner in her usiness 1odel she is an Inde/endent Channel Partner in our usiness 1odel2
C
?igure +OK The introduction of inde/endent channel /artners doesnWt 1ean that we should gi*e u/ all our relationshi/s with the custo1ers2
This usiness 1odel uilding loc3 defines how we est interact with our custo1ers to achie*e the highest /ossile le*el of custo1er satisfaction as well as o/ti1i=ing the re*enue strea1s fro1 and /rofitaility of our *alue /ro/ositions o*er the lifeti1e of the relationshi/s
2 In this corner of the usiness 1odel we are concerned with 3ee/ing churn down and 1a6i1i=ing custo1er lifeti1e *alue2 I delierately use the ter1 8 our custo1ers25 Although 1ost software co1/anies using the indirect channel a//roach o*er ti1e will lea*e 1any of the custo1er relationshi/ acti*ities to their channel /artners4 we should still consider the custo1ers our custo1ers2 If and when the custo1er gets unsatisfied with her /artner we should e ale to acco11odate the shift to another /artner without losing the custo1er to one of our co1/etitors2 The /ath to gloal 1ar3et leadershi/ goes through uilding a rand2 Although our /artners 1ay create 1ost of the total *alue deli*ered to our custo1ers we want to 1a3e sure that the custo1ers 1aintain affinity to our rand and not only to the rand of the indi*idual channel /artner2 The one relationshi/ a software co1/any should ne*er e*er lea*e to their channel /artners is the license
Q
relationshi/2 The right to use the software should e /assed directly fro1 the software co1/any to the end user2 "ot only in legal ter1s4 which is always the case4 ut also in /ractical ter1s2 Thus a software co1/any should 3now ALL their licensees2 This funda1ental /rinci/le also a//lies for Software0as0a0Ser*ice and Cloud0ased deli*ery for1ats2 (hen software co1/anies use the indirect channel a//roach their custo1er relationshi/s ty/ically ec o1e i1/ersonal and unilateral2 Custo1ers 1ay recei*e e1ail newsletters fro1 the /rinci/al and they 1ay suscrie to her Twitter and other social 1edia u/dates and we will ty/ically 1aintain a one0to01any co11unication a//roach to our custo1ers2 !owe*er4 we need to /ro*ide the custo1ers with an easy /ath to reach out to us if they are not /leased with their current channel /artner and want another one2 &any software co1/anies 3ee/ trac3 of the le*el of custo1er satisfaction and use this 1etric to rate the status of their inde/endent channel /artners and this certainly 1a3es sense2 !a//y custo1ers are the 1ost secure /ath to getting and retaining 1ar3et leadershi/ and we donWt want to lose control of this le*er2 o su//ort our /roduct 1anage1ent function we also need direct relationshi/s with custo1ers fro1 who1 we can learn hat should e included or changed in the core /roducts in future releases2 (e cannot afford to only listen to the inde/endent channel /artners and how they inter/ret what we should de*elo/ and what we should lea*e the channel to /ro*ide2 %E:E"
?igure +K (hen we use inde/endent channel /artners then we will also gi*e u/ all the au6iliary re*enue strea1s2
$ur efforts in selling our *alue /ro/ositions to our custo1ers should generate re*enue2 The re*enue sources can e /lentiful including licenses4 suscri/tions4 consulting4 training4 /roNect 1anage1ent4 custo1i=ation4 integration4 software engineering etc2 The software industry is rich on usiness 1odels where the software 1ay e the core /roduct4 ut in 1any cases the au6iliary ser*ices generate the iggest re*enue and gross 1argin /ro*ider in the usiness 1odel2 s 1entioned ao*e4 the re*enue strea1s fro1 au6iliary /roducts can often e financially greater and 1ore nu1erous than the re*enue fro1 the software itself and this is a challenge as well as an o//ortunity2 (hen the software itself is Nust a 1inor /art of the whole /roduct4 then there is an attracti*e *alue creation o//ortunity for the inde/endent channel /artners2 !owe*er4 the learning cur*e is then corres/ondingly long and stee/ for new channel /artners2 (hen there is only li1ited au6iliary re*enue strea1s associated with a software /roduct4 then the learning cur*e for new inde/endent channel /artners is short and flat2 $n the other hand the long ter1 /otential is less attracti*e and the /roduct less stic3y2 Products that are easy to ta3e on0oard4 fro1 the *iew of an inde/endent channel /artner4 are also easy to re/lace2 ?or Le*el +0H *alue0add software co1/anies using inde/endent channel /artners to find4 win4 1a3e4 3ee/ and grow ha//y
custo1ers 1eans lea*ing a /ortion of the /roduct re*enue and 1ost of the au6iliary re*enue to the /artners2 The 1ore re*enue a /roduct can generate for a channel /artner the 1ore interesting the usiness o//ortunity will e in the long run2 s our only source of re*enue co1es fro1 the software
we ha*e to carefully 1anage how we share this re*enue strea1 with our channel /artners2 Initially4 channel /artners focus hea*ily on the 1argin they recei*e fro1 us4 ut as the relationshi/ de*elo/s they learn that the 3ey to /rofitaility is in the au6iliary ser*ices2 &argins are li3e staff salariesY a hygiene factor that 1ay cause dissatisfaction4 ut on the other hand does not generate changes in eha*ior2 (e can use different le*els of 1argins to sti1ulate certain eha*ior4 such as /ro*iding higher 1argins for higher *olu1es of sales4 ut as re*enue for Le*el +0H *alue0add software co1/anies is /roNect dri*en rather than /roduct dri*en and as our share of the /roNect re*enue is fairly s1all4 then the le*el of 1argin will only ha*e 1inor 1oti*ational i1/act on the eha*ior of our channel /artners2 I therefore reco11end Le*el +0H *alue0add software co1/anies to 3ee/ the 1argin they /ass to their inde/endent channel /artner as low as /ossile and 1oti*ate with other incenti*es and su//ort acti*ities that steer the /artners in the direction we want the1 to ta3e2 #o we generate re*enue fro1 the inde/endent channel /artners4 which is not co1ing fro1 the custo1ersR ;es we do4 ut that should e considered a cost relief rather than genuine re*enue2 (e will charge for training4 certification4 /artner e*ents and we 1ay e*en charge a fi6ed recurring 1e1ershi/ fee in e6change for access to our channel /artner /latfor1s2 Charging the inde/endent channel /artners for these ser*ices 1a3es good sense2 If the ser*ices we /ro*ide ha*e *alue then they should also ha*e a /rice tag2 The cost relief will enale us to /ro*ide 1ore and etter ser*ices and it will force us to ensure the )uality of the ser*ices4 ut it should ne*er constitute a /ri1ary re*enue source2 $ur aility to charge for non0re*enue related ser*ices such as training and certification always de/ends on the /ower alance etween the channel /artners and us2 If the channel /artner has a huge foot0/rint in the 1ar3et that we would li3e to access4 then she will o*iously use this /osition to negotiate fa*orale ter1s and conditions with us2 (e will e te1/ted to offer custo1i=ed ter1s and conditions 1oti*ated y the sales *olu1e e6/ected later on2 !owe*er4 that 1ay ne*er 1ateriali=e2 There is no guarantee that large organi=ations will actually /erfor1 well2 &y own e6/erience is that it ta3es 1aNor effort to 1a3e large organi=ations /erfor1 well for us2 E; %ES$<%CES
?igure +QK The 3ey resources in the software industry are /eo/le and those re)uired for 1anaging the indirect /artner channel are *ery different fro1 those re)uired for ser*ing the custo1ers directly2
The 3ey resources in the software industry are 1oney and /eo/le and the only thing you can do with the 1oney is hire 1ore and etter /eo/le2 Software co1/anies are *ery fortunate2 Co1/ared to 1ost other industries the software industry is e6tre1ely fi6ed0asset light2 Starting a software co1/any re)uires /eo/le4 co1/uters4 software and data co11unication networ3s2 There is no need for e6/loration underground4 laoratories4 ,0series4 1olding tools4 in*entories4 ?#A a//ro*al4 factories4 truc3s etc2 Starting a software co1/any 1ay re)uire less in*est1ent than starting as a hairdresser2 $n the other hand4 the software industry is cursed y the in*isiility of their /roducts and an enor1ous influ6 of new co1/anies2 Co11unicating the irtues of software /roducts re)uires s1art 1ar3eting and sales /eo/le Dest of all is a long list of ha//y custo1ers2 he nature of the 1ar3eting4 sales and su//ort resources needed are directly related to the custo1er *alue /ro/osition and to the choice of channel2 Selling directly to custo1ers is co1/letely different fro1 recruiting and 1anaging channel /artners4 who then in turn assu1e res/onsiility for finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers2 Choosing to ser*e the 1ar3et through an indirect channel of inde/endent /artners will create a need for resources to recruit4 su//ort and 1anage these /artners2 I cannot e1/hasi=e enough the fact that the s3ill sets re)uired to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers are not the sa1e s3ill sets re)uired to find4 win4 1a3e and 3ee/ /roducti*e inde/endent channel /artners2 !a//y custo1ers and /roducti*e /artners are two *ery different oNecti*es and if we ta3e the indirect channel route then we need to 1aster oth_ Choosing a go0to01ar3et a//roach ased on inde/endent channel /artners re)uires additional resources and s3ills in our organi=ation co1/ared to the direct a//roach2 (e still need to fully understand the entire usiness 1odel including how and why our custo1ers should /refer and ac)uire our /roducts4 ut in addition we now also need to understand how to o/erate our usiness 1odel through inde/endent channel /artners and we need the resources and s3ills re)uired to find4 recruit4 enale and grow these /artners2 If we didnWt originally de*elo/ our *alue /ro/osition ased on ser*ing the 1ar3et through inde/endent channel /artners4 then we 1ay ha*e to redesign our /roducts to 1a3e the1 1ore attracti*e for the /artners2 Si1/ly ta3ing a usiness 1odel ased on a direct channel a//roach and re/lacing the channel will not wor3 unless we re0engineer the rest of the usiness 1odel including the *alue /ro/ositions2 I often co1e across software co1/anies that are unsuccessful with their direct channel ased usiness 1odel elie*ing that y changing the channel they will eco1e successful2 I can al1ost guarantee that without a 1aNor usiness 1odel reengineering this a//roach will fail2 The 3ey resources are closely related to the all the uilding loc3s in the front0office of our usiness 1odel4 thus changing the channel a//roach re)uires changes to the 3ey resources also2 >E; ACTI:ITIES
?igure +FK The 3ey acti*ities associated with 1anaging indirect /artner channels are *ery different fro1 those associated with ser*ing the custo1ers2
To run a software co1/any your >ey %esources 1ust /lan and e6ecute certain >ey Acti*ities in order to /roduce 1ore re*enue than cost and thus generate a /rofit2 gain4 the software industry is *ery fortunate2 $ther industries ha*e to carefully 1anage their su//ly chains ensuring that they ha*e neither too 1uch nor too little su//ly a*ailale to 1eet future de1and2 Industries dealing with /hysical /roducts need to 1anage field engineering changes to already shi//ed /roducts and so1e industries ha*e to 1anage s/are /arts and otain ?#A a//ro*al2 &ost of the co1/anies in the software industry donWt need to worry aout such critical4 ti1e consu1ing and e6/ensi*e issues2 software co1/any 1ust 1aster Nust three 1aNor acti*itiesK 2 #e*elo/ and su//ort /roducts and ser*ices that custo1ers really need and want2 B2 Sell these /roducts and ser*ices at a /rice generating enough gross 1argin cost to co*er the fi6ed %#4 ad1in and sales1ar3eting cost2 C2 Su//ort these /roduct ensuring custo1ers stay and grow2 (hen a software co1/any chooses to a//roach the 1ar3et through inde/endent channel /artners they will need to 1aster a fourth set of acti*itiesK #2 ?ind4 recruit4 enale and grow /roducti*e /artners2 (ill the choice of a//roaching the 1ar3et through inde/endent channel /artners 1a3e the need for category B ty/e acti*ities osoleteR "o2 If we ha*e no /ractical e6/erience with what it ta3es to sell and su//ort our software to the custo1ers4 then we will not e ale to recruit the right /artners and 1anage the1 successfully2 This wasnWt the case +, years ago4 ut today the software industry has 1atured2 The inde/endent channel /artner landsca/e has eco1e 1uch 1ore /rofessional and e6/ects the software *endors to /ro*ide 1uch 1ore than Nust a co1/etiti*e /roduct2 Software co1/anies that choose to ser*e the 1ar3et through inde/endent channel /artners 1ust understand the full *alue chain of their usiness A"# 1ust ha*e a fra1ewor3 for finding4 winning4 1a3ing and growing successful inde/endent channel /artners2 he acti*ities re)uired for finding4 recruiting4 enaling and growing /roducti*e /artners are sustantially different fro1 the acti*ities re)uired for finding4 winning4 1a3ing4 3ee/ing and growing ha//y custo1ers2 (e need to 1aster and e6ecute oth sets of acti*ities for at least the first ,0 years as we hel/ our inde/endent channel /artners eco1e successful2 (e need to 1aintain solid lead generation acti*ities that feed the channel with /otential sales o//ortunities and we need to coach the sales /rocess ensuring that the deals get closed and the /artners learn how to do usiness with our /roduct2 $ur inde/endent channel /artners e6/ect to 3now our /lans for the future and they e6/ect us to listen to their co1/laints and suggestions2 (or3ing through an indirect channel re)uires that we e 1uch 1ore structured in our /roduct su//ort4 /lanning and release /rocesses2 (ith an indirect channel the /roduct 1anage1ent function eco1es a 1uch 1ore critical cog etween the 1ar3et and our %# resources2 Selecting the indirect a//roach adds layers of co1/le6ity to our usiness 1odel and de1ands additional resources4 s3ills and acti*ities2 The /ayoff co1es later in the for1 of the /otential 1ulti/lication le*er when we ha*e de1onstrated that e can actually find4 recruit4 enale and grow these /artners on a gloal scale2 >E; PA%T"E%S DS
?igure +K Software co1/anies ha*e few 3ey /artners and our inde/endent channel /artners are not in this category2
In the usiness 1odel ter1inology our inde/endent channel /artners are not our 3ey /artners2 In the usiness 1odel ter1inology 3ey /artners are /ri1arily su//liers that hel/ us o/erate the usiness 1odel ac3 office2 In 1ost other industries the su//ly chains are e6tre1ely critical2 Co1/anies rely on their su//liers and when su//liers fail co1/anies fail2 That is *ery seldo1 the case in the software industry and 1ost Le*el +0H *alue0add software co1/anies do not ha*e any 3ey /artners at all2 If we are o/erating within the ecosyste1 of one of the ig Le*el +0H software co1/anies D$racle4 SAP4 &icrosoft4 utodes3 etc2 then we will o*iously ha*e the1 as our 3ey /artners and whate*er they decide 1ay ha*e a /rofound i1/act on our usiness and therefore we o*iously follow the1 closely2 !owe*er4 the Le*el +0H software co1/anies are also de*elo/ing their software using standard de*elo/1ent tools and seldo1 ha*e inti1ate relationshi/s with their endors2 $ur inde/endent channel /artners ha*e us as their 3ey /artner and we will wor3 hard to 1a3e that de/endency as strong as /ossile Dwe call it loyalty_2 $n the other hand our inde/endent channel /artners are not our 3ey /artners and we will or3 hard to a*oid any de/endency2 (e do not want to rely on the success of any single channel /artner as that is funda1entally eyond our control2 In other industries the 83ey /artners5 /lay *ital roles in e6tending the ca/ailities of the /rinci/als and the 1anage1ent of su//liers is often a 3ey co1/etence in such industries2 That is not the case in the Le*el +0H software industry4 where /rinci/als do not ha*e any4 or *ery few 83ey /artners25 C$ST
?igure +K Software co1/anies ha*e cost of de*elo/1ent and cost of sales4 ut hardly any costs associated with roduction2 The 1igration to a cloud ased deli*ery for1at introduces sustantial cost of o/eration although the 1arginal cost is still *ery s1all co1/ared to other industries2
The usiness 1odel 8ac3 office5 creates cost and again the software industry is *ery different fro1 1ost industries2 The software industry has fi6ed ca/acity costs and al1ost no *ariale costs2 he 1arginal cost of /roducing an additional co/y of a software /roduct or adding an e6tra suscrier to a SaaS ser*ice is *ery close to =ero2 !owe*er4 the au6iliary ser*ices re)uired for i1/le1enting the software 1ay ha*e considerale *ariale cost2 This /heno1enon e6/lains why 1any software co1/anies start out with a direct channel a//roach where they enNoy the re*enue strea1 generated y the au6iliary ser*ices4 which often hel/ s/onsor the initial de*elo/1ent of the software2 The de*elo/ers ty/ically deli*er the ser*ices in the early days of the life of a software co1/any and as ti1e /asses the de*elo/1ent is se/arated fro1 su//ort and i1/le1entation4 which then eco1e se/arate /rofit centers2 Software co1/anies with considerale su//ort and i1/le1entation re)uire1ents ha*e a *ery hard ti1e changing their usiness 1odels fro1 a direct channel a//roach to an indirect channel a//roach2 I1agine that we /ro*ide software0 ased solutions where the software re*enue re/resents +] of total re*enue2 (e consider introducing the indirect channel a//roach and our /artner *alue /ro/osition loo3s attracti*e since the /artners are to /ro*ide the ser*ice /ortion2 LetWs assu1e that we need to /ro*ide the inde/endent channel /artner with a O,] discount on the list /rice2 Shifting to the indirect channel a//roach will then lea*e us with only ] ,
of the re*enue fro1 each deal co1/ared to the situation where we deli*ered directly2 &a3ing this shift will re)uire in*est1ent in resources and acti*ities needed for finding4 recruiting4 enaling and growing these /artners on a gloal scale2 !ow soon will these in*est1ents /ay offR $ne of the 1ost i1/ortant cost ele1ents in the Le*el +0H *alue0add software industry is the Custo1er Ac)uisition Cost2 ?inding4 winning and 1a3ing new custo1ers 1ay e a lengthy and thus e6/ensi*e /rocess2 Enter/rise and S&B custo1ers in the 1ar3et for software solutions with ig /rice tags and of strategic and o/erational i1/ortance will run decision 1a3ing /rocesses in*ol*ing co11ittees of sta3eholders and e6ternal consultants2 The *endors will ha*e to go through a series of de1os4 wor3sho/s and tests efore the final choice is 1ade2 (hen we shift fro1 a direct channel to an indirect channel we will ha*e to /erfor1 the acti*ities and e1/loy the resources to 1aster channel recruit1ent and 1anage1ent as well as stand side y side with the /artners 1astering the direct sales /rocess2 Thus such a shift re)uires 1aNor in*est1ents for a nu1er of years efore we ha*e channel /artners that can /erfor1 on their own and we can enNoy the e6tended reach and 1ulti/lication rewards2
T!E B
(hen we ta3e a close loo3 at the usiness 1odel can*as we notice the asence of so1e significant areas i1/acting u/on our usiness2 (here do we deal with the co1/etition4 the technology trends4 the legal and en*iron1ental issues4 the gloal econo1y4 culture etc2 etc2R "o usiness 1odel li*es in a *acuu1 and the toughest /art in usiness is actually dealing with the issues that we cannot control2 The usiness 1odel en*iron1ent re/resents all the /ara1eters and *ariales that we cannot control2 The usiness 1odel en*iron1ent will e6/ose us to ris3 factors that we 1ust 1itigate4 ut also to o//ortunities that we can and should ta3e ad*antage of2 A//lying the usiness 1odel fra1ewor34 ut ignoring t he usiness 1odel en*iron1ent is not going to wor3 well2
?igure HK The usiness 1odel en*iron1ent4 re/resenting all the factors that we do not control4 should not e ignored2
The usiness 1odel en*iron1ent is di*ided into four
1aNor areasK 2 >ey Trends +2 &ar3et ?orces H2 Industry ?orces O2 &acro Econo1ic ?orces $sterwalderWs four usiness 1odel en*iron1ent forces are fairly co1/rehensi*e and co1/lete and will wor3 well for 1ost software dri*en co1/anies when used in a channel de*elo/1ent conte6t2 (or3ing with our inde/endent channel /artners we will s/end considerale ti1e discussing the usiness 1odel en*iron1ent and it eco1es /ara1ount that we ha*e a shared fra1ewor3 hel/ing us with the analysis and with 1a3ing o/erational conclusions2 $sterwalderWs usiness 1odel en*iron1ent fra1ewor3 can e learned and i1/le1ented in a 0 day wor3sho/ and will also hel/ us to distinguish etween /reNudices4 assu1/tions and facts4 which is re)uired when we recruit and ra1/0u/ new channel /artners and when we de*elo/ growth strategies with current /artners2 >E; T%E"#S
The 3ey trends includeK 2 Technology Trends +2 %egulatory Trends H2 Societal Cultural Trends O2 Socioecono1ic Trends &ost software0dri*en usiness 1odels recei*e sustantial i1/act fro1 the >ey Trends forces2 Actually the software dri*en industry is the 1ain technology dri*er in itself4 and co1ined the industry has 1ore i1/act on the usiness 1odel en*iron1ent forces than 1ost other industries2 he ra/id /roliferation of the Internet4 the standardi=ation of digital 1edia for1ats4 the acce/tance of s1art /ersonal 1oile co1/uters Ds1art /hones and talets4 the 8in*ention5 of a//s and a//s ecosyste1s4 the de*elo/1ent of the 8cloud54 the a*ailaility of in01e1ory analytical tools4 the Internet of things4 etc24 etc24 are all technology dri*ers enaling so1e co1/aniesW usiness 1odels to grow and scale ra/idly while co1/letely disru/ting other co1/aniesW usiness 1odels2 &any usiness 1odel en*iron1ent issues are of a gloal nature4 ut as we 1o*e into new geogra/hies the local legal4 culture4 language4 and 1ar3et re)uire1ents 1ay ha*e a /rofound i1/act on our own usiness 1odel ele1ents as well as on the usiness 1odel ele1ents of our local channel /artners2 &A%>ET ?$%CES
In the usiness 1odel ter1inology the 1ar3et re/resents our custo1ers Dcurrent and /otential4 their organi=ations4 the 1edia ser*ing the14 the consultants hel/ing the1 and other de1and side sta3eholders2 The 1ar3et forces includeK 2 +2 H2 O2 2
&ar3et Issues &ar3et Seg1ents "eeds #e1ands Switching Cost %e*enue Attracti*eness
Although 1ar3et forces also change o*er ti1e4 the 1ain consideration here is the nature of our /otential custo1ers7 situation4 needs and eha*ior associated with their /urchase and decision 1a3ing /rocess for our ty/e of /roductser*ice2 (hen we consider if we should ta3e the direct or indirect route to 1ar3et4 then we need to loo3 to the 1ar3et forces first4 ecause if the *alue added y the indirect channel isnWt recogni=ed y the /otential custo1ers4 then it will e hard to i1/le1ent and scale our usiness 1odel2 Are there circu1stances in the de1and side of the 1ar3et that s/ea3s in fa*or of a//lying an indirect channel a//roachR (hat *alue and enefits will our custo1ers get fro1 eing ser*ed indirectly y inde/endent channel /artners rather than y us directlyR If we donWt ha*e the answers at hand we 1ay ha*e to get out of the uilding and tal3 to so1e /otential custo1ers to hear what they ha*e to say on these issues2 If there is little or no *alue to our custo1ers y eing ser*ed y inde/endent channel /artners then we ha*e a /oor case for choosing this route2 As we recruit and ra1/0u/ /artners we will ha*e the e6act sa1e ty/e of discussion when loo3ing for growth o//ortunities for the indi*idual /artner4 where these do not collide directly with those of other /artners in the sa1e area2 Although we cannot and should not tell our channel /artners which strategy to choose we can hel/ y /ro*iding 1ar3et intelligence and oser*ations2 I"#
In the usiness 1odel ter1inology the industry forces /ri1arily re/resent our co1/etitors4 our /otential channel /artners4 our industry organi=ations4 the 1edia ser*ing us4 the consultants hel/ing us and other 8su//ly side5 sta3eholders2 The industry forces includeK 2 Co1/etitors Dincu1ents +2 "ew Entrants Dinsurgents H2 Sustitute Products Ser*ices O2 Sta3eholders 2 Su//liers other *alue chain actors (hen we consider choosing the indirect channel a//roach the industry forces also /lay a 1aNor role2 !ow do our co1/etitors o/erateR Is there a co1/etitor do1inating the /osition we want to ta3eR Is there an indirect channel for what we /ro*ide or will we ha*e to uild the channel fro1 scratchR Ta//ing into an e6isting channel is o*iously a 1aNor ad*antage while uilding the channel first is e6tre1ely difficult2 (hile the role of our channel /artners is to ser*e the custo1ers directly4 we will s/end lots of ti1e discussing co1/etition4 sustitution o/tions and other *alue chain actors Dstrategic alliances with our /otential channel /artners2 In the Le*el channel de*elo/1ent stage where we are still an un3nown rand and need to recruit 1any new channel /artners4 they will rely hea*ily on the co1/etiti*e analyses that we /ro*ide ecause they e6/ect us to ha*e the ig o*er*iew2 &a3ing it into the re/orts +
of the industry analysts is e6tre1ely i1/ortant4 gi*ing /otential channel /artners as well as their /otential custo1ers an inde/endent assess1ent of our /osition and aility to e6ecute2 &AC%$ EC$"$&IC ?$%CES
The 1acro econo1ic forces includeK 2 Gloal &ar3et Conditions +2 Ca/ital &ar3ets H2 Co11odities and $ther %esources O2 Econo1ic Infrastructure It certainly 1a3es sense to loo3 at the gloal &acro Econo1ic ?orces H
when designing our usiness 1odel to chec3 if there are long0ter1 trends that we can ta3e ad*antage of or that will re/resent threats2 !owe*er4 I donWt see this force ha*ing 1uch i1/act on our choice of channel a//roach2 The software industry itself differs fro1 1ost other industries y ha*ing a *ery sli1 su//ly side2 As the 1ain resource associated with de*elo/ing software is /eo/le and as the 1arginal cost of /roducing software is close to =ero4 the industry is only slightly affected y changes in the &acro Econo1ic ?orces2 ;es4 on the de1and side custo1ers will e 1ore reluctant in 1a3ing in*est1ents when ti1es are tough4 ut where co1/anies in*est in ca/acity e6/ansion when ti1es are good they also in*est in cost reductions when ti1es are tough4 and it 1ay in*ol*e the e6act sa1e software solutions2 It is also i1/ossile to /redict when and where ti1es will e tough and I cannot reco11end a//lying the gold digger 1entality O
and rushing to where the 1acro econo1ic analysts /redict the growth will 1o*e in the ne6t H0 years2 The /redictions are 1ostly inaccurate and the changes ha//en so )uic3ly that it 1a3es our li*es 1iserale constantly adNusting2 In any case4 uilding and 1anaging 1ar3et leadershi/ directly or indirectly has a 1uch longer /ers/ecti*e than the 1acro econo1ic trends2 lso4 the discussions we ha*e with our channel /artners will only e slightly affected y the 1acro econo1ic forces2 That 1any usiness /eo/le tend to la1e their 1isfortune on the 1ar3et4 the industry or the 1acroecono1ic trends doesnWt necessarily 1ean that there is such a cause and effect relationshi/2 &acro econo1ic forces are *ery hard to /redict4 so we are ty/ically etter off dealing with issues as they 1ateriali=e2
&A"AGI"G T!E B
(hile the entire usiness 1odel en*iron1ent is i1/ortant when designing our gloal usiness 1odel4 I reco11end focusing on the 1ar3et and industry issues when considering the choice of channel2 "o indi*idual alone in our organi=ation can /aint a holistic /icture of our usiness 1odelWs en*iron1ent and design s/ace2 $nly y 1a//ing out each s/ecialistWs 3nowledge can we de*elo/ a shared understanding of our en*iron1ent2 Although there is nothing in the usiness 1odel and usiness 1odel en*iron1ent a//roach that /re*ents us fro1 3ee/ing the strategy considerations in the oard roo14 I reco11end drawing on the insight already residing in the organi=ation and ringing this 3nowledge into /lay as we re*iew and refine our usiness 1odels within the en*iron1ent where they are and ha*e to o/erate2 I reco11end chec3ing our usiness 1odel en*iron1ent assu1/tions with /otential custo1ers and /artners4 too2 If inter*iews with ,0+, /otential custo1ers and /artners cannot confir1 our usiness 1odel en*iron1ent assu1/tions then our assu1/tions are 1ost /roaly wrong2 EXTE"#I"G T!E B
(hen we ha*e de1onstrated that our usiness 1odel wor3s and scales well with an indirect channel4 then we will enefit sustantially fro1 the 1ultitude of usiness 1odel en*iron1ent inter/retations that our /artners will /erfor12 A 1aNor *alue of the indirect channel is not only si1/le reach and 1ar3et /enetration4 ut also the identifications of new and different a//lication areas that we ne*er thought of oursel*es2 $ur usiness /artners will ha*e insight into usiness 1odel en*iron1ents that we are not fa1iliar with and thus they will identify usiness o//ortunities that we would ne*er ha*e seen2 Although we ha*e to 1onitor that they do not drift into areas where our /roduct is a genuine 1isfit4 we can enefit tre1endously fro1 the 1ulti/lier effect of the nu1er of /artners we ha*e and the di*ersity they re/resent2 C$"CL<#I"G BS
This a//endi6 is focused on our usiness 1odel 0 the usiness 1odel of the software *endor or the /rinci/al2 "ow try and uild the usiness 1odel of a ty/ical inde/endent channel /artner2 Co1/are the /artnerWs usiness 1odel ith our own usiness 1odel and we will see that they ha*e *ery little in co11on2 he first ig difference etween our usiness 1odel and the usiness 1odel of our /artner is in the custo1er *alue /ro/osition area2 (e are /roduct and technology focused and the channel /artner is ser*ice focused2 (e are 1ar3et focused and the channel /artner is custo1er focused2 (e are wor3ing with an indirect channel a//roach and the channel /artner is o/erating her channel directly2 (e ha*e little relationshi/ with the custo1ers and the channel /artner has inti1ate relationshi/s with her custo1ers2 (e only ha*e re*enue fro1 our own /roducts and the channel /artner 1ay ha*e 1ulti/le re*enue sources fro1 1ulti/le /roducts and ser*ices2 (e need resources and acti*ities to 3ee/ de*elo/ing our /roducts and the channel /artner needs resources and acti*ities to source4 e6tend and 1anage third /arty /roducts2 (e need resources and acti*ities to deal with /artner recruit1ent as well as custo1er engage1ent and the channel /artner is only concerned with custo1er ac)uisition and engage1ent2 $ur 3ey /artners are not the sa1e2 (e ha*e *ery few4 if any4 3ey /artners where we are a 3ey /artner of our /artners2 $ur cost sources are co1/letely different and one of the /artnersW cost strea1s is our entire re*enue strea12 lthough we 1ay sail in the sa1e direction we are not e6actly in the sa1e oat2 (e share certain co11on interests4 ut e also ha*e oNecti*e conflicts of interest2 The differences in the usiness 1odels are the reason why /rinci/als and their inde/endent channel /artners often 1isco11unicate2 (e 1ust understand our inde/endent channel /artnerWs usiness 1odel4 ecause we will only eco1e successful if we can su//ort her /rofitaility and growth2
?igure H,K The usiness 1odel and the usiness 1odel en*iron1ent is a great fra1ewor3 for discussing strategy and usiness de*elo/1ent oth internally and with our inde/endent channel /artners2
I reco11end that you order a nu1er of usiness 1odel /osters and use the1 to 1a/ and understand how your inde/endent channel /artners o/erate2
APPE"#IX C Sa1/le Channel Partner Agree1ent SA&PLE B
$BSK T!IS IS "$T A LEGAL #$C<&E"T2 PLEASE SEE> LEGAL A#:ICE BE?$%E
b +,
b Dthe 8Effecti*e #ate5 entered into the following non0e6clusi*e usiness
P%EA&BLE
"ow4 whereas The Software Co1/any wishes to ensure that the Products Das defined elow are e6tended4 sold to and i1/le1ented with custo1ers *ia an efficient and effecti*e networ3 of Business Partners worldwide to achie*e 1a6i1u1 custo1er satisfaction and 1ar3et share2 The Business Partner wishes to eco1e /art of the networ3 of national and international Business Partners of the Software Co1/any in order to e ale to e6tend4 su//ly and i1/le1ent the Products to and with Custo1ers in the Territory on a 1utually non0e6clusi*e asis4 suNect to the ter1s and conditions set out elowY Therefore4 the Software Co1/any and the Business Partner ha*e on the Effecti*e #ate first 1entioned ao*e decided to enter into this non0e6clusi*e Business Partner Agree1ent Dthe 8Agree1ent52 2 #E?I"ITI$"S
In this Agree1ent the following ter1s ha*e the following 1eaningsK 2 8Agreed Currency5 has the 1eaning descried in A//endi6 +2 +2 8Business Partner5 is a reseller of the Products as defined elow that has concluded an agree1ent with the Software Co1/any granting the Business Partner the right to sell the licenses to use the Products4 suNect to fulfilling the certification re)uire1ents outlined on the Software Co1/anyWs we0ased Business Partner Portal2 H2 8Custo1er5 shall 1ean any usiness entity4 /erson or other end0user Dregardless of whether organi=ed as a usiness entity4 a not0for0/rofit organi=ation or a consu1er who through the Business Partner has een licensed to use any of the ProductDs2 In no e*ent shall a Custo1er e /er1itted or entitled to use the ProductDs for any other /ur/ose than for his own use4 nor shall the Custo1er e /er1itted or entitled to e6/loit any ProductDs co11ercially4 regardless of whether y 1eans of e2g2 selling4 letting4 leasing4 lending or any other 1eans y which the ProductDs 1ay e co11ercially
e6/loited2 O2 8#ataase5 shall 1ean the co1/ilation of any data su//lied to the Business Partner y4 or on ehalf of4 the Software Co1/any or generated y the Business Partner fro1 any such data2 2 8Grou/5 shall 1ean the Software Co1/any and its ulti1ate holding co1/any and any direct or indirect susidiary underta3ing of such holding co1/any2 Q2 8Intellectual Pro/erty %ights5 shall 1ean all intellectual /ro/erty rights4 including /atents4 rights in registered and unregistered trade 1ar3s Dincluding do1ain na1es4 rights in registered and unregistered designs4 t rade or usiness na1es4 confidential infor1ation4 3now0how4 dataase rights4 and co/yright Dincluding 1oral rights4 or other industrial4 intellectual or co11ercial rights Dincluding rights in any in*ention4 disco*ery or /rocess4 and a//lications for registration of any of the foregoing4 and the right to a//ly therefore4 in each case in any /art of the world2 F2 8Business Partner Portal5 shall 1ean the wesites estalished y the Software Co1/any for the e6clusi*e use and enefit of Business Partners4 on which shall e /osted e2g2 infor1ation rele*ant to the duties and re)uire1ents of the Software Co1/any and the Business Partners and the Custo1ers2 2 8SCSA5 shall 1ean the Software Co1/anyWs Software Assurance4 and shall co*er the 1andatory or o/tionalb suscri/tion ser*ice /ro*ided y the Software Co1/any for the ProductDs ensuring custo1ersW access to su//ort4 /roduct u/dates and /roduct u/grades2 2 8Software Co1/any #ata5 shall 1ean any data Dincluding any /ersonal data as defined y the insert a//licale legislationb relating to the staff4 custo1ers or su//liers of the Software Co1/any4 docu1ents4 te6t4 drawings4 diagra1s4 i1ages or sounds Dtogether with any dataase 1ade u/ of any of those e1odied in any 1ediu14 that are su//lied to the Business Partner y4 or which the Business Partner is re)uired to generate4 /rocess4 store or trans1it /ursuant to this Agree1ent2 ,2 8$rder5 Shall ha*e the 1eaning ascried to it in Article 2 elow2 2 8Products5 includes the /roducts co*ered y this Agree1ent as s/ecified in A//endi6 as a1ended fro1 ti1e to ti1e4 as /ro*ided for in this Agree1ent2 +2 8%PL5 is the %eference Price List5 as ascried to it in Article Q2 elow2 H2 8Territory5 is the territory co*ered y this Agree1ent4 which shall e strictly li1ited to the geogra/hical locationDs4 industry or other definitions as descried in A//endi6 +2 +2 %IG!TS A"# #
2 SuNect to the ter1s and conditions of this Agree1ent the Business Partner is herey a//ointed as a non0e6clusi*e Business Partner of the Software Co1/any in the Territory for the resale of Products andor right0to0use Dlicenses of the Products to Custo1ers2 +2 The Business Partner 1ust offer to sell SCSA to her registered Custo1ers on the ter1s and conditions a//licale to such SCSA fro1 ti1e to ti1e4 infor1ation aout which can e found on the Business Partner Portal2 H2 Business Partners shall e classified in accordance with the *olu1e of their usiness with the Software Co1/any and their indi*idual le*els of co1/etence2 The structure of the classification syste14 le*els and re)uire1ents to e 1et to reach the *arious le*els as well as the enefits to which Business Partners eco1e entitled as they /rogress through the classification le*els 1ay e found on the Business Partner Portal2 The Software Co1/any 1ay change the re)uire1ents unilaterally fro1 ti1e to ti1e y gi*ing 66 DXX days ad*ance notice to e /ulished on the Business Partner Portal2 The Business Partner 1ust co1/ly with all new re)uire1ents within 66 DXX days of their announce1ent on the Business Partner Portal2 The Business PartnerWs classification will e re*iewed annually in 1onthb and a//ro/riate u/0 or downgrading for the co1ing year will eco1e effecti*e as of 1onthb the sa1e year2 O2 The Business Partner shall e res/onsile for the resale and licensing of the Products directly to Custo1ers in the Territory2 The /arties agree that all resale of the Products 1ust e e6ecuted suNect to the Software Co1/anyWs standard end0user license ter1s and conditions in /lace fro1 ti1e to ti1e4 as further detailed in Article 2 elow4 and as a*ailale on the Business Partner Portal at any gi*en ti1e2 2 The Business Partner 1ust offer technical su//ort to his Custo1ers according to the standards descried on the Business Partner Portal at any gi*en ti1e2 Q2 In the e*ent the Business Partner wishes to attain status as any le*el ao*e 8%egistered Partner54 the Business Partner shall e re)uired to recruit4 train and de*elo/ his staff to ensure that )ualified sales and su//ort facilities shall e a*ailale to Custo1ers strictly in accordance with the Software Co1/anyWs re)uire1ents as s/ecified on the Business Partner Portal2 In connection with the annual re*iew of the classification of Business Partners Dsee Article +2H ao*e their le*el of certification will also e re*iewed and deter1ined for the following year4 such certification to ta3e effect fro1 1onthb in any gi*en year2 F2 The Business Partner shall e re)uired to sell the Products andor licenses for a /rofit and shall set his own resale /rices and shall further e re)uired to 1aintain an ar1Ws length usiness relationshi/ with all his Custo1ers2 If in relation
to any sale or /ro/osed sale of Products there is any dout or uncertainty as regards the nature of the relationshi/ etween the Business Partner and a Custo1er4 the Business Partner 1ust consult the Software Co1/any in each case /rior to a sale or grant of licenseDs eing affected2 2 Should the Business Partner wish to enter into any 3ind of leasing4 rental or si1ilar arrange1ents with a Custo1er concerning any ProductDs4 any such arrange1ents shall e suNect to the /rior a//ro*al of the Software Co1/any2 The Software Co1/any 1ust a//ro*e any docu1entation used for this /ur/ose in ad*ance2 2 The Business Partner 1ay not in any way co1/ile4 deco1/ile4 reco1/ile or disasse1le the Products4 re/roduce4 translate4 a1end or u/grade the underlying code or suNect the Products to re*erse engineering in any way e6ce/t to the e6tent /er1itted y law4 nor will it allow others to do so2 H2 "AT<%E $? T!E %ELATI$"S!IP
2 SuNect to the usiness structure outlined ao*e in Article +4 the Business Partner shall /urchase and 1ar3et the Products and licenses to the Products and sell the1 on ar1Ws length ter1s in his own na1e and for his own account to Custo1ers2 The Business Partner shall act as and e dee1ed to e an inde/endent trader in relation to the Software Co1/any and any Custo1erDs4 and neither /arty to this Agree1ent shall e dee1ed4 for any /ur/ose4 to e an agent of the other /arty4 and the relationshi/ etween the /arties shall e that of inde/endent contractors only2 +2 The Business Partner 1ay /artici/ate in and contriute to the 1ar3eting ca1/aigns and sales /ro1otions designed y Software Co1/any and 1ade a*ailale to /ro1ote the Products within the Territory2 The Business Partner shall e e6/ected to organi=e andor i1/le1ent inde/endent sales /ro1oting acti*ities within the Territory in accordance with the guidelines a*ailale for such acti*ities on the Business Partner Portal2 ?urther infor1ation and guidelines concerning coo/eration and coordination of 1ar3eting and sales /ro1oting efforts are 1ade a*ailale on the Business Partner Portal2 H2 #uring the ter1 of this Agree1ent the Business Partner shall estalish4 de*elo/ and 1aintain an efficient sales and ser*ice organi=ation and shall at all ti1es ha*e all rele*ant functions and tas3s /erfor1ed only y /ro/erly s3illed e1/loyees4 including4 ut not li1ited to4 the /erfor1ance of su//ort4 ser*ice and hel/0des3 functions in relation to the Products2 The Business Partner shall 1aintain a staff ade)uate in si=e and e6/ertise to sell and ser*ice the Products as well as carry out either itself or y 1a3ing a//ro/riate arrange1ents with one or 1ore other Business Partners within the Territory concerning the /erfor1ance of all rele*ant su//ort and i1/le1entation oligations in relation to Products sold y hi12 O2 The Business Partner shall act as reseller of Software Co1/any Products andor licenses to Software Co1/any Products only2 All licensing relationshi/s relating to the Products shall e strictly etween Software Co1/any and the Custo1ers2 O2 SALE A"# %EP$%TI"G
2 The Business Partner shall /ro1ote the sale of the Products in the Territory at his own e6/ense e2g2 y ad*ertising4 y /artici/ating in and i1/le1enting sales /ro1otion ca1/aigns designed y Software C o1/any4 or y /artici/ating in and attending trade shows and e6hiitions as well as y other 1eans custo1ary in the industry2 +2 The Business Partner shall 3ee/ full records of all his acti*ities with current and /otential Custo1ers and with other /arties associated with the /ro1otion4 sales and su//ort of the Products2 This infor1ation is referred to as the Custo1er #ataase2 2 $%#E%S
2 All /urchase orders fro1 the Business Partner to the Software Co1/any shall e dated and refer to this Agree1ent2 "o additional or differing ter1s contained in any /urchase order shall su/ersede or a1end the ter1s of this Agree1ent4 unless agreed in ad*ance in writing and signed y oth /arties2 Each order shall co1/ly with and contain all rele*ant infor1ation re)uired under the order /rocedure in force fro1 ti1e to ti1e4 which 1ay e found on the Business Partner Portal2 $rders 1ust further1ore e su1itted in accordance with the directions a*ailale on the Business Partner Portal2 :eral orders and instructions shall not e *alid or inding on the Software Co1/any and will not e e6ecuted2 +2 All /urchase orders shall e suNect to acce/tance y the Software Co1/any2 Ti1e of deli*ery shall e stated in the Software Co1/anyWs order ac3nowledge1ent2 Q2 P%ICES
2 The /urchase /rices for the Products that the Business Partner /urchases fro1 the Software Co1/any shall e the /rices listed in the %eference Price List D8%PL5 less an agreed discount granted to the Business Partner y the Software
Co1/any2 The %PL will at all ti1es e a*ailale on the Business Partner Portal2 The 1argin a//licale to the Business Partner will de/end on his current classification Dsee also section +2H ao*e2 The classification and discount structure a//lied fro1 ti1e to ti1e 1ay e found on the Business Partner Portal2 +2 The Software Co1/any reser*e the right unilaterally to change the %PL fro1 ti1e to ti1e y gi*ing 66 DXX days ad*ance written notice to the Business Partner2 Any o/en $rders recei*ed y the Software Co1/any /rior to the sti/ulated date for a /rice change will e honored at the /re*ious %PL for a /eriod of u/ to 66 DXX days after the %PL change date2 H2 The Software Co1/any shall /ro*ide the Business Partner with a reasonale nu1er of de1onstration units of the Products for the /ur/ose of de1onstrations4 training and internal use y the Business Partner4 the o*erall nu1er of such de1onstration units not to e6ceed 66 DXX users2 Such de1onstration licenses 1ay ha*e a ti1e li1ited license code2
2
2 The Products are /ro*ided to the Business Partner on an 8as is5 asis without warranty of any 3ind4 e6/ress or i1/lied4 including ut not li1ited to i1/lied warranty of 1erchantaility or fitness for a /articular /ur/ose2 The Software Co1/any does not re/resent or warrant that the Products are free fro1 ugs or errors4 or that they will o/erate without interru/tion2 +2 The /arties agree that the Software Co1/anyWs general ter1s and conditions of sale and deli*ery in force and a//licale fro1 ti1e to ti1e shall also a//ly to all shi/1entDs and all other deli*eries and su//lies of Products y the Software Co1/any to the Business Partner2 2 A#:E%TISI"G4 P%$&$TI$" A"# T%AI"I"G
2 The Business Partner 1ay i1/le1ent and /ro1ote such 1ar3eting and /ro1otional efforts and ca1/aigns relating to the Products as the Software Co1/any shall 1a3e a*ailale for the /ur/ose of influencing and wor3ing the 1ar3et in the erritory4 including4 ut not li1ited to4 ensuring that efficient follow0u/ /rocedures and strategies are /ursued *is0^0*is /ros/ecti*e Custo1ers introduced to the Business Partner y the Software Co1/any2 All 1ar3eting and /ro1otional 1aterials will e su//lied /ri1arily in electronic for12 Should the Business Partner re)uire any /ro1otional 1aterials to e ada/ted with his logo and contact infor1ation or otherwise adNusted efore /ulication4 such ada/tationDs 1ust co1/ly with the ad*ertising 1aterial guidelines a*ailale fro1 the Business Partner Portal and 1ust e /re/ared at no cost to the Software Co1/any2 +2 In order to /ro1ote and /rotect the i1age of Software Co1/any4 the Business Partner agrees to co1/ly with the guidelines a*ailale on the Business Partner Portal concerning inde/endently /roduced ad*ertising and /ulicity 1aterials2
,2 #ISC$"TI"
2 The Software Co1/any shall use his est efforts to /ro*ide the Business Partner with 66 DXX days /rior written notice of re1o*al of Products fro1 the list of Products co*ered y this Agree1ent detailed in A//endi6 4 as a1ended fro1 ti1e to ti1e2 2 P%$!IBITI$" AGAI"ST SEE>I"G C
2 The Business Partner shall e6ercise his acti*ities within the Territory and shall not estalish ranches4 1aintain distriution or otherwise acti*ely see3 sales or custo1ers for the Products s/ecified in A//endi6 outside the Territory which are e6clusi*ely reser*ed y the Software Co1/any for itself or e6clusi*ely allocated y the Software Co1/any to other usiness /artners2 All en)uiries fro1 /ersons or entities outside the Territory shall e referred to the Software Co1/any2 +2 T%A#E&A%>S A"# S;&B$LS
2 The Business Partner shall only e entitled to use trade1ar3s4 trade na1es4 ser*ice 1ar3s4 logos or any other sy1ols in accordance with the design guidelines in force fro1 ti1e to ti1e4 which will e a*ailale on the Business Partner Portal2 The Business Partner ac3nowledges and agrees that he has no right4 title or interest in or to such trade1ar3s4 trade na1es4 ser*ice 1ar3s4 logo or other sy1ols e6ce/t the right to use the1 in the 1anner descried herein and as /ro*ided for in this Agree1ent2 The trade1ar3s4 trade na1es4 ser*ice 1ar3s4 logo and any other sy1ols are and re1ain the registered /ro/erty of Software Co1/any and shall re1ain so after the e6/iry of this Agree1ent also2 The Business Partner shall not without the /rior written consent of Software Co1/any register or use Internet do1ains using na1es4 deno1inations or co1inations of words si1ilar to or li3ely to e confused or associated with trade1ar3s4 trade na1es or ser*ice 1ar3s owned y the Software Co1/any or the Software Co1/any Grou/ in the Territory or elsewhere2 +2 The Business Partner agrees not to register nor cause any third /arty to register any of the ao*e 1entioned trade1ar3s4 trade na1es4 ser*ice 1ar3s4 logo or sy1ols elonging to Software Co1/any or the Software Co1/any Grou/ Dor na1es or do1ain na1es si1ilar to or li3ely to e confused or associated with those elonging to any co1/any in the Software Co1/any Grou/ in the Territory or elsewhere2 H2 The Business PartnerWs right to use the Software Co1/anyWs trade1ar3s4 trade na1es4 ser*ice 1ar3s4 logo or sy1ols as /ro*ided for under the susections +2 and +2+ ao*e shall cease i11ediately on ter1ination or e6/iry of this Agree1ent4 regardless of the reason for such ter1ination or e6/iry or on the written instructions of the Software Co1/any2 O2 "o agree1ent shall e construed or inter/reted as an assign1ent y the Software Co1/any of any /resent or future Intellectual Pro/erty %ights or si1ilar rights to the Business Partner2 H2 C$"?I#E"TIALIT; A"# T%A#E SEC%ETS
2 All co11ercial andor technical infor1ation4 data4 s/ecifications4 drawings4 other docu1ents and software disclosed or 1ade a*ailale to the Business Partner4 as well as 3now0how4 trade secrets or any other technical or co11ercial infor1ation4 which the Business Partner 1ay ha*e in any way ac)uired through his acti*ities as such Dcollecti*ely 8the Confidential Infor1ation5 shall re1ain the e6clusi*e /ro/erty of the Software Co1/any2 +2 The Business Partner shall at all ti1es treat Confidential Infor1ation with the sa1e degree of care to a*oid disclosure to any third /arty as is used in res/ect of the Business PartnerWs own confidential infor1ation Dsuch care ne*er to e less than reasonale care2 The Business Partner shall in no circu1stances disclose4 use or otherwise 1a3e Confidential Infor1ation to any third /arty for any /ur/ose other than those e6/ressly conte1/lated y the Agree1ent2 H2 After the e6/iry or ter1ination of this Agree1ent the Business Partner shall not disclose4 use or co11unicate Confidential Infor1ation to any third /arties2 O2 The Business Partner ac3nowledges and agrees that any reach of his oligations under this Article H shall cause the Software Co1/any irre/arale har1 for which the Software Co1/any shall ha*e no ade)uate re1edy at law2 Accordingly4 the Business Partner agrees that in the e*ent of any such reach4 the Software Co1/any shall e entitled to see3 and otain a te1/orary restraining order4 /reli1inary and /er1anent inNuncti*e relief andor an order for s/ecific /erfor1ance to /rotect its rights and interests in and to the Confidential Infor1ation2 O2 <"?AI% C$&PETITI$" A"# I"?%I"GE&E"TS
2 The Business Partner shall infor1 the Software Co1/any of all acts of unfair co1/etition affecting the Products or the
Software Co1/any and of all infringe1ents of the industrial and intellectual /ro/erty rights of the Software Co1/any that co1e to his notice4 and it shall assist the Software Co1/any to the est of his aility in /rotecting the Software Co1/any against such acts and infringe1ents2 +2 The Software Co1/any agrees to defend the Business Partner against4 or at the Software Co1/anyWs o/tion4 settle4 any lawsuit4 clai1 or other legal action rought against the Business Partner alleging that the Business PartnerWs use of the Products infringes any /atent4 trade1ar3 or trade secret4 or other intellectual /ro/erty right always /ro*ided that the Business Partner shall ha*e /ro1/tly ad*ised the Software Co1/any of any such lawsuit4 clai1 or action4 and further /ro*ided that the Business Partner co0o/erates with the Software Co1/any in the defense and settle1ent thereof2 The Software Co1/any shall ha*e e6clusi*e control of the defense against such actions and of all negotiations for settle1ent or co1/ro1ise thereof2 This Article shall not a//ly to actions arising fro1 Di the co1ination4 o/eration or use of any Products su//lied hereunder with /roducts4 software or data not su//lied y the Software Co1/any4 or Dii any use of the Products in a 1anner4 /lace or circu1stances not conte1/lated herey2 2 STA"#A%# E"#0
2 Each Product shall e /ro*ided with Software Co1/anyWs standard end0user license certificate in /lace fro1 ti1e to ti1e2 The Business Partner warrants that all Products sold or licensed to Custo1ers y the Business Partner shall e sold suNect to the ter1s and conditions of Software Co1/anyWs standard end0user license certificate in /lace fro1 ti1e to ti1e a*ailale on the Business Partner Portal Dattached hereto as A//endi6 H in the *ersion in force on the Effecti*e #ate of this Agree1ent2 Q2 ASSIG"&E"T
2 The Software Co1/any shall e free to assign this Agree1ent and all rights and oligations hereunder to any third /arty at any ti1e2 +2 The Business Partner 1ay only assign this Agree1ent and his rights and oligations hereunder to a third /arty /ro*ided the Software Co1/anyWs /rior written consent has een otained2 F2 TE%&I"ATI$"
2 Either /arty gi*ing 6 DX 1onths written notice y registered /ost to the other /arty for the Agree1ent to ter1inate at the end of insert ti1eb 1ay ter1inate this Agree1ent2 2 EA%L; TE%&I"ATI$"
2 This Agree1ent 1ay e ter1inated i11ediately y either /arty y sending written notice to the other /arty y registered 1ail in the e*ent of a 1aterial reach of the ter1s of this Agree1ent y either /arty4 where the reaching /arty fails to rectify such reach within 66 DXX days after recei/t of written notice of such reach fro1 the other /arty2 +2 The Software Co1/any 1ay ter1inate this Agree1ent i11ediately y the Software Co1/any y sending written notice to the Business Partner in the e*ent of either of the following e*ents occurringK +22 The dissolution or li)uidation of the Business Partner4 her an3ru/tcy4 her sus/ension of /ay1ent4 the entry into any *oluntary co1/osition with her creditors4 the attach1ent of her assets for the enefit of creditors4 or other analogous e*entsY andor +2+2 The change of the legal structure4 control o*er or ownershi/ of the Business Partner2 2 A?TE% TE%&I"ATI$"
2
O2 Pro*ided the Agree1ent has een ter1inated for reasons other than the Business PartnerWs 1aterial reach of his oligations under this Agree1ent4 the Software Co1/any will agree4 for a /eriod of 66 DXX days fro1 date of ter1ination or e6/iry and suNect to article 2+ hereof4 to e6ecute orders filed and acce/ted /rior to the e6/iry or ter1ination date2 +,2 I"#E&"ITIES A"# C$&PE"SATI$"
2 "o clai1s for inde1nity or co1/ensation can e lodged on account of the e6/iry or ter1ination of this Agree1ent4 sa*e where these clai1s are ased on the 1aterial reach of this Agree1ent y one of the /arties or on 1andatory regulations2 +2 LI&ITATI$" $? LIABILIT;
2 The Business Partner shall inde1nify and hold the Software Co1/any har1less fro1 any liaility and e6/enses arising out of or in connection with any clai14 action4 suit4 de1ands or e6/enses incurred y the Software Co1/any resulting fro1 Di distriution of Products y the Business Partner4 its officers4 e1/loyees or agents or Dii any reach of this Agree1ent y the Business Partner4 its officers4 e1/loyees or agents2 +2 The e6clusions and li1itations of liaility contained in this Agree1ent shall a//ly regardless of whether the loss or da1age was foreseeale or whether the Business Partner notifies the Software Co1/any of the /ossiility of any greater loss or da1age4 ut shall not a//ly to the e6tent /rohiited or li1ited y law and4 in /articular4 nothing in this Agree1ent shall affect the liaility of either /arty for death or /ersonal inNury caused y negligence or for fraudulent 1isre/resentation or other fraud2 H2 The liaility in aggregate of the Software Co1/any for loss or da1age to tangile /ro/erty of the Business Partner caused y his negligence shall not e6ceed insert a1ountb2 O2 E6ce/t as /ro*ided ao*e4 the liaility of the Software Co1/any for a clai1 1ade y the Business Partner in res/ect of loss or da1age suffered y the Business Partner under this Agree1ent flowing fro1 any one e*ent or series of connected e*ents shall not e6ceed the higher of the /urchase /rice for the ProductDs gi*ing rise to the liaility or insert a1ountb howe*er arising2 2 The ter1 8howe*er arising5 co*ers all causes and actions gi*ing rise to liaility of the Software Co1/any arising out of or in connection with the Agree1ent andor the Products Di whether arising y reason of any 1isre/resentation Dwhether 1ade /rior to andor in the Agree1ent or after it entry negligence or other tort4 reach of statutory duty4 renunciation4 re/udiation or other reach of contract4 restitution or otherwiseY Dii whether arising under an inde1nityY Diii whether caused y any total or /artial delay in the su//ly of the Products or defecti*e ProductsY and Di* whether delierate Dut not with 1alicious intent or otherwise4 howe*er4 funda1ental the result2 Q2 The Software Co1/any shall not e liale to the Business Partner for any loss of /rofit4 /roduction4 antici/ated sa*ings4 goodwill or usiness o//ortunities or any ty/e of indirect4 econo1ic or conse)uential loss e*en if that loss or da1age was reasonaly foreseeale or the Software Co1/any was aware of the /ossiility of that loss or da1age arising2 F2 To the e6tent deter1ined fro1 ti1e to ti1e y the Software Co1/any4 each of the 1e1ers of the Software Co1/anyWs Grou/ and the e1/loyees of the Software Co1/any and such 1e1ers shall e entitled to enefit fro1 e*ery inde1nity and e6clusion and li1itation of liaility e6/ressed in fa*or of the Software Co1/any4 so that the liaility of all o the1 and the Software Co1/any in total shall e no greater than the liaility of the Software Co1/any alone as set out in this Agree1ent2 "o third /artyWs consent shall e re)uired to cancel or *ary the Agree1ent2 2 In no circu1stances shall the Software Co1/any ha*e any liaility whatsoe*er to the Business Partner for any clai1s4 whether for da1ages or other co1/ensation4 resulting fro14 arising out of or in connection with the Business PartnerWs sale of Products to Costu1ers andor Consu1ers2 ++2 ?$%CE &AE<%E
2 "either /arty shall e liale for any failure to /erfor1 her oligations hereunder De6ce/t ti1ely /ay1ent of 1onies due due to e*ents or circu1stances outside her reasonale control4 including ut not li1ited to fire4 e6/losion4 flood4 lightning4 Acts of God4 acts of terroris14 war4 reellion4 riot or other ci*il disorder4 saotage4 orders or re)uests y any Go*ern1ent or any other authority4 stri3es4 loc3outs or other laor dis/utes Dut not those including the Business PartnerWs own wor3force4 ut each /arty shall use her est endea*ors to 1ini1i=e the conse)uences or losses to the other /arty as a conse)uence of such e*ents2 +H2 G$:E%"I"G LA( A"# LEGAL :E"
2 This Agree1ent and any 1atters arising out of or relating to it shall e go*erned y and construed in accordance with the laws of insert /laceb
+2 Any dis/ute4 contro*ersy or clai1 arising out of or in connection with this Agree1ent or the reach4 ter1ination or *alidity hereof shall e finally settled y aritration in accordance with the Aritration %ules of the insert *enueb2 H2 The language of the aritration shall e languageb2 O2 Any dis/ute4 contro*ersy or clai1 arising out of or relating to this Agree1ent including ut not li1ited to the /ossiility or e6istence of the /roceedings4 the /roceedings the1sel*es4 oral state1ents 1ade during the course of the /roceedings4 docu1ents and other infor1ation su1itted y the /arties or /re/ared y the court or the aritratorDs4 and the final award shall e dee1ed Confidential Infor1ation under Article H of this Agree1ent2 2 "otwithstanding the afore1entioned4 the Software Co1/any shall not e /recluded fro1 ringing an action in any court of co1/etent Nurisdiction for inNuncti*e or other /ro*isional relief or for the collection of undis/uted outstanding accounts2 "othing in this Agree1ent shall e dee1ed to li1it the /artiesW rights to see3 interi1 inNuncti*e relief or to enforce an aritration award in any court of law2 +O2 &ISCELLA"E$
2 The ter1s and /ro*isions included in this Agree1ent constitute the entire agree1ent etween the /arties and su/ersede all /re*ious co11unications4 re/resentations4 agree1ents4 or understanding4 whether oral or written4 etween the /arties concerning the suNect 1atter of this Agree1ent2 +2 (ith the e6ce/tion of A//endices 0H4 which can e unilaterally changed y the Software Co1/any4 all 1odifications and a1end1ents to this Agree1ent 1ust e agreed in writing and signed y oth /arties2 H2 The /ro*isions of this Agree1ent shall e se*erale2 In the e*ent that any /ro*ision of this Agree1ent is found to e in*alid4 illegal or unenforceale4 such finding shall not affect the *alidity and enforceaility of any of the re1aining /ro*isions of this Agree1ent2 If any /art of this Agree1ent eco1es in*alid4 illegal or unenforceale the /arties shall negotiate in good faith in order to agree the ter1s of a 1utually satisfactory re/lace1ent for such in*alid4 illegal or unenforceale /ro*ision which as closely as /ossile reflects their intentions as e6/ressed in this Agree1ent and *alidly gi*es effect thereto2 ?ailure to agree on a re/lace1ent /ro*ision within si6 DQ 1onths of co11encing such negotiations shall result in the auto1atic ter1ination of this Agree1ent2 The oligations of the /arties /ursuant to any in*alid4 illegal or unenforceale /ro*ision of the Agree1ent shall e sus/ended during such negotiations2 O2 "o failure y a /arty to /ursue any re1edy resulting fro1 a reach y the other /arty of this Agree1ent shall e construed as a wai*er of that reach y the for1er /arty or as a wai*er of any suse)uent or other reach2 2 All /ro*isions that y their nature sur*i*e the e6/iry or ter1ination of this Agree1ent shall re1ain in full force and effect after its e6/iry or ter1ination2 Q2 The A//endices attached hereto for1 an integral /art of this Agree1ent2 In the e*ent of any discre/ancy etween any /ro*isions in the A//endices and this docu1ent4 the /ro*isions of this Agree1ent shall /re*ail2 F2 It is an e6/ress condition of this Agree1ent that4 for the duration of this Agree1ent4 or for a /eriod of twel*e 1onths after its ter1ination for whate*er reason4 neither /arty shall4 under any circu1stances whether alone or Nointly4 with or on ehalf of another and whether directly or indirectly e1/loy or 1a3e offers of e1/loy1ent to or offer to conclude any contract for ser*ices with any indi*idual who is or was at any ti1e within the /re*ious Q 1onths an e1/loyee of the other /arty in a senior /osition Dincluding all officers4 1anagers4 sales /ersons or de*elo/ers2 2 If either /arty reaches clause +O2F2 the /arties agree to li)uidated da1ages and that /arty shall e liale in the a1ount of one third of the current annual salary /re*iously /aid y the other in res/ect of the rele*ant e1/loyee2 2 The /ro*isions of this clause +O shall sur*i*e the ter1ination4 for whate*er reason4 of this Agree1ent2 APPE"#ICES
A//endices4 for1ing an integral /art of the Agree1ent 2 A//endi6 0 List of Products +2 A//endi6 + 0 Territory and Agreed Currency H2 A//endi6 H The Software Co1/anyWs Standard License Ter1s DsuNect to u/dating fro1 ti1e to ti1e
APPE"#IX # The dyna1ics of channel /artner recruit1ent funda1entally change as we grow fro1 early 1ode to 1ature 1ode2 In early 1ode we ha*e to in*est sustantial effort e*ery ti1e we recruit an indi*idual channel /artner and if the /artner fails to ta3e off we ha*e lost ti1e and 1oney2 T!E C!A""EL PA%T"E% PL
The channel /artner PL is an i1/ortant tool in the /rocess for finding and )ualifying the /artners that are serious aout uilding a usiness around our /roduct2 The channel /artner PL is the )uantitati*e outco1e of the usiness 1odel and the usiness 1odel en*iron1ent analysis re/resents the re*enue4 CoGS
4 Ca/E6 +
and $/E6 H
conse)uences of the acti*ities associated with e6ecuting our Noint usiness /lan2
?igure H+K The channel /artner PL is the )uantitati*e financial result of our decisions on how to start and uild a usiness around our /roduct2
The conclusion of the strategy wor3sho/ should e an action /lan and a corres/onding udget and as each indi*idual channel /artner re/resents a uni)ue scenario defined y her current custo1er ase4 organi=ational ca/ailities and financial strength the /lans and udgets will ne*er e identical for any two /artners2 (e therefore de*elo/ an ideal channel /artner usiness 1odel with a certain 1ini1u1 organi=ational setu/ and with a certain set of acti*ities that we 3now O
will generate a certain *olu1e of usiness within a certain ti1efra1e2 (ithout this usiness 1odel te1/late we will ha*e a hard ti1e assessing if the /otential channel /artner is really co11itted to in*esting in the usiness and the channel /artner will ha*e a hard ti1e assessing if we ha*e any idea aout what it ta3es to uild a usiness with our own /roduct2 The actual usiness 1odel and PL of each channel /artner will always e indi*idual gi*en the s/ecific scenarios2 As indicated in figure HH the PL has a re*enue and a cost section2 (here do we startR I suggest we follow this se)uenceK
:alue Pro/osition 0` Custo1er Seg1ents 0` Acti*ities 0` %esources 0` $/E6 and Ca/E6 0` %e*enue 0` CoGS 0` PL (e will ha*e standard te1/lates for each of the usiness 1odel uilding loc3s4 ut as we re*iew the indi*idual channel /artner scenario we will adNust the1 together with the /artnerWs 1anage1ent tea1 until we ha*e a *ersion that they can assu1e ownershi/ of2 &any inde/endent channel /artners ha*e ne*er underta3en such e6ercises efore and we therefore need to /ro*ide )uite detailed te1/lates and tutorials on the *arious /arts of the /rocess2
?igure HHK A PL for a usiness with an a*erage sales cycle of 1onths and an a*erage order si=e of ,,4,,,2 Behind each line in the PL is a detailed set of assu1/tions in ter1s of acti*ities and resources2
The PL shown in figure HH yields an accu1ulated /rofit of al1ost 1illion o*er the first H years4 re)uires a cash inNection of around +,2,,, and is an e6cellent usiness case2 (ithout such a scenario 1ost inde/endent channel /artners will focus entirely on the in*est1ents re)uired in the first +01onth /eriod4 and getting a usiness with a *alue /ro/osition with an a*erage sales cycle of 1onths off the ground will ne*er e /rofitale in the first year2
?igure HOK General PL scenario assu1/tions2
The general assu1/tions ehind the PL scenario we descrie in this a//endi6 o/erate with an 01onths sales cycle in the first twel*e 1onths4 a Q01onths sales cycle in the following twel*e 1onths4 reaching the a*erage 01onths sales cycle in the last twel*e 1onth /eriod2 There 1ay e s/ecific reasons for reducing the sales cycle e6/ectation4 ut in general there is always a learning cur*e that we ha*e to o*erco1e efore a new channel /artner can /roduce the sa1e /roducti*ity as our 1ore e6/erienced channel /artners2 (e also assu1e that the custo1er ac)uisition cost in general is higher in the eginning and that there is a need for 1ore 1anage1ent attention when we co11ence the /roNect2 Su//orting our usiness case we need a est /ractice sales /rocess e6/laining the ste/s we reco11end that she ta3es to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers4 including the 1ar3eting in*est1ents re)uired and the con*ersion rates we e6/ect for the *arious stages of the sales /rocess2 As we wor3 our way through the usiness 1odel and the corres/onding PL we will reali=e that the channel /artner will enefit dra1atically fro1 selling to her installed ase of custo1ers first2 If that4 for so1e reason4 is not /ossile then a ig red flag should e assigned to the usiness case4 ecause selling a new /roduct through a new channel /artner to new custo1ers is a green0field o/eration2 There 1ay e situations where this scenario is /erfectly ade)uate4 ut in 1ost situations it will not fly without 1aNor in*est1ent4 1anage1ent attention and /atience2 (hen we ha*e our action /lan and udget in /lace then we ha*e to define the >PIs that we need to 1onitor as we enter the e6ecution stage2 E*en the est thought0out /lan will not sur*i*e interce/ting with reality2 (ithout the >PIs we will not e ale to identify what is de*iating fro1 our assu1/tions4 and we will end u/ in useless discussions e6changing 8o/inions5 aout what went wrong and what we need to do to get ac3 on trac32 Software co1/anies that ha*e no or only li1ited e6/erience selling their own /roducts will o*iously ha*e a hard ti1e /utting together a usiness 1odel and PL scenario ased on hard facts re/resenting so1e statistical significance4 ut that doesnWt 1ean that we should do nothing and co1e e1/ty handed to the strategy wor3sho/ tale with the channel /artners2 (hen we ha*e little e6/erience or are 1o*ing into new 1ar3ets with different usiness 1odel en*iron1ents4 then we need to wor3 closely together with our channel /artners learning what the est /ractices are and what the
con*ersion rates are to uild scenarios that we can use to hel/ ra1/ u/ future channel /artners2
APPE"#IX E There 1any 1ore oo3s on social 1edia 1ar3eting than there are oo3s on uilding successful /artner channels2 (e should definitely read so1e of the first4 ecause ignoring social 1edia is to 1iss an o//ortunity to engage with our /otential custo1er e6actly where they s/end an awful lot of ti1e searching for infor1ation and ins/iration2 "e*ertheless4 I see 1any software co1/anies failing to su//ort their channel /artners in this area and I ha*e therefore included so1e asic reco11endations in this A//endi62 S$CIAL &E#IA &A%>ETI"G A"# SALESK P$ETS4 PL<&BE%S A"# T!E #EAT! $? P%$PAGA"#A
Before the in*ention of the Internet4 1ar3eting co11unication was a well0defined /rofession in ter1s of 1essaging4 channels and /roduction o/tions2 I a1 not saying that 1ar3eting was easy and /redictale I a1 Nust saying that crafting the 1essages4 choosing the channels and /roduction were well0defined disci/lines su//orted y a 1ature and well0 organi=ed industry2 oday we 1ust face the fact that our custo1ers and influential sta3eholders s/end far 1ore ti1e on the we4 and es/ecially in front of social 1edia4 than they s/end watching4 reading and listening to content deli*ered through the /re0 Internet channels such as roadcast0T:4 radio4 1aga=ines and news/a/ers2 (e can also conclude that they are influenced y 1any 1ore infor1ation channels4 ty/es and sources than was the case Nust years ago and that these channels4 ty/es and sources are constantly changing2 And we can conclude that the le*el of noise is enor1ous and steadily increasing2 ust as we were /ro*iding 1ar3eting and sales su//ort efore the Internet with te1/lates for direct 1ails4 call scri/ts4 ad*ertise1ents4 se1inars4 rochures4 testi1onials etc2 we also need to hel/ our channel /artners to reach our target custo1ers and influential sta3eholders on the we4 and I ha*e de*elo/ed a si1/le 1odel that can su//ort our efforts2 ?I%ST T!I"GS ?I%ST
Before we di*e into uying Adwords ca1/aigns4 anner ads and s/onsored content on the we and on social 1edia we need to do our ho1ewor3 first2 ?ortunately this is also a result of the usiness 1odel and usiness 1odel en*iron1ent analysis we /erfor1 /rior to defining our other /lans and udgets2
?igure HK A si1/le 1odel for 1ar3eting and sales o/erations on the we and on social 1edia2
Ste/ K #oing anything 1eaningful in 1ar3eting first and fore1ost re)uires that we 3now which target seg1ent we want to co11unicate with2 (e need to nail the definition of the ideal custo1er /rofile ecause on the we and s/ecifically on the social 1edia /latfor1s we should always direct our 1essages to our target audience2 Ste/ +K The ne6t thing we need to ha*e defined is our custo1er *alue /ro/osition4 to hel/ us identify what is it that we e*entually want our target audience to uy fro1 us2 (ith our core deli*eries in 1ind we can now identify the areas where we should uild our re/utation as s/ecialists or thought leaders2 Ste/ HK #efine our 3eywords2 (hat are the 3ey words or 3ey /hrases that our /otential custo1ers will use when searching for infor1ation on the things that we /ro*ideR (ithout the 3eywords/hrases we will e roa1ing lindly on the we and on the social 1edia2 There are /eo/le and tools a*ailale to hel/ us define our 3eywords/hrases and I urge you to ha*e access to this e6/ertise either internally or e6ternally2 Getting the 3eywords/hrases identified is critical to the success of our acti*ities on the we2 Ste/ OK #efine the custo1er Nourney4 or the ty/ical custo1er /urchase /rocess4 including the touch /oints where we e6/ect to engage with our /otential custo1ers2 ?or each touch /oint we will ha*e to define an engage1ent strategy2 S1aller co1/anies 1ay identify Nust a handful of touch /oints4 ut no one can afford to co1/letely ignore the custo1er Nourney2 Ste/ K Select the channels where we will engage with our target audience2 The we offers thousands of channels and there is no way we can co11unicate on the1 all2 (e will need to identify those where we can engage 1ost cost0 effecti*ely2 In the good old days we went to the 1edia /eo/le to choose the est 1i6 of channels for a gi*en ca1/aign and this is no different today2 There are /eo/le who 1a3e a li*ing fro1 3nowing the characteristics of the channels a*ailale to us and we should consult the1 efore we choose our 1i62 Ste/ QK #e*elo/ the content that we will 1a3e a*ailale in the touch /oints2 I will discuss the role of content elow4 ut here I will e1/hasi=e that this ste/ a//ears to e the 1ost difficult for software co1/anies as well as their channel /artners2 Lea*ing content de*elo/1ent only to the channel /artners is not an o/tion if we want to engage effecti*ely with
our target custo1ers and 3ey influential sta3eholders on the we2 Ste/ FK Place1ent and engage1ent2 This can e co1/ared to running a classified ad*ert in the local news/a/er4 /lacing a dis/lay ad*ert in a 1aga=ine4 getting a /iece of P% into a news 1edia4 sending a direct 1ail or 1a3ing a /hone call4 ut there are so1e /rofound differences when o/erating on the we where 1any of the acti*ities can e interconnected4 res/onses indi*iduali=ed and auto1ated4 and the i1/act 1easured2
To hel/ us decide /lace1ent and engage1ent we 1ust answer four asic )uestionsK (here and how do /otential custo1ers4 that need what we ha*e4 find usR (here and how can we find /otential custo1ers that need what we ha*eR !ow do we 1oti*ate to engage1ent Dcall0to0action when we 1eetR (hich of the co1inations of channels1essagesengage1ent are 1ost cost effecti*eR As no one can answer these )uestions u/ front we need to ha*e a Ste/ where we 1easure the /erfor1ance Dreach and con*ersion rates of the channels1essagesengage1ent co1inations4 test new co1inations and continuously o/ti1i=e the /rocess2
$/erating successfully on the we re)uires 1astering a large /ortfolio of s3ills that I ha*e yet to see re/resented in a single indi*idual2 Let 1e list so1e of the co1/etences and s3ills re)uiredK &ar3eting strategy defining custo1er *alue /ro/ositions and ideal custo1er /rofiles #o1ain e6/erience and insight in the areas where we are to uild authority and thought leadershi/2 #esigning custo1er Nourneys and corres/onding engage1ent strategies Crafting )uality te6tual content #esigning co11unicati*e illustrations
;ou ha*e /roaly heard the ter1 8content 1ar3eting45 which 1eans that we 1o*e the focus of our co11unication fro1 /raising oursel*es and our /roducts to discussing the challenges facing our custo1ers and how we can ins/ire and hel/ the1 find solutions2 Co11unication where we /ro1ote and /raise oursel*es is called /ro/aganda
and /ro/aganda is not only dead it is counter0/roducti*e2 It doesnWt 1ean that we cannot tal3 aout who we are and what we do4 ut such content should only e a*ailale u/on re)uest when our 3ey audiences ha*e read4 heard or watched our contriutions to how they can i1/ro*e their usinesses2 P%$#
Producing )uality content is 1uch 1ore difficult Dand e6/ensi*e than /roducing /ro/aganda4 and y lea*ing the No to the indi*idual inde/endent channel /artner we will e 1issing out on an o*ious econo1y of scale o//ortunity2 (here
/ro/aganda /roduction is so1ething we do fro1 ti1e to ti1e4 content /roduction is an ongoing effort re)uiring do1ain e6/erience and insight in the areas where we are to uild authority and thought leadershi/2 !owe*er4 )uality content can e refor1atted and reused on 1any channels and when re0co11unicated and endorsed it can reach large audiences2 I reco11end software co1/anies running indirect channels to ta3e charge and lead the /roduction on )uality content that the /artners can share4 ut I also reco11end that we in*est in hel/ing the channel /artners contriute to the /roduction of content that we can share and reco11end to other /artners2 S$CIAL &E#IA $%C!EST%ATI$"
As the *endor o/erating a /artner channel we 1ust ta3e charge and 8lead5 the effort associated with co11unicating and engaging with our /otential custo1ers on the we2 I will reco11end a si1/le for1at for hel/ing our channel /artners include the we in their 1ar3eting and sales acti*ities2
?igure HQK A si1/le for1at to hel/ our channel /artners include the we and social 1edia in their 1ar3eting and sale acti*ities2
Ste/K Before we start ta3ing the lead we need to get our own 1ar3eting strategy and /lans co11unicated4 allowing the /artners to le*erage fro1 what we do2 (e therefore need to co11unicate our /lans and what the channel /artners can e6/ect fro1 us2 Ste/ +K Building a re/ository of content that our channel /artners can reuse on their chosen co11unication channels and in the engage1ent /oints that we ha*e decided to su//ort is funda1ental2 (e should reach out to our channel /artners and identify )uality content that we can hel/ refor1at and re/ur/ose for co11unication across our /artner channel2 Ste/ HK $rgani=e training and wor3sho/s where the channel /artners can learn aout we and social 1edia co11unication 8est /ractice5 s/ecifically related to our do1ain2 (or3ing together will re)uire a certain le*el of co1/etence in this field2 Ste/ OK Build and 1aintain a list of reco11ended *endors who understand our own 1ar3eting strategies and the do1ain in which we o/erate2 I a1 not reco11ending a for1ali=ed certification /rocess4 ut rather suggesting a *ery loose networ3 of ser*ice /ro*iders that the channel /artners can choose to wor3 with 3nowing that the do1ain related leaning cur*e is so1ewhat short2 $nly *ery ig co1/anies can Nustify ha*ing all the resources needed for running effecti*e we ased 1ar3eting and sales acti*ities in0house and nursing a large grou/ of ser*ice /ro*iders will hel/ our channel /artners engage such resources as re)uired2
APPE"#IX ? Inde/endent channel /artners in general ha*e a ilateral non0e6clusi*e right to sell our /roducts to her custo1ers2 Bilateral 1eans that we can freely a//oint other resellers selling the sa1e /roduct to the sa1e custo1ers and that the channel /artner can li3ewise choose to sell co1/etiti*e /roducts alongside our /roduct2 In the early 1ode stage of de*elo/ing our indirect channel we will often e 1et with a re)uest for so1e sort of e6clusi*ity as the channel /artner4 that we are aout to recruit4 wants to /rotect her in*est1ents in the engage1ent with us2 EXCL
As discussed in cha/ter ,4 e6clusi*e arrange1ents are not unusual when a//ointing distriutors that in*est in rand /ro1otion and channel de*elo/1ent on our ehalf as it would e *ery difficult to 1oti*ate anyody to in*est in such acti*ities 3nowing that we 1ay a//oint another channel /artner to1orrow that would enefit fro1 a free ride on these in*est1ents2 Granting so1eone an e6clusi*e right is a li1itation of our future o/tions and should ne*er e gi*en without reasonale co1/ensation and in 1ost cases such co1/ensation is a fir1 /urchase co11it1ent2 I often see software co1/anies grant e6clusi*e rights to channel /artners o/erating in non0core territories4 /roaly ecause they consider not ha*ing any o//ortunity cost in such a situation2 I urge you to e cautious as e6clusi*ity often has the e6act o//osite effect 1a3ing the channel /artner lean ac34 do nothing or *ery little and then /ic3ing u/ on inound in)uiries only generated y s/ill0o*er fro1 our sales and 1ar3eting acti*ities in other territories2 #ealing with the e6clusi*ity )uestion I therefore reco11end to distinguishing etween 8de Nure5 e6clusi*ity and 8de facto5 e6clusi*ity2 #E <%E EXCL
(hen we 1a3e the decision to sell though inde/endent channel /artners we are entering a usiness /ractice that is regulated y law in 1ost countries4 as go*ern1ents donWt li3e agree1ents ai1ed at li1iting free co1/etition2 If we agree to grant de Nure e6clusi*ity to a channel /artner then we 1ust consider the following issues o*er and ao*e the usual ter1s and conditions for a usiness /artner agree1entK !ow do we for1ulate the e6clusi*ity and also co1/ly with the legal re)uire1ents for the territoryR (hat fir1 co11it1ents do we get in return for the e6clusi*ityR (here does the e6clusi*ity a//ly and what does that i1/ly in ter1s of the channel /artnerWs o/eration outside the agreed territory or do1ainR !ow does the e6clusi*ity with this channel /artner i1/act the agree1ents we 1a3e with other channel /artnersR (hat ha//ens if and when we ter1inate the e6clusi*ityR As /re*iously 1entioned4 e6clusi*ity is 1ostly an issue for distriutors who 1a3e 1aNor 1ar3et de*elo/1ent in*est1ents on our ehalf2 E6clusi*e rights are ty/ically out of the )uestion for channel /artners ser*ing the final custo1ers and where her 1ar3et /enetration ca/aility is only a s1all fraction of what we need to achie*e 1ar3et leadershi/2 Granting for1al e6clusi*e rights should always e reci/rocated with fir1 co11it1ents as o//osed to only sincere intentions and est effort2 #E ?ACT$ EXCL
There 1ay e situations where we will gi*e a channel /artner a head start and /rotect her in*est1ent in a certain li1ited ti1e /eriod where she can de1onstrate the ca/aility to actually deli*er on her /ro1ises4 ut without her ha*ing any fir1 co11it1ents to fulfill2 In this situation we will sign a standard non0e6clusi*e agree1ent and then gi*e the channel /artner a 1ore infor1al and often short0ter1 /rotection that e6/ires on a certain day4 that we can withdraw if the usiness doesnWt de*elo/ as we e6/ected or if our o/tions suddenly change2 It is easier for us to 1a3e an infor1al gentle1anWs agree1ent under a certain set of assu1/tions4 than it is to de*elo/ and sign a for1al e6clusi*e agree1ent4 which re)uires a lot of /re/aration and consideration2 $ral agree1ents should o*iously e honored e6actly as written agree1ents and the agree1ents we 1a3e outside the for1al channel /artner agree1ent should e no less /recise and inding2 (hen a channel /artner has no fir1 co11it1ents to deli*er against and the usiness de*elo/s in a different way fro1 what we oth e6/ected4 then we are in
a etter /osition to return to the negotiation tale to re*iew the situation2 As we uild our networ3 of channel /artners there will often e situations where we 1a3e no for1al co11it1ents or /ro1ises of /rotection4 ut where we ne*ertheless do not acti*ely recruit co1/eting channel /artners2 If our territory is not yet saturated4 then we will enefit fro1 recruiting channel /artners that are not acti*ely co1/eting with each other with their outound acti*ities2 A//lying the 8we currently ha*e no /lans\5 a//roach can actually e *ery hel/ful for so1e channel /artners in getting a head start in a certain location or do1ain without the1 ha*ing to 1a3e fir1 co11it1ents2
APPE"#IX G LITE%AT<%E
Treacy4 &24 (ierse1a4 ?2 #2 D2 The disci/line of 1ar3et leadersK choose your custo1ers4 narrow your focus4 do1inate your 1ar3et2 %eading4 &ass2 Addison0(esley Pu2 Co2 Gladwell4 &2 D+,,+2 The ti//ing /ointK how little things can 1a3e a ig difference Dst Bac3 Bay /32 ed22 Boston4 Bac3 Bay Boo3s2 $sterwalder4 A24 Pigneur4 ;24 Clar34 T2 D+,,2 Business 1odel generationK a handoo3 for *isionaries4 ga1e changers4 and challengers2 !oo3en4 "4 (iley2 (inch4 24 Best4 &24 !os3ins4 #2 D+,2 The death of /ro/agandaK B+B uyer eha*ior has changed 0 now it7s your turn2 Co/enhagen2 Eye for I1age2 (ood4 2 B24 !ewlin4 T24 Lah4 T2 E2 D+,2 Consu1/tion econo1icsK the new rules of tech2 California4 Point B Inc2 Blan34 S2 #24 Bo2 D+,+2 The Startu/ $wner7s &anualK The Ste/0By0Ste/ Guide for Building a Great Co1/any D ed2 > S %anch2 Bech4 !2 P2 D+,H2 Entering ?oreign &ar3ets in the Software Industry 0 The BEC! Inde6 +,H2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,H2 Business &odel Generation The E1/erorWs "ew ClothesR Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,H2 Channel Partner %ecruit1ent in the Software Industry2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,H2 &anaging a %eseller Channel in the Software Industry2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,H2 Growth Through Partners DThe /ath to 1ar3et do1inance through a channel of /artners in the software industry2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,H2 The Software Partner Channel and the Custo1er :alue Pro/ositions2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,H2 The Software Partner Channel in a Business &odel Conte6t2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,O2 The Partner PL A >ey to Building Successful Channel Partners in the Software Industry2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,O2 #esigning Effecti*e Channel Partner Progra1s in the Software Industry2 Co/enhagen4 #en1ar32 TB> Pulishing2 Bech4 !2 P2 D+,O2 Co11only Pulishing2 Bech4 !2 P2 D+,O2 The :alue Chain AI#A Process in the Software Industry2 Co/enhagen4 #en1ar32 TB> Pulishing2 &oore4 G2 A2 D+,O2 Crossing the chas1 K 1ar3eting and selling disru/ti*e /roducts to 1ainstrea1 custo1ers DThird edition ed22 "ew ;or34 ";2 !ar/erBusiness4 an i1/rint of !ar/erCollins Pulishers2 $sterwalder4 A24 Pigneur4 ;24 Bernarda4 G24 S1ith4 A2 D+,O2 :alue /ro/osition designK how to create /roducts and ser*ices custo1ers want2 Bech4 !2 P2 D+,2 Building Successful Partner ChannelsK The Business &odel in the Business &odel2 Co/enhagen4 #en1ar32 TB> Pulishing2 $T!E% B$$>S B; T!E A
%$Bech4 !ans Peter2 +,+2 Strategic Planning and Budgeting Guidelines for Inde/endent Software :endors DTB> Pulishing4 Co/enhagen4 #en1ar32 Bech4 !ans Peter2 +,H2 &anage1ent Consulting Essentials DTB> Pulishing4 Co/enhagen4 #en1ar32
APPE"#IX ! S$?T(A%E I"#
AB$
%$!ans Peter Bech is an author4 econo1ist and 1anage1ent consultant li*ing in !illerZd Nust north of Co/enhagen in #en1ar32
After graduating with an &2Sc2 DEcon degree fro1 the
in #en1ar32 In + he returned to wor3 with internationali=ation /roNects for the #anish software industry and was 1ade res/onsile for software re*enue generation worldwide for #ans3 #ata Ele3troni3 D##E2 ?or three years he tra*eled the world uilding relationshi/s with 1edia e6ecuti*es /ro1oting E<%$&AX4 which was a co1/letely new a//roach for 1anaging the entire /roduction Deditorial4 ad*ertise1ent and /roduction of news/a/ers2 #ue to strategy disagree1ents with the 1anage1ent at ##E4 !ans Peter left the co1/any and agreed to Noin %E Technology in 2 After the 1erger of %E and BA%C$ in F he was recruited y #a1gaard #ata to Noin the tea1 res/onsile for ta3ing o*er worldwide distriution fro1 IB&2 In !ans Peter 1o*ed to Stuttgart with his fa1ily and s/ent three years uilding the channel /artner networ3 for Concorde XAL Dnow &icrosoft #yna1ics XAL and AXAPTA Dnow &icrosoft #yna1ics AX in Ger1any4 Austria and Swit=erland2 After the 1erger etween #a1gaard #ata and "a*ision Software !ans Peter was /ro1oted to :ice President for Central Euro/e and headed the 1erger of the o/erations in Ger1any4 Austria4 Swit=erland4 The "etherlands4 Belgiu14 Poland4 Slo*enia and %ussia2 In +,,, !ans Peter was highlighted y Co1/uterworld #en1ar3 as one of the ,, 1ost influential /eo/le in the #anish IT industry2 In +,, he returned to #en1ar3 to start his own usiness and was acti*e in se*eral startu/s and turnarounds as a usiness angel2 Together with his long ti1e friend Gian1aria $dello
he founded TB> Consult in +,,F2 TB> Consult is a gloal networ3 of inde/endent 1anage1ent consultants hel/ing their software industry clients with re*enue growth and in /articular gloal 1ar3et /enetration2 In +,, !ans Peter founded TB> Pulishing4 which /ulishes oo3s4 white /a/ers and other /ulications focused on usiness de*elo/1ent in the software industry2 In +,H he founded TB> Acade1y that facilitates strategy and usiness de*elo/1ent wor3sho/s for software industry e6ecuti*es2 In +,O the E6ecuti*e #e*elo/1ent
and s/onsored y the &inistry of Econo1y2 s a 1anage1ent consultant and wor3sho/ facilitator !ans Peter has een in*ol*ed with nu1erous international usiness de*elo/1ent /roNects in the software industry and a1ong his clients are co1/anies such as &icrosoft4 #anfoss4 Secunia4 XI">4 SoftScan4 EG4 ara4 &ilestones Syste1s4 Targit4 ee *es4 "ate34 "eto/ Business Solutions4 (or3cue4 CSC Scandihealth4 Blancco and 1any4 1any 1ore2 !ans Peter di*ides his ti1e etween writing articles and oo3s on usiness de*elo/1ent in the software industry4 facilitating e6ecuti*e wor3sho/s4 gi*ing 3eynote s/eeches and /ro*iding 1anage1ent consulting for selected clients2 !e has also ser*ed as a non0e6ecuti*e oard 1e1er for co1/anies such as The Peerless ?actories4 Cursu1 De0learning and S&T #ata2 !ans Peter enNoys tra*eling4 s3iing4 hi3ing and i3ing and he /lays guitar and is the lead singer in two a1ateur ands2 !e is 1arried to Sue4 has two children and fi*e grandchildren2
E"#"$TES
"otes Ac3nowledge1ents 2 Istanul &inerals &etals E6/orters7 Associations +2 Gian1aria /assed away on &arch Oth +,2 (e will 1iss hi14 ut his integrity and /assion will stay as an ins/iration for all of us2 Cha/ter 2 B+BK usiness0to0usiness2 +2 Thus I a1 referring to the software *endor4 the /rinci/al4 when I use the /ronouns 8we5 and 8us5 in this oo32 H2 Successful co1/anies stri*e to eco1e nu1er one or two in the Dgloal 1ar3ets where they o/erate2 As the software industry is young4 e6tre1ely dyna1ic and 1ostly unconsolidated it can e hard to define e6actly what 1ar3et leadershi/ 1eans2 !owe*er4 if a co1/any is not on the /ath to /ass the +,] 1ar3et share in their do1estic 1ar3et then they are 1ost li3ely not on the /ath to eco1ing 1ar3et leaders2 The +,] is the 8ti//ing /oint5 Dsee Gladwell4 &2 D+,,+2 The ti//ing /ointK how little things can 1a3e a ig difference Dst Bac3 Bay /32 ed22 BostonK Bac3 Bay Boo3s2 and &oore4 G2 2 D+,O2 Crossing the chas1K 1ar3eting and selling disru/ti*e /roducts to 1ainstrea1 custo1ers DThird edition ed22 "ew ;or34 ";K !ar/erBusiness4 an i1/rint of !ar/erCollins Pulishers2 (hen /assing the ti//ing /oint 1ar3et forces 3 ic3 in and accelerate de1and for a /roduct lowering the Custo1er Ac)uisition Cost and increases gross 1argin /er unit sold2 O2 ;ou will ha*e to find /otential custo1ers and acti*ate the need for your solution2 2 The custo1ers with an acti*e need for the solution will find you2 Q2 The software industry is with *ery few e6ce/tions gloal y nature2 &ost software /roducts re)uires no or only *ery little locali=ation to tra*el across orders and e*en the /roducts that do re)uire sustantial locali=ation enNoy the econo1y of scale o//ortunities /ro*ided y the gloal 1ar3et2 F2 SZren >ier3egaard4 The ournals4 O 2 Custo1er Touch Le*els 0 Please refer to Cha/ter O for 1ore details2 2 Blan34 Ste*eY #orf4 Bo2 +,+2 The Startu/ $wner7s &anualK The Ste/0By0Ste/ Guide for Building a Great Co1/any D> S %anch2 www2ste*elan32co1 ,2 A thorough analysis of the disru/ti*e changes currently ta3ing /lace in the software industry can e found in (ood4 2 B24 odd !ewlin4 and Tho1as E2 Lah2 +,2 Consu1/tion econo1ics K the new rules of tech DPoint B Inc2K California2 2 This is a generic re/resentation of the sales /rocess2 S/ecific co1/anies will ha*e *ariations of this /rocess such as find4 try4 uywin4 use4 renew and growe6/and2 +2 Throughout this oo3 I use the ter1 8channel /artner5 and 8reseller5 synony1ously2 H2 In the ter1inology of this oo3 a distriutor is ser*ing inde/endent channel /artners on ehalf of the *endor2 (e call a usiness 1odel where the *endor is dealing directly with the inde/endent channel /artners a 80tier5 channel a//roach4 while the use of distriutors is called a 8+0tier5 channel a//roach2 O2 A descri/tion of the 1ost i1/ortant ty/es of /artnershi/s is included in A//endi6 A2 2 The software industry e1erged with the /ersonal co1/uter DA//le and IB& in the eginning of the ,Ws2 (ith the /roliferation of the Internet fro1 the eginning of the ,Ws and the a*ailaility of s1art 1oile de*ices lead y the iPhone in +,,F the software industry has eco1e a gigantic industry ser*ing consu1ers and usinesses of all ty/es and si=es2 Q2
#en1ar3 re/resents less than ,2] of the gloal de1and for IT related /roducts and ser*ices2 Bech4 !ans Peter2 +,H2 Entering ?oreign &ar3ets in the Software Industry 0 The BEC! Inde6 +,H DTB> PulishingK Co/enhagen4 #en1ar32 F2 #a1gaard 1erged with "a*ision in +,,, and was ac)uired y &icrosoft in +,,+2 2 "ow &icrosoft #yna1ics AX 2 !$B Business Solutions that was later ac)uired y A*anade2 +,2 The whole /roduct is defined in the oo3 8Crossing the Chas15 y Geoffrey A2 &oore as the co1ination of /roducts and ser*ices re)uired to gi*e the custo1er reason to uy and secure successful i1/le1entation2 !a//y custo1ers ser*e as *aluale references for further sales2 &oore4 G2 A2 D+,O2 Crossing the chas1K 1ar3eting and selling disru/ti*e /roducts to 1ainstrea1 custo1ers DThird edition ed22 "ew ;or34 ";K !ar/erBusiness4 an i1/rint of !ar/erCollins Pulishers2 +2 Tea1ing u/ with one or two channel /artners to co*er a 1ar3et the si=e of Ger1any is 1ore a Noint *enture a//roach2 LetWs assu1e that the Ger1an 1ar3et for our ty/e of offering generates B annually2 Achie*ing the +,] 1ar3et share 1eans 1anaging +,,& in annual re*enue2 (ith one or two channel /artners ta3ing care of such large chun3s of usiness I can hardly i1agine that we will treat the1 as 8inde/endent5 channel /artners2 The 1ore li3ely scenario is that we start with an e6clusi*e arrange1ent and then we ac)uire the 8channel /artner5 as the usiness eco1es critical to the /erfor1ance of our own co1/any2 (ith Nust one or two channel /artners we ha*e a direct Go0to0&ar3et a//roach and should not 1ista3e it for anything else2 ++2 +,] 1ar3et share is the ti//ing /oint after which the 1ar3et dyna1ics change fro1 /ush to /ull lowering our custo1er ac)uisition cost and increasing our 1argins2 Cha/ter + 2 Chief Infor1ation $fficer Cha/ter H 2 (hen Ale6ander $sterwalder ;*es Pigneur /ulished their oo3 8Business &odel Generation5 in +,, we had already een using the ter1 5usiness 1odel5 for 1ore than two decades2 The ter1 8usiness 1odel5 eca1e *ery /o/ular during the first 8dot co15 oo1 at the end of the nineteen nineties2 !owe*er4 there was no clear and una1iguous definition or fra1ewor3 for e6/laining what a usiness 1odel really is until $sterwalder Pigneur /ulished their oo32 +2 Please see $sterwalder4 Ale6ander4 ;*es Pigneur4 and Ti1 Clar32 +,,2 Business 1odel generation K a handoo3 for *isionaries4 ga1e changers4 and challengers D(ileyK !oo3en4 "2 H2 I highly reco11end that you to read the oo3 and also to attend either $sterwalderWs or 1y own classes on Business &odel Generation2 A free su11ary of the oo3 is a*ailale fro1 $sterwalderWs we site2 %eading the oo3 in itsW full length is highly reco11endale for anyone engaged in usiness de*elo/1ent4 in channel de*elo/1ent and 1anage1ent in /articular2 :isit www2t3acade1y2co1 for the training schedule4 locations and /rices2 O2 ;ou can find a rief su11ery of the usiness 1odel and usiness 1odel en*iron1ent conce/ts hereK Bech4 !ans Peter2 +,H2 Business &odel Generation The E1/erorWs "ew ClothesR DTB> PulishingK Co/enhagen4 #en1ar32 2 >ey /artners are su//ly chain /artners that we ha*e a strategic relationshi/ with2 These /artners are different fro1 the inde/endent channel /artners that we engage to find4 win4 1a3e4 3ee/ and grow ha//y custo1ers2 (e uy so1ething fro1 our 3ey /artners and we sell through channel /artners2 $ther ty/es of strategic alliances where there is no transactional relationshi/ are also categori=ed as 3ey /artners2 Q2 (e cannot e6/ect that all our inde/endent channel /artners will ha*e e6actly the sa1e usiness 1odel4 thus we need to understand each indi*idual 1odel or at least grou/ the1 according to their characteristics2 F2 An a//roach to defining generic *alue /ro/ositions as used in this oo3 is thoroughly descried in Treacy4 &ichael4 and
?rederi3 #2 (ierse1a2 2 The disci/line of 1ar3et leaders K choose your custo1ers4 narrow your focus4 do1inate your 1ar3et DAddison0(esley Pu2 Co2K %eading4 &ass22 2 ?or a definition of the *alue ele1ents /lease see Treacy4 &ichael4 and ?rederi3 #2 (ierse1a2 2 The disci/line of 1ar3et leaders K choose your custo1ers4 narrow your focus4 do1inate your 1ar3et DAddison0(esley Pu2 Co2K %eading4 &ass2 2 Per Steen Pedersen was E6ecuti*e :ice /resident with #a1gaard fro1 H0+,, and res/onsile for growing the gloal /artner channel for what is now &icrosoft #yna1ics XAL and AX Cha/ter O 2 See ?igure in cha/ter +2 &any software startu/s /refer the 8"o Touch5 a//roach not only for scalaility reasons4 ut also ecause it ta3es the need for a sales de/art1ent out of the e)uation2 Sales ha*e ne*er een a lo*ed /rofession y software de*elo/ers2 In*estors lo*e 8"o Touch5 ased usiness 1odels4 as they are 1ore li3ely to scale fast and efficiently2 H2 Less than three 1onths 2 &eaning that the Custo1er Ac)uisition Cost doesnWt e6ceed the Custo1er Lifeti1e :alue2 2 Can we offer the1 a free trial /eriod4 a free li1ited edition4 andor the /ossiility to cancel the deal if the software doesnWt 1eet their e6/ectation or re)uire1entsR Q2 8Growth hac3ing5 1eans finding ine6/ensi*e ways to reach /otential custo1ers and re/resents a race with the social4 news and content 1edia /latfor1s that want to 1oneti=e this traffic2 The hac3ing co1/onent is e6actly searching for 8free5 ways to reach the /otential custo1ers2 F2 (e distinguish etween organic traffic and /aid0for traffic4 where organic traffic co1es fro1 reco11endations4 referrals and /ostings where we do not /ay a /enny for a single *isitor2 2 See figure in cha/ter 2 2 Any B+B sales de/art1ent gets 1ore sil*er and ron=e 1edals than they get gold 1edals and in usiness only the gold 1edals count2 If we are not careful we end u/ s/ending 1ore ti1e on the deals that we lose than on deals that we win2 he aility to )ualify therefore eco1es one of the 1ost i1/ortant s3ills in the sales 1anagerWs toolo62 ,2 &any syste1s integrators ha*e inde/endency fro1 *endor interests as a core *alue2 Cha/ter 2 See figure in cha/ter 2 +2 Le*el + custo1er touch and sales cycles as illustrated in figure in cha/ter 2 H2 It is not /ossile to 1aintain identical /a/erwor3 across country orders as the legislation *aries fro1 country to country4 ut within a country we should 3ee/ the /a/erwor3 identical for all our channel /artners2 O2 Intellectual Pro/erty %ights 2 See figure in cha/ter Q2 An e6a1/le is training4 which is always a 1aNor ele1ent in our channel /artner /rogra14 where we should in*est in e0 leaning for1ats4 that 1ay ta3e so1e u/0front in*est1ent on our ehalf4 ut can e deli*ered to our channel /artners at *ery little 1arginal cost2 F2
I will get ac3 to this conflict of interest in the Channel Partner %ecruit1ent cha/ter2 2 >ey Perfor1ance Indicators 2 "o /lan will sur*i*e the 1eeting with reality and we always need to ta3e correcti*e actions along the way ensuring that e deli*er on the usiness oNecti*es2 ,2 htt/K*alue1a3er2euser*ices*alue/artner 2 See $sterwalder4 Ale6ander4 ;*es Pigneur4 Gregory Bernarda4 and Alan S1ith2 +,O2 :alue /ro/osition design K how to create /roducts and ser*ices custo1ers want2 +2 Profit Loss analysis H2 There is no need to certify 8internal5 functions such as ad1inistration4 1ar3eting and /roduct 1anage1ent4 while it 1a3es good sense to certify sales4 i1/le1entation and su//ort staff that has to engage directly with custo1ers2 O2 (hich /referaly are the /artnerWs current custo1ers_ 2 Awareness 0` Interest 0` #esire 0` Action Q2 IWll discuss the issue of e6clusi*ity in A//endi6 ? F2 Ad*ertise1ent4 /ulic relations4 tradeshows and other 1ass 1ar3eting acti*ities 2 TB> Consult offers a range of ISP&A ased training /rogra1s ai1ed s/ecifically at the software /roduct 1anager2 Please *isit www2t3acade1y2co1 for 1ore infor1ation2 ISP&AK International Software Product &anage1ent Association2 2 This suNect is discussed further in the 8Partner &anage1ent5 cha/ter +,2 htt/Kissuu2co1t3consultdocst30usiness1odeltest +2 The nature of software actually egs for designing /roducts that ha*e ecosyste1 /otential2 "e*ertheless 1ost software co1/anies donWt do that failing to see the o//ortunities or understand the re)uire1ents2 If you ha*e a software /roduct that could enefit fro1 eing enhanced y your channel /artners4 then it is worth while considering how this /otential could e enaled in future *ersions of your /roducts and how you could hel/ /rotect the in*est1ents that your channel /artners are 1a3ing in enhancing your *alue /ro/osition2 Cha/ter Q 2 If we already 3now a )ualified candidate then we can shortcut the /rocess and get that /erson on oard4 ut we cannot rely on always 3nowing so1eone and such an a//roach is also not *ery scalale2 +2 The a*erage retention rate of sales staff is F] 1eaning that we re/lace our entire sales staff e*ery Oth year2 Channel /artners are on a*erage with us for significantly longer2 H2 (hen our usiness 1odel is ased on uilding4 1anaging and growing a channel of inde/endent /artners then doing so is a 3ey acti*ity4 which 1ust e /erfor1ed y 3ey resources2 If we do not want to assu1e res/onsiility for the o/erational acti*ities associated with the channel then we 1ay consider tea1ing u/ with a distriutor who can do this on our ehalf2 2 In /articular Lin3edIn 2 $*iously de/ending on the si=e and nature of the co1/any that we are a//roaching4 ut in 1ost cases we deal with the to/ e6ecuti*e or at the least the /erson res/onsile for the PL in the 1ar3et or /roduct unit where we elong2 Q2 The Assess1ent Centre is ty/ically a 0day session where we /erfor1 an in0de/th re*iew of the /otential of the usiness
relationshi/ with the channel /artner2 F2 The alternati*e is to estalish a re/resentation with local resources fa1iliar with the 1ar3et efore co11encing any recruit1ent acti*ities2 2 E6clusi*ity is discussed in A//endi6 ? Cha/ter F 2 E*en large co1/anies that we recruit will start with no re*enue and Nust a few /eo/le assigned to our /roduct line2 The usiness unit is a s1all co1/any in the ig co1/any recei*ing little to/ 1anage1ent attention until they show i1/ressi*e nu1ers2 Cha/ter 2 I call this function 8distriution5 although we are not tal3ing aout a logistic o/eration2 The role of distriution is to uild the rand in the 1ar3et and in recruiting and 1anaging channel /artners2 +2 Channel /artners are e6tre1ely sensiti*e to channel conflicts and a Noint ownershi/ situation will da1age our recruit1ent efforts2 Cha/ter 2 (hite lael and $E& usinesses are our custo1ers not our channels2 As their custo1ers ha*e no affinity for our rand and should not e*en 3now that we e6ist we cannot consider the1 our custo1ers2 +2 The higher 1argins reflect co11itted re*enue Cha/ter , 2 Le*el Co1/any &aturity +2 Le*el +0H Co1/any &aturity H2 $n the other hand4 if we ha*e a *ery s/eciali=ed solution addressing Nust a s1all niche 1ar3et then the ty/e of channel a//roach that this oo3 is aout4 1ay not e a//licale at all2 2 The usiness 1odel en*iron1ent is different fro1 country to country2 (e need 1ar3et insight and local resources that 3now how to o/erate in the local en*iron1ent and that 1ay already ha*e an estalished networ3 that we can ta3e ad*antage of2 Cha/ter 2 ?or a thorough discussion of this challenge seeK (ood4 2 B24 Todd !ewlin4 and Tho1as E2 Lah2 +,2 Consu1/tion econo1ics K the new rules of tech DPoint B Inc2K California2 +2 Ser*ice Le*el Agree1ents H2 Ca/ital E6/enditure 2 $/E6K $/erating e6/enses that we /ay closer to the consu1/tion of the ser*ices2 A//endi6 A 2 See the cha/ter Conce/tual ?ra1ewor3 +2 Pro1ote4 sell4 e6tend4 integrate4 i1/le1ent and su//ort
H2 According to the Business &odel Generation fra1ewor32 O2 See the section on :alue Added %esellers 2 In the research for this oo3 I inter*iewed the CE$ of the Scales Grou/4 !asse Berg1an2 The Scales Grou/ is a &icrosoft #yna1ics AX :A%2 !asse told 1e that out of their total re*enue only ,] co1es fro1 licenses and software 1aintenance contracts2 ,] of their re*enue is generated through /rofessional ser*ices such as consulting4 custo1i=ation4 integration4 training and su//ort2 The Scales Grou/ is a /re1iu1 #yna1ics AX :A% for &icrosoft2 They are e6tre1ely loyal and they secure long lasting relationshi/s with their custo1ers securing &icrosoft add0on usiness and software 1aintenance re*enue2 A//endi6 B 2 $sterwalder4 Ale6ander4 ;*es Pigneur4 and Ti1 Clar32 +,,2 Business 1odel generation K a handoo3 for *isionaries4 ga1e changers4 and challengers D(ileyK !oo3en4 "2 +2 $sterwalder4 Ale6ander4 ;*es Pigneur4 Gregory Bernarda4 and Alan S1ith2 +,O2 :alue /ro/osition design K how to create /roducts and ser*ices custo1ers want2 H2 &oore4 Geoffrey A2 +,O2 Crossing the chas1 K 1ar3eting and selling disru/ti*e /roducts to 1ainstrea1 custo1ers D!ar/erBusiness4 an i1/rint of !ar/erCollins PulishersK "ew ;or34 ";2 O2 Technically the co1/etiti*e /ers/ecti*e is co*ered in the usiness 1odel en*iron1ent analysis2 2 $ften called Custo1er Lifeti1e :alue Q2 $r a suscri/tion relationshi/ for the 8software0as0a0ser*ice5 deli*ery for1at2 F2 Since the introduction of the Internet the software industry has fostered the so called doule0sided usiness 1odels2 ?aceoo34 Google and Twitter are good e6a1/les of such usiness 1odels where the users do not /ay anything for the ser*ice4 ut the re*enue is generated y ad*ertisers or other /arties interested in co11unicating with the users2 This oo3 /ri1arily deals with single sided usiness 1odels where the users and the custo1ers are the sa1e2 2 #eli*ered in the traditional /er/etual u/0front /re0/aid license for1at or as a recurring suscri/tion c harge2 2 There are o*iously also other o/erational and /ro1otion e6/enses4 ut 1ost of the1 are associated with the nu1er of /eo/le we e1/loy2 ,2 ;ou get Q,] of ,] H,] 2 $sterwalder actually na1es these areas 8forces54 which in 1y o/inion 1ay confuse the1 with PorterWs 8?i*e ?orces5 to which there is so1e4 ut not co1/lete4 o*erla/2 htt/Kwww2e6ed2hs2eduassetsdocu1entshr0sha/e0strategy2/df +2 Such as the &agic Vuadrants fro1 Gartner2 H2 I often hear e6ecuti*es fro1 s1all software co1/anies engage in 1acro econo1ic s/eculation as the asis for selecting new 1ar3ets2 In 1y o/inion this 1a3es asolutely no sense2 (eWll ne*er get our /redictions right anyway and there are other critical issues such as custo1ers4 /artners and co1/etitors we need to deal with first2 O2 As 1ost co1/anies actually do a//ly a gold digger 1entality 1aye doing the o//osite 1a3es 1ore senseR A//endi6 # 2 Cost of Goods Sold +2
