Why Partner Channels Don't Work

WHY CHANNELS DON’T WORK

It is not uncommon to see ISVs with business solutions (ERP, CRM, SCM, ECM) to be disappointed with their reseller partner channel’s performance. The issues they highlight with their partners commonly relate to some or all of the following: 

 

  1. It's too hard to get Partners' mindshare

  2. Partner are not pro-active in finding new clients

  3. Partners are not self-sufficient in winning sales

  4. Partners do not want to train their staff on the ISV solution

  5. Partners do not want to allocate sales and technical resources or set goals

The trouble with blaming the Partner is that the ISV fails to put themselves into the Partner’s shoes and ask themselves a few tough questions that may reveal “why” their channel isn’t working. Below are the three gaps areas we come across most commonly when channels don’t work. So ask yourself these questions:


 1. VALUE PROPOSITION:

 Is your business value proposition strong enough to make your solution strategic to a Partner’s business?

 

  1. Does your solution drive a substantial sales value?

  2. Does your solution enable Partners to differentiate from their competitors?

  3. Does your solution position Partners more strategically with their customers?

  4. Is your solution so complex that it has excessively long sales cycles?

  5. Is the ROI for a Partner to get up to speed to sell and implement compelling enough?

 2. THE RIGHT PARTNERS:

 Do you have the right partners?               


  1. Have your Partners allocated internal staff with revenue targets?

  2. Do your Partners have the vertical industry domain expertise?

  3. Do your Partners understand how your solution is a driver of new business?

  4. Do your Partners offer a competitive product?

  5. Do your Partners expect you to bring them leads?

  6. Are your Partners “farmers” or “hunters”?

 3. MANAGING PARTNERS:

 Do you manage your partners to agreed goals?

 

  1. Have you secured executive sponsorship with your Partners?

  2. Do you build an annual joint business plan with revenue, marketing and competency goals?

  3. Do you build an annual joint marketing plan?

  4. Do you hold monthly pipeline and quarterly executive business reviews with your partners?

  5. Do you offer discount and marketing accelerators for increased sales?

While a Partner channel can extend an ISV’s market reach at a lower cost than setting up its own offices and hiring a dedicated sales force, the ISV must remember that they are dealing with entrepreneurs just like themselves. And if the business case isn’t there for investment, just like you, they won’t.

CLOUD COMPUTING - Driving Partner Vertical Specialization

When businesses lacked the infrastructure to automate account keeping, customer service records or inventory tracking, partners could build a profitable business around selling, installing and maintaining these types of applications. However, today, unless it’s a very small business, these basics are not enough anymore, especially so when ERP and CRM applications are becoming hosted in the cloud with ever decreasing cost of subscriptions and ever increasing ease of use. MSPs and ISVs are collaborating to drive the cost and complexity out of the software subscription model with clever wizards that enable customers to configure their own hosted applications in a fraction of the time and cost of the traditional consultant led implementations. Over time, this will substantially diminish the need for traditional technology resellers.

 

Every business is in a vertical market addressing a specific customer type with specific business models and facing business challenges specific to their circumstances. Companies invest in technology as an enabler to reach more customers, increase efficiencies, become more competitive and grow profitability. So, when the technology becomes a utility, partners must adapt (as I outline below) to a higher value services model that is vertically specialized in enabling that technology to realize these desired business outcomes.

 

Having a deep understanding of a customer’s vertical market, its customers, its competition, business models and processes is what can differentiate a partner. By being able to speak customers’ business language and address their specific needs, partners can win the customers’ confidence to buy their solutions.

 

By working directly with business owners/managers to advise them on the best practices in addressing their specific business challenges with technology, partners can become a part of their customers’ planning teams and in the process, transition away from transaction based relationships to value based ones.

 

According to Microsoft’s research* Microsoft Dynamics partners who have aligned their businesses by vertical specialization have seen a 32% increase in win rate and a 20% increase in deal size.

 

So how do you build a vertical practice? Consider these steps:

 

1. WHERE ARE YOU ALREADY SUCCESSFUL? Assess your current customer installed base and identify the verticals your organization has already been successful selling in to. This will give you an understanding of where your organization may already have expertise. It also provides you with potential references for future sales as well as customers to revisit with a new solution.

 

2. WHAT ARE THE MARKET TRENDS DRIVING DEMAND? Analyze the state of your target verticals and establish if they are growing, if so in which areas and due to what market trends. The market trends will indicate where the demand is going to be so that you can plan on tailoring a solution. Establish which business challenges you are going to solve. Use industry specific analysts to discover these trends as opposed to general ones.

 

3. WHAT IS THE MARKET OPPORTUNITY? Once you have developed your ideal customer profile, research how many customers there are in your addressable geography. Make assumptions about how many are in market every year and how many you are likely to win. This will give you the basis for an investment and ROI model.

 

4. FIND THE RIGHT SOLUTION. Knowing who your target customers are and the business challenges you plan to solve for them, look for an ISV with vertically specialized software that can most effectively solve those business problems. Establish that the ISV can give your organization meaningful differentiation and competitive advantage. Ensure that there is a compelling ROI for customers – preferably within 12 months. Develop the total solution model with the ISV software, complementary applications and services. Ensure that you have a scale of solution price points to capture small, medium and large customers.

 

5. BECOME THE BEST IN YOUR FIELD. Invest in the right people. Your sales people have to become consultants, therefore, they need to have a background in the customers’ verticals and they have to be thoroughly trained in the software solution that will drive your sales. Often the best sales people will be ones who have worked in that industry and have experiential knowledge accumulate over many years.

 

6. REFERENCES FIRST. To establish your credibility with future customers you will need references. The best source of references is your existing customer base. Therefore, focus initial sales activities with your new ISV solution to qualified existing customers. Leveraging your existing relationships can provide the quickest source of new projects and references.

 

7. INFLUENCE THE INFLUENCERS. One of the most effective ways to gain visibility with customers in a vertical market is to participate in their community through associations and social networks. These communities often have some of the most influential people active and are an excellent source of opportunities and best practices. By being active in the community you can become a trusted adviser to it and get early insight into future projects.

 

Whether customers procure their ERP or CRM software on-premise or in the cloud, your vertical expertise, accumulated from many projects over time, will become your source of new professional services revenue and potentially your company’s intellectual property.

 

 LEARN FROM BEST PRACTICES:

As the saying goes; there is no substitute for experience. For best practices, guides, case studies and self-assessments, go to our resources page.

 

*Source: WPC2011 Session DYN11 “Driving Vertical Results in alignment with Microsoft Dynamics”

DIRECT OR INDIRECT - Which Business Model is Right for You?

PLANNING AHEAD:

Whether you are an Independent Software Vendor (ISV) with an innovative application and a vision to bring its benefits to millions of small businesses around the world or one with an ingenious way to enable large enterprises to become more competitive; choosing the right business model to expand internationally will be critical to your success.

 

Now that you have done your homework; determined which customer segments to target, refined your value propositions, researched the best countries to enter and analyzed your global and local competition, one key question remains; do you go direct with a local sales office or do you sell indirectly through partner channels?

 

GOING DIRECT:

Going direct with a local sales office is good approach when you have a high value solution, say over $250K per sale for software and twice that for services together with tightly defined customer segment(s) e.g. stock exchanges, the military. Typically, a Business Development Manager (BDM) can prospect about fifteen clients in a year and win about five. If five sales per BDM per year yield enough returns then this may be a valid model for you.

 

The benefits of a direct selling sales model include; giving you the necessary control to guarantee focus and commitment to marketing, selling and supporting your solution. Having control over the quality of people representing your company and solution as well as being able to hold individuals accountable and review progress as often as you want. Customer needs and concerns can be escalated virtually instantly to maximize every opportunity and grow customer satisfaction. Importantly, you keep the entire software and services sales margin without having to pay a third party.

 

The limitations of establishing a direct selling sales office have principally to do with the cost and time to market in being able to scale market reach. Having a limited number of staff, especially at the outset, to reach out and prospect large numbers of customers and execute lengthy sales cycles is a significant downside. Consider that the cost of establishing an office and keeping staff may be upwards of $700,000 per year. Additionally, the ability to find and recruit good people can be a challenge for a new company in a new market.

 

GOING INDIRECT:

 

If you are looking to ramp up your sales volume quickly without a major upfront investment, building a reseller channel may be the best strategy. This is especially so when your solution appeals to multiple customer segments across a large geography.

 

The benefits of channel based sales include; ability to achieve broad market coverage quickly, utilizing the resellers’ established sales force with experience and installed base relationships in the target customer segments, the ability to have many sales engagements working in parallel and not carrying the entire cost of a sales, marketing and support organization.

 

The table below uses simple assumptions to estimate the return on investments (ROI) from having a three person direct sales serviced office for an enterprise class solution and a mid-market class ERP or CRM solution in comparison to a remote based Partner Channels Manager managing twelve partners. Note: the assumption is that the direct sales offices deliver 100% of services to clients, while in the indirect scenario 100% of services are delivered by partners.

 

 

The limitations of an indirect sales model include; control is exerted through compensation and influence, focus can be diluted when channel partners carry too many products, the quality of people representing your solution will vary and be out of your control, you will have to invest considerable time in sales and technical training of multiple partners, your sales margins are reduced by the discount the resellers take and most of the time the partner will want to deliver the services.

 

THE RIGHT PARTNERS:

 

While large markets, such as the US, have an enormous number of resellers (Microsoft lists about 85,000), the real challenge is not finding many resellers but to identify and recruit the ones that will proactively sell your product. Often companies have false starts in new markets because they just focus on signing up a large number of resellers that are purely opportunistic. Some key elements necessary to drive success include:

 

• A partner program that defines the roles and responsibilities of all parties.

• Compelling business terms that reward revenue growth by offering a tiered discount structure.

• Meaningful competitive differentiation.

• Ideal customer profiles and business scenarios.

• Sales and technical training.

• Demand generating marketing programs.

 

In the initial stages of penetrating a new market, the focus should be on making resellers self sufficient as quickly as possible through training and coaching so that you can realize the benefits of leveraging their organizations. Focus should also be on sales initiatives as opposed to marketing, being deliberate in targeting customers that can bring credibility and prestige to your customer list. Winning local reference accounts which can be leverage for future sales is critical to ongoing growth.

 

LEARN FROM BEST PRACTICES:

 

As the saying goes; there is no substitute for experience. For best practices, guides, case studies and self-assessments, go to our resources page.

BUILDING A VERTICAL PARTNER CHANNEL - Choosing the Right Partners

If you are a ISV looking to expand your market reach either nationally or internationally, then partnering with the right Value Added Resellers is going to be critical to your success. Too often ISVs embark on a partner recruiting drive to sign up resellers across the country and across the globe where they succeed in getting handshakes, sometimes many, but twelve months down the road they find themselves having invested extensively in training and marketing with many partners but with very few results. In fact, it’s not uncommon for ISVs to see that just 10% of their partners produce 90% of their channel revenues.

 

Having a quality solution with meaningful competitive differentiation which addresses a real gap in the market that can be justified with a customer ROI model is a must. Offering compelling partner business terms and benefits are just as important, but choosing the right partners is the major factor that will determine your partner channel’s success. Therefore, it pays to be mythological in assessing the capability of potential partners to be able to build a business around your solution and become self-sufficient and pro-active in winning new customers.

 

The first step is to develop your own ideal partner profile. This will establish the criteria against which you can judge partners’ potential. Consider these three criteria and associated characteristics to assess potential:

 

MARKET REACH:

• How many installed base customers does a partner have in the target vertical(s)?

• Has the partner allocated marketing budget to run their own demand generation campaigns?

• Can the partner identify key business drivers that would cause customers to buy a business solution (ERP, CRM)?

• How many sales consultants does the partner have with experience in selling solutions in target vertical(s)?

• Which geographical locations does the partner cover?

 

ABILITY TO EXECUTE:

• How many customer references does the partner have in the target vertical(s)?

• What percentage of the partner’s overall revenue comes from the target vertical(s)?

• Has the partner developed specialized services or IP that differentiates them in the market?

• Is the partner Microsoft managed?

 

COMMITMENT:

• Is the partner willing to have their sales and technical people trained on your solution?

• Is the partner willing to assign revenue goals to individual(s) in their organization for your solution?

• Is the partner willing to allocate marketing budget to build their opportunity pipeline for your solution?

 

By weaving these questions into your partner interviews, you will be able to assess each partner’s potential objectively and consistently. This will allow you to choose the best partners from a list of many on more than just impressions.

 

Building a partnership is a long term commitment and needs to be based on win-win scenarios. The above criteria present the ISV view, but partners also have their criteria for selecting ISVs. Irrespective on which view you take, avoid entering into partnerships where one side wants it all their way.

 

LEARN FROM BEST PRACTICES:

As the saying goes; there is no substitute for experience. For best practices, guides, case studies and self-assessments, go to our resources page.


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