Managing a Reseller Channel in the Software Industry

Whitepaper from TBK Consult

AuthorHans Peter Bech, M.Sc. (econ)

© Hans Peter Bech 2014

First edition

Unless otherwise indicated, Hans Peter Bech copyrights all materials on these pages. All rights reserved. No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission.

Published by TBK Publishing® (a division of TBK Consult Holding ApS)

Strandvejen 724 2930 KlampenborgDenmark CVR: DK31935741www.tbkpublishing.com

ISBN: 978-87-93116-06-1

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Targeted audience 4

Abstract 4

Author 4

Acknowledgements 4

Introduction 5

The Channel 5

Reseller Idiosyncrasies 6

A, B and C Partners 7

The Partner Portal 7

The Partner Account Manager 8

Managing the Stars 8

Managing the Growth Potential 9

Managing “The Rest” 9

The Partner Relationship Management System 10

The Partner Communities 10

Tools for Improved Channel Partner Management 11ValuePartner® 11

Business Model Management 12

Final Remarks 12

About the author 13

Table of contents:

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The target audience for this whitepaper is the board of directors, the CEO and the sales and marketing executives of software driven companies1 with ambitions for achieving global market leadership.

The whitepaper primarily addresses the challenges of software companies with long value chains.

With only very few exceptions the software industry is a “grow or die” type industry. This whitepaper therefore assumes that a channel partner management framework must support a business strategy aimed at becoming the market leader.

The whitepaper discusses how to design and execute effective frameworks for managing independent resellers in the software industry.

The whitepaper explains how the business models of the software vendor differ completely from the business models of his resellers and how this affects the way channel partners must be managed.

The whitepaper address the challenge that 85% of channel partners have no growth potential.

Finally the whitepaper makes specific recommendations for strategy frameworks for supporting channels partners with growth potential.

Hans Peter Bech

Design and lay-out: Flier Disainistuudio, Tallinn, Estonia, www.flier.ee

Proof reading: Emma Crabtree, ecr@tbkconsult.com

1 Independent Software Vendors (ISVs)

Targeted audience

Abstract

Acknowledgements

Author

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Software companies have historically had a very strong preference for selling their software indirectly through a channel of resellers2.

The word “channel” is used in the software industry to describe independent companies that assume various roles and obligations in bringing a software product to the customers. The definition is rather broad, since the roles and obligations can vary substantially from “simple” reselling to system integration, solution development on top of the software, implementation in terms of consulting, project management, customization, training and support.

The common denominator is the fundamental condition that the individual channel Partner is an independent contractor operating in his own name3, at his own expense and at his own risk.

The business models of software companies have some substantial differences to those of most other industries.

The software industry is blessed with the lack of a need for manufacturing and logistics infrastructures. Getting a software product from Finland to Australia in principle only takes a few seconds or minutes.

2 The term ”reseller” is here used for any type of 3rd party company engaged in selling a software brand to his customers irrespective of the degree of value add.3 In channels designed as franchises however, this is not the case.

Introduction

The Channel

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The software industry is cursed with a few other characteristics. Software is invisible. The value of software is heavily dependent on how the customer perceives the risk of implementing and the benefits of using it. The actual value is then also heavily dependent on how the customer actually uses it. Thus the value may be tightly associated with the services provided alongside the software and the customer’s own ability to take advantage of the functionality.

Leaving the sales of your products to 3rd party companies operating in such an environment is a risky endeavour.

When software vendors choose to sell their products through a channel of independent resellers they actually put their lives in the hands of people over whom they exercise very little control.

What many software companies fail to realize is the vast differences between themselves and their resellers. The value propositions of software companies and those of their resellers are completely different. Thus their business models and the way they think and act are also completely different.

I suggest you also read these whitepapers to fully comprehend these fundamental differences: “Growth Through Partners – The path to market dominance through a channel of partners in the software industry,” “The Software Partner Channel in a Business Model Context,” “The Software Partner Channel and the Customer Value Propositions,” “Channel Partner Recruitment in the Software Industry” and “Designing Effective Channel Partner Programs in the Software Industry4.”

Most software companies consider their resellers as their channel to the market. A few changes to the previous sentence will provide a much more operational foundation for the relationship with resellers:

Resellers are independent businesses.

The word “independent” makes a huge difference. Your resellers do not consider themselves as your sales channel.

4 All available for free at www.tbkpublishing.com

Reseller Idiosyncrasies

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Resellers run their own businesses with their own ambitions, their own P&L, their own target market segments, their own value propositions etc.

Resellers consider their software vendors as their Key Partners – not as their superiors.

Resellers may associate very closely with a specific software brand, but as soon as that brand starts to fade they will look elsewhere to protect their own business interests.

All software reseller channels will gravitate towards the structure illustrated in fig. 1 below.

Stars: Approximately 5% of your resellers will possess the ability to grow their businesses without your support. Their leadership is ambitious and they have the management skills to execute their strategies.

Growth Potential: Approximately 10% of your resellers are genuinely ambitious, but they lack the management skills required to execute. With your assistance they may be able to grow and become stars.

The remaining 85% are either without ambitions or their management skill sets are so weak that no external support will have any impact on their growth capabilities.

Designing your channel management programs must be based on these facts5.

All information and logistic services provided by the software vendor to his channel partners should be available through a web based portal. The administrative overhead associated with providing standard documentation and answering trivial questions can by reduced substantially by providing a user-

5 I give that these numbers based on my personal experience from 30 years in the software industry. You can choose to ignore them if you want, but please then tell me what you experience.

A, B and C Partners

5%

10%

85%

Figure 1: The Performance in a

Reseller Channel

The Partner Portal

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friendly self-service “Partner Portal.” At the same time “partner satisfaction” will increase with the degree of self-service opportunities.

With chat functionality, social media type applications, videos and search functionality it is possible to satisfy most information requirements instantly and with very little human interference.

As channel partners hire new or additional staff to support the activities around your product the partner portal should accommodate most of the initial educational requirements.

Software companies must assign Partner Account Managers6 to support the growth of their Stars and their Growth Potential.

The Partner Account Managers are business people with a strong commercial background. They are not product specialists!

The main objective of the Partner Account Managers is to understand the business model7 of his individual channel partners and help them grow their business with his own product as the core component. Thus the Partner Account Manager is a coach and a management consultant when working on the channel partner’s executive level and a senior sales person when working with the channel partner’s sales staff in the field.

The Stars set their own agenda and drive their own growth. The management team of a Star type channel partner need and appreciate executive attendance from the software vendor. They do not want to “waste time” on people who do not have decision-making power.

The Partner Account Manager must be well connected with the top executive team of the Stars and use his liaison opportunities to build and strengthen the ties between his own executive management and the management of the Stars.

6 Partner Recruitment Managers and Partner Account Managers are not the same. Please see the whitepaper “Channel Partner Recruitment in the Software Industry.”7 Including the strategy, the value proposition(s), the key market segments etc.

The Partner Account Manager

Managing the Stars

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The Partner Account Manager must explore all opportunities for strategic cooperation and alliances between his own company and the Stars making sure that all the energy and potential of the Stars fuel the growth of his own company.

There will be daily communication and activities between the Partner Account Manager and his Stars. There will be at least an annual strategy review and planning workshop and monthly or quarterly follow up meetings.

The Growth Potential needs organisational support to release the growth.

The software vendor must have a framework for supporting the Growth Potential, which all Partner Account Managers should use. Only this way can the software company continuously improve, fine-tune and scale the effort.

The Partner Account Manager will have to take the initiative to and also facilitate the strategy review and planning sessions, which provides the basis for the growth.

The Partner Account Manager should apply the “strategy framework” and help drive the effort until the channel partner becomes self-sufficient.

The Partner Account Manager will have weekly communication and activities with channel partners in this category. There will be at least an annual strategy review and planning session plus monthly or quarterly follow up meetings.

Don’t waste Partner Account Manager resources managing channel partners with no growth potential! The cost/benefit ratio will not justify the effort.

Although the majority of channel partners do not have any growth potential, they still represent an important source of revenue and a market coverage resource. They should primarily

Managing the Growth Potential

Managing “The Rest”

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be managed through the partner portal with opportunities for chat, call centre and email communication.

Making it to market leadership through a channel of resellers requires a Partner Relationship Management system (PRM).

Just as most companies have CRM processes and systems to manage their customer relationships, an equivalent approach is required for managing channel partner relationships.

The PRM supports the partner relationship management processes, thus you must define these first and then implement the system afterwards.

There is no way a software company can enforce ”best-practice” approaches and share crucial information on their partners, their performance and their issues if all the data is in the head of individual people who come and go.

If you are building and maintaining a true eco-system8 then you must provide the members of your ecosystem with opportunities for meeting and getting acquainted. However, software vendors with mere sales channel partners can also benefit from bringing their partners together.

Partner conferences are opportunities for announcements, training session, business development workshops and other activities, which help improve the productivity of an indirect channel.

The biggest impact from the partner conferences may be the impact on morale. Having the personal experience of being a member of a huge global “family” is extremely reassuring for most people.

All your channel partners should be invited to participate. Attendees will pay their own travel and accommodation

8 In the eco-system your partners are enhancing and enriching your product and providing services around you product enlarging your market reach way over what you could ever achieve by your own means.

The Partner Relationship Management System

The Partner Communities

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expenses and you can charge a fee for attending the conference and associated events (e.g. special training sessions).

Partner Conferences are excellent opportunities for meeting and recognizing your entire top performing partners.

TBK Consult recommends using the following tools for effective strategy review and planning sessions with your top channel partners.

ValuePartner9 is already in use by many software vendors helping their top performing partners grow faster and more profitable.

9 ValuePartner® is owned by ValueMaker: www.valuemaker.eu

Tools for Improved Channel Partner Management

Ideal curve Importance average

ValuePartner®

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ValuePartner is a strategy review and planning tool based on a questionnaire, a ½ day workshop and a 1-day workshop. The entire exercise can be completed in less than a week. ValuePartner is an excellent tool for starting any strategy review process aiming at improving growth and profitability.

Alexander Osterwalder with his Business Model Generation book from 2010 operationalized the business model framework.

TBK Consult has developed a 3-day workshop helping channel partners review and optimize their businesses based on Osterwalder’s framework.

The 3-day business model exercise includes a review of the customer segmentation, the ideal customer profile(s), customer value proposition(s), sales and marketing approaches, customer relationships, key activities, key resources, key partnerships and the P&L10. The workshop also reviews the business model environment, which includes all the external factors which have an impact on the business including the competitive situation.

Contradictory to the perception of many software company executives channel partner management has very little “product content.” Successful channel partner management is business management and thus requires solid commercial understanding, business acumen and salesmanship.

It doesn’t mean that your product doesn’t play a role. It certainly does and all your tools and programs must support the product you are offering.

However, successful reseller channels are not built with excellent products alone.

Combining an excellent product with a professional channel partner program is the best insurance you can take out to protect all the investments you have made in R&D and help you make it to market leadership.

10 Profit & Loss: Review and analysis of revenue and expenses.

Business Model Management

Final Remarks

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About the authorHans Peter Bech has been developing and managing global partner channels in the software industry for more than 30 years.

Hans Peter built the partner channels for companies such as Dataco (now Intel), Mercante, Dansk Data Elektronik (now CSC), RE Technology (now Barco), and Damgaard/Navision (now Microsoft).

As a management consultant Hans Peter has been providing consulting on channel development and management issues to companies such as Microsoft, Danfoss, Proekspert, Jeeves Information Systems, eMailSignature, SoftScan (now Symatec), Netop, EG A/S, CSC Scandihealth and Secunia.

Hans Peter is the author of several whitepapers on channel development and management and he frequently writes articles on the subject.

He started his career as a management consultant in 2003 and founded TBK Consult in 2007. Since then he has built the company to its present position with 24 senior consultants in 16 countries.

Hans Peter oversees the development of TBK Consult as well as performs management consulting assignments for selected clients.

Hans Peter holds a M.Sc. in macroeconomics and political science from the University of Copenhagen. He speaks Danish, English and German and is a certified ValuePerform, ValuePartner and Business Model Generation consultant.

More about Hans Peter Bech

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