Channel Partner Recruitment in the Software Industry
Whitepaper from TBK Consult
Author Hans Peter Bech, M.Sc. (econ)
© Hans Peter Bech 2013 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 Klampenborg Denmark CVR: DK31935741 www.tbkpublishing.com ISBN: 978-87-93116-05-4
Channel Partner Recruitment in the Software Industry
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Table of contents:
3
Targeted audience
4
Abstract
4
Author
4
Acknowledgements
4
What is a Channel Partner?
5
The challenge of the indirect channel approach The difference in value propositions
5 6
The Three Steps to Market Leadership
7
Bootstrapping Bridgehead Scaling What do the three steps mean in a channel recruitment context?
7 7 8 8
The Preparation
9
Your ambition Your customer value proposition Your value chain Your business partner program Ideal Partner Profile The information package
9 9 10 10 11 11
The Recruitment Process
12
Market Assessment The Long List The Short List The Assessment Centre Letter of Intent Sales and Marketing Training Business Planning and Business Partner Agreement
12 12 13 13 13 13 14
About the author
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Channel Partner Recruitment in the Software Industry
Targeted audience
Abstract
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 dominance through a channel of independent business partners. The whitepaper primarily addresses the challenges of software companies with long value chains.
This whitepaper discuss the best approach for recruiting channel business partners in the software industry. The whitepaper focus on the most difficult scenario where the software vendor has neither customers nor business partners in the territory. We call this the “bootstrapping� phase. The whitepaper recommends what to prepare for being successful with the recruitment process itself and it also discusses what it takes to find and sign-up those partners who are most likely to become successful in winning new customers in the market. A successful partner recruitment activity for a new market is estimated to take approximately 9 -12 months including an initial market assessment performed prior to contacting any potential partners. The whitepaper concludes that successful business partners are made by dedicated and committed professionals. Until you have met your potential business partners in person you will not be able to make the right choices.
Author
Hans Peter Bech
Acknowledgements
Design and lay-out: Flier Disainistuudio, Tallinn, Estonia, www.flier.ee
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Proof reading: Emma Crabtree, TBK Consult, ecr@tbkconsult.com
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Independent Software Vendors (ISVs)
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Channel Partner Recruitment in the Software Industry
The word “channel” is traditionally used in the software industry What is a to describe independent companies that assume various roles Channel Partner? 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.
This definition collides somewhat with the contemporary business model framework definitions2. In the business model context “the channel” is the way you get new customers irrespective of who operates the channel. The role of the channel is to get your brand to the customers3. Thus, a company can operate the channel directly with his own resources or he can assign independent companies to operate some or all of the activities in his value chain4. This whitepaper deals exclusively with the process of recruiting independent channel business partners, which operate in their own name and at their own risk and cost. It is also assumed that these channel partners are supposed to find, win, make and keep happy customers for the software vendor’s product(s).
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The challenge of the indirect channel approach
Using a channel of independent companies to resell, implement and/or service your customers has a long tradition in the history of the software industry. For some software companies the Introduced by Alexander Osterwalder in 2010 through his book “Business Model Generation.” 2
Thus, OEM and white labeling operations are not considered a channel, but rather market segments in its’ own right. 3
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4
Please see “Your value chain” on page 8
Channel Partner Recruitment in the Software Industry
channel has been a major contributor to global success, but for most software companies making it work is a constant struggle. When software vendors have been successful in selling their products directly to customers, why do they then fail to repeat this success through a channel of independent business partners? The failure of an indirect channel can normally be traced back to the lack of quality in the channel recruitment activities and in the elements of the channel program of the software vendor. We hope this whitepaper will help software companies avoid such mistakes.
The difference in value propositions
In our whitepaper “The Software Partner Channel and the Customer Value Propositions� we explain how the value proposition of a software vendor differs completely from those of his channel business partners. We also explain the impact of this difference on the way business partners think, operate and the skill sets they possess. Channel business partners do not think and act like Independent Software Vendors!!
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To be successful with an indirect channel of business partners the software vendor must understand the idiosyncrasies of his partners. The software vendor must design his products, strategies and programs so they are aligned with business partner thinking.
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Channel Partner Recruitment in the Software Industry
The Three Steps to Market Leadership
The road to market leadership in the software industry goes through three major steps:
Bootstrapping
How do you get the first customers in a new market? How do you convince potential customers to engage with you when you have no references or if all your references are in faraway countries and maybe even in other industries?
Bootstrapping
Bridgehead
Scaling
This is the “Pre Crossing the Chasm” stage that any company must go through first. We call this stage “Bootstrapping.” Predicting how long the bootstrapping stage will take and how much it is going to cost is very difficult5.
Bridgehead
The Bridgehead is the stage where the software vendor establishes his own representation. From this base the software vendor will work to systematically cover the entire geography of the market and drive past the tipping point6. Few software vendors are prepared to establish the bridgehead prior to having successfully bootstrapped the first 5-10 lighthouse customers and secured a stable revenue stream. This is certainly understandable, but unfortunately not always possible to avoid. Certain markets (e.g. Germany, France, the UK, Brazil, China, Japan and the USA) are known for being reluctant to deal with “off shore” software vendors. Thus, depending on your value proposition, you may have to take the investment in the bridgehead up front or you may be wasting your time and money in a premature channel building and bootstrapping effort. Irrespective of channel strategy you will never make it to market For any type of product requiring sales people calling on potential customers the time for bootstrapping is seldom less than 12 months. 6 The Tipping point is the market share where demand dynamics change and the market starts pulling the products.
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Channel Partner Recruitment in the Software Industry
leadership if you are not prepared at some stage to establish your own presence in a market.
Scaling
What do the three steps mean in a channel recruitment context?
In this phase the software vendor pushes beyond the geographic coverage and starts mapping his market into horizontals and verticals ensuring continued potential for growth.
Why do we mention the three steps to market leadership in a channel partner recruitment context? The three steps are important because channel partners have the exact same behaviour as the market in general. Channel business partners have the same behaviour as the rest of the market – they shy away from anything that is new. The rule of thumb that only 15% of the market is available to a newcomer also applies in the business partner channel. We will explain how to compensate for this disadvantage below. However, please remember that having something new and
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revolutionary may be a prerequisite for breaking into a new market, but it does by definition also mean that most of the market won’t listen to you (or your business partners) simply because you represent something new, which they consider too big a risk. In the rest of this whitepaper we will assume that you are in the bootstrapping phase. If you have managed to get a few customers through a channel of independent business partners, but don’t grow as fast as you had expected, then you may also find value in our recommendations.
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Channel Partner Recruitment in the Software Industry
The Preparation
Before you start calling on potential business partners there are a few concepts you must have in place.
Your ambition
The majority of business partners prefer to play with the market leaders. There is a strong pull for the products of the market leaders and the business partners have less to explain to potential customers when carrying the products from recognized market leaders.
There is also more competition in the channel of the market leader and that motivates the business partners to be curious about new opportunities from time to time. However, being curious is not the same as acting. When the business partner does “the math� of taking a new product on board they tend to stay where they are7. You must bring a very convincing story to the meetings with your potential partners, and the first chapter of your story should be about your ambitions for achieving market leadership. You must be ambitious, but you must also be realistic. Rome was not built in a day.
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Your customer value proposition
9
Your customer value proposition answers two crucial questions: • How your solution provides value to compelling customer needs way over and above the competitive alternative.
The situation may be different if your product is a complementary add-on to a product they already carry. 7
Channel Partner Recruitment in the Software Industry
• Which customer segments that derive the highest value from using your product. There are mainly two formats available for developing customer value propositions: the value proposition canvas from Alexander Osterwalder and the NABC approach from the Stanford Research Institute. For B2B software we recommend the NABC format. Please see our fact sheet “Customer Value Proposition” for the details.
Your value chain
The value chain explains what steps represent the best way to find, win, make and keep happy customers. This is exactly what you expect your business partners to do, so you better be prepared to share your own experience with your potential partners.
Your business partner program
Your business partner program will explain how you will take your partner from the signature on the business partner agreement to his first two or three customers. You can find the details of the business partner program in our whitepaper “Designing Effective Channel Partner Programs in the Software Industry.”
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The most important element in your business partner program is the business partner P&L.
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The business partner P&L is the specification of all the financial elements of your business partner program and the investments the business partner must make to start and grow his business with your product.
Channel Partner Recruitment in the Software Industry
Your business partner program and the business partner P&L makes up your business partner value proposition. In broad terms the business partner value proposition is 25% about your products and 75% about doing business with you in the joint effort of winning new customers.
Ideal Partner Profile
The last concept you need to define is your ideal partner profile.
The ideal partner profile has three sets of criteria. In this respect you can use the same approach for defining your ideal partner profile as you use for defining your ideal customer profile. Please see our fact sheet “Ideal Customer Profile” for the details.
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The big difference is that the most important source for success in the future is “hidden” in the psychographics criteria. You cannot predict the potential of a business partner by assessing his demographic and sociographic characteristics alone. Among business partners it is the people that make the difference. Until you have met the people behind your potential business partners you will not know where to put your bets.
The information package
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From the materials developed for documenting the “ambition”, the customer value proposition, the value chain etc. you produce an “Information Package” with which you can brief potential partners about the business opportunity you offer.
Channel Partner Recruitment in the Software Industry
Market Assessment
With the preparation described above completed you can now start the business partner recruitment process:
Sign-up
Go-To-Market planning
LoI
The Assessment Center
The recruitment process includes the following steps:
The Short List
The Long List
Market Assessment
The Recruitment Process
Moving into a new market of which you know absolutely nothing may not put you in the most favourable light, when you talk to your potential business partners for the first time. We recommend doing a simple market assessment before you start talking to any potential business partners. How to perform a market assessment may vary depending on the nature of your product and your value proposition. Please see our fact sheet “Market Assessment� for inspiration.
The Long List
Based on the Ideal Business Partner Profile you can now produce a long list of candidates. The information sources for the long list are the Internet, LinkedIn, XING and other social media platforms. If you have a good idea of the keywords to use for the search, then you should be able to identify 15-20 candidates per location where you are to recruit. You must be able to perform these searches in the local language of the country where you are recruiting8.
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Now you pick up the phone and call the potential business partners on the long list to start the qualification process. You call on the CEO of the potential business partners and if there is curiosity you submit your information package. You tell her that you will be visiting in the near future and would like her feedback soon.
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8 In the small countries business partners will be able to and will also accept having these conversations in English. As you move into bigger markets such as Germany, Italy, Turkey, France etc. it becomes increasingly difficult to avoid the local language.
Channel Partner Recruitment in the Software Industry
The Short List
Based on your phone interviews you should be able to short list at least 5-10 candidates. You will have to visit these short listed business partner candidates in person to produce the final short list. At these personal meetings you will be introduced. You will present your business opportunity, your partner program and how you support your business partners. You will also present what you expect of your business partners. The business partner will present her business and her ambitions for the future. After this meeting the potential business partners will have to consider if this opportunity is worthwhile pursuing. Likewise you will have to consider if this business partner has what it takes to represent your brand and perform her channel obligations successfully. Your objective should be at least 3-4 potential business partner candidates that are prepared to participate in an Assessment Centre.
The Assessment Centre
The objective of the Assessment Centre is to review the value chain and build the business partner P&L model together. The software vendor and the potential business partner must share the same picture of what it will take to bootstrap the relationship and make it all the way to break-even.
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The outcome of the Assessment Centre, which is typically a 1 or 2-day exercise, will be the most important “appendix� to the formal agreement, which you will sign with the chosen business partner(s).
Letter of Intent
Based on the outcome of the Assessment Centre a Letter of Intent is signed with the partner(s) who are qualified and motivated.
Sales and Marketing Training
Based on the Letter of Intent the software vendor will provide introductory training for the potential business partner’s management, sales and marketing staff that are to be involved in the actual business planning process.
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Channel Partner Recruitment in the Software Industry
Business Planning and Business Partner Agreement
Where the Assessment Centre provides the conceptual alignment between the software vendor and the potential business partners, the business-planning sessions are used to develop the detailed execution plan for the activities to be initiated to find, win and make the first happy customers. As the software vendor has been through this process before, the business partner will expect most of the input to be provided by the vendor. The training mentioned above is required for an intelligent planning session, where the potential business partner has sufficient insight to form an independent view of what is required to move forward. The final plan should include short term KPIs and milestones allowing for regular follow up and instigation of corrective actions as and when required. Now the business partner agreement can be signed and the actual work commences.
The Time Schedule
Activity/Months
The time schedule for accomplishing the partner search and signup as described above is illustrated in the Gant chart below: 1
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Preparation Execution Market Assessment Long List Interviews and short list Assessment Centre and LoI GtM planning and Sign-up
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The first business partners you sign up in a new territory are critically important to your success and your reputation in that market. It pays to take the time required and be thorough with the expectation alignment and the business planning process.
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Channel Partner Recruitment in the Software Industry
About the author Hans 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
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More about Hans Peter Bech
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