Growth Through Partners

Growth Through Partners

The path to market dominance through a channel of partners in the software industry

Author Hans Peter Bech

Whitepaper from TBK Consult

© Hans Peter Bech 2013 First edition Unless otherwise indicated, all materials on these pages are copyrighted by Hans Peter Bech. 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.

First published by TBK Consult in 2013 in electronic format only: TBK Consult Holding ApS Strandvejen 724 2930 Klampenborg Denmark CVR: DK31935741 ISBN 978-87-995228-4-2

Growth Through Partners

Table of contents: Introduction

5

The channel is a necessary evil

6

For all the wrong reasons

6

1. The negative approach

6

2. The amateur approach

7

3. Searching for a business model

7

4. Lack of ambition and passion

7

To partner or not to partner

8

Proven Business Model

8

Designed for the channel

8

The Value Chain

9

Marketing and sales

9

Implementation and customer management

9

Mass or niche market

10

Value Add and Deal Size

10

Competition

10

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The value chain and the three phases of market penetration 12 The Value Chain approach

12

The three phases of market penetration

13

The channel, the value chain and the three phases

14

Bootstrapping Customer Value Proposition Ideal Customer Profile Mitigating major risk in the bootstrapping phase Selling to existing customers

3

14 14 14 15 15

Conclusion 16 Establishing the Bridgehead 16 The role of the Bridgehead 17 Bridgehead format 17 Control 17 Drive 17 Exit 17 The joint venture/acquisition model 17 The fully owned subsidiary 17 The “master franchise”/distributor 18 Examples of Bridgehead formats The Navision model The Damgaard model

18 18 18

Bridgehead before bootstrapping “me too” value proposition You can afford it

19 19 19

Final remarks on the bridgehead

20

Scaling for Dominance Vertical expansion The skill set Strategic Partner Development

20 20 20 20

The Partner Program

22

The Customer Value Proposition and Ideal Customer Profile

22

The Value Chain and Delivery Model 22 Partner Value Proposition and Business Support Program 23 Partnership Model Options

24

Bootstrapping Package

24

Ramp-up of new partners in the bootstrapping phase

25

Establishing the Bridgehead

25

Customer and partner references

25

Scaling for Market Dominance

25

White Space Management Plan

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Growth Through Partners

Targeted audience

The target audience for this whitepaper is the board of directors, the CEO and the sales and marketing executives of software driven companies with ambitions for achieving global market dominance. The whitepaper is primarily addressing the challenges of software companies with long value chains.

Abstract

The whitepaper discuss the role of the (partner) channel in the three main phases of market growth in the software industry.

The whitepaper discusses the bootstrapping phase, the formats for setting up local bridgeheads and briefly elaborates on issues related to achieving market dominance.

The whitepaper argues that the approach for channel partner recruitment and management changes drastically through the three main phases of market growth. Recruitment strategy and partner programs have to be changed as you progress and increase your global market share.

Contradictory to common perception the whitepaper argues that achieving market traction through a channel requires an additional up-front effort and investment compared to the direct approach.

The whitepaper then gives specific recommendations for how to design and implement a channel program, which adapts to the three phases of market penetration.

Acknowledgements

Thank you to Gianmaria Odello and Peter Ditlev for valuable input and comments.

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

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Proof reading: Emma Crabtree, TBK Consult

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Growth Through Partners

Introduction

Using a channel of independent companies to resell, implement and/or service customers has a long tradition in the history of the software industry.

For some software companies the channel has been a major contributor to global success, but for most software companies making it work is a depressing and constant struggle.

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.

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The common denominator is the fundamental condition that the individual channel Partner is an independent contractor operating in his own name1, at his own expense and at his own risk.

In channels designed as franchises however, this is not the case.

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The channel is a necessary evil

Using a channel is never the dream scenario unless you are one of the few eco-system owners. Thus if you embark on building a channel it should be a part of your “long term” eco-system strategy.

Eco-system owners attract partners by the thousands and partners compete with each other. This is your dream scenario, which is not without challenges, as we will explain later.

You need the channel to scale your business, but if you can do the scaling yourself, you should. Here is the rule of thumb: If you have enough money– go direct.

If you have enough time– build a channel.

For all the wrong reasons

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1. The negative approach

Why do so many software companies have difficulties in building a partner channel and making it work?

From our experience with GTM2 projects in the software industry all over the world there are four fundamental reasons why a channel based GTM fails.

Software companies very often turn to a channel based GTM approach to avoid the investment required for rapid growth and the risk associated with the unpredictability of penetrating “unchartered” territories.

Although this may appear as a solid business reason, the premise is negative. You expect that someone who is not so familiar with your product and your market should be prepared to make investments and take risk, which you yourself are not prepared to take? The premise is a negative approach and your behavior will be colored by your risk aversion attitude. You perceive the channel solution as the easy and cheap solution and try to shift the investment and risk to the channel partner. This approach conveys a fundamental “anti-Partner” attitude.

“Long Term” may not be so long anymore. Just don’t rely on the partner channel in your startup phase 2

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Growth Through Partners

2. The amateur approach

When a software company with a direct GTM approach decides to apply a channel based GTM they are starting from zero on the learning curve. For some odd reason software companies with a direct GTM approach tend to substantially underestimate and misjudge what it takes to recruit, enable and grow a channel. Continuing a direct approach in the domestic market and operating an indirect approach internationally introduces conflicts, which will absorb energy and resources.

3. Searching for a business model

If you are still looking for a repeatable and scalable business model, then trying to establish a partner channel may be downright dangerous. The agility required when searching for a repeatable and scalable business model can never be achieved though a channel. You need direct contact with your customers to figure out who they are, what they want from you, why they want it, how much they are prepared to pay and the competitive alternatives they have available. Introducing a channel into this scenario will create a level of noise and disinformation, which will jeopardize the survival of your business. Channels are introduced to scale working business models, not to search, find, test and select a new business model3.

4. Lack of ambition and passion

Some software companies are simply not ambitious and passionate about their business. They use a channel approach as an “easy” and “risk free” approach to try and obtain some additional short term business. They make no investment in a channel enablement program and provide no support helping new partners bootstrap the business. When the endeavor is unsuccessful, they blame it on the partners and pull out.

Startups who consider a channel in their business model should read Steve Blank: “The Startup Owner’s Manual” 3

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To partner or not to partner

Proven business model

When do we choose a partner channel based GTM approach and when do we select a direct model?

The following issues have a substantial impact on the choice of a GTM approach; xx

Do you have a proven repeatable and scalable business model?

xx

Is your product designed for the channel?

xx

Which parts of the value chain will you allocate to your channel partner?

xx

How large is the market (in terms of business opportunities)?

xx

What is the typical value add for the partner (in pct. of total solution price and in money value)?

xx

What is the length of the sales cycle?

xx

What is the average deal size?

xx

How much is cost of sales in pct. of deal revenue?

xx

How long is the learning curve from kick off to full qualification of the minimum partner team?

xx

How competitive is your market?

Companies looking for a business model (startups) should not spend much time on the channel. Even if the channel is a an integrated part of the business model idea, the focus should be on finding the product/service, which customers are prepared to queue up to buy. Until that business model has been found and tested there is little you can achieve by spending time with potential partners.

This whitepaper is not written with the startup in mind. The whitepaper assumes that you have a verified business model and that this business model is already scaling well at least in your domestic market.

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Designed for the channel

8

Most successful channel eco systems had the channel in mind when designing the product and the business model. The channel is not only selling the product/service. The channel is making critical contributions such as: xx

Vertical and horizontal product enhancements

xx

Customizations

Growth Through Partners

xx

Customer training

xx

Project management

xx

1st line support

xx

Lead generation

xx

Sales

These observations may seem contradictory to our statements about the proven business model above, but they are not. The channel may be an integrated part of your business model idea, but you must first validate that there is sufficient customer demand for your solution. Only customers can make that validation; Channel Partners cannot.

The Value Chain

Marketing and sales

A software business value chain typically has two major parts:

1.

Marketing and sales

2.

Implementation and customer management

Most software companies are looking to the channel to also assume responsibility for building awareness, generate leads and close sales.

Most channel partners are looking for customers/projects where they can sell more of the services they already have on the shelves.

This dichotomy in the perception of roles often leads to massive conflicts and frustration. The software company expects the partners to generate business and the partners expect the software vendor to build awareness and generate leads. Both sides are waiting for the other part to move first.

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Implementation and customer management

9

In many areas successful implementation and subsequent customer management is just as important as closing sales. A customer is not a reference until his is happy with the solution. If you manage to sell, but fail to implement, then you have moved two steps forward and three steps back. If you have implemented poorly and don’t get any add-on business, then you may never achieve a positive gross margin on the deal.

Growth Through Partners

Mass or niche market

Your recruitment strategy and your business partner programs must address each and every step in the total value chain for which you expect your partner to assume responsibility.

A channel is most appropriate for very large markets. Small niche markets are difficult to dominate through a partner channel.

A channel is most appropriate for mid-sized deals.

Small deal sizes and short sales cycles are potential candidates for a direct web based approach. Partners may come into the picture later on, but typically on their own initiative.

Deal Size and complexity

Value Add and Deal Size

Direct trough your own sales force

Use a partner channel

Direct trough the Web length of sales cycle

Large deal sizes and long sales cycles are poison for the channel.

These types of deals require substantial domain and product knowledge, which takes years to acquire. Partners may come into the picture later on, but typically for selected implementation tasks late in the value chain.

The mid portion of the curve with medium sized deals and medium sized sales cycles can be suitable for a channel partner approach.

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Competition

10

A market with no competition is not a market. Using a partner channel is not a good option for building a market. Market building is the job of the software vendor (brand owner).

Growth Through Partners

Breaking into a hyper-competitive market through a channel is also very difficult. The channel partners already have competitive solutions in their portfolio. Making them change requires dealing with the cost of migration, which most often makes a shift too risky for the partner.

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The best timing for using a channel is when a market is established, but not yet hyper-competitive. Identifying this timing is obviously not easy. There are no general guidelines for assessing when the timing is right. We recommend testing the waters and conducting experiments. Don’t invest the whole company in a single strategy, but test and adjust as you learn what works and what does not.

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The value chain Building and operating a successful partner channel requires the understanding of two fundamental concepts: and the three phases of market 1. The Value Chain 2. The three phases of market penetration penetration 4

The Value Chain approach

The objective of any software driven company is to get happy customers and grow the installed base to a position where the company is the market leader.

Figure 2. Sample Software Value Chain

The Value Chain5 remains the same through the entire journey.

However the effort associated with exercising the various parts of the value chain changes dramatically through the three phases.

Let’s take a look at a normal Value Chain in the software industry as illustrated in fig. 2 on page 12: 1. Definition of the Customer Value Proposition 2. Segmentation and definition of the Ideal Customer Profile (ICP) 3. Creation of customer testimonials (satisfied reference customers) 4. Branding and awareness creation The Value Chain concept is described in TBK-PFFS-005, which is available on www.tbkconsult.com 5 The Value Chain is reflecting the customers purchase process and your corresponding sales process.

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5. Lead generation 6. Opportunity development 7. Pre-qualification & needs assessment 8. Lead activation 9. Presentation and value potential identification 10. Demo/Trial – proof of value 11. Pilot – verification of value 12. Proposal 13. Contract and delivery specifications 14. Full Scale implementation 14.1. Project Management 14.2. Development 14.3. Customization 14.4. Integration 14.5. Training 15. Support 16. Customer management (maintenance/up-sell/cross-sell) The energy and insight required to perform each step of this value chain varies substantially depending on whether you are in the bootstrapping phase or in the path to market dominance.

The three phases of market penetration

The path from local to global market dominance in the software industry goes through three phases.

1. Bootstrapping 2. Bridgehead 3. Dominance Bootstrapping is the process of getting the first minimum critical number of customers in a new territory and growing the revenue, which will allow you to establish your own presence in that market.

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Bridgehead is the phase where you establish your own presence in the market and grow your market penetration to full geographic coverage Dominance is the phase where you consolidate your position

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into your selected vertical industries. Dominance obviously requires full geographic and vertical coverage. From a position of dominance you can become the eco-system owner.

The channel, the value chain and the three phases

In this section of the whitepaper we will explore what to do in each of the 3 phases to create your position and steadily grow to the next phase, when a partner channel is a part of your GTM strategy.

Let’s make a blunt statement: A partner will be reluctant to sell a new product to his existing customers. A partner cannot sell a new product to a new customer.

Bootstrapping

Bootstrapping into a new market through partners will seldom work. Winning the first critical reference customers requires that you be in front of your partners basically doing the job for them.

Customer Value Proposition

You need to know your customer value proposition extremely well and it must be thoroughly documented. We recommend using a standard format for describing you customer value proposition such as the NABC format 6.

Your value proposition must have a very clear competitive edge.

Selling something, which is already available in the market with established references and local support is very, very difficult.

Thus your value proposition must explain why your proposal is better than the already available alternatives.

Ideal Customer Profile

As described in the Value Chain Approach you must define an ideal customer profile in order to identify which customers you should approach first7. The challenges associated with breaking into a new market also apply to the situation of breaking into a new geography. We recommend studying Geoffrey Moore and his renowned book “Crossing the Chasm.”

The NABC format is described in the document TBK-PFFS-002, which is available on www.tbkconsult.com 7 The format for describing the Ideal Customer Profile is explained in the document TBK-PFFS-003, which is available on www.tbkconsult. com

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Your challenge is that the main market is available to neither you, nor your potential partners. Somehow you need to identify and approach technology enthusiasts and visionaries first or at least identify potential customers who will derive massive shortterm benefit from using your software.

Mitigating major risk in the bootstrapping phase

The primary risk factors in the bootstrapping phase are “time-torevenue” and “the learning curve”.

It is hard to estimate how fast you can win the critical number of reference accounts. If you assign all steps in the value chain to partner(s) and provide him/them with some basic product training only, then your chances of success are very slim.

Partners are extremely sensitive to “time-to-revenue” and tend to reallocate resources if genuine sales opportunities do not mature within a 3-month window. The value of the basic training evaporates and you have to start all over again, if and when a new sales opportunity appears.

Experience shows that it takes real life projects to effectively travel the learning curve. Classroom seminars alone will not do the job. You must drive the sales effort associated with winning the first customer with the partner as a trainee. The second customer can be a 49/51 effort and the partner can drive the third customer project with you as the supervisor.

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Selling to existing customers

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You MUST insist starting with the partners existing customers.

Selling a new product to an existing customer will cut at least 50% off the time-to-revenue.

Growth Through Partners

Partners are reluctant to sell new products to existing customers because they are afraid it may jeopardize the customer relationship. The partner may be really excited about your product, but as he has no practical experience with the product he will “cool off” when it comes to actually making the first moves and introducing the product to his existing customers.

With a few exceptions partners are not professional sales and marketing machines.

They are mostly technical oriented “feature creatures.” Therefore they have a hard time getting new customers. When they come across a new “sexy” product, they believe the product can open the doors to new customers. After a couple of attempts at getting the foot in door with new customers, they will be disappointed and shift their focus elsewhere.

It is your job to insist on starting with the existing customers.

You must work with the partner identifying the “buying” centers and work according to your Value Chain approach. You must drive the sales effort and take an active role in the subsequent implementation.

Conclusion

Bootstrapping cannot be left entirely to a partner. You have to take him by the hand and walk him through the learning curve until the first 3-5 customer projects have been completed and the revenue flows.

Working through a channel essentially requires additional investment as compared to the direct approach.

Believing that bootstrapping through a channel of partners is “less expensive” than the direct approach is based on false assumptions. Developing a partner channel is an additional investment. This investment will provide a return later on, providing sales and implementation capacity in the market over and above what you could have generated through your own organic growth.

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Establishing the Bridgehead

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The Bridgehead is your representation in a local geography.

The first objective of the bridgehead is to secure full geographic coverage in the territory. It is very unlikely that you can achieve

Growth Through Partners

full market coverage without a local representation8. Thus you need a bridgehead.

As a rule of thumb you start building your bridgehead when you have a revenue stream and pipeline, which can cover the cost and secure breakeven within 18-24 months.

The role of the Bridgehead

The Bridgehead is responsible for growing the channel, supporting the channel, local branding and local lead generation.

Bridgehead format

The main issues underlying the decision for the bridgehead format are control, drive and exit option. Unfortunately they do not correspond very well with each other.

Control

You do not want a bridgehead which you cannot control. You want to have the power for hiring and firing the country manager.

You want to set and drive the direction of the business.

Drive

Your bridgehead is by definition remote. How do you motivate the staff in the bridgehead to go out of their way to grow your business? When people get on the pay roll with high fixed salaries, they tend to be comfortable and relaxed. The list of well paid country managers who failed to deliver the results, misused the funds and left a mess behind is unfortunately very long.

Exit

If you do not own or have a pull option on your bridgehead, what are you going to do in an IPO or industrial/financial exit situation? The revenue recognition portion of a bridgehead you do not own is small and limited to the margin you receive.

The joint venture/acquisition model

Acquiring or doing a joint venture with a local player is a proven way of making a bridgehead. You should insist on having full control, but leaving enough equity to the joint venture partner to motivate an extraordinary effort until critical mass has been achieved.

The fully owned subsidiary

The fully owned subsidiary is the preferred way for most software companies. Placing one of the company’s headquarter executives to run the bridgehead until critical mass has been achieved is also a well-known approach. Your main challenge For certain very niche oriented products a local bridgehead may be required in markets of a certain size only. Example: Image a solution for weather agencies. There may be only one or two weather agencies in a small country and there is no basis for a local representation and your customers will not expect this either.

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is managing the subsidiary. Setting up a subsidiary requires substantial investments. Running subsidiaries requires loyal and capable local management but also corresponding headquarters management and control functions.

The “master franchise”/distributor The “master franchise”/distributor model may be tempting and may also work if you have a pull option. 100% dedication to the business is crucial.

Examples of Bridgehead formats The Navision model

Navision was a software company in the ERP market. Their international go-to-market model was through a master franchise type concept, where the local distributor operation was owned and operated by independent parties. The distribution agreement included a pull option for Navision. At any time (after a grace period) Navision could exercise a partial or full purchase of all shares in the distribution company. The pull price was defined through an algorithm agreed by both parties from the beginning. Before Navision did their IPO they rolled up the entire network exercising their pull options. Navision later merged with Damgaard and was acquired by Microsoft in 2002.

The owners of the local master franchises had the full P&L responsibility. They knew that there was an exit strategy and equity earn out opportunity.

The drive and commitment you get when people are responsible for their own business operation and can read the equity value in their dispositions, is hard to match with staff on a fixed salary and a commission plan.

Exercising the pull option was a major investment for Navision.

However it was financed by the IPO and was a balance sheet manoeuvre.

The Navision model still stands as one of the most successful internationalization models in the software industry.

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The Damgaard model

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Damgaard was also a software company in the ERP market.

Their international go-to-market model was a strategic alliance with IBM. IBM was responsible for setting up and managing the partner channel worldwide.

Growth Through Partners

While IBM certainly was an excellent brand name for attracting local partners in the bootstrapping phase, it was not a good for model for accelerating and maintaining growth. Damgaard eventually bought back the distributions rights from IBM and established their own subsidiaries to manage and grow the channel internationally.

Setting up subsidiaries simultaneously in several countries is a costly affair, which has a major impact on the P&L. On the other hand it is highly controllable. Damgaard made a roll out of Axapta (now Microsoft Dynamics AX) through its subsidiaries in a highly uniform way over a very short time. To secure control Damgaard stationed some of their senior executives9 in the country management positions until critical mass was achieved.

The IBM agreement, which looked perfect on paper, probably introduced a 5 year delay for Damgaard. Dealing with big IBM was a drain on the resources for the relatively small Damgaard.

Damgaard made a successful IPO in 1999, merged with Navision in 2000 and was acquired by Microsoft in 2002.

Bridgehead before bootstrapping

There are situations where it makes sense or where a bridgehead is even required before you can commence bootstrapping: A. When your value proposition is “me too”

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B. When you can afford it “me too” value proposition (hyper competition)

When your value proposition and the way you position yourself is very close to already established players in the market then your only way to penetrate a new market is through brute force.

It is the application of the ancient military strategy – the army with the most soldiers will win the battle. You cannot execute the brute force strategy from the outside; you must have a bridgehead first.

You can afford it

It is not unusual to set up a bridgehead before bootstrapping.

If you can afford the investment and if you can accept the unpredictability of time-to-revenue, then it is recommended to start with a bridgehead.

The author of this white paper was stationed in Stuttgart, Germany from 1998-2001 and was responsible for growing the business in DACH (Germany Austria and Switzerland) 9

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Final remarks on the bridgehead

Establishing a Bridgehead may not be at the forefront of the mind for the software company standing in front of the bootstrapping phase. It should be. If you do not intend to get to the bridgehead, then bootstrapping makes absolutely no sense. Why go through all the hassle of bootstrapping and then leave it there? You may have a slightly profitable business for a couple of years, but then you will be outcompeted. No software companies we can think of have survived without moving to the bridgehead.

Scaling for Dominance

The first objective to aim for after establishing the bridgehead is geographical coverage. Channel Partners only have a certain geographic reach. You must map and fill the white spots. This is not rocket science – it is diesel fueled cars and lots of miles.

As you build your brand the job of recruiting partners will change. End user demand will increase and the pull effect will make partners knock on your door. Focus on the geography and recruit partners to achieve coverage. Your existing partners will start complaining because they no longer have de facto exclusivity. Don’t listen to them – let the best man win. The partners will have to learn how to differentiate on their skills and competencies and not on your product. You are heading for market dominance and you will not get there unless you have more people promoting your products that your competitors.

Vertical expansion

When you have achieved geographical saturation, your next objective is to expand into other verticals. Step-by-step. There is a learning curve associated with each new vertical. You need partners who are already in those verticals. Domain knowledge comes before product knowledge.

The skill set

The challenges associated with getting market dominance from a position of strength requires a different skill set than bootstrapping and building the bridgehead. You most likely have to replace your channel account managers or move them around.

You will separate channel management from channel recruitment. Your main challenge shifts from market coverage to the quality of partner skills and customer satisfaction. Upselling and cross-selling opportunities gets on the agenda.

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Strategic Partner Development

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Your growth potential in the market dominance phase is limited to the growth potential of the individual partner. Getting additional partners will become more and more difficult, thus

Growth Through Partners

you need to engage in strategic Partner development activities with you most professional Partners.

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Facilitating such strategy development activities will require a special brand of Partner Account Managers and a framework.

We recommend using the ValuePartner10 framework, which is designed for exactly this endeavor.

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See fact sheet TBL-VMFS-003, which is available at www.tbkconsult. com

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The Partner Program

In this section of the whitepaper we provide a series of recommendations for building the initial partner program taking the previous mentioned challenges into consideration. The Partner Program is the combination of the services and benefits, which you offer the partner and the requirements you ask the partner to fulfill.

The Partner Program is the “container� where all details of partnering are documented. The Partner Program is often in itself a key competitive differentiator for a software company.

Based on the Partner Program potential partners can assess the cost/benefits of your offering and thus the value to his business.

Typical elements of the Partner Program are:

The Customer Value Proposition and Ideal Customer Profile

xx

Customer Value Customer Profile

xx

Value Chain and Delivery Model

xx

Partner Value Proposition and Business Support Program

xx

Partnership Model Options (with a Partner Agreement)

xx

Bootstrapping Package

Proposition

and

Ideal

The Customer Value Proposition11 explains which compelling customers needs the solution is addressing, the approach for delivering the solution, the benefits provided for the cost of migrating/implementing the solution and how the solution differs from the competitive alternative available to the customers.

The Ideal Customer Profile describes the characteristics of the customer deriving most benefits from the solution.

The Value Chain and Delivery Model

The joint objective of the software company and the partner is to find, win and maintain happy and profitable customers.

A more detailed explanation how to define and document competitive Customer Value propositions is described in the FactSheet TBKPFFS-002. The FactSheet is available at the TBK web site.

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The Value Chain12 described in the beginning of this whitepaper is the tool for defining the division of labor between the software company and the partner. Who is responsible for what?

The Delivery Model describes how the software company enables the partner to execute his portions of the Value Chain.

Partner Value Proposition and Business Support Program

Many software companies mistake the partners for their customers. If your ambition is to build a brand in the market, then your partners are not your customers13. This may seem a semantic and academic exercise, but it is fundamental to your account management approach.

Recruiting, building and managing successful partners requires a compelling and competitive Partner Value Proposition.

In the Bootstrapping phase the power balance is in your disfavor.

The partners have an operational business and can survive without your solution.

You need the partners, but they don’t need you.

In this phase the Partner Value Proposition must describe the entire business opportunity. It must be very specific on how to bootstrap, and it should clearly illustrate the substantial profit opportunity achievable after getting started.

Partner Testimonials detailing how other partners became successful with you and your solution should support the Partner Value Proposition.

The Partner Value Proposition should include the following:

A more detailed explanation how to define and document the Value Chain is described in the FactSheet TBK-PFFS-005. The FactSheet is available at the TBK web site.

13 If you primarily engage in OEM type relationships with your partners or if the partners “consume” your solution and there is little value carrying your brand to the customers, then your partners are not partners. Then they are customers.

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Needs How does the combination of your product and your Partner Program provide a compelling business opportunity for the partner?

Approach What is your approach to help the partner getting started and how will you protect his investment?

Benefits

Competition What does the typical Partner P&L look like in year 1, 2 and 3.

How is your business proposal superior to any other alternatives the Partner may have?

The Partner Value Proposition must be 100% synchronized with the Customer Value Proposition and the Value Chain. Describing the full Value Chain and how partners add and profits from adding value is essential for creating a solid business justification and business case.

The Partner Value Proposition should be complemented by a Partner P&L Model, which incorporates all the investments required by the partner, your own support and contributions including realistic sales cycles and average order values.

Partnership Model Options

We recommend keeping it simple in the beginning. Stick to just one partnership option and differentiate at the later stages.

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If you have various partnership options e.g. Platinum, Gold and Standard, then you must have a complete description of the requirements, associated benefits and the legal terms and conditions. But again, keep it simple.

Bootstrapping Package 24

Getting the first reference customers fast is crucial to the success of the relationship. Thus training, planning and executing market penetration must be parallel activities.

Growth Through Partners

We recommend not spending too much time writing elaborate business plans. The Partner will have no experience with you and your product thus the plan will contain too much guessing on the Partners’ behalf.

Identify those of his existing customers who are candidates for your product, get out of the building and meet with them.

Don’t ask the customers for their opinion. Ask them to buy the product and then listen to their feedback and the nature of their objections. These meetings with real life customers will provide you with a world of information on which you can move forward step by step to more solid ground.

Ramp-up of new partners in the bootstrapping phase

The probability that a partner will become successful in the Bootstrapping phase on his own cost and at his own initiative is very slim.

All partners expect that the software vendor invests in building the market, developing the first reference customers and prove that the Partner Value Proposition actually provides a fast and riskless path to success.

Time to revenue is the #1 priority in order to keep netinvestments as low as possible – for the software company and for the partner. The partner and vendor need to develop a Short Term Ramp-Up plan with laser-sharp focus on closing the first reference customers. Such a plan could look like this: xx

Definition of success-criterias for the first 3-4 months

xx

List of most potential customers (ideally from the Partners installed base)

xx

Sales Plan – Who does what to generate and support the sales cases, investments, revenue sharing?

xx

Measure and follow-up

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Signing the Partner Agreement may be important to the software vendor. However, to many partners the real commitment comes with the business and not with the Agreement.

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Growth Through Partners

Establishing the Bridgehead Customer and partner references

After the Bootstrapping phase you have managed to build your customer references with your partners. Ensure you have full access to the customer references as your foundation and key assets for setting up the Bridgehead.

While expanding your presence in the market, you will need more partners to build coverage of the market. Build successstories based on the first partners in the market, and use them as Proof of Concept that the partner model and value proposition is trustworthy.

Scaling for Market Dominance White Space Management Plan

When Scaling for Market Dominance you need to cover every customer in your target market. To do so, you need to build a Partner Coverage Map that describes how your current partners are covering the different customer segments, verticals and geographies. This will show your coverage, and also where you have market “White Spaces�; areas with no or low coverage.

Combine this Partner Coverage Map with local market analysis to identify the potential of the White Space areas. You are now ready to start recruiting partners into the attractive White Space areas – either by recruiting new partners and/or by supporting current partners to expand their market coverage into the White Space.

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Building such a plan requires lots of market data and in-depth knowledge of your customer base as well as of your partners and their competencies and focus areas. With the plan you will be able to direct your investment into the most profitable areas and reduce partners competing with each other.

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Growth Through Partners

Hans Peter Bech Hans Peter Bech is a software industry “growth consultant�; he has more than 30 years of operational experience with global business development in the software industry.

His experience includes all types of software from high priced enterprise management solutions to low price/high volume software sold over the Internet and/or through telesales.

Hans Peter has been exercising all Go�to-Market variations such a direct enterprise sales into foreign markets, indirect through resellers and distributors, through own subsidiaries, through franchises and through acquisitions.

Hans Peter is the author of several whitepapers on software business development and Business Model Management in the software industry. 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 performing management consulting assignments for selected clients.

Hans Peter holds an M.A. 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.

www.tbkconsult.com

More about Hans Peter Bech: http://dk.linkedin.com/in/hpbech

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