If you are a software business, sooner or later you have to consider a sales channel for your growth. It does not matter whether you are in traditional software business or considering a cloud business, you will probably end up having a channel in some shape or form. Some cloud solutions might be simple enough to be able to deploy without a local consulting practice getting involved in the delivery, but most enterprise level software solutions will still require a middle-man that knows the end user client and is able to do onsite consulting. There is no substitute for local support and partners that have access to an ecosystem that the software vendor would never have access to.
Is your current organization capable of supporting a channel?
Building a sales channel will have to fit into your strategy and my recommendation is to use some type of strategy framework (like Dr. Osterwalder Business Model Canvas) to identify how each functional area in your company plays in a possible channel scenario. Do you have the right people supporting the channel? Is your product strong enough for a channel and do you have the right skills to penetrate new geographical areas that could possibly include other language versions of your product? Do you know how to manage 24/7 support if you sell cross different continents? Does your current management and operations understand international business? How does your current software/solution delivery model aligned with a channel sales model? Does your product support the correct compliance rules of the geographies that you are going to address?
The questions above are just the beginning of the questions that the software ISV has to respond to when entering new markets. Each of these markets could potentially lead into additional complexities that the software vendor did not know at the time of decision making of the new market. However, the potential resellers in these markets will eventually ask the questions and you’d’ better be prepared to have the right answers.
Do you have a robust channel program for your prospective resellers?
Do you have a good and profitable program for your channel partners? We are seeing a transition from traditional software business model to cloud model, but the foundations of channel rewarding will still stay the same. If the channel does not see enough of an opportunity to invest in your software solution and in its sales, you are out of luck in trying to convince the reseller or distributor prospect to take on the product into their solution portfolio.
There is no success without showing success yourself. As an ISV (Independent Software Vendor), you have to show how to make money to convince the channel that it is worthwhile to put effort into the sales of your software solution. This was something I learned very early in my sales career as a young CEO of a US-based software company. One very experienced reseller on US West Coast asked me bluntly how many deals I had personally closed when I approached him to resell my software solution. Had I said none… the discussion would have been very short.
My recommendation to all ISVs, regardless of the software domain, is to demonstrate your own sales success before trying to solicit channel partners to replicate your success. It is naïve to think that a pure channel sales model would bring you success. It has to be a combination of direct sales and channel sales that bring either success or failure in your efforts. If somebody claims otherwise, ask them to provide evidence of a model with only channel sales as revenue source.
Having a channel sales strategy could become very effective specifically in cases where an ISV wants to broaden its sales to new markets/geographies. Typically, the ISV has already some experiences in its own native country of the sales and the sales processes and what it takes to become successful. This is also a basic requirement in trying to get others to sell your solution. The success in local ecosystem should be easier and also become the “beta site” for any other markets. If you can’t demonstrate success in our own backyard, why would you be able to do it in a remote geography?
Do not underestimate the resources a reseller has to invest in selling your product
In many of the cases, software vendors forget that setting a reseller or distribution business will require the very same resources as the ISV would have to have in its own sales operations. If you have pre-sales resources in your organization, it is to expect to have the same requirements for your reseller. If you have a need for inside sales force, the same requirement will apply to your reseller partner. In cases, where the solution requires solution delivery, the reseller has to provide resources in solution delivery or create a partnership with a local partner organization that enables a successful delivery of a solution.
Do you know how to reward your channel?
How much should you pay your sales channel when closing deals? How much commitment do you expect your resellers to put on your product? It still amazes me to find software vendors (ISVs) that assume the distribution channel to be OK with commissions such as 10% with the assumption that the distribution channel will invest in the sales of the product. How many companies do you know that can live with 10% and create an organization to support the ISV’s product for 10%? I do not know any. Many reseller partners expect commission ranging from 30 to 50 percent to be able to create an organization that delivers a solution and promotes the product. If the commission is 10%, we are typically talking about referrals, where an opportunity name is given to the software vendor and the vendor is running with the sales effort without any interaction from the organization that gave the referral. What the ISV tends to forget is that there are tens of other solutions that the very same reseller community gets solicited on and therefore your value proposition and attractiveness has to appeal from get-go.
The cloud will change the channel models sooner or later
There will be new rules in software channel sales when working in the cloud era and I will be addressing these in later blog entries. Jeffrey M. Kaplan from THINKstrategies makes some predictions of what is going to happen in 2011 in the cloud era and one of the key elements will be the implementation of new channel programs with new channel partners that will compete of the same space as the more classic resellers that we have seen in the more traditional software sales business models.
I would like to emphasize that it is unrealistic to expect the channel to disappear, but what every software vendor in the cloud arena needs to figure out is to create enough value proposition to channel partners (like resellers and distributors) to be able to build a solid and profitable business. The componentization of the software and new models of software consumption will have ever lasting impact on software ecosystems.
I have to say that this new cloud era excites me tremendously as we get to see new exciting innovation and new business models from new players. Some players are trying to eat into more established vendors such as BranchOut trying to take on Linkedin as a new way of business networking. BranchOut uses the huge database of Facebook to build a new view to business connections. I expect this type of new innovation to continue and Facebook to also become a greater platform for other social functions besides “connecting” with friends.