Complexity of Building a SaaS Software Channel Program

Complexity of SaaS Pricing

Complexity of SaaS PricingIn my previous blog entry, I discussed about the complexity of channel development and channel alignment. I recommended for SaaS software vendors to use Business Model Canvas to compare the business model with the assumed business model of its prospective channel partner.

During the past few months I have spent time building a SaaS channel development educational program, a program that I wanted to be not only actionable, but providing information of all of the needed drivers that SaaS software vendors should be thinking about when building its channel strategy.  Call me old fashioned, but my  philosophy is to educate people of things that I have personal experience in. There are lots of consultants that “help” their clients doing things such as channel development, consultants that have never sold anything, but have read about it in books.  My strategy is to build something that is concrete and actionable (not academic) that my audience can use when thinking about their SaaS channels.

The way I initiated the development of the channel development alignment educational program in http://www.tellusacademy.com was to reflect on my own channel development experience (both as channel builder as well as reseller) and list the main things that I felt were crucial in getting channel partners to become excited. The way I started working on it was not from a traditional channel perspective. I asked myself a simple question: how is the channel partner going to make money? Once we identify this, we can worry about the software vendor (ISV) as without a profitable business model for the channel partner, there is no need to invest time and energy to plan something that will not work anyway.

If the financial success of the channel partner should be the foundation for the software vendor to evaluate the channel strategy, it is easy to assume that it is important for both the software vendor and the channel partner to understand how SaaS financial will change the business model and what kind of drivers each party needs to be thinking about. Therefore, I believe that every person working in the SaaS world needs to have a good and solid understanding in how the financial and operational model will change when running a SaaS business. I am sure that the CFO of the ISV and channel partner appreciates this.

I spent considerable time in reviewing the topics that both ISVs and channel partners should be thinking about. Besides having a solid understanding in SaaS financials, any vendor in today’s world has to be thinking about business model innovation and topics around that. How do we stay relevant today, tomorrow and next year? What is happening in our marketplace and what kind of actions do I have to take to ensure that my services or solutions are also appealing in the future? You would not believe how many organizations ignore this….it is amazing.

Another important factor to think about is to understand the expectations from the channel and ISV perspective. What can the ISV expect from the channel and what should the channel expect from the ISV? This is a also something that has changed in the last couple of years as channel partners have a tough time to adjust to the recurring revenue model from the traditional “one big lump sum model”. Besides this, traditional channel partners are not very good at account management and this is a huge issue for SaaS vendors as upselling and ensuring retention is a top priority to any SaaS vendor. The ones that have negative churn can say that they have been successful at least in the upsell to existing clients.

Channel roles and responsibilities is a topic that seems to be very unclear to both software vendors and channel partners. Basic questions such as “who is going to provision the cloud instance” is not clear and questions such as billing is also a question that many struggle with. Should the software vendor manage the billing or should it be the channel partner? What if the end customer does not pay the bills, should the software vendor still bill the channel partner and even take them to court for unpaid balances? In the traditional channel world we can argue that most of these types of questions could be easily sorted out due to known practices, but the SaaS/app world is still a bit unclear who does what.

Part of the channel profitability discussion should be a discussion of channel margins. In my course, I will give examples of a typical channel partner scenario where we will model one sales rep and his/her targets and what it means to the channel partner. This type of exercise is extremely health for any software vendor to see the reality of a channel partner and their desire to build a solid business. If you are a software vendor, have you modeled the channel partner business and how your solution might play in that space?

And finally, any software vendor will either become successful or fail and it is going to be based on the channel program that the organization is going to build and maintain. During my SaaS channel development course, I will also address the main drivers of channel management and key issues that an ISV need to be thinking about.

It was fun to create this course as everything is based on experience either from my own work or the teams that I have worked with for more than 20 years. As said, I do not believe in education of best practices if the person does not have any personal experience. This type of experience comes with blood, sweat and tears.

 

 

 

 

photo by: Sean MacEntee

Complexity of Channel Development for SaaS Software Vendors

Let's have some complexity

Let's have some complexityChannel development can be complex if you have a SaaS solution and you want to ensure that your growth comes through the channel. I have spent my past 20 years involved in software channel development on many continents and I have seen many different variations in both failure and success. I think the biggest obstacle for many software vendors to become successful with their channel is when they ignore to recognize and understand the business model that their channel partners have or are building. SaaS software vendors assume that their solution is the only one that makes sense, but a typical channel partner have tens of other solutions that they can represent.

What SaaS vendors forget in many of the cases is to realize that a channel partner has to make a sizable investment in personnel, marketing, support and any other functions that the company has to have to become successful. What it means in real terms for the SaaS vendor is that a channel partner is making a considerable investment on behalf of the SaaS software vendor. That is what the SaaS vendor is really asking for. Invest in us, and we will then pay you your share of the success. If you do not sell anything, you will be left with your investment. I think every Channel Account Manager (CAM) making outbound calls to potential channel partners need to first figure out how the channel partner can make money and how they can help their business to become better. If the CAM focuses on the product/solution and not on the channel partner business, the relationship will never take off. I have experienced this so many times during my career and every relationship that I have put time and effort to, typically has paid off.  Today, I got a call from a document management software vendor and the CAM not only presented his case well, but gave the reasons why I should take the next steps in the discussion. It takes skills to do what the CAM did and he was focusing on my business, not on how good his solution was technically.

SaaS Channel AlignmentOne way to understand the channel partner is to create a Business Model Canvas for both the channel partner and the SaaS software vendor and then analyze them side-by-side and see if there is business model alignment. What it means in real terms is that each side has an interest to do business, both parties have an opportunity to make money and become successful. I have run workshops using this type of approach and the typical reaction from the software vendor is to realize that some of the foundational thinking has been based on wrong assumptions. It is important to realize that this has nothing to do with the skills of the software vendor, it is just a perspective that they never had and thought of when setting their channel strategy. The key is to help to build the “story” for the channel partner and part of the story is also to identify how your solution fits in the other solutions that the channel partner might be representing. If you want to become successful with your channel, stop focusing on yourself and put some time focusing on the channel and how you can make them happy and successful.

photo by: futureatlas.com

Does your channel partner program play a strategic role in your cloud business?

La Villette - 22-08-2006 - 19h32In preparation to my upcoming workshops and seminars, I am updating myself on multiple different things in respect to ISVs (independent software vendors) and one of the key drivers based on the workshops we have delivered the past 2 years is by far the question how ISVs should align themselves with channel partners. Today when doing some reading, I run into an interesting study by Forrester Consulting (commissioned by Avangate, September 2012) where 79% of the researched ISVs (53 US and UK SMB enterprise software publishers) feel that their channel partner program is of strategic importance.

One of the key concerns that ISVs had in this study was that channel partners are ill-equipped in changing their business model from front-loaded licensing model to a recurring model where partners are incented to renew customers as to acquire them. As much as 49% of the ISVs where concerned that channel partners are not going to be able to support new or evolving business models.

Another key finding in the study was that smaller software vendors are ill equipped to expand to new markets and this mainly due to support-related issues. Channel partners expect ISVs to help in marketing and generating demand, but smaller ISVs are typically not funded to be able to support this type of activity.

The study revealed many other factors that the channel partners were concerned about such as channel partners now been able to support end customer over the lifetime of the contract, inadequate efforts in renewing the end customer contracts and overall bad visibility over the end user customer. The roles are responsibilities are definitely changing in respect to ISVs and channel partners and this I have had the opportunity to run a bunch of channel alignment workshops where we map the ISV business model with the channel business model and if there is any misalignment between these, the results are typically miserable.

ISVs have a tendency to dream that their solution is the only solution on the planet that matters, but unfortunately there are others with the same belief. I like to use Business Model Canvas in the channel alignment exercise as it portrays extremely well potential issues that ISVs have to deal with such as giving the opportunity for the channel partner to become profitable. That is easier said than done.

What can we learn from SolidWorks Channel Program–Conclusions

This is the final blog about the case SolidWorks and the channel program and success that that David Skok describes well in his series of blog entries. SolidWorks grew their revenue from $135M to $400M in 5 years and one of the key elements was the channel. In my first blog entry, I described SolidWorks VAR development program, in my second blog I discussed the means how to grow your sales with the channel and in my third blog, I discussed about scoring your channel partners.

When I reflect back on the SolidWorks growth with the situation today with a strong cloud drive, I will draw some conclusions of things that are still valid when building your channel. Lets look at what David Skok concludes in his summary of SolidWorks channel program.

The fallacy of thinking that Channel gets too much money

ISVs tend to forget, that the ISV do not finance the building of the channel partner from a cash flow perspective. If the channel partner hires a couple of sales reps and technical people, the sales of the solution better to work. According to Skok, ISVs fall very easy to the trap thinking that channel partners take too much money from the transaction and that it really should be the ISV that owns the customer relationship. But is it really this way? I hear this more and more from ISVs moving to the cloud where the ISV wants to move the customer relationship to itself and let the channel partner to become more or less the lead generator. I think this is a dangerous proposition from the ISV side specifically in the enterprise side as most end user organizations still expect to have support from the organizations that know the locals and these locals also kind of “own the relationship”. What was interesting that some of the competition had the direct sales force compete with the channel and this is never a good way to grow the business.

SolidWorks took the channel as the route to market, believing and investing in the channel. This investment meant that the SolidWorks had to believe that the channel would bring the needed growth and that SolidWorks had to gain trust in the channel. Without trust, there is no channel. Some organizations have even thought that the channel is loyal to the vendor, but that is just a dream. The channel is loyal as long as they make money. End of discussion.

Building a channel requires hard work – there are no shortcuts to success

The management team picked the strongest and most experienced senior managers with strong operational experience to build and develop a channel. This team had not only seniority, but were also experienced operationally. If the channel person has never sold anything, how do you expect the channel to believe in this person? I would not. I mentioned this in in my previous blog posts that I got reminded this in my younger days when becoming CEO in young age. The SolidWorks VAR channel managers became coaches to the channel, helping to build the business.

It was not easy for the VAR team and the pace was challenging to keep up with and some of these people still had other things to do besides being coaches. According to Skok, one of the learning’s was to understaff the VAR team and reward the success and this also led to a behavior where the VAR managers invested their time to relevant tasks.

The management needs to make a commitment to lead by example. If the management “walk the walk”, how can you expect the line management to do it? Lead by example is the key and this has applied at least in my career. The collaboration between the top management and the VAR team was ongoing with immediate access for discussions and reviews. That is a powerful concept and unfortunately many organizations forget this. Management stare purely on the amount of calls and not asking the right questions why something does not work. If you have a broken model, how can you expect to work in the future?

Building a channel is a road that requires ongoing reviews, changes in direction and deep understanding of the target markets. If the ISV does not have this touch, how can one expect them to lead the channel partners to success? I do not think it will ever work.

The question that we have to ask is whether you need to be a large ISV to afford this type of channel program that SolidWorks created. The answer according to Skok is that the team does not have to be big as long as they are dedicated and know what they are doing. You also have to pick the measurements that you want to track, metrics that apply regardless of geography and culture and this helps everybody to get aligned and speak the same language.

You have to have a long-term view on your channel partners

You should take a long-term view on the channel partner. Do not create “incentive of the month” kind of initiatives. This drives the wrong behavior in your channel partner. Your channel partners should be strategic and this will always require a long-term view.

Would the SolidWorks VAR Channel model work with cloud business?

In the beginning of this blog entry, I said I would reflect if the VAR channel management will change anything when building a channel for cloud VAR channel partners. The answer is no. The same basics will apply, but what needs to change is to get alignment between the ISV and the channel partner and this should be done by comparing the business models side-by-side, looking at the drivers for both sides. In the cloud business, there are multiple new factors that will change and one of the biggest factor is revenue model and this could be a prohibiting factor for the channel partner. Building an organization from recurring revenue streams in the beginning could be challenging and it is also challenging for the ISV.

This concludes the series of blog entries of SolidWorks, a successful ISV that was able to create  strong channel.

Will it help to accelerate your channel by scoring your VAR Channel Partners?

I wrote about the creation of an effective channel program for VARs in my previous blog entry and explained how SolidWorks made a decision to really understand its channel partners, their strengths and weaknesses. What SolidWorks also did was to rank its partners and the question that we of course have is how to make all of this happen. There are a myriad different ways to rank things but what SolidWorks decided to do was to create a derivate of GE Marketing Management Model that enabled them to rank the channel partners.

Based on the analysis from David Skok, clustering the partners based on different criteria helped SolidWorks tremendously to see where to put their focus on and also create a plan how to help its VAR channel.

The criteria that they put together was based on a numeric score (from 1 to 5) and the questions were based on factors such as “Do you have a dedicated sales manager?”, “What percentage of your sales representatives has attended formal sales training?”… I am sure you get the point here… Read more about the questions in the excellent blog by David Skok.

What the interview process revealed was that most of the VAR channel partners did not have written  documents capturing the business plans or any system to track the performance. Furthermore, the business leaders had for the most part a good and solid understanding of their business, but the lack of written procedures and documentation prohibits these organizations to scale and grow.

What was also interesting in the analysis of SolidWorks Channel Partners was that not all of the VAR channel partners bought into the improvement program of different reasons: some just couldn’t and some just did not want to. This is a very tough question to any ISV: should I kick out the channel partner from the program if it does not show its readiness for investment? What if I walk away from considerable revenue source if I do that?

I have built and managed channels throughout my career and I have to say that it is very hard to provide one simple formula for success. What I can say though is that an ISV has to treat its channel partner almost as part of the ISV organization itself. I have seen too many organizations mistreat its channel in many different ways, everything from competing with its direct sales to changing terms during the sales process. Those are things that will cause trouble for the ISV sooner than later.

I have soon lived half of my life in the US (second half in Europe) and I can confidently say that even if the the world is large, it is extremely small in respect to each industry. Europeans see US as a huge market (which it is), but the players are still pretty much known. I know the Microsoft ecosystem and I would be tempted to say that many know me and my company as well. It is the years of collaboration on multiple different levels that has made this happen. I think this is extremely fascinating to think about and it is also a tremendous opportunity for any ISV to grown and build its channel. There is a simple rule to this: “treat your channel as you would treat your own people, and you will see that your interests are aligned”. Nothing else matters.

It the last and final blog entry about SolidWorks, I will summarize the findings, and recommendations of their channel program.

Stay tuned for more….