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.

A Case Study – Creating a VAR Development Program

This blog entry continues on my first blog entry where I concluded that the channel does not work for the ISV, it is the ISV that has to ensure that the channel has the tools to become successful with the solution itself.

In my second blog entry I highlighted a case study of a successful ISV that was able to grow its business by doing the channel development by identifying an impactful approach where the VAR channel felt that it was a win-win situation for both sides.

In this blog entry I am high lightening the VAR development program (Phase 1) that SolidWorks created for its channel and as I stated in my previous blog, this program was almost like a mini-MBA where the ISV wanted to facilitate and help its VAR channel to run its business more effectively. The program that David Skok highlights in his blog entry as phase 1 of the development program is divided into two main areas: Business Management and Sales Management.

VAR Channel Program-001

From the picture above, the channel assessment was reviewed from these two perspectives and each of these perspectives are divided into smaller components that have relevance specifically when running a VAR business.

Cash is king as they say and I have also experienced this as an entrepreneur. What ISVs tend to forget is that somebody has to fund the activity to build the funnel of the solution that the ISV wants to sell. So lets review the typical steps that we expect to happen when an ISV signs up new channel partner:

  • The ISV wants to ramp up the activities immediately once the deal is signed, which means that VAR technical and sales team needs to be trained and educated of the intransiences of the product and learn how to take objections from the target prospect market segment.
  • The ISV expect the VAR channel marketing team to dedicate resources to start building the funnel and sometimes forgetting that there are other products that they might have in their portfolio.
  • The ISV Channel Account Manager puts effort in getting things going as he/she is the one that will have the pressure of getting first deals going and to ensure that he/she meets the budget.

With all of the effort that has been put into the joint effort, the VAR finally signs its first deal and now everybody can be happy. On top of this, the deal is very sizable and this makes the VAR a bit nervous as there are some financial risks that it now has to carry as it carries the paper with the end user organization.

The project starts, everybody is working hard on getting the client happy but sudden and unexpected issues comes up in the implementation. The customer tells the VAR that it is unacceptable and they will not pay until the software has been fixed. The VAR tells the customer that they do not have the means to fix it as it is the ISV that carries that responsibility. The customer tells the VAR that that is not their problem, the responsibility is with the VAR as that is whom they bought the solution from.

As the invoicing relationship of the solution delivery is between the VAR and the end user organization, the VAR runs into issues as an invoice has already been issued from the ISV and they want to get paid.  This puts the VAR management to sweat and now they really understand the consequences of this and need to do something about it.  The ISV wants to get paid, but the channel partner has not got paid yet. Worse than this, the software included bugs that the VAR can’t do anything about and has to wait for a fix. The ISV still wants to get paid, no matter what as its view is that this issue has nothing to do with them. I am sure you get the scoop of the vicious circle.

If the ISV is reasonable, they will work with the VAR and the end user customer to get it right, but unfortunately I have seen cases where the VAR has really run into a wall. I can’t imagine how that feels as I run my own business every day and have to consider risks and rewards when conducting the business. In large organizations with huge cash piles, this might not be a problem, but for the majority of ISVs, SIs and MSPs, this could be a huge issue.

The scenario above describes some of the areas where the VAR has to pay special attention when running its business. The number one in business management side is cash flow and how to manage it when dealing with ISVs and purchase management overall. I have run companies with high growth and one of the most pressing issue seems always be cash flow. People want growth, but with growth you need cash flow. Sales in your books does not mean that you have money in your bank account. Having lots of receivables might feel good, but you can’t feed your family with receivables.

The second area is “Sales Capacity” where typically small VARs become the victims of their own success. Skok concludes that a typical successful VAR is where the business owner is number one in sales, but one person does not scale up to grow the company. There needs to be more than one to scale the business. If the owner becomes the gatekeeper, then that becomes the bottleneck for the growth for both the VAR and the ISV.  What a VAR needs is a strong sales manager that can scale the sales, follow and create processes and the owners should keep away from that (my observation).

Also, what is typically undervalued among VARs and ISVs is market research and what sales people tend to use as an excuse for poor sales is that the “market segment is saturated’. Good research includes information about market size, market share, historic customer growth rates and sales coverage etc..

According to Skok, one of the most difficult task that VARs are struggling with is the requitement. I can really believe this. The key for success is to build an interview process to identify the right candidates and even if you become good at this, you will still fail. I have.

What an ISV might see with its channel is that VARs are hiring new employees, but there are more leaving the company that coming in. So what will happen is that the VAR has new people that are learning “the ropes” and then the ones that have learned are leaving for different reasons. The VAR ends up having a situation where the skills don’t meet the demand of the market.

One key thing that is often ignored is to ensure that the employees have a good view of their professional development,  like sales people having strong  product training, presentation training, and  sales management training.

And finally, and probably one of the most difficult tasks: how to manage and review the pipeline that everybody presents to the management. How should the VAR and ISV ensure consistency in the pipeline? One of the key things for both ISV and VAR is to create a standardized view on the pipeline, not based on each and every sales persons personal definition which is typically biased to his/her own preferences.

The question is what kind of deliverables can an ISV and VAR expect from both Business and Sales Management exercise? The way Skok defines them is in following way:

VAR Channel Program-002

It is obvious that each one of these need to be worked on and each ISV will have to estimate how much to put effort into this exercise. Also, what something might work for one organization, could be very different for another.

The next phase of this case study I will discuss about the way that the case study ISV segmented and categorized its VARs and their ability to grow. Stay tuned for more.

The end of brick-and-mortar shopping and the rise of online shopping

I admit that I am one of those that do not want to be pushed and have to sweat in traditional retail stores. I much rather do my shopping at my laptop, have a cup of coffee by my side and enjoy the selection not just by looking at the product, but also looking at comparisons and reviews that are posted on the Internet.

According to Economist.com, last years online sales in America reached $188 Billion which is roughly 8% of total retail. Of this, Amazon.com did last year $48 Billion, so we are talking about a pretty sizable giant. Some even have concluded that it is Amazon.com that is killing the traditional retail. According to Economist article, retail sales is going to grow to $270 Billion by 2015. See chart below:

RetailSalesuntil2015

I do not have to even read any statistics to know that there is a tremendous change in consumer behavior. I just have to watch how my family behaves. My wife told me this Christmas that she tries to do everything online to avoid the traffic and crowds at malls. This was not the case in the past. Consumers where doubtful whether online was going to cut it and in many cases people avoided to even buy as they wanted to try out first. Today, you can ship everything back if you do not like it.

We used to spend lots of time in local Barnes&Nobles and also malls, but I can’t remember when I have done that. The only reason for me to go to a local Barnes&Noble is to meet a friend or business acquaintance for a meeting as they typically are adjunct or have a Starbucks cafeteria. I can get everything online when it comes to magazines and books and in fact what I have noticed is that bookstores do not even carry anymore their entire inventory as that is costly. The same thing is happening to BestBuy who has really struggled this year. CompUSA and Circuit City already want belly-up and these used to be places where I went on regular basis.

According to Jose Alvarez of Harvard Business School, traditional retailers with pricy products will probably lower their inventories and focus instead on big investments in showrooms while commoditized items should have large inventory and less flashy displays. This of course makes sense, but many retailers can’t afford maintaining inventory in ways that Amazon.com has.

Amazon has been pressured to charge sales tax in states where they have distribution centers (34 now and 15 in the workings). This year, every Texan has to pay same sales tax as any traditional retailer would charge and that has evened out the play for some local retailers. Other well-know electronics online retailers such as Newegg.com still do not charge anything in Texas, so if it is one-to-one, Amazon will loose as the sales tax adds to the bill.

It is going to be interesting to see how 2013 is going to play out in the online shopping space. I would expect smartphone shopping to increase and based on some research from Aegis Media Americans, by 2014, mobile internet will overtake desktop internet usage in shopping. Those are pretty radical numbers and we that work in the software space, need to keep in mind the behavioral change that is taking place also in respect to devices and how things are done.

What makes a good salesperson according to research and what are most important characteristics?

I run into an interesting blog entry by Steve W. Martin where he lists seven personality traits of top salespeople. Martin has also published a book about sales psychology with a good empirical study of thousands of sales professionals so we can assume that he knows something about this topic.

As an entrepreneur I have concluded that one of the most important decisions and selections that one can make are the salespeople for your organization. Engineer led organizations have the temptation to focus on engineering talent while sales-driven organizations understand that with a good product, the growth will come with an effective sales team. Let view some of the characteristics that Martin has identified. 1. Modesty – a salesperson that can adjust his/her skills with target has a higher chance to be successful. This means that the sales person needs to be both modes and humble and not let the customer/prospect to feel inferior. Just think about this. Would you like to feel stupid when buying something? I wouldn’t. 2. Conscientiousness – eighty-five percent of top sales people had high levels of conscientiousness, whereby they had some sense of duty and being responsible. The ole saying “close the deal and leave the customer in the dust” does not work well if you want to be a good salesperson and achieve results. In this case I want you to think what this means. You put your career on the line when buying something and you expect the acquisition/purchase to work so you do not put yourself in a position where you have to explain yourself.

3. Achievement Orientation – Eighty-four percent of the top performers score high in the achievement orientation. They want to achieve goals and measure their performance. These people also take political orientation into consideration when selling by understanding the dynamics in the purchasing process. These people understand that performance is rewarded.

4. Curiosity –a top performer is curious and hungry for information and knowledge. Eighty-two percent of top performers scored high in curiosity levels. This also leads to these salespeople to be very close to the sales process and ask the right questions, even the difficult ones. In technology field, salespeople need to be continuously educated to be able to help the prospects to do the right selection. Salespeople should be seen as trusted advisors and this will create a long-term relationship with the customer with ample opportunities to upsell and cross sell other solutions. 5. Lack of Gregariousness – this was a surprising finding in the study where top performers averaged 30 percent lower in gregariousness. This means that top performers do not become too close to the client or become too friendly. In the software business we have always known that if a salesperson starts living the life of the prospect and defending the claims of the prospect, the deal will not be what it should be.

6. Lack of Discouragement – Less than 10 percent of top salespeople were experiencing sadness and high levels of discouragement. According to the studies, a high percentage of the top performers had some type of active participation in high school sports and are competitive. 7. Lack of Self-Consciousness – this is a measure of how easily a salesperson is embarrassed and with top sales performers this is very low. According to Martin, the byproduct of high level of self-consciousness is bashfulness and inhibition.

If you look at the list of characteristics that Martin has identified when analyzing top performers in sales and reflect this to your organization’s best salespeople: do you agree with Martin’s findings?

If you are in the process of building a cloud business, you might also want to make sure that you hire people that fit into the high pace sales cycle that are part of a SaaS sales business.  Joel York explains well different SaaS sales models in his excellent blog Chaotic Flow.