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.

Is a Solid Channel Program the foundation for increasing your sales?

This is the fourth blog posting about VAR Channel programs.In my first blog entry I claimed that the ISV needs to realize that it works for the channel, not the other way around. In the second blog entry, I initiated the discussion of why it is important for an ISV to really pay attention for its channel program and educate the channel specifically in the cloud transformation as that is what the channel is saying is needed.  In the third blog entry I explained the channel program developed by SolidWorks and what type of findings that this ISV found out as reason for its successful channel development and results.

In this blog entry I wanted to portray the VAR Development Program modules that SolidWorks developed with some comments around these. The program “Channel Capabilities Assessment” is divided into four separate areas in following way:

VAR Channel Program-003

When you review the areas above, there isn’t really big surprises as such, but what is interesting is that most ISVs neglect many of these areas and this will hurt the ISV in the long run. If the ISV does not know its channel and its partners well, how can the CAM estimate anything in respect to forecasting or even the skillsets that the channel partner has in the sales process itself.

What David Skok explains in this blog entry is that to really understand the channel, SolidWorks had to put a “social scientists” hat one to really study the behavior of the partner and to understand their capabilities and what was really needed from the ISV. It is so easy for us to ignore to reach out to our customer/partners/prospects to ask: “how can I help you guys to become successful”. If you are working with a channel, ask yourself how much you really know about your channel partner business? I would bet that not much. To be transparent, I have had the same issue myself, still have but have tried to really dig into my customer case and understand what is needed. It is an ongoing battle and challenge.

In the SolidWorks case, a survey of 65-questions was created with six categories: Business Planning, Finance, HR, Sales, Marketing and Technical Support. Two person teams where trained to do face-to-face interviews and each interview took an entire day.  What I find fascinating is the way these VARs where ranked. Two dimension was created, one that portrays “Vision and Execution” and the second was based on “Willing and Able”.

The process was not only good for the ISV to achieve better understanding of the VAR channel, but it was also interesting for the VAR channel partner to understand its needs and also to get a better understanding how the ISV can help the channel to become better. SolidWorks used a modified or variant of GE Market Management model to categorize the VAR channel partners and I will present this in my next blog entry of this topic.

The conclusion that we can make of this blog entry is that an ISV needs to put time and effort to understand its channel and this will take time and money. Besides this, it is imperative to rank and categorize the business partners so the ISV can allocate its resources to the partners that are “Willing and Able” to perform and invest in the joint future.

Stay tuned for more….