Designing Effective Channel Partner Programs in the Software Industry (1)
Using a channel of independent companies to resell, implement and/or service customers has been 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 customer. The definition is rather broad, since the roles and obligations can vary substantially from “simple” reselling to systems integration, solution development on top of the software, implementation in terms of consulting, project management, customization, training and support.
The common denominator is the fundamental condition that the individual channel partner is an independent contractor operating in his own name, at his own expense and at his own risk.
This post discuss and provides recommendations for how to design and manage productive partner programs.
In this post we will use the term “business partner” irrespective of the specific role assigned to the 3rd party company.
You will notice that the post doesn’t mentioning any product. We assume that you already have a product, which is and has proven very competitive in certain segments of the market. Building a successful channel of business partners has very little to do with your product per se, but is all about how to do business with your product.
Partner Program Design Criteria
What are your ambitions for the future and what role do the partners play in realizing these ambitions?
What do you want the business partners to do?
How will you motivate business partners to sign up with you and invest in your business according to your business model?
Any software company embarking on the endeavour of building a business partner channel must come to terms with the fact that there are more software companies knocking on the doors of potential business partners than there are potential business partners knocking on the doors of software companies.
Unless you are already a recognized brand then building a productive indirect channel of 3rd party business partners is a long term and very difficult endeavour.
What is your strategy?
The first question you must be able to answer satisfactorily is:
What are your ambitions for the future and what role do the business partners play in realizing these ambitions?
One of the biggest mistakes software vendors make is considering business partners as a cheap sales resource.
Business partners are individual businesses making their decisions based on the same investment and P&L considerations as the software vendor himself.
However, the “investment horizon” of the average business partner is much shorter than yours and their business models are very different. Business partners are looking for very fast return on investment; they expect you to explain how that’s going to be achieved and how you will be there for them in the long term.
Today’s business partners are reluctant to deal with software vendors who are out to make a quick buck and who demonstrates a “hit and run” mentality. Most established business partners have had bad experiences with unambitious software vendors who are content with the “1%” market share. Business partners want to work with the market leaders simply because the market pull is much stronger and the long-term profitability more attractive.
As a newcomer to the party no one expects you to be the market leader. However, you must have and demonstrate the ambitions of becoming one. You must then have a convincing product and partner program supporting the probability that you will actually become the market leader.
You must be able to layout a strategy roadmap clearly demonstrating how the business partners will become successful in the slipstream of your ambitions, drive and efforts.
When you have passed the tipping point then the game changes completely, but until then you have a mission and uphill job to reach that point. An effective business partner program will provide solid support for your efforts.
What do you want the business partners to do?
Taking a new product to the market through a channel of new business partners is – as indicated above – no trivial task.
Figure 1 illustrates the typical value chain in the software industry. Which of the activities illustrated do you expect the business partners to take care of?
If you as the software vendor only want to assume responsibility for the product (SPM), then your business partner program must cover all the elements required supporting the business partners’ activities in the rest of the value chain. Just leaving it to the business partner to figure out what to do will not generate any noticeable traction in the market.
Your business partner program must be based on supporting those tasks in the value chain that you expect the business partner should assume responsibility for.
Business Partner Program Objectives
From the software vendor’s point of view the business partner program should support the following objectives:
- Attract new business partners signing up and investing in the business.
- Ensure new business partners are finding, winning and making the right type of (happy) customers within the shortest possible timeframe.
- Ensure that the business partners keep growing their business with your product beyond the first initial projects.
- Stimulate the most successful business partners to do even more.
- Optimize the “cost of business partner recruitment”
- Optimize the “cost of business partner management.”
Your business partner program will have to change over time.
When you have no or only very few partners then your focus will be on partner recruitment and the activities supporting objective 1) and 2).
As you grow your business partner channel then your focus will shift from to 3) to 6).
 In channels designed as franchises however, this is not the case.
 For a discussion of when ”to partner” and when not ”to partner” please see ”Growth Through Partners” (TBK-WIPA-006)
 SAP: ”Our goal is to have 40% of our revenue come from partners by 2015.” From the SAP web site in December 2013
 P&L: Profit & Loss
 The tipping point is around the 20% market share mark. When passing the tipping point market dynamics change completely and the market starts pulling your product. Potential partners start calling you!