Designing Effective Channel Partner Programs in the Software Industry (4)
The series of posts discusses how to design effective business partner programs in the software industry.
The posts explain the design criteria for a business partner program stressing the difference between the business model of the software vendor and that of his channel business partners. Effective business partner programs are based on the best-practice approach for building and growing a business around the software vendor’s product.
To read part one of this series click here >> Part 1.
To read part two of this series click here >> Part 2.
To read part three of this series click here >> Part 3.
The posts also briefly explain the difference between the business partner agreement and the business partner program.
Finally, the posts provide specific recommendations for the content of the business partner program in the software industry. In this context the post makes recommendations for recruiting and starting partners as well as for managing the portfolio of partners.
Let me address two critical issues, which many software companies get wrong when building a market through a channel of independent business partners.
Exclusivity is a situation you want to avoid at all costs when building your business partner channel. Your business partner agreement will most likely clearly state that the relationship is bilaterally non-exclusive.
However, your business partner program must address the issues facing the first business partners you recruit in a new market.
If you leave brand awareness creation and lead generation to the business partners, then the first business partners will be reluctant to invest too much. Their reluctance is based on the fact that they will be investing in building the market for your other business partners. It is a simple version of the economic externalities, which affect any software vendor building a new market through a channel of independent business partners.
You have to take these concerns of the business partners seriously and support their market creation initiatives. You will most likely have to co-fund marketing and lead generation activities in the early stages of market penetration. Alternatively you can award the business partners investing in early market penetration with a “some time-limited” exclusivity, helping them to protect their investments.
Many software vendors try to attract business partners by offering high margins (discounts) on the list prices. The software vendors also use this “incentive” to make up for the initial investments the business partners are making in “learning”, building brand awareness and generating leads.
If the software only makes up a small portion of the total project price to the customer, then the impact of a higher discount is small anyway.
In general high margins have very little motivational impact on the business partners’ behaviour. Margins are like the salary to employees. They are a hygiene factor. Changes in margin levels may have an impact, but in the early days of the business partner relationship it is the cash flow that has the biggest impact on the behaviour.
Software vendors should also be extremely careful of giving away margins on their products. In the long run even small variations in the margin you pass on to the business partners will have a substantial impact on your own P&L and valuation.
Read and download this series of posts as a TBK Consult whitepaper: