If you have enough money: Go direct. If you have enough time: Build a channel

The strategy and associated activities required for building a partner channel differ substantially depending on your position in the market penetration life cycle. In order to manage this dependency and assist in defining the most appropriate channel development strategy, we distinguish between three main market penetration life cycle phases.

It is not that one phase is more difficult than another. It is just that each phase requires a different set of strategies and activities to be successful.

The graphic logo for this blog series has been designed so for a reason. It represents in one picture the challenges you are facing serving your customers through a [slider title=”channel.”] If you consider your channel partners your customers, then we are not talking about a channel anymore. This is a crucial issue and not just an academic or semantic whimsicality. Who is your Customer Value Proposition addressing and who is your Partner Value Proposition addressing? Their motives for working with you are fundamentally different. We will discuss this issue in a future post. [/slider]

The complexity of your business model increases with the introduction of third parties in your value chain. Based on experience we will claim that the degree of complexity is mathematically exponential:

The three phases of market penetration

We divide the market penetration life cycle into three phases:

1. [slider title=”Bootstrapping.”] The bootstrapping phase is where you are winning your first reference customer in a local market and growing your reference base to the stage where you can create a bridgehead.[/slider]
2. [slider title=”Bridgehead.”] The bridgehead is the phase where you are establishing your own presence in a local market to having full geographic coverage.[/slider]
3. [slider title=”Leadership.”] Leadership is the last phase where you use your full geographic coverage to assume market leadership and dominance.[/slider]

Bootstrapping

Fig. 1: Bootstrapping = Crossing the Chasm

Fig. 2:Bootstrapping in new markets

In the bootstrapping phase the ISV will have to find the first lighthouse customer himself.

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You may ask: How should the ISV be able to find and close business when he has no representation in the market?

Answer: There are senior bootstrapping or business development consultants in all markets in the world.  These days they are quite easy to find through social media. Insert a $100 add on Linkedin and you will get many applications. You need to filter out the “retainer hunters” and find those who are qualified to do the bootstrapping for you in your particular market.  You will have to invest in training and sales activities for the duration of the bootstrapping sales cycle, but you are in full control and will get a much more unfiltered response from the potential customers.

In some rare cases you may need the Bridgehead before you can commence bootstrapping. It depends on the nature of your solution and your target market. However, Technology Enthusiasts and Visionaries will understand and even appreciate that your are not an established vendor. Technology Enthusiasts and Visionaries know and do not expect innovations to be provided by the established vendor community.

The “virtual” subsidiary

This term covers a local office address, a telephone number, an answering service and maybe a local language web site. The virtual subsidiary is supposed to create the impression that the ISV has a local presence and workforce. We do not recommend this approach, which is often used as a deliberate attempt to deceive potential Mainstream (see fig. 1) customers.  Trying to accommodate the comfort needs of Mainstream customers by pretending you are more established than you actually are will always backfire. Finding out the actual status of your operation just takes a few click on Linkedin and XING.

Bridgehead

The Bridgehead is the phase where the ISV is establishing his own representation. We know from experience that very few ISV’s recognize the need for their own representation, when they are in the initial phase of bootstrapping.

We must emphasize that achieving a leading market position requires a local representation.

The Bridgehead can be established using different frameworks:

1. Wholly owned subsidiary (green field or acquisition)
2. Joint venture
3. Exclusive distributor
4. Master Franchisee

The objective of the Dominance phase is to move from full geographic to full market coverage, filling all gaps horizontally and vertically.

Achieving a dominating or leading market position through channel partners requires a substantial network of partners. To support this network of partners the ISV will establish a tighter network of his own representations. Elaborate partner programs will be introduced and global, regional and local partner conferences will be organized.

The major challenge for the ISV in this phase is partner growth. As it will be more and more difficult to recruit new partners, the growth has to come from consolidation and organic growth in the channel. For obvious reasons, the ISV can no longer be intimately engaged in the business of the individual partner. Where the ISV has much more flexibility in the bootstrapping and bridgehead phases, partner support now becomes uniform programs available to all partners based on objective criteria.

The ISV is now a global brand and will be approached directly by large corporations who want to bypass the channel and deal directly with the vendor. On one hand the ISV needs to keep the partners at arm’s length, and on the other hand he will have to accept dealing directly with the large clients without jeopardizing his channel concept.  This is a delicate balance and not all ISVs are managing this balance elegantly, creating major animosity in their current and potential channel.

About this series of blog posts on Global growth through a partner channel in the software industry:

An associate of mine once concluded: If you have enough money: Go direct. If you have enough time: Build a channel.

My associate had been spearheading the development of one of the most successful VAR channels in the world. This channel now belongs to Microsoft and is branded Dynamics.

This series of posts will discuss the issues associated with using a channel based Go-To-Market approach on the path to global market leadership for Independent Software Vendors.

Few success stories and numerous failures

Using a channel of independent companies to resell, implement and/or service customers has 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 customers.  The definition is rather broad, since the roles and obligations can vary substantially from “simple” reselling to system 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 operator is an independent contractor operating in his own name, at his own expense and at his own risk.

Other post in this series

Post #1: For all the wrong reasons
Post #2: For all the right reasons
Post #4: The Partner Value Proposition (Bootstrapping)
Post #5: Partner Value Proposition (Bridgehead)
Post #6: Partner Value Proposition (Leadership)