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

Everybody needs a Value Proposition. The Value Proposition explains the value you provide in exchange for the payment you ask. The more attractive your Value Proposition, the more demand you can create for your products and services and the higher prices you can ask.

A commercial organization needs a Customer Value Proposition. Independent Software Vendors whose products and services are invisible must have a Customer Value Proposition.

If you have chosen to include partners in your Value Chain, then you need to integrate them in your Customer Value Proposition, and you must have a separate Partner Value Proposition as well.  Without a compelling Customer Value Proposition, you cannot develop a compelling Partner Value Proposition. The Customer Value Proposition and the Partner Value Proposition are interrelated, but they are not identical.

The NABC approach

We see many “Value Propositions” which are not Value Propositions at all. They are product descriptions- fluffy marketing messages or even embarrassing self-appraisals. We recommend using the NABC approach (Need, Approach, Benefit, Competition) defined by the Stanford Research Institute (SRI) to develop, test and document genuine Customer Value Propositions.

The NABC approach is well documented in the book “Innovation: The Five Disciplines for Creating What Customers Want” by Curtis R. Carlson, William W. Wilmot.

The three stages of market penetration

The Partner Value Proposition changes considerably through the three stages of market penetration.  In this post we will focus on the Bootstrapping stage, which is the first stage. On a global scale, most ISV’s are still in this stage.  We will discuss Partner Value Propositions for the Bridgehead and Dominance stages in later posts.

The Bootstrapping stage is the period where you grow from no customers in a new market to a position where the revenue stream enables you to set up your own presence.

The Bootstrapping stage is the period where you grow from no customers in a new market to a position where the revenue stream enables you to set up your own presence in the market: The Bridgehead.

The Bootstrapping stage has the following characteristics:

• You have no or very little revenue from the market
• You don’t know the competition well
• You don’t know the market very well
• Your brand is unknown
• You are unknown
• You have no reference customers
• The “opinion makers” in the market don’t know you
• You have no partners, or those you have appointed have little experience and little or no revenue from your product
• The time it will take to win the first lighthouse customers is highly unpredictable

In the previous post we argued that it is extremely difficult (approaching impossible) to bootstrap a market through partners. We also made recommendations about how to overcome this challenge.

The Partner Value Proposition in the Bootstrapping stage must address the 9 issues mentioned above.

Competition

If your Value Chain includes partners, then you obviously want to engage the best partners in the market. You are not alone.

Your Partner Value Proposition is your main tool for winning and developing professional partners committed to help bring your Customer Value Proposition to the market.

Your Customer Value Proposition

Which roles do your partners play in your Customer Value Proposition? Which benefits do your customers have from the partner contribution?

We see many Customer Value Propositions from ISV’s where the partner element is missing. Why? It seems odd to exclude the partners from your Customer Value Proposition if they are a critical part of your value chain. Excluding them from the Customer Value Proposition is the same as indicating that they add no visible value to the customers.  Is that actually so?

The partner should at least play an important role in the Approach and the Benefit sections of your Customer Value Proposition. Including them in the Needs and Competition section will make your ability to deliver “the whole product” together with your partners much more convincing.

Partner Value Proposition (Bootstrapping stage)

In the following we will provide guidelines for building the Partner Value Proposition for the Bootstrapping scenario.  We will apply the NABC approach.

Recommendation: If you have never worked with or in the channel, we recommend that you assign someone to the project who has done so. Channel partners have a completely different DNA from ISVs.

Before you can start the Partner Value Proposition definition process you must determine which parts of the Value Chain you have decided the partner is to be responsible for.

Expecting the partner to assume responsibility for localization, branding and lead generation in a bootstrapping scenario requires a very special proposition. It does not ring well with the non-exclusivity you will normally offer your partners.

In the following we will assume that the ISV takes responsibility for localization, branding and lead generation.

A Partner Value Proposition in the bootstrapping stage will be a combination of a simple generic value proposition and a Partner specific value proposition.  As you grow your market presence through the Bridgehead and Dominance stages, the generic part will grow and the Partner specific part will diminish.

Forget all about elaborate Platinum, Gold and Silver programs. Make the Partner Value Proposition simple and focused on the objectives of the bootstrapping stage: winning the first lighthouse reference customers. Work intimately and individually with each Partner and identify the right program for the specific situation.

First crawl, then stumble, then walk and then run.

The Needs

In this section of your Partner Value Proposition, you must identify those compelling partner needs which you have decided should be addressed.

The most prominent mistake ISV’s make is anticipating that a partner is motivated by the product itself and the margin/discount on the price list. He should be enthusiastic about the product, but enthusiasm alone is not enough. The second mistake is the assumption that a partner will invest time, people and money in a long sales cycle and a long learning curve motivated by a glorious distant future.

These are the basic needs your Partner Value Proposition must address:

1. Keeping “time to positive cash flow” less than 6 months (preferably 3 months)
2. Keeping “out-of-pocket expenses” as low as possible (preferably 0)
3. Drive the learning curve to deliver the first 1-3 solutions

Don’t waste too much energy on the long-term perspectives of the business opportunities at this stage. People with long-term perspectives become ISV’s, not resellers.

Re 1: Time to cash

The best way you can address the “time to cash” need is by bringing a project to the partner.  As any preparatory activities will lose their value quickly if they are not applied in real life customer projects, this is the best investment in the partnership you can ever make.

Re 2: Keep “out-of-pocket expenses” low

Partners are never rich on cash so don’t ask for it.  Insist on dedicated manpower.  If you need the partner’s cash to bootstrap a market, you have a problem.  You must take care of the cash intensive investments (such as finding and activating potential lighthouse customers). The Partner must provide domain expertise, market knowledge, support and services = people.

Re 3: Driving the learning curve

New partners have a lot to learn and as long as they are uncomfortable with your product, they are reluctant to do anything. Furthermore, you cannot afford having them jeopardize your first projects. Your Partner Value Proposition must be very specific on the learning curve issues.

Approach

The approach section of the Partner Value Proposition is explaining how you meet the needs.

• How do you split the responsibility between the Partner and yourself?
• How do you take the Partner through the Learning curve?
• How do you help the Partner successfully complete the first projects?
• How are you making him win and complete projects 2, 3, 4 and 5?

The Approach section of the Partner Value Proposition will become your Partner Activity Program or Partner Program. A list and description of all the activities directed at getting from zero to full production.

Benefit (per cost)

Investment justification is a crucial part of any Customer Value Proposition and Partner Value Proposition.

We recommend that you develop a Partner P&L Model template, which includes all the monetary streams your Partner Value Proposition will incur. Include all the elements from the Partner Activity Program: revenue, Cost of Goods Sold (CoGS), operational expenses, investments (depreciation) and the resulting profit/loss.  Document the Partner P&L Model thoroughly and ask the partner for his input.  Run a full day workshop reviewing the P&L to ensure that you end up with a plan and a budget you both agree on.

The reality will be different from your plan/budget, but as your experience with starting up new partners in new markets grow, your hit rate will improve.

Competition

The Competition section of the Partner Value Proposition deals with the Partner’s alternatives to your business proposal. In the bootstrapping stage you need the partner more than the partner needs you. Your Partner Value Proposition is supposed to tip the scales in your favor.

The most frequent competitive alternative is the 0 option: doing nothing.  Most people are more comfortable with doing nothing as opposed to taking a risk. You cannot avoid risk completely, but you can mitigate.  Mitigating risk is a professional exercise and doing it with your potential partner just demonstrates that you are professional and have a true partnership attitude.

Competitive alternatives are almost always available. Unless you have something disruptive and extremely unusual (in which case a partner based model is not the most effective anyway), the Partner can sign up with one of your competitors. Most ISV’s trust their product to make the competitive difference, but we all know that no one can maintain product leadership all the time and forever. We also know that a product leadership position may not be the most important issue for your Partner (not to mention of the customers).

We strongly believe that your Partner Value Proposition is your competitive ace. It is how you help the Partners build a solid profitable business around your product/service, which will make the difference to his competitive alternatives, including the 0 option.

The People

The people you “arm” with your Partner Value Proposition and dispatch to foreign countries must be mature business people, not product experts. They must be able to see the Partner’s CEO eye to eye and work with him like a management consultant. Leave the product related stuff to the technical pre-sales people

The Partner recruitment manager must understand the market, the Customer Value Proposition, the sales process, the bootstrapping process and the Partner Value Proposition. He must be familiar with all the critical issues and challenges associated with growing a Partner from scratch to full production.

Partner recruitment and initialization is not a job for junior staff or technical support people.

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 #3: The three phases of market penetration
Post #5: Partner Value Proposition (Bridgehead)
Post #6: Parter Value Proposition (Leadership)