Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Tag: B2B

Extending Your Technology With Spinoff Products

Many software and hardware businesses, particularly smaller ones, are religiously focused on a specific vertical market. As well they should; focus is one of the most important attributes that can bring a business from startup to a strong growing business. This is often one of the key areas I concentrate on with many of my consulting clients. Many businesses just can’t turn down any sort of deal, no matter what the effect it has on their existing product development plans or other key corporate initiatives.

But there is another side to the focus issue. Many tech companies have developed excellent, mature technology bases at huge expense. If that basic technology has a horizontal appeal, it can be quite profitable to spend a modest amount of additional effort to bring that technology to other adjacent markets that the company is currently not serving.

Care needs to be taken, of course, to not spread your marketing efforts too thin. But if you’re smart about it your company can increase, sometimes dramatically, the return on its product development investments. Let’s take a look at a few potential tactics, all of which I’ve used successfully both at companies I’ve run and with consulting clients:

Customize your products for adjacent markets

As an example, maybe you have an ERP software package aimed at retail markets. It might be quite easy to customize the product for other inventory-oriented businesses, such as distribution or service/repair businesses. By doing this you’ve created a potentially large new revenue source, at a fraction what building that product from scratch might cost. The trick in this instance is often marketing the product–read below for a couple of ideas on how to accomplish that without doubling your marketing budget.

Private Label/OEM products

Private labeling or OEMing your product to another vendor can be an excellent way to extend your product development ROI. It might be as simple as partnering with a non-competitive vendor who takes your existing product “as is” or with minor modifications, as well as changing the product identity and labeling. The target partner would be a company very strong in a market segment that you aren’t successful in, have no interest in directly marketing in, or simply is beyond your resource level. If done well, this is a win-win for both companies. Your company gets additional revenues with little to no additional costs (“pure profit”), while your partner gains additional revenue in it’s target market–without any product development investment.

Integration & bundling with other products

One of the best things a software vendor is to create a “developer’s version” of it’s product, which essentially consists of creating APIs (application programming interface) to the software. This allows easy integration with complementary software applications and even hardware. Back when I was CEO of a mapping software company with limited resources, we created a developer’s version which enabled both integration and bundling with a number of complementary applications, notably in the real estate and CRM segments. Once again, this tactic required only modest product development investment and enabled us to draw revenue from a number of different markets. We would never have had the resources to pursue these markets if we tried to build a new product from scratch as a company would traditionally do.

Different price points

Using my favorite mapping software company example, we were often forced to think creatively to wring out as much revenue as we could out from our existing technology. One of the other tactics we used was “de-feature” our existing $99 high-end consumer application to create a $9.95 version, which we then sold through mass market retailers of all kinds. Not only did this create more revenue, but the high volume business also created a bunch of opportunities to upgrade these entry level customers to our higher-end core product. This is a strategy I’ve used many times; you almost can’t go wrong when creating a larger customer base for your technology. I use the simplistic phrase “the more you sell, the more you sell” to illustrate the advantages of this approach.

Business vs. consumer version

At that very same mapping software company we used one other great approach to extending your technology: creating a B2B version of our consumer product which was aimed at road warriors such as sales and service professionals (the converse works just as well). The B2B version had a few additional features and we sold it via different channels and strategic partners. It didn’t have the unit volume of the consumer version, but the margins were much higher.

So there are a few ideas on how to extend the use of your IP to increase your overall ROI. What are your ideas on creatively utilizing existing assets to create additional growth? Please post a comment with your own thoughts so we can all benefit.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

1 Comment by admin on December 5, 2011
filed in B2C, Business Models, Corporate Strategy, Distribution Channels, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, enterprise software, hardware
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What’s Up With HP?

As regular readers will know, I am a Hewlett Packard alumnus and a longtime admirer of the company. I worked at HP in the eighties, and with hindsight it was one of the finest periods of my career. It was a GREAT place to work, as documented by books and case studies written about the company. My time there definitely had a major effect in shaping my management philosophies.

The more recent -periods at HP have seen a lot of change and a fair amount of turmoil not typical in the company’s first 60 years or so.

Let’s analyze some of the recent events and assess the overall strategic situation:

Firing of Leo Apotheker

What a disaster this was. To hire a new CEO with a major change in strategic direction in mind, then let him go in less than a year is not good. What isn’t known is was the new strategy totally conceived by Mr. Apotheker, or was he brought in to support a new strategy favored by the HP board. Either way, it’s an awful mess for such a major company, and the HP board has not distinguished itself in the last decade.

The new strategy itself while risky on the surface wasn’t the real problem, imo. The communication of the new direction was the real disaster, and smacked of incompetence. Don’t announce you’re “going to sell the business”–that does nothing for valuations. If you’re going to sell it, get on with it and sell it without premature public announcements. By most accounts Mr. Apotheker’s short reign was punctuated by missteps, retractions, chronically missing financial targets and general bumbling. My sources inside the company say that he had lost just about everyone’s confidence, from employees to shareholders to the board. It’s hard to say if that’s fair; new managers can be sabotaged by entrenched forces against change. And major changes were on the way. But the buck needs to stop with the CEO, and it certainly did in this case.

Planned Sale of the PC business

To be honest, I go back and forward on this one. Back in my HP days the PC business was a money-losing, also-ran business with tiny margins. The corporate line of thinking at the time was that HP HAD to be in the PC business, it was so central to everything else the company wanted to do, and the computing world revolved around PCs. I never bought it. In fact, the PC folks got in the way of many things we wanted to accomplish in the peripherals segment of the business, specifically connecting to and partnering with all the other PC makers.

The PC business remains a low margin one today, but one that HP has established a leading position in. I haven’t studied the balance sheet, but I doubt the PC business is so capital-intensive that it would prevent HP from having the money to adequately invest in a new direction. I don’t think selling it off is a stupid move, but announcing it as a first step seems extreme, and only served to make everyone involved nervous about what the future holds.

Eliminating the Tablets/WebOS

Another PR disaster and one that was totally avoidable. The problem was in buying Palm in the first place, and paying a billion dollars for a company that had almost completely failed in the marketplace. Then introducing a new line of tablet computers to great fanfare, almost immediately obsoleting them, and then announcing you’ll be making a few more because everyone love the fire-sale obsolescence pricing–it appeared that the left hand didn’t know what the right hand was doing.

By most accounts the WebOS is a nice piece of software. The problem is that this move was so very late to the game. If it had been done a few years earlier, it might have been a savvy deal, and allowed HP to make a major move into mobile devices with a differentiated product offering. But by the time of this acquisition, Palm was already discredited and Apple, Android and Blackberry had solidified the top leadership positions. And the price was completely ridiculous for as failed company. You can put this one on Mark Hurd, as it came on his watch.

Buying Autonomy

HP recently announced completion of the Autonomy acquisition, paying a dear price for this enterprise software company. Autonomy is a good acquisition if you’re intent on growing software as a share of revenue; the only issue is the price. It was very high, but one must remember that HP’s overall revenues are north of $125 BILLION. Autonomy adds less than $1B in revenue, which is a drop in the bucket relative to HP’s size. With a purchase price of over $10B, HP paid more than 11X revenues–pretty pricey even by today’s inflated SaaS valuations. Autonomy will have to be an exceptional growth in engine for this to pay off. Only time will tell.

Copying the IBM playbook

The IBM playbook was to sell off low margin, lower growth hardware business such as PCs (IBM sold its PC business to Lenovo, a shocking move at the time). Then focus on increasing software and services revenues relentlessly, for a long period of time. It’s worked extremely well for IBM, although I remember there were some tough times in the beginning. Would it work as well for HP, who appears interested in copying IBM’s strategy? I’m not a big fan of copying other company’s strategies, although on the surface the two companies are similar. The key to success or failure is usually execution in most cases of corporate strategy. Executing this strategy would also take a very long time to have an impact on HP’s financials. HP’s software share of total corporate revenue was less than 3% in 2010.  There are only so many $1B+ software companies out there. Most software acquisitions on their own will have a minimum effect on HP’s overall revenues, unless they went after one of the few industry giants–which would truly shock me.  HP has become strong in services after it’s acquisition of EDS in 2008, but is still much less prominent in services than IBM. So even with an aggressive acquisition program and strong organic growth, HP looks to be a hardware-dominated company for a long time in the future.

Meg Whitman appointed CEO

It’s hard to say what influence this will have on the corporate strategy. Ms. Whitman is a seasoned CEO who has been involved in great success, although one could argue that she was very fortunate to benefit from a snowball rolling downhill with Ebay. In addition, her background is heavily consumer products with almost nothing in the enterprise space, which is HP’s supposed new direction. HP’s business is only 25% consumer products, and if you eliminate the massive PC business, it becomes a whole lot less. I never underestimate smart people or their ability to adapt, and she definitely fits in the smart category. But experienced business people also tend to fall back on the comfort level of their past experience and what they understand best. It will be very interesting to watch as Ms. Whitman’s tenure evolves, especially how she affects the previously announced strategy.

What happens next?

I think that HP ends up keeping the PC business, while at least in the short term attempting to become more software and services intensive. You’ll see more software and services acquisitions. But I wouldn’t be surprised to see the flight away from consumer-oriented businesses to abate as long as Meg Whitman is CEO.

I also think that the original IBM-style strategy will be difficult–but not impossible–for HP to implement. For this approach to work, shareholders, employees and the board will all need to be very patient and supportive of the plan. Meg Whitman will really need to believe in it as well, and as discussed above, her background is far from a perfect fit for where they’re headed. My guess is that this strategy won’t be given enough rope for it to work and we’ll see another change of direction in the medium-term, but you never know. That’s what makes this kind of speculation so much fun!

What’s your take on the future direction of HP? Where are they headed, and does it end well or not?  I’m interested in your analysis of recent events at the company; post a comment to share your views and continue the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

7 Comments by admin on October 17, 2011
filed in B2C, Business Models, Corporate Strategy, General Management, Mergers & Acquisitions, SaaS, enterprise software, hardware
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Social Media Marketing for B2B Tech Companies

By now, every company has grasped the importance of having a social media presence on the web. Or have they?

In discussions with potential clients and others I am actually amazed how many folks have done little or nothing in the area of social media marketing.

Why do you think this is? Some business executives immediately associate “social media” solely with consumer-oriented activities on social medial sites such as Facebook, Twitter and MySpace. You know the stereotypes that are popularly characterized by the mainstream media: pictures of wild high school parties, viral invitations to flash mobs, and inane posts about what people are having for breakfast.

But there is serious business going on in the Social Media world. The fact is that Social Media marketing has definitely become not just a mainstream activity, but a critical one. No longer are at an advantage if you are heavily using social media in your marketing mix; you are falling behind if you aren’t!

Social Media is obviously very important in B2C software and hardware marketing. Because it is less well understood, I will be focusing on B2B marketing in this article.

Blogs

A Blog is the single most important step into Social Media for a B2B tech marketer. In addition to being a great way to bring traffic directly to your site, it provides the content to use as bait for all of your other social media activities. There are almost too many benefits to list here, but let’s try a few:

  • New and high quality website content which increases SEO (search engines LOVE fresh, high quality content. This assumes a self-hosted Blog–it’s critical for your Blog to be hosted on your domain to maximize SEO benefits)
  • Direct traffic to your website
  • Fast & Easy search engine crawling and indexing due to the large number of Blog ping services, Blog indexes and Blog search engines
  • High quality backlinks from the Blog services mentioned above, as well as from happy readers who link to your Blog
  • Content you can repurpose in a number of ways such as publishing in newsletters and posting on appropriate social media sites
  • Positions your company and key employees as “thought leaders” in your category

This is just a taste of what a Blog can do for you; the uses and benefits are limited mostly by your imagination. It’s a bit of work, no doubt, but has a high return if you dedicate reasonable resources to the effort.

Linkedin

After creating your Blog, this is the second most important social media activity for a Business-to-Business technology marketer. Key employees should create a complete profile (for professional development purposes, if no other reason) and a profile for the company should also be created. But that’s just where the fun starts. Here are some additional important activities to consider:

Join and Use Groups: Other than setting up a complete and effective profile for both you and your company, the most important thing you can do is join groups. You’re allowed up to 50, and if you choose the groups well they can be a very effective segment of your online marketing efforts. Become known and respected by participating in discussions. But most importantly, post links to your Blog content, press releases, newsletters, webinars, etc. If you’ve targeted the right groups, this will create a good deal of qualified traffic to your website and other online vehicles.

Build your Network: This is the place where you want to go fast, but don’t hurry. The more people in your business segment you know, the easier it will be to market your product over a long period of time. The key is to take a long term perspective. You don’t build a network by being pushy or “all about you”. It’s like any other form of networking. Reach out not only to connect, but to actually assist those in your network. In the long run, you’ll have a stronger position and it will benefit your business.

Search for Prospects: People are listed on Linkedin that you wouldn’t find elsewhere. It’s a great place to search for both companies and high level executives that you’d like to connect with. Be very careful in your targeting efforts and try not to be too obviously sale-sy. But if you are respectful and careful, an excellent source of targeted prospects awaits you, that you can contact directly (with a premium account) or connect with through your mutual contacts.

Ask and Answer Questions: This Linkedin feature provides a great, low key way to both show off and improve your knowledge. By answering questions posted by others you can demonstrate your knowledge in a forum without having to appear to be bragging. Don’t be afraid to ask questions either; there are a great many resources out there to fill in the blanks in your current knowledge base.

Twitter

This is a great place to connect with like-minded people. As profiled time and again in the mass media, it’s also a great place to waste time. So unless you find that you can become a productive and efficient Twitter networker, make sure you don’t become addicted to tweeting. Some people love it, some hate it–what’s important is to leverage it optimally for your business. I personally don’t waste a lot of time on Twitter, but there are some folks who have dedicated a lot of time–to great effect for their business. Especially if you have more time than money for marketing, there’s a lot you can do to gain exposure and goodwill for your business here. At a minimum you should post your Blog content, press releases and other important external communications. You should also think about assigning members of key departments (PR, customer service, tech support) to Twitter, giving your users and potential customers an easy, informal way to interact with appropriate parts of your company

YouTube

Yes, Youtube! Everyone loves to go to YouTube to view that video of the 6 month old baby surfing in the bathtub while smoking a cigar (Ok, I made that up, but if you do a search you might just find it on YouTube). But it’s also a great place to post a short intro video about your product or service. You can even put up training videos to show the depth of your knowledge in a particular area, or the depth of your product or service offering. The videos are hosted on YouTube, but you link to them and feature them on your website. These videos will give you a leg up in search engine ranking as Google, et al love video content and provide it with preferential search result positions.

Facebook

Yes, use Facebook as well! Facebook is certainly not a core platform for business to business marketers. But 750 million users (and still growing like a radioactive weed) shouldn’t be ignored. So create a personal profile and company page and post your Blog content and other external communications pieces there. If nothing else, you’ll get some quality backlinks to help your SEO efforts with very little effort. Don’t waste time here, but it makes no sense to completely ignore this platform, either.

Coming Soon — Google +?

This is a real wild card that could have a big impact on the Social Media Marketing landscape. As I write this article it’s too early to tell what Google+’s ultimate impact with be on B2B social media marketing. Most people don’t yet have access. I haven’t used it yet, so I only know what I’ve read. It’s still in pre-release phase (although it seems that most things at Google are!), and the features are still being developed. But so far it appears to be off to a very promising start, with 25M users in only a few weeks of controlled beta release. Reviewers have raved about the elegance of the “Circles” feature, which allegedly makes it very easy to segregate those connected to you into logical groups, a real problem on Facebook. Of course, Google is aimed far past B2B social media with Google Plus, taking aim squarely at Facebook as a mass-market social media network. But I think this new platform also has particularly strong potential for the B2B crowd, with possible integration with tools like Google Adwords, Analytics, Apps, Docs, etc. We’ll have to wait and see where this goes, and I’ll be watching closely.

There’s certainly much more that can be written on this topic. This was just a quick look at what I think about the importance of social media marketing for B2B Software & Tech companies. For example, there are new vertical social media networks popping up every day–there may be one perfectly aligned with your market.  This is a varied and rapidly evolving topic–what are your questions or opinions? If you need help with your marketing mix or other aspects of managing your software or hardware company, please contact me at your convenience. In the meantime, post a comment to share your views on this topic and continue the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

2 Comments by admin on August 14, 2011
filed in Business Development, Marcom, Online Marketing, Product Marketing/Management, Promotion, Social media
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White Papers in the High Tech and Software Marketing Mix

There are many marketing methods in Software and IT marketing that can be appropriate in some, but not all situations. I’d put White Papers in that category. The term “white paper” is a broadly used term, and can mean different things to different people. I define a white paper as a document written to provide insight or expertise specific to a market, process or product category.

PRODUCT & MARKET APPLICABILITY

White Papers are used far more often in B2B marketing than in B2C marketing. I have seen them used in a B2C environment, but only infrequently. A White Paper is most often useful when there is complex technology or work processes involved. In a B2C environment, they would usually only be used in an “early adopter” market where a product concept is new, and prices and sales cycles are still long.

MARKETING RATIONALE FOR WHITE PAPERS

Why use a White Paper at all? The best reason is to build credibility for your company or product. White papers are most frequently accessed by prospects early in the sales cycle, when a prospect is just beginning research on a product category. These documents allow company personnel to show off domain or technology expertise, which should reflect well on the product you eventually want to sell the prospect. The white paper shows off your company as thought leader in your category. It also allows you to subtly and gently position your company and product in the prospects mind, very early in the sales process. It is often helpful to designate one (or a few) people in the company as the author of the white paper and as an expert in the field.

THE “RIGHT WAY” TO DO WHITE PAPERS

So what are the key factors to creating a successful white paper? Here’s a few:

* Written by a domain or technical expert
* Succinct-no fluff or overt marketing, to the point
* Aimed directly at your target prospects
* Provides valuable information to your target
* Mostly solution-agnostic, any product or company promotion must be subtle

WHAT NOT TO DO IN A WHITE PAPER

And what are the things to avoid a wasted effort? Keep these points in mind:

* Can’t be a product brochure -no relentless promotion
* Don’t make it the length of a book
* Never stretch the truth
* If it’s too general, so that no one will invest time to read it

BEST USES FOR WHITE PAPER

What can you do with your white paper, once you’ve put in the time, money and effort to create one? There are many good uses–here’s a few to consider:

* It will contribute positively to Search Engine Optimization on your website
* An excellent item to use in a PPC campaign offer
* A great email marketing campaign offer
*An important intermediate step in the sales process; often useful just after a website visit, but prior to a webinar or product trial
* Versatile as “lead bait”; regardless of the medium or campaign, you should require contact info from the prospect prior to a white paper download
*Assists in moving a prospect along without “high touch” interactions–helping automate the sales process and shorten the sales cycle

SUMMARY

White papers can be very valuable tools in a number of market segments. These documents should be used to differentiate your company as a progressive thought-leader in your market category. The optimal goal for a successful white paper is to position your company as a preferred vendor or serious alternative for prospects in your market segment. This is accomplished by demonstrating expertise and providing credible, valuable and unbiased information which is valued by the target prospect. It is NOT accomplished by “tooting your own horn”, playing fast and loose with facts, or duplicating your company brochure. If you want to be a successful white paper marketer, it’s important to restrain yourself from tactics in the latter category. That’s what I think about making white papers an important part of your marketing mix. Please post a comment and add your experience and thoughts on this topic.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on April 15, 2009
filed in Online Marketing, Promotion
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Marketing and Selling Technology Products through the Value-Added Reseller (VAR) Channel

Selling through multiple channels is one of my preferred strategies in technology marketing. If done properly, it allows a company to fully exploit its expensive, hard-earned intellectual property to the maximum extent. One of the most popular channels (and one of my favorites) used to sell B2B software and hardware is the Value-added Reseller, or VAR channel.

VARS ARE THE DISTRIBUTION HOLY GRAIL FOR MANY STARTUP COMPANIES

In fact, with a great many startup software and technology companies, building a VAR channel network to sell their companies products is the first thing they want to do, upon releasing their first product. This is especially true when the founding management team primarily comes from a technical background. The thinking goes; they are technologists who have created a great product. They don’t have a lot of experience selling or marketing–and most of the startup money has gone to, and will continue to go to developing products. Why not just recruit a bunch of resellers to market and sell their product for them? Sounds like a great idea on the surface, doesn’t it?

Unfortunately, there are few strategies that are more flawed, and which have continuously led to failure than this one.

Let’s contrast the realities of the VAR channel, against this simplistic notion that has been tried again and again, without success:

WHAT VARS DON’T DO

1) First of all, VARs DON’T market. At least not YOUR products, anyway (they may market their services). So the very first flaw in this strategy is that it is based on a gross misconception of what a VAR typically does.

2) VARs don’t create new markets. VARs are great at selling into established markets and further expanding already growing ones. Missionary sales: brand new markets, categories and products? Not so much.

3) They don’t sell a wide variety, or a large assortment of products. In fact, VARs are focused on actively selling VERY FEW products–if they are even focused on selling products at all.

4) VARs aren’t motivated by high product margins.

5) The individual VAR does not exist to help YOUR company make money.

Now if you’re not a sales or marketing professional with experience working with the VAR channel, you’re probably very confused by the list just above. So what is it that VARs actually do? And why is it worth dealing with them at all!

What happens time and time again is that a technologist startup CEO will pursue the VAR channel as their exclusive distribution channel, without knowing any of the points in the list above. Their effort will fail miserably, and they will then scramble to begin selling their product directly, or through some other means. They will swear off the VAR channel forever, and I do mean swear:

“Those !!@#$%^^* resellers are good for nothing. They take a big cut of your margins, while adding no value in return. I’ll never deal with them again.”

I can’t tell you how many times I’ve heard some version of the quote above.

But the VAR channel is a major force in the technology business, and if you know what you’re doing, it can be used to great leverage by your company. So let’s now take a more realistic look at what VARs CAN DO:

WHAT VARS ACTUALLY DO

1) First and foremost, VARs are in business to sell their own HIGH MARGIN SERVICES. That is why they exist, and how they put bread on the table. This revelation may be discouraging to some product vendors, but you must understand and respect this above all, if you hope to leverage this channel. The only exception to this is the “core” product, which will be discussed later in this article.

2) VARs are very interested in things that apply to their own vertical focus. Although it wasn’t so true many years ago, most successful VARs these days have a very tight vertical focus.

3) Many VARs act as “thought leaders” for their corporate customers. So they are very interested in “what’s new” in the market, so they can stay on top of trends and remain market experts for their clients. This means that they will sometimes spend a lot of time talking to you about your new product, but never find the time to actually “sell” it (even if they have the best of intentions). In the busy world of the small VAR, client demands and selling the core product and services usually soak up all excess time.

4) VARs are often used as “aggregators” of purchases by corporate clients. This way, the corporation can use a single vendor point of contact for their technology purchases, greatly simplifying their purchasing process. They can also leverage the VAR as an evaluator/validator of new products and technologies. This makes them a very important part of the purchasing chain for many corporations.

5) If they put any real effort into selling products at all, it is usually into one or two “core” products that they have built their service offerings around. If you aren’t a product that pulls services, forget about getting high mindshare with the VAR.

6) When it comes to selling “non-core” products, VARs are almost completely driven by the demand they see in their installed customer base. They won’t often add in new products that they don’t see a demand for, unless they are really techie, early adopter types. And these techies will often add a product, but never find time to actually offer it (let alone sell it) to their customers.

7) The VAR channel is EXCELLENT at fulfilling demand for great new products into their existing, installed customer base.

8) VARs can be an excellent proxy for a vendor in installing, configuring and offering first level support. This can enable a vendor extend its reach and to leverage the VAR channels existing infrastructure rather than building out a large field organization (which depending on the product category, may not even be feasible).

So given the points outlined above, what are the “best practices” to follow when you are seeking to build and leverage a VAR channel?

VAR CHANNEL BEST PRACTICES

*Always sell your new product directly in the beginning. Even if you don’t plan to build a direct sales force and sell directly in the long run, it is critical to establish that the product works, and can be sold successfully. If you can’t sell your own product, no VAR will be able to either (and few smart ones will be willing to try). De-bug and systemize the sales process, make sure that your end user price points are right, and build a small reference account list–at a minimum. Only at this point should you begin to approach VARs to distribute your product.

*Marketing the product is the vendor’s responsibility. Do not naively think that the VAR will market the product for you, or that since you have VARs to sell, you don’t need to market at all. Remember, VARs are great at fulfilling demand among their existing customers–and very poor at creating it among new customers. The vendor must position its products in the market and create demand for them–otherwise your channel efforts will certainly fail

*Treat VARs like the valued business partners they should be. If you do sell direct, don’t “steal a deal” and take it direct just to make a few more points on one sale. Nothing is more short-sighted. Not only will this VAR not do business with you again, in any given vertical it’s a small community–and word gets around fast. You risk becoming a pariah in the VAR channel, and losing all the hard work that you put into building your network. My philosophy is: when in doubt, cut the VAR in on the deal. If you don’t feel he’s adding any value to your business, eliminate him from your network after the deal. But don’t use your low opinion of a particular VAR to convince yourself to cut him out of the deal. You risk cutting off your own nose in spite.

*Be realistic in what the VAR channel can do for you.
If you have a non-core offering, be happy that they “make it available” to their customer base, rather than expecting them to sell it actively. Remember, VARs are key influencers of their clients; just being available to endorse your product as something they offer, to a customer that hears about the product elsewhere, can be very valuable.

*Provide a reasonable margin, but don’t “throw margin away” thinking that it will motivate a VAR to actively push your product–if they otherwise would not. It won’t work, and you’ll just be giving away money for no reason–that you could use creating demand instead.

*For most products, make sure that you don’t over-distribute by signing up more VARs than your market will support. Even though greater margins might not make a VAR push your products, the erosion of margins to near zero will cause a VAR to eliminate your product from their portfolio. It’s better to leave a few deals on the table, than to risk demotivating your entire reseller network, because they are 6 competitors are bidding on every deal in an particular area. The exception to this is if you represent a “core” product that pulls significant service revenue, you can get away with a lot more stuff, because the product margins are trivial to the VAR compared to the lucrative service revenue. But in this case, be careful when using your market strength to abuse partners. People have long memories, and “what goes around, comes around.”

SUMMARY

That’s my primer on how to approach, and even more importantly, how NOT to approach doing business with Value-Added Resellers. Post a comment or send me an email to delve into this important topic further.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

7 Comments by admin on January 28, 2007
filed in Business Models, Corporate Strategy, Distribution Channels, Product Marketing/Management, Startup/Early Stage, VARs, enterprise software, sales
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Channel Conflict

In my consulting practice I’ve done a lot of work with software and hardware companies in channel development.  One of the hardest things to manage while growing a channel business is the inevitable conflict between all the players throughout your various distribution methods, including your direct sales force.

Of course, my colleagues in the channel might say you can limit this conflict by using the channel exclusively. That is the nature of channel conflict—all parties want the business for THEMSELVES. Much smoke is always blown by the various interested parties about what is right and fair, and commitments that were made and so on, but let’s face it—it’s basically self interest. They just want the business for themselves.

So what’s a company to do? Just sell direct, or just sell through VARs, or just sell through retail? Unless you have strict exclusive territories throughout your distributions system, problems will still arise. You’ll always have some kind of conflict (two direct reps or two resellers fighting over who should have an account), but at least you would eliminate cross-channel conflict, which can be particularly complex and nasty.

Limiting yourself to a single channel focus certainly may make your life less complicated, and less rife with conflict. But unfortunately, in most cases, you’ll be leaving a lot of money on the table. If you rule out any natural channels that can sell your product, you won’t be maximizing your return on your heavy investments in product IP, which should be one of the fundamental concerns of any business.

HAVE YOUR CAKE AND EAT IT TOO

So I say, sell through every channel that makes sense. If done poorly, it can and almost certainly will, be very messy. You’ll be sorry you did it, and probably become a convert to a single channel, or at least less complex, distribution model. But it doesn’t have to be so. Yes, you CAN have your cake and eat it, too.

There are many potential channels for your products: direct, OEM, one-step through VARs, 2-step through distributors/VARs, retailers, independent sales reps, strategic partner referrals, affiliates and more. In extreme cases, ALL of these potential channels may be appropriate ways to deliver your product to the market. The question I am often asked by clients is “How do you make it all work without it blowing up in your face?” The way you can do this is to live by two very simple rules:

1) DON’T EVER SCREW A REAL BUSINESS PARTNER

It actually sounds pretty simple and easy. Yet humans can be greedy creatures, and just a little greed in partnering can quickly ruin reputations for a long time. There’s the greedy VAR who thinks he deserves a piece of every deal with any customer within a 500 mile radius of his office—a customer he might have only sent a piece of mail, or cold-called a year before.

But more seriously, it only takes one weak-willed sales manager at a manufacturer or software developer, trying to make quota or maximize his income, to cause real havoc. If he attempts to cut a channel partner out of a deal that they drove, or had legitimate influence on—this is a mortal sin. Your channel partners will be outraged, and they will spread the word and not soon forget. Your reputation has been tainted, and that crucial trust that is necessary to make any business relationship work is now gone. Everything becomes harder. Partners aren’t willing to share information about what’s going on in accounts—maybe even withholding names on potential new deals. A struggle for account control, rather than teamwork, becomes the rule of the day.

So if it is a REAL partner, one who is trying to drive business to your mutual benefit, do whatever it takes to make it right. Give up short-term profitability to maintain a long-term profitable relationship. Don’t ever, ever screw a partner in the name of short-term gain. It can ruin your channel business long term.

2) DO ALLOW BUYERS TO PURCHASE THE PRODUCT FROM WHOM THEY WANT TO BUY IT

If you are honest and fair with people, potential channel conflict shouldn’t unnecessarily stop you from maximizing revenue by using multiple methods of delivering your product to the market. There is a range of customer profiles in the market.

Some want to buy everything through their trusted VAR/Integrator, who helps give them a third party evaluation of the product’s virtues. Others want to deal directly only with the manufacturer or developer of the specific product they are purchasing. A third category of buyers likes to buy as much as possible through their favorite large manufacturer—this is a great reason to OEM your product to the IBMs of the world. In each of these situations, the channel that is best positioned, via relationship or type of support, should and usually will get the deal. If your product isn’t available in that channel, you may not get the deal.

The last category of buyer, however, is different. This is the bargain basement buyer, the one who couldn’t care less who he buys from, as long as he gets the lowest price. These are the people that can wreak havoc on a multi-channel distribution system, if you aren’t careful.

BEWARE THE BARGAIN BASEMENT BUYER

It’s this price-conscious buyer that will often bring cross-channel conflict to the forefront. Since they are seeking the lowest price, they end up shopping the purchase across many potential sources for the product, creating great price competition among your channel partners. This is where conflict is often born. There are many tactical mechanisms to limit these situations (such as deal registration), which I won’t delve into. The main thing to have thought out is where these customers should end up buying. There are two basic approaches:

1) Tell your value-added channels that this price conscious buyer, who isn’t looking for any added value, isn’t going to buy from them. You might decide that this buyer is going to find the lowest price at retail (if that’s one of your channels), or maybe direct if they buy in volume. In this case, it’s important to set those expectations up front when you recruit channel partners. Let potential partners know where they fit, and where they don’t. They can walk away if they don’t like it; otherwise they’ve been warned. This is being fair and honest. Before potential partners invest in selling your products, they should have the real picture of what they’re getting into.

2) Conversely, you can strive for street price equity between channels. This gets tougher to do the more channel types you have, and also the larger your channel is in general. But it can be done. The main thing here is to avoid giving incremental channels discounts based upon volume. If you do, incentives are created for a channel player to discount to achieve volume—thereby lowering their costs, so they can win more business via even more aggressive discounting. This leads to a continuous downward spiral in your street price, and to unhappiness and channel conflict to such a degree that will drive you to drink, or at least a career change. It will get ugly. But if you limit your channels to those that truly are strategic for your product, and which add real value, it can be managed. The key is to set discount schedules based upon value-add and associated costs, rather than revenue or unit volume.

So there you have it. Sell through all the channels your product belongs in. Be honest and fair with you partners. Sounds pretty easy to me! Let me know how it sounds to you-post a comment below to add to the discussion.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

5 Comments by admin on July 31, 2005
filed in Business Models, Corporate Strategy, Distribution Channels, Retail, VARs
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