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As a company involved in finding and facilitating partnerships, we are very much on the sharp end of that process and felt we would like to share with you some of the pitfalls to avoid. All too often lack of preparation and foresight can lead to disaster. Ask anyone in the legal profession and they will tell you that there is a big market for failed partnerships, especially in the software industry. Yet, we would contend that most of these failures could have been avoided. Indeed a simple checklist and the ability to empathise with your potential partner is really all it takes. At SSP we provide our clients not only with a checklist, but also offer a service where we accompany them to the meetings. This ensures that feet are kept firmly on the ground and hopefully provides an objective view.
Choosing the Vendor
Believe it or not, you the distributor, as the all important route to those precious customers, have a very real choice. No solution is unique, unless there is no market for it! There are a dazzling array of solutions which are desperately in need of some expertise to sell them.
Is there a people fit?
The all important prerequisite is that there is a people fit. If you cannot communicate comfortably with the vendor, who is often the developer, then no matter how good the product, it is wise to move on. In any partnership developing good personal relations is crucial to its success. Hence the need for one or more initial face-to-face meetings. A phone call is not sufficient.
Can you work with the manager?
Due diligence is usually associated with the financials and track record of the business itself. However, it is equally important to look closely at the people you will have to work with. In a start-up or the early days of a company’s life cycle the developer is often the MD. In this industry most of us have come across the high-flying academic with little or no business acumen, who believes that brilliant code is all it takes to market a product. Leave this type in the ivory tower unless you are feeling brave. Similarly, avoid the control freak who is unable to trust you with anything.
What does their track record look like?
If you are able to look into their past dealings, then do so. Ask around. It is surprising how much information can be gleaned by networking and it is usually extremely accurate. If they are in the habit of taking people to court, then assume that you will end up there too. If they have already hired and fired several partners, do not assume that those distributors were all inept. If others have found them impossible to deal with, then do not be fooled into believing that you have the missing ingredient. At the end of the day, your energies will need to be focussed on the challenge of getting the product to market, not on the problems of a difficult person. Sadly, some excellent products never reach the end-user because of the short-comings of individuals.
On the positive side, however, it should be remembered that most people do find a way of putting aside their differences. The priority after all is to conduct a lucrative business and to recognise the common goals. Ideally the person you have to work with will already be a team player within his or her organisation, will be a decision maker, will accept that the culture within the respective companies might be different, (especially if in a foreign country) is open to new ideas and suggestions and trusts your judgement.
Getting to know the business
Getting to know the business is as important as and linked with getting to know the people. Certain questions need to be asked.
Do they have a marketing strategy?
Sometimes vendors believe that customers will beat a path to their door without any effort on their part. No product, however good, sells itself. If that were true, why are good sales and marketing organisations so much in demand?
Who are the existing customers?
Do not be fooled by an extensive customer list. Get a year by year breakdown for the past three years. How many customers are still current? When was the last time each customer was contacted? Beware of tricks such as describing existing distributors as customers.
Who are their distributors already?
How successful and happy are their existing distributors? If they have sold practically nothing, do not assume that you will break the trend. Are these distributors selling very successfully for some other organisation, but failing with this one? Try to find out why. Do they treat their distributors fairly and with respect? Has there been a suspiciously large turnover of distributors?
Assessing the Product
It is fair to say that if you are happy with the way the business is being run, it is successful and you get on with the people, then the product is probably fine in that particular niche.
Do your market research
It is important to do your market research or to ask to see the research done by the vendor. In this way business expectations are realistic. As the distributor you need to know market share, positioning and the potential size of the market. You might be expected to open up a new vertical, or to take the product into a new country. Assumptions based on their existing market could lead to disaster. Of course, it hardly need be said that in a start up market research is an absolute must.
Maintaining your own identity
This is extremely important. In the first rush of enthusiasm avoid taking up a name like your vendor – ie if the vendor is Mega Software, you become Mega Marketing. You might feel you are paying your vendor a compliment, which of course you are by so obviously backing one horse and showing so much faith. Unfortunately, the practical reality is that this could give the vendor a false sense of ownership, even worse can lead to customer confusion and finally puts you in an impossible situation when down the road you wish to partner with someone else. Make it clear from the outset that you are a company in your own right, that you see the partnership as a way to make money and that your success will also be theirs.
Many good distributors have a relationship with more than one vendor. Like an investor with a portfolio, it is sensible to spread the risk.
Setting the Expectations
Do not make rash promises about quotas
It takes time to establish a market, however good the product. Set realistic and very attainable quotas for the first year. Negotiate the second year quotas towards the end of the first and so on.
Present a detailed breakdown of costs
The outlay on a new product or new market is considerable for the distributor and this needs to be understood. Make it clear that you expect some kind of risk sharing approach, whether it is in the commission split or in hard cash towards your expenses. In the first year these expenses can include any or all of the following: extra staff, extra accommodation, advertising, brochures, stationery, new web site, consulting time, increased overheads, training, travel.
Technical support and Training
The vendor must be willing and able to provide timely technical support in the early days at least, and on going product training. Good companies provide this free of charge, since there is a recognition that a distributor with a well-trained workforce that knows its stuff does best. Cisco and SAP for instance, like many other vendors have found a strong correlation between investment in training and sales results.
Writing the Contract
Distributors beware!
Too often this is rarely worth the paper it is written on and all too often reflects what either party wants to get away with.
The exclusive agreement
If you want an exclusive agreement make sure that your vendor wants that too. The word exclusive means that others are excluded from your particular agreement – check that there are not others out there with the same “exclusive” agreement. Otherwise you will have to take it on trust that your vendor will not pull the plug when he discovers that you consider “exclusive” means exactly that.
Write the contract as a positive expression of your partnership
Write the contract with the idea that this is what you want to happen, not as some vague thing which will give either party an out on the slightest whim. Lawyers thrive on badly written contracts.
Do not rely on the contract
A successful partnership should have no more need of the contract once it has been written. However, beware of the vendor who uses it against you when you are exceeding all expectations and have hit triple quota, in the mistaken belief that the product could sell itself. Ask them, politely of course, to try hitting the phones for days on end and they would soon see how easy it is.
In Conclusion
Cyrus Gilbert-Wolfe, of SilverStream Software (Novell) has made the following observation: “The challenge for software companies at the moment is to make the application of their products applicable to much wider audiences. Such companies are not going to be able to grow and expand their products horizontally without very effective partner programmes” He is of course talking about the very large organisations, but the same holds true if you are the only partner a software vendor has, and wherever a wider audience is to be found.
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