How to become a top European Reseller
In today’s economical market understanding the competitive advantages of working with either global or niche vendors is vital to becoming a successful European reseller.
In the first of a series of articles – helping the raw beginner to the complete pro
- Neil Robertson, CEO of Compleat Software, explains to Andy Brockhurst how resellers select the most profitable vendors.
Q. Neil. Thank you for your time. Would you please guide our readers through the basics of selecting the best vendors?
A. Selecting the right vendors is vital to the success any reseller, yet many do not know where to begin. Firstly, there is a risk/reward ratio that has to be carefully considered. Do you choose commodity products within an existing marketplace or do you focus your efforts on a new niche product?
Ask a reseller what the biggest challenge they face is and the majority will tell you it is finding a unique product or service to take to the marketplace. In other words, differentiation.
A differentiated solution improves lead generation, delivers better sales conversions rates, and reduces competitive price pressure. Most fundamentally, a differentiated solution is more profitable.
Q. When do resellers need to consider whether to refresh their current product portfolio?
A. The technology industry has reached a level of maturity where the core competencies in most sectors are simply ’me too’ offerings – they have become commodities, products with slight variations from their competitors. Customers can buy those solutions and skills from a wide range of providers and are smart enough to know how to buy at the best possible price – or the lowest possible margin for the provider.
You need to have them, but they are not going to make your fortune.
Most commodity solutions started out as a niche solution. In the early days when few people were aware that the offering existed, the solution offered high margins, minimal competition and great closing ratios. Over time, the market demand grew and more and more channel jumped on the bandwagon, increasing competition and diluting margin as a result. Eventually, the hot niche solution becomes a commodity – it reaches the bottom of its profit life cycle.
Every reseller is stocking commodity solutions, but there comes a time when the bandwidth required to continue to offer a commodity becomes financially unattractive – the resources can be put to better use.
Every product or solution goes through a similar life cycle. The challenge is the ability to identify a solution early enough in its life cycle that it delivers a clear opportunity for differentiation, whilst having the confidence that it will, over time become mainstream. And as every reseller knows, there is no shortage of other products and solutions available to them and no shortage of vendors that want them to stock their solution.
Product Life Cycle
Q. What type of products should you add to your existing portfolio?
A. Taking on a new product that has no synergy with your current installed base is a risky tactic. The optimum product is a solution that adds value through a niche vendor and differentiates your solution. This locks out the competition and allows you to add higher margins to the value of the sale.
Q. Which areas of the channel are ripe for growth during 2011?
A. In short Cloud Computing, I recently read a report stating that Gartner believes that the large enterprise IT vendors, including Microsoft, IBM and HP, as well as enterprise software vendors, will increasingly turn to the cloud. Researchers believe that by 2015, however, just two companies will be able to claim leadership in both enterprise computing and the cloud.
There is also a massive growth in the whole suite of new products being delivered by niche vendors through hosted and Software-as-a-Service (SaaS) models.
For example, I recently saw an e-procurement solution that integrates into financial solutions such as Sun accounts from System Union/Microsoft Dynamics and Sage, but it provides complete control over corporate spend. This is a hot topic for any FD.
Q. So how do resellers select the right solution and the right partner?
A. The question is whether you really want a solution that will become dominant in a given market, sold through a broad and mature channel model – and what are the alternatives? The main choice is between global vendors and niche providers. Let me explain the advantages of both.
Global Vendors
The primary advantage of adopting solutions from the global vendors is that they are all pretty good at running a reseller channel. As new solutions become available, the large vendors have the financial muscle and experience to market them across multiple channels and across multiple geographies. They will build market awareness and create market demand through significant marketing funds and PR, making it considerably easier for their channels to establish their first sales and references – the core of any solution’s ultimate success.
Working with the major vendors is also lower risk. Large vendors have a much higher success rate in delivering “commodity” profile solutions, establishing large markets which the reseller can then sell to. Global vendors also offer the prospective purchasers considerable comfort in the knowledge that their investment in the technology is secure – and there are plenty of resellers if one relationship doesn’t work out.
The downside is that the very successful solutions reach the commodity status much more rapidly, simply because the vendor can effectively leverage the established channel. Whilst the early adopters of new solutions can get ahead and protect their margin through demonstrable expertise, installed base and customer reference, eventually other resellers will hit critical credibility mass and margins will start to become eroded.
The reach and strength of global vendors is also usually reflected in their margin strategies and their ‘go to market’ costs – even during the early adopter stage.
Niche Vendors
The alternative is looking at niche vendors – much smaller organisations that have developed next generation solutions that are highly innovative and very clearly differentiated.
There are an ever growing number of these solutions, more and more of which are being delivered through eBusiness methodologies, such as Software as a Service (SaaS) which bring their own challenges. Almost all start life as a direct sales organisation, then recognise the potential value of building a channel based proposition.
There are very few niche vendors that have the financial muscle to drive their solution through the early adopter stage by themselves. To really make it work and see their solution achieve the market recognition they believe it deserves, they need to partner up with channel.
The advantages to the reseller are significant. Niche vendors offer the potential of minimal channel conflict and a long road to market saturation and product commoditisation. The margins on solution and services can be excellent and highly profitable for an extended period.
If the niche vendor becomes highly successful, then the early adopter partner will have found differentiation utopia – low cost of leads, high sales conversation rates and great margins.
The reseller channel offers these niche vendors many advantages, the largest of which is usually the reseller’s existing customer base. (It is ten times easier to sell to an existing customer rather than to acquire a new one – they already know you and, hopefully, trust you).
But there is also a greater level of risk.
There are no guarantees that the niche solution will ever take off and ‘cross the chasm’ – as explained by Geoffrey Moore - see illustration – from Early Adopter sales only to Market Majority. The solution may be cool, but is the value proposition strong enough to make it a “must have” purchase for the customer?
Technology Adopters
The reality is that most niche vendors fail to build effective channel businesses. There is a world of difference between selling direct and selling through channel – especially across a diverse region such as Europe. Channel is an extension of the vendors business, effectively recruiting ‘virtual staff’. The niche vendor must address the challenge of providing the virtual staff with all the information and knowledge they need to become experts in the marketing, sales, implementation and support of their solutions, not just initially, but through new iterations of the solution and the changing competitive landscape. Most offer little more than a great product proposition and some arm-waving promises about the on-going relationship.
Niche vendors often face the expense and time delays in translating products, documentation and channel program materials into a number of European languages. Resellers seeking these vendors need to bear these extra costs in mind and this is one key reason why English is becoming the language of technology. However, some countries, France in particular, will respond much more readily to localised and translated offerings.
The critical factors in determining the potential success of a niche vendor and their channel is the in-depth review of their Channel Business Proposition.
The Business Proposition will demonstrate that the vendor has a strong understanding of the needs of its channel in adopting a new solution. How clear is their strategy in getting the initial buy in and focus from the reseller’s staff that generates immediate pipeline, provide support to help win the critical first deals and successfully implement them, delivering the references that make the next sale easier?
Has the niche vendor made the investment to ensure that their knowledge and skills have been captured and published on their extranet, so that their resellers can find what they need, when they need it without the hassle of having to speak to someone? Do they have a cost effective training and certification offering, a workable channel conflict strategy, an effective joint marketing strategy (etc)? If they cannot show an extranet that addresses these issues, then walk away.
The reseller also has to decide the profile of a solution that will maximise their investment. The optimum model will leverage their existing strengths, market knowledge and customer base.
Global -v- Niche Reseller vendor diagram
In the ideal world, a new solution will offer clear differentiation to a core offering, delivering high margin on the new solution and protecting margin of the core offering, whilst increasing sales conversion rates.
Partnership
For niche vendors to maximise their potential, most must improve their channel business proposition if they are to achieve the success that their solutions deserve. Resellers need to improve their purchasing processes to make sure that they have found the right solution and the right vendor. If both the niche vendor and the reseller get the partnership right – you are looking at the next global vendor with a highly profitable channel.
Neil Robertson, CEO of Compleat Software
Neil has 31 years track record of building successful direct and channel global software businesses predominately in the financial software market place.
Neil was a founder of Team Systems Group in 1983, the UK's leading reseller of accounting software prior to the acquisition by Misys in 1989. Neil became an Operating Board director of Misys during the 1991 recession and was heavily involved in the restructuring of the group's operations. In 1995 Neil set up Great Plains UK and developed the UK and the "rest of world" businesses, taking Great Plains Dynamics to market leader in numerous geographies. Neil left the company just prior to the Microsoft acquisition in 2001.
Neil joined the VC backed "high availability" provider Neverfail Group as CEO in 2002. After an initial restructure, Neil grew the business substantially delivering over 50 percent quarter on quarter growth for two years, predominately through channel sales in the USA.
Neil joined Compleat Software as CEO in 2008 as a result of raising VC capital through the Stockford Group.
Next issue – Neil Robertson explains to European Reseller readers– what the vendors are looking for - from you
