Market Entry – Partner Model or Direct Model? The pros and cons.

In my discussions with software companies about UK market entry the key question is usually do we go the partner route or sell direct? Usually with earlier stage and smaller companies the answer is they want to got the partner route. The reason cited for their decision is usually one of perceived cost, partnering is seen a cheap way to market entry.  I think it is worth looking at the pros and cons of both models  and to try to draw some conclusions. I stress that this short post is based on my practical experience of the last 12 years helping B2B software companies establish themselves in the UK. For the purposes of this post I will assume that the product/solution is suitable to be sold either direct or through partners.

Partner Model

Advantages:

1. You can lever an existing sales infrastructure and network
2. There is existing market and territory knowledge which can be deployed on you behalf
3. The partner can supply a local support infrastructure
4. You can share marketing costs
5. Sales costs are paid at the time of the sale via a revenue share

Disadvantages:

1. You relinquish control of your market entry to the partner – they will largely set the pace and the priorities
2. You will not own the relationship with the end client – denying you that important feel for the customers and the market you need in the early days of your market entry.
3. You may be subject to conflicting demands and priorities – e.g. another solution the partner resells may be more important to them as it is generating more revenue.
4. The partner will not promote your brand in the same way and with the same priority that you would.

Direct Model

Advantages:

1. You have a direct relationship with your customers and prospects – giving you valuable feedback
2. You can set your own priorities and pace
3. You promote you own brand and have complete control over this process
4. You keep 100% of your revenue

Disadvantages:

1. Sales costs are front loaded and marketing costs are your responsibility
2. Potentially this model is more challenging to scale
3. You need to find the right person(s) to get you started and you need to establish a point of presence
4. You need to consider local technical support provision

On the face of it many consider partnering a “no brainer” as there seems to be clear advantages and a lot less hassle and cost. However, one key area is rarely considered at the front end and that is how many sales are actually going to be made over what time? I speak to a lot of companies who have a partner channel that looks great but does not generate sales and they struggle to get the partner focused on generating business for them. With a direct sales model they at least have the possibility of  far more control and the ability to get results.

Like all things in life choosing the right sales model for your market entry is not clear-cut. From experience I have found that a hybrid model works the best. To have someone on the ground who is your dedicated resource undertaking direct sales activity to generate early revenue and reference companies to “prime the pump” for your partners to enable them to generate early success. This mixed model can generate early revenue, allow you to promote your brand, motivate the partners to be effective and provide scalability via both direct sales and partner expansion.

Whatever model you adopt, Partner, Direct or Hybrid it takes focus, investment and time to be successful. There is rarely a quick fix.

If you do not have the money – should you be entering the UK market?

My short answer to the question is no.

Why do I pose the question? I pose it because I come across so many companies who want to get into the UK market but do not actually want to spend any money. If the new market is so important to you why are you not investing in making a successful entry?

It is of course perfectly right and proper to use your resources effectively but there is no such thing a free market entry.

Most of the smaller companies I talk to in the software industry seem to think that partnering is the answer to all their problems. Partnering can be cost effective but it is not cost free. Funds and resources must not only be budgeted for technical training and support but for marketing and sales. In my view it is not acceptable for a partner to be expected to pick up all of the costs of early demand generation and brand awareness for your product. It is, after all, your product and your brand – you have a responsibility to promote it. If you don’t you will usually be disappointed.

If you plan to take a direct sales approach to entering the market, then you have no choice but to make an investment in the person who will be selling for you (be that an employee, a contract person or a company like Ramus). Again many companies I speak with have the notion they will get an experienced, successful sales person who is willing to sell on a commission only basis. Depending on the product this approach may occasionally work. It will ONLY work, in my opinion, if the product is really compelling,  sales cycles are relatively short and you are providing a good stream of quality leads. If you have sales cycles of 6 months then forget it. The sales person will of course come with his/her own book of contacts,  but will those contacts be ready to buy your product at the time you need to sell it? Probably not.

So, if you want to enter the UK Market get the finance in place. You can do it cost effectively but not cost free.

UK Market Entry – Don’t leave it all to your partner

I talk with a lot of growing B2B software companies who want to enter the UK market. Probably eight out of ten companies tell me they are going to use partners to sell their products. When I quiz them further, they invariably have not thought beyond the partner recruitment stage. Frequently I discover that little thought has been given as to how they can motivate the partner and help it to be successful. There is a prevailing view that giving a partner access to your company’s “amazing” product is enough to ensure a successful sales partnership. There is a common belief that a partner strategy will deliver results with minimum outlay or effort – this is not the case.

A partner strategy is of course a very valid one, but to make it successful you still need to invest resources, time and money. If you cannot invest then you should not be considering entering a new market.

I always discuss with potential clients the upsides and downsides of taking the partner approach, in general the main ones are as follows:

Advantages

• Access to the partner’s established network
• Leverage of an established sales channel and sales resources
• Access to local market knowledge and presence
• A local support infrastructure

Disadvantages

• Less control over how your product and messages are being presented to customers and prospects
• Your brand will be secondary to your partner’s brand if visible at all
• Yours could be one of many solutions vying for your partner’s sales attention
• You do not control the sales agenda and process
• The partner owns the relationship with the customer which means yours is an “arms-length” one.

In order to really benefit from the advantages of partnering I advise my clients that they have to work hard to mitigate the disadvantages. Areas to be worked on are:

• Sales tools and training. Ensure that your partner’s sales people are well trained and they clearly understand your product and your key messages. Invest time here as it is vital that sales staff feel comfortable selling your product or else they will sell somebody else’s. This is not a one-off task, ensure new hires are trained and refresher training is given.
• Sales compensation and incentives. Ensure your partner compensates its salesforce well for selling your product. What extra incentives can you provide to ensure they focus on your product? Are you giving your partner enough margin to incentivise its salesforce properly?
• Support during the sale. For early sales ensure you provide a high level of on-site support and mentoring. Early sales success builds confidence in the product and the relationship and will build sales momentum.
• Technical training for support and implementation staff. This goes without saying, but remember implementation staff and consultants need a different type of training to pre-sales support staff. One size does not fit all. Also you should remember normal end user training is not deep enough for a partner technical staff who will be supporting your product.
• Marketing lead generation. Work with your partner to deliver lead generation programmes. Consider a joint marketing fund which will grow with sales success. Do not rely solely on your partner to generate leads for your business.
• Marketing brand awareness. Do not rely on your partner to promote your brand. You should still undertake marketing activity on your own behalf in the territory. This will build your brand and create demand which your partner can meet. (Activities can include, PR,Analyst relations,  Social Media, Speaking slots a t key events, trade shows etc.)

There are many more issues which I have not covered in this short article but it gives you, based on my experience and observations, a flavour of some of the key ones.

Partnering is not the cheap option to market entry – to make it work it takes investment, persistence, trust and good will from all parties. If you cannot afford to deliver this, then stay at home until you can.

ALWAYS HAVE A PLAN B IN PRESENTATIONS AND DEMONSTRATIONS.

I was sorting through the contents of my briefcase yesterday and came across a spare bulb for a 35mm slide projector. Why do I still carry it I hear you ask? Well, it is a reminder to always have a backup plan when going into a sales meeting where you are expecting to deliver a presentation or a demo.

When I first went into sales in the days before PowerPoint and laptops (see the grey hairs!), we used 35mm slides to deliver presentations and had to lug the projector to meetings with clients. My first Sales Director drummed into us the importance of carrying a spare projector bulb. Often on the way out to a meeting he would stop you and ask to see the bulb – woe betide you if you could not produce it. The lesson however is a good one and it has saved me on countless occasions since.

Having a backup plan sounds obvious but I am still surprised by how many people do not think about what they will do when things go wrong with their demo or presentation.   One particular occasion is still etched on my mind. The key prospect wanted a demonstration of my client’s Cloud application at the prospect’s offices. When my client tried to start the demo it would not work because of a security issue denying access. Despite suggestions from me, my client had no backup plan and tried to “give the demo” from a tiny screenshot on the back of a sales brochure. The meeting resembled something from Monty Python rather than an important sales meeting – the net result the loss of the opportunity.

The key lesson is not to forget the basics – no matter how good your product/service and how good you sales strategy, they will all come to nought if you don’t get the basics right.

Backup plans can be very simple and obvious but often overlooked e.g.:

• If the live demo does not work try:
  • a series of clear screenshots embedded in PowerPoint structured in a way to illustrate the key points of the demo
  • A mobile data dongle on your to give you an alternative access to the internet
• For a backup to your presentation:
  • Take it on a USB stick to use on another computer
  • Take a paper copy

Have you got you modern day equivalent of a 35mm projector bulb with you when you go to your meeting?