Why do upstart / small/ medium ISVs find it difficult to establish partnership in new regions ….
ISVs find it difficult to get mindshare of resellers or SI partners specially when they want to expand beyond their geographical region. When you think more deeply you would find few reasons.
When the ISV is entering into new region, a lot of work is needed to be done for the market development. Someone has to do this work – either ISV or the local partner. If partner decides to go ahead with the market development, question is how to get returns on the investments. The traditional partnership model in IT industry works on commission basis. If that is the only form of return the considerations for investment are driven by many factors :
- Cost of the ISV solution and the % margin,
- The absolute value of the margin
- Volume of sales per month
- Potential total gross profit in a given period.
Most of the time the Potential margin itself is not justifiable to make any significant investment. When it is a decent amount, the time frame may take much longer to get the returns.
Such scenario is not new to ISV vendors and hence ISV sticks to selling directly to the customers till the time it reaches certain threshold. When ISV is looking to grow beyond its geographical region (in new territories), setting up office or appointing a sales person is too costly a proposition. And given the above considerations it is difficult to excite the partner to work on purely commission basis and earn decent returns.
What is the alternative ?
Well, ISV can try some age old method of paying the retainer-ship fee to one of the partners in the new region for initial period. I am aware of the question as to how would it work for the ISVs. Well, by paying retainer-ship fee, ISV can insist on performing the tasks of :
- Reaching out to key customers,
- Creating awareness of its products and solution
- Getting the feedback from the customers
- Getting the market feedback (about competition, pricing, solution providers, influencers etc).
- Participate in local relevant events (by paying the participation fees of the event)
It is possible to measure the efforts through weekly activity reports and reviews. The key here is to treat the partner as your extended sales team. You are hiring a sales person on time sharing basis.
The cost of this retainer-ship would vary from 20% to 50% of the cost of one local sales person / local small office. To begin with, this activity can be done only short period 3 to 6 months.
In this process, ISVs get crucial tasks done – market development activities, prospect database and also loyalty and interest of channel partner in the new market.
ISV can build from here. This phase helps it to take further decision about :
- Continue or discontinue this arrangement,
- Enter into the market with direct office
- Put more trust in channel partner
- Focus only on period