channel workbook

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T HE Y ORK G ROUP INTERNATIONAL T ECHNOLOGY P ARTNERS

ComprehensiveChannel Development Roadmap A step-by-step approach to building profitable channels

Workbook

We Make Going Global Easier


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Table of Contents

Table of Contents i ii

Introduction 1

S ECTION I - I NTERNAL P REPARATION 3

This page left intentionally blank. 4

Initial Target Markets 5

How Many Markets? 14

Revenue Objectives 16

Subsidiary Build or Buy? 18

Resellers/VARs/Distributors 23

Marketing Agents, Integrators and Consultants 24

OEM & Bundling 26

Recommended Pricing Policies 30

Forms of Payment 31

Sample Order Form 34

Price Protection 35

Discount Structure 36

Maintenance Policies for License Sales 38

Credit Terms 41

Withholding Taxes 43

Recruit and Hire an International Manager 44

Company and Product Profile 45

Competitive Matrix 49

ROI Analysis 50

Documenting the Sales Process 52

Pre-designed Web Pages 54

Software Translation and Localization 55

Integration Issues & Complementary Technologies 60

Providing Technical Support to Channel Partners 61

IP Protection 64

Partner Application Form 65

Non-Disclosure Agreement 69

Letter of Intent: XYZ Company - ABC 71

Formal Contract 72

Sales Training 82

Technical Training 83


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Typical Agenda for 3-Day Partner Training 84

Partner Manual 86

Site Visits 88

Partner Conferences 89

Checklist International Channel Program 92

S ECTION II - P ARTNER R ECRUITMENT 95

This page left intentionally blank.Define the Partner Profile 96

Define the Partner Profile 97

Develop a Database of Prospective Partners 102

Resources for Partner and ISV Searches 104

Sample Outreach Letter 1 106

Sample Outreach Letter 2 107

Get a Contact Name 108

Using LinkedIn 109

Initial Prospect Contact and Qualification Script 110

Send Out One-Pager 112

Getting Past Voice Mail 113

Follow-up 115

Deadline for Response 116

Check Vendor References 117

Call Client References 118

Financial and Credit Information 119

Completion of the Product Evaluation. 120

Conference Call Agenda 121

Reseller Meeting - When to Schedule 122

Prospect Meeting Objectives 123

Suggested Agenda for Meetings 124

Reseller Meeting - Who Should Attend? 125

Follow-up to reseller visits 126

Mandatory Partner Training 127

Partner Recruitment Checklist 128

S ECTION III - P ARTNER M ANAGEMENT 131

This page left intentionally blank.Lead Registration 132

Lead Registration 133

Market Segmentation 134

Compensation Neutrality 136

Cross-Border Sales and Margin Splits 137


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Market Development Funds (MDF) 139

Sales Contests 140

Quota Clubs 141

Spiffs 142

Initial Marketing Reports 143

Pipeline Report 144

Sample Pipeline Report 145

Partner Portal Main Elements 146

Regular Newsletters 148

Annual Partner Review 149

Terminating Partners 157

Importance of Notices 159

Master Checklist 12 Month Activity Plan 160

12 Month Activity Plan Worksheet 162


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Copyright 1997-2008 The York Group International, Inc. All rights reserved.


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Page 1

Introduction

Welcome to The York Groups Channel Development Workbook. The processes,templates and recommendations are the result of having worked with hundreds ofsoftware companies from all over the world, building or expanding their channels to

drive accelerated revenue growth since 1993.

We are pleased to make our methodology available to Microsoft Certified and GoldCertified ISV partners, and by following the steps described in it you will be betterprepared to enter new markets, and/or generate more sales from your existingpartners.

The workbook is organized into three sections:

1. The internal processes a company needs to put in place in order to build andsupport a channel. Prospective channel partners are much more likely toinvest their time, money and resources to make your product a success ifthey are confident that you are going to be a good partner for them, providingthe support they will need to represent you properly;

2. The recruitment process. This section describes how you build the rightpartner profile, how to identify them, and then explains in detail the steps youshould take to qualify prospects in a way that will produce motivated partnersable and willing to actively sell your products on an on-going basis;

3. Managing the channel once it is in place. Your channel partners will needconstant care and feeding to make sure that you remain an important part oftheir business.

Our channel workbook is continually being improved and expanded as we learn fromour client engagements. Please check in on Microsofts partner portal from time -to-time to make sure you have the latest version.


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SECTION I - INTERNAL P REPARATION


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Initial Target Markets

This is the first critical decision for a company, and for many it is also the first criticalmistake they make. Companies have a tendency to want to go after the largestmarkets first, on the theory that if they are going to spend a certain amount of money

to enter a market, the potential pay-off is going to be bigger in a larger market. Thisis rarely the case, especially for small and emerging companies, and depending onthe technology, there are many factors that can be evaluated in order to determinethe best initial target market(s), including:

Language requirements - Can the product be sold and used in English, ordoes it require translation and localization? Markets where many productscan be sold in English:

U.S.CanadaUKAustralia and New ZealandIndiaSingapore and MalaysiaHong KongSouth AfricaIsrael

Middle East Netherlands Nordic Region Brazil (for many business applications)

Size of the population Does the product sell to a broad range of individualusers? Is the total population a good indication of the market potential? The10 most populous countries:

1. China 1,297,003,0002. India 1,082,851,0003. USA 300,000,0004. Indonesia 217,136,0005. Brazil 179,114,0006. Pakistan 151,677,0007. Bangladesh 147,607,0008. Russia 143,171,0009. Nigeria 128,771,00010. Japan 127,908,000


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GDP and ICT spending per capita Is the relative wealth of a country andthe amount it spends on ICT a good indicator? The ten largest ICT markets,in absolute and per capita terms:

Absolute ($000s) Per Capita US$1. U.S. 1,055,661 1. U.S. 3,5872. Japan 349,099 2. Switzerland 3,4803. Germany 150,384 3. Norway 2,7394. UK 146,689 4. Japan 2,7295. France 114,669 5. Sweden 2,6276. China 85,600 6. Denmark 2,5177. Italy 67,406 7. Singapore 2,4718. Canada 52,460 8. UK 2,4539. Korea 44,441 9. Finland 2,35210. Brazil 38,183 10. New Zealand 2,325

Spending in major vertical segments Is your product designed forspecific segments, such as retail, manufacturing, government, etc? Spendingcan vary from country-to-country. Are those segments fully developed, or arethey growing rapidly? For example, the retail sector in India is growing veryquickly as the concepts of franchising and multi-outlet chains take hold, andmany emerging chains are purchasing foreign systems.

Number of potential clients in key verticals Continuing the example ofIndia, while the retail market is expanding rapidly, the number of significantplayers is still relatively small. This is also true in China, where the industrygorillas have not yet emerged in all sectors. See 15,000 largest companiesin Europe for European data.

Presence of competitors Who are your major competitors, where are theyfrom, and how firmly entrenched are they in your target markets? Are theyselling direct or are they using a channel? Have they localized theirproducts?

Piracy rates If your product does not have a security mechanism built intoit, or if it can be easily replicated, then the piracy rates will have a directimpact on your potential revenues. If China is a relatively small market tobegin with, then what is your revenue potential if 90% of software is pirated?The software piracy rates in some high profile markets are:

o United States 22%o UK 29%o Japan 29%o Germany 30%o Australia 31%


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o South Africa 35%o France 45%o Italy 49%o India 73%o Russia 87%o China 92%

Time zones and support requirements If your product is complex and willrequire your involvement in the first few installations, it may influence whereyou start, and how many partners or markets you can support.

Technology adoption Is the market an early adopter, and is this importantfor your product? If you are a wireless application, the Nordic region is anearly adopter, but it is also home to many technology companies specializingin wireless applications. Are you better off being an early entrant in a slower

adopting market?

Transferable references Have you sold to the local office of a multi-national? Is it possible to upstream the relationship and get a foothold in themarket where the parent company is based?

Exit strategy - You need to have a clear understanding of what your exitstrategy is, because it will impact the market selection. Is an IPO likely? Areyou positioning yourself for a trade sale? Is the company being operated forcash flow?


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Overview of the largest markets

If we look at the largest IT markets, they all represent significant challenges:

The United States

The largest, but the most competitive market in the worldFor most products it is not a single, national market, but a collection ofregional markets that have to be approached individuallyCost of client acquisition can be prohibitive because of high marketing costsrequired to establish brand awareness. Listed software companies in theU.S. with under $50M in revenues spend an average of 89% of their revenueson sales, marketing, general and administrative expensesPotential channel partners are inundated with opportunities

Regionalizing the United States

There are many different ways to geographically segment the U.S. A generalprinciple is to try and make them roughly the same size in terms of economic activityand/or the presence of prospects. The map and chart below are meant as examples:


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Region Geographic coverageU.S.A.Northeast Massachusetts, Rhode Island, New Hampshire, Vermont, MaineGreater NY New York, New Jersey, E. Pennsylvania, ConnecticutMid-Atlantic DC, Virginia, W. Virginia, Maryland, DelawareSoutheast Georgia, Florida, Alabama, Tennessee, South and North Carolina

Upper Midwest Illinois, Missouri, Kansas, Iowa, Nebraska, S. and N. Dakota,Minnesota, Wisconsin

Midwest Ohio, Kentucky, W. Pennsylvania, Indiana, MichiganSouthwest Texas, Oklahoma, Arkansas, Mississippi and LouisianaMountain States Arizona, Colorado, Utah, Nevada, New Mexico, WyomingCalifornia CaliforniaPacific Northwest Washington, Oregon, Idaho, Montana

Setting Priorities

After defining the geographic regions and the key factors, the final step is to puttogether a scorecard to help determine the best markets to go after, and in whichorder. Each of the regions and key factors should be ranked on a scale of 1 to 5.This will result in an objective assessment of the regions that make most sense.

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Number of ProspectsCompetitionProximityChannel PartnersReferencesTotal


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Japan

Localization of software products often a requirementCultural differences and language can be a big hurdle to market entryDistribution channels are much different from the U.S. and Europe, and areoften tied to the corporate structure in Japan (Keiretsus)

United Kingdom

The first port of call for most companies wanting to enter Europe, so acompany is likely to find the same competitors in the UK as at home(especially true for U.S. companies)There are more good products looking for a channel than there are channelpartners willing to invest in representing new products, so the competition forgood partners is fierce

The UK is not considered part of Europe, so it is not always a logical entrypoint for the rest of the continent

One salesperson rule of thumb

When establishing an agreement with a new distributor, a software ISV will get, bestcase, one full-time equivalent salesperson. For lower cost products it is unlikely thatthey will become a strategic product for a partner due to the level of competition;

rapid changes in the market (which increases their risk); and the fact that the ISV willwant multiple partners in all of the larger markets. This means that there may noteven be one dedicated full-time equivalent driving the sales. But regardless of howlarge a market is, there is only so much one person can sell and it can be easier toachieve this potential in a smaller market that is less competitive. Additionally,channel partners in second and third tier markets tend to be more flexible andunderstanding in their dealings with less experienced software ISVs.

General Recommendations

Phase 1 markets

Canada a good expansion point for North America, with a business concentrationin and around Toronto

UK very competitive, but an important market to have a presence in. Will likely bea frustrating market in which to find good partners.

Netherlands and the Nordic markets (Norway, Sweden, Denmark and Finland) veryhigh Internet adoption, English OK for many IT products, relatively quick decision-making


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Special case: Eastern Europemore strategic than revenue-generatinga market poorly served by American firmsrelatively few good channel partners, but they existhigher piracy ratestranslation less of an issue no one else does it

Phase 3 Markets

JapanComplicated market structureProduct will need to be localizedBest to find a strategic partner who assumes responsibility for everything

Rest of Latin AmericaHighly fragmented market, i.e., lots of small marketsLow Internet penetrationGood partners hard to find, and often need a personal introductionPoorly served by U.S. ISVs

ChinaSmall domestic market due, in part, to piracyCould be done on an ad hoc basis, but may not be worth a focused effort, at

least not in the early stages of international growthInitial market probably limited to multinationals operating in ChinaBeijing a more significant market than Shanghai


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Microsoft Resources

The International ISV portal provides a number of resources, including expertarticles, checklists, market assessment and planning tools as well as marketresearch from IDC and DataMonitor. The portal can be accessed through thefollowing link:

https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093

Once on the portal, click on Select the right markets, which will bring up a listof major IT markets, and within each market there are sub-sections withmarket research.
https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093


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How Many Markets?

It can be tempting to go after every international market simultaneously. However,this can lead to problems that can have a negative impact on the company. Thenumber of markets to go after initially will depend on a number of factors:

Does the company have enough people resources to provide marketing andtechnical support to multiple partners?

Does the company plan to hire a full-time international manager, or will anexisting employee be given international? If so, will they be full-time, or isinternational just one more thing they need to do?

Does anyone in the company have experience with channel development? Ifso, will this person be assigned the responsibility for international? Again, willit be full-time or part-time?

Is the product sold through an indirect channel in the domestic market? If thecompany does only direct selling in its domestic market, they will have tobecome familiar with channel management in general, as well as doing itinternationally, so they might want to ease into the process. If the companyhas a successful domestic channel, they already have the mindset on how todeal with partners, and may only have to modify their approach for theinternational markets

Does the product have to be translated and localized? This can be anexpensive and time-consuming process, and it may limit the progress to onemarket at a time.

How competitive is the market? In other words, is the technology somethingthat has to be established quickly, in order to get to the market ahead of thecompetition? Or is it a niche product with little competition?

How complex is the product? Will the ISV have to be involved with initialsales and installations, or is it an out-of-the-box solution that a partner canhandle with a minimum of training and involvement from the ISV?

In many cases, especially for smaller companies with little or no channel experience,it makes sense to start with two or three English-speaking markets as a way oftesting the international arena. This will give them a chance to:

fine-tune their recruitment program. For most companies this will be a newprocess, and they will have to get used to dealing with partners in differentcountries. And not everything they implement will work right away. Perhapsthe marketing materials have to be revised. Will the pricing make sense inother markets?


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build up the necessary support infrastructure. The company will have to sellits employees on the importance of being responsive to international partners.For most employees this will be an additional burden, and it will be importantto have the right procedures in place before an aggressive roll-out.

develop international reference accounts that can be used when opening newmarkets. Nothing succeeds like success, and it makes a big impact on themarket (both for prospective partners and end users) when a product is aproven success outside its own market. This is particularly true for productsfrom non-English speaking markets. For instance there is often a perceptionthat a French product did well in France simply because it is French. Butonce the English language version has been successfully sold and installedoutside France, the perception changes dramatically. To a certain extent, thesame is true for American products, but for cultural reasons, rather than

language. People tend to think that their own market is different, so justbecause it works in the U.S. doesnt mean it is going to work i n Europe.

generate revenues that can be re-invested to accelerate the internationalchannel development program. Building international channels is going totake time. Partners have to be found and recruited, then they have to betrained, and only then do they start marketing the product. If they then have a3-6 month sales cycle, and a 30-90 day collection cycle, it will usually be 6-12months before a company starts to see any meaningful revenues. In themeantime it costs time and money to support the partners. If a companyfocuses on two or three markets first, they can start to generate revenues thatcan be used to provide additional support to existing, successful partners, aswell as go into new markets.


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Revenue Objectives

Companies develop a channel in order to increase their revenues, scaling thebusiness without having to hire a lot of direct salespeople, but they often do it withouthaving any idea of what their expectations are. If revenue objectives are notestablished it becomes difficult to select the right markets to go after, set up abudget, determine the number of channel partners required, or to negotiatemeaningful targets.

Some of the factors that should be included are:

Exit strategy (is the company being positioned for an IPO or a trade sale?)Size of the target market revenue objectives should be established for eachindividual market, and within each market geographic and vertical marketsshould be segmented. For example, for some products the Northeast can be

segmented into multiple verticals (financial institutions, health care, education,etc.), as long as each sub-segment is large enough to support at least onepartnerCompetitionProduct maturitySales cycles

Marketing support budget (revenues dont happen by themselves)Existing client and revenue base (the more successful a company is already,the greater the likelihood of success in new regions)

Basic Formula:

1. For each market, determine the optimal number of partners based on verticalsegments and the number of prospects in each vertical

2. Establish minimum license sales in order to retain partner status3. Define the size of the most likely buyers (100 users? 5000 users?)4. Multiply the number of partners by the number of licenses and the expected

price, adjusted for the reseller discount.

Example:

In Germany, there might be one partner in the north, one in the south, and one in theeast. Each partner is expected to sell 10 licenses, with an average account having500 users and a transaction value of $50,000. The reseller discount is 40%. Therevenue objective for Germany would be:

3 x 10 x $50,000 x .60 = $900,000


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Microsoft Resources

The market research available on the International ISV Portal includes a DataMonitor

report on the number of Microsoft Certified Partners broken down by revenues and

vertical market coverage. While not a comprehensive study, it can provide an

indication of the availability of reseller partners in various markets. The portal can be

accessed through the following link:

https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093

Once on the portal, click on Select the right markets, which will bring up a list of

major IT markets, and within each market there are sub-sections with market

research.
https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093


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Subsidiary Build or Buy?

The Pros of Building

Why do companies build rather than buy, particularly as a first step? The reasonsare as varied as the companies. There are many advantages to having your own

people in markets outside the domestic base. This is by no means an exhaustive

list, but covers some of the answers found repeatedly in client meetings.

Control This is the key to the remaining arguments. Building an operation means

you have the right to choose location, corporate structure, pricing, sales channel,

marketing strategy, and of course, personnel. By choosing the people who sell,

support, and market your products, a certain consistency in approach and executioncan be achieved.

Quality This comes back to control the way to make certain quality remains

consistent, is to do it yourself. By controlling your process from end to end, you can

ensure that it is carried out in the way you want whether that process be sales,

support, marketing or any other part of your overall business.

Profit Prices internationally are often higher than in the domestic (USA) market,

particularly for localized products. The ability to set end user and transfer pricing

allows for greater control over profitability and repatriation of those profits.

Flexibility Having your own employees provides a measure of control over the use

of time and resources, as well as sales model. Resources can be marshaled to

whatever event or activity is important to your business at that moment (within

reason). It all comes back again to control if you own the resources, you can

control what they do and when.

People By recruiting the people in your organization, you have the freedom to

assemble a team that works best within your corporate culture. A well assembled

team will be an extension of your company in a distant market, bringing your

customers consistent service and support.

Consistency of the company profile and marketing message - Indirect channels

are often more concerned about building their own brand and profile in their local

market, and do not always follow an ISV's marketing strategy.


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Control of the customer base - When going through a channel, the ISV will notalways know who the end users are, and issues such as customer support,maintenance collection and upgrade sales can get very messy.

Channel recruitment challenges. In some markets, developing a channel isdifficult. In the U.S., for instance, indirect channels are inundated with productopportunities from the U.S., and they are resistant to taking on products fromoverseas.

Eliminating risk - Channel partners are at risk of being acquired, may be or become

financially unstable (through loss of a major product line) or may be mismanaged.

Acquisition of a previously independent partner to eliminate these risks and secure

control is not uncommon.

Investors prefer them - First, revenues ramp faster if they are not shared with a

channel, so the potential value of the company as a function of a revenue multiple

increases faster. Second, there is still a "bricks and mortar" mentality among many

investors, who like the feeling of company-owned assets on the balance sheet.

The Cons of Building

Now a look at the cons to building a subsidiary. To illustrate a point, lets discuss the

same topics above, but from the other side.

Control Short of going to manage the business yourself, control over a subsidiary

is usually a matter of degree and compromise. Notwithstanding the often misguided

belief that they all speak English, cultural difference s account for some of the most

difficult, frustrating, and time-consuming management challenges in managing a

successful international operation.

Subsidiaries take on a personality of their own, similar to the head office, but

influenced strongly by the culture, laws and attitudes of the local market. Over time,

control changes in character, particularly with the second generation of employees -

people who also have history with the company, but a very different one to those

working in the home office - regardless of frequent head office visits.

Thus, we believe control is perceived, and often fleeting. For example, the locationchosen initially for the convenience of visiting home office executives, goods import

and shipment, or tax holidays, may have to be abandoned if potential employees do


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not want to travel there to work.

Sales strategies that work successfully in the home market may not work at all in

other places (telemarketing or direct mail, for example), and require the adaptation of

methods more suitable for the markets in which your subsidiaries operate. Marketing

campaigns may cause strongly negative reactions in foreign markets (e.g.Chevrolets Nova model which failed in Spanish speaking markets where its name

translated to no -go). Every such change relinquishes another element of control to

some extent.

Quality Perceptions of quality are culturally biased. A product or service that is

perceived as positive at home may have quite the opposite characteristic and/or

connotation in other markets. Some products enjoy a very positive reputation in

some markets based their country of origin (German cars, Swiss watches, Belgian

chocolate, American software, etc.) while others carry strongly negative connotations

in others, often based on cultural, economic, and social influences completely

unrelated to the products themselves.

An American software company that releases three new versions per year may be

viewed as leading edge, or innovative in the USA, while potential customers in

Germany or Switzerland may view the company as unstable in an environment

where evaluation cycles are often longer than release cycles! Thus, quality is not

innate, inanimate, or obvious a product perceived as high quality in one market

does not guarantee it will enjoy the same perception in others.

Profits Lets examine the opposite side of profit cost, since higher costs directly

impact profits. Consider that while price for your product is often higher in

international markets, it is by no means unique - every other item and business

service in these markets is also more expensive taxes, housing, office space,

transportation, utilities, communications, food, insurance, financing, computers, etc.

The domino effect drives overall business costs higher, pushing salary demands

higher, and the cost of doing business significantly higher. Get the picture - prices

are higher for a reason.

Employment costs are another significant area often overlooked. In Europe, for

example, American companies accustomed to the labor flexibility of their home

market are often shocked by contract based employment laws. These reduce laborflexibility, and complicate hiring practices or cost a lot of money to fix if you get

them wrong.


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Social insurance costs paid by the employer over and above gross salary in most

European countries are 100%-300% higher than in the USA. Vacation allowances

hover around 4 weeks, but routinely go to 6+ weeks, meaning that every 8 th

employee just covers vacation time for the first 7. Benefits packages, particularly in

Europe, routinely include company cars or commuting costs, a 13 th, and sometimes14 th months salary, phone lines at home complete with fax machines, club

memberships, and much more that is unusual in the USA, but normal in Europe.

Flexibility Employment contracts, particularly in European countries, reduce

flexibility in many important ways. Contract based employment means that any

significant policy change affecting labor may require government approval (and they

can just say no), and then cost thousands to implement in the approved fashion, or to

pay out the often-generous severance allowances for employees who do not want to

move, change positions or possess skills the government believes to be in surplus

(for whom you may be responsible for re-training). The presence of unions is

another factor reducing labor flexibility they are much more widespread in the white

collar work force than in the USA, and take an active part in worker welfare as well as

industrial actions.

People the very base of your business. After investing considerable time, effort,

and money recruiting, creating equitable labor contracts, leasing company cars,

buying cellular phones, and all the rest why is it not working?

Management directives are met with why instead of when, and challenged at

every turn. Seemingly innocent corporate policies meet with vehement disapproval

or worse, legal challenge. People who seemed to wave the company flag during

interviews now challenge headquarters on seemingly basic issues. What changed?

Why? Welcome to one of the greatest management challenges in running

international operations cultural conflicts. Just because people look alike, speak

the same language does not, repeat not, mean they are the same. Perceptions of

work ethic, management, responsibility, mobility, and every other aspect of life will

surprise and amaze.

Managers in many European companies cannot conceive of the idea of making sales

calls our job is to manage. Hiring employees does not guarantee a smooth

implementation of company policy or culture usually because there is more thanone culture to be considered. At least in Europe, the caution for hiring managers is

to review employees carefully, because they may be with you forever.


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Summary Building

Arguments on building can either support or oppose the strategy very easily,

depending on the tack taken on viewing each one as we have shown above. There

is no clear method by which a company can determine empirically whether to build

their own operation or not. It is a complex combination of internal needs, market

forces, and sometimes, just the fortitude to take on the challenges involved in setting

up the first (and every) subsidiary, and move ahead. One piece of advice based on

the authors experience in setting up many subsidiaries: Add 25% to implementation

plan time frame, and 50% to expense estimates in order to have a greater chance of

being correct.

Microsoft Resources

The International ISV portal contains information on what it costs to set up a three-

person office in various markets. Log on to

https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093 , then

click on Select the right markets, pick the market you are interested in, and in the

third column over, link to Establishing a Business which contains a spreadsheet

with the indicative costs.
https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093https://partner.microsoft.com/US/program/competencies/isvsolutions/40029093


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Resellers/VARs/Distributors

Resellers can also be a part of Channel Management, but rather than having a directrelationship with the developer, the reseller has their relationship and buys theirproduct from a distributor. This becomes common when a developer has so many

resellers that it becomes too costly to deal with them directly.

Generally, distributors will look to a developer for at least 50% margin plus additionalfunds to help in the marketing and promotion of a product. Distributors will usuallynot take on a product unless:

There is a significant existing or potential market

Resellers are already aware of the technology and have a desire to buy

The product offers features that substantially differentiate it from thecompetition.

There is an effective marketing program in place

The developer is able to provide technical support, training andmerchandising tools

The difference between resellers and VARs is based primarily on the level ofservices provided with a sale. Resellers tend to be product-oriented, and VARs tendto be solutions-oriented. Resellers are expected to market specific products, be theyhardware or software, while VARs will include those products in an overall solutionthat they are selling to their clients. VARs will rarely advertise or market specificbrands, so they do not represent a direct conflict with traditional resellers.


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Marketing Agents, Integrators and Consultants

This category of channel partners influences the purchase decision, but does notcontrol the sales process. They can open the door to sales opportunities, but the ISVis usually involved in closing and supporting the sale, which can result in higher-than-expected costs.

Sales Consultants

Sales consultants are a step up from referral agents in that they actually meet with,educate and bring to the developer a customer who is prepared to sign a contract.Once the contract is signed, the ISV owns the relationship as it relates to installingand supporting the solution. The ISV will also invoice the end-user directly.Generally in this type of relationship a consultant will be paid a 20%-25% commissionon all revenues generated through the end-user for specified period time (usually a

year).

Marketing Partners

Some companies may want individuals or companies representing their products tohave a higher level of commitment than a consultant normally provides. Some of thatcommitment may come in the form of:

Completing an application form

Some type of certification testing (which has to be matched with the developers

ability to provide some type of training even if it is nothing more than steppingthrough slides on the companys web site).

Development of a marketing/business plan

Minimum investment annually in proactive marketing efforts

As with a consultant, a marketing partner would meet, educate and bring a rea dy-to-sign prospect to the ISV. From the time an agreement is signed the ISV would beresponsible for delivering and supporting all company-related products and servicesto the prospect. The ISV would invoice the prospect directly, and receive payment

directly from the prospect. For this extra level of commitment a marketing partnerwould expect to receive 30 to 35% commission on all products and services sold bythe ISV to the prospect for a specified period of time.


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Integrators & Technology Consultants

Like VARs, integrators and technology consultants work with their clients to provide atotal solution, and do not focus on selling specific products or brands. However,integrators can approach the projects in a couple of different ways:

1. Project management. Companies such as EDS, Cap Gemini Ernst & Young andAccenture take on large projects for their clients, where their responsibility is toevaluate a problem, find a solution, and then implement it. In most cases theywill design the solution, and then present product options to their clients, who areultimately responsible for making the decision. For instance, if the projectrequires file transfer, the consulting firm might present three possible products,their technical specifications and pricing, and the client makes the choice. Thechallenge for a developer is to get visibility with consulting firms so that they arein a position to evaluate and possibly recommend their products.

2. Systems integration. Integrators are very similar to VARs, in that they integratesoftware and (often) hardware into a custom solution for their clients. A strongrelationship with system integrators can be hard to achieve because they getcalled on by many software ISVs, but once it is in place can lead to repeatbusiness with a low cost of sales.

3. Facilities management/Outsourcing. There are some large IT companies, suchas EDS and IBM Global Services, that take over the entire information systemsmanagement for their clients. This is often done on a fixed price basis formanaging the current infrastructure, and cost plus for enhancements. In eithercase, the facilities management firm has a strong incentive to purchase productsthat reduce the operating costs or that make the environment they are managingmore efficient. Since FM firms tend to be very large, with clients around theworld, if a product becomes adopted as a standard, it is often installed at manyother sites around the world, with both existing and new clients. Getting selectedby an FM firm is difficult, but can be very profitable.


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OEM & Bundling

Entering into an agreement to license or bundle ones technology with a vendor thathas an established market position can be an excellent, low-cost approach to getting

started in a new market. This is commonly referred to as OEM agreements(Original Equipment Manufacturer a term that originated in the automotive industrybut is now applied to software products as well as ha rdware products) or privatelabel agreements. An ISVs software is typically integrated with an existing solution,and either sold as part of a new release, or as an add-on module under the nameand label of the OEM partner.

Advantages

1. Quicker time-to-market. The OEM partner should have a large client base thatthe product is sold to, and depending on the pricing structure, the businessarrangement can generate a significant, and immediate, revenue stream;

2. The cost of sales through this partner is virtually zero since they have, or shouldhave, an installed based that they sell the product to;

3. It does not consume any internal advertising/marketing efforts this is theresponsibility of the OEM partner;

4. Technical support requirements are minimal the ISVs product or modulebecomes part of another solution that is supported by the OEM partner;

5. The sales and pricing strategies used by the OEM should have little impact on

direct sales efforts or other indirect sales alternatives thereby keeping alloptions open. Although resellers are sometimes concerned with having the sameproduct sold through other channels in their market, the fact that it is sold underanother name to a defined client base helps limit channel conflict. In largermarkets an OEM model can co-exist with a reseller channel.

Potential Challenges

1. Certain technologies do not lend themselves to being integrated with any othersoftware solution, especially those that require a fair amount of customizationwith each installation. The more packaged the solution is, the easier it is for anOEM to sell and distribute the product;

2. It can be difficult to find software companies willing to integrate anothercompanys technology. In part this can be due to the Not Invented Heresyndrome, but it can also be due to technical issues involved in integrating thesolutions, or becoming dependent on a third party for part of the companyssolution;

3. There is a loss of identity, so building a brand becomes more difficult. Havingones own brand is of ten important in the valuation of a software company, and if

an ISV is essentially an anonymous supplier of technology to other, brandedISVs, it has a negative impact on the value of the company;


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4. Contract negotiations have to be handled carefully, to prev ent the ISVs productbeing included as a low-cost add-on that could possibly undermine the ability tosell the product separately. If the pricing is so low that the OEM partner becomesa low-cost competitor, it will have an impact on the ability to establish a viablechannel for the ISVs own solution;

5. If an OEM agreement is very successful, and the OEM partner becomes a largepart of an ISV's business, the OEM partner could be in a position to exert a lot ofpressure on the ISV when it comes time to renew the contract.

Pricing Considerations

There are no established pricing policies for this type of relationship - they are usuallynegotiated on a case-by-case basis. However, there are two basic pricing modelsthat are used:

Percentage of the overall solution. Under this pricing model an ISV is paid for thevalue of their code relative to the overall solution. For example, if the module inquestion represents 30% of the total solution, the ISV would get 30% of the revenuesfrom the sale of the combined product. In theory the OEM partner will always bemotivated to maximize their own revenues, but there are some risks with this pricingmodel that need to be addressed in a contract:

The bundled module becomes a loss leader for other products the OEM is

selling. If the contract does not establish a minimum price for the ISVsmodule, there is a risk that the OEM partner greatly reduces the price in orderto sell other parts of their product line, or to maintain a higher price on otherproducts at the expense of the ISV;The OEM partner increases the size of their own modules to reduce therelative value of the ISVs product. For example, if the initial value of the ISVscontribution was set at 30%, if the OEM partner adds substantially more codeto its own part of the solution they could potentially drive down the relativevalue of the ISV and reduce the license payments to 10 or 15% of eachtransaction.

Discount from the list price. Under this pricing model the OEM partner would pay aper unit price, with volume discounts for larger purchases. By way of example, if thelist price is $1000, the OEM might get a price of $500 or $600 if they do not committo specific volumes, only purchasing the product on an as-needed basis. They wouldget volume price breaks as they purchase 100 or 1,000 units. There are two distinctadvantages to this pricing structure:

If structured properly, it can generate significant up-front cash. Rather than

simply reducing the price over time as an OEM partner reaches definedpurchase levels, an ISV should encourage an OEM to buy down the price


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based on an initial purchase. If the baseline discount is 50% for ad hocpurchases the OEM can establish a lower price for the full year of a contractby making an up-front purchase. For example, the price might be $400 perunit if they buy, and pay for, 100 units up-front, and $300 if they pay for 1,000units and $250 if they pay for $2,500 units. The unit price would then remainat $250 for the remainder of the contract year, guaranteeing the OEM partnera low per-unit price for every additional purchase;It is a good indication of how serious the OEM partner is about selling theproduct. If they really expect to sell a lot of the product they will want toestablish a unit price that is as low as possible, thereby making it moreattractive for them to make a more substantial up-front purchase. If the OEMdeclines to purchase products up- front, preferring to order products on an as -needed basis, it is a good indication to the ISV that the relationship is unlikelyto produce a lot of revenues, and they should be careful about investing toomuch time and resources.

Legal Considerations

The cost of technical integration. Some products require significant modificationsin order to integrate properly with another solution who pays for what should beclearly spelled out in the agreement;Derivative technology. If the OEM partner makes significant modifications or

improvements to the ISVs underlying technology, in some cases they can end upwith ownership of the new and improved product and no longer have to payroyalties to the ISV; Defining the markets. If an OEM agreement is just one part of multi-prongeddistribution strategy that might include direct sales and/or reseller channels incertain markets, the target market that the bundled solution can be sold to shouldbe clearly defined. For example, this could be by geography, or specific clientgroups.

Hardware Bundling

Some software solutions may lend themselves to being bundled as part of hardwaresales. However, it would be rare that a new technology could utilize this option. Theonly reason a hardware ISV would include software is if it helped to push thehardware. And in order to have that spin, either the market needs to already knowthe benefit of the software or the benefit of the software must be very obvious andcompelling (e.g., doubles processing speed).

The advantages include:

1. The cost of sales are virtually zero;2. An implied (if not actual) endorsement from the hardware manufacturer;


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3. The opportunity for upselling to users that get an entry-level version of theproduct (Lite vs. Pro)

4. Will rarely have any impact on the companys pricing model through any other sales alternatives.

The disadvantages include:1. Low per unit pricing. Hardware margins tend to be low, and manufacturers are

not willing to pay much for OEM software;2. May require supporting an uneducated buyer (potential high support costs);3. May diminish the markets perceived value for the product; 4. There may be very little contact with the end-user and therefore diminished

opportunity for add-on sales.


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Recommended Pricing Policies

Establish an international price in a single currency, preferably $US and Euros(same value in each currency, i.e., 100). Establishing and trying to control local

currency prices creates a lot of potential problems:

exchange rates are constantly moving, so if the partner is on a fixed discountfrom the list price, the list price will have to be modified as exchange rateschange; this is an administrative headacheif the discount is based on the local price, the ISV will be asked to participatein special discounts required to close the sale

Dont publish pricing on the Web

the Web makes pricing transparent to the end user, and this creates a realconflict with and for partners.if pricing is available, end users will often call and try and order direct if pricingis lowerlower pricing on the Web makes the partner look bad vis--vis his client, whomight feel that the partner is trying to rip him off

Might want to consider two-tiered pricing, with lower pricing in low-cost countriessuch as China, India, Turkey, or if a region is going through a financial crisis,

such as Southeast Asia in 1998; this is common with most large ISVs, because"normal" pricing might be prohibitive in many developing markets

Allow partners to establish local currency pricing to cover:exchange rate fluctuationscost of doing business in a small, often expensive marketcost of translation/localizationadditional discounts that are often required in the local market, e.g., Italywithholding taxes, customs and duties that make the product more expensive


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Forms of Payment

Wire transfers

Wire transfers are the industry standard. They are reliable, they can be traced, andthey can't be reversed once the payment has been completed.

Things to consider:

Wire transfer fees. Virtually all issuing banks charge a fee of $25-50 forinternational wires, and this fee, as well as any fees charged bycorrespondent banks, are the partner's responsibility. Make sure thatpayment terms clearly indicate that your prices are net of bank charges.The receiving bank might also charge a fee, but that is the ISV's expenseSWIFT/BIC codes. When providing partners with wiring instructions,

always include your bank or branch SWIFT code. This is an alpha-numeric code that is unique to every bank, and it allows a wire to be sentdirectly from bank to bank without going through a correspondent. It cansave time and money.IBAN (International Bank Account Number). The internationalstandardized format for account numbers. The IBAN always starts with atwo-digit country code which is followed by a two-digit control part, areference to the bank (the bank's local code) and the beneficiary'sdomestic account number. We recommend that you send your IBAN andthe bank's SWIFT/BIC to your foreign partners, who make payments toyou from other countries, well in advance.Transfers can normally be completed in two or three days but they cantake up to ten days depending on the country of origin. If there is a delay,and the partner is pushing for product delivery or a permanent code, askthem to fax a copy of the wiring confirmation from their bank. This willconfirm that the wire has been processed.

Credit cards

Credit cards are often used for lower priced, high-volume products, but there hasbeen a marked increase in the use of credit cards since American Express started toaward mileage points for business purchases. It is not uncommon for some partnersto make purchases of several hundred thousand dollars per month with their Amexcard. Credit cards have the advantage of being processed immediately, and cantherefore expedite the ordering and shipping process.

Things to consider:

Credit card orders can be reversed if the partner disputes the charge, soan order isn't necessarily final just because the credit card authorizationhas been issued


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Credit card fraud is widespread, especially in Eastern Europe, sopayments should only be accepted from companies that have beenproperly qualifiedCredit card payments are typically used by smaller partners who do notexpect to build up a lot of volume (they will usually run into a problem withtheir card limit)Credit cards, especially for companies, are not widely used outside theU.S., so this should not be the only way for a company to payBanks will normally charge a 2-3% processing fee for each transaction, somake this the responsibility of the partner. A $100,000 purchase with anAmex card could result in a $3000 processing fee for the ISV

Cashiers checks and international mo ney orders

These are rarely used, but in some cases where partners have credit terms and paymonthly for their orders, there are companies that prefer to use checks.

Things to consider:

Make sure checks and international money orders are issued in thecurrency specified for payment, be it $US, or the ISV's local currencyEncourage partners to use an overnight courier service when paying bycheck, to avoid possible postal delays

Letters of Credit

Letters of credit are still used for manufactured goods, but because of widespreadfraud and bank failures during the 1980s they are more complicated to get, and thewording has become tighter which can make them more difficult to cash in.

Letters of credit can be used to make a payment, or to guarantee that the paymentwill be made. They can be issued for specific purchases, or for an amount thatcorresponds to the credit limit issued by the ISV. In this case the distributor would

make payments based on the terms provided, e.g., 30 days net, and the ISV wouldonly invoke the letter of credit in the event of a late payment.

Things to consider:

The creditworthiness of the issuing bank. If your bank does not have adirect, correspondent relationship with the issuing bank, it can be a goodidea to have the letter of credit guaranteed (confirmed) by another bankthat has a correspondent relationship with both your bank and the issuingbankThe LC should be irrevocableThe wording has to be precise, and if payment is being requested againstan LC, the instructions have to be followed to the letter. The issuing bank


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is going to protect the interests of not only its client, but itself. Invoking astandby letter of credit for payment is usually the result of a financialproblem on the part of the buyer, so the bank will not cover the obligationunless it absolutely has to.


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Sample Order Form

Partner NamePurchase Order NumberOrdered ByOrder Date

Product Information

Product Product Qty* License Qty* Unit Price Line Total

Subtotal Shipping

Total Purchase

*Note: Please specify if the order is for additional licenses to an existing client

Maintenance Table

Maintenance CalculationList Price

Multiplied by maintenance %Less: 90 day warranty periodTotal First Year MaintenanceLess: Partner DiscountTotal Maintenance Fee

Payment Information

Wire Transfer

Remit funds to:

Note: This space to be used for ISV's bank information (bank name, SWIFT address, account name, account number)

Use the credit card you have on file:

VISA MASTERCARD AMEX


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Price Protection

The sales cycle for every product is different, but a partner has to have someassurance that the price he is quoting will be valid while the customer is going

through the buying process. The standard procedure is to have new pricing go intoeffect 30 days after it has been announced, with an additional period of protectiontied to the normal sales cycle, usually 90-180 days. In other words, the partner canmaintain the old pricing for an additional, defined period of time for deals that he hasalready quoted in writing, but he should be required to document those to the ISVwhen the new prices are announced.


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Discount Structure

Discounts tend to be higher outside the U.S. In the U.S. 30-40% might be enough toattract good partners and distributors if the company is established in the U.S.,providing lead generation and technical support, whereas internationally the discounttends to be 40-50%. There are a number of reasons for this:

1. The markets are smaller. Individual markets outside the U.S. will be a fraction ofthe size of the U.S., so the potential revenues from a given product will be lower

2. Costs of doing business are usually higher. This is especially true in Europe,where marketing expenses, labor costs, office rents, taxes and governmentcharges are much higher than in the U.S.

3. In many markets an on-site sales call is often necessary to close the sale, and

this drives up the cost of sales.

While it might be possible to attract partners with lower discounts, very few qualitypartners and distributors are willing to entertain products with less than a 40%discount, and they certainly won't spend much money promoting them. Forenterprise solutions and large platform products that require on-site visits, installationand pre-sales support by the partner, a 50% discount is the industry standard.

There are two recommended ways of setting up the volume discount structure:

1. Rolling quarters. Sales in one quarter determine the discount for the followingquarter. The discount should be tied to how well they are doing compared tothe business plan, with the first trigger point based on achieving the quarterlyequivalent of their contractual minimum (e.g., $125K if the annual minimum is$500K). This would mean that their sales in a quarter would determine theirdiscount for the following quarter. Discount structure could be:

40% for quarterly sales up to $125K at list

45% on sales in excess of $125K (equal to of the contractualminimum)

50% if sales exceed $175K

Under this program they would get a 45% discount for any sales in a quarterfollowing a quarter in which they had sales of $125K. If they exceed thatnumber in the quarter, they maintain the discount for another quarter. If theirsales drop to $90K in that quarter, their discount would drop to 40% for the

next quarter.


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2. Deal size. Discounts are applied to the size of individual transactions as away of encouraging the partner to focus on larger deals. For example:

40% for transactions under $50K

45% for $50-75K 50% for deals over $75K

Customer Discounts

It is usually a good idea to give the channel partner some level of discretion inoffering additional discounts without getting approval from the ISV, without having toabsorb all of the pain himself. For example, they might be authorized to offerdiscounts of up to 20%, and the reseller discount would be applied against the netdeal. Any customer discounts in excess of 20% would require approval from the ISVin writing, or would be the responsibility of the reseller (he absorbs it).

Should you charge the partner an up-front fee?

This was a fairly common practice in the 1980s, but it has become the exceptiontoday:

most partners that have been in business for any length of time havebeen burned at least once with pre-payments, and as a result have madeit a policy to pass on products that require up-frontsrequiring up-fronts is seen as a sign of financial weakness on the part ofthe ISVup-front payments have to come from somewhere, and it is usually takenfrom the marketing budget, leaving the partner with little or no money topush the product. The cost of the initial license(s) will reduce potentialsales by much more than the initial revenues from the pre-payment

The purpose of an up-front is usually to guarantee that the partner is serious aboutthe product, and has a strong incentive to market it. This can be better achievedthrough requiring training at the ISV's facilities, and establishing a formal marketingplan and budget from the partner.


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Maintenance Policies for License Sales

Maintenance is becoming a "manageable" expense for many companies. For largecompanies with thousands of installed programs, maintenance is a significant fixed

cost and more and more companies are taking a closer look at what they get for theirmaintenance dollars. As a result maintenance payments are no longer "automatic",and ISVs are being required to justify the value they are providing.

There are two ways to structure maintenance, voluntary annual maintenance, andmandatory annual license fee renewals.

Voluntary

The typical program is a rate of 15% (but large enterprise ISVs such as Oracle arepushing this to 18-22%), starting after an initial 90 day warranty period. In theory thispayment is used to cover three levels of service:

1. Technical support related to the installation and on-going use of the product.The ISV, or his local partner, provides first level (telephone) and second level(on-site) support to resolve problems directly related to the product. Inaddition the ISV provides code level support in the form of bug-fixes andmaintenance releases that incorporate these fixes

2. New releases, with some additional functionality. ISVs are normally expectedto provide a new release at least once per year

3. Discount on new versions or chargeable upgrades.

In theory, roughly half the maintenance fee covers the cost of providing tech support,while the other half is used to reinvest in continuing developing of the product. Inreality, most ISVs have an objective of building a recurring, predictable revenuestream from maintenance revenues, and after the product is stable and has a largeuser base, a large portion of the maintenance stream goes to the bottom line. Largeusers know this, which is why they have become more demanding.

If the product is simple to install, and requires no on-going support, users will look atthe second component to see if they are "getting their money's worth", especially ifthe product is expensive and the maintenance payment is a large one. If the productdoes not require much support, users will be more reluctant to pay for chargeableupgrades. The general rule is to provide users with new releases or upgrades withinthe same version number at no additional charge, e.g., when going from 2.0 to 2.1,while going to a new version number, e.g., going from 2.1 to 3.0, constitutes achargeable upgrade.

Users that are on maintenance would usually get a discount of 40-75% off the list


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price of upgrades, depending on:the cost of the upgrades,the number of new features included, andhow many times per year a new version is released.

If a client is no longer on maintenance, they would have to pick up the missingmaintenance or pay full price for new releases. For example, if a client has used theproduct for 18 months without paying maintenance, and wants to benefit from thediscount (or has technical problems and needs support), they would be required topay for two years of maintenance. For this reason, some software ISVs use largediscounts on upgrades as a way to encourage companies to stay on maintenance.

Other issues to consider in defining a maintenance policy

Warranty period

While 90 days has been the traditional policy, it is becoming increasingly common tooffer the first year free as part of the pricing.

Resetting the maintenance

Maintenance is calculated based on the list price of the product (not the actual

selling price if a discount has been offered) the first year, and then the current pricelist in subsequent years, so if there has been an increase in the price of the product,the maintenance payment goes up accordingly. Some ISVs with a large installedbase, and few new products or clients, have been notorious for increasing pricesevery year as a way of increasing their maintenance revenues. For this reason somecompanies insist on a limit on annual price increases, at least for the purposes ofcalculating the maintenance.

Escrow accounts

If the product is critical to the client's operations, or if there is some doubt about thefinancial strength of the software ISV, some companies will require that the sourcecode be placed in an escrow account, so that they can access it if the ISV goesbankrupt, or can no longer provide source code support. This is unlikely to happenwith a product that is not mission-critical.

Timing of payments

Many large users, who might have thousands of programs installed, prefer to makeall of their maintenance payments at the same time, usually at the beginning of theyear. It makes it easier for them to manage, and it also makes the total amount of


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maintenance they pay transparent. These companies are more likely to look at thevalue they are receiving.

Mandatory Maintenance

Mandatory maintenance is often referred to as an annual license renewal fee, and itaddresses some of the issues encountered with voluntary maintenance. Since it is arenewal fee, the first payment is due on the anniversary date of the contract, andthere is no initial warranty period.

The amount is usually 20-25% of the list price, which generates a significantrecurring revenue stream for the ISV. However, in return the client gets all newreleases and upgrades at no additional charge, and the ISV is normally contractuallyobligated to provide new releases every six months.

Recommendation:

15% maintenanceOne year warranty

Industry is moving in this directionLowers the barrier to sales

Still build recurring revenue base for subsequent yearsInclude maintenance releases, but not new versions


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Credit Terms

Payment terms will depend somewhat on factors such as the cost of the product,length of the sales cycle, software protection, length of the relationship with the partner,

etc. As a general rule payment terms are to be avoided, and permanent keys shouldnot be given until the payment has been received (help the partner manage hiscollection cycle):

the financial information received is often unreliablesuing for payment overseas is difficult and expensivemarket conditions and exchange rates can change rapidly, so a companyshould avoid having large receivables

Credit Terms and the Use of Keys

Software security keys are an excellent way to manage the sales and payment cycles.Some of the issues to consider are:

Temporary and permanent keys. The product would typically have a 30-day evaluation period, so that prospects can try it for a month

Renewals for trials would normally be 30-60 days if an extended evaluationis required. A new temporary key would be issued, at the end of which theprospect has to either issue a purchase order or stop using the product

Once the P.O. is issued, a new temporary key would be issued that

matches the payment terms, e.g., 30, 45 or 60 days A permanent key is not issued until the ISV has been paid by the reseller Decisions have to be made regarding how the key is structured:

Is it machine-dependent, i.e., does it read a serial number or does aserial number have to inputted by the user? This can make it easier toprevent unauthorized reinstallation (see below)

Does it count the number of users, or the amount of data that passesthrough the product?

Are keys issued for each module? In other words, do you deliver anevaluation version of the product that lets the user try all of themodules, but they have to have separate keys for the modules theywant to purchase?

Does it have an automatic 30 day key, or is it a zero-day key thatrequires that a key be issued just to test it. The advantage of a zero-day key is that it prevents a user from simply reinstalling the productevery 30 days, and potentially using the product perpetually withoutpaying. The disadvantage is that it creates another hurdle to a prospectevaluating the product.


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Recommendation:

No credit termsPermanent key issued when payment received

Use temporary keys to enforce payment policyCustomize payment terms by territory30 days for U.S., Canada, UK, Australia, Germany, Netherlands andNordic60 days for Japan, France, Spain, Latin America90 days for Italy


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Withholding Taxes

Many countries require withholding taxes on products imported to their country. Thetax usually varies between 5-30%, and is deducted from the payment made to the

ISV. If, for instance, the withholding tax is 20%, and the partner owes the ISV$1,000, he will send $800 in cash, and a tax certificate (issued by his government if ithas a tax treaty with the ISV's own country) for the other $200. The ISV can thenapply the tax certificate against his tax bill when he files his annual return, if hiscountry has a tax treaty with that particular country.

Things to consider:

Latin American countries often have a withholding tax of 20-35% onsoftware product sales and royalties

Some countries, e.g., Italy, make a distinction between royalties andproduct purchases, and apply different withholding tax rates. It isgenerally considered a royalty if the partner/distributor has the right toduplicate the product media and resell it in his territory. It is a productpurchase if the product media and documentation are physically imported.

India has a flat withholding of 20% on all products and services

The partner agreement will often require that the purchase price be paidnet to the ISV, so the partner becomes responsible for paying thewithholding tax. In that case the local pricing will have to be adjusted tocompensate for the withholding tax, and this could impact the product'sability to compete

Tax certificates will only be of value if the ISV reports a taxable profit. Ifhe is losing money, or if the cumulative value of the tax certificatesexceeds his tax liability, they will represent a potential loss of revenue.


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Recruit and Hire an International Manager

Depending on the complexity of the software, a channel manager has the bandwidthto actively manage 5 to 20 partner organizations without additional personnel. For aproduct that is not overly complex the upper part of the range would apply. This

person should be the partners single -point of contact for any and all matters.Although orders do not need to be processed by the channel manager, they shouldpass through him/her. And likewise, although technical support questions do notneed to be answered by the channel manager it is best that they (at least initially)pass through him/her. As the companys ga tekeeper, the channel manager will beable to minimize the impact of channel partners on the company, while at the sametime maximizing the value that the ISV brings to the partner. The channel managerwill have a vested interest in making sure that partners are being taken care of, so itis less likely that a support question will stay in someone's in-box.

Based on this, the most important qualities to look for in a person for this position are:

Strong communication skills (speaking, writing and listening)

Collaborative in nature (team player)

Strong organizational skills

Good understanding of business basics (they are going to be dealing withentrepreneurial business people)

5 to 7 years of business experience if the person is going to be fairly

autonomous in their position 2 to 5 years of business experience if reporting within a structuredenvironment

Independent and assertive enough to champion partners interests and needswithin the ISV organization as well as to represent and enforce the ISV sposition with partners

Positions that might be similar in nature to this might have titles such as: MarketingProgram Manager, Product Marketing Manager, Customer Support.


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Company and Product Profile

The purpose of the company profile is to give the partner information about yourcompany in an organized format. The checklist in this questionnaire is designed tocompile much of the information that a prospect will be interested in knowing. Someof the information will be confidential and you may want to have a prospect sign anNDA before making it available.

Once the information has been compiled, it is often useful to put it into narrative form,a descriptive overview of your company and technology that might be 4-6 pageslong. This gives your partner a story to tell when he is dealing with his prospects,who often want to know more about the company that is behind the product.

It also gives the partner a document for internal use. Salespeople tend to come andgo in an organization, and by having a detailed profile on hand, it makes it easier tobring a new salesperson up to speed on the ISV and his products.

1) The Product

(a) Product Background

(i) What does it do?

(ii) How does it do it?(iii) What is the operating environment (operating system, platforms)?

(iv) What is the suggested retail price and typical configuration (examples)?

(v) What is the Return on Investment for an end user?

(vi) Why do people buy it? What are the business benefits? What is thesingle most compelling reason for buying the product?

(vii) How large is the installed base (clients, sites and seats)?

(b) Product life cycle(i) Why was the product first developed? (What was the aching need it

solves?)

(ii) When was the first release?

(iii) Summary of the release history

(iv) Current release and version number

(v) Development plans


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2) The Company

(a) When and why was the company started? (The aching need?)

(b) How many full-time equivalents are employed in the following areas, and ofthese, how many are dedicated to this particular product:

(i) Marketing

(ii) Development

(iii) Tech support

(iv) Administration

(v) Other

(c) Ownership and management structure(i) How much of the company is owned by management?

(ii) Are there any significant outside investors?

(iii) Please provide a profile of the key management people.

(iv) What is the contact information, i.e., direct line, e-mail address, for yourkey management people?

3) Sales and Marketing

(a) What marketing materials are currently available? Are any of the followingavailable, and if so, their costs and quantity available:

(i) Demonstration or evaluation units

(ii) General Information Manual

(iii) Customer testimonials/case studies

(iv) Published product reviews and comparisons

(v) Industry studies, e.g., Gartner Group

(b) Sales cycle?

(i) Is the sales process a primarily technical sale or a financial sale?

(ii) Describe the primary marketing methods the company uses to generateinterest in its products.

(iii) How long does the sales cycle typically take from initial customer contactto P.O. issue?

(iv) What are the typical steps in the sales process?

(v) Is an evaluation critical to the sales process? If so, how long does this

typically take? How much resource from the company is required toensure a smooth evaluation? Can the evaluation take place at the


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customer site?

(vi) What people, by title, are typically involved in the decision-makingprocess?

(vii) Does the sale require extensive pre-sales tech support? If so, what isinvolved?

(viii) Does the product typically generate service revenues as part of thesale? If so, what is the ratio between service revenues and the salesvalue of the product itself?

4) Pricing

a) What is the average transaction amount?

b) Are there financing options?

c) What are the volume discounts, if any?

d) What percentage of sales are typically made at full retail price?

e) What is the average discount given to the customer, and for what reasons?

5) Customer profile

a) Can you list the five industry segments that make up most of your sales, andthe percentage of your sales that comes from each. For example:

i) Banking and insurance 23%

ii) Retail industry 18%

iii) Wholesalers 17%

iv) Health care 14%

v) Automotive 10%

b) Can you list the size of your five biggest customer groups, either by thenumber of seats they have purchased, or by the company revenues, ifavailable? For instance:

i) 500-999 seats 23%, or $5-10 million revenues

ii) 2,000-4,999 seats 18%, or $20-50 millioniii) 1,000-1,999 seats 17%, or $10-20 million

iv) 250-499 seats 14%, or $2-5 million

v) 5,000-10,000 seats 10%, or $50-100 million

c) Do you have a published customer list?

i) What customers have agreed to be contacted as references?

ii) Can these names be given out to potential customers?

6) Competitive analysis


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a) Competitors company information:

i) How many are there? Who are the primary competitors?

ii) How large are they?

iii) What is their relative market share?

iv) How many installs do they have?

b) Product information

i) What are the product name(s)?

ii) What are the differences, good and bad?

iii) What are the prices?

c) Why would someone buy the competition's product, and how do youcompensate for this?

d) Marketing Information

i) What distribution channels do they use?ii) Do they have any major references that you are aware of?

iii) What international markets are they in?

7) Why are sales lost?

8) What are the ten most frequently asked questions about the product, andthe answers?

a) Question 1

b) Question 2

c) Question 3

d) Question 4

e) Question 5

f) Question 6

g) Question 7

h) Question 8

i) Question 9

j) Question 10


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Competitive Matrix

Every product has competitors, sometimes with virtually the same functionality,

sometimes as part of a larger suite that has overlapping functionality.

It is important for the channel partner to know everything about your product and howit compares with other offerings, good and bad. The competitive matrix should be ascomplete as possible, and it has to be more than a checklist of features that you haveand others dont. Your partner needs to know which features to emphasize, and howto position your products against features that your competitors might have. If yourpartner finds himself in front of a prospect and gets blind-sided by questions orcomparisons that he is not prepared to respond to, he will lose faith in you and yourproduct.

If there are many known competitors, the matrix should be limited to those that havethe largest market share and/or have the highest profile. If the ISV or the partner canidentify the major competitors in the target market, every effort should be made tobenchmark those products.

Microsoft Resources

The partner site provides industry research, analyst reports and competitiveintelligence that can be used to position Microsoft-based solutions:

https://partner.microsoft.com/US/salesmarketing/competitiveintelligence
https://partner.microsoft.com/US/salesmarket

channel workbook

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