Building a SaaS Channel A Step-by-Step Approach

Randy Hujar COO & General Sales Manager

Channel Sources For SaaS University - Boston

Special Thanks to Ted Finch of www.chanimal.com for his invaluable inputs and expertise on this topic.

OVERVIEW

• Channel – what is it?

• SaaS Differences, Concerns and Trends

• Phase One – Defining a Channel Program

• Phase Two – Recruiting a Channel

• Phase Three – Enablement

• Channel Management (ongoing motivation)

• Summary and Resources

Speaker Backgound • Randal “Randy” Hujar

– COO & General Sales Manager for Channel Sources. Channel Sources is a leading independent national sales and distribution company for 17+ years. Channel Sources represents branded and emerging lines of consumer electronics hardware & accessories, software, and DVD’s to our expansive network of retailers and wholesalers throughout the United States and Canada. We have launched hundreds of products into the channel from over 100 companies, including IBM, H&R Block, Avanquest, Kaspersky, and many others.

– VP of Research and Editor at Softletter. – CEO of Katerra Corporation, a SaaS Technology start-up. – Founder & CEO of Lyriq International; Merged with Enteractive, Inc and brought public. – Executive Sales and Marketing positions with: IBM, Hewlett-Packard and Lotus Development .

• Chanimal – Content Resource . Software Marketing at www.chanimal.com. – Celebrating it’s 10th year anniversary. 500+ pages of online content. Ranked #1 by Google

(channel marketing & sales). Short for “Channel Animal,” Ted Finch – 23 Year veteran.

Terminology Level set the group

Channel. How a company sells their product Direct. Company to End User Indirect. Company to middle man to customer Reseller. Anyone that resells product or service Affiliate. Refers—does not sell (but still a channel) Partner. Legal term – but means reseller VAR. Value Added Reseller (ads value with installs, integration, training, etc.) System Integrator. Development capabilities. Distributor. Wholesale distributor MDF. Market Development Funds Co-op. Co-operated funds Channel Conflict. Resellers and/or vendor compete for same sale

Reseller Programs Partner Programs All lot of ground to cover so slides are a bit dense but will help you remember when you transfer this information to team members who could not attend.

Phase One - Definition

Reseller Programs What they look for...

1. Is your product competitive? 2. Can I make any money working with you?

• Do you have competitive margins? • Is there a lot of competition in my area/region? • Will you train me and my team? • Do you have channel conflict (direct sales competes)

• Deal registration • Well prepared sales tools (PowerPoint, market info, demo scripts, sales dialogues, content portal, etc.)

Defining Your Partner Program • Structure

– Levels, margins, requirements

• Sales Tools – Portal site (bucket of content)

• Market info, competitive analysis, spec sheets, e-mail templates, white papers, videos, case studies, sales presentations, brand guidelines, reseller forum

• Technical & Sales Support & Training • Lead Generation & Sales Help • Requirements • Reseller Experience

Check out www.chanimal.com for free spreadsheet templates

Defining Your Partner Program • Structure

– Levels • Authorized. No quota, no commitment. Low margin. • Gold. Quota, plus 1st level certification. Medium margin. • Platinum. Higher quota, plus 2nd level certification. Highest margin.

– Why? • “Shared” sales force. You want them to prefer to sell your product • Help create dealer loyalty. To maintain their level, must meet quota.

If sell competitor—risk missing quota = increase loyalty • Help you decide who gets any leads (highest level gets most leads)

– Concerns…

Defining Your Partner Program Structure – Partner Concerns with levels

• Partners fear they can’t compete if they have to come in at the lowest level

• So, grandfather all new partners into the middle Gold level for the first 90 days. Longer for a new program.

• Require they meet minimum training goals, some minimum revenue

• For a new channel program • Usually takes about 6 months (depending on sales cycle) to determine

what the typical revenues for your best partners is—before you can setup a quota range (or it is not fair)

• After you set the level requirements—then give 3 months to transition before moving down, staying or moving up

Defining Your Partner Program Portal site (bucket of content)

Generic to start with, later it is personalized (unique content per partner with their leads, their plan of action, their deals, etc.). PRM application.

Chanimal has excellent example on their website

• Sales & Marketing Tools – (Within Online Portal) – Market information

• Which market segment uses your product

– Competitive Analysis • Why should someone buy YOUR

application

– Product Spec Sheets – Ad Templates (if you have any) – E-mail Templates

• Proven e-mail samples to help them promote your product

– White Papers – Case Studies and/or Testimonials

– Sales Presentations (PowerPoint) – Brand and Logo Guidelines – Graphics Library – Reseller Forum

• Helps resellers collaborate on deals • Also see “Saga Consulting”

• These are most of the

“deliverables” to put together

Defining Your Partner Program

Defining Your Partner Program • Program Decisions & Policies

– Product Training • New programs have low barrier to entry—free training • Mature programs have barriers—paid training & pricey

certification (i.e., Microsoft, Salesforce.com) • Typically free video training

– See www.interspire.com (comprehensive) – See www.planswift.com (over 80 free videos by topic)

– Dedicated Sales Rep • Small companies – a given (only 1 – 2) • Large companies—a perk to have a dedicated person to help

you

Defining Your Partner Program • Program Decisions & Policies

– Reseller Tech Support • Small company – not a big deal (not a lot of support needs) • Large company – resellers need a hotline where they don’t have

to wait in que (especially if they are on site) – Pre-Sales Support – System Configurator

• Needed when an application is complex and only supports select hardware (i.e., GE Security)

Defining Your Partner Program • Program Decisions & Policies

– Annual Partner Meeting • Start with a Webinar. 2-4 hours. This will work for starters. • Can grow to a multi-million annual event within a large

company • The equivalent of an on-site national sales meeting

– New product introduction – New policies, pricing, competition, alliance add-on products,

etc. – Pre/Post Sale Engineer (not typical)

Defining Your Partner Program • Certification Program

– Designed to help partners • Get up to speed on the product • Helps them make money from pro services • Provide better 1st and 2nd line of support • Better integrate with the application • Can be less rigorous with SaaS since the network is pre-

configured. Still some major integration, import, setup, etc. • Creates dealer loyalty (more invested)

– Tied to the reseller levels (Gold, Platinum) – Program material decided after 1st 3-6 months

• Find areas of greatest partner questions, build it in

Defining Your Partner Program • Pre-Qualified Leads

– Always include it in your program (one of top things they are looking for). Even if you only send 1 lead/yr!

– If you don’t have leads—then fix it (promotions, website, referral process). Plus—SaaS sells a lot direct

– Internal sales doesn’t call out of a phone book, why should external 100% commissioned sales people (paid for by someone else) use one?

– Need a lead policy • Ensure leads are followed-up on in a timely manner • See www.chanimal.com/vars/portal for sample lead policy

Defining Your Partner Program • Deal Registration

– A reseller registers their deals with you (company, contact, deal size, etc.)

– Their concerns (you will steal the deal) – Their benefits

• Get exclusive pricing (better margin) advantage over competitors

• Assistance from your sales to help close the deal • Preferred pre-sales support to help win the business • Promise that you will not call on the registered opportunities

direct, and will credit them if their accounts order direct

Defining Your Partner Program • Deal Registration…continued

– Your Benefits • You will know what is coming down the pipeline for sales

forecasting • You can elect to work with them to win the largest bids • You don’t have as much channel conflict (when two sales

people (resellers or vendor) compete for same business) • Increases margins for all – since you “selectively” reduce the

chance of competition from your own partners – Policy details

• See chanimal.com/vars/portal for sample

Defining Your Partner Program • Front end discounts

– Often part of deal registration • Back end discounts

– Rebates, promotions • Bid desk

– Important if you have enterprise applications that integrate with other systems

– The bids may get too complex for dealers initially, but they will learn

– Not important for non-complex applications

Defining Your Partner Program • Reseller Locator

– Some contacts want to ensure local support and will look for local resellers to order from

– Having them e-mail or call eliminates benefit of 24/7 self-serve – Start with a graphical map of partners – Move toward a zip-code look up as you get more partners – Partners like to see their name on your website – Guard with a “re-direct” script if worried about competitor’s

recruiting your partners (I would)

Defining Your Partner Program • NFR (Evals n/a – applies to hardware)

– Discounted “Not for Resale” copies--”access with SaaS – Resellers are NOT your end users – Know what they use, sell what they know, so get them to use your

software – Should be treated just like your existing sales people

• Do you charge your existing sales people to use and get to know your software?

– Can be free and used as BAIT to recruit resellers—especially if they can benefit from your software

– Always have a value attached (then promote FREE for recruiting) • What we obtain too cheaply, we esteem too lightly

– Additional copies/access often discounted (COG)

Defining Your Partner Program • Free Trial / Free Limited Functionality

– Structure of Evaluation very dependent on your product – Free with Limited Functionality effective if users can get hooked on

the product but most will not be satisfied with limited function product.

– Trick: Capturing and monitoring lead without making your Partner nervous you will steal the sale.

– Important to have built in metrics and usage capture. • What is the lead using trial to do; how often and how long.

Defining Your Partner Program • Joint Reseller Promotions

– MDF (Market Development Funds) • Must have a policy (see chanimal.com/vars/portal) • Used for regional promotions usually proposed by partners

– Trade show in their region – Joint mailing – Other items they may propose

• You can pick and choose which you will participate in – Co-Op (co-operative funds)

• Usually accrued as a percentage of sales • Not preferred, since often have less control of usage

Defining Your Partner Program • Requirements

– Register • Ensure you get enough information to “profile” them later • Size, vertical markets, # sales people, certifications, etc. • One of my companies is paying over $38k just to “re-profile” all

their partners since they captured little on the application – Will use this information to map the characteristics of the most

successful to recruit more just like them – Helps to know their vertical coverage

– Qualify as a VAR (only if you want a barrier) – Purchase from an authorized Distributor

• Trick question. Designed to stop end-users and competitors from trying to find out more. Has phone # to bypass

Defining Your Partner Program • Requirements

– Required Business Plan • Actually, it is a plan of action. One promotion per month for 1st

3 months to ensure proactive activity – Reseller Agreement

• Chanimal.com has a lot of samples • Covers independent status, right to use logo, termination clause

– Sales Quotas • For gold or platinum levels • Determine within 3-6 months • Need to first know what is “possible” for resellers or may set it

too low or too high • Setup a ramp up period to achieve

Defining Your Partner Program

• Reseller Experience – How easy are you to do business

with? – Pre-Sign up phone number

• Salesforce.com – a PAIN • Linksys – record 7 calls

– Grid of program details – Ease of registration – Timely response for approval – Automated e-mail response – Perceived lead-gen capability

Defining Your Partner Program • SaaS Specific Issues

– Channel used • Recommender program (41% down from 45.4% ‘09) • Affiliate program (similar - terminology) (21% down from 29.8% ‘09) • Aggregator (similar to a distributor) – (14% down from 34% ‘09) • OEM – may or may not be private labeled (25% down from 29% ‘09) • Uses a wholesale distributor (Ingram, Tech Data, etc.) (12% up from 9.7% ‘09) • Have resellers (32% have, 19% expect to – 51% - no change ‘09)

– 62% require VAR’s to undergo a training and certification program – 56% of VAR’s offer implementation, integration, and consulting

• 45% of SaaS companies surveyed got 15+ % revenues via channel *Percentages are from 2010 Softletter SaaS Report

Defining Your Partner Program • SaaS Specific Issues

– Reseller margins (% paid) • 52% pay 1-15% margin • 30% pay 16-30% margin • 17% pay more than 40% margin • The margin for desktop/enterprise is typically 20-50%

– Note: Even though they get a higher % discount off MSRP, they often discount their bids

*Percentages from Softletter 2010 SaaS Report

Defining Your Partner Program • SaaS Specific Issues

– Even with lower “guaranteed” margins… • VAR, Integrators and Consultants still expect to make a majority of

their revenues via professional services (better be some) – Training, configuration, integration with backend systems

• Don’t assume they aren’t as technical as your team (mistake) – Often MUCH more technical and can integrate better & on-site

– Concerns of resellers with SaaS • Who “owns” the account?

– SaaS vendor owns account activity (need to make it transparent to partner)

– VAR should still make revenue off training, integration, support – Need to have some feeling of ownership, or won’t support their sale

• How do they get paid?

Defining Your Partner Program • SaaS Specific Issues

– How are resellers paid? • Issue – same internal and external (should be alignment) • Question:

– If a sales person needs an extra $1,000 to make a house payment and he has the option to sell a $10,000 desktop application ($1,000 commission) versus a $12,000 SaaS application ($100 per month)

– Which is he going to push?

Defining Your Partner Program • SaaS Specific Issues

– How are resellers paid? • That’s a fundamental problem with selling SaaS—it is like the car

insurance industry and takes awhile to build residual income • So… the transition to adding SaaS products to the resellers line card

usually occurs alongside traditional sales (or sales “may” starve) • The sales person (where the rubber meets…) can’t cash flow the

company – via the SaaS product • So… the SaaS product often get’s undersold • However, an advantage of SaaS is that the sales and implementation

cycle (with associated pro services) should be shorter (because of the lower initial payment), so it is a HEDGE product and brings in quicker and more stable income—so it should be part of their mix (period—makes good business sense)

Defining Your Partner Program • SaaS Specific Issues

– How are resellers paid? • An advantage of SaaS

– The sales and implementation cycle (with associated pro services) should be shorter (because of the lower initial payment price, plus much of it is pre-configured remotely)

• Reseller’s may not know the advantages– it has not been their model

• Part of your challenge and messaging is to educate them • Most of my SaaS companies contribute to the overall SaaS

market development – have presentation slides that show the advantage of SaaS along with product specific slides

Defining Your Partner Program • SaaS Specific Issues

– How are resellers paid? • Since selling SaaS via the channel is a similar problem to selling

SaaS internally, let’s look at the approaches • Rule: Align your commission with your sales objectives • Current “inside sales” practices (Softletter 2010 SaaS report):

Payout Schedule 1-5 Million 6-10 million 11-100 million

100% Up Front 17% 50% 34%

Partial Up-front; Bal. Pro-Rated 0% 0% 33%

100% Pro-Rated 67% 50% 33%

Do not equal 100%; balance did not answer question.

SalesForce.com • Largest SaaS company (over $1 billion). Ted Finch of Channimal

interviewed Steve Lucas, SVP of Force.com & Alliances • Two programs

– Referral – Consultant

• How many? – 6,200 global (3,500 US) referral partner companies – 550 consulting partner companies (these are typically VARs and System

Integrators). Do integration services and training – Thousands of independent consultants

SalesForce.com • Comparisons

– Salesforce.com has 6,200 referral, 550 VARs/SI’s (1 billion company) – Intuit has 36,000 referral partners ($100 million revenue (out of $1

billion company) – Microsoft claims over 20,000 resellers

• Referral is their Affiliate program (tried to differentiate—not much difference)

• How much do they pay? – Consultants – most are also referrers

SalesForce.com • How much do they pay?

– Pay referrals 10% – Justified it as, “Guaranteed” margin. Any discounting would come from

the company’s portion (but would only make 10% of sales price) • How do they pay?

– Based on whatever revenue comes in over the FIRST year only. Said they were always looking to change that.

• Complex: Month to month, year to year, multiple year (challenge) – Didn’t ask payment method (check, direct deposit, PayPal, etc.)

SalesForce.com • How do they pay? (cont…)

– Didn’t ask about who closes for second year – Referrers have to REGISTER a referred deal within their partner

portal to get credit – Didn’t ask if they also track links via cookies, etc.

• When do they pay? – 45 days after the end of the QUARTER

• Could be as long as 4 ½ months later for deals referred at the beginning of a quarter

– Pay on whatever is paid to them within that time frame

SalesForce.com • How much do they pay inside sales?

– Wouldn’t say • How often do they pay inside sales?

– Wouldn’t say exactly, but said that it is aligned very closely to how, when and over the same time frame as the channel

• They “double pay” (but don’t consider the lead sold) – Pay the affiliate (referrer) for the LEAD. Some come hot, some come

colder—only pay for closed deals. Dependant on Salesforce to close (even if you could do a better job)

– Pay inside sales per SALE (closing the lead)

SalesForce.com Assessment • We see a LOT of mistakes

– Larger companies can make these mistakes (i.e., Microsoft packaging, ads, etc.)—but you can’t afford to

– They already have momentum and brand preference—you may not – Leaving themselves open to a more competitive partner program – Standard “affiliate” fee is 10-15% so that is not too far off (for an

affiliate) – Don’t reward partners that could close the deal themselves (and make

the inside sales commission—wouldn’t cost them more). Paying for just a referral—neglecting some good closers (some that have great existing relationships in corporate accounts)

SalesForce.com Assessment • Mistakes continued…

– Paying up to 4 ½ months later—that is SIMPLE, but it is also not the way to motivate the channel (sales)

• Doggy does trick, doggy gets bone (4 ½ months later?). You’re kidding!!

– Most affiliate programs pay every 30 days on whatever has come through by that time

– The closer the pay is to the results—the more motivated the sales rep is to produce more sales

• One of my companies said, “My sales reps are not motivated by the commission.” They paid almost exactly the same way (4 weeks after the quarter (not 6). We switched it to payment 2 weeks after the check arrived—and they were HIGHLY motivated!!

SalesForce.com Assessment • Mistakes continued…

– They only pay over the FIRST year • Simple, easy to understand, but… • Does not encourage ANY localized “service” the first year (i.e.,

don’t call me with how slow your system is—call them (I don’t get paid for anything past the first year so I can’t support you)

• Does not encourage multi-year deals (pay for behavior) • Does not follow the insurance industry residual sale model to

encourage partners to stay with you for years (so they don’t loose future revenues)

• Unless more is paid up front (not in their model), then partners have deferred pay by “selling” SaaS—with the hopes of making more over the long haul. Partners are not aligned with the companies model—interesting to see the results

SalesForce.com Assessment

• Overall – Said they looked at a lot of other partner programs but wanted to be

innovative and simple – Innovation for its own sake is not always the best model – I’ve seen “simple” sales comp plans, and the sales team (channel) has to

understand it—but some simple options can make it MUCH, MUCH more motivating--which equals more sales

Phase Two: Recruiting • Process

– Profile reseller type • By vertical market, geographical region (US and International), by

technical capability, plus more (takes about15 to compile) – Obtain list (strategy)

• Competition is my 1st Source – Competitive counterstrike. Pulled over 800 off one competitor’s website (recruited over 150 of them in 6 weeks)

• Alliances. Similar customers, non-competing vendor. Know exactly which of there are best and can help you recruit them. Formal alliance will give you list—otherwise hit their website

• Specialized list. CMP, SoftDatabase, The VAR City.

Phase Two: Recruiting • Process

– Obtain list (cont…) • List brokers by SIC code (but want e-mails to start)

– Create prospecting and management database • Salesforce.com (seem to have mixed reviews), Goldmine, Act!, Interspire

– Start contacting to recruit • 3 part initial e-mail campaign (Samples at Chanimal.com) • Incentive is often an NFR copy/access (if your software can help them) • Phone calls • National road shows (with alliances (recruited 800 in 6 weeks) • CRN reviews, Ads, direct postcards, etc. • Hire rep firms

– Ted at Chanimal has recruited 792 resellers in 8 weeks

Phase Three: Enablement • On-boarding

• Approval E-Mail (then call quickly – treat them like an employee) • Portal Orientation • Product Overview (sales presentation (model call), not product training • Explain promotions (tied to Plan of Action); then follow-up.

• Training • Materials (sales scripts, presentations, templates) • Product • Support • Sales • Marketing – promotions

• Systems – Need leads, approaches, prospecting tools

• Motivating

Phase Three: Enablement • Training

– Same as you would do with inside sales and inside support – Product. Detailed product training (videos, internet, webinar). Start of

certification. – Support. Known problems and issues and resolution. Part of

certification. – Sales. Sales scripts, sample presentations, public webinars, sales training

(prospecting, presentation skills, overcoming objections, closing) – Marketing. Regional promotions that work, SEO with your product,

joint promotions.

Phase Three: Enablement

• Motivating – Contest (weekly, monthly, quarterly, annual) – Recognition (monthly newsletter)

• Do ALL the same things with your channel as you do with your own sales team—and you get similar results. Seems obvious—but companies get lazy, don’t assign resources, and are negligent… yet somehow think it is fine to just hang them out to dry once they bring them on board.

• Then they tell me that the channel doesn’t work for them—when they don’t work to help their channel.

• “This” is Channel Management – not channel neglect.

Reseller Channel: Summary

• A 100% commission, indirect sales force – They take all the risk – They cover their own expenses – Often provide their own leads – Can sell multiple competitor’s products – Must build loyalty to increase “reseller recommendation”

• So… should you treat them worse or better than an inside sales employee?

Reseller Channel: Summary • Don’t complicate it – channel management “is” sales management • The same rules apply for managing a channel as for managing a sales force.

For example: – Would you hire a new sales person and then…

• Not train them on your product • Not provide any presentation material, sales scripts, demo script,

phone dialogs, or have no model calls, no coaching calls • Not provide leads, no systems • Have no contest, provide no motivation • Have no contact (for weeks/months at a time)

– No. So how come you treat your “outside” sales force with so much neglect?

Reseller Channel: Summary

• We hear it time and time again, a vendor signs up hundreds of resellers and then says, “My channel isn’t selling anything.”

• Yet your internal sales team is selling. Why? • You are not doing anything with your outside channel sales team. They are

100% commission and take all the risk, so you neglect them. • If you paid them all salary and commission—you would not neglect them

at all. • Do the same thing as you do with your internal sales team, and

you will get similar success. Sounds obvious, but…

Building a SaaS Channel

Building a SaaS Channel A Step-by-Step Approach

Randy Hujar COO & General Sales Manager

Channel Sources

Special Thanks to Ted Finch of www.chanimal.com for his invaluable inputs and expertise on this topic.

Thank You…