Software vendors say partnering is difficult
According to Pricewaterhouse Coopers (PwC's) recently released report titled, 2009 Report on emerging Canadian software companies: The CEO perspective, almost half of the survey respondents (48 per cent) stated their most challenging business issues over the next two years will be on increasing revenues and developing effective sales channel partnerships.
There are a number of reasons why businesses may find it difficult to establish relationships with channel partners, says Peter Matutat, partner and national emerging company practice leader for PwC in Canada. The company conducted this survey between December 2008 and March 2009 to gain a better understanding of some of the challenges and issues that are being faced by today's emerging Canadian software companies and their respective CEOs in the marketplace, he added.
The survey results were based on the responses from 145 CEOs in Atlantic Canada, Ontario, Quebec and Western Canada. The respondents and their organizations also represent skills in different solution areas, such as, application development, enterprise applications, IT consulting, systems integration, and more. The staff size of each respondent's company averaged to be about 41 employees.
Matutat said many of the CEO survey respondents are also the founders of the company they work at and only about 25 per cent of them have had previous CEO-type of experience, which means, he continued, that the majority of the CEOs surveyed are still new to the managing, sales and marketing spaces.
For the most part, companies establish channel partnerships to increase their sales, geographic, customer and product reach, Matutat explains. Some of these companies, he adds, may also be looking to partner with OEMs in the hopes of having them eventually buy them out as a potential exit in the market.
"It's hard to manage a channel properly and it's a difficult thing to make work," he said. "Some CEOs may think they can just sign up an agreement with a reseller and then their job is done, but there's a lot of effort and investment that needs to take place, like training and incentives to make sure the channel's effective because they have to work to maintain this long-term relationship."
The survey found that 63 per cent of the CEOs surveyed have at least 90 per cent of their sales going through direct channels. Furthermore, although 70 per cent of the respondents say they're actively pursing channel partnerships today, only 51 per cent of them have actually had sales and success through them to date.
Michelle Warren, president of Toronto-based MW Research & Consulting, said developing effective channel partnerships is not only an issue that's been around in Canada for the last little while, but also the rest of North America too.
"It's more a factor of the size of the vendor," she said. "Large software vendors have programs and the manpower to effectively manage their channel partnerships. They're usually the ones that control the market and the relationships, making it difficult for the new companies that are breaking in. As they do that, these larger vendors are able to grow their business, and at the same time, they're squeezing the competition out. Smaller vendors usually don't have the people power or the marketing dollars to create effective channel programs and a channel, they're often the ones that lose out," she said.
To help combat this issue, Warren suggests these smaller companies look into hiring a consultant or full-time staff member who can serve as the business' channel expert.
"This is the most effective solution, but it's often the most expensive route to take," Warren said. "There are still a fair number of partners out there and the opportunities are there, it's just a matter of how you (partner) because once you do it, it's very valuable, but it's also a time consuming and expensive process."
Matutat adds that it's important for companies, especially the CEOs, to really understand the channel partner they'd like to do business with. This means knowing how the partner sells, what they're all about and what their customer base looks like.
"From here, companies can figure out how they can work together with partners and can look at the type of relationship they'd like to have and what incentives they're willing to provide," Matutat said. "This is what's going to motivate the sales force to sell that company's products."
Trust is another important key component that's required in any partner to partner relationship, adds both Warren and Paul Edwards, director of SMB and channel strategies at IDC Canada. The partner needs to be able to trust the vendor and vice versa in order for the relationship to work out.
Edwards says especially on the ISV-front, as these businesses start establishing more partner relationships, they may eventually realize they don't have the internal infrastructure or enough capital investments to support future recruitment, let alone a channel program.
"A big trend happening from the ISV perspective today is partner to partner networking and building networks of non-compete partners that can help sell solutions," Edwards said. "ISVs are looking to create more relationships with partners who are SIs and VARs."
Today's tough economic climate brings with it more of willingness for partners like SIs and VARs to look at alternative opportunities and solutions that may be offered by smaller ISV-type companies, Edwards added.
"In a down market, partners will look for other areas where they can increase their footprint with their current customers," he explained.
For those partners who may be looking to partner up with a smaller company, Warren advises that it's best if they take on a leadership role to educate the vendor on how partnerships work.
Matutat also says when getting into new partnerships with a vendor, the channel should be more forthcoming because it's really a two-way street.
"Partners can let the CEOs of the organization know what they expect out of the partnership," he said. "There should also be regular paths of communication in order to fully understand what's working and what's not."
In the foreseeable future, Edwards says there will continue to be a space in the IT market for channel partners.
"Channel partners like VARs, SIs and those that are adding value in the sales cycle will absolutely have a space in the market," Edwards says. "Things aren't getting any simpler because there are lots of complexities that are out there, especially for the SMBs that want to apply technology to their business. In the SMB space today, there's probably more partner opportunity now than there ever has been before."