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November 16, 2004 – This is the summary of a recent interview
with Michael McCloskey, CEO of FrontRange Solutions (www.frontrange.com)
- the makers of Goldmine CRM software. The interview attempts to
understand the nuances of building a sales channel as well as understand
the changes in IT buyer behavior since 1999.
BRADLEY: What have you learned about the mindset of the
IT buyer today, compared to 1999?
McCloskey: Vendors got spoiled when the market was hot, and some
thought that a massive direct sales force and long implementation
times would be a viable business model. Now, customers are looking
for enterprise functionality, but with fast ROI, low license fees,
and low total cost of ownership (TCO). Buyers are considering smaller
projects, doing pilots, and protecting themselves. Often they are
buying for a branch of the company, and ruling out big enterprise-wide
systems.
I believe that we are seeing a permanent change in the market,
and our channel partners are seeing similar things. Customers are
very concerned about solving particular problems very quickly. Any
solution must be on point and affordable, as well as deployed by
partners with specific domain expertise.
So it’s back to the basics, and vendors have to prove their
solution, create customer relationships, and show ROI. Deal sizes
are smaller. We feel that this is more permanent behavior, and we
can expect buyers to abhor long deployment times and expensive projects
as we move forward.
BRADLEY: What’s the key trend to watch in 2005 in
the IT industry, especially as it affects your core markets of CRM
and service/support desk technology?
McCloskey: In CRM, there’s been a lot of support for the
ASP model, where customers can quickly implement a solution and
get up and running. That reinforces the idea that fast time-to-value
and low entry costs are important to buyers. But as we move towards
2005, there’s recognition that total cost of ownership can
be less attractive with the ASP model, because the monthly costs
add up. Additionally, the ASP model of one size fits all doesn’t
allow customization to suit specific business processes at different
customers. As a result, customers are asking us for the flexibility
to migrate between on-premise and hosted solutions, as their needs
change. The key trend as we see it is customers wanting AND getting
the best of both worlds..
BRADLEY: What key learnings can you pass on for building
a channel partner sales organization?
McCloskey: An effective partner program requires commitment, consistency,
and clear definitions. Partners want to know exactly what the bar
is for certain benefits, so there is no gray area for interpretation.
To build trust, vendor management needs to stay committed to the
program in the long term. These sound like simple things, but it’s
rare that a vendor has the discipline to stick with the program.
We’ve also been responding to requests for strong education
programs for the partners, and that’s been well received.
We even share our long term product roadmaps with partners so they
can offer feedback to our development team and beef up their capabilities
in new technologies. As a result, FrontRange has dramatically increased
the percentage of sales that flow through our channel partners this
year. We also recently developed a sales methodology and coaching
toolkit for our partners that is being very well received. The copies
I’ve seen in the field have tattered edges from so much use.
When I first took the position of CEO, one of the things I noticed
was that our direct sales staff was competing with our partners
on numerous deals. We were hurting the overall margin on those deals
and alienating partners. Sounds like a winning strategy, right?
We were effectively competing against our partners on individual
sales opportunities. This meant, in certain instances, we were using
our sales force against the channel. This hurt everyone.
The way we addressed this is to focus entirely on the channel.
We increased our North American channel business dramatically as
a result of improved demand creation and sales attention during
the last year. We no longer have an external direct sales force
that competes with our channel, and instead our sales team is entirely
focused on the success of our channel partners. They sell with partners,
and are measured on our channel success. This has proved to be a
winning strategy and is why FrontRange grew much faster than our
competitors during the past year.
BRADLEY: Any advice for other business owners building/contemplating
a channel partner sales organization?
McCloskey: Aside from my earlier points, it helps to understand
the competitive landscape in the channel, and learn why resellers
work with those products and vendors. It is important to understand
the difference between selling to a customer and selling with a
partner. It is quite easy to get your messages and strategies right
with your own people, and much more difficult with the partner community
as we do not control their resources. We both need to work very
closely together in our go to market strategies so that we can provide
an optimal value proposition to the customer.
BRADLEY: How did you fix these mistakes and what happened
when you did?
McCloskey: We devised programs that provided our channel partners
with a combination of training and marketing materials that facilitated
their individual go-to-market strategies. We now invite our partners
to our sales training and technical training events. This facilitates
not only a more integrated sales engagement for our customers, but
also provides each partner an opportunity to work with our sales
reps as well.
We have seen a 60% increase in business through our channel partners
between Q1 of FY 2004 and Q4 of FY 2004. We focus exclusively on
the channel and make them a strategic part of our company. We try
to include our partners in our thinking and philosophy, and this
has helped us to expand our revenues by over 25% last year.
ABOUT GROWINGCO
Ben Bradley (see the Darwin article) is the managing director of
GrowingCo, Inc. (www.growingco.com) – a research and intelligence
firm serving manufacturing, technology and security clients. Do
you have a question or topic you would like Ben to address in an
upcoming column or research project? Please send your comments to
ben@growingco.com.
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