Monday, April 21, 2008

UK Software Distribution: Centered in Devon

Devon is located 4 hours by car from London to the Southwest. It’s something of a “vacation land” boasting a beautiful coast line and a national park (the Dartmoor) inland with higher evaluations and weather extremes.

Devon is a place where the devil visits the taverns and ghosts frequent abandoned mansions. (Could J.K. Rawling, who was educated at the nearby university in Exeter, have been inspired by these surroundings?) Our distributor for the UK, Sigma Software Distribution, is based in Devon and has a diverse cast. One speaks to the llamas in the hills (I don’t mean religious monks, but the glorified hairy beasts with long necks ). Another sports a long red coat and goes fox hunting during lunch (talley ho!). Another is a woman with 9 children who doesn’t live in a shoe, but after work marketing software by day operates an inn owned by her family (now that’s true manpower!). Another staff member greats you with a wide smile flashing large white teeth – he’s not a vampire, but a 5th degree black belt in martial arts. If ever there was a little town where the children are above average and the women are strong (the female managing director of Sigma Software distribution is a former army officer), is Devon not the "Lake Wobegone" of England?

Back to business with this cast of characters – Sigma Software Distribution represent a few good software brands including TechSmith, MindJet and now SmartDraw. All three softwares could be classified as “business productivity.” Sigma have worked magic with MindJet and TechSmith, driving sales at heavenly growth rates that can’t be matched by world-wide distributors such as Ingram Micro. One of their techniques for doing this is with the “funded head” a concept I had first run into 15 years ago with the now defunct distributor Tech Pacific in Singapore. The disty's pitch goes something like this.
a) We want exclusive distribution rights to your products
b) We want really good margins
c) We want you to pay for the advertising
d) We want you to pay us for allowing you to talk to our sales reps (well, the distributor doesn’t say that, but the resellers certainly say that!)
e) And now, we want you to pay our staff expense. (You pay us, and we’ll hire someone to sell your products.)
I always found this proposition troubling – because we were providing our distributors with more than enough margin to sell our product, promote it and to pay their staff. Look, if you’re going to ask me to pay so you can go and hire staff, I might as well hire the staff myself! Therein lies the challenge – hiring an employee in a European labor market where there is no "employment at will".

I allow the Sigma Sales Director (the self-described "thug" among this cast of characters with his fashionable bowling ball haircut) to make his pitch for the funded head, and he starts by talking about a 5 to 1 return on our investment. Now he’s got my attention, because the numbers make sense. What’s more, we can start with ½ a person, with an initial commitment of 6 months, paid quarterly, with a portion of the payment “earned” from achieving sales targets. So in our case, given our anticipated growth in UK reseller sales, the funded head makes sense, especially if we found a good person in Devon, at Devon wage rates. I wonder if this person will also talk to llamas, chase ghosts and go fox hunting?

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