Channel Tuneup: Are Dealers Distributing?

Are some of your dealers reselling your offering to other dealers? If so, is this helping or hurting? If there are dealers selling to other dealers, you may be sending mixed signals to channel partners and leaving profit on the table.

I make a clear distinction between resellers and dealers (who sell to end users) and distributors (who sell to resellers and dealers). When dealers resell your offering to other dealers you are giving up margin and may be damaging the channel you're working so hard to nurture.

Resellers selling to other dealers
can reduce your profit and damage
your channel program.

Sure, there may be special cases where it makes sense to have a reseller sell to other resellers; for example,  when you're just starting out and glad to have anyone sell your offering. Or, you've granted a reseller an exclusive territory and the reseller appoints sub-dealers to expand its sales reach. In the case of a newly emerging company you might save the expenses of hiring a channel manager and the administration costs of processing orders for a network of dealers. But there comes a time as revenue increases when it's foolish (and costly) to have a reseller distributing your products. Why not have a clear, clean reseller strategy from the beginning?

I recall the case of an entrepreneurial manufacturer that relied on the Internet and one dealer to sell its products as it started. The dealer received permission to sell to friends with dealerships in other states. Sales grew, but the manufacturer had no idea who was selling its products. (The default criteria for becoming a dealer was being "friends" of the first dealer, instead of a specific profile with key dealer success attributes.) By restructuring the go-to-market channel from a single reseller functioning as a distributor to a network of authorized resellers working directly with the manufacturer, within one year the company was able to:

* Increase revenue 10 X
* Raise it's average selling price to the channel by 25%
* Diversify its channel risk from relying on one company to a network of 40+ resellers

By working directly with a network of resellers, the company also benefited from developing sales and promotional plans with each reseller. The result was acceleration of sales and gross profit.

Resellers functioning as a distributor raise a number of other issues:

* Does the reseller have the bandwidth and knowledge to effectively support a network of resellers?
* Is there a conflict of interest between the "master" reseller's goals and the manufacturer's?
* How do other resellers feel about purchasing from a "master" reseller who at the end of the day could be a competitor?
* Dealers selling to unauthorized dealers can cause painful channel conflicts with authorized dealers.

It is not unusual to find resellers and distributors who want to have their cake and eat it too. For example, to avoid the conflict of interest of having resellers distribute products, I have seen resellers in Asia, Europe and the U.S. establish separate corporate entities that function as a "distributor" and vice versa.  The goal of such dual personality channel entities is to expand their business by increasing sales through a network of dealers, while at the same time enjoy higher reseller margins for their direct sales.  Channel managers are advised to evaluate such organizations on their merits. My advice is to keep the channel clean: dealers should sell to end users. Distributors should sell to dealers. They are Apples and Oranges. When dealers attempt to distribute (and when distributors sell to end users), results from mixing these apples and oranges may not be savory. In your reseller contracts, consider a clause preventing resellers from selling to other dealers, without express written consent.

Channel Tuneup: What's Your Process For Effectively Recruiting New Partners?

Do you have an organized process for recruiting new channel partners? Have you defined the specific attributes a partner must have to be successful with your offering? Can you clearly state a compelling value proposition to prospective partners that moves them to sign up with you? What processes do you have for training new partners and creating joint business plans to effectively sell and market your offering? Do you periodically review plans with your partners? What do you do when objectives are not met? What rewards do you provide partners for achieving goals?

If you don't have a process for recruiting, launching and managing partnerships once an agreement is signed this might be a good time for a Channel Tuneup. The flow chart shows a sample process for recruiting and managing a partner. How about your own experience working with channel partners? What works for you when signing up new partners? What processes do you use for effectively recruiting and managing partners?

Channel Tuneup: How Do You Handle Requests for Exclusivity?

When receiving inquires from overseas distributors, the question of exclusivity is inevitable. With some markets in North America, it is a common request as well, especially in the K-12 education market where customers (schools) and territories (school districts or states) are clearly defined.

From an international value added distributors' perspective, they prefer investing in developing a territory for a vendor when they will be offered protection in the form of exclusivity. They don't see it in their interest to invest in developing a brand and then, once sales pick up, for the vendor to appoint another distributor.

Expect distribution partners in Asia to
 ask for exclusive distribution rights.
 What's your policy for handling exclusivity?

For the vendor entering a new territory, it may make sense initially to limit distribution of an offering to one partner, to ensure that the partner invests the necessary resources to sell the offering effectively. However, there often reaches a point where a single partner is not able to cover a whole market and additional channels should be added (albeit carefully) to maximize revenue and profits. Multiple channels, when managed  correctly, are like a rising tide that raise sales for all the channel partners.

This is not quite the Catch 22 it might appear to be. I've found over the years working with a number of emerging companies that a straightforward, honest approach is in the interest of both vendor and distribution partner.

As a general rule, I avoid exclusive contracts and any contract language that contains the words exclusive or sole, unless the word is "non-exclusive." This is clear and straight forward.  On the other hand, depending on the offering, for companies entering a new market having one partner per country may make sense in the beginning, depending on the offering and the market. (In fragmented or large markets -- China, for example -- it may be impossible for one partner to come close to providing reasonable market coverage and from the git-go multiple partners are required. Do your homework and figure out the best approach for your company.) Or, if you're offering a telecommunications product and your channels are the telcos of each country, you would naturally approach each telco as a partner.

If your approach is to appoint a single distributor, I always insist on a sales plan to cover the entire country, a marketing plan with clearly stated objectives, a sales forecast and placing an initial, significant, stocking order worthy of the size of the territory. I make it clear from the beginning that if the distributor wishes to remain the only distributor it must achieve the stated objectives. A key element in this sales process is the prepaid opening stocking order, because that demonstrates real commitment from the distributor. If your offering is really as good as you believe it to be and your would be "exclusive" distributor is unwilling to commit to two months (or more) of inventory with an initial prepaid order (or back the purchase order with an irrevocable, confirmed letter of credit), this is a warning sign.  Is your distributor under capitalized? Is the distributor really going to push your product? Does the distributor really have the capability to sell your offering effectively? Or, is your would-be partner simply negotiating for exclusive rights as a tactic to lock you out of the market by not selling your product? (Yes, this is attempted all the time.)

The stocking order consummates the marriage, but, as with a joyous wedding night, this is just the beginning. Maintaining that special relationship requires achieving objectives of the plan. This demands effort from both sides: the vendor must support the distributor with training and its know-how. If plans and objectives are not met, both sides need to evaluate the situation to see what adjustments can be made to get progress back on track. And if, within a reasonable period of time the situation is not rectified another distributor needs to be appointed.  This should not be a surprise to the distribution partner if conditions were stated clearly in the beginning.

Beware of distributors requesting exclusive distribution rights across several countries, for example, the Singapore-based distributor requesting exclusivity in Singapore, Malaysia and Indonesia, or the Swedish distributor demanding exclusivity in Scandinavia. Do your due diligence and make sure the distributor is capable of effectively selling your offering in each country.

Many times, when stocking orders and significant commitments have not been made, the distribution relationship just doesn't get off the ground. Although the odds of failure are lessened with the mutual commitment of the stocking order, success is not guaranteed and the relationship must be nurtured and closely managed.

If your policy is to appoint multiple distributors from the beginning, state that clearly, and consider offering marketing and/or product launch funds to the partner. At the end of the day, if it's going to be very profitable for a distributor to sell your product, even on a non-exclusive basis, how can they say no to an offer they can't refuse?

Channel Tuneup: How Does Your Margin Motivate Channel Partners?

Does the margin of your product or service motivate your channel partners to sell more or less of your offering?

Balancing a vendor's desire to maximize profitability by not offering excessive margins to channel partners is countered by the desire to see those same partners increase the company's sales and profitability. Finding the right balance is an art, but not rocket science.

Vendors prepare for BETT 2012, world's
 largest education technology exposition
held in London.  If your company markets
 to schools, BETT is a must attend
trade show.

On a trip to the UK in January  I met with several distributors and VARs attending BETT, the world's largest education technology exposition. One of them was Sigma Software Distribution, a value added distributor (VAD) of software.  By VAD, I mean more than just a "box mover," a distribution partner that develops markets for their suppliers' offerings. As such, VAD's, because of their higher operating costs promoting products and creating markets, require a higher margin than mainstream distributors such as Ingram Micro, Tech Data and Computer 2000. Sigma recounted the story of one vendor that offers 5% margin on its line of software products. Sigma, which likes the software in question because it offers real benefits to endusers, reluctantly decided to represent that product line as a "loss leader" to service its reseller accounts, "but could you imagine how much we could sell if they provided us a better margin and we pushed it?" they ask. They don't push it (which requires investment). They only fulfill orders when asked.

On the one hand, a software publisher can marginally increase its revenue and profitability in the short term raising a distributor price and lowering distributor margins to 5%.  On the other hand, how much is the publisher foregoing by not providing its international value added distributors with margins that would motivate them to proactively push its software?

Finding the right margin may be an art, but not an impossible task. From my observation of this case, given the genuine interest of the UK distributor, the software publisher could significantly increase its revenue by giving its reseller strategy a tuneup and to provide margins that motivate channel partners to proactively sell.

Tech America Forum on Winning New International Markets To Be Held Sept 15 in San Diego

TechAmerica, an organization representing over 1,000 technology companies, is sponsoring a panel discussion Sept. 15th in San Diego, CA to share information important to successfully expanding overseas business. Entitled "Winning New International Markets," topics to be addressed include:


•    How to tap into government resources to penetrate new markets overseas 
•    Strategies for protecting overseas territories against local competition
•    How a global perspective can help you win in domestic markets
•    Protecting intellectual property in foreign markets


The forum is being moderated by Tom Hansen of Hansen Marketing, and panelists include Carrie Brooks (U.S. Dept of Commerce), Turul Sengul (Principal, Nestatek LLC) Jorge Ramirez (Director of International Sales, HM Electronics Communication Systems Division and Craig Justice (founder of Alliance International and Director of Worldwide Sales for The HoverCam.) For additional information and registration, please contact Tech America.

Game Changer in Document Camera Industry: HoverCam X300

The HoverCam is a game changing document camera. What's a document camera, you ask? Do you remember the OJ Simpson trial when Judge Ito said, "Put it on the Elmo." It's a camera mounted on an arm used in courtrooms, classrooms, video conference rooms and meeting rooms to show large-screen, live images of documents and 3-D objects when connected to a projector. In many classrooms around the world these have replaced overhead projectors. Ten years ago, the products cost $2,000 and up and had trouble displaying text clearly when showing a full-sized document. But in recent years, the image quality has improved and prices have dropped to the $500 range for some models. Schools have been buying them by the thousands.

Fast forward to 2010. With the advancement of CMOS technology and a decrease in camera component costs, an innovative company based in San Diego, CA has brought to market a high-resolution document camera that sells for $199, which has Elmo and other document camera manufacturers (and their dealers) shaking their heads in disbelief. (Full disclosure: I found the HoverCam product so attractive and the company's CEO Ji Shen so intriguing that I'm consulting the company to assist it reach the next level.

About the HoverCam: it's a high resolution (true, 3-mega pixel) document camera and scanner with no competition in the $199 price range. The company's aim is one in every classroom. From what I observed at the ISTE education technology conference in Denver at the end of June, teachers were crowding around the booth and buying units from the show floor. "We're now seeing large follow-on orders from schools," said Mr. Shen. For all the schools and districts that haven’t been able to purchase document cameras in the past the HoverCam presents an opportunity.

The technology involves a 3-mega pixel CMOS, USB camera. The camera is HD 720p compatible, so the images are surprisingly clear. (An example taken with the camera is an image of the New York Times at left.) Power is supplied by the USB cable (i.e., no separate power cord required which is convenient). The HoverCam must be connected to a computer to be used. It’s Mac & PC compatible. Each unit is also a scanner. A key to the HoverCam's appeal is proprietary software which allows the user to easily zoom, switch resolutions, switch between “presentation” mode and “scanning” mode and allow one touch recording of voice & video.

In addition to the $199 X300 product, Pathway Innovations & Technologies, Inc. (maker of the HoverCam) has also designed two higher price, higher value-added products. One is the Kudos 3 ($259) , which incorporates 2 cameras and allows picture-in-picture viewing and “head shots.” Kudos is ideal for use as a webcam with Skype, distance learning applications and recording videos with a talking head inserted inside the document image. The other product is the X500 ($279), which is a 5-megapixel scanning camera. According to Mr. Shen, this unit has fantastic image quality and is great for scanning (because of the very high resolution). He said some schools are also buying it as a “document camera” – although in the case of the 5-megapixel camera, the refresh rate is relatively slow at less than 10 frames/sec (whereas the X300 with the 3-megapixel camera has a “fast” refresh rate so live images are smooth).

Mr. Shen says he dreams of designing a "consumer version" of a document camera for the masses that he calls an "office camera" or "OfficeCam." Although he won't disclose any details publicly at this time, except to say that his company will make an announcement at the 2011 CES Consumer Electronics Show and that the OfficeCam device will incorporate the multiple funtions of scanning, presenting, video conferencing and more into one unit.

In summary, the HoverCam X300 key specifications are: high-resolution document camera, USB 2.0 with UVC, portable, 2lbs., UXGA resolution, active pixels 1,600 H X 1,200 V, 720p High Definition video and audio recording, built-in microphone, image capture, built-in lighting, 0-360 degree image rotation, 2X digital zoom, image scanning, contrast control, brightness control, adjustable resolution from 640 X 480 to 2,000 X 1,600, Mac & PC compatible, 25 frames/sec refresh rate in VGA mode and 12 frames/sec in 720p high definition video mode.

Voice of Civil Discourse for 35 Years: City Club of San Diego

The City Club of San Diego celebrated 35 years of fostering a "Dialogue of Democracy" yesterday evening with a tribute to its founder George Mitrovich and a concert by John McDermott held at Point Loma Nazarene University. Paying tribute to Mr. Mitrovich were Judge Stephen Reinhardt (U.S. Court of Appeals 9th Circuit), Richard Reeves (the Presidential Biographer and former New York Times correspondent) Leon Williams (retired member of the San Diego City Council and the County Board of Supervisors) and Bob Brower (the university's president) each of whom credited the organization for being much needed voice promoting civil discourse during controversial times.

Mr. McDermott shared poignant, personal stories from old and new worlds dealing with war, immigration and family life framed by moving ballads accompanied by harmonists Jason Fowler and Brian MacMillan on acoustic guitars.

"The City Club has gained national standing due to its ability to conduct open discussions of local, national, and international issues," according to Vice President Joseph Biden. "Public figures from all across the country and the world have come to speak at City Club events, proving that it's one of the finest public forum organizations around. By engaging the public in civil discourse, The City Club has been able to further improve society by getting people to think about the real issues -- the ones that will greatly affect our future," stated the Vice President in a letter to the group.

A high school social studies teacher at the concert said he attended a City Club sponsored discussion on Health Care Reform last year that attracted a boisterous crowd from both sides of the political spectrum. "I was impressed with George's ability to keep the audience under control," he said of Mr. Mitrovich's charisma and oratorical skills.

The next City Club event is scheduled for Sept. 14th, a luncheon with Jack Conway, Kentucky Attorney General and candidate for the U.S. Senate. On October 23, City Club is sponsoring a talk by Joe Matthews with a focus on California's troubles: "California Crack Up: How Reform Broke the Golden State and How We Can Fix It."

For additional information, the organization's website is www.cityclubofsandiego.com

George Mitrovich