SolidWorks 3: The best VAR management program in the world?

In my first two entries, found here and here, I talked about things we did at DS SolidWorks between 2003 and 2008 to increase the performance of our Value Added Reseller (VAR) channel. SolidWorks grew from $135M to $400M during this time, and we believe that what we did with our VARs had much to do with this amazing growth.

This third and final entry in the series is focused on the core leadership team we assembled and the lessons we learned from our organizational choices. I’ll also touch on how the program might be scaled for smaller companies.

Why bother?

As any software company is compelled to do, we were asking ourselves in 2003 if the indirect model still offered the promise of high growth that it once did. It’s quite easy to fall into the trap of “…well, our channel is making too much money for the value they deliver, those are our customers, and we can’t control resellers like we can control a direct sales force.” Indeed, this is the track that several of our competitors followed, with unforeseen consequences. Their customers were frustrated and confused when the new direct salesperson competed against the VAR for their business. Their resellers lost faith in the software company when they saw deals they had nurtured “stolen” from them by the manufacturer who could offer better terms or lower prices.

We chose a different path–investing in the channel to drive even faster growth and broader market penetration, while enjoying the cost benefits of the channel model. We believed we could create a stronger, faster, more powerful VAR network, enhancing and extending our market reach. We knew they would repay our trust in them by making even greater investments in growth and support. We’ve never had any second thoughts.

Innovation or control?

One of the first things we had to do was build a team to lead the development efforts. We worked to find senior managers with strong operational experience who could apply that experience pragmatically. We built a five-person team with members from within our existing organization, and added a handful of new staff. This was our VAR Development team.

We repurposed our existing sales team from “players” to “player/coaches” and “coaches.” Most people made the transition, recognizing it was effectively a promotion and a better challenge. Those who could not change were replaced.

We flattened the business, removing extraneous layers. This forced better accountability and increased the velocity of execution. Sometimes it felt more like a stampede than synchronized swimming, but the end results justified the effort.

We considered creating a centralized group, but decided to push the talent out into the field. Each team member’s experience, coupled with his proximity to the channel, compensated for conflicting priorities. And by keeping these managers in place, the program’s recommendations were implemented quickly and more naturally—by the very managers advocating for them.

Keeping the tires squealing.

We’ve always “understaffed” the business. If you hire and reward the right people, they’ll only work on the most important things. We call it “squealing the tires,” and the VAR development team was no exception. There was too much work to be done, not enough resource, and very little time. As a result, the team self-policed itself and became a high-execution force to be reckoned with. This strategy isn’t for everyone. Some of our team members struggled with the balance and pace, and drifted along the way. You have to be on the watch for burnout and, yes, make some adjustments as needed.

In retrospect, developing a lean, field-based virtual team actively ensured that only the best ideas made the cut, and that the team’s plans were quickly implemented. The downside is that the pace is challenging to sustain, and “misses” can be immediate and painful, as we inevitably spent some money on programs that didn’t work.

We never had more than eight staff on this effort, and half of them were still doing their “day jobs.”

Celebrate and learn from mistakes.

SolidWorks has always had a strong culture of individual initiative – it’s something we’re proud of, and something we’ve retained from our start-up roots. However, one of the inevitable outcomes of experimentation is mistakes. Be prepared for surprises. Analyze a failure quickly, take the blame personally instead of blaming others, and tune the machine. This does not mean people aren’t held accountable; one mistake is a learning experience. Multiple mistakes are a performance problem.

Walk the walk.

I invested at least four hours a week in this effort during the first two years. If I hadn’t been willing to make that kind of investment myself, how could I expect our team to follow suit? If this isn’t really important enough to you to make that kind of commitment, don’t bother with this approach. Almost everyone on the executive team made a similar time commitment, whether in conceptual discussions or in detailed planning.

The VAR Development team had open access to me, and no topic was off-limits. This team was made up of special leaders, people who were comfortable telling the emperor about his wardrobe. All management owned the dialog through small discussions, quick review meetings, and personal insights with members of the VAR Development team. We wanted unexpected, creative, and fast returns. This, in effect, created unexpected, creative and fast collaborations.

This is a line job, not a staff job.

The senior sales team must own this effort. Delegating such a critical effort to a “staff member” is a guarantee that the line organization will not buy into the model, and will not execute accordingly. For us, this came together in the office of the VP of Sales. The VAR Development team had the luxury of staying true to its cause while enjoying the big stick that came with the sales leader’s advocacy. The team carried the same quota as the sales organization.

The team was made up of people who had carried quotas. In fact, the first leader had successfully run a reseller business himself, and left that role of VAR CEO to join us.

Are we there yet?

No, and we never will be.

First, this cannot be the program du jour. It won’t be taken seriously, and the resellers won’t make the investments in skills and resources to pull it off. It has to be part of the daily ritual. Each quarter, every VAR owner sits down with a salesperson and walks through the VAR scorecard. Each session concludes with action plans that are reviewed monthly. Tasks, owners, and due dates.

Second, communities and organizations evolve and change. SolidWorks, our VARs, and (most importantly) our customers, comprise an extended community, and our collective needs for planning and information sharing continues to mature and advance. What made sense in 2003 will not necessarily work today.

Finally, you will always have a VAR somewhere who has just hit another ceiling in its growth efforts. Constant vigilance in an early warning system, problem diagnosis and resolution is essential. We simply have a higher order of dialogue with the VAR owners today. It goes beyond looking at quota performance, and is consistent with the relationship a CEO would have with a trusted advisor. I expect much of what has been written will be outdated as this market continues to evolve. That’s what our people are looking forward to!

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Yeah, good for SolidWorks, but we’re too small for this.

Before I sign off, David asked me to touch on how a startup might develop a channel program like ours. You already have a distinct advantage over us. We had to disrupt many years of momentum; some good, some not so good. I am jealous–you don’t have that inertia to overcome.

First, you don’t need a big team, but you must invest in dedicated resources. That person(s) must be aligned with whomever the head of sales might be, even if that’s you. Pick someone who really, really empathizes with the VAR owner. To be practical, the smaller the resource, the less reach. If you have at least measured the channel to pick the Willing and Able you will be able to give that small subset the attention it deserves to get the most significant return. The Pareto Principle is alive and well in your channel: 20% of your resellers are driving 80% of your results. So, focus on the Willing and Able. The rest will follow by example. Compensate the manager on results, not efforts.

Second, pick what to measure, and measure it well. The beauty of numbers is that they cross all cultural and geographic barriers. Speak the same language, and you’ll get alignment. Set quantifiable strategic goals, and measure and tune quarterly.

Third, make sure your VAR contract or agreement rewards this kind of investment. If your definition of success isn’t in lockstep with your reseller, how will you ever succeed?

Fourth, take the long view. Channel partners really resent the disruption that comes with the “incentive of the month.” This is strategic.

Finally, make the investment yourself in the time. If it isn’t important to you, why should it matter to anyone else? Make this part of your daily dialogue.

Questions that David asked me to address:

Since startups working on creating a channel program are likely to be dealing with some more basic problems than the one’s that we addressed above, David Skok asked me to address three questions that he felt startups would be grappling with:

1. What are the most important criteria for selecting resellers?

The VAR owner should have the passion for serving the customer’s needs. That’s a great start; most everything else is mechanical! He should be great at surrounding himself with “A” players; he can’t be involved in every decision and sales call and hope to grow his business. And, he needs a vision – about what his company will look like in 5 – 10 years, and why he’ll be able to get there.

2. In the early days, when I am not sure which resellers are going to work out, should I sign up as many resellers as I possibly can (assuming no territory saturation problems), or focus on signing just a few and spending more time with each one?

Well, it depends on the market. I’d choose quality over quantity, but the marketplace might be made up of thousands of resellers already, and require that to get the needed “reach.” But I’d still rather pick quality over quantity . Of course, this is a bit of an ERP exercise – how much revenue do you need by when, and how many resellers are needed to achieve that? Does this allow us to sacrifice quanlity for quantity?

3. What are the best things that I can do to make my signed resellers able to close their first deal, and then able to repeatedly close business for me?

Hit the bricks. You know best what works; there’s nothing like making sales calls together to establish a winning pattern of behavior. It will also give you immediate, unfiltered feedback on what customers really think about your product. You’ll be a better, more empathetic leader. For follow-on success, establish a schedule of follow-up. Can be done over the phone. What is most important here is to have a SCHEDULE. If you and your key reseller know that you have a one hour review on the first Monday of each month at 8:00 am, your meetings will be high-quality, mutually rewarding events.

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I’d enjoy hearing from you – what worked, what can be improved? You can leave a comment here, or reach me at jeff.ray (at) 3ds.com.

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  • http://www.admarco.net rmarkgibson

    Wonderfully insightful series of posts. We are very grateful for these insights and for your willingness to share your experience
    VAR execution is the bain of so many high tech companies. I wrote about this here http://www.admarco.net/blog/bid/25718/Recruitin
    Plenty of lessons here.
    All the best,
    Mark

  • http://johngannonblog.com/ John Gannon

    Jeff, David — thanks for the great series of posts. Would also be interested to hear your thoughts about when enterprise software companies should realistically approaching VAR channels and other indirect paths to market. Are there any gates or checkpoints that you look for in your company / portfolio companies that are a good indicator that it might be a good time to start building these channels?

  • http://www.forentrepreneurs.com David Skok

    John, this really is a company by company decision. For many companies, it is clear that they want to use channels from day one. However to get those channels to work well, they will likely have to “prime the pump” by using their own sales force to get the first customers, and pass these across to the VARs. Other companies my initially get going using a direct channel, and then later decide to overlay a channel. The difficulty with this can come from the need to change the culture of the sales organization, getting them to accept losing some level of control over the sales cycle, and the VAR margin. But I seen it work, but I have also seen it fail because of a lack of commitment to the channel, and unwillingness to change the culture. I hope this helps. David

  • jeffray

    Great question, John. Having lived through successes and failures in multi-channel efforts, I can think of two critical “gates” to get through. First, do you have a market segment that a channel partner can reach more effectively and efficiently? There's nothing like demand to prime the pump. Second, does your leadership team have the courage to stand up for the channel at moments of truth? We've had resellers join us simply because of the way their manufacturer treated them on bigger deals they had uncovered. The manufacturer jumped into the deal, pushing the reseller aside and moving all the revenues into the Mother Ship. Resellers are typically small companies and don't have the cashflows to recover quickly from these events.

  • kstofer

    What SolidWorks has accomplished over the years with their VAR partnership strategy is truly impressive. Our company, Topline Systems, has had the opportunity to work closely with the SolidWorks VAR team on one of the most important aspects of their long-term vision – i.e. the need for a unified and consistent pipeline management system across all 300 VARs.

    In response to this vision, we implemented an on-demand, Opportunity Portal that is both unique and scalable. It helps VARs track their opportunity pipeline and submit regular, 90 day rolling forecasts with greater accuracy and faster speed. The Portal provides immediate access through standard browsers to see color-coded opportunity funnels, key pipeline metrics, rolling forecasts by product class, and trend analysis. The executive team at SolidWorks now has immediate pipeline visibility into any VAR sales rep or manager, for any sales territory in the world.

    SolidWorks has over 2,200 users on the Portal and is tracking a very large number of opportunities. Senior management can visit any office in the world and immediately bring up the pipeline and rolling forecast for any sales rep or manager.

    There is a distinctive Win-Win sentiment that prevails throughout the SolidWorks VAR organization. In the case of the Opportunity Portal, the VARs have a simple way to submit current opportunities, and in return, they receive a comprehensive pipeline management and forecasting system at their fingertips…..a Win-Win for all!

    Great job on this three part series…..

  • http://www.topline-systems.com/ Chip Stofer

    What SolidWorks has accomplished over the years with their VAR partnership strategy is truly impressive. Our company, Topline Systems, has had the opportunity to work closely with the SolidWorks VAR team on one of the most important aspects of their long-term vision – i.e. the need for a unified and consistent pipeline management system across all 300 VARs.

    In response to this vision, we implemented an on-demand, Opportunity Portal that is both unique and scalable. It helps VARs track their opportunity pipeline and submit regular, 90 day rolling forecasts with greater accuracy and faster speed. The Portal provides immediate access through standard browsers to see color-coded opportunity funnels, key pipeline metrics, rolling forecasts by product class, and trend analysis. The executive team at SolidWorks now has immediate pipeline visibility into any VAR sales rep or manager, for any sales territory in the world.

    SolidWorks has over 2,200 users on the Portal and is tracking a very large number of opportunities. Senior management can visit any office in the world and immediately bring up the pipeline and rolling forecast for any sales rep or manager.

    There is a distinctive Win-Win sentiment that prevails throughout the SolidWorks VAR organization. In the case of the Opportunity Portal, the VARs have a simple way to submit current opportunities, and in return, they receive a comprehensive pipeline management and forecasting system at their fingertips…..a Win-Win for all!

    Great job on this three part series…..