How SolidWorks grew to $400m a year in revenues by helping their VARs become world class business leaders.
SolidWorks was started back in 1993 with the vision of bringing solid modeling for mechanical design to the masses. Before SolidWorks entered the market, solid modeling was only available from PTC at $20,000 per seat, on expensive Unix workstations. Jon Hirschtick, the founder, set out to change all of that by offering a fully featured product at a fraction of the price. He also decided to use a reseller model to get the widest distribution at the lowest cost. This combination of features, price point, Windows OS and reseller channel, turned out to be wickedly successful, and within a few years SolidWorks had created a whole new mid-market and clearly established itself as the market leader. Today the company is one of Boston’s most successful startups, with revenues in excess of $400m, and an operating profit margin that would be the envy of the software industry if it were publicized.
A key part of what made SolidWorks so successful was how well they managed their VAR channel. I observed three distinct phases. The first phase was initiated by Vic Leventhal, who joined the company as COO in the early days. Prior to joining SolidWorks, Vic had been CEO of a CAD reseller, and had first hand experience of what it was like to be mistreated by vendors. His understanding of how VARs think, and what it would take to earn their trust and loyalty, were key to shaping the early VAR program.
The second phase occurred under the great leadership of Jon Hirschtick, CEO, and John McEleney, COO (who later to rose to CEO). SolidWorks had clearly recognized that revenues were directly linked to the number of effective reseller sales people selling SolidWorks, and their productivity. John McEleney focused on systematically growing those two key numbers. Systematically meant a data-driven analysis of every piece of geography on the planet — where did they need more feet on the street, and how many? That phase took the company to over $100m in revenues.
The third phase occurred when Jeff Ray joined. Together with John McEleney, who became CEO at that time, Jeff took on the challenge of slowing growth due to a lack of growth in VAR productivity, and the difficulty of adding new VARs into a territory without angering the current VARs.
Traditional approaches to solving this problem have been:
- Add more VARs into the territory, creating too much competition and removing the incentive from the better VARs to invest
- Start selling directly to larger customers – really angering VARs
- Constantly inventing new sales incentive programs in the hope of getting
Rather than taking this approach, Jeff chose to address the problem in a far more innovative way by looking at their existing VAR channel as an un-optimized resource, and figuring out what steps would need to be taken to further develop the business skills of that channel.
The result was something extraordinary: a program where SolidWorks provided their VARs with a full education on every aspect of running a business, equivalent to a mini-MBA program. Jeff and his team became business mentors to the VARs, educating them on all aspects of how to run a great company. This included not only sales and marketing, but also finance, HR, recruiting, business planning, etc. Their efforts paid back in spades, as SolidWorks quadrupled sales and grew their profit margins to double the industry norms.
In my experience of seeing many channel programs, including those from Microsoft, Lotus, IBM, etc. what SolidWorks put in place was revolutionary, and significantly more advanced that anything that came before it. Very likely the best VAR management program in the world. While this may not be directly applicable to smaller startups, understanding what the end game should look like can be very valuable as you start creating a reseller program of your own.
In this three part series, Jeff Ray, the current CEO of SolidWorks, humbly describes the program. Part One follows below.
I hope you enjoy reading them.
Part One: SolidWorks VAR Development Program
By Jeff Ray, CEO of SolidWorks
From 2002 to 2008, DS SolidWorks Corp. increased revenues from $135M to $400M, a 20% growth rate in an industry that’s growing at 3%. It would be easy to attribute those increases to things we do at the corporate level, but in reality, it has everything to do with our sales channel. Our channel is comprised entirely of independently-owned resellers. They are our face to our customers, both for sales and for on-going support, and we succeed or fail together.
SolidWorks has sold exclusively through our Value-Added Resellers (VARs) since our first sale in 1995, and has no direct sales organization. We chose the reseller model before our product was ready because we saw this as the fastest, most cost-effective way to reach the most prospects. That model proved to be correct for us then, and that’s still the case today.
The leadership team understood early on the need to provide our VARs with a profitable business model, built upon strong personal relationships that could withstand the test of time. Our VARs were started by entrepreneurs; typically technology enthusiasts with backgrounds in technical sales who were enthusiastic about the new capabilities SolidWorks was bringing to market. By 2003, most of our North American and European VARs averaged around 50 employees—well past the point where a business can be run on instinct alone. The Law of the Jungle is as true for us as for others—VARs who managed well grew; those that did not fell behind.
But we didn’t have the luxury of being passive. We needed to be an active partner—more like a board member actually—to drive predictable success. Make no mistake; this is fundamentally different from the traditional “hands off” approach most companies take with their VARs. It wasn’t about who was in charge, either. We weren’t controlling the VARs. We really cared about their collective success, and believed this approach was the best one for the situation.
While there is no way to completely prepare your sales force to fail or succeed, there are a few patterns that separated the good from the not-so-good. While the most important element for success is leadership, I’ll cover that in a later post. For now, let’s focus on the fundamentals. These include efforts in accounting and cash flow management, in sales management, in increasing sales staff and training, and in sales pipeline management.
Consistent with our vision of how we saw ourselves and our channel partners, we set out to create a tightly-integrated business development program that went beyond simple “quota setting” or “sales incentives” initiatives. Those yield only short term gains, at best. We were determined to truly invest in our channel’s business competencies and long-term capabilities. We believed in 1995, and in 2003, that a fully-engaged partnership with our channel was the only path to our collective success, and that a “fully-engaged partnership” is not limited to a commission check. We still believe that today.
One final caveat—this system fails completely if you choose the simplistic, all-too-common approach of rewarding the good and punishing the bad in the short term, such as using quarterly bonuses or penalties. Resellers are small businesses, and thrive when there is consistency and long-term behavior. So if your desire is to run the “program du jour,” don’t bother reading any further. This isn’t for you.
I. Accounting 101
Our first investment was to help create a strong accounting capability, giving the VAR strong control over his/her cash flow. This may seem obvious, but during 2003 and 2004, we interceded a number of times to restructure struggling VARs who had only the bare minimum of financial controls in place. Only a few of the VARs who hit the cash flow wall were able to survive intact, so it’s a lesson worth remembering.
My advice is this—make sure your CFO is in active and honest dialog with your receiveables team, is working with your channel management, is in direct contact with the VAR owners, and has a personal handle on their financial health. Most VAR owners’ sales backgrounds do not prepare them to ask questions natural to a CFO, or to introduce systems for managing them; however, the reporting and planning needs of a small business are virtually the same as a large one. A business managed with only a checkbook cannot scale.
II. You’re only as good as your Sales Manager
Given their collective background, one would think that sales management would come naturally to our VAR owners. Instead, we found that many failed in scaling their sales teams, not only regarding the number of sales people, but also in capabilities and processes. The typical small business owner is also the lead salesman. This is a great start, but it absolutely will not scale. This is the number one reason why resellers fail to grow: the owner-as-gatekeeper brings the business to a crashing halt. He ultimately drives out achievers who need and deserve greater authority. A successful sales team needs a sales manager; a sales hiring, training and review process; and an explicitly managed, published, and reviewed sales pipeline.
While later investments proved easier, this first step was an emotional barrier for some of our owners. It also forced our sales management team to transition from “players,” helping close deals, to “coaches,” helping owners lead.
III. There’s always more meat on that bone
One of our favorite excuses for not investing in sales and sales leadership is that the “territory is saturated.” Firstly, we worked to convince each VAR that his/her territory was not capacity limited, and that there was additional untapped potential. This requires real facts, and you need to be willing to invest in good market research. We were able to leverage market studies to develop a sales person allocation model, taking into account the relationship between market size, market share, historic customer growth rates and sales coverage, as well as the sales coverage ratios for supporting and managing the installed base.
IV. Recruiters? We don’t need no stinkin’ recruiters
We realized that the VARs needed help with hiring, so we provided full-time recruiting expertise to work with each one, taking responsibility for recruiting through centralized contracts with recruiting vendors, and helping to screen and interview candidates. We also taught VAR owners and staff how to conduct interviews. In other words, we taught them to fish—for good talent.
V. Plug that leaky bucket
Despite the work we had done to upgrade our collective ability to identify, recruit and hire candidates, during the following year we saw that our retention rates were not tracking to this increase, and in some cases, were degrading. Our VARs were hiring new staff, only to see them leave.
To combat this problem, we developed new and expanded development and certification programs for the sales and technical staff. These programs focus on multiple aspects of a sales person’s professional development, including product training, presentation training, sales time training, and sales management training. The program is tiered and raises the bar as people grow, providing a progressively challenging work environment.
VI. Sales pipeline: More light, less heat.
There is nothing more entertaining than listening to a clever salesperson go on and on about how he’ll close The Deal That Will Never Close. Another favorite is the “you say tomato, I say lemon” situation. This lack of consistency and discipline in opportunity scoring leads to the pipeline Tower of Babel. So you better have the fortitude to establish a unified, coherent pipeline methodology and reporting system. Of course, every VAR and every good sales person I have ever known manages and tracks a pipeline, and most report their targets and plans. The challenge here was not awareness or need. Every sales person intimately knows their personal pipeline, and will admit (perhaps grudgingly) that it needs to be reviewed with the management team. The problem from our perspective lay elsewhere–it was one of uniformity in definition and consistency in use.
Begin with the end in mind (with apologies to Stephen Covey)
Is there a set of best practices for creating a successful channel? We believe there are. In the rush to build a company in early years, SolidWorks depended on intuition, experience, drive and personal relationships in building and growing its channel. As we grew, those qualities became less sufficient, and the complexities of the business overwhelmed the informal communication channels we had established. This should come as no surprise, but it’s surprising when it’s happening to you; and the ability to identify the signs of system failure are (in retrospect) easy to overlook when you’re in the middle of the system.
We are by no means where we need to be, as each revenue plateau brings new challenges to the game, but I do believe that our current scope of operation at $400M, 3x our performance of just a few years ago, is only possible because of our developmental investments in our channel over the last years.
In the second part of this series of three posts, I’ll discuss how we went about categorizing our VARs, and measuring their ability to grow. The final entry will discuss the ways we partner with our VARs to provide ongoing support tools for continued growth.