I talked recently about setting up separate channels and when it made sense to do it, and about some aspects of channel conflict. One area where separate channels are usually required is when a business is global. Most EDA products, even from quite small companies, have business in Japan, Taiwan, Korea and Europe as well as the US. Most of these cannot be serviced with a direct sales organization until the company is pretty sizeable and maybe not even then. But customers don’t always view the world the way your sales compensation structure does. It is really important not to let the way you structure and compensate your internal organisations, especially sales, show through and limit how customers can do business with you.
When I was at VLSI Technology, we wanted to standardize on a single Verilog simulator and we had decided that it would be ModelSim. So we wanted to negotiate a deal for using ModelSim throughout the company. At the time, Mentor had already acquired ModelSim but it was still sold partially through the old ModelSim channels, which were distributors and VARs (value-added-resellers). I don’t think ModelSim ever had any direct sales force. We met with our Mentor account manager.
Mentor basically refused to do any sort of global deal because they felt unable to go around their distributors in each region; we would have to do a separate deal with each region. Also, licenses sold in one region would not be usable in other regions since the distributor/VARs provided first line support. The US alone was several different regions so this wasn’t very attractive.
Part of the reason for doing a global deal was that we could get better pricing, we thought, since Mentor’s costs would also be lower if we wrote one contract for a large amount, as opposed to negotiating lots of smaller contracts with each region. We also didn’t want to have to worry about where a license was used, we wanted a certain amount of simulation capacity for a certain number of dollars. Internally we didn’t even track where tools were used. There is always some issues about using licenses in regions other than the one where they were sold. Firstly, the salespeople get annoyed if someone in region A sells a lot of software that is largely used in region B, especially when the salespeople for region B starts to get lots of calls from “their” customer. Even if the customer promises that all support will go through region A, this usually doesn’t stick, especially once different languages are involved. It is just not credible that all Japanese customers will be supported through, say, Dallas, whatever the software license says.
It can be a major problem when the internal scaffolding of the sales organization shows through to customers like that. “I can’t sell you that because I won’t get any commission” is not a very customer-focused response. You get the same problem, on a smaller scale, in many restaurants if you ask someone who is not your waiter for another glass of wine. The server won’t ignore you totally but they won’t bring the wine either, just tell your server if they remember.
Whenever possible, you want your channel to look as unified as possible to the customer, no matter what battles are going on internally. Like a swan, serene on top and paddling like hell underneath.
At the other extreme, my girlfriend works for a medical education company. It’s largely grown by acquisition but has the (to me insane) strategy of keeping each company’s sales force and branding intact. So any given hospital may have half-a-dozen people calling on it, selling them different products under different brand names, but from the same company. The financial inefficiency of doing this is huge, and as more and more of their business moves into the electronic space and is integrated into electronic medical record systems, more and more of their business will be through indirect channels in any case. But they don’t see this as either inevitable nor a good thing (since it is less profitable) and worry a lot about channels that conflict with their own salespeople. Some of their competitors have bitten the bullet, got rid of their direct sales force and only sell indirectly. Lower costs, one brand name, and no channel conflict. The straps of their compensation scheme aren’t showing.
As for VLSI and ModelSim, we ended up doing a deal with another company, Cadence I think. It’s not just a minor inconvenience to let your sales compensation drive the business. It can drive it away.