Developing a Win-Win Partnership with System Integrators

Last year I joined a small, but quickly growing software company with a policy automation solution for property and casualty insurance carriers and large agencies. My immediate challenge was to increase the number of new customers that could be implemented in a year. The company had success from having a very market relevant product that has a tremendous amount of industry insight built in. However, the challenge was that the company had a limited capacity to implement new customers.

Partnering Benefits

Partnering with one or more system integrators or consultancies was a quick way of immediately gaining access to capacity while minimizing financial risks to the company as these resources could be more flexibly ramped up and down as project requirements demanded. This is one of the most financially valuable components of partnering with a system integrator. By minimizing the total headcount in the services organization, there is also a natural organization psychology that maintains the focus on the product rather than on services. Additionally, often times there is a symbiotic relationship that can be created as the system integrators are looking for new technologies to bring to their existing clients and you as the software company can introduce them to new customers.

Their Interests 

Having been a consultant for many years at one of the world’s largest system integrators and consultancies, I have been on many projects that developed new custom applications for clients as well as ones that implemented a commercial off the shelf (COTS) (a.k.a., packaged software) solution to meet their changing business needs. In this capacity I witnessed several software companies gain significant traction and growth after having partnered with my company.

There are two primary business drivers for the system integrator to want to partner with a software company. The first, and more obvious one, is that it allows them to engage in a project that adds to their revenue. But, you may think, “if they’re not doing a lot of custom development, wouldn’t it make more sense for them to attempt to persuade the customer to go the custom route?”

The answer simply doesn’t matter, as there is significant opportunity either way. If the system integrator supports the implementation of the packaged software solution, they will have two additional revenue opportunities. The first is by providing business process subject matter experts that can provide high-value consulting on how to take advantage of the new system and transform the business operations. The second is that typically companies buying new software solutions need them integrated with existing legacy systems that, for example, may contain customer data or handle warehouse processes. This point to point integration work, even with newer service oriented architectures, requires significant effort to develop and verify. And again, if the system integrator has been with the customer for years, they typically were the ones that built the original systems and know them well and thus can position themselves as the right team to do the project.

Depending on the system integrators sales approach, many want to do business with their customer for life, being a trusted advisor and partner that can provide support on any initiative. Given this, it is also in their interest to participate in any new system roll-out as the company will change and the integrator needs to understand the to-be business. 

Fortune 1000 Customer Segment 

System integrators are typically going to be divided into two buckets, those that target large companies with large IT budgets and those that target the small and medium size business segment. It’s important to identify where your software fits best as you’ll want to align with partners that target the same customer segment. The larger system integrators may seem daunting to approach, and a software company may not believe they have anything to inspire engagement, but that would be short sighted. Most of the large system integrators still follow a partner or account executive type hierarchy where individuals are responsible for growing an existing account or market segment. Because of this, the individual will be interested in anything that helps them grow their business. So, rather than try to ring the bell of the corporation, find a client that you know is already engaged with your target partner and identify the account executive. If you bring an opportunity where they can get involved with the implementation, you’ll get their attention. Following a successful implementation, you can work with your new contact to further establish the relationship across their company.

Small & Medium Size Business Segment (SMB)

More recently I have been focused on the SMB market space and realize that this customer segment is poorly served and have much less attention. This is interesting as in today’s economy these are the same customers that have the interest to grow their market share and the comfort to not get caught up in having 12 month or less ROI’s. They see an opportunity and want to seize it. That said, at this level there is a plethora of potential partners, many of which are very small system integrators or boutique consultancies. Their ability to cover a large geographic area is limited by the small number of offices and resources, and they will be limited in how they can invest to build up skills on your solution. This doesn’t mean they wouldn’t be interested, nor does it mean that the larger system integrators wouldn’t be either.

Initially, you’d be better served finding one system integrator that can cover your customer base geographically. You will have to recognize that there are two levers that can be pulled to make the partnership commercially interesting to the system integrator. The first is the obvious quantity of resources. By committing to focus on one partner initially, you’ll be better positioned to provide opportunities for more of their resources to be engaged and thus keep them interested. The second is on margin. While the system integrator should provide some kind of discount given the vision and goal of growing their pipeline as well, you may have to occasionally staff someone that is more junior than the rate and or pay more for a specific lead from which you’ll build a team around. Another challenge for the large system integrator in this customer segment will be their account management strategy. Typically, they’ll have a small number of “partners” or senior executives that support a large client. These same folks will not be compensated in such a way that motivates them to want to take on many different clients. One of the ways you can make it more manageable for them is by minimizing their business development costs and ongoing account management costs. This can be done by having them focus on staffing project teams with capable resources and you teeing up the opportunities and providing the ongoing account management.

As you engage smaller consultancies and system integrators, they’re going to be nervous about putting all their eggs in one basket, so bring them in close to your sales team so that they have a good understanding of the pipeline and what opportunities they’ll be involved in. They’ll continue to commit resources to your projects if they know the runway is long.

Your Interests

You’re a product company! Yes, we all hear about how services revenue and margin is the focus of the future and that all companies should be intensely focused on providing such offerings. But the reality is that buyers (i.e., your customers and prospects) are looking for a packaged solution that will accelerate their ability to improve their business. If your attention sways too much toward services, you’re product will atrophy and become less and less relevant to your customers as you’ll be trying to solve their problems with services rather than a great software solution. There are a lot of companies that do this very well, (i.e., the ones we’re talking about partnering with). It doesn’t make sense for you to become one of them. Additionally, your goals as a company are to grow the business, which involves getting more customers using your software. Partnering with system integrators allows you to exponentially increase your customer base. Research how Siebel Systems grew to a $1 Billion company. From 1994 to 1998 Siebel's sales increased 782,978 percent, according to Deloitte & Touche’s annual Technology Fast 500.

Where do I begin?

Identify a small handful of potential partners and do your homework. You’ll want to research the following:

• Industry alignment – are they focused on a vertical or do they cover multiple industries
• Geographic strengths – where are their offices and are they near your customers
• Bench – Not only do you want to understand how many consultants/engineers they employ, but get a feel for how big of a bench they keep
• 1099 versus W-2 – You will want to minimize your exposure to independent resources who may move on and thus waste your investment in training
• Sales & Marketing prowess – generally you’ll want to look for a partner that has a strong name in the marketplace and brings additional credibility to your product
• Project Management – Verify your methods will work with their methods. For example, if you’re an agile shop, do they have highly skilled resources that are comfortable working in a self-organizing, self-managing team?
• Customer references – talk to their customers
• Financial Strength – Make sure they’re in good shape so that you don’t feel rushed to make the relationship commercially successful
• Once you have identified which partner would be the likely best fit, you’ll want to identify the initial resources that are going to seed the team. Initially, you’ll want to start projects under your direction and leverage their resources. Once you’ve had some success, then transition to your partner leading an implementation with the end goal of them owning it end-to-end.

Should I have a Partnership Agreement?

Everyone likes to dream big, and we all want to see our vision become reality. That said, it makes no sense spending a lot of time on a big contract defining this utopian future you’re going to have together until you’ve had some success together. However, you’ll want some basic rules of engagement in place between both companies, which can be more simply called a teaming agreement.

The teaming agreement should cover the following:

• Background on each party and their objectives/goals – state what each side is looking for. Putting this in writing ensures everyone has been open and honest about their definition of success
• Responsibilities of each party (e.g., participate in sale, account management, responsible for own costs)
• Neither party should make any commitments or price quotes without concurrence
• Work together on marketing material and approve press releases
• Mutual NDA
• Define when it might be acceptable to recruit each other’s employees – Typically a consulting partner will allow you to poach a consultant here or there provided you’ve given them about a year’s billings.
• Non-exclusive – Recognize that the system integrator is in the business of doing this kind of work with everyone and unless you’ve got an incredible story that makes it commercially interesting, you’re not going to get an exclusive.

In closing, I would sum it all up by saying: Start small. Think Big. Build on Success.

NOTE:  A sample Partnership Agreement accompanies this article, to view it click here.