Designing Successful International Go-To-Market Strategies

Designing Successful International Go-To-Market Strategies

Long value chains.

Whitepaper from TBK Consult

Issue 1

AuthorsHans Peter Bech, MA (Econ.), Group CEO at TBK Consult.

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Designing Successful International Go-To-Market Strategiesw

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This white paper is written for the CEO and the board of directors of software companies, which are already working internationally or are about to embark on an international endeavor.

The white paper is addressing software companies with long and comprehensive value chains. This includes companies with solutions which require a considerable amount of sales effort, customization, consulting, implementation support and on-going support. For software companies in this category the software itself is typically less than 50% of total project and customer lifetime value.

This white paper is describing some of the challenges associated with international market penetration for software companies with long value chains. Further it gives two real life examples of how companies have overcome these challenges using very different approaches.

Company XYZ changed from a channel based approach to internationalization through acquisitions. Company ABC chose an international joint venture strategy to compensate for lack of staff and funds.

I wish to thank Haim Oren from TBK Israel for encouraging me to write this whitepaper and to Steen Alexander of ValueMaker for his valuable support during the editorial process.

English proof reading: Michael Cain of Lammas, Esbjerg, Denmark, www.lammas.dk

Design and lay-out: Flier Disainistuudio, Tallinn, Estonia,

Targeted audience

Abstract

Acknowledgements

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The challenges and solutions discussed in this white paper are primarily relevant to your situation if you can identify with most of the following characteristics:

You are well established in your domestic market with several blue chip reference clients and/or a considerable1 market share.You have staff and funds available for international market penetration.

investment associated with implementing your solution.

process for your solution.Your sales tools in terms of customer case stories, solution white papers, product factsheets and a targeted web site are all in place.It is possible to activate the need for your product through a proactive sales effort.Your deals in this type of value chain are seldom lower than EUR 150.000 with annual recurring revenue of 15-25%.

If one or more of the items mentioned above are missing, we suggest you develop these before making any advances on territories outside your domestic market.

Entering a new market goes through three main stages:

1 Software companies with a small market share in their domestic market should not consider international activities. Investment in domestic market penetration will yield a much higher return on

market share locally it is very unlikely that they will be more successful internationally.

Introduction

Basic terminology Boot Strapping

Bridgeheadwhere you establish a local presence to enforce your position and grow to 10-15 clients

Expansionwhere you scale your operation to go for market dominance

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Considerations of a strategic nature in this whitepaper are made

theory2. According to Balanced Scorecard a strategy (Customer Value Proposition) will always be a combination of 3 main elements:

A Balanced Scorecard customer value proposition is illustrated by a pie chart showing the weight of each strategy element.

The customer value proposition illustrated in Fig. 1 could be a Microsoft/SAP VAR with an ERP4 solution for at vertical market or an ISV5 with a high priced enterprise solution. Purchase decisions for enterprise solutions are strategic nature. Enterprises only make such decisions every 5-10 years. Enterprises do not favor technology leaders; they prefer proven technology and established vendors6. Thus software companies

2 There are numerous sources to information on Balanced Scorecard.A Google search gives 1,6 million hits! You can start with this “indepen-dent” description: http://en.wikipedia.org/wiki/Balanced_scorecard Value Added Reseller

4 Enterprise Resource Planning5 Independent Software Vendor6 For a solid argumentation please see “Crossing the Chasm” by Geoffrey A. Moore (2002 edition)

Customer IntimacyThe Customer Intimacy

close to the individual client and be responsive to his

Operational ExcellenceThe Operational Excellence

provide products and services at a very competitive price, typically accompanied by a

volume approach

Product LeadershipThe Product Leadership strategy

providing features and functions no one else is offering typically at a

premium price

Figure 1: Value Proposition Sample

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operating in such markets must be close to the individual clients, build references which look alike, provide vertical functionality and integration capabilities to existing applications. Price is not the most important issue in such business cases.

The Balanced Scorecard theory operates with a set of critical success factors associated with each of the three value elements. These critical success factors are very different for each value element.

associated critical success factors.7

When you understand and accept the Balanced Scorecard paradigms, you will also understand and accept that a strategy must have a dominating value element, you simply cannot be equally good at all three (but you certainly can be equally bad at all three!)8.

The main challenges in a business scenario with long and comprehensive value chains are:

A. The long learning curve

Whether you are setting up your own operation in a new territory or you are building a channel of independent resellers, the time and resources required

substantial. We call this “the long learning curve”

B. Fractional Revenue

to you. The major portions will reside with the sales and implementation operation taking responsibility for selling and delivering the project.

7 TBK Consult uses a strategy review tool called ValuePerform. This

perspectives as well as the critical success factors are listed in Appendix A and Appendix B.8 A value proposition with equal focus on the three vale elements is per

The business challenges

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The long learning curve apply to the selling side as well as the purchasing side. Let's start by looking at the purchasing side.

We are assuming that the purchase process was started by you. By presenting how you have been able to generate substantial

in learning more (although we must assume that he is also skeptical).

The questions the decision makers at the potential clients will ask themselves (and maybe you) are:

Is ABC Company really capable of delivering the value they promise?Should we reallocate resources to pursue this potential project at the expense of other projects? Will my situation be similar to the other clients Company ABC has helped? How much support can I expect if things don’t run as smooth as expected? Will it hurt my position if this project fails?What do I risk by doing nothing?

Even though the value proposition may be extremely promising

making process will take time and require several meetings and maybe also require reference visits and a test/pilot project.

The sales process is the structured way of organizing you efforts so that you can accommodate the customers purchase process successfully in the shortest time possible securing a happy customer.

It is not within the scope of this white paper to address the issues associated with driving a sales process. Numerous books are written on this subject9. It is however crucial to stress that selling to a potential client outside your domestic market adds additional complexity and resistance, which we will address in this white paper.

From previous sales situations in your domestic market you will know the questions the customers’ needs answered and the kind of proof he will require in the various stages of the decision

9 Eg. The New Solution Selling, Keith M. Eades, McGraw-Hill and Jill Konrath: Selling to BIG companies, Dearborn 2006

Purchasing

The sales process

The long learning curveA.

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making process. You also know which skills you need to allocate to make the process move forward and conclude the project with a positive outcome.

Selling into a new geographic territory add additional challenges to the sales process. These are some of the most common issues:

There may be legal or local market requirements that you solution do not meet10.You may need to operate in the local language and make all your sales tools available in local language.You may need staff that speak and write the local language.Your potential customers may be extra cautious because you have no presence and references in the local territory.A strong competitor may already be dominating your market

Your company is completely unknown in the new territory.Your current references are completely unknown in the new territory.The distance to your new market adds additional travel expenses and consumes additional time per activity in the sales process.The local people you may engage to help you are inexperienced with your solution, your company and your references.

Let's assume that the price of the solution you sell consists of 50% software licenses and 50% consulting. In order to compensate

cases they close with 50% on the net license value11. Let's assume

future references.

is then 18,75% of what you normally get when selling a similar solution in your current territory.10 This white paper is not dealing with issues related to the localization of the software. For some solutions this may not be an issue or a language issue only, but for other solutions substantial localization may be required.11 The sales organization may be an agent or a reseller who cover the sales cost and are remunerated only when a deal is completed. If the

deals are not completed.

The additional challenge

Fractional RevenueB.

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In addition you most likely will have to allocate more resources to the sales process and you must expect a longer sales cycle compared to your home market situation.

This is the real life scenario for almost all software companies penetrating a new territory.

effective approach to entering a new territory is making at least 12

Irrespective of your strategic go-to-market approach, we believe the fastest and most effective boot strapping strategy is a direct one.

For this recommendation to stand we must assume that your value proposition is very attractive and well documented and that you do not face severe local competition.

If your solution can be matched by competitive solutions already available and established in the new market you basically only have two options for market entry:

Invest massively in market penetration and be patient1.

Enter the market through acquisitions or joint ventures2.

12 This doesn’t mean that an indirect model will not work. There may

Integrator which is prepared to co-invest in market penetration

The general experience however shows that indirect sales models do not work in cases with long value chains. It turns out that many companies

market with an indirect sales approach on export markets.

Approaches to deal with the challenges

Winning new territory with solutions which are already widely available in the territory by local suppliers may an uphill battle. You must provide substantial additional value to make up for the risk of engaging with a

foreigner.

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XYZ Company is a value added reseller of SAP and Microsoft Dynamics AX/NAV. XYZ also have own proprietary IP based solutions, but it is not the ambition to market these internationally. XYZ holds a dominating position in several vertical markets domestically and have been working on expansion into new territories for many years.

XYZ Company was founded in the 1970’ies and has a staff of close to 1.000.

So far the international expansion strategy had been indirect convincing resellers of Microsoft Dynamics AX/NAV abroad to include the solutions from XYZ Company in their portfolio. However, this approach never generated very much revenue and as the costs of sales associated with supporting the Microsoft Dynamics partners were high the activity never became

suffered from the fractional revenue problem mentioned above.

A new CEO revisited the situation and came to the following conclusion:

XYZ Company is a successful Value Added Reseller of vertical solutions based on SAP, Microsoft Dynamics AX/NAV and our own IP. Our success is a combination of vertical market insight/understanding and solutions tailored to the individual vertical market and the client. We are client centric much more than we are product centric. Selling our software products to other VAR’s doesn’t match our core strategy and will always be an alien appendix.

The analysis concluded that XYZ Company was neither a product leader nor a low cost provider. The position in the current markets was established through many years of market penetration combined with several acquisitions of smaller competitors. The customer value proposition was a combination of Customer Intimacy and Product Leadership in vertical functionality. Revenue growth was sustained by constantly adding new features to the existing solution portfolio maintaining a growing revenue stream from the current client base. Winning

Company profile

Case Study 1: XYZ Company

The situation

The analysis

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new ERP customers is always tough14, but the vertical focus and increasing market shares in the vertical segments made XYZ Company “the low risk choice15” for many new customers in the domestic market. A competitive edge of XYZ Company was also the substantial vertical competence – domain knowledge, which their consultants could demonstrate and use in the dialog with potential clients. Building such domain knowledge takes time and/or requires recruitment of staff with domain experience.

The strategy review process concluded that the only viable approach to entering new territories was through acquisition of successful local players in these markets. Company XYZ decided that remaining customer centric was of strategic importance. It was less important if the customers were all running on the same product platform and it was not a key issue which of the product platforms would be the dominating in the future.16

Although the company XYZ is a 1.000 people operation they don’t operate their own M&A function. By using external consultants they use a two step process when entering a new market.

Enterprise Resource Planning is the term coverings all solutions based on SAP and Microsoft Dynamics.14 An enterprise is typically in the market for a new ERP solution every 5-10 years.15 When enterprises are making substantial investment decisions in

the option with the lowest perceived risk. Very few companies have staff who can comprehend the quality of and the difference between various ERP software packages and the quality of the implementation partners available.16 It was certainly an issue to assess which of the platform providers (SAP or Microsoft) would be most successful in providing support for a certain vertical market. The Market Assessment therefore always included this element before executing the M&A.

The Solution

Market Assessmentassessment templateProvision of a long list of acquisition candidates

M&ALocal M&A company is engaged to manage the acquisition process

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Making acquisitions successful is a challenge in itself. It is beyond the scope of this white paper to address these

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However, having and living an acquisition strategy where

to master the art.

customers or share of revenue in a vertical segment. Whether these customers are running their ERP solutions on identical platforms is less important. In the long run Company XYZ can provide migration paths for their client and thus keep them as customer and can offer identical peripheral solutions and services to all clients irrespective of platform.

trying to sell solutions through an independent network of resellers is typical. The fundamental reason for the

If you are a solutions oriented Value Added Reseller with a vertical market focus your strategy will be customer centric, with a small portion of Product Leadership and Operational Excellence18.

If you are a platform provider (ISV) to Value Added

You are no longer close to the customers, but need to focus on the requirements of the Value Added Reseller and to be

17 Just Google ”making acquisitions work” and you will get 64 million hits!18 A VAR with solutions addressing the low end market with standard solutions will most likely have a much higher Operational Excellence focus at the expense of lower Product Leadership and Customer Intimacy.

Conclusion

Figure 2: Typical Value Added Reseller Strategy

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The differences in strategy required serving clients in a vertical market and serving Value Added Resellers explains why so many software companies fail in implementing an indirect sales approach.

The Critical Success Factors are different, and the more successful you are as a VAR the more likely it is that you will be a poor ISV. ISV/Product Leadership stresses product development, time-to-market, functionality and an image as “Premium Product”. VAR/Customer Intimacy stresses customer service, customer guidance, relationships and a “Trusted Brand” image.

The skill set required to talk directly to customers are very different from the skill set required to talk to VAR’s, who then talk to the customers.

Managing both approaches under the same roof proves to

Figure 2: Typical ISV value proposition

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Company ABC is offering a combination of a software tool and consulting services which can save their clients between 5-10% of their IT server capacity needs per year compared to their current mode of operation. The return of investment is less than 6 months and several current clients will testify that they have made substantial savings by using the services of Company ABC.

The solution price point is EUR 1 mill and up.

Potential clients are large enterprises with substantial IT installations and organizations especially enterprises which are primarily based on information processing (banking, insurance, telco etc.)

Company ABC is 20 years old and has a staff of 10 people.

The company had for many years tried to set up international market penetration through agents and resellers, but had not sold a single license through any of these channels.

consultant to rework the international go-to-market strategy.

After an initial strategy review it was decided to put the international activities on hold. It was decided to build a

winning more business with current clients and winning new clients in the domestic market. Further effort was invested in understanding and documenting the customer value proposition beyond the technical features of the software and services provided.

During the period, where all effort was focused on the domestic market, several international opportunities presented themselves. However new attempts taking advantage of these opportunities to sell solutions in new territories also failed!

Case study 2: ABC Company

The Situation

Company profile

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The external consultant started to interview current clients

ABC tools and what they had achieved by doing so. During these interviews it became clear that the clients were not fully conscious about the value that Company ABC actually provided. It also became clear that Company ABC could sell much more to the clients if they changed some of their approaches.

The clients (at the executive C-level) were eager to help complete

derived from using the tools and competence of Company ABC.

The analysis also indicated that Company ABC hardly had any external competitors. Resistance to apply the tools and services primarily came from internal sources at the clients. Some clients had internal developed

the staff, who perceived their position in the company tied to the continuation of these activities. Resistance also came from

technical staff, who didn't like the idea that an external party could identify savings and optimizations which they themselves could not. In general it became clear that the clients technical staff was not motivated by optimization opportunities or cost savings. Finally Company ABC found that some clients, who had outsourced their IT operation, believed that the outsourcing partner would take care of IT optimization.

from the existing clients it was decided to develop a completely new value proposition and go-to-market strategy.

Selling at a lower level on technical capabilities had proven slow and unsuccessful. Selling business value to technical staff had also been unsuccessful.

However working with the clients C-level executives identifying business value had proved to be extremely successful. However, selling to C-level executives requires a different skill set and

Promises of cost savings or process optimization seldom motives non-executives

process improvement must be addressed to the executive level.

The Analysis

The Objectives

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a different type of sales person, than is the case with a more technical approach.

Thus, the main objective of the new strategy was to sell "proven" value to enterprise clients using a C-level entry point. Further it was decided to break up the sales process in smaller portions which could be decided much faster by the client and to base any sales activity on data from each individual client.

Changing the value proposition required a rewrite of all sales documentation and the development of a new web site. Additionally the way sales was undertaken also went through a complete redesign introducing a 3 step process:

Finally, with the contact point for new leads being a C-level position person, new sales material and sales pitches were develop to match the tone and concerns of this type of roles. Training sessions were conducted in "selling to the C-level".

Company ABC also decided to offer clients a performance based payment scheme as an alternative to the traditional cost based pricing approach with paying for licenses, maintenance, support and consulting.

The Health Check is an analysis, which Company ABC can perform on data delivered by the potential client. Providing this data is a minor effort on the clients' behalf and doesn't require any investment over and above the time used to dump the data, send it to Company ABC and participate in the workshop where the results are presented. Based on this data Company ABC can perform analysis which will indicate if a potential optimization

The Solution

Health Check

Health CheckVery little effort by client

Proof of ValueSome effort by client

Full Scale ImplementationFull support from client

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and thus saving is possible. It is absolute imperative that the Health Check is supported by a power sponsor.

Proof of Value is an implementation of the Company ABC tools at the client site and running real time monitoring in a certain period, making some of the changes recommended in the Health Check AND where Company ABC will be paid a percentage of the savings. In many cases the clients decided to jump the Proof of Value and simply acquire the tools and services at list price, because that was more favorable than paying the performance based fees.

Full scale implementation is the phase where the client is using Company ABC tools and services on a daily basis.

As opposed to earlier, full scale implementation includes periodical reviews where consultants from Company ABC perform capacity auditing and recommend additional actions to optimize and save investment in additional application licenses and server hardware.

With hardly any external competition and a very promising value proposition, Company ABC decided on an aggressive growth plan including the penetration of international markets. The company decided for a direct approach with no resellers or distributors in between, but to build a brand and capability to serve clients all over the world through local organizations controlled by the company.

Being short on equity the company decided to identify local joint venture partners who were prepared to co-invest in building a presence in new territories.

The strategy was to implement the new value proposition and go-to-market strategy in the domestic market with current resources and start penetrating the neighbor territories through new joint venture partners, with sales and technical support from current resources.

The joint venture partners would initially operate as sales

agent agreement would be replaced with a subsidiary, where

Proof of Value

Full Scale Implementation

The Strategy

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the agent would hold 49% and Company ABC 51%. A pull option would secure Company ABC the right to purchase all remaining shares and secure the agent a very favorable capitalization of the value created.

The strategy proved very successful in the domestic market, where several new clients were added to the reference list with much shorter sales cycles than previously. Sales cycles were not quite as short as hoped for and managing internal resistance from the clients’ technical staff was still an issue which required energy and time.

Finding and making joint venture partners abroad perform proved to be a real challenge. In spite of the new value proposition and the new go-to-market approach sales cycles in new territories were still 9-12 months. Finding joint venture partners who were prepared and able to allocate all their time to building up a pipeline and manage the sales process without being paid until

Through the personal network of the management consultant

The joint venture partner was already acquainted with the potential client base and had access to power sponsors in most

pipeline of projects was in place for closing in the 4th quarter and in the following year.

Company ABC yet has to prove that the GTM strategy is

required to boot strap a new market. Using traditional recruitment agencies is considered an opportunity and will be tried in the near future.

maintain irrespective of which market they enter.

The company has recognized a need to be very close to the individual customer. They therefore only recruit people who are already acquainted with the customer base and who are capable of communicating value at the executive C-level.

Activities

Conclusion

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With little competition and a complex domain area they can afford to put less attention on product development. However they recognize a need for productizing, product planning and roadmap management as their installed base continues to grow. The lack of competition and the extremely attractive return on investment which the solution delivers, does not call for focus on Operational Excellence. However, the cash requirements for building up new markets are driving a focus on how to optimize the go-to-market investments.

Figure 4: ABC Company Value Proposition

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Hans Peter BechHans Peter Bech has more than 25 years of experience with international sales & marketing of ITC products, services and solutions. Hans Peters’ core competencies are:

Enterprise B2B business process software solutions, ERP/ERM/CRM solutions and software engineering (bespoke development).Go-to-market strategy/program development and implementation, including reference client recruitment, recruitment of reseller and distributor channels and setting up new subsidiaries.Extensive experience with and personal network in Scandinavia, Eastern and Western Europe, Russia, North America, Australasia and South Africa.

From 1998 to 2001 Hans Peter lived in Stuttgart, Germany responsible for building the partner channel for Damgaard/Navision (later acquired by Microsoft) in Germany, Austria and Switzerland.

Hans Peter speaks Danish, English and German.

Hans Peter holds a M.A. in macroeconomics and political science from the University of Copenhagen.

100% Clubs, Summit Conferences, Million $ Clubs and Top Performer events.

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The Financial PerspectiveCapital base:

The Learning/Growth PerspectiveOrganization Capital: Satisfaction, Values and Team spiritInformation Capital: IT, Knowledge sharing and External cooperationHuman Capital: Recruitment, Retention and Development

The Internal PerspectiveInnovation: Product development and Process developmentCustomer management: Attraction, Retention and DependenceOperation: Capacity, Flow and FlexibilityRegulatory and Environment: Security and Ethics

The Customer PerspectiveProduct/Service: Competitive parameters and Customer value

propositionRelationships: Customers relations, Customer loyaltyImage: Knowledge and Recommendations

The Management PerspectiveObjectives: Planning and FocusStrategy: Mission and Business planAction: Resourcefulness and Achievement of objectivesPeople: Management composition, Leadership development

and Leadership experience and cooperation

Appendix A:

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Appendix BCritical Success Factors areas according to Balanced Scorecard

Assuming Product leadership

Assuming Operational Excellence

Assuming Customer Intimacy

The internal process area “Innovation” is critical, consequently focus is on the following areas:

Idea generationProduct developmentContinuous introduction of new productsJoint ventures / Partnerships

In terms of the Customer Perspective Product/Service attributes, areas of critical importance are:

Time-to-marketFunctionality/Performance

As a “brand” the company should pursue a reputation as a “Premium product”

The internal process area “Operation” is critical, consequently focus is on the following areas:

Supply chain management

Cost reductionQuality improvement andProduction time reductions

Capacity managementIn terms of the Customer Perspective Product/Service attributes, areas of critical importance are:

Price/qualityTime Range

As a “brand” – the company is appealing to the “Smart shopper”

The Internal Perspective dimension “Customer Management” is critical, consequently focus is on the following areas:

Solution DevelopmentCustomer ServiceCustomer relationship managementCustomer guidance

In terms of the Customer Perspective, the Relationship dimensions of critical importance are:

Customer RelationsCustomer Loyality

As a “brand” a company should pursue reputation as a “trusted brand”.

TBK-WIPA-001

Designing Successful International Go-To-Market Strategies

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