Turn a Client Site into Saleable Software

Product Sales and Distribution

Once you've got your product ready and your business plan mapped out, you can focus some time on generating actual sales. It is, after all, the only way your company will grow.

Approaches to Sales

Essentially, sales and distribution can be boiled down into two categories: direct and indirect.

The Direct Approach
The concept of direct sales is pretty self explanatory: in this model, your company assumes responsibility for the sale of your software. There are few large companies today that maintain a strict direct sales policy, but certain companies, such as Apple and Dell, have made names for themselves as being major supporters of the direct sales model. The idea, basically, is that if someone wants to buy your product, they have to come to you, rather than a retailer.

This puts you completely in charge of the customer relationship, so you can more easily gather valuable feedback and foster better interaction between your company and your users. Because you are the 'manufacturer' as well as distributor, you keep 100% of sales revenue. However, the direct approach can prove a costly venture, and sales may be difficult at first for a new company with an unproven product. You must decide whether it will be cost effective for your company to maintain a customer sales and service department as it grows.

Channel Sales
The concept of indirect, or channel sales starts to get a little more involved. This is where you enlist the help of other companies to sell your product. Essentially it's like marketing to retail stores, but with software it's a little different.

Since there's no packaged product that can be put on a shelf, distributors don't need to purchase stock to keep on hand. Instead, they sell your software licenses for you, and you split the profits with them. A good example of this is Microsoft. Have you ever purchased a product directly from Microsoft? Have you ever contacted their customer support department? Microsoft sells their products wholly through third party distributors, often as integrated components with other products. When was the last time you saw a new PC in a store that didn't have Windows preloaded?

There are distinct advantages to this type of practice. For one thing, less upfront capital is needed when someone else is doing the legwork for your sales. As you're just starting out, you will no doubt find many distributors that have a much broader reach, and can connect your product with buyers much more easily than you can yourself. Of course it's always beneficial to have a strong, established company backing you, and if your product is one that would lend itself to face-to-face sales consultations with potential buyers, it's useful to have sales partners outside your area to facilitate those onsite visits.

The inevitable drawbacks of this approach are that you lose control over customer relationships, and you don't get direct feedback as easily as you can through the direct sales model. While you'll save some resources by outsourcing your sales tasks, you will still be responsible for training your new partners and making sure they're familiar enough with your software to adequately demonstrate it and answer questions with confidence. You have to split the earnings, obviously, and depending on the particulars of your sales agreements, it could be some time before your company recoups any of its investment.

A Hybrid Approach
As with a lot of things, most companies find that a mixture of both methods works best. Particularly when you're just starting out, it's important not to get locked in to one form of sales. Further, the balance that works for your young company now may need to be revised as the business grows. My business started out trying to sell strictly through indirect channels until it became apparent that this approach just took too long to start up. Now that the company has matured, we still make the majority of our sales directly, but we also have a number of vendor partners who have greatly improved our reach throughout the nation.

Partnerships

Partnerships can be very beneficial if they are handled well. In order to strike a profitable agreement, you need to understand the typical types of partnerships. But remember: whatever type of partnership you pursue (and you can have more than one), it's important to establish a good rapport and choose your partners well.

Vendors/Resellers
A vendor simply takes your product, sells it, and shares the profits with you. Just think of going to the store and buying Adobe Photoshop instead of downloading it from the Website. You're still getting Adobe's software, but you don't have any contact with the actual manufacturer.

Integrated Service Vendors (ISV)
An ISV partner is a little more subtle than a vendor. Rather than simply selling your software, ISVs offers your product to their client in conjunction with various goods or services. Certain types of software lend themselves more readily to this type of partnership. One example is software that has been preloaded onto computers, such as Microsoft Windows. It can also come as a software add-on: when you purchase a new computer online from Dell, for example, you are asked if you would like to add the Microsoft Office Suite as an additional upgrade.

More often, however, an ISV includes your product with a service they provide. My company has established standing partnerships with a number of Web development and design firms. When clients hire one of these firms to develop a Website, they are then offered our software product for their content management needs. A key advantage to this sort of arrangement is that the new partner does not need to do additional marketing: your software is an add-on, not a separate venture.

Original Equipment Manufacturer (OEM)
Perhaps the most secure form of partnership is the OEM partnership. One company (that's you!) makes a product, then another company sells it under their own brand name. It's a model that's common throughout every industry, from cars to clothes to computers. If you buy a Dell laptop, for example, it's generally accepted that a different company has actually made that PC -- Dell simply puts a logo on it. No matter how good the laptop is, it probably wouldn't sell as well without the Dell name.

In the same way, opening your company up to be an OEM may be a wise way to expand your market and increase your revenue. Although you lose control over customer relationships, you have the benefit of support from an established company, with access to better resources and an established customer base. And the partner, of course, benefits from earning revenue from a quality product they didn't have to develop. OEM relationships are complicated, and difficult to arrange equitably, but teaming up with the right company can be a great way to jumpstart a new business.

Striking the Balance

Although there are no hard and fast rules, and most companies must learn by trial and error which sales balance works best, you may find that, as a young company, you achieve best results from an approach that predominantly focuses on direct sales. This way, you have more control over your product while it's in its infancy, and can receive more direct feedback from customers. As your software matures, it may become refined to a point that its development no longer fluctuates on the suggestions of consumers. As your company expands, you may find that (like Microsoft), it's simply not cost effective for you to meet the demand of customer services. The ratio of direct to channel sales is ultimately up to you: you must decide what will work best for your current state of development.

Managing the Customer Experience

In the first article of this series, we spoke about the process of identifying a market and meeting a need. Essentially, it's the customers that inspired your software, and it's the customers that will ensure its success -- if you treat them right.

High-Value Customers

It depends on the type of software you are selling, but for many business models, a sale occurs only once per customer. Adobe may sell new versions of Photoshop to the same people who bought previous versions, but in the bed and breakfast case study we discussed earlier, you'd probably expect that the ecommerce software you built would always be a once-per-customer sale. However, this doesn't mean that we can afford to make the sale and never speak to the customer again! Never underestimate the value of having a reference account.

Reference Accounts

A reference account is basically just a happy customer who doesn't mind taking calls from your potential clients. Knowing that even one customer has taken the plunge and is using your software will set potential customers' minds at ease. Having a neutral party that they can call to discuss their concerns is invaluable when you're trying to establish a solid reputation.

So how can you acquire a reference account? You need three things: really good software, really good customer support, and consequently, a really happy customer. It's not something you can always predict, but if you keep you eyes open, you'll soon identify who would be a good referee. The best thing you can do is to establish a rapport with your customers, make them your friends, and keep them happy at all costs. When you're Microsoft, you can afford to be a little distant. But when you're just starting out, you've got to go above and beyond to prove that you're worth the money they paid.

If you've identified some specific markets to target, it will be beneficial to get reference accounts in those fields. So, your bed and breakfast ecommerce software product will be much more attractive if you have a few successful bed and breakfast operations as references than if you had a glowing reference from a hospital.

Lighthouse Accounts

Lighthouse accounts know who they are and can pretty well demand what they like. These are the leaders that everyone in their field looks up to, and having them on your list of clients is worth a lot of effort. When Tessitura was developed to meet the ticketing needs of The Metropolitan Opera, there was an almost immediate demand simply based on the caliber of its users. Just five years later, major performing arts organizations all over the world are counted as clients.

Of course, getting an industry leader to invest in untested software from your brand new company will prove a little tricky. You need to decide what it's worth. Even if you end up giving your product away, if you can write up a case study, keep the client happy, and maybe even maintain them as a referee, the long-term benefits may well be worth the expense.

Dissatisfied Customers

In a nutshell, don't have them! Particularly as a small company, you simply cannot afford to have unhappy customers. Regardless of the customer's value to your organisation, it's crucial to keep all of your customers satisfied with your product and your company -- especially in the early stages of your business's growth.

The common 80/20 rule can generally be applied to customer service: eighty percent of customers will generate twenty percent of the support load, while the other twenty percent of customers will generate eighty percent of the support load. When your company is small and young, you've simply got to factor in for the high maintenance users. There will come a time, however, when you have too many customers to give yourself completely to all of them. If a particular customer becomes a problem, and you're honestly convinced that your company is not the cause, it's time to make a value judgment. How much is this customer worth? If it's your lighthouse account and a possible reference, you may find it's worth it to do whatever is required to keep them happy.

Generating Feedback

Regardless of who provides it, customer feedback is important for your growth. Maintaining communication with customers not only helps you generate ideas for improving and expanding your software, it helps your customers feel important to and invested in your company. My business sends an individual email once a month to each of our clients asking for feedback, both good and bad. It's been a valuable tool in helping us determine which features of our offering are useful, and what needs improvement. When we determine a trend in requests for a certain feature, then we can be sure that it will be worth the cost of development. In this way, maintaining customer relationships are an important way to keep the technology moving forward, and to continue meeting the actual needs of consumers.

Establishing a Product Community

Communities most readily crop up around open source products. Think of the difference between Firefox and Internet Explorer. Internet Explorer may still control most of the market, but it doesn't boast the active and passionate user/developer community that Firefox has established.

Even in the realm of proprietary software, the need for and occurrence of product communities is widely varied. If you're thinking of establishing a community around your product, stop and think about whether it is really appropriate for the kind of product you sell. Setting up a forum or message board is easy enough, but is it really beneficial to your product? Just because you're able to do something, that doesn't necessarily mean you should. It all depends on the scale of your software and the number of customers you serve. If you have a very small customer base, it may not yet be time to set up an interactive community. An empty forum reflects poorly to potential customers, and if it doesn't seem to be very active, current users are less likely to make use of it themselves.

The usefulness of a community also depends on the scale of your software. If you're selling a fifty dollar packaged application, having a forum where users can communicate between themselves and help each other learn and solve problems will be much more expedient than trying to handle all support calls yourself. However, in the case of a $20,000 business solution, you'll probably have fewer customers to support, and your customers will expect to go directly to you with all their questions.

Nevertheless, communities can often spring up with no prompting from the product's makers. If a need arises, and a community begins to form around your product, embrace it, contribute to its growth, and it will contribute to yours.

Conclusions and Further Reading

As you've no doubt figured out, there's no right or wrong way to commercialize your product.

I hope this article has made you more aware of the challenges ahead, and better equipped you to make strong decisions for your new company. In commercializing a piece of software, you'll need to consider the questions of choosing a business model, planning to market your product, releasing your product, sales and distribution, and customer management in some detail.

The good news is that the work you put into planning, research, and preparation will pay off in the long term, as you bring a product to market, then work to overcome the hurdles that all software producers face. If you've got a great product, and you plan well, you're well on your way to an early retirement!

To look further into software development, management, sales, and business, see the following resources:

• The Art of The Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything by Guy Kawasaki
• Make a List, Check it Twiceby Guy Kawasaki
• The Myth of Open Source: JBoss founder Marc Fleury explains how his hot startup makes profits from its free application-server software Edited by Ira Sager
• Create a Software Release Checklist by Patrick Andrews