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For high-end software companies, building a network of "value-added" resellers has always been an Impossible Dream. Typically, VAR recruitment is slow and expensive, the dropout rate is painfully high, and the worst VARs often leave a trail of badly-damaged customer relationships that can take years to repair.

But now a little-known accounting software developer has discovered a way to make the VAR business model work--and work well. Navision Software US, an offshoot of a multi-national Danish software company, has spent the last few years setting up a network of U.S.-based "solution centers" that are the company's only distribution channel. Currently, says channel manager Michael O'Brien, Navision has more than 70 active solution centers and has seen revenues "more than double over last year" solely as a result of the sales efforts of its VARs. "And there's no end in sight," he adds.

What's Navision's secret? O'Brien says the company treats its VAR network almost like a franchising program--in fact, he says "if it weren't for all the legal hassles, we probably would have set up a formal franchise system." In practice, this quasi-franchise model translates into strict recruiting standards, ongoing quality control, and a serious stake in the economic success of each VAR in the program.

Although software companies often insist they operate as "partners" with their resellers, few actually have the kind of intimate relationships that Navision encourages. O'Brien recently gave us a close look at some of the key principles that have made Navision's program so successful:

* Be incredibly selective: Navision puts a "tremendous" amount of effort into VAR recruiting, says O'Brien. The company sends out 6-10,000 pieces of direct mail a month, has assigned a full-time telemarketing rep to recruiting, and solicits recommendations from current partners. These efforts attract hundreds of applicants--but only three or four a month make the final cut. "We're not interested in having lots of resellers who don't produce," O'Brien points out. Potential VARs have to show adequate staffing in both sales and technical support, they have to write a formal business plan, and a Navision executive makes a personal visit before they're accepted.

* Look for service and support skills: "We look for organizations with a consultative sales approach," O'Brien says. "We don't want people who just have a history of selling packages and then walking away. Instead, we focus on the quality of their pre-sales consulting, solutions design, and programming abilities."

* Train and test--before signing a contract: Navision doesn't require an up-front investment by newly-recruited VARs, but "before we even execute a contract" a VAR has to undergo formal certification. The certification process includes one week of application training followed by a week-long programming course, both of which end with a "fairly rigorous" skills test.

* Provide comprehensive business tools: Even though Navision recruits experienced consultants, says O'Brien, a key part of the program is a three-inch binder filled with sample proposals, contracts, marketing letters, and other tools. "Even if they have some of these things already, we save them a tremendous amount of effort," O'Brien explains. And by providing standardized documents Navision helps achieve more consistency in the way its VARs conduct business and market products.

* Encourage localized lead generation: Rather than promise a steady stream of sales leads, says O'Brien, Navision tells its VARs up front that "the majority of leads will have to come from their local efforts." But Navision has set up a co-op fund (equal to 4% of product sales and 1% of service revenues) that Navision uses to pay for local direct mail, trade shows, advertising, and merchandising.

* Set tough performance goals: "In essence, we want our partners to start a new business around Navision," O'Brien says. So all VARs are given financial targets "based on geography, opportunity, and the length of time they've been with us." After six to nine months, he says, a VAR is expected to produce $500,000-$1 million in product sales and roughly the same in consulting services. A VAR that doesn't meet these targets won't necessarily be kicked out of the program, but "we'll probably have a heart-to-heart talk about how committed they are to representing Navision."

* Own a piece of future service revenues: When VARs sign a contract, they agree to rebate 15% of virtually all the service business--training, implementation, custom programming, data conversion, maintenance, and the like--that they get from their Navision clients. Typically, service represents more than half of a VAR's revenue stream, O'Brien says, "so their first reaction is to say, 'Are you guys crazy?' We explain that the 15% keeps us focused on supporting their success as service providers. We're not going to cut them out of upgrade sales or do anything to make their long-time clients unhappy. It may take some explanation, but they really begin to understand that we don't just talk partnership--we live it."

Michael O'Brien, channel manager, Navision Software US, 500 Pinnacle Court, Norcross, Ga. 30071; 770/798-8300. E-mail:
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Title Annotation:Company Business and Marketing; Navision Software US makes value-added reseller business model work
Date:Feb 21, 1998
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