Feel like you’re pushing a rope trying to gain traction on new product offerings in your channel partners? I recently interviewed Steve Blum, a global sales leader who knows how to drive new product adoption through channel resellers. Today’s topic is focused on how to transition channel partners from perpetual license to cloud-based offerings. Steve and I answered questions from the How to Your Number in 2018 , specifically in the Channel Optimization phase.
Joining us in-person in our executive briefing center, The Studio is Steve Blum, the Senior Vice President of World-Wide Sales for Autodesk. Steve has been a sales leader at Autodesk the past fourteen years, with the last seven serving as the head of world-wide sales. In my interview, Steve demonstrates how to bring a channel organization along through major transformations in the business model, such as shifts from perpetual license to cloud-based offerings.
Autodesk’s channel business represents an astounding 75-80% of the total revenue, with the rest being direct. Steve is uniquely qualified to speak on this topic of channel optimization. Steve’s team has a few named account organizations that calls on customers direct, but most his business coming through indirect channels.
I have included the full transcript of my conversation with John, or if you prefer, watch the full interview in a HD video.
We will start at a high level to educate everybody. Do you go to market direct or indirect?
We go to market in both ways. We do 75-80% of our business indirect, the rest is direct. We have named account organizations that calls on customers direct. We work with partners in the SMB space and then we have our E-store, which is more direct. We have both models at play.
And within the indirect model, there are a lot of choices to be made there. You can go OEM, private labels, system integrator, evaluated re-sale distributor etc.
Which indirect channels did you use or do you use and why do you choose those?
We basically work in a VAR and VAD (Value Added Reseller/Dealer) model. So, evaluated re-seller, predominantly in a two-tier model. So, they purchase through VARs that we have out in the market places. We do business in 170 countries around the world. To be able transact business locally in local currencies, to have people on the ground in all those countries, it required an indirect channel. It gives me scale, it gives me coverage and ultimately it provides people around the world, each and every day, providing value to our customers.
You’ve been with the company 14 years, how long has the company been around?
Were they always this VAD in VAR model? Or did they pivot there at some point?
Autodesk is very unlike most technology companies and that it didn’t start out as a direct company, ultimately add channels. It started out as indirect company. When AutoCAD, our first product came out, it started going to market through users that were so enamored by the technology and had entrepreneurial concepts or ideas or aspirations, that they turned into VARS, our first VAR. So, our users became our first channel partners overall. It wasn’t until after I started the company that we built out our direct go-to market element with named accounts. So up to that point, we were all indirect.
Interesting. That is unique.
It’s the reverse of most technology companies.
All right so I guess my last question on this segment was something that a lot of my audience members struggle with is going from direct then they go indirect. And the economics can be sticky. So, how do you think through with the economic model of these channel relationships?
We’re constantly evaluating the economic models overall. We have set-up predominantly buy-sell models. So basically, our partners are purchasing the products and reselling them. We have front-end discounts and back-end discounts incentives that align partners into areas of specialization, dedicated resources, certifications, those types of things. Nurturing requirements to ensure adoption and success with our clients. So, we’re in that buy-sell model with front-end and back-end discounts. Now, you have to evaluate those costs compared to going direct but I will share with you, I get scale by working in an indirect model. If I work to try to replace all my partners with direct headcount, I would spend a tremendous amount more than what I’m spending by engaging with my partners around the world.
It’s lost on some of those that grew up in a direct world. That the partners must make money.
You need them to invest. My goal is to work through specialized dedicated partners that are constantly interested in growing their business. And the only way they grow and invest in that headcount is by making money and redirecting it back into the business. If we try to just slim down their costs, or their earnings model to a very limited amount, they will have to divest resources. I’ll slow sales or I’ll decline sales through that model.
So, my compliments to you because you are a public company, and I would imagine over the years the temptation to squeeze the partners margins was high to make a cordially number. And you guys have really stay true to your mission.
Yes, you must stay balance.
You to live long-term and short-term and there are other short-term pressures. But ultimately, if you miss a quarter and then you miss another quarter and you’ve made decisions that are going to have to miss the quarter after that as well, you’re in big trouble. So, you must balance it all the way through.
Is there conflict among the channel partners and the direct sales? And if so, where is it the most intense?
Channel conflict is an interesting topic. There needs to be a little bit of channel conflict. Everyone thinks that you should have none. If you have none, then you’re not covering the market properly. There’s got to be some conflict somewhere. We have minimal conflict but we do have some channel conflict, and it’s typically around our named accounts. Our named accounts are the largest enterprise companies that we have. They were at one time or another most likely serviced by our partners, and we’ve chosen to grow our business, to change the relationship and have a more strategic C-level relationship that we were going to take an active role and even move to a business model that’s direct.
Our partners don’t love when we make those decisions overall. There is an interesting output from that though. If we picked the named accounts properly, and we’re very selective in that process. Those companies drive decisions on software use and methodologies in their ecosystems. So, their supply chains follow what they do. By getting those companies to move to Autodesk solutions, we’re generating new opportunities in their supply chain that our partners, then can go and service overall. So, we do have a synergistic opportunity there but if a partner’s losing some control within one of those accounts, there’s some conflict that needs to be dealt with.
If we do this properly, we measure our success by not only how we grow the business with those accounts but how we get their supply chain and their ecosystem to move to those offers. If we do this well, it’s a win for everybody. Our partners end up having more opportunities within the SMB space because that’s where most of their supply chamber sits at the market place.
You have years of experience and coverage in channel selection, direct, indirect etc. Several people in our audience don’t. So, I’m going to give you a consulting framework here, and ask you to react to it. More as an instructor if you will. What’s we’ve seen is this really three broad coverage models when picking a channel. The first is intensive. What this means is sign up as many channel partners as you possibly can. Put thousands of feet on the street and let them duke it out for the business. An example of this might be Cisco systems. There’s a lot of Cisco systems re-sellers out there.
The second one would be selective. And this is typically you see platinum, gold, silver, bronze, and you must have certain requirements. As you move up this selective stack rank if you will, you get a tighter partnership and maybe some type of increase benefit. I think an example there would be Microsoft. I think they do an excellent job in that particular area.
In the third type is the exclusive model. That says I’m going to pick one partner and I’m going to market with them, exclusively, and it’s typically for a period of time. I think the great example there would be when the iPhone first came out. They sold it exclusively through AT&T. Once it reached a certain point of maturation, it started jumping on the other networks, Horizon etc.
In your world, do you use one of those? Do you use all of those? How do you think through those? What advice would you give the audience?
It comes down to where you are as a company, and how mature you are in the market place. Ultimately, to pick the right one. We’re only in one right now, which is selective. When I started with the company, we were an intensive. So, we had lots of partners. We had too much coverage in many markets, where the partners view the competition as each other. As opposed to our real competition out on the space. So, we move to selective, which was building a complete channel framework. We have one common channel framework globally that we implement. It is tiered. There are benefits for those partners that are at the platinum level, which is our top level overall. In fact, we’ve managed the number of partners down.
I believe that we can have more feet on the street, more coverage by having fewer partners but having better partners who are more financially sound and interested in vesting, than going in that intensive model. That’s where we are right now. Again, intensive may be okay for a company in their phase … where they are in their life-cycle, but for us, we’ve moved to selective.
So, you were intensive, moved to selective. Anything exclusive?
We try to stay out of exclusive. We have lots of users and lots of customers. And it’s growing with our new offerings and so we want the right partners, but we want to have more … we don’t want to be stuck riding one partner in a market. The opportunity is too great typically.
I agree, and I think of the three, exclusive is probably the least chosen. I very often see it in certain geographies.
Audience members, pay heed here. One thing that you need to pay attention to is that if you go and you sign up all these partners, someone in your company must support them. And it’s hard to support 5000 partners. It’s easier to support 500 partners or 50 partners. Keep that in mind because if you sign up a partner, and the partner’s not successful, they’re going to drop from your partner program. So, the more partners, the more support that’s required from you.
Do your direct sales channels and your channel partners “co-hunt” and make joint sales calls or is this an independent activity?
I can answer the question two different ways. In our named account part of the business, which is where we’re doing some direct transaction business. We typically take the lead, but in certain markets, we have partners co-hunt and co-sell, and even co-support with us. In fact, we do large enterprise agreements that we have consulting and customer success requirements in them. We leverage some of our partners strong capabilities in markets and use their resources as opposed to our own, so we can co-sell and incorporate them into those opportunities and have local support, where I don’t have to invest in having my own Autodesk folks. In that part of the business, there is co-selling at that area.
In the SMB space, we have a lot of co-selling. I have territory sales reps that are responsible for the SMB space. And their job is to exclusively co-sell, co-hunt with our partners. We focus them on new business because I want them doing the heavy lifting and finding new opportunities, generating the man that will get fulfilled through our partners. But they collaborate on those opportunities and they do co-sell, and they do account planning together and things like that. My team can’t support all the transactions. We have millions of customers and there’s hundreds of thousands of transactions each year. But my team does focus on the largest opportunities and helps our partners ultimately close that business.
I could walk as CEO in the room right now and sit him here between the two of us. Let’s say he is not a Sales and Marketing CEO. Maybe he’s a product CEO. What he would say to that, and I want to get your reaction to this is if I’m signing up channel partners and they’re earning a commission on what they sell, and I must go sell with them, isn’t that an incredibly expensive sales model? Isn’t the idea of having a channel is to increase my reach, lower my cost a sale etc.? If the channel partner is just a fulfillment engine, what’s the point? If you were to argue against that, what would be your argument?
This is an easy one because that conversation does happen. First, our partners don’t just do fulfillment. Wouldn’t want to have come out of what I say was, all the great stuff happens with the Autodesk territory rep and the partners are just doing fulfillment overall. The coverage model, the number of sales people I must the number of partner sales reps is a small number. The ratios are very small. So, they must pick the largest, the hardest, the most important opportunities where they can add value. Our partners are doing the heavy-lifting and practically, all the lifting for the majority of the transactions.
I reverse the discussion about is it a heavier or costlier model. I actually go the other way. If I had to go and do all the volume of business that my sales reps in the field are not touching today, so I remove all the partners … the amount of cost that would be added to our structure would be far greater than the amount of cost we have in the ecosystem right now.
You bring up a good point. There’s lots of things they do in addition to the sale. Support, implementation, and that’s where they add their value, right?
That’s the value add part of the reseller. We’ve been focusing them even more on customer success and adoption. We’re even moving our incentive structures to put more of their value, more of their earnings in that part of that selling motion, or that support motion because in a world of subscriptions and consumption, you need to have high renewal rates. And I would argue that renewal rates are the very tail-end of a process that really needed to start the day after a sale happened. And our partners are the ones that stay engage with the majority of our customers to do that.
You recently brought out some new solutions that were born subscription based?
Yes, born in the Cloud.
How did you introduce those to your vast channel network?
We did introduce new Cloud based offerings, and we recognized from our past as well that it’s very costly for our partners to bring brand new offerings to market, when we haven’t figured out all the sales play is, all the customer objections. Perhaps the right pricing strategies, we haven’t gotten all the marketing right. Sometimes the offerings aren’t even complete. Throwing that over to our partners and asking them to go do it, is a costly and money-losing proposition for them. Ultimately what would happen is we’ll get a few successes, we’ll think we’re having some early fun and success and then it all of a sudden stalls.
We adopted a different approach and we basically told our partners … so we’re very transparent. We’re going to take these offerings to market in just a few places, but we didn’t launch broadly. We launched in a couple of markets, but we’re going to invest in our own products specialists. Some sales and some technical folks that will engage with customers and own the selling process for those early customers. To figure out, how do you sell successfully? How do you handle customer objections? What are the successful sales plays that are reputable and scalable? And then ultimately, told them once that’s understood … and once we’ve even learn how to deliver successful services around those offerings because Cloud offerings require a real focus on customer success. You need to have folks start using those offerings right away. So, we had to build out what are those capabilities to drive that success overall. But once we figured that out, we told our partners we’ll then move to rolling out in a different model where they can engage with us. So that’s how we rolled out our first set of Cloud offerings.
They were okay with it?
They always want to be involved, which I love. But they trust us now to know that we’ve delivered on our … what we say and what we do has been matched up over a period. And so, they said okay. What was interesting is we introduced some of our Cloud offerings to go focus on our manufacturing space and our Cloud offering to some extent … it’s a different kind of platform altogether. So, we went to the partners in North America. And we said, “To fund our own resources, we’re going to pull from our resources that co-sell with you. We’re relying upon you to keep driving the business with our co-offerings, while we figure out how to bring these new offerings to market and then we’ll enable you with that. We have done that.
Some of my clients are in the awkward transition right now. In the software industry, moving from the perpetual license model to the subscription model. A sticking point for them, with their channel partners is the economics. In the old ways, sold a license, you collected all the revenue and it was enough to go around for everybody. Everybody was happy. Now, we’re collecting the revenue on a ratable basis and it changes the economic model for the channel partners.
Was that the case for you? And how did you work with your partners in a partnership to make sure that everybody was happy with the outcome?
In introducing the Cloud offerings, that wasn’t an issue, because the Cloud offerings didn’t replace perpetual offerings. They were brand new offerings in the market. As we rolled out buy-sell models, and as we drove partner enablement training so that our partners could start selling and delivering services around it. It was incremental for them so that part worked out well.
The economics, well not as interesting upfront because they are recognizing revenue ratably. It is all incremental ratable revenue and after one year, it starts layering on top and that model really starts paying off. In this particular space, we didn’t have that challenge. We’ve been moving from having perpetual licenses to selling subscriptions and consumption based models for our desktop offerings. In that area, that was where the partners did have to manage through a process, and we needed to pay close attention to how they managed through that process.
It’s painful in the short-term, but in the long-term it’s much better for everybody.
It’s a huge, huge benefit overall.
It’s hard to make the switch especially when you built the model based upon a certain economic model. It’s a challenge and there’s no way around managing through the challenge. You can sell your way through it to some extent. There are ways that at least bridge it a bit, to lessen the blow but there’s still going to be a blow.
I think your transparency and authenticity with them carried a lot of weight, and I think that’s why your partners are so loyal to you.
We have a really good relationship. We’ve built it overtime. We value the feedback and the relationship we have with them, and we have known that they value it the same way. We’ve been transparent on what was going to happen, how we’re doing things, what they should expect. It’s like building trust anywhere. You can say whatever you want, it’s really what you do and if you follow up with the things you say you’re going to do and take actions, you build trust. You build confidence and that’s one of the benefits of being here for 14 years. My partners actually have known me for 14 years. I’ll follow up with what I said I’ll do, by doing it.
Many of the channel partners traditionally, earn the majority of their income through implementation services. Much more so than any resale on the technology itself. When you go to the Cloud, one of the big benefits of going to the Cloud, is that the customer is shielded from all the implementation requirements. They access the new tool through a browser of some kind, and all the sausage making behind the scenes. They don’t even see anymore. So that implementation dollar has either been eliminated or been reduced, and that’s painful for the channel partners. Have you seen that?
Yes and no. I would say there’s a switch in the types of services. The value add in traditional IT implementations services goes down, because we’re doing a lot of that work on behalf of the customer, because we’re hosting it all on our servers. These new offerings are addressing new methodologies, new ways of doing work. We focus on the architecture engineering and construction space. Construction on the job site is so far behind in investment of technology, and there’s so many opportunities on the job site to leverage technology.
Our Cloud offerings are now bringing 3D models of the actual buildings to devices on the job site. We’re now getting exposure to iPads, to your iPhones. If you do a BIM model, Building Information Model of one of those large skyscrapers. As you’re building that building on the site, if you must make a change, you can make the change on your iPad and it makes a change all the way back in the model. And everybody accessing the model has it real-time. So, it’s changing the way construction is being done. But now there’s all these users on the job site that haven’t used this technology, and they must do things differently. To do the same job the same way, would kill the value of the technology.
That’s where services are playing a really big role. Implementation services for us aren’t how do I get the system setup? As much as how do I use this effectively to get the value out of it, which is why I invested in the first place.
It’s almost a business process re-engineering effort.
It really is. We’ve been telling our partners the opportunity is take the technology to a customer, and then help them get all their projects on this technology because that gets you more users. It drives adoption, it drives success within the organization. We figured these things out by doing it ourselves first, and then we’re bringing our best partners, and the ones that are leading the way for us now with our Cloud offerings, we bring them in. We train them through my partner-enablement teams and then we do shadowing. They’ll join us in one our projects to make sure they’re learning and doing. We’ll enjoin them on one of their projects just to make sure that they’re prepared to go and do that service, when it’s their job to take the lead on it.
Audience members, what you want to capture from this interview that if you’re making a move from way of doing things to another way of doing things, in this use case from selling perpetual licenses to Cloud solutions, you must think through how that’s going to impact your partners. At first glance, human beings don’t like change. There’s going to be some resistance, but if you can work through it with your partners, you’re creating new revenue streams for them. New value propositions for them. A new set of services that might make their business more competitive.
The early adopters can probably capture the lion share of that new value that’s being created. That was a great story and that’s the big lesson.
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