InternationalGo-To-MarketStrategiesforSoftwareCompanieswithLongValueChains

DesigningSuccessful
InternationalGo-To-MarketStrategies
Longvaluechains.
WhitepaperfromTBKConsult
Issue 1
Authors
Hans Peter Bech, MA (Econ.), Group CEO at TBK Consult.

2
DesigningSuccessfulInternationalGo-To-MarketStrategieswww.tbkconsult.com
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,
Targetedaudience
Abstract
Acknowledgements

3
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 BootStrapping
Bridgehead
where you establish a local presence to enforce your
position and grow to 10-15 clients
Expansion
where you scale your operation to go for market
dominance
1.
2.
3.

4
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 Planning
5
Independent Software Vendor
6
For a solid argumentation please see “Crossing the Chasm” by
Geoffrey A. Moore (2002 edition)
CustomerIntimacy
The Customer Intimacy
close to the individual client
and be responsive to his
OperationalExcellence
The Operational Excellence
provide products and services
at a very competitive price,
typically accompanied by a
volume approach
ProductLeadership
The Product Leadership strategy
providing features and functions
no one else is offering typically at a
premium price
Figure 1:
Value Proposition Sample

5
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.Thelonglearningcurve
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.FractionalRevenue
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
Thebusiness
challenges

6
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
Thesalesprocess
Thelong
learningcurveA.

7
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.
Thelocalpeopleyoumayengagetohelpyouareinexperienced
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.
Theadditionalchallenge
Fractional
RevenueB.

8
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.
Approachestodeal
withthechallenges
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.

9
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
Companyproﬁle
CaseStudy1:XYZCompany
Thesituation
Theanalysis

10
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.
TheSolution
MarketAssessment
assessment template
Provision of a long list of acquisition candidates
M&A
Local M&A company is engaged to manage the
acquisition process
1.
2.

11
Making acquisitions successful is a challenge in itself. It
is beyond the scope of this white paper to address these
17
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

12
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

13
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!
Casestudy2:ABCCompany
TheSituation
Companyproﬁle

14
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.
TheAnalysis
TheObjectives

15
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
TheSolution
HealthCheck
HealthCheck
Very little effort by client
ProofofValue
Some effort by client
FullScaleImplementation
Full support from client
1.
2.
3.

16
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
ProofofValue
FullScaleImplementation
TheStrategy

17
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

18
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

19
HansPeterBech
Hans 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.

20
TheFinancialPerspective
Capital base:
TheLearning/GrowthPerspective
Organization Capital: Satisfaction, Values and Team spirit
Information Capital: IT, Knowledge sharing and External cooperation
Human Capital: Recruitment, Retention and Development
TheInternalPerspective
Innovation: Product development and Process development
Customer management: Attraction, Retention and Dependence
Operation: Capacity, Flow and Flexibility
Regulatory and Environment: Security and Ethics
TheCustomerPerspective
Product/Service: Competitive parameters and Customer value
proposition
Relationships: Customers relations, Customer loyalty
Image: Knowledge and Recommendations
TheManagementPerspective
Objectives: Planning and Focus
Strategy: Mission and Business plan
Action: Resourcefulness and Achievement of objectives
People: Management composition, Leadership development
and Leadership experience and cooperation
Appendix A:

21
AppendixB
CriticalSuccessFactorsareasaccordingtoBalancedScorecard
AssumingProduct leadership
AssumingOperationalExcellence
AssumingCustomerIntimacy
The internal process area “Innovation” is critical, consequently
focus is on the following areas:
Idea generation
Product development
Continuous introduction of new products
Joint ventures / Partnerships
In terms of the Customer Perspective Product/Service attributes,
areas of critical importance are:
Time-to-market
Functionality/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 reduction
Quality improvement and
Production time reductions
Capacity management
In terms of the Customer Perspective Product/Service attributes,
areas of critical importance are:
Price/quality
Time
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 Development
Customer Service
Customer relationship management
Customer guidance
In terms of the Customer Perspective, the Relationship
dimensions of critical importance are:
Customer Relations
Customer Loyality
As a “brand” a company should pursue reputation as a “trusted
brand”.
TBK-WIPA-001

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