Founder in Eleven

One way many founders go about building a successful consulting services firm is to become an expert and partner in the implementation of a specific software package.  Whether SAP, Salesforce, Oracle, or any other software, consulting partners bring in their expertise when the customer is buying, implementing, or building integrations/enhancements to the software product.  Partnerships can include many benefits for the consulting firm:

• The software firm can have a large customer base that is looking for services
• The services firm can build a unique service and customer experience, often difficult for competitors to replicate
• The software firm can have a strong brand that the consulting firm may use to better market services

Software firms typically pursue software sales without a focus on services. Nevertheless, partnerships can include many benefits for the software firm:

• The services firms are an additional sales channel to sell and market the software
• The services firms have implementation resources to handle the implementation and integration of the software
• The software firm can have a reduction in support calls as the partner is handling the first line of support, rather than the customer calling the software vendor

Technology Services Group (TSG) began as an early Documentum partner in 1996 and an early Alfresco partner in 2006.  While both of those partnerships were very successful, TSG partnered with multiple other firms that were successful.

Software Firms – Partnering Opportunities in the Start-up Phase

During the start-up phase, software firms are typically investor-backed (VC, Angel, etc.). During this phase the software firm has limited available funds, resources, and a shorter timeframe to develop, market, sell and support the software.  Because of this, software firms recruit for partners at this phase to assist with the sale, installation, integration, and maintenance of the software. 

Software firms are looking for both big and small partners.  While the software firms might want partnerships with big firms, start-up phase partnerships are more successful with small firms that can focus their energy on one product and offer dedicated resources. For our Documentum and Alfresco early partnerships, all of the successful partners alongside TSG were small niche companies doing small implementations with three to ten consultants.

Small consulting firms have experienced resources, existing client relationships, integration expertise, and a host of other benefits for the software firm.  In the start-up phase:

• Software firms look to add as many partners as possible
• Software firms typically charge a fee to become a partner
• Partners receive access to the software, support, and training
• Partners can resell the software often capturing 20-40% of the software sale or subscription
• Partners increase integration and build software and services to augment the product. Software vendors encourage partners to help build an ecosystem of products on top of the software
• Innovative software firms will find a way to incent their sales representatives to use partners to engage the partner channel

The start-up phase is a great time to become a software partner, as:

• Most software firms have limited consulting resources, with their technical resources working on product development and not on customer implementations
• The consulting firm can establish unique early skills and client experience with the software to differentiate themselves from competitors
• A consulting firm’s  early relationship with the software firm allows for collaboration with sales, marketing, and engineering across both companies

The downside to the start-up phase of the software firm is a smaller software firm customer base.  Larger firms (Accenture, Deloitte, Wipro….) typically wait to consider partnerships until the software vendor is proven and has a greater amount of customer implementations. Once the software vendor is successful, smaller firms are often acquired by the larger vendors for their customers and expertise if the larger firm decides not to build out the expertise themselves.

Software Firms – Growth Phase

Two recommendations for those looking to understand the software firm lifecycle are Geoffrey Moore’s Crossing the Chasm and Inside the Tornado. Moore proposes that successful software firms eventually move from start-up across the “chasm” to achieve rapid growth “inside the tornado.”  Those consulting firms that have partnered early are best positioned to grow with the software firm but should be prepared to adapt to a potential rapid growth of the software firm. The software firm may change their partnerships in anticipation of this growth. Changes may include:

• Software firms, confident of their own success, start to add additional costs for partners and begin to court larger firms more aggressively
• Partners can still resell the product, but often begin to see margins erode for resellers as the software firm wants to capture more of the software revenue themselves
• Partners can still add integration or build software and services, but might see the software firm build out similar software and services to capture more revenue from the customer

In the growth phase, software firms will add consulting services. Most software firm consulting services are a single person/sales engineer that can help a client through the proof-of-concept stage of a sale or be available to troubleshoot client issues. The main responsibility of the consulting services is to keep the software firm in good standing with the customer.

In the growth phase, software firms dedicate a resource or practice called a “partner channel” for signing and maintaining partners.  It is important for consulting firms to have a good working relationship with the software firms’ partner channel. Compensation towards the channel comes from other partners reselling the software product for the channel to make their commission/bonus. 

Rather than rely on a software vendor, consulting firms can also be very successful marketing their expertise for open source or with generic technology that does not require formal partnerships (e.g. Ruby on Rails, Hadoop, AWS….) that don’t require formal partnerships.  While there is no software sales representative to court, there is also no software sales representative to bring clients to the partner.  For this reason, consulting firms need to initiate their own marketing efforts to build the brand and get introductions to clients.

Software Firms – Post-Growth

As software firms continue to push for growth, they will look for areas within the client sale to capture additional revenue.  Additional revenue could include adding products or services that may result in competition with the partner channel.  It is worth noting that software firms struggle to build adequate services for a variety of reasons:

• Software sales reps lack knowledge – Software firms leverage their software sales staff to sell consulting services.  Sales representatives have experience with a commodity software sale and are ill-equipped to quote costs or timelines to clients, a critical skill of a consulting sale. Lacking knowledge of the project or their team, and wanting to make the customer happy, sales representatives over-simplify and under-estimate the implementation with the software firm which under-delivers the project’s cost and timeline.
• Software firms are not consultants – Software firms rarely embrace consultant career paths, mentoring, or the lower margins and valuations of consulting sales.  Focused on the easier software sales, software firms look for a single expert to place with a client, which is an easier sell but an expensive and difficult proposition to hire and retain. On the other hand, consulting firms embrace hiring and training an efficient team with multiple skills to support multiple clients.
• Short-term focus – Consultant revenues at a client grow over time and require a long-term relationship. Software companies looking for quick-win quarterly numbers and, used to the high turnover of sales staff, struggle to embrace long-term relationships.

This stage is also when the bigger consulting firms noticing clients using the software and increasingly add their own practices and resources.  Niche consulting firms do very well in competing with these bigger consulting firms, but can get squeezed out when it comes to certain clients that have long-term relationships with the bigger consulting firms.

Failed Partnerships – Lessons Learned

TSG had multiple partnerships that didn’t work when it came to generating its service revenue.  Failed partnerships fell into one of three categories:

1. Big software firms – examples would be IBM, Microsoft, or Amazon.  These partnerships were good for getting access to their technology but didn’t result in any long-lasting relationship with sales representatives or marketing resources.  These partnerships rarely led to any inbound sales leads for TSG.
2. Software and services firms – some software firms offer services themselves that compete with a potential partner’s services.  One company we attempted to partner with was working at one of our oldest clients, hoping to replace Documentum.  When we pressed for involvement, the company decided to keep us out and leverage their own consulting and engineering staff.  The engagement failed and resulted in the company being sued and the client moving back to Documentum.  We chose not to pursue the partnership as the push to use their own consulting (rather than involve or “seed” a partner already at the client) was a limiting factor to the partnership being successful.
3. Small software firms – We would use small software firms where applicable in our own clients but would rarely see them bring in sales leads of new clients to TSG.

TSG-Documentum Partnership Experience

Early on in 1996, TSG developed a strong partnership with Documentum in their start-up stage, particularly the Documentum sales staff based in Chicago  (shout-out to Craig, Brian, and Judy if you are reading this – miss you three!).  TSG brought our first client, a large pharmaceutical company in Chicago, into the Documentum fold and the Documentum team brought TSG into multiple client opportunities.

As Documentum grew and the initial Chicago Documentum team moved on, TSG’s work with Documentum clients continued to grow, but our relationships with the sales team struggled: 

As TSG was a known partner, we would receive requests for Documentum work directly from their user base, with TSG often engaging with the Documentum sales representative after TSG engaged with the customer.  We found that Documentum software sales representatives liked the control of their customers as well as the partners at the customer.  Sales representatives didn’t like when TSG had a closer relationship with the customer.

• Often times, TSG found that a sales representative would introduce an internal Documentum consultant (for their own commission) or a different Documentum partner based on a) the sales representee’s relationship, b) the desire by Documentum to seed work with a new partner, and c) a desire for potential additional commissions.
• Many times, the resources proposed by the sales representative would struggle with software implementation and reach out to TSG.  TSG showing up to “save the day” would make the partner, sales representative, and Documentum look bad. 

Another challenge for TSG was the Documentum reseller margin.  As Documentum shifted toward less growth (once the sales team was “made whole” for any margin given to partners during the growth stage), Documentum moved to incentivize the sales staff not to book sales through partners, putting TSG again at odds with Documentum sales representatives.  In one case, after TSG proposed a sale to a client, the Documentum representative undercut the TSG sale, going below our reseller margin and also confusing the customer.

In 2004, after multiple issues with different opportunities and sales representatives, TSG consciously decided to disengage with the Documentum sales staff. We continued to be their partner, but just focused on the Documentum install base and some user events, attending the annual user group meeting (Momentum) and coordinating the Midwest Documentum User Group.  While we still maintained relationships with Documentum sales representatives, we didn’t pursue any reselling and often kept an arms-length relationship with different representatives. TSG also became an Alfresco partner (direct competitor to Documentum) in 2006.

From 2006 to 2010 TSG continued to sell services very successfully into the Documentum install base and coordinate the Documentum Chicago user group.  While attending the annual Documentum convention, TSG networked but didn’t spend any money for a formal booth.  During this time, we did notice Documentum becoming much more aggressive with clients, including conducting rather aggressive software audits, which we blogged about at TSG. 

On November 11^th of 2010, our partnership with Documentum came to an end after TSG received a fax from Documentum terminating the partner agreement.  (It is humorously ironic that we got a fax from a document management company in 2010!) While the fax included language with accusations about the user group and giving bad advice to clients, TSG later heard from a very reliable inside source that the instigation of the ending of the partnership came from just one Documentum sales representative. The Documentum sales representative in question had failed to sell additional software to one of our large enterprise clients and, rather than accept that the client didn’t need the software, blamed TSG for interfering in the sale.

The end of the Documentum partnership was by no means the end of the TSG-Documentum consulting practice, as the Documentum practice improved without the formal partnership  (you can read about it here in CIOReview).  From the article:

“’We had a great and productive relationship with Documentum our first 7 years,’ says Giordano. ‘But as Documentum evolved from its early growth stage, TSG, like other Documentum partners, noticed a much more competitive sales driven culture that would aggressively compete for consulting services.’ … an increasingly aggressive Documentum sales organization viewed both TSG products and services as competitive.

‘As a Documentum partner, we had to walk a very fine line in regards to defending Documentum’s products and services while promoting our products and services,’ says Giordano. ‘Our focus on clients’ needs rarely made the Documentum sales representatives happy.’

The terminating of the Documentum partnership turned out to be a blessing in disguise. When informed by Dave of the update, existing Documentum clients rallied around TSG and have continued to be clients seven years later. ‘I was dreading doing those client calls,’ says Giordano. ‘All our clients not only pledged their support for TSG during this crisis but have strengthened their commitment to TSG and our products.’

Free from any obligations to Documentum, TSG began openly promoting TSG products as well as creating the most successful independent blog on all things Documentum. TSG also deepened their partnership with Alfresco (and their founder John Newton, one of the original co-founders of Documentum).”

Documentum Partnership – Lessons Learned

For founders partnering with software firms, I would pass along the following lessons learned from the Documentum partnership:

• Partnerships have a lifecycle – In the beginning, Documentum focused on us as a partner, but it was difficult to retain that focus as other new partners were added.  We would use the analogy of meeting people at a bar; everyone is interested in the potential new person that could walk in, but  not always in the person at the bar they have met that has been with them all night.
• Software partnerships are built one sales representative at a time, and can be lost by just one sales representative – Before the final ending of the partnership, after the initial Chicago Documentum crew left, we struggled with multiple sales replacements.  Some of the replacements had relationships with other consulting firms but, mostly, they were given customers from TSG that didn’t need additional Documentum software.  These sales representatives, trying to make their number, would push unneeded software and Documentum services on clients.  When the customer didn’t buy the software or services, the Documentum representatives spread a “don’t work with TSG” mindset throughout the Documentum sales force.
• Software firms have a lifecycle – When Documentum wasn’t growing as fast, the relationship with partners and customers struggled. Sales representatives wanted to sell to the existing client base but clients already had all the Documentum software they needed. Left to meet quotas, sales representatives looked to sell competitive consulting work.
• Software firms want exclusivity – While Documentum wanted as many partners on their end as possible, they did notice our Alfresco practice. For TSG, adding more software firm partnerships that are direct competitors might seem fair, but it was difficult to effectively manage and keep a close relationship with both competitors. We have seen other companies effectively manage multiple relationships by having different individuals responsible for each vendor relationship.

TSG-Alfresco Partnership Experience

TSG took the lessons learned from Documentum and applied them to our Alfresco partnership. Founded over 10 years after Documentum,  Alfresco had a focus on open-source with smaller client installs and smaller sales.  TSG was one of the go-to partners but, at the time, our consulting revenue was still dominated by our Documentum work for our initial years of the partnership.  Like Documentum, Alfresco sales representatives would turn over and, while we remained close with many, we didn’t run into the competition that we faced from Documentum.  Alfresco also didn’t attempt to compete with partners in building their own consulting practice with only a small percentage of revenue coming from contracting services.

In the 2014 timeframe, we started seeing more Alfresco work than Documentum and continued a solid relationship with Alfresco winning partner of the year in 2015 and implementation of the year in 2017.  In 2019, with turnover of the CEO and CRO of Alfresco and the success of our own NoSQL alternative to Alfresco, TSG was concerned about the Alfresco partnership.  Alfresco was pursuing bigger consulting firms and our own NoSQL software sometimes competed with Alfresco software.  Having had our best year ever in 2019 and seeing the need for our products and services at Alfresco, we approached Alfresco with the proposition of acquiring TSG rather than us compete and potentially both of us losing the benefits of our partnership.  In March of 2020, TSG was purchased by Alfresco.  With the success and momentum of the TSG purchase, Alfresco was then purchased by Hyland in October of 2020. See related post – Why I Sold My Company and What I Learned.

Summary

While software partnerships jumpstarted TSG’s sales, maintaining strong software firm partnerships required a focus on the relationships with sales representatives and upper management. TSG’s partnerships were difficult to maintain over time due to changing sales representatives and upper management. As software companies we worked with matured, TSG saw the software companies foster competition with our services by both adding partners and developing their own competitive capabilities. TSG was able to continue to work with our clients on the software products even after relationships and partnerships ended by focusing on our clients’ service offerings.