• Entering new markets
• Build
• Partner
• 1. Partner’s product is integrated into ours; we resell:
• 2. Integrate our product into partner’s product; they resell:
• 3. Pure reseller

Entering new markets

Entering new markets generally takes one of three forms$^1$:

1. Build: This involves independently establishing your presence in a new market, which can provide maximum control and the potential for high profit margins. However, it will require more resources and you will sacrifice “time to market”. If you are venturing into a new market that is close to your core and you can be confident of a 6-12 month payback on any investment, it may be better to build your market.
2. Partner: For many small B2B companies this could be the most cost-efficient way to enter a new market wherein they partner with a larger more established player to help them penetrate new markets they can’t access on their own. This larger, well-established company could either be a company that sells products or be a consulting company that could resell your product as part of their product or their consulting solution. Partner strategy is commonplace and has existed for decades. This model can offer quicker entry, lower costs, and reduced risk in most cases. However, it often involves sacrificing control and margin.
3. Buy: This strategy involves acquiring companies that are already active in the market you’re targeting or have the distribution channels you need. It’s typically a quick way to enter new markets. The right acquisition can bring in the expertise and capabilities you currently lack. This is inorganic value creation. In this article, we won’t spend too much time on inorganic growth.

Each of these strategies has its advantages and challenges, and the best choice depends on your specific circumstances and goals. Let’s look at the first two strategies above in more detail.

Build

Building in the context of B2B software businesses typically takes the form of hiring sales teams into new markets or building new products. For complex B2B VMS businesses, entering a new geographic market can take 6-18 months before you can see any meaningful sales.

It could be a risky proposition if you are building a new product based on market feedback but no “committed” customers behind the product. By committed, we mean customers who are willing to place an order behind the feature, module or an entirely new product category. We find that customer-led development has the lowest risk and the highest ROI. We prefer customer-led development that strategically improves the product. Even if the development entails offering better prices to customers, it is far safer than building product/functionality purely based on “blue sky thinking”.

Customer-led development also encompasses cases of adding a simple feature or a module to an existing product. The easiest way to know if a particular feature, module, or product is important to a customer is to get them to pay for the development. If the customer is not serious about it, they are unlikely to provide a purchase order for the specific feature or module. This makes product decisions simple for your team.

Partner

The are three ways to drive sales through partnerships.

1. Partner’s product is integrated into ours; we resell:

One of our portfolio companies (”PortCo”) sells document management software to hospitals to capture patient records. The management team was in discussions with a company that uses AI (”AICo”) to read unstructured patient records and summarise key insights for clinicians. An average patient in their 50s could have anywhere from 100-200 pages of medical notes. Using AI to summarise relevant points, saves time by helping to quickly understand the patient’s background before meeting them.

By partnering with AICo, the AI tool can review hundreds of pages and summarise the most salient points for the respective clinician to review. This would allow the clinician to formulate better questions to ask the patient.

To apply the tool in the context of hospitals, the algorithm had to be trained. Our PortCo is considering partnering with AICo company, whereby our product pushes patient information to the AI tool’s API which returns a) insights and b) key pages to review depending on the patient’s medical issue.

This is an example where we're integrating with the Partner’s product in our product and we sell the “complete solution” to the hospitals. In other words, we are effectively reselling the partner’s product to our customers on a white-labelled basis.

2. Integrate our product into partner’s product; they resell:

Let’s consider the same example as above but where our partner integrates with our API and resells our product on a white-label basis. Our partner’s main customers are law firms who could benefit a single solution to a) store all their documents using our document management software and b) garner key insights from the AI tool. In this instance, the sales effort is led by our partner and in return, we will give them anywhere from 25-35% reseller margin.

3. Pure reseller

This is relationship where our partner resells our product on a standalone basis with no or limited product integration. Typically, partners like this have much bigger geographic reach which we won’t be able to reach ourselves. These types of relationships need multiple ingredients to be successful:

1. Our product should not overlap with partner’s existing capabilities/solutions
2. Our product will significantly improve sales for their own products or reduce churn for the partner
3. The partner is not reselling a competitor’s products or is unhappy with the competitor’s product
4. Our product must have a compelling market need. Sales people are inherently trained to maximise sales with as little effort as possible. If they have to “push” our product hard, this is an uphill battle. There needs to be strong market pull for our product.
5. Last but not least, we need to be at the right place at the right time. Even if all of the above criteria are met, partners may not value our product if they have other priorities to cater to.

Other things to consider

• We have worked with many resellers where the relationship has generated very little results despite significant investment behind it. It is also much easier to kickstart a partner relationship if we take an opportunity to them to “prime”.
• In terms of margins, resellers typically work between 25-35% margin depending on level of work done by the different parties and the negotiating power of each party.
• In terms of owning the customer relationship, the reseller will typically want to own it and in many cases, will not let you engage directly with the end customer. Resellers own their customer relationships, and rightly so. This makes it very hard to forecast partner sales as they don’t share information religiously.