International Distribution of Software Products
Have your ever heard (or thought) the following “We’re a startup software company. We’ll attack our home market first, then think about international markets.” Wrong answer! (In most cases, anyway). I work with a lot of startups, and I hear the above all too often. But this attitude is very unfortunate, and in some cases can stunt or kill a company that should have otherwise made it.
Copyright 2006 PJM Consulting
Have your ever heard (or thought) the following “We’re a startup software company. We’ll attack our home market first, then think about international markets.”
Wrong answer! (In most cases, anyway). I work with a lot of startups, and I hear the above all too often. Especially when the founder or CEO comes from a technical background. But this attitude is very unfortunate, and in some cases can stunt or kill a company that should have otherwise made it.
That’s because there is low-hanging fruit outside of your home markets, my friends. And if you leave it out there long enough, your competitors will grab it instead of you. I’ve sold an incredible amount of software in secondary markets such as Australia, New Zealand, Norway, Denmark, Finland, Sweden, Switzerland, Netherlands, Belgium and others. In the early 90s, I started up a group marketing a new Systems Management product. By the middle of our second year of operation, over 40% of our revenue was international, all while spending just a fraction of our marketing budget outside of the US. Let’s look at the specifics of US-based software startups.
US startups can access this low-hanging fruit relatively easily for a number of reasons. First, in the software business there aren’t the risks and costs associated with inventory that you would find in a manufactered goods business. The costs and risks are still there, but they are greatly reduced to the extent they aren’t a strategic issue. Next, most of your startup competitors have the attitude of the first paragraph, and are contentedly pounding away at their home markets. Next, it is far easier to adjust prices to local markets and set up segmentation fences through localization in the software business, than it is in a hardware business. In addition, if you are a US-based company, there will be some overflow effect from your US marketing efforts, since the US is the center of the software world. And last (but definitely not least) is the unique attribute of secondary markets: the ability to find good distribution Partners. Partners that have a head start in their markets, existing momentum that you can leverage.
We’ll come back to this last point in a minute. But first, let’s go back to our typical US-based software startup. This CEO is rather bold compared to his peers. He decides to dip the company’s toe into international markets. Where do they go first Why, the UK, of course! It “feels” the most like home. And indeed, it is. The UK is the SECOND MOST COMPETITIVE and sophisticated market in the world. To add to this misstep, although the UK is officially part of Europe, from a cultural and marketing/distribution perspective, it is quite different. So this initial step doesn’t even provide quite the learning experience you’d like when moving on to continental Europe.
Let’s get back to that unique attribute of secondary markets, the ability to find good partners. I’ve highlighted partners because it is so important to find the right partners and treat them well. What you are looking to do is find someone to ACT ON YOUR BEHALF in this local market. Someone who will put out the effort, spend their own capital, and be just as committed to the product’s success in this market as you are in your home market. This isn’t easy to do, but the payoff is high if you get it right. Find the best potential partner, then structure the deal to get them excited. Give them high discounts, provide extensive sales and technical training. Do give them at least a short term exclusive. Set the deal up so that they aren’t competing with other distributors of your product or even you–just your common enemy, the competition. If you do this right, you will have created an order/revenue generation machine that will work for you for years to come–with very little ongoing investment. And might even be humming away while you’re still investing and pounding away trying to get established in your home market. This is contrary to what many will tell you, but it is true. I have done it many times across a variety of markets and products. I could write about this topic almost indefinitely, and of course, the devil is always in the details. But I’ll stop here. Tell me what YOU think!