Putting a Spark in Your Distributors
By Gabriel P. Goncalves
Some time after the launch of my latest company, PeopleAnswers (I've founded others), the groundwork of recruiting the executive team and developing the product was finished, and it was time to move to the next stage: getting customers.
Early on, of course, like most companies, we turned to those that we could solicit personally, as well as early adopters who would be naturally inclined to use our offering, a software tool that assesses the fit between a candidate and potential employer. Then the real work began: getting the product out to a lot of customers so that we could really build a company. At that stage, traditional tactics involve advertising to bring customers in -- and building a large sales force to go out and find them. We carefully considered both.
The economics of nationwide advertising are quite daunting for a startup. You can run a small country with the budget required to fund full-page ads in any national periodical. The other challenge is that, just like teenagers trying to complete their journey into adulthood, startup companies require time and lots of customers to really know how to position effectively and differentiate in a national marketplace. Without that knowledge which only comes with time and customers, advertising can be risky, since you may be spending a lot of money on a message that you may look back on and consider quite adolescent and immature. So we decided that we were not quite ready for a national advertising campaign.
THE KEY: LEVERAGE.
The other consideration was an internal sales force with national scope. Most startups I know have, at one time or another, drawn up plans for investors for opening sales offices in all "NFL cities." But the dot-com days are over, and the money that it takes to establish that kind of national footprint is a thing of the past. So how do we get there?
Instead, we turned to another proven technique that was not only less costly, but also designed to leverage the entrepreneurial talents of others and allow us to increase sales exponentially: building and training an army of independent companies and individuals to sell our product.
Using other companies and independent sales reps to distribute a product isn't a new concept, of course. This so-called channel strategy has been around for a long time. One has only to look at Microsoft MSFTand Mary Kay Cosmetics to see how powerful it can be in generating sales. It is all about execution, though.
In the past year, we at PeopleAnswers have adapted a variation of the channel technique, adding 50 companies and independent businessmen and women to distribute and sell our software. In taking this approach, we believe that it ultimately offers young companies leverage -- or the ability to do more with less -- when it comes to the vital task of distribution. What follows is a look at how we've done it in the hope that other entrepreneurs will learn and benefit.
Our channel today consists of two different kinds of entities: existing companies and independent sales reps. Let's start by taking a look at the profile of the companies with whom we partner.
THE RIGHT DISTRIBUTORS.
We set out to find small companies that had established relationships selling professional services to human resources executives in the larger organizations with whom we ultimately wanted to do business. The small-company factor was important because we wanted to have the right entrepreneurs as partners. We wanted people who shared our values, drive, and motivation, and thus could understand the leverage that representing PeopleAnswers could bring to their professional services firms.
Professional services means project-based engagements. These firms get hired to do a project (consulting, recruiting, etc.). They go in, do their job, and then move on to find their next engagement.
PeopleAnswers offers these entrepreneurs an opportunity to generate recurring revenue for their firms, even after they are no longer directly engaged with their customers. Since our software is licensed on an annual basis, our customers send us checks on an ongoing basis. The professional services firms that resell PeopleAnswers make money today from both their current and past clients.
INDEPENDENT SALES. The other half of our channel is made up of independent sales reps, individuals from multiple backgrounds who all share a strong desire to be self-employed and to build something bigger and self-sustaining.
Let me begin by explaining that our version of channel marketing via independent sales reps differs from franchising, which has gotten a bad name in some circles. Our fee for independent sales reps, for example, is minimal, helping us only defray the cost of training and overhead, vs. what can be upwards of $500,000 for the typical franchise opportunity.
In addition, we don't require the independent business people who sell our product to do it our way, down to the letter. Indeed, we welcome their creative ideas. Finally, we don't require that they sell only PeopleAnswers products, although most elect to do that.
In setting up our channel of independent sales reps, in other words, we tempered the formula to make it fit what we most wanted to tap: the entrepreneurial attitudes of people who might have started companies of their own were it not for the limitations of capital or a unique product or service.
THE RIGHT PEOPLE.
In fact, at the crux of the ability of this distribution model to work for us has been our own ability to find, train, and motivate people who are best suited to be independent distributors.
In the past year and a half, this has been a job that we have taken to heart. Our first step was to bring in the experts; in other words, we retained an organization with expertise in this area to oversee the job of building the channel of independent sales reps.
Next, we turned our attention to defining the type of individual who, we thought, would be an ideal distributor for our software. At the core, we wanted people who, interestingly, wouldn't be satisfied working as sales representatives for an organization, but rather wanted to build something of their own. Simply put, we wanted people who were "entrepreneurial."
It is a nice bonus that the PeopleAnswers software is well suited for helping us find the right people. Using our own software tool, we have been able to more easily identify suitable candidates. We reject 19 out of every 20 people who are interested in the program.By Gabriel P. Goncalves
THE TRAINING FACTOR.
In addition to securing the right resellers, making a channel system work entails designing and implementing a comprehensive training program that also includes a mechanism for following up with distributors once they are in the field.
Our training program begins with three days at our headquarters in Dallas, where we focus on our product, techniques for creating leads and selling, and the care and feeding of prospects.
Since independent sales reps typically do not have the breadth of executive relationships as professional services organizations, they know coming in that building a distributorship will take four months to six months, at minimum. In addition, we provide independent sales reps an action plan, detailing what to do on a daily basis for the first 28 weeks. Included, for example, are tips for giving trial demonstrations to family and friends, which should occur during the first few weeks, and for placing cold calls, which should be a feature of the fourth week.
Three months to six months into their businesses, we invite all our distributors back for advanced training. At these sessions, they are able to share what they've learned in the field and pick up suggestions from other participants.
In the past year or so, we have gotten enough evidence to make us believe that our modified channel model of distribution works best for everyone involved. Our leading distributors are able to bring in a substantial recurring monthly gross. Even our typical independent sales reps, after only four or five months, can see monthly commission checks of $5,000 and above. One feature that enables this level of income is that our product is licensed, with renewal rates running at 98%. Our distributors share in this recurring income. Once a sale is made, therefore, it is likely to keep on giving.
LOW COST, HIGH RESULTS.
For PeopleAnswers, the chief advantage is that we've secured the type of people that entrepreneurial companies most need for selling an innovative product or service: namely, those who are themselves entrepreneurial, eager to build their own thriving businesses. While we do forgo a cut of the profit on each software license we sell through our channel, our cost of selling is far lower than it would be with a large internal sales force.
Best of all, we are getting our product to market much faster than we otherwise could have done on our own. With 50 independent, entrepreneurial-minded people excited about our software, we are harnessing the power of leverage to secure the sales that will build our company.
Gabriel P. Goncalves, 37, founded Dallas-based PeopleAnswers in 2001, and currently serves as president and chief executive officer. The company is in the Behavioral DNA* business, developing software for analyzing behavioral characteristics used for matching job candidates and positions. Its first product shipped in December 2001. Goncalves is also co-founder of HomeTracker, whose asset-management software manages tens of thousands of properties in real estate portfolios worth billions of dollars. In 1993, Goncalves founded Erapmus Inc., a computer-services firm also based in Dallas, which he subsequently sold. Previously, Goncalves worked as a contract programmer at Mobil Oil Co., where he helped develop a financial modeling tool enabling corporate analysts to create and compare financial scenarios of investment opportunities. A native of Sao Paulo, Brazil, he graduated from the University of Texas at Austin in 1989 with a degree in computer science. He is actively involved in the Young Entrepreneurs Organization (YEO) , where he has served in different capacities.
Entrepreneur's Byline comes to BusinessWeek Online readers courtesy of EntreWorld.org, a resource for entrepreneurs that is sponsored by the nonprofit Ewing Marion Kauffman Foundation.