I’ve spent the last 5 years selling security software to the Fortune 500. That experience has born a list of insights and lessons that have shaped how we have built WitFoo. One of the core observations shared by those of us on the team that have been on the vendor, partner and customer sides of purchasing and deploying software is it’s unsustainable dysfunction.
Trinity of Success
The participants in a successful solution deployment rarely vary. The customer is making the purchase through the procurement officer, the vendor is building and selling the tool and the partner is the bridge between the two. In virtually every failed deployment, the problem is traced back to the partner (or lack of one.)
Partner: Bridge to Success
A good partner understands the business, people and technology of the customer. They understand how a given technology can enable or hinder the customer. They understand the challenges and traps that stand in the way of the deployment. In addition to understanding the customer, they understand the vendor. They understand the vendor strengths and product features. They train on the vendor technology and interface with their business and technical resources. They are in an ideal position to make a decision that is in the best interest of both the customer and vendor.
In addition to bridging vetting conversations, a good partner knows how to navigate the politics of procurement and design a holistic plan of deployment that will leave both the customer and vendor satisfied.
Procurement Officer: Champion of Fiscal Responsibility
Every large organization has a procurement officer assigned to looking at purchase requests. They evaluate the risk of partners and vendors, establish legal agreements (EULA, NDA, etc.) and negotiate pricing. Any procurement officer worth their salt, will shop around to find the best deal for their organization. Every penny saved allows the organization to invest somewhere else. With all other things the same, they have a fiduciary responsibility to purchase the cheapest bill of materials.
Vendor: Solver of Problems
The vendor has the role of building solutions that solve the challenges of the customer. When healthy, they rely on the partner to reduce the cost of each sale, increase customer satisfaction and accelerate sales.
The Broken System
The system that connects the customer, partner and vendor in purchasing technology is known as IT Procurement. The rules of IT Procurement have been heavily influenced by a relationship between vendors and partners that utilize a Better Margin for Volume approach. In this approach, the vendor provides the partner (reseller) with higher discount levels when sales volume goals are met. This is the vendor’s primary way of encouraging the partner to sell more product.
Effect of Better Margin for Volume
As a result of the Better Margin for Volume approach, some resellers have a business plan that is built on selling high volume at low profit margins. This allows these, high-volume/low-margin partners to deliver the best price to the customer (and beat the competition every time.) This is an extremely effective business model for partners because the longer they operate under the model, the higher their volumes grow which give them better margins which allows them to beat the competition. Then they pick up another vendor and repeat. At some point, their purchasing volume allows them to bypass distribution and purchase directly from the vendor saving them an additional 2-3% per deal. This guarantees a victory in the pricing war.
Vendors are quite happy when a high-volume/low-margin partner takes interest in them. They see explosive growth in sales – for a time. The problem with high-volume/low-margin partners is they only want to “move paper.” The team selling the vendor products only has basic knowledge of it. They don’t understand either the customer or the vendor well enough to assist in deployment and maintenance. The vendor eventually (normally less than 18 months) will feel the bite of an expanded customer base that is unhappy and immature.
Customers that are forced to purchase from high-volume/low-margin partners quickly realize that there are hidden and significant costs to doing so. Many solutions stay completely un-deployed (shelf-ware) and the pain that it was purchased to address continues to grow.
The good partner has to spend significant time, resources and money to become and stay a useful partner. They can’t pay those bills when they have to price at a few points of profit margin on the product sale. This means they have to be strategic in their focus areas and solution types. This is not only bad for the good partner, it’s bad for the vendor and customer.
In creating a healthier system, each the customer, partner and vendor can make deliberate changes.
The customer can help turn the tide by working to justify the higher cost of the partner. Collecting metrics on project success rates, rework and risk by each partner will go a long way in explaining to management and procurement why a cheaper partner isn’t always less expensive. Additionally, selling the organization on a strategic alliance with a partner over a three or five year span of time with milestones attached will reduce the effort on each purchase order.
One of the most important things a partner can do to help a customer pick them is providing, clear articulation on why the partner is good to the organization. Concrete statements and metrics around return on investment, success rates, certifications and skills and the like make it much easier for a strategic customer to explain the relationship to the organization. Partner executives should find ways to interface with organzation executives and the procurement department.
As important as the efforts of partners and customers are, the unhealthy system is created and perpetuated by an unhealthy agreement between the vendor and partner. Creating a system where pricing and margin becomes the arena for winning a deal is what caused this unhealthy system. Vendors should reward and invest in partners that are investing in becoming good partners that can build and maintain a successful deployment in complex customer organizations. This is why we have built a model around Haggle-free Pricing. By requiring all partners to resell WitFoo products at the same price, the customer is free to pick the partner that is best suited to deliver success in a single deployment and strategically. WitFoo delivers higher profit margins to partners that keep customers healthy and mature and continue to invest in increasing WitFoo knowledge.
Current procurement models in InfoSec create unhealthy, unsustainable models that only have short-lived use to vendors, they cripple good partners and leave customers unable to achieve organizational objectives. As a vendor that is dedicated to turning the tide of failure in InfoSec, we believe Haggle-free pricing is one effective, simple way to do our part.