On Sourcing Partners:

• Revenue
• Vertical Solution Integration
• Gap analysis
• Competitive analysis

John Soper (Moderator, New Paradigms):

[On sourcing partners] …. from a small company perspective to a large company perspective, you have different processes and criteria that you use. Usually a small company has maybe a few focus people they want to go at, a large company has a huge array that most of whom they don't even know. So, in trying to source who your target is, what's the process that you go through? 

Rick Tywoniak (Cisco):

Well, interesting, for sourcing, it's somewhat easier on a large side because being Cisco, most people come to us. So, it's somewhat a challenge just keeping up with all the companies that approach you. So, part of those dealings is dealing with that but when we are sourcing, and some various obvious ones, we look at our competitors, we look at who their partners are and try to see what technologies are there and see if there's anything interesting…

Kevin Ichhpurani (SAP):

So, we go to market by industry at SAP. When we look at partner types, we take a very structured approach. Across all of our 28 different industries, we formed what we call an industry value network where we bring together our best customers and partners to collaboratively innovate. So, within each of our industries, what we've done is we've brought in our best customers to look at where is the industry spend taking place….

….Secondly, we have a whole influx, much like at Cisco, of partners coming to us that we can prioritize based on those white spaces and the market opportunity in those white spaces. So, it's very much an industry driven approach, very much looking at the gaps within our portfolio.

Gamiel Gran (Cassatt):

As a small company, sourcing a partner is a lot of decisions about who not to have a partnership with versus who to have a partnership with. I tend to turn down partnerships more than I pursue with the idea that if you spread yourself too thin, you never really achieve the results you need with any one partner, and that's what you need.

But the sourcing strategy for me starts with a very selfish agenda. I take a very sales or revenue based objective from a metric standpoint, less to do with the marketing or perception of the partnership and more to do with the outcome and the results …

So, I take a very inward kind of what is our objective, very well defined, in the first 12 months, I want to generate a million dollars of revenue in the following segment; what are the key players that can help me get there and build the model from there. So, before getting to a joint value proposition or anything, you really know what your own core metric is.

Rick Tywoniak (Cisco): 

…. the industry vertical thing is extremely important. So, when you're looking to partner with Cisco, one of the ways we kind of stratify in tiers is, those partners in an industry vertical that's a critical focus vertical for us that fill a gap….

….which is one of the reasons why Manoj and LiteScape have done so successfully, because they took a lot of their technologies and they focused it on particular verticals, filled some gaps and really helped increase our sales in those verticals. When you've got 300 companies that you're working with or 500 or whatever, that was one of the key ways they were able to separate themselves from other people, so we noticed them.

Getting to the Deal Table:

• Value of integrated solutions
• Joint value proposition
• Tailoring your message
• Competitive differentiation

John Soper (Moderator, New Paradigms):

Thank you. Okay, so now you know who you want to source…. How do you make the kind of noise, how do you get the attention so that they will start to look at whether at least they want to take the next step with you?

Gamiel Gran (Cassatt):

….To me though, it always comes down to one key thing – are there deals? Is there a top-line revenue opportunity that creates new momentum for the larger companies to say, "Wow! This is a changer for us." ….

John Soper (Moderator, New Paradigms):

So, what I'm hearing is a value proposition that you both see value in but in the end you need the inside coach, the inside sales to make it happen.

Manoj Fernando (LiteScape):

…. We started going after Cisco in so many different ways, I mean, just to get engaged to them. One is through the formal partnership program which they have, and the other one is how do you engage with Cisco and how do you differentiate the solution that you're trying to offer, to Cisco, to make them one of your key partners or have them take you to weigh this opportunity. That became probably the biggest distinguishing factor for us, because what we ended up doing was you looked at what Cisco was doing, Cisco was coming out with this whole technology with voice over IP. What we did at that point was saying, hey, Cisco is doing this thing to the industry, here's the value-add that we can bring to Cisco or what is the differentiator. 

So, even when Cisco was going out and competing with some of the other vendors, established companies in the PBX industry, LiteScape, at that point, was able to come back with Cisco and say, here's the added benefit of what you're trying to do. So, in so many ways, as much as we were going after Cisco and saying, "Look at what we've got! Look at what we've got!" ….

So, it was one of those approaches that we started to take saying let's take a vertical approach that allows Cisco to go in and say, hey, I have a complete solution in a vertical industry whether it be education, legal or retail. That allowed us to kind of differentiate ourselves….compared to the 300 other partners that they had in the program as well. 

Rick Tywoniak (Cisco):

I can't emphasize enough how important that is in what you just mentioned, and that is the integrated solution. Many companies come to partner with us and they talk about the value to our customers, which is a good start, but it is so critical to build the joint value proposition that's based on the integrated solution. How does 1 + 1 = 3. So, we're very much focused in on that….

Manoj Fernando (LiteScape):

If I can just add one more thing to that. When you first came up with the idea of doing solutions with Cisco on this, we had no idea what an educational vertical would look like, or what a legal vertical would look like. But by engaging Cisco at all levels, right from the partnership level to the sales, to the system engineers, you just kept going to them and say, hey, what is it that you need? What is it that you need? We have this great idea or this concept, and little by little, then you eventually got to the customer.

I remember one of the first customers that we actually met was Wilson Sonsini. They never bought the product but at least they gave us the idea. They said, "This is what we need." So that allowed us to really go in and say, "Okay, here's the first product that is coming out, that is a requirement on this particular front for this particular application." That's how we basically got started with the first vertical app ….

Rick Tywoniak (Cisco):

…. So, Manoj coming in to me and saying, "This new business that you're starting up where you don't have market share, I can help you grow that market share. Here's the vertical and here's what I can do for your customer." That somebody has more of a clue on how to deal with us.

I would say there's very few people that come to me with the kind of the way LiteScape came to us. I get more of the, "We're going to help you sell more routers." So, really studying your company and finding out what's important to them is probably pretty critical. Very basic but people miss it all the time.

Kevin Ichhpurani (SAP):

To add to that, I think it's very important that you tailor your message on who you're talking to within an organization. So, if you're talking to product teams or you're talking to alliance teams, they'll often focus in on purely what's best for the customer….When you're dealing with the field sales organization, it's imperative to tie it to incremental revenue.

Doing a Deal That Lasts:

• Setting expectations
• Cultural alignment
• Long term focus

John Soper (Moderator, New Paradigms):

…. The question is a small company and a large company will often have different strategic focuses. A young company may be just looking further for a big OEM and some fast revenue. The larger company may be looking for an acquisition …. Are those things you look for as you put together deals in terms of what the long term red flags are?

Rick Tywoniak (Cisco):

No, but you can tell they're going that route. You have to set expectations real early and just explain to them that the actual number, the percentage of our partners that get to an OEM deal or get represented on our price list or get acquired are very small….

Kevin Ichhpurani (SAP):

So, we find cultural alignment very important. As an example, we covet our customers. We get a significant portion of our recurring revenue from the customers that we've had for decades. So, it's very important that when we partner with small companies that those companies have a long term focus….That they're not going to burn our customers by making rash you've-got-to-buy-by-the-quarter-otherwise-the-pricing-goes-away type comments and ultimately that there's going to be cultural alignment there.

What I've found, one consistent theme with all of the small companies that have made it with SAP is patience – being very patient, working all of the different product teams, working the field teams, taking your time….

Dealing with Power Imbalances:

• Ways to create wins for small companies
• Small companies need to accept bureaucracy of large companies
• Risk taking

John Soper (Moderator, New Paradigms):

Okay, so you've….decided to form a relationship. I'm actually very interested in what happens, because I've seen a lot of this in the work that I've done, in fact I do a lot of alliance work -- the power imbalance between – in trying to come into your first deal ….so the question is for small companies, how do you keep from getting stepped on or getting into a deal? Just kind of saying, "Okay, I'll get into it." But it's a deal that long term, you're not going to be happy with. How do you work around that given that you're in a less of a powerful situation? 

On the other side, for a larger company, you have more power but don't usually want to end up on a win-lose kind of situation and start up with a partner that just feels like you've been trampled all over. 

Kevin Ichhpurani (SAP):

….From a large company perspective, certainly, we do have a lot of negotiation ability with small companies. However, to you're point, John, we've looked very closely to make sure that the partnership is going to be successful, otherwise, we're not going to get beyond the press release. So, it's very important to make sure that it's profitable for the small company.

….So, despite that, the ability to have the power to aggressively negotiate, being fair, making sure that the economics work for the partner and modeling it to show them that it works for the partner are pretty critical from our standpoint. That was also the reason, again, that we founded the NetWeaver Fund, which was very much focused on doing equity investments in companies as well, to make sure that they could scale. 

Gamiel Gran (Cassatt): .

From my perspective, the large companies do indeed step on you. The five-year cycle to make the first transaction, the be patient notion, hear that time and time again. Sometimes, a small venture-backed company doesn't have the patience, doesn't have the time, doesn't have wherewithal to afford that, and nor should they. They need action now. But the truth is, the large companies work more slowly. That's the bottom line, so you have to somehow accept that…. 

Manoj Fernando (LiteScape):

One of the first deals that we did with Cisco when they were looking at software, was that we got a call from one of the Cisco product managers saying, "Here's a law firm that wants this application but one thing I wanted to do is this is your deal, you do it. We have nothing to do with it. Leave us out of it." So that was the risk. 

So, we had no idea how to price the product and things like that. Talked to the law firm, law firm said, "We're going to send you the contracts." So, they sent us the license agreement and there was a penalty that if our software didn't work, we had to pay them $500 a day. So, I called this product person back and said, "What should I do?" He said, "Well, you're on your own. That's the risk you take, right?"

So, with that I said, "Okay. I'm just going to sign the contract. Worst case, we'll declare bankruptcy and go away." 

[Laughter]

John Soper (Moderator, New Paradigms):

So that's the kind of power you have that they don't have!

Rick Tywoniak (Cisco):

…. I'm looking at ways to change this – is to try to give our partners better links and routes to market. Connections to our channels, connections to deal, and try to find various ways where we can incent or compensate our field of channels to work closer with our partners because it benefits us in the long run if they do. But it's a constant challenge for us, that's definitely a challenge.

John Soper (Moderator, New Paradigms):

Anybody else?

Governance and Metrics:

• Importance of plan and metrics
• Escalation paths
• Qualitative metrics

John Soper (Moderator, New Paradigms):

What I'm interested in now is how you look at managing the relationship. Mostly I'm looking at governance, metrics, things like that. I think that that's a key part of moving forward and one of the things I'm wondering about is how you structure this with a small and large company where perhaps a small company, in such a guerilla marketing mode that they're not interested in any kind of formal governance. They're just moving a thousand miles an hour. How important is it and how do you work a governance alliance relationship out of that?

Rick Tywoniak (Cisco):

I think it's very important to start off with a very clear business plan with the partner. So, when we partner with companies, we identify what are the key objectives...there's obviously the financial objectives, the hard objectives that we want to meet on a quarterly basis, on an annual basis, but also the qualitative metrics….when there's a conflict, having a clear escalation path and then a pre-agreed upon resolution; path to resolution and really making sure that the commitment is not taking place between the deal makers but rather you've got to get deep within the organization on both sides.

So, not just having alliance to alliance but making sure the salespeople on both sides, the product people on both sides are fully bought into this plan and that's where most of the relationships go wrong ….

So, from a governance standpoint, making sure that you have this clearly laid out with a plan. You're monitoring it on a quarterly basis and you have the extended set of stakeholders coming together on both sides ….

Gamiel Gran (Cassatt): .

I don't see the governance essentially as structure as much as a guide post for success and without it you may not be chasing anything more than a Barney Agreement….

So, I think, what you just said is exactly right. You've got to get beyond just the alliance level and down to kind of this key stakeholders so that there's an operational plan that actually looks like a business plan looks like. Is that an administrative burden? I think it's a must-have. 

I think one of the other must-haves is some level of remediation….What do you do to remediate that, put that back in order and actually take action to reset a set of expectations that are more realistic and actually change some of the goal, guidelines and even how you operate as an organization actually take that into it. 

Rick Tywoniak (Cisco):

So, this is pretty important. It happens differently at different tiers on the Partner Program. If you take our top tier of the program, which is the industry verticals, mostly the top tier of the program, there you have alliance managers who do the typical things: set up a business plan, it's revenue base….

The bigger challenge for us is how do you manage the other 200 or 300 partners where maybe they're not at the top tier. You don't have as many alliance managers to work with them. We have governance models there. A lot of it is focused around certification. So, a lot of my program is a certification program where you're making sure that their product works with your product….