Archive for September, 2013

Do you know, there is a middleman in Software business?

This is one more important lesson I’ve learned in the journey of BizTalk360. This is mainly applicable to start-up’s entering the enterprise world. Everything going online these days, where you pretty much buy right from your grocery to your expensive television online, eliminating the need for middleman.  But unfortunately things are bit old school even these days in enterprise software world.

For lot of enterprise customers, they do not procure the software directly from the vendor. One main reason is, they don’t want to maintain relationship with 100 different vendors, instead they prefer to deal with handful of software resellers. The role of the software reseller is purely to act like a middleman. The resellers probably won’t understand anything about the product. We have seen cases where a customer actually asked them to procure licenses for “Microsoft BizTalk Server”, but they came to us to get a quote for “BizTalk360”.

Customers typically pay a fee for the service they are getting from the resellers, but as any middleman business, reseller wants to maximize their profit and would love to take a cut from both sides. Ideally the vendor doesn’t need to pay anything for the resellers, but in order to keep things smooth (avoid any delays in sale) we offered them a small slice, typically 2%. Most of the time they won’t be happy and bargain for higher percentage. You actually don’t need to worry too much about the resellers, because by the time they come to you, the customer has already instructed them to procure the software. It’s not going to make any difference in sale closure, whether you are giving 2% or 5%, it’s all going to be pocketed by the reseller. 

I also learned they apply 2 techniques to maximize their profit

Client is on tight budget

This is one of the common statement we hear from the resellers.

The customer is on very tight project budget and they are looking for a discount to close this sale soon

This is an absolute lie, in fact we offered some ridiculous discounts like 10-15% in the beginning without knowing the trick. These guys pocket such a huge margin for doing absolutely nothing. We just learned this scam with one of our own experience. We were working with this customer for nearly 4 months doing some demos, POC’s, lot of email conversations and finally we even decided on a price by giving a discount on free training. The customer request came through a reseller and we heard this same statement. But this time we know that can’t be true. I told them clearly we cannot give any discount apart from our standard 2% discount, within 30 minutes we received the purchase order. How can such a big budget problem in an enterprise world got sorted in 30 minutes!!

Get maximum payment term and send a check

This is another trick from some of the bigger resellers. They will ask you for crazy payment terms like 60-90 days. Even after that term period you’ll not get the money, one of our admin staff needs to send numerous emails and telephone calls and finally they will send a check. The problem with international check is it takes minimum 6 weeks to clear. In some cases if there is any problem in the name, or signature etc. it can go up to 3-4 months.  Basically interest free money  (cash flow which is very important to run a business) for 6 months. More than that, it just adds lot of admin work on reconciling those amount.

So, what’s the solution?

It’s all about how strong you are. In 99% of the case resellers do not have any influence. When they come to you, the customer has already instructed for the purchase. Resellers are just the procurement vehicle. Define your own terms, we give 2% to keep the conversation smooth and we see it more as admin charges for working with resellers. In the same way define you own payment terms and stick to it. We also started charging 5% surcharge for people who wanted to pay by check, to discourage users who wants to go down that route.

Bad Customer Service is guaranteed to kill your business

You may have top of the range product and top of the range technicians but if your customer service sucks, it’s guaranteed to kill your business over a period.

Few months ago I engaged with a local custom fitted bedrooms and home office company to transform a spare room into an office room. The designer came first, we discussed few options and finally settled for one. We agreed on fitting date 3 weeks down the line. On the fitting date, fitter came with some office units and when he started measuring he noticed there is difference in measurement of few inches. He contacted the head office and guy suggested to cut it off and patch it. Basically instead of a clean finish, there is going to be a joint, kind of defeating the purpose of paying a premium for a nice fitted furniture. I spoke to that head office person, he gave me couple of options,  we can either take everything back (with bit of anger) and come and fit it in 3 weeks time or can go ahead with the suggestion. I was not ready to wait for another 3 weeks, and I’ve already wasted that day.  So just asked the fitter to go ahead with the patch solution. The fitter was an excellent worker, he did an amazing job. Couple of days later the bill came for the full amount. I called the head office person and told him I’m expecting some kind of discount for the patch work. He treated me like one of those nasty customers, who always finds excuse to get a discount and was not ready to listen to my feedback. I could have simply told the fitter to take the stuff back and redo it, which could have costed the company some serious money (a new set of furniture, fitters day rate, etc). After 10 minutes I just gave up and told him I don’t have time to argue, will just pay the balance.

This ended up in a poor customer satisfaction, he could have dealt with the scenario smoothly by just giving a small discount (£100 out of the £3000 order) and made the customer happy.

After few days I decided to add additional seating area in the home office and contacted them again. The only reason was due to the good workmanship of the fitter who did the job. The designer guy visited the place again, sketched some designs and we agreed to go with one. I asked him to send exactly same fitter even if it takes longer. Three weeks later the same fitter came with new set of furniture. To both of our surprise, the designer messed with the measurement again. This time I didn’t get into any discussion, just asked him to take the stuff back and come with correct fitting, after 2 weeks the fitter came with right furniture and once again he did an excellent job. At this point I’ve already spent around £4k.

After few days I decided to do up our TV area, since it was cluttered with cable set up box, XBOX, DVD player, etc. I called the same company again (for the same reason the fitter Paul was really good and nice man). This time I received a treatment I’ve never expected. They asked me to measure the place myself and come and visit their showroom. If I can agree with the price, then they can come and do the actual measurement. This is bit unusual approach for a custom fitted bedroom company.  They always visit the place to see the surroundings and give suggestions. I just sensed they are not ready to waste their time due to the size of the order.  I still went ahead took the measurement myself and visited their office, the designer put some drawings and quoted a price of £543. I asked him to round it off to £500. He didn’t show any interest, and simply said can’t do it.  That’s the end of the story. I left the place.

Some of the lessons for business owner