By: Dann Anthony Maurno
Microsoft has certainly steered partners toward vertical-specific IP for several years. But, asks Malcolm Roach, is that a smart move for a three-year-old services firm? Or one in which the principal is 60-years old and looking to retire?
Roach is Open Door Technology’s president and CEO, and founded the Alberta, Calgary-based firm in 1992. He will walk partners through the decision to verticalize in his Directions North America 2017 session, Transitioning to a Vertical Partner: The Good, the Bad, and the Ugly on Monday, September 18th. He plans to answer such questions as:
- What kind of talent do I need for a vertical initiative?
- How do I choose a vertical market?
- Do I sell the product directly, or through resellers?
- When can I expect to profit from it?
Open Door Technology specializes in oil and gas, “by virtue of being in Calgary,” says Roach. Part-and-parcel with that industry is equipment rentals, and the company has developed its Open Door Rental Software for Dynamics NAV and Dynamics 365 to meet that need.
Open Door released a light-duty version of the software in 2002, but found a decade later that the sales volume via resellers did not fund proper development of the product. “So we started to put more money into development, and also started selling direct, as well as going through partners,” says Roach.
One driver to making that R&D investment was that, as Roach describes, by ignoring Microsoft’s drive toward specialization, partners risked “putting yourself in a box and hoping you could last it out and get by.” A second driver was the recurring revenue of cloud solutions, versus incremental revenue with on-premise.
And practically speaking, says Roach, the march toward cloud delivery practically mandated the move. “We looked ahead and said, ‘There’s going to be a time of transition here and we need IP to do that, because otherwise, why would somebody buy from us in Calgary when they could just buy from anybody in North America?” With its own SaaS-based IP, Open Door could, at least in theory, sell anywhere in the world.
How Open Door chose its vertical
Partners must, of course, choose a vertical wisely. Open Door was familiar with equipment rental, having been the reseller of an existing solution for NAV. The developer charged fees from its resellers (not unheard of in the early 2000s), but canned its reseller program three months into the partnership, leaving Open Door with four prospects and no software.
The company then developed its early solution, but equipment rentals took off in 2007, 2008, and 2009 when construction companies recovered from the recession but lacked the cash for new equipment. Demand from oilfield services companies grew as well, so Open Door’s solution (and opportunity) developed along with the industry.
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Questions to ask yourself first
Open Door was no stranger to equipment rentals, but vertical knowledge is just one consideration.
Even before choosing a vertical, “you have to decide whether you’re financially equipped and whether you have the personnel to actually develop a solution,” Roach advises. Otherwise, you will need a partner.”
“If you are a services-oriented partner, then it is a totally different mindset to develop product,” Roach continues. A services partner is evaluated on staff utilization, while development staff have targets. Having both on staff is tricky. “If you don’t separate your product development staff from your services staff, then your services management will keep trying to take your product development staff and utilize them to get your work done,” he warns.
Senior management as well needs to get used to the idea that cash benefits are down the road, versus month-to-month.
And, Roach advises, you must consider whether you should be going vertical in the first place. “For example, if you’re a sole proprietor and you’re running a firm with 20, 30, 40 staff and you’re sixty years old, why do you want to go through the headaches of trying to develop a vertical solution?” he asks. “You’re talking about a minimum timeframe of probably three to five years, if you’re building it. You want to be doing this when you’re 35, 40 at the most.”
So, the vertical move is not for the faint of heart. “You’ll make more money in the first three years if you don’t do it,” says Roach. But those years pass, the cloud gathers, and if there’s a good opportunity, some partner will seize it.