We can never accurately predict how successful a distributor will be in selling the company’s products
פורסם: 14.8.17 צילום: shutterstock
Most B2B software companies I work with seek to identify distributors, resellers or other channel partners in order to promote their products in relevant international markets. This process is often undertaken without proper planning and preparation, and suddenly companies are left wondering whether they should sign a detailed distribution agreement or forego it entirely and work without a written agreement. The three most common approaches are as follows:
- There is no need for an agreement – It is software product, which the company in Israel owns and controls all licensing. If the distributor or reseller fails to pay, which is our major concern, we don’t risk any inventory loss (as opposed to hardware products ). In addition, we can always refuse to extend the license or deny access to the system if it’s cloud-based.
Further consideration is given to the fact that this makes it easier on the distributor, and enables the distributor to immediately start cooperating with the company on marketing its products as fast as possible without redundant legal bureaucracy.
- Sign a standard agreement – Most companies realize that a legal framework is necessary to formalize the relationship between the parties. However, they do not wish to delve into the extended legalese of distribution agreements or pay experienced attorneys, and so they choose to copy a brief, generic agreement they found online or take one from another company and reuse it as is, save for changes to company information.
- Sign a detailed distribution agreement designed specifically for the collaboration between the parties. This is a process that involves an attorney, one experienced in the software arena, who would then draft a detailed agreement per company requirements. Such an agreement expresses, in addition to all legal aspects, commercial, marketing and managerial issues that best meet the company’s needs in its relationship with the distributor. This is a much lengthier and more expensive process.
What we present below is not legal advice. We’ll leave that to the attorneys, who would most likely prefer option number 3. We’ll approach it from a business and international marketing perspective when looking to break into international markets.
The first downside of not signing an agreement is that you fail to match expectations. When entering a long-term relationship, both parties expect a great many things. The software company in Israel would most definitely like to know:
- The distributor’s functions (only sales or also marketing? Technical support? Etc.)
- Will the distributor translate and localize the software?
- What resources is the distributor planning on investing?
- Which actions will the distributor take to make sure the product is introduced to the market?
- Does the distributor intend on drafting a marketing or operation plan for his territory?
- When and how does the distributor report to the company?
- What support does he need from the company in order to succeed?
- What are its sales targets?
- Does the distributor have exclusivity?
Were all of these and other issues discussed with the distributor during its evaluation and when checking how suitable it is for the company? If not, the cooperation is destined to fail. The agreement serves as a clear means of writing down all expectation and agreements with the distributor and making sure we didn’t skip this step. There is no point in starting to work with a distributor and then several months down the road realizing that there were serious gaps in understanding or expectations. The loss of time and resources that appointing the wrong distributor entails can even bring a company to its knees when attempting to enter foreign markets for the first time.
Another disadvantage of refraining from signing an agreement is how the distributor perceives the company. An experienced distributor, one that has already worked with international companies, expects to receive a contract from the company and might even be looking forward to ironing out such a contract. When a company fails to send a contract, the distributor might see this as:
- The company does not pick and choose between distributors and it might be desperate to sell its products to anyone that shows an inkling of interest.
- The company does not have proper processes in place, in turn meaning they might not have the proper materials in place required for the distributor to market and sell the B2B software, such as price lists, brochures, ROI calculators, etc. Can the distributor count on such a company to help it with marketing and sales?
- The company does not particularly care about distribution and maybe the distributor does not need to take it seriously and invest resources in helping it.
We must also note that signing a distribution agreement is grounds for a press release. We can never accurately predict how successful a distributor will be in selling the company’s products. But one thing’s for sure – When signing a distribution agreement, it’s best to “celebrate” and issue a press release on the company’s website and through various other channels. Young companies just starting out on marketing overseas lack references and find it difficult issuing notices of success. A distribution agreement is a great way of letting everyone know – and this could help signing other clients and distributors. Without an agreement, we can hardly justify a reason to celebrate – and that’s a shame.
These three arguments show that a superficial agreement (option number 2) is also not warranted, since such an agreement lacks motivation by both parties to express their expectations as they get acquainted and negotiate. In addition, the distributor will not be quite as impressed. The only benefit it has is that it shows a desire to present the agreement in a formal manner, signaling to the distributor that the engagement is important to the company and that it could then issue a joint press release.
This way, we take a legal document and use it for our marketing strategy in terms of managing international distribution and marketing channels.
It is best to hire an experienced attorney since there are other aspects of software agreements that come into play. But we’ll leave that to the lawyers.
*Ori Ainy is International marketing, sales and business development consultant for B2B software companied and startups
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