Best Practices for Reseller Agreements in Asia | Interview with Mark Dembitz

Understanding how reseller agreements may differ in this part of the world is crucial if you want to position your business for success when negotiating with strategic partners. Greenhouse’s CEO and CTO, Drew Calin and Viktor Kyosev, interviewed Mark Dembitz, to get his opinions and views on building reseller agreements in Southeast Asia.

Kindly note that Mark Dembitz participated in this interview in a personal capacity. The opinions expressed in this article and transcript are Mark’s own and do not reflect those of any entity with which he has been, is now, or will be affiliated.  

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The interview covered main points:
1. What is a reseller agreement?
2. Different kinds of partnerships and why should they be put in place?
3. Motivating and incentivizing Resellers
4. Handling reseller agreement in Asia
5. View on exclusive distributorship in these markets
6. How to find good resellers in Asian markets
Interview Transcript

1. What is a reseller agreement?

Typically, a reseller agreement is a contract between your company and another company, allowing it to sell your products or services to third-parties.

In the interview, Mark gave an example of a vessel tracking company that created an application using a map that can display data that tracks ships. This vessel tracking company becomes a reseller if in addition to their GUI, they sell the underlying data to their customers. The defining factor is that the transaction ends at the reseller’s customer who wants to buy the underlying data, which through this agreement, your company enables them to do just that.

Hence, a reseller agreement is a contract setting the terms and conditions, confidentiality terms, and what the reseller company can and cannot do when selling your product(s) or service(s). This contract may also include compliance terms such as a capped margin that the reseller can charge on top of the agreed pricing, which Mark explains more in detail during the interview.

“One of the things that compliance teams like to actively cap the upside or the margin that the reseller can charge… uncapped reseller agreements, can pose compliance risks such as back-channelling of funds into end-customer’s pockets."

Mark Dembitz

2. Different kinds of partnerships and why should they be put in place?

Mark pointed out two types of slightly different partnerships:

  1. Selling products and services
  2. Data

Data companies sell data streams and Application Programming Interfaces (APIs) whereas software companies sell programs and systems. He raises this difference because, for a company that sells complex enterprise-grade software, an important point to consider is implementation. Companies often underestimate the amount of effort that it takes to onboard a new client, especially in markets across Southeast Asia.

3. Motivating and incentivizing Resellers

Mark listed three points to help increase motivation for resellers.

  1. Pick companies that have a relevant track record in your space because they are already motivated and have relevant expertise and network
  2. Pick smaller resellers that you can build good relationships with and are focused on you
  3. Incentivize resellers with wholesale discounts based on the volume of deals the company is able to bring

It’s common practice to break down your reseller program into different tiers depending on who is helping you sell and what’s the volume/value they are bringing to the table.

“Instead of giving a blanket 20% discount, you say, all right, if you're a bronze partner, you get a 10, 15% discount, a silver partner gets 20 to 25%, a gold partner gets 30%...”

Mark Dembitz

4. Handling reseller agreement in Asia

Having done business in Asia for a long time, Mark has valuable tips to share with regards to building relationships and enhancing business deals with the local companies. Mark also prefaced that Asia is large with different languages and cultures; he humbly remembers that just knowing how to speak their language does not mean you know how to do business in that country.

“Although I speak Chinese, doing business in China is not a simple thing.”

Mark Dembitz

Therefore, to summarize his point, which he expounds in detail during the interview:

  1. Remember that in these new markets things are different linguistically and culturally
  2. Having deep connections and partnerships helps to accelerate business
  3. Being new and unknown in the market, you have to price right
  4. What counts, especially in the Asian emerging markets is your local credibility: local track record logos and references
  5. For some markets, sales & marketing materials should be translated to local language

5. View on exclusive distributorship in these markets

Mark believes exclusivity in these markets is risky and advises that unless warranted by deal volume, absolute reseller dominance in a given territory, and the availability of a guaranteed revenue number, exclusivity should be avoided. He explains more about the dangers and trickiness with exclusivity in the interview.

" What happens if I give exclusivity and then the reseller does not deliver? I'm stuck in this relationship for a year and I can't do anything."

Mark Dembitz

6. How to find good resellers in Asian markets

  1. Use your network
  2. Observe your local competitors and how they approach sales. You may discover some of the resellers they have partnered with
  3. Do your research and ask around

Mark adds that the key to building a strong reseller network is not really about the quantity of resellers, but about having a handful of resellers with very good relationships and that deliver.

“You use your network. You try to also look at what product you're selling or needs to be sold in a certain market and try to find who sells that. Or try to find if there's a local competitor and how they approach the process?”

Mark Dembitz

Mark wrapped up the interview by sharing the importance of considering the implementation of your product if you are an enterprise software company. He advises thinking about partnering with project companies that will bill for implementation services and do customization implementation.

Our team will continue to interview thought leaders in the Asia Pacific to uncover the best practices behind designing reseller agreements, activating a network of partners across the region, and in general, building your go-to-market strategy. Stay tuned.

Need help with finding resellers in your target market?

Greenhouse can connect you to pre-qualified service providers to help you validate and outsource resellers into your target market.

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Interview Transcript


Drew: Tell me a bit about the reseller’s agreements that you have in place and what type of partnerships exist in your experience

Mark: There are two slightly different kinds of partnerships, right? what data companies sell as a product are data and data streams, APIs. On the other hand software, companies sell a complete software or suite of software as opposed to just the data stream. And so that may require implementation. The partnerships and the two sides are slightly different, how they work is somewhat similar but have key differences.

I've worked in Asia for a long time, and it's large, with different languages and different cultures. I've always found it easier to try to approach various groups of customers, through partners but I've seen two separate things. One: territories. Although I speak Chinese, doing business in China is not a simple thing. Especially if you don't have anybody on the ground there… it just makes more sense to have a partner. These are territories where cultural things are very different. Linguistically things are very different or business practices are very different. Think of China, think of Indonesia, for example. Another reason to do partnerships that I found is, in places where you just need very deep relationships. Government sales for example? Let’s say I want to do business with the Australian government, but I have no substantial track record in Australia and nobody on the ground… How am I going to get in the door?\ I need people who have very deep relationships there, who know the government procurement practices like the back of their hand, and who have connections into the buyers and users.

Drew: When you're structuring your agreements, are they similar or the same, or do you customize them based on the nature of the relationship?

Mark: I like distributor agreements to be standard. I currently work with a framework distributor agreement. The terms and conditions don't really change:It simply states, “this is the product you're selling, this is what you can do or you cannot do. You cannot sell to sanctioned entities, for example”. It sums up a mechanism of how you go about a commercial deal. It does not specify pricing. Think of this reseller or distribution agreement as “how I enable you as a distributor: these are the terms and conditions that you have to follow. These are the confidentiality terms, which need to be reflected in your agreement with your customer at a minimum (i.e. you can have more stringent terms if you desire) The reseller will end up having an agreement with their end customer, which we're not necessarily privy to.

Drew: What are the commercial terms of your agreements? Are they getting a percentage of sales, for example, do you have minimum thresholds?

Mark: We do two things. For some of our larger deals, we work on a deal-by-deal basis. You have a deal, you bring it to me, I give you pricing for that deal and then you put a margin on top. In the past, we’ve never capped this. In particular when the data is commoditized, typically the price can’t be raised too much, otherwise, resellers price themselves out of the market, so it's naturally regulated.

When compliance starts to matter more (if you are a public entity, or will be one soon), this can change a little. Uncapped margins, in particular in some jurisdictions, may enable shady business practices, such as kickbacks, which must be avoided. Actively capping the upside or the margin that the reseller can charge is a simple solution to discourage practices of backchanneling money into end-customer pockets. I typically work with margin caps of 50% or so, although this will depend on specific markets and products..

Drew: How do you motivate them?

Mark: There are two ways really. It's part of my job to think about how to accelerate this. One is making sure you pick resellers that are intrinsically motivated: they are hungry, they know your market, and/or are excited about it… these companies are motivated from the get-go.

Drew: I get that, but you might be one of 15 different accounts that they rep, right? What I've seen with resellers is they will frequently go to the easiest one to sell, and I'll just allocate more resources to those. You just kind of fade off in the black. So how do you prevent that?

Mark: One, you want to pick smaller resellers that you can build a good relationship with and that is focused on you. Let me give you a counterexample, which really does not work well: if you are a small company, with relatively small deal sizes, working with large conglomerates (for example large IT service companies, large trading houses, etc.) is likely not to work: you are a drop in the ocean and while these companies may take you onboard, you will waste a lot of time trying to motivate them and push them when in fact you just don’t move their needle..

The other thing you can do is put in place wholesale discounts based on the volume of deals each reseller brings. If in a direct deal, I would sell data at a hundred bucks, to make it attractive for the reseller, even though you give them that additional margin,  I typically price it at 15 to 20% below the end-customer price. So it's easier for them to sell, but even if the end price is still a hundred, they automatically have that 20% margin built-in.

Drew: They can actually pocket that as well.

Mark: Correct. If you're my end customer and I sell to you for a hundred that's the price. If I'm doing it through a reseller, my price to the reseller for the same deal would be 80. The reseller can sell it to you for a hundred. They can sell it to you for 90. I also cap the upside of 150. It is actually best practice to have tiers. Instead, any reseller gets a 20% discount. You say, all right, if you're a bronze partner, you get a 10, 15% discount. If you've brought more volume, you get a 20%, 25% discount. If you're a platinum partner then the wholesale price that you would get is 30% off for example. Because I know that you're bringing that sort of deal volume.

Viktor: Then, as it comes to emerging markets in particular, when you enter a market, especially as a relatively unknown brand, like you're not Microsoft or Salesforce, in a way you need to incentivize a lot more early on until the brand is built. But in a way also this market, especially taking the people, gonna negotiate the shit out of whatever you put on the table. You also don't want to start with, like too high. What is a good starting rate, given that you are a new, relatively unknown, like, let's say serious A startup, just coming up. Does it make sense to really push it high, to create a lot of excitement, get a lot of resellers or shall we start low because everyone anyways is going to negotiate it.

Mark: You say high or low, you're talking about pricing.

Viktor: I mean, as the incentive that you pay the reseller, meaning because the price is the same, they're not adapting. I think the price in different markets. The price standard. It's just, the commission that they're going to pay, whether it's 30% or 40%,

Mark: My advice for market entry as a brand nobody knows about is:. Number one, you have to price right. Number two, what counts is track record and logos - you have to build the buzz. when you first go in, you're like, “I need 10 logos, like to start that excitement and to build a track record” and you do whatever it takes, right? If that means you make no margin or if you’re going through a reseller and that means you have to pass the margin to the reseller, you pass it to the reseller. Because you want to build out that track record that you don't have, especially in emerging markets.

Viktor: You just have no language in the contracts that says that all these commissions and pricing can be revisited later.

Mark: Well, what's the term of every deal? So the way I like to do it is every deal is a 12-month deal. It's a 12-month term that renews, and there's always flexibility to change the terms or renegotiate the terms after 12 months.

Viktor: What's your view on exclusivity in these markets?

Mark: I dislike exclusivity. Unless a reseller's willing to pay you for it,. It is the only way to give exclusivity: you guarantee me revenue for the first 12 months (or the duration of the term). The amount depends on the product, market, expectations, negotiation ability, etc… but exclusivity has to be bought, not given.

Drew: Do they go for it?

Mark: Very rarely. . It rarely gets any bites, and that's exactly how I want it. I do not want to give exclusivity, because what happens if I give exclusivity and the reseller doesn’t deliver? I'm stuck in this relationship for a year and I can't do anything about it. Unless of course, they say, “Yep, I'll commit to a large guaranteed sum”. Whether it is paid upfront or not is not too important. If they don't sell enough by the end of the year, you invoice them for the balance.

Viktor: Yeah, that makes a lot of sense because it's just tricky.

Anyway, Mark, how many resellers can you manage? Meaning do you go towards an approach where you build a lot of online materials and education that you can send them there so they can get onboarded. Or because Asia, it's more relationship-driven because of that, maybe you have more people that actually connect with these resellers and build relationships. What do you think about this stuff?

Mark: First of all, your resellers always have to be educated, it's your product, not theirs. The onus is on you to enable them.

Drew: Consistently, right?

Mark: Consistently. It's your product, you own the product. I mean, or if I'm the company that owns a product and I hire a reseller to sell for me, it's my job to empower them and to educate them and to give them the resources they need to go out and pitch this. That means that I pass on materials I develop for my own direct sales. When entering a new geography or a new country, It is also important to consider whether the existing materials need to be adapted to the new market and/or translated into a local language.   To do that, my first stop is always to ask the partner, “Hey, we have these materials. Do you need them translated?” Because they know the market better than you to.“Are these materials appropriate? What would you do differently? Do you need them in the language? Okay. You need them in Bahasa, Indonesia. Great. Can you help with the translation or do you know where I can get them translated?”

Drew: Do you ever find that they have the resources to do it for you?

Mark: Some yes. Depends who you get. So big ones, yes. Small ones, no. I’ve had partners in Japan translate stuff for me. They have the ability to do that and are used to doing it. I've worked on a partnership with a large company in Indonesia and asked them if they could help and they've said yes. But if they said no, I would take the marketing materials and go to some translation shop where they can be translated. I would run a draft by the partner and say, “Hey guys, what does this look like? Can we finalize this way?”

Viktor: In these markets, how do you find good resellers? Like what is your playbook as it comes to identifying and engaging good resellers.

Mark: That's, that's challenging. You use your network. You try to also look at what product you're selling in a certain market and try to find who sells a similar product. You can also try to find out if there's a local competitor and how they approach selling? Do they go direct or do they have a reseller? If they have a reseller, then typically you could find it online. If you know somebody in that market, ping your contact and ask,“Hey, I'm looking at launching this product in your country/region. Do you know who sells this stuff?” But it’s not easy to find good partners,  which is also why I think exclusivity is not good.

Let me add two things that come to mind on exclusivity. As I said, I typically don't do exclusivity and I try to head people off it. But they still ask, “How many resellers do you have in this market?” I usually tell them, “My goal is not to have many resellers. My goal is to have a couple of really good relationships. If you guys deliver, I have no incentive to go find anybody else.” I want to build deep trust-based relationships with one or two groups where there's a lot of symbiotic relationships and drive them hard..

Drew: Do you ever build a model for earned exclusivity?

Mark: That's interesting. I have not done that, but nobody's ever asked for it. The way I see it is if you're kicking ass and like doing a really good job for us and we're deepening our relationship continuously, I'm not incentivized to find anyone else. Unless it's a very particular thing: This reseller is an expert at, let's say the finance and insurance industry and now I want to try to target shipping. I would first ask the guys “I want to do this vertically. Are you interested in it?” And if they're honest and say, “Look, this is not really our business. We don't want that.” I'll find somebody else.

Mark: Let me throw something in really quickly that is relevant depending on your product. If you have a software product that needs implementation, then you should look at it slightly differently because they're the kind of partners you want to go for are our partners that resell your product, but who on top of any discount they get for reselling the product will bill for implementation services or managed services. And that when it's a software-based thing that needs a lot of customization implementation, you want to find people who can make a killing off the implementation man-hours.

Drew: And so you have to structure an agreement for implementation as well?

Mark: Correct?

Drew: Do you get paid off?

Mark: No, typically not. As a product company, you sell the product. When you try to sell through partners, you say, “This is our product. We get the license revenue. We do none of the implementations. You do the implementation.” Now the danger is in the early days of a product that needs implementation, partners won’t know what to do. It’s incumbent on you to know what to do and train them. That automatically means that for the first few iterations of what you're doing, you basically have to implement, either alone or alongside the partner, because if you don't know what you're doing, how can they know how to implement your product? So you have to do it together. That's where some of the negotiations come in: someone's like, “Okay, well, if we're jointly implementing it, how much money do you make versus does the partner make?” And typically you want to leave the lion's share of that to the partner because they're eventually going to do the work. And that's where they make their money.

Drew: I can see why that's such an important point to mention because I imagine that implementation is always an afterthought, isn't it? In software sales.

Mark: Too often.

Drew: And companies end up buying shit they don't use.

Mark: That's a customer success thing.. Some large tech firms like Microsoft are changing the compensation structure for their sellers to reflect the importance of tech adoption:  commission/bonus is paid not only based on what a sale, but also on what the engagement with the product The reason is simple and sound, in particular in the world of subscription revenue: if I sell a ton of Zoom licenses and but nobody uses them, then guess what? The customer is eventually not going to renew the contract. So it is important to push the customer service angle from the start. Same for a product that is heavily dependent on implementation: the license fee is only a part of the whole, and if the implementation is unsuccessful, then the license fee is likely to be a one-off, whereas obviously what product companies strive for is a long-term, perennial subscription. Thus, it is in the best interest of those companies to create an environment (including incentives) and a partnership network that will ensure proper implementation.

Drew: Hey Mark, thank you for your time on a Friday

Mark: If you have any other questions, feel free to come back to me. I'm happy to help.

-End of transcript-

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