If you’re a software maker trying to break into overseas markets, avoid distributors like the plague and don’t go it alone.
That’s the advice of former WEL Technology chief executive John O’Hara, who presented a seminar in Auckland last week on the benefits of licensing and joint ventures.
The seminar, organised by the New Zealand Software Association, attracted a full house of local software companies eager to learn from O’Hara’s experiences. Those experiences include guiding WEL Technology into a licensing agreement with Lucent Technologies to supply commercial telephone billing software to US customers and helping set up Utility Settlement Ontario, a joint venture in the Canadian province between WEL and several Ontario power suppliers.
“With Lucent, we took a licence fee for them to sell the product and with Utility Settlement Ontario, we took both licence fees and profit from the company.”
Such arrangements are far superior to going overseas on your own, entering into a distribution deal and financing the venture from your own cashflow, O’Hara says.
“I’ve found in the past that if you go out and try to conquer the world on your own, it’s pretty difficult. If you jump on a plane and try to find a distributor, it hardly ever works out — there’s a 90% failure rate in my experience.”
Instead, he recommends finding a partner. “Go and find someone with a good customer base and a dying product.”
By entering into such an arrangement, New Zealand software exporters can maximise performance, minimise risk and get as big a market share as possible, O’Hara says. Joint venture partners should be chosen as carefully as marriage partners, he jokes. “You have to trust the other party.”
Getting the best possible legal advice is also vital. “You need to use very good IT lawyers and with joint ventures, you need local knowledge. For example, when you form a company in Ontario, founding directors can’t resign until someone agrees to replace them, which means you could get into a situation where you couldn’t resign as a director.”
New Zealand has approximately 300 vertical market software developers; that is, developers whose products can be easily adapted for similar application overseas, he says. “They all have very good products, but not all are as good on business skills.”
Since leaving WEL Technology (now Kinetiq) last year, O’Hara has worked as a consultant to several IT companies.