A savvy way to distribute your products and services globally . . . without leaving the home office
It would take too long and cost too much for Platinum Technology Inc. to grow from a handful of employees into a company with offices worldwide, Andrew "Flip" Filipowski once thought. But today, just four years after he founded Platinum, it has 32 offices in 18 countries on six continents. Having expanded with little capital and unheard-of speed, the company now sells its software products and training services in most major cities of the world. The secret was a simple, innovative distribution network.
Filipowski had already started and grown one successful company in the mainframe-computer industry: DBMS, whose sales peaked at $23 million in 1986. But in 1987, after the company was sold, he was a free agent.
Even as he was leaving DBMS, Filipowski had his next idea in mind. IBM had recently introduced DB2, a database-management program for its mainframe computers. Management information systems departments all over the corporate world were trying to figure out how to install the system, customize it, and teach their people to use it. Filipowski knew there would be a demand for DB2 training and software accessories that would make DB2 programs easier to customize and use.
Creating the software and designing the training programs would be a technical challenge, but once Filipowski tackled that, Platinum was still going to have a problem selling them. "We needed distribution," he says.
His potential customers included every company that used DB2. They were relatively easy to reach through advertising at trade shows and in computer trade publications. Platinum's larger challenge was to locate technically competent people to run training courses and help users install the add-on software in scores of cities. Sales would not be hit and run. The company's people would have to work one-on-one with their clients for extended periods. But there were no Platinum people in scores of cities. The corporate office, in Lombard, Ill., had just enough people to handle product development, marketing, and administration.
Potential competitors -- large international consulting firms -- had lots of technical people in offices all over the world. Their networks of offices gave them coverage, and their established names gave them an entre. No small, local company, no matter how good its products, was going to make a discernible dent in this corporate market.
Filipowski, however, wasn't without options. For instance, he could have opened some field offices, starting with key domestic markets, and staffed them. That would have been expensive and time consuming.
He could have franchised, which young companies with limited capital often do to spread themselves out moderately quickly. The licensing and regulatory constraints that apply to franchising, however, didn't appeal to him.
He might have tried to license his products to IBM, letting its sales engineers be Platinum's sales force. But that didn't appeal, either.
He saw great promise in an idea that another small company had used to achieve broad distribution. That company had recruited a group of consultants -- people who were already in the market -- to sell its products. But the company hadn't pursued the idea far enough, Filipowski thought. If he could recruit a network of consultants who would take on the Platinum name as well as sell the products, his company's software and training courses would get wide distribution and acquire brand-name recognition. In fact, if he could get the network set up soon, Platinum would look like a large, even global company far more quickly than it would if he franchised or built field offices from scratch.
But why would consulting firms want to join Platinum's network, and more important, why would they want to change their names?
Filipowski knew a lot of these people. The firms were local and small -- two or three partners competing for large corporate contracts against consultancies with prestigious names. Not only did they have to work harder to get the acceptance automatically afforded a larger firm, but even if they got the contracts, they couldn't charge the same rates as a Big Six accounting firm. "The little guys' margins," says Filipowski, "were constantly being squeezed." So, he reasoned, if the small consultancies, too, could look like international firms capable of providing local service, it could only help them. Consequently, his idea was to recruit independent consultants. Everybody would win.
And everybody has, or so it seems.
Today Platinum has 31 affiliates around the world employing nearly 2,700 people. Network affiliates pay Platinum $500 to $600 on average per month, which feeds a national advertising fund to which Filipowski's corporate headquarters contributes an equal amount. That fund pays for national and international ads, exposure that no small firm operating on its own could afford.
Platinum corporate assigns one of its telemarketers to each affiliate's territory -- which typically covers one telephone area code. The telemarketers pass all sales leads on to the appropriate affiliates.
Filipowski's operation also trains and certifies instructors from the affiliated consulting firms, which then teach private DB2 courses to client companies. The corporate office handles all the course administration. Fee income from the courses is split. In a typical arrangement, 15% goes to the affiliate that made the sale and 50% to the firm that does the teaching. Naturally, Filipowski's Platinum office gets a cut as well -- 35%.
Steve Yurkiewicz, a partner in Platinum Technology Delaware Valley, in Harrisburg, Pa., likes the simplicity that network affiliation affords his company. "I'm a technician," he says. His company didn't want to hire a large administrative staff and telemarketers, prepare teaching materials, and coordinate class schedules. "All we have to do now," he says, "is teach the class and collect the commission." And like most affiliates in the Platinum network, his company didn't really change its name. It created a division that it calls Platinum Technology and got a phone listing in that name.
From Filipowski and a couple of lieutenants, Platinum has expanded to 80 people, and annual revenues have climbed to nearly $30 million. He continues to sign up additional consultants as affiliates and hopes to have at least one in every state soon. IBM adds more than 1,000 new DB2 users worldwide every year, says Filipowski, "every one of them a potential customer for us."
How to create a network of affiliates
The first few recruits are the toughest to get, because you have nothing to show them except your plan. Andrew Filipowski of Platinum Technology Inc. signed up the company's first affiliate after having a long dinner meeting with the prospect. Others he found through ads in trade magazines, at trade shows, and through industry contacts.
To keep the network operating smoothly, Filipowski suggests you
* Work out clear rules for revenue sharing. Every Platinum affiliate gets a cut of the revenues for sales in its market, whether or not it makes the sale.
* Be explicit about who is responsible for what. Decide, for instance, who will handle collections, marketing, and customer service.
* Provide some good reason for affiliates to stick with the network. Platinum affiliates need the name identification to impress their clients. They also need the training courses and administration the corporate office provides.