Growing Business by Going Global

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The cost of signing with Siemens was rock-bottom: the price of a hotel room during the convention week. And, revels Ciliv, who devoted the following four weeks to carving out the deal's fundamentals, "we didn't have to surrender a thing. Siemens wasn't our only option. We told them we could go to Philips or some other big company just as easily." In fact, NovaSoft still can: though Siemens is obliged to purchase a minimum dollar amount of software for resale each year, the German license isn't exclusive, and NovaSoft is entitled to offer its products to anyone else in the country. But it's not likely to, inasmuch as the contract also calls for NovaSoft to supply products for Siemens to sell under Siemens's own label. In another low-budget appearance, NovaSoft's document- and work-flow-management software so impressed a Venezuelan oil corporation that the sprawling refinery bought a $145,000 system on the spot, and when Ciliv later sought a Venezuelan distributor, his leverage was bolstered by being able to deliver a ready-made customer.

Within two years NovaSoft had established distributor relations in Italy, Belgium, and Germany. Each deal provided for an advance against sales. "Initial agreements in strategic relationships are extremely important," Ciliv contends. "You have to be careful not to give away your future for the sake of the present." Advance royalties are indicated because such royalties prove that your proposed partner is taking you seriously. If a company doesn't commit cash, it risks nothing and could simultaneously agree to distribute products from 100 sellers without the other 99 knowing. "By the time you discover they haven't bothered with yours," Ciliv cautions, "it's a year later, and you've lost."

Next, on to the Pacific. But where? Having no idea whom to seek for a strategic partner in Japan, Ciliv phoned the Japanese consulate in Boston, asked for a list of companies serving the engineering market, and wrote to the president of the one that seemed most promising. "If you have a good product and can communicate its potential," he reckoned, "a sound businessperson anywhere in the world has to answer." Sure enough, one did. The cold-callee, Mutoh-Kogyo, a Tokyo-based company, said it would be pleased to send a strategy-planning unit directly to Boston.

The business protocol that followed, however, wasn't so direct. "Whereas other countries respond to a product's technical features, in Japan that's not the principal issue for the end-user," Ciliv discovered. "The relationship with the vendor is more important. Japanese customers are very conservative. They like to purchase from people they've been doing business with for a long time." His recommendation: "Don't even think of opening your own sales office there."

If NovaSoft's experience is any gauge, you won't have to. In a three-year contract, the Japanese distributor guaranteed NovaSoft minimum sales of $300,000 the first year, as an advance against royalties; the guarantee rises past $1.2 million in year three. Reflecting Japan's commercial tradition, an addendum to the boilerplate allows the distributor to set up its own subchannels. And reflecting NovaSoft's capital tradition, the company arranged for Mutoh-Kogyo to modify the products for the Japanese market at its own expense, a charge NovaSoft couldn't have afforded.

By contrast, NovaSoft's Israeli partner, which signed on the same year, was a tough negotiator that "tried to do business with as little cash outlay as possible," a posture Ciliv could comprehend. Twisting his own rule of thumb, he accepted a deal wherein the partner doesn't pay advance royalties but must meet a schedule of quotas instead. If established sales goals aren't attained, NovaSoft can assign a new distributor; if the distributor hits all targets, NovaSoft extends the contract -- and expands the quotas.

Ciliv didn't return home for three years, an absence during which NovaSoft's treasury was filled exclusively with foreign revenues. NovaSoft didn't roll out a product in the States until 1991, and in the last quarter of 1992 domestic sales outpaced overseas sales. By then NovaSoft had forged strategic alliances in 15 countries, on four continents. With those partners acting as NovaSoft's sales and support arms, and NovaSoft acting as its partners' engineering and production arms, NovaSoft has seen its annual revenues double; for fiscal 1993, they'll be close to $10 million.

As NovaSoft was adding partners overseas, its credibility was growing here; in late 1992 venture capitalists began calling NovaSoft. And the founders, finally able to afford it, have hired a seasoned marketer, Walter Elliot, to establish a U.S. sales corps. "Usually, companies go at it the other way around -- sell in their backyard first, develop that market, and go international much later," he says. "But our overseas distributors financed us with advance purchases at a time when, with a tiny staff of four, there was no likelihood we'd qualify as a vendor in the States."

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