Rcp 2006 Selling Microsoft

8/22/2019 Rcp 2006 Selling Microsoft

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Conten t s

Joining the elite ranks of Microsoft

suppliers can be highly lucrative, bu

youve got to play by Redmonds

rules. Heres how.

2006Selling to Microsoft

IT Influencer Series

1. The Skys the Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

2. Pointers for Profitable Partnering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. From Partner to Supplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. The Whys,Hows,Bits and Bytes of Buying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Microsoft Supplier Facts and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Vendor Program Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. A Two-Time Winner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8. What Microsoft Wants That you Mayor May NotHave . . . . . . . . . . . . . . . . . . .

9. After the Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

10. Moving on Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

11. Selling Your Company to Microsoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12. Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

13. Dont Worry,Be Happy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
http://rcpmag.com/


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Joining the elite ranks of Microsofts suppliers can be highly lucrative,but youve got to play by Redmonds rules. Heres how. By Doug Barney

Michael Evans, CEO of Certified SecuritySolutions Inc., knows how

to play byRedmonds rules. Hiscompany providesMicrosoft

with project and consulting work, which accounts for about 35

percent of Certified SecuritySolutions annual revenues.

ysTHE

LIMIT

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2 REDMOND CHANNEL PARTNER AUGUST2006 RCPmag.com

F E A T U R E | Selling to Microsoft

s a partner, you are likely used to

supporting and often selling

Microsoft products. What if you

could turn the tables and

make a pretty penny selling

your goods and services back to Redmond? Think thats

a long shot? Think again. Microsoft now spends some

$14.5 billion a year, with some $8 billion of that in the

U.S., and both numbers are steadily growing.

When it comes to snagging this Microsoft business, partners

have a distinct advantage. Some of our biggest vendors are also

our biggest partners, such as Accenture, InfoSys, Wipro,

Avanadethe list goes on, says Tim McBride, Microsoft s manag-

er of vendor programs.

In fact, for some Microsoft partners, Microsoft itself rates as a top

customer. Certified Security Solutions Inc., a Microsoft Gold

Certified Partner based in Kirkland, Wash., receives about 35 per-

cent of its annual revenues from Microsoft project and consulting

work, says CEO Michael Evans. Add in revenues from indirect

casesthat is, instances where Microsoft introduced CSS to another

company that subsequently became a CSS clientand its greater

than 50 percent, Evans says.

In many cases, you must be a partner to even have a shot at join-

ing Microsofts vendor ranks. If youre selling us a technology kind

of solution, you have to be a partner. You wouldnt even get in thedoor unless you have certified credentials that say you can do the

work that we need done, McBride explains.

But not all suppliers need to be official Microsoft partners, which

makes for stiff competit ion. For instance, if you are providing cafe-

teria services, we dont require you to be a Certified Partner,

McBride says. In those kinds of cases, all suppliers compete on equal

footing. McBride uses the example of two companiesonly one a

Certified Partnercompeting to provide Microsoft with logistics

services. In that case, we are evaluating the business based on t

criteria and requirements of the job to be done, he says. It does

necessarily help you any to be a Certif ied Partner. We have to eva

ate evenly in all t hose cases and make sure we are playing fair. (F

examples of what Microsofts buying these days, see Wh

Microsoft Wants That You Mayor May NotHave, p. 7).

And for pure partner bids, all parties have the same initial sho

the business. If we are looking for you to write us a white paper

the next version of Exchange, you are going to get access to eacode and early release info. It pays to be a partner when you a

doing that [kind of] work, McBride explains. We need to be able

trust you. We need to make sure you are technically qualified a

have the training and the certified professionals on staff. What

typically see is that four or five Certified Partners are all vying for t

same business and in that case they are all treated equally.

There are a few key supply areas where Microsoft partners hav

distinct edge. For one, For one, Microsoft leans heavily on its pa

ners for training. The company also taps partners for marketin

especially on launches where partners develop training or p

together white papers supporting a rollout.

And a significant number of Microsoft partnersincludi

CSSact as subcontractors for Microsoft Consulting Servic

(MCS), which offers a different relationship with a different set

rules than suppliers are ordinarily forced to follow. For instance

MCS signs an agreement with a customer in many major cities, t

organization will subcontract a portion of that work to lo

Microsoft partners. Those folks have a different kind of deal with

from the standard arrangement. They wouldnt be subject to o

standard payment terms and they get paid differently, he sa

They interact with us very differently because their point of inter

tion is through their MCS partner relationship.

Pointers for Profitable Partnering

Before becoming Microsoft suppliers, partners must first learn whit takes to work with Microsoft . The software giant has rigorous sta

dards for itself and equally high expectations for its partners.

question about it: Microsoft does extensive research and sophistic

ed cost modeling to make sure that its getting the best deal and t

best contract terms possible on everything it buys.

Top-tier suppliers, classified as either Premier or Preferre

are selected by Microsoft procurement managers or category ma

agers. These managers judge suppliers quality and performan
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Really understand at the local levewhat Microsoft management is tryin

to accomplish. Look at how youproduct and service map to their goals

Michael Evans, CEO, Certified Security Solutions I


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Microsoft may be a cash cow, but as a publiccompanyit has a

responsibility to shareholdersto make as much profit as possible.

That need drivesMicrosoftsefficient procurement strategy, a move

mandated bycompanyCEO Steve Ballmer in 2001.

Since the Ballmer directive, Microsoft has more than doubled its

procurement staff and standardized nearly everyaspect ofthe buy-

ing process. Just a year after Ballmer laid down the procurement

law, Microsoft had itsbuying processesprettymuch down pat.

What it needed wasa way to make sure it got the best prices, the

best termsand the best quality on all its purchases.One problem washaving too many vendors. Equally vexing

were the problems of too manybids going out to too many

groups at Microsoft and too many waysof presenting proposals.

For Microsoft, automation came to the rescue, letting buyers

focuson a smaller group of key suppliers and buying goods

more efficiently. These days, nearlyevery leading-edge supply

chain uses publicareas of its Web site to make initial connec-

tions with potential suppliers and provide fundamental guide-

lines for becoming a vendor. Microsoft is no exception. Its

extranet, SupplierGATEWAY (whose underpinningsare provided

by a Microsoft vendor), supports the Microsoft Vendor Program

(MSVP), which is the fundamental way that suppliers sell their

goods to Microsoft. This Web site also helps fulfill the goal of effi-

cient, inexpensive procurement.

Other Microsoft purchasing tools include:

MS Market: Microsoft itself built this application, originally

focused on accounts payables, to let employeeselectronically

order goods. AsMS Market evolved, it has taken over the process by

which companiesapply to be Microsoft suppliers for specificcate-

gories, which they do by filling out detailed questionnaires.

Microsoft employees can use MS Market to search for suppliers and

the system will help guide them to the best choice. Microsoft pro-

curement professionals can remove underperforming suppliers

from the system, or decide how much can be spent with each sup-

plier for each type of good, and make sure that employeesonly

buythe goods the supplier hasexpertise in. MSMarket also tracks

purchase orders.

MS Invoice:Thisonline application is how suppliersbill

Microsoft. Direct purchases, such as those from Microsofts largestand most critical suppliers, go straight into Microsofts main ERP

application, the almost ubiquitous(among Fortune 500 companies,

at least) SAPR/3. Vendors can use MSInvoice to track invoices.

MS Inquire: Thisapplication lets suppliers checkon the status

of orders.

With the help of this sophisticated procurement system,

Microsoft can push the buying responsibilityout the businessunits

and to individuals. In fact, all Microsoft employees(nearly70,000)

are able to use MSMarket to buy. And thisprocurement processhas

been paperless since 1997.

While it mayseem chaotic to have all employeesaspotential

buyers, Microsoft buying is tightlydisciplined. This rigor allows

Microsoft to choose the best suppliers, control and measure spend-

ing and keep close tabson its suppliers. Its a wonderful thing,

says Tim McBride, Microsofts manager ofvendor programs. And

for categoriesof spend that we reallycare about, we use the MSVP

brand as our shorthand wayof telling the employeeswho are the

preferred suppliers with preferred rates with good contract terms

that we reallyprefer that theyuse. D.B.

The Whys, Hows, Bits andBytes of Buying

and research how well they can handle the companys future needs

in their areas of expertise. The key to becoming a top-level supplier?

Really understand at the local level what Microsoft management is

trying to accomplish, advises Evans, of CSS. Look at how your

product and service map to their goals.

Once approved, each supplier must undergo an annual review,

receiving ratings of 1 to 5 for delivery, innovation, organizational

health, quality, service supply-chain management and value. These

ratings help guide Microsoft buyers decisions; the company a

uses them to measure costs and decide which suppliers get mo

business, which get lessand which get none.

From Partner to SupplierWant a piece of t hat $14.5 billion in annual Microsoft spendin

Well, go after it like any other Microsoft supplier! Partner pitches

handled in much the same way as any other vendor processin


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McBride says: With corporate procurement, we have category

managers. They are the ones that build and create a stable of suppli-

ers for that good or service. Every couple of years, well go through a

sourcing exercise. Well look at all the people that we are buying a

particular good or service from and go out to market and do a RFP,

or request for proposal. At that point, procurement managers turn to

SupplierGATEWAY, the vendor extranet. Well look at whos in

there, who registered interest and the extent that the skills that they

list in their profiles match our needs, he says. We send out [a

request for information, RFI] initially and t hen an RFP and so on

so its a standard procurement process.

If youre proposing a new deal or changes to an existing one,

youll need to follow certain rules and procedures. Besides providing

all the right names and ID numbers, you must explain the objective

of your proposal, the specific benefits your product, service or proj-

ect will provide, what you will deliver and when, how much it will all

cost, how the reporting will work and what metrics will be tracked

Thats the nuts and bolts. The heavy-duty machinery is in yo

product or service. Have really great services, have really good id

about where we can advance our productthose tend to get the m

attention, McBride advises. Come to us with that great idea.

Vendor Program LevelsThere are two top levels of suppliers to compete for, Premier a

Preferred. Premier suppliers sell at least $5 million in goods

Microsoft every year and, in the companys opinion, would be di

cult to replace. Earn the Premier label and youll find yourself giv

top positioning in Microsofts e-procurement system. Of Microso

13,000 U.S. suppliers, about 1,000 belong to the Microsoft Vend

Program (MSVP) for the companys most-preferred suppliers. Y

can think of it as an analog to our partner program, but specifica

for those who are doing services with us, McBride says. Premie

the top level for the biggest suppliers. They have a much bigger re

tionship with us and we treat them differently. The next leve

Preferred, which includes a broader set of vendors.

Even if you cant make it to Microsofts top supplier level, you c

still do business with the company at the provisional level, wh

McBride sums up this way: Were doing business with you, b

youre not one of our preferred suppliers. The bulk of Microso

suppliers fall into this lowest category. They tend to be compan

like an event venue, where we might only do business with th

once or twice, McBride explains. Or there are consultants th

well hire because they have a specific expertise on one topic; w

use them once and probably not go back to them again.

And then, theres the crme de la crmea select group of su

high-end Microsoft partners who supply the company with laamounts of goods and services. That is a g roup that has a glo

relationship with us on the partner sidethey are Gold [Certifi

and beyond, in some cases, McBride says. Microsoft manages th

group very carefully, he adds: We have a 360-degree busine

review process that we do that includes t he partner managers on

partner side and the vendors on the vendors side.


No question about it: Microsoft

does extensive research andsophisticated cost modeling tomake sure that its getting the besdeal and the best contract termspossible on everything it buys.

MicrosoftSupplier

Facts andFiguresI Selling to Microsoft requiresbeing pre-approved, with a

signed agreement and a purchase order in hand.

I Approved suppliers have fixed termsand a single point of

contact at Microsoft; theyalso receive brand training.

I Sixty-nine percent of suppliers sell less than $100,000 a

year to Microsoft.

I Microsoft supplierscan choose two options for payment:

Get paid in full within sixtydaysor get all the moneyin 10

days, minus2 percent.

I Suppliersmust submit invoicesthrough MS Invoice, an

online invoicing system; theywill be paid via direct deposit.

I Suppliersare eligible for software discounts. For example,

Premier-level suppliers save a grand on software worth

$6,000 or more. D.B.


7/116 REDMOND CHANNEL PARTNER AUGUST 2006 RCPmag.com

From a partnerperspective, Tom Kemp is

especiallywell positioned to share insights

about becoming a Microsoft supplier. Hes sold

software to Microsoft from two different com-

panies, both Microsoft Gold Certified Partners.

As a co-founder ofNetIQ Corp., a San Jose,

Calif.-based provider of system- and security-

management solutions, Kemp waspart of a

team that sold NetIQ AppManager to the

Microsoft ITdepartment. In his current job as

president and CEO ofCentrifyCorp., a

Windows/Linuxintegration and security firm

in Mountain View, Calif., Kemp managed to sell

his DirectControl software into Redmonds

massive Windows/Linux/Unixinteroperability

testing lab.

In sharing the approach he used in both

cases, Kemp emphasizesthat, ifyou want the

Microsoft business, you must start bymaking

sure that youve got a genuinelyWindows- andMicrosoft-centricproduct. Besides running on

Windows, obviously, make sure it supports the

full Microsoft stack, .NET, Active Directory. And if

it requiresa database, it had better be SQL

Server. Requiring Oracle will have you seeing

the door so fast your head will spin.

Once youre sure youve got the right prod-

uct, dont just run up to the front door with a

briefcase full of demosand a contract. Lay the

groundworkfirst. You need to raise aware-

ness not just with the product team, but field

personnel and customers. You need to create a

buzz, Kemp advises. Itsalso important to getthe media and analysts talking.

Finding the real buyer can take some

sleuthing. Make sure theres buzz in the field,

that you have a dialogue with the product team.

Then start playing Columbo with your contacts,

he recommends, referring to the famous1970s

TVdetective. Ask around: Who would be inter-

ested in thistype ofproduct, who in ITwould

buythis? You shouldnt just sica sales rep after

them. Use your current contacts.

You should send your best people when its

time to meet with Microsoft, Kemp says: Bring

your A-team. Send your CTO or vice president

of development. Treat [Microsoft] as a mar-

quee account. He notes that, while dealing

with Microsoft at Centrify, he served as the

main sales rep, while his companys CTO was

the main technology rep.

The Microsoft relationship can lead to oth

businessif you playyour cards right. Itshuge to have them asa customer, Kemp

notes. It validatesyour solution and techno

ogy. Microsoft has veryhigh standards.

But prospective customerswont know how

great your companyisunlessyou can actually

tell them about Microsoft. Kemp recommends

obtaining an agreement before the deal is

closed to do publicitywork, such ascase studi

Once youre an approved vendor, all the

nearly70,000 Microsoft employeesbecome

potential customers.

Having Redmond put your companythrough the wringer maybe painfulbut,

ultimately, it can improve your product,

Kemp concludes: Microsoft is great about

providing feedback. [The company] wants

you to be successful. D

A Two-TimeWinner

You need to raise awareness not just with theproduct team, but field personnel and customersYou need to create a buzz. Tom Kemp, CEO, Centrify Corp.


8/11


After the DealOnce in Microsofts good graces, you have to play ball to stay the

You must adhere to Microsoft supplier guidelines, use Microsoft su

ply tools such as the online invoicing system called MS Invoice, acc

direct deposit and agree to Microsoft payment terms, either 60 days

ten days less 2 percent (See The Whys, Hows, Bits and Bytes

Buying, p. 4, andMicrosoft Supplier Facts and Figures, p. 5).

We treat Microsoft as a client and client satisfaction is veimportant, says Evans, of CSS. Invest the time, especially out in t

field with their people that are actually working with the end clie

and do your best to make sure that those projects are successful.

For its part, Microsoft keeps suppliers loyal by offering free

discounted software and training on supporting the Micros

brand. The company also tends to pay attention to its key supplie

listening to their problems and heeding their advice on h

Microsoft can improve things on its end.

Suppliers from Action Events to Zomax Inc., selling everythi

from employee services to telecommunications, all get a single po

of Microsoft contact, which is a pretty big deal when you are doi

business with a $40 billion company with nearly 70,000 employe

Top suppliers also get exposure through SupplierGATEWA

the vendor extranet, which touts the benefits of being an approv

supplier. The biggest advantage is getting the business itself: No

approved vendors can only sell to Microsoft in rare and spec

cases where MSVP members cant meet the needs. Once approv

suppliers are on the list that Microsoft employees use to b

goods. They can also use SupplierGATEWAY to help support B

electronic commerce.

Moving on UpSo what does it t ake to move up and become a Preferred or Prem

supplier? The real difference is that youve gone through the sou

ing exercise where a category manager specifically goes througrelatively rigorous process of RFP/RFI, McBride explains. Th

we broadly agree to a rate card that will be provided to all Micros

employees who want to hire you and agree to the contract terms th

are part of the MSVP agreementwhich is basically our standa

work agreement, and one of the requirements of the preferred p

gram. When those things happen, then you move up.

Being an MSVP member is like belonging to a private cl

with lots of perks and insider deals. We encourage our supplie


WhatMicrosoftWantsThat You MayorMay NotHaveMicrosoft buys the following itemsin largequantities:

Employee services: This includesoffice equipment and

electronic software reference material.

Trade shows and events: This includesevent-related data

services, software coding and patching, systemsanalysis,

database workand wirelessnetworking.

Hardware: Microsoft buys more than 100 typesof hardware,

ranging from notebooksand PCs to audio equipment.

Peripherals: This includes storage, memory, networkswitchesand more.

IT and computerservices: Many ofRedmonds ITneeds

revolve around programming, but the companyalso seeks

database, disaster recovery and data center services.

Manufacturing:Microsoft workswith makers of items that

include everything from plasticshells and batteries to

Ferrites and Schottkydiodes.

Professional services: Microsoft is particularly interested

in servicesfrom supplierswith vertical expertise in areas

such as supply chains, ERP and EDI. More general needs

include training, LAN design, EDI and client/server

programming.

Software: You name the software and Microsoft needs it

everything from accounting to backup to screen-savers.

Telecommunications: Microsoftstelecom needs include

voice, WAN gear and services, and call-center technology.

D.B.

Want a piece of that $14.5 billion inannual Microsoft spending? Well,go after it like any other Microsoftsupplier!


9/11

8 REDMOND CHANNEL PARTNER AUGUST 2006 RCPmag.com

William H. Venema wrote the bookon selling

your software company literally. A lawyer

who holdsan MBA, Venema recentlypenned

The Strategic Guide to Selling Your Software

Company: Essential Advice from a Veteran Deal

Warrior (Lulu Press, 2006). Venema spoke

withRedmond Channel Partner

EditorialDirector Doug Barneyabout considerations for

selling your own companyto Microsoft.

How do potential sellers know whether

Microsoftis a good potential buyer?

Companies like Microsoft are strategic buyers

that are looking for acquisitionsthat create

synergieswith other aspects of their business-

es. They might want to buy a company to com-

plement an existing product line, to add new

customers to their customer lists or new territo-

ries in which to offer their products, or to

obtain exclusive rights to certain software orthe exclusive use of a particular product devel-

opment team.

Because ofMicrosoftspower and scope, it is

unlikelyto purchase a companysimply to gain

synergies for its businessor new customers or

new distribution channels. Microsoft would be

more interested in an acquisition that involves

a product that complements its existing port-

folio ofproducts, and a team of individuals

who can help Microsoft integrate that new

product into the Microsoft organization, on

both a technical level and, to a lesser extent,on a business level.

Software-companyowners can conduct

reconnaissance bysurfing the Internet, partic-

ipating in trade associations and conferences

and keeping in touch with other business

owners in the software industry. In addition,

publiclytraded buyerslike Microsoft, must make

variousfilings with the U.S. Securitiesand

Exchange Commission. These filingsare available

on the SECWeb site and can provide a wealth of

information and detail about publicly traded

buyersand their purchases. The goal is to learn as

much aspossible about the transaction activityofstrategicbuyersprior to contacting them.

How should potential sellers make contact

with Microsoft?

Owners should proceed with caution. Ifan

owner makes inquiriesabout selling hiscompa-

ny, he might soon discover that hiscustomers

and competitorsare being called [byMicrosoft]

to checkout the reputation of hiscompany. Such

activitycan cause rumorsto start that could seri-

ouslydamage the companysbusiness.

Making contact with a potential buyer usually

proceedsfrom an existing relationship.If an owner currentlydoes businesswith

Microsoft, then he hasa relationship with the

individuals in the Microsoft organization with

whom hiscompanyinterfaces. Those individu-

als might be able to provide an introduction to

the appropriate persons in the Microsoft organ-

ization, with whom the owner could discussa

transaction involving the sale of the company.

Ifan owner doesnot do business with

Microsoft, and lacksan appropriate contact

within the Microsoft organization, then the

owner might consider using an intermediary tomake the contact.

Ownersshould carefully select the interme-

diarieswith whom theydeal. There are busi-

nessbrokersand other intermediarieswho

relentlessly call on businessowners to lure

them into negotiations. Owners should beware

of anyone who comeson too strong and use

too much flattery.

Ifan owner decidesto talkto a broker, he

should be aware that even ifthe broker claims

be representing a particular buyer, the actual

relationship with the buyer might not be what

owner would assume. Potential buyersoftenengage a number ofbrokerson a contingent

basis, which meansthat the broker onlygetsp

if he findsa deal for the buyer that actuallyclos

One wayfor ownersto checkout a broker i

to say that theywould like to receive some

details about what the broker is proposing,

because, although they are not currentlyinte

ested in selling, they might be one day.

Anyintermediaryan owner selectsshould ex

cute a confidentialityagreement with the comp

nythat requiresthe intermediaryto obtain the

ownersconsent prior to discussing the owner

intentionsconcerning a sale with anyone.

How should owners promote their

companies value?

Theyshould tryto think like buyers. From an

ownersperspective, the business ishis baby.

a potential buyer, however, the business is sim

a collection ofassets that produce cash and

might have the potential for equityappreciatio

Consequently, if the companyhaspoliciesand

procedures that might be confusing or even

incomprehensible to an outsider, its a bad ide

to say, Well, thats the waywe do so and so .

Persisting with idiosyncraticpoliciesor behav

will usuallyhurt the valuation ofthe company.

You need to get your companyinspection

ready. That meansthat the owners should do

what isnecessary to ensure that the busines

will project the right first impression to the

Selling Your Companyto Microsoft


10/11


potential buyer. It is verydifficult to overcome a

bad first impression.For example, the representativesof public

companies, like Microsoft, are accustomed to

certain standards. Theyexpect to see first-class

financial statements, budgets, businessplans,

and a management team that is not overly

dependent on any one person.

How should owners price their companies?

Sometimes, ownersare preoccupied with the

purchase price and fail to consider other

extremely important aspectsof the deal.

Ownersshould keep the purchase price in per-spective. There could be other aspects of the

transaction, such asconsulting agreements,

employment agreements and non-competi-

tion agreements that are important from both

the standpoint ofwhat the owners receive in

the transaction and the extent to which their

activities are restricted following the closing.

The second thing that ownersshould

remember is that the purchase price is not the

same thing as value. In the final analysis, the

purchase price for a company is the amount

that a buyer is willing to pay for it, regardlessof

what othersmight consider to be itstrue value.There are, however, several different valuation

methods that owners should explore, because

buyerswill be using the same sorts of analysis.

Ownersshould be ready to discuss, and possi-

bly critique, the valuation method employed by

the buyer.

In the final analysis, valuation is more ofan

art than a science, because all of the valuation

methods require the person conducting the

valuation to make assumptionsconcerning

various issues, the chief one ofwhich is the

level ofthe companysfuture sales.

How can company owners protect

their intellectual property during sales

negotiations?

Participants in the due-diligence process

are often admonished bylawyers to obtain a

non-disclosure agreement [NDA] at the

beginning of the process. The problem is thatmanybuyerswill not want to sign an NDA in

connection with a transaction that maynot

close. Get one if you can, but be prepared to

proceed without one.

Until an NDAis signed, however, the company

should not disclose anyproprietaryinformation

to any third party, including a potential buyer. As

a rule ofthumb, a companyshould reveal only

information that it would be comfortable print-

ing in the newspaper.

Nevertheless, the absence of an NDA doesnt

mean the partiescant engage in a productivedialogue. There are manyimportant issuesto

be discussed that dont involve confidential

information.

Whatare the advantages and disadvantages

ofselling to a large concern like Microsoft?

The biggest advantage is that financing the

acquisition isusuallynot an issue. Most large

companiespurchase their targets for cash. If

payment isdelayed, its because the buyer

wants to hold back part of the purchase price as

securityfor issuesthat might arise following

the closing.Smaller publiccompaniesoften like to use

their stockas the consideration for purchasing

a company. Unfortunately, getting the stock of

a small public companyusuallybringswith it a

host ofproblems, including valuation issues,

restrictionson resale, assessing the future

prospectsof the buyer, etc.

The biggest disadvantage ofdealing with a

large publiccompanyis that the role ofthe own-

ersfollowing the closing either changesdramat-

icallyor is not important at all. Large publiccom-

panieshave the resourcesand staff to integratethe businessof the acquired companyinto the

purchasersorganization. Consequently, if the

ownerswant to continue with the companyfol-

lowing the closing, it is likelythat, if theyhave a

job at all, theywill be operating in a dramatically

different workenvironment.

Whathappens after the sale? Whatis the

ideal post-sale relationship?

What happens following the sale is something

that should be determined bythe owners befo

theyever look for a potential buyer. The goals

the ownersshould determine the potential bu

ers that the owners consider, the structure oft

transaction, and just about everything else.

If an owners goal is to retire, then that goa

should affect the potential buyersthat the

owner considersand how the transaction pr

ceeds. Alternatively, ifthe owner wants to ha

access to the resourcesof the buyer followinthe closing, so that the owner can better com

mercialize a new product that hiscompanyh

developed, then he might seek to have his

companybecome a whollyowned subsidiar

the buyer, which would be a different transac

tion, within all likelihooda different buy

Whatwould a company like Microsoftbe loo

ing for? Whatwould its executives value?

In the past, Microsoft hasacquired a number

smaller companies, which have not attracted

lot of attention. Ifone examines these acquis

tions, however, theyusually involve the acqusition of a software product that Microsoft ad

to itsportfolio of products, such as Forethoug

[which became PowerPoint], or which

Microsoft usesto add features to its existing

products, such as Vicinity[which became a k

part ofMapPoint].

These acquisitionsalso involve the acquis

tion ofa team ofpeople. Microsoft likesto

acquire talented engineering teamsand exp

rienced management teams that can assist

with the integration of the new products or f

tures into the existing Microsoft portfolio.On rare occasions, Microsoft hasused an

acquisition to enter a whole new market, suc

as its acquisition of the businessmanageme

and accounting software developed by Grea

Plains and the Web conferencing service dev

oped byPlaceWare. D


11/11

and our MSVP vendors to advertise to our employees that they

are MSVP [members]. We also have a vendor fair; we invite in

only the preferred MSVP suppliers, McBride says. One of the

things we have in our contract for preferred suppliers is t hat they

also use other MSVP vendors for any subcontracting they do on

our behalf.

But exploiting your Microsoft relationship to sell to others aint

cool, he adds: We discourage that.

Dont Worry, Be HappyMicrosoft wants a good deal, but it also wants to keep its suppli

satisfied. After all, happy suppliers tend to be loyal, communi

tive and cooperative. [A] primary goal of t hese measures is

ensure that suppliers to Microsoft have the most positive expe

ence possible. No surprises. No hang-ups. No confusion. Beca

not only do we appreciate the opportunity to work with your co

pany, we want you to enjoy and benefit from working w

Microsoft, reads a note on the vendor section of Microsoft.co

The Microsoft supply chain management philosophy is simp

We believe in working proactively with the most responsib

strongest and most productive suppliers available to deliver va

to our customers, and we expect our suppliers to share our corp

rate values and operating philosophy.

Those sentiments may reflect Bill Gates remarkable phil

thropic efforts, or they may just reflect t he maturing of a 30-ye

old company. In any case, Microsoft s guidelines for suppliers

based upon good global citizenship (see Code of Conduct, t

page). For instance, vendors must tell Microsoft in detail what p

centage of their companies employees, owners or subcontract

are disabled veterans, women or minorities. Top suppliers m

report how much money they spend on minority, disabled a

women-owned businesses.

Doug Barney ([email protected]) is Redmond magazin

editor in chief and the editorial director of Redmond Media Grou



Code ofConductVendorsmust carefully abide byMicrosoft and other ISVs

software licenses, use Microsoft trademarksonly where nec-

essary, do publicity about their Microsoft-related workonly

with the companys permission and respect all non-disclo-

sure agreements. Among other things, Microsoft expects its

vendorsto:

I Obeyanti-trust laws

I Follow environmental rules

I Workhonestly with government regulators

I Obeyoverseasanti-corruption lawsI Avoid unsanctioned boycotts

I Report financials accurately

I Follow Microsoft guidelinesfor protecting confidential

data, and securing your systems

I Forego prepayments, which Microsoft doesnt allow

D.B.

Being a Microsoft Vender Programmember is like belonging to aprivate club with lots of perks andinsider deals.
mailto:[email protected]:[email protected]://rcpmag.com/http://rcpmag.com/http://rcpmag.com/http://rcpmag.com/mailto:[email protected]://rcpmag.com/

Documents

Rcp 2006 Selling Microsoft