Paul Barber, CEO of Prophix Software Inc., had a translation problem. In 2003, about five years after buying the Canadian distribution subsidiary of a British software firm and transforming it into a developer with customers around North America, he began to pursue clients overseas, including non-English speaking markets, like Poland.
Prophix (with more than $20 million in revenues, it currently ranks 324th on the PROFIT 500) was selling financial accounting software geared at mid-market companies. Years earlier, Barber had observed that very large firms go with giant suppliers like Oracle and SAP, but there was a dearth of software suitable for smaller and mid-sized companies. He also understood that his product was well suited for an international market: while accounting and financial reporting standards vary from region to region, many core tasks—forecasts, budgets, etc.—are common to all companies. “The way people do financial planning is very similar around the world.”
What’s not so similar is nomenclature: highly technical financial accounting terms don’t translate all that easily, and Barber realized that he needed to provide precision for a precision software system that would be used in countries like France, Denmark, Russia and China. Like many greater Toronto entrepreneurs, Barber understood that there was no dearth of potential translators in a region where so many residents were born outside Canada.
Yet he soon realized that finding local translators wasn’t the right solution. “For us to pay someone here to [translate the software] for us was a risk and often didn’t work properly.”
Instead, Prophix came up with an innovative solution tied to its export business model. As the firm took on distributors in various countries outside North America, Prophix offered its partnership financial incentives to find local, specialized translators to adapt the product to local linguistic standards.
That wasn’t the only way it leveraged the translation capabilities of its distributor partners. Recognizing that marketing strategies varied greatly from country to country—in the U.S., potential customers just want to buy the software, while in places like Italy, a sales call and relationship selling is indispensible—Prophix’s head office team took to distributing templates of promotional documents, such as case studies, which the local partners could then tweak, based on their understanding of their potential customers.
Barber knew, from direct experience, a thing or two about being on the receiving end of a distribution partnership. In the 1990s, he and a couple of partners were working in the Canadian distribution subsidiary of a British firm that developed software for mainframe computers.
The British parent decided to sell off that Canadian division, and Barber acquired the business, a dozen-person operation in Calgary. Yet in the aftermath of NAFTA, there was no longer a border for software trade between Canada and the U.S., which meant that the firm’s economic raison d’etre as a Canadian distributor had vanished.
His team also realized that as desktop computers had become more powerful through the late 1990s, they could run the sorts of enterprise software systems that previously required the processing power of a mainframe. (Developing software on and for PCs proved to be far less costly.) “We had a choice,” says Barber: Continue with a declining business or segue into software development. They chose the latter.
Leveraging his existing contacts from the predecessor firm, Barber started selling the new software into the U.S. “from day one.” (The company’s revenues today are 90% exports.) In the aftermath of the dot com bust, Prophix relied heavily on Internet marketing, and shipped the software on disks out of its Mississauga office. The company continues to prefer sending a box to software downloads as a way of proving shipments.
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As the company established distributorships in Europe, the U.K. and Brazil, it had to shift its sales strategy to reflect local cultural norms. “We’d always sold remotely,” he says. But customers in regions like northern Italy wanted a presentation before saying yes, while in Southeast Asia, IT department managers played a crucial role in the selection of financial accounting systems. “Being sensitive to the individuals needs of the market is very, very important.”
One key learning, specific to Prophix’s niche, has to do with the nature of financial accounting in Europe. Even though there’s a common currency, many countries require multinational firms to incorporate local subsidiaries if they want to sell to domestic customers. For those firms’ accounting executives, that means they need to do a lot of financial consolidation as part of their reporting. “We developed our software to do those kinds of consolidations,” says Barber.
Beyond the product innovations, Prophix in the past few years has come almost full circle in the way it manages its distributor relationships, and leverages them to grow the company’s footprint. In the U.K., Denmark and Brazil, the company bought minority equity stakes in its local distribution partners as a means of rewarding those firms for pushing the product. The Danish partner in particular is working on building a customer base in the tough-to-crack German market.
Barber points out that many such distributors live with the risk that the software firms whose products they represent will be snapped up by a larger company with its own distribution network.
Knowing the dynamic, Barber offered the 49% equity infusion but told those distributors they had no plans to shake up management. And if Prophix’s owners decide to exit, the agreement is that those distributors will receive a piece of the windfall. “You’re giving them the option of a pay-out,” he says.
It’s the sort of incentive that requires no translation.