Mashhad Koohgoli co-founded Ottawa-based Protecode with Kia Mousavi to help companies benefit from open-source code and third-party software vendors while managing the obligations and the risks associated with using outside code.
Once the company was up and running, the pair quickly hired someone to meet with customers and create demand for the product. Getting Canadian companies on board was not particularly difficult, but when Protecode looked to move beyond the country's borders, it realized the cost of an outside sales force would be prohibitive.
This created a challenge: how to develop an international customer base without taking on the expense of outside salespeople travelling around the world.
Mr. Koohgoli emigrated from Iran 40 years ago and he worked for companies such as Bell Northern Research, Northern Telecom and Newbridge Networks before making his first foray into entrepreneurship in 1997, with SpaceBridge Networks, a satellite communications company.
A year after launching SpaceBridge Networks, a U.S. company wanted to invest in it. To secure the funds, Mr. Koohgoli had to sign an intellectual property (IP) indemnity document, guaranteeing that his employees either developed the software code used in its products or the company was complying with licensing aspects of open source or third party developed software.
Mr. Koohgoli had to guarantee the code again in 2003, before SpaceBridge Networks could be acquired. When Mr. Koohgoli's third company, Nimcat, was being acquired by Avaya, he once again had to guarantee the company's code.
When he left Avaya, Mr. Koohgoli began wondering if there was an opportunity to validate software code for other companies. When he researched how companies created, used and tracked their code and licensing obligations he discovered that few companies kept track of code that was reused from a previous project, found on the web, bought from an open source library, or developed by a third-party software developer.
He also learned that almost every technology company that was bringing in outside investors, signing a large customer, or being acquired, had to guarantee they knew and complied with all the licensing obligations related to any software code that was not developed by its own employees.
To help companies manage the obligations and risks associated with using outside code, Mr. Koohgoli created Protecode in 2007, the name being a play on protecting code and sounding like "protocol" – a commonly used industry term for the orderly transfer of information.
Protecode secured its first customer, the Communications Research Centre of Industry Canada, in July, 2008. This was followed shortly by Protecode's second customer, a company from Washington D.C., which was attempting to acquire a business in South Africa.
The Washington firm needed to know the origin of the South African company's software code and any licensing requirements associated with the code it had acquired. Protecode analyzed the code and created a report within two hours, something that would have taken more than two months to create if done manually.
Having signed two customers and validating that companies with a pending transaction – outside investment, a big customer contract, or about to be acquired – would pay to have their code guaranteed, Mr. Koohgoli looked to acquire additional customers.
In November, 2008, Mr. Koohgoli hired an outside salesperson who generated business in Canada and helped build the company. However, when looking to replicate Protecode's success outside of Canada, he realized forming a team of outside salespeople was going to be too expensive.
Mr. Koohgoli decided it would be best to leverage companies that distributed software design tools as sales channels and to serve and augment those channels with an inside sales team.
Doing so required a significant change in the product and pricing structure in order to make it easy for the channel partners to understand and sell the product, and for the inside salespeople to close deals without actually meeting the customer. The software installation process and the user interface were simplified to make it easier for customers to purchase, install and use.
The pricing structure was switched to a software as a service (SAAS) model with an annual license fee and included everything needed to get up and running – installation, setup, support and even remote training.
Next, Protecode hired an inside salesperson and a channel manager, and created a commission structure for channel partners along with training and support programs. Channel partners were identified by looking at distributors of software products that operated in adjacent industries.
Protecode then identified 29 industries it thought would care most about software verification and marketed its service to them, generating leads for channel partners to follow up on.
By May, 2009, channel partners in Germany, India, Ireland and the U.S. had been established, and initial sales from these distributors began just two months later. By the end of 2009, channel partners in Japan and Korea were also brought on board.
Protecode now has 14 channel partners, covering Japan, Europe, Africa and East Asia, which generate more than 50 per cent of the company's revenues from industries such as telecom, semi-conductors, gaming, security, healthcare and mobile communications.
Revenue has grown an average of 130 per cent year-over-year since channel partners were established, and Protecode has grown from 15 to 25 employees.
The company is now looking to increase its channel partners in Latin America and countries in Europe.
"Our efforts in modifying our product and our business model to fit the indirect-sales and inside-sales models, and our work in finding the right channel partners and supporting them to produce results has paid off handsomely" Mr. Koohgoli says.
Craig Elias is the founder of Shift Selling Inc. and an entrepreneurship instructor at the Haskayne School of Business at the University of Calgary. This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Small Business website.