Every so often I read a blog post and say, “I wish I had written that!” That was absolutely the case with Mark Suster’s post, The Fallacy of Channels: Startups Beware. Mark hits the nail right on the head with respect to the risk (and usually the abject failure) for startups using a channel partner strategy.
Most people would expect a channel partner strategy to be fairly simple: You find partners who then go out and sell your stuff. In principal it sounds great for startups because most startups don’t have a real sales force. Channel partners are a sales force in a box! Ready to go, experienced and hungry to sell. Right? Right? Well…
To expand on Mark’s points regarding the risks of a channel partner strategy, here are two major issues I’ve experienced:
- Lack of control. At the end of the day you’re handing responsibility over to someone else to sell your product. And as much as you can get reporting on sales activity, prospect pipelines, momentum, etc. you’re probably not in there closing the actual deals. Mark makes the critical point that in fact you should be doing the sales, but even still, you are giving up significant control of your sales efforts, learning and pipeline through channel partners. You should be very concerned about this. Your investors will likely be concerned as well. If they come to you and ask for a sales forecast but you can’t really give them one because it’s buried in your channel partners bureaucracy, you’re fucked. The lack of learning is a huge risk: If you don’t really know what’s going on inside the channels, you can’t really improve your own direct sales strategy or make significant changes within the channels.
- The investment is very high. You can’t expect any channel to take your stuff and just sell it. Nothing is that easy. They’ll need training, sales materials, motivation and a lot more. Mark makes a very good point regarding the motivation of channel salespeople – frankly, it probably won’t exist at all. They just won’t want to sell your stuff. They make less on it, they don’t know it as well and it’s just one more thing they have to deal with. In my experience, setting up channel partners took 2-5x as long as expected, and even still there was considerable ramp-up and ongoing maintenance. So the dollar and time investment are huge. And for most startups that can bury you if you don’t have a long enough runway and enough traction on your own.
Four recommendations I’d make:
- Don’t go to the channels until you know what you’re doing. Channels are really not the right place for validating your business. And they’re not the right place to validate a sales strategy either. You should have a fairly well-oiled machine in terms of sales and marketing before you build out a channel strategy. That way you can provide a lot more cohesive and precise knowledge to the channel. You’ve been selling your product, it’s working and you know what to expect. Now you can use channels to blow that out to a greater capacity.
- Look for other adoption / sales models. Before going to channels as a sales strategy, look at other evolving enterprise sales and adoption models for your product. This should be done very early on in the customer development and validation process. For example, can you get users and sales from the bottom-up in an enterprise versus going top-down?
- Assess past channel success. When looking at potential channel partners, make sure you do your own due diligence. Find out if they’ve successfully sold partner products in the past. Find out how they’ve done it. Talk to those other partners and find out how well the channels operated, how long things took, what costs were involved, etc. Remember: It’s your ass on the line if the channel fails, the channel partner is probably much bigger, selling tons of other stuff and can drop you in a blink of an eye. Your time, investment, effort and strategy will just go down the drain. So do your homework.
- Get widespread acceptance within the channel. I’ve had experience in the past where management was excited to partner, but as it went down to others within the organization, we ran into roadblocks. And management didn’t have the fortitude (and/or interest) to really institute change. So you might negotiate a sweetheart deal with management only to find out that the people who will be selling your product, or implementing it with customers are less interested. You need to get widespread and detailed acceptance from all levels of an organization before you jump into a channel partner relationship.
Channels carry huge potential. And Mark is right – very often a channel partner is an inevitable acquirer. You want to get into bed with these guys. And the potential looks so great. But I’d say there are more “gotchas!” in the channel partner experience than “hoorays!” and there’s huge risk for startups that focus on channel partnerships too early in the game.