This post is part of my series An Analysis of 5 Business Models.
Channel sales can be used to create extremely successful business models. The channel gives powerful leverage to an organization, adding additional sales resources, and taking advantage of existing customer relationships that the channel partners bring to the table.
The things to watch out for if you are planning to build a business around a channel sales model are the following:
- You should recognize that you will need to figure out the sales model yourselves before you are ready to start to teach channel partners how to replicate that model. In other words, you will need to make your first sales directly using your own direct sales efforts (possibly in association with a channel partner). This will help you understand if your product/market fit is right, who you need to involve in the sales process, whether the messaging is resonating, etc.
- Channel sales usually take a long time to get off the ground. The reason for this is that a reseller has a different set of priorities to yours. You have a great sense of startup urgency, have total focus only on your product, are willing to work long hours. They are usually focused on other products and deals that are paying the bills, and will usually need a lot of work to convince them that they will get a return on time invested in your product.
- Resellers often are lazy, and don’t want to do the work to create demand for a new product. They usually prefer to sell products where the demand already exists. This means you should still expect to create demand using your own marketing efforts. Ideally you should be in a position to feed them leads, or better still, deals that are close to done in the early days.
- Resellers need education on how to sell, handle objections, differentiate your product from the competition, etc. This requires work by your channel sales team. But they will need backup from channel marketing people whose job it will be to create the appropriate training materials, programs, tests, etc.
- Resellers are notoriously bad at marketing. So in addition to your own demand creation marketing efforts, you are likely to want your channel marketing staff to create materials and programs that can be used by the channel to market to their own customers. They will then need to push the resellers into committing to running events, webinars, etc. using those materials.
- Check to make sure there is a channel that sells similar products to a similar buyer. For example, there is now a nice ready made channel that sells VMWare products to IT, and that channel can be used to sell a variety of add-on products. However if there is no such channel in place, you will have a significant uphill slog to create a channel that is suitable for your own needs. Few startups have the time or funding needed to pull this off.
- If you decide to use a channel sales model, be prepared to commit to it entirely, and not take orders directly (unless there are some very clear rules). If the channel sees you competing against them, it will turn them off, and lessen their commitment to your products. It will also lead to conflicts in your own sales organization who will want the short term gain of greater commission from taking deals directly. While this might mean more revenue for you in the short term, it is not going to help you build the leverage of the channel, where once they have seen how to make money from one deal, they will replicate that with other customers of theirs.
- Don’t expect sales execs that are used to direct sales to transition easily to channel sales. There is a different mindset involved in committing to the long term effort of building a channel. Sales people used to direct sales prefer more control, and the faster results that come from doing things directly with the customer. Channel sales people know that with patience they can get greater leverage than doing things themselves.
Summary
Given the right channel, the right people, good product/market fit, and a lot of patience, the channel sales model can be one of the most profitable business models.
