bi-weekly column with timely,
relevant and possibly irreverent
insight into the BC technology
September 21st, 2007
Greenstone Venture Partners
“I can see by your eyes friend,
You’re just about gone…
57 channels and nothing’s
on.” – Bruce Springsteen, 57 Channels
is a mantra for small companies looking to increase
revenues and grab market share: Utilize indirect sales
channels to your market (Also known as Your Channel
Strategy). While it seems so
intuitively obvious, it is very, very hard to manage
well. Why should I have someone else
sell my stuff? The reasons are many.
Access to far away markets that you can’t place sales
Access to larger accounts that you don’t have the
relationships or credibility to win
Faster route to sales vs. starting a sales associate
Become part of a solution sale instead of a single
main reason you don’t like an indirect sales channel is
that you give away a chunk of your margin.
In an early stage growth company, with little or
no brand recognition in the market, your margin is less
important than your ability to grow your customer base.
If that isn’t reason enough to have a Channel
Strategy, then the simple fact that a direct sales force
is expensive (and, in this tight
labour market, hard to put together) should
convince you. When capital
raising is hard and/or you
are running on a shoestring, adding bodies to your
monthly burn makes no sense when a completely variable
cost alternative is available.
it another way: Your cost of acquiring a dollar of
revenue in the early growth stage is probably higher
than a dollar when you sell direct.
Do the analysis… you sell the product for $x.
Your gross margin is $y, after commission etc.
Now load in the cost of advertising and
marketing, the full cost of the sales people and all of
their communication, travel etc. and divide by the units
sold. When you are not selling many
units (in the early growth stage), you are likely
spending more than a dollar to get a dollar.
Clearly that isn’t sustainable.
counter argument to direct sales is always this:
I need to get the trophy customer(s), the
reference customer(s), by selling them direct and my
channel strategy can wait until we have this customer
traction. True, especially when you
sell big ticket items and your customer base is very
large companies… so there aren’t many of them.
But, an indirect channel should be cultivated
from day one and multiple channels should be used.
As tough as it may be when negotiating, try and
stay away from “exclusives” so that you can have many
Assuming you know your value proposition and it is easy
for others to understand, a channel is relatively easy
to get started. You simply sell them
on why the customer is buying your stuff.
Sometimes the indirect channels are obvious, like
sales representatives into Asia
selling your type of equipment or software, and
sometimes you need to be creative.
In my experience, finding the channel and getting them
excited is not the problem… It’s the managing of the
relationship and getting the channel to work that is the
fine, so we all need indirect channels. Duh. But just
creating them is not the end of the story.
How many stories of woe with channel partners are
there? I have seen or been a part of
way too many…
sales people, whether direct or part of a channel
partner, have a personality flaw… they are exuberant to
a fault. The promises of a channel
partner are never, repeat, never reached or exceeded
because they overestimate their own success of selling
your product. You have to go into
the relationship with less than exuberant predictions of
success. Just so you sales people
don’t feel bad, many an angel or venture capital
investor has based their investment decision largely on
the signed MOU with a large, reputable channel partner
only to be horribly disappointed when the sales in that
channel fail to materialize. Happens
all the time.
do they not work? What happens?
Can you do anything about it?
main reason for channel failure is the fact that your
partner sells other stuff too. You
have dealt with a person or team at the big channel
partner. They agree to sell your
stuff and you agree to terms, but no one on that
negotiation is “feet on the street”.
Sales people, motivated by greed as they are wont to be,
will sell what makes them money. If
they are not getting the $ from your product, either in
margin or volume, they won’t sell it.
If they don’t understand HOW to sell your
product, they won’t sell it. If your
product is not precisely in their area of expertise (you
are selling a related product to their core offering),
they will have trouble. Finally, if
being a channel is new to them (big strategic partner
offering your product alongside their core offering)
they will struggle mightily to sell yours.
the channel” is an industry term for
making sure your indirect sales people get enough
cash or incentive to sell your product over everything
else in their bag. You have to have
a dedicated inside employee working with the channel
partner to make sure all sales people are trained and
happy with your product. Crystal
Decisions was a local shining example of how to develop
indirect channels successfully. They
were very successful at having others sell their
product. Some of your best experts
in channel management locally worked or are still
Other reasons for channel failure are related to you.
If the product is not ready for launch, not easy
to install or generally not available as soon as a
booking is submitted, the channel gets upset.
These re-sellers or strategic partners have the
attention span of a gnat. If you are
deemed unreliable, you are dropped from their bag very
quickly. You have to be ready to
Sometimes you just pick the wrong partner altogether.
What looks good on paper does not translate into
real sales for a variety of reasons.
Perhaps you picked a slow moving giant, which looks good
to investors, but in reality takes years to ramp up and
be efficient. For example, instead
of EDS as your first partner, you should have used local
or regional systems integrators as your initial channel
partners. Telecom and Wireless
companies are notoriously bad channel partners.
They either have way too many companies selling
through them such that you are but one of a hundred
offerings or they “gum you to death” in the evaluation
period. They tantalize your start-up
with stories of riches when their customers get a hold
of your product, when in reality they are beating up
their incumbent vendors to match your functionality and
price so they can toss you aside at the last minute,
tanking your company. Oh, and then
there is the Channel Partner Executive Musical Chairs
game. You enter into a relationship
with an executive at a big firm with thousands of
potential customers and by the time the ink is dry on
your MOU, they have moved out of the company or to
another group inside. Another
executive comes in and tells you everything will be
fine, but is really holding their nose at the deal and
will ignore you because it wasn’t their deal to begin
summary, like everything else in a start-up or early
stage growth company, you have to do it, but it’s
incredibly hard to do well. Build
indirect sales channels, but learn from other’s mistakes
and try to manage it efficiently.
Your best, straightest line to success is to hire
someone that has done it all before and could re-write
this column with even more insight and examples.
The tough part is finding them and paying them
enough to join you…
What Do You Think? Talk Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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