Channel Sales – Making it Work For You

Channel sales can represent a confusing maze for those new to establishing new
marketing channels.  We are pleased to feature a guest post today from Marc
Winitz, who gives a powerful insight that few in business
developmentunderstand.  Marc’s resume is included at the end of the article.

There is a common misperception among entrepreneurs that do not have formal

sales experience regarding how a business to business (B2B) sales channel works
and whether or not you should consider implementing one as part of a go to
market or market expansion strategy. Stated simply a channel is simply way for
you to achieve distribution for a product or service through a third party sales
force that you do not direct. By implementing a channel strategy you eliminate
some of the costs associated with having your own direct sales team. You also
give up some amount of margin associated with the revenue generated through
marketing your product through this type of distribution as a form of
compensation to the channel. Finally, whether you realize it or not, you give away
a measure of control of the selling process by working through a channel.

A channel can be an effective distribution model as you gain a lower overall sales

cost structure and potentially a larger exposure to a market through more “feet
on the street”. You just need to understand how they work, what you give up, and
what you get back in return with this type of strategy. As a startup or early stage
company it’s important to understand this because channels are not a panacea,
especially if you are just getting sales off the ground. They take a reasonable to
large amount of effort to make them productive which is why I said above that
you eliminate “some” of the cost with this strategy. There is still an investment in
time and channel sales/marketing personnel (whether you hire them or that is
just as the CEO of your start-up). An effective channel strategy is not “I’ll sign this
deal and give up X percent of my margin and the sales will start rolling in”. There
are lots of dead channel strategies littering the sales distribution highway with
that mentality. Channels are no different than any other business initiative and
they take work to make them successful. Let’s explore the pros and cons of this
distribution model in more detail.
1) When evaluating a channel understand the channel partner will focus on
their own business first. Why is that? Because the channel partner you are
teaming with automatically makes more money selling their own wares before
they marketing yours. Does that mean you shouldn’t pursue a channel? No, just
recognize their motivation is identical to yours. Money is like water. It flows
naturally to the easiest point. If you are the CEO, CFO – or any executive for that
matter, that gets compensation or a bonus based on net profit, higher EBITDA,
etc…you are telling your team to push your products and services first, and the
channel’s second. That means you have to stay on top of the channel partner
(read be in front of them) to be selling your solutions.
2) Why do channels bother to represent or resell other products or services? It’s
relatively simple – so they can plug their products and services more easily. You
are bringing something that is missing from their value proposition. That’s fine,
just understand that this is how is their motivation. It is not uncommon for a deal
to occur where your product/service is sold as part of an overall deal but the
implementation of your component(s) occurs after theirs does. This means you
don’t get to see revenue from the transaction until they are ready to “start your
part” of the implementation, which may occur well after their part. This points to
my statement above regarding giving up control of the revenue generation
process.
3) An effective partner sales channel virtually always needs a channel sales
representative managing the relationship from your company. There is a lot of
work that goes into getting a channel setup and running and this can’t be
outsourced. A channel manager is first and foremost a sales person. In sales
parlance, their background needs to have a “hunting” capability in their resume,
especially for startup and early stage revenue companies bringing up this type of
distribution model. Your channel resource needs to know how setup the channel
program, devise appropriate marketing materials the channel distribution partner
needs/wants, provide sales training, co-run marketing events and initiatives, help
progress sales directly with the partner, and help the partner close deals when
required. Your channel manager has to create “The Fishing Manual” for the
partner and then teach the channel partner how to fish (how to pitch your
specific product). Your channel manager will usually need to be in the field with
the partner channel sales team so you will need to budget for that cost as part of
this strategy type. In addition your channel manager has to be able to gain the
trust of the channel partners’ own direct sales team. They solve problems that
occur between your customer service, technical and delivery people and theirs.
This resource isn’t cheap, but it’s necessary to make a channel run well.
4) The sales team of your channel partner needs to get paid on your products
and services in some meaningful way. If not your products and services will not
be sold. Sales people are motivated by money (rightly). Whether payment occurs
through commission from the margin you provide on your products to the
partner, or by some other mechanism, if the channel is not getting compensated
the channel strategy will likely fail. This is tricky as the channel partner
organization decides the level of compensation they will pay their sales people on
your products. You will need to have in depth discussions with your partner’s
management on how their reps will be compensated to determine if this strategy
is even worth your time. If the channel doesn’t get paid (or paid meaningfully) the
only other way this really works is for the their team to recommend your solution
as part of their transaction, but in this case the channel really becomes a lead
generator and you have to have your own direct sales organization involved to
close deals on your behalf.
5. Don’t expect channels to provide you a forecast, they almost never will. You
or your channel resource will have to get on the phone and interview each rep
individually to forecast when deals are closing. Be forewarned that this is a lot of
work. Getting commitment from a Director or VP of Sales from the partner to
review deals with you on a reasonably regular basis (once a month) will help – if
you can get this type of commitment.
6. You must be responsive to the channel’s requests for help, support or
information. Get back to them ASAP when they make a request for something.
Lack of response kills most channels as you or your company are then perceived
as unreliable. Why would they put you or your product in front of their hard
earned customer relationship if they can’t count on you?
7. Make selective time investments in channel partner representatives. As an
entrepreneur, especially in an early stage startup, you only have so much time to
work with in a day so look for the 1-2 field star sales people in the channel partner
organization you can work with. Find them and put your efforts there. A simple
way is to simply ask the partner organization who their best reps are. Call them
up, introduce yourself, and ask if you can spend a few minutes briefing them on
your solution, and how it can help them and ask them how you can start working
together.  Do this even if you do a major sales training for their entire sales
organization. This is not that different from a pitching a VC for funding. It’s a
similar process, just not as involved. If you help the channel’s sales organization
and support their success it will virally make it’s way through their organization
and more reps will start to seek you out. Don’t boil the ocean trying to work with
their entire team, you’ll find you waste valuable time with the 80% of sales people
that will do nothing for you.

There is a lot more to channel sales creation and execution than has been covered
here but hopefully this is useful for you to begin to understand how these
channels operate and what to look for when assessing if this strategy is right you.