Does your start-up need an indirect sales channel?
Accelerate growth by leveraging channel partners, and find natural allies to complement your value proposition and help you win in the mainstream market.
Successful tech companies regularly rely on indirect sales to generate a significant part of their revenue. It is unsurprising then to see start-ups eager to emulate the success of these larger players. However, the daily reality of start-ups is very different from that of large established companies. Their product is at an early stage of development, their positioning constantly evolving, and the first customers are early adopters who strongly influence and shape their offering. The challenge of start-up executives is therefore to tailor channel strategies and adapt them to their unique circumstances. This starts by understanding why channel partners are important, getting the timing right, and executing successfully.
Why channel partners can significantly contribute to your business plan
Many high-tech companies, use channel “partners” to reach a large part of their customer base. Their experience shows that indirect sales are essential to scale a successful business model. Channel partners are therefore key to accelerating the execution of a sales plan. They open doors of new markets, bring highly valuable skills and knowledge, and create a total solution by complementing the main product.
Take Salesforce as an example, it announced recently that its partners were the #1 source of new bookings[1]. A massive success that has many software companies reflecting.
Channel partner strategies can be very diverse. They can include distributors, vendors, consultants, value-added- resellers (VARs), and System Integrators (SIs) for example. Each of these categories can eventually become a separate route to market, with its own goals, incentives and programs.
Such partnerships are effective in giving access to new markets especially when they are remote, fragmented or characterised by specific barriers to entry or regulations. Partners bring established local networks and can be closer to customers because of pre-existing business ties.
The speed to execution of a sales plan is essential to pre-empt competition and achieve first mover advantage. In this respect, partners can also offer valuable support with skilled, experienced and knowledgeable teams, whether sales or technical support. They can expand the scope of consultative services offered to customers and ensure a credible and successful engagement. This is all the more important for Enterprise customers who need and require this support with SLAs. It is quite common to find that partners have a service or support value proposition that is built on top of the main product.
In addition to that, partners can make the value proposition more attractive by offering complementarity with their own pre-existing product portfolio. This is particularly necessary for mainstream markets where customers seek a strong and complete total solution. Partners can provide a one stop shop or “turnkey” solution by combining multiple products and services.
By sharing the burden of executing their sales plan with partners, start-ups remain focussed on their core competencies and avoid spreading themselves thin. They save time and money, overcome specific barriers, all while retaining their focus.
The constantly changing environment of start-ups lends itself to risk management by multiplying initiatives and testing new ways of acquiring customers or testing new markets. Channel partners can be instrumental in that.
Finally, a progressive approach is essential throughout, especially when the product is disruptive and requires a complex sales process. As an example, start-ups, can establish partners first as a lead generation source, then progressively help them grow into a full-fledged indirect sales force, capable of handling the entire sales cycle form start to end. It has become common best practice to launch pilot programs, test their content, and iterate their terms before launching widely.
Timing your channel expansion
For start-ups, the challenge of setting up a new sales channel is compounded by the fact they have multiple competing priorities, not least making sure they achieve product- market fit and figuring out a repeatable, scalable and profitable sales model. Until they have crossed this delicate phase of their development, and built their own direct sales or business development team successfully, start-ups will find it hard to build a performing indirect sales route to market.
Marc Andreessen defined the term Product/market fit as follows: “It means being in a good market with a product that can satisfy that market”2. Many people interpret product/market fit as creating a so called minimum viable product that addresses and solves a problem or need that exists. Getting a product right requires more than a good launch, it means getting to the point where the market “accepts it and wants more of it” 3. Many start-ups will be familiar with such signs of early success: customers are engaged, using the product intensively and getting real value out of it, satisfaction rates are high, NPS are high, referrals are generating an increasing number of inbound leads, sales cycles are getting shorter and conversion rates increasing.
The challenge with reaching this stage is that it requires multiple iterations and it is essentially an exploration process. During this phase, start-ups are mainly addressing innovators, early adopters and technology enthusiasts. These categories of customers require direct engagement with the start-up team. They share a common vision and they prefer to work with the founding team directly. They are also instrumental in shaping the product propositioning by giving advice on improvements, and features they would like to see. These relationships are priceless for a start-up and are best handled by a direct sales or business development team. Another essential benefit from this tight collaboration is that the direct sales team will develop a very good understanding of the customer sale cycle and the buyer journey. This knowledge is a prerequisite for building effective channel programs and for giving partners directions and guidance. In other words if the direct sales force hasn’t figured out yet how to sell to its first group of customers, it won’t be possible to teach the indirect partners how to do it.
Many start-ups believe prematurely that they have reached product- market fit4, or that their sales force has fully figured out a repeatable sales model, when they actually need longer to validate their value proposition and mature their model. This miscalculation leads to an early rush of investments to scale and grow the sales team, before the product is ready, which in turn leads to limited output and chronic underperformance. This is all the more valid for channel partners. Indeed, channel partners work best when they are given a clear and steady commercial direction to follow. Their strength resides in executing validated commercial strategies, and their performance deteriorates seriously if they are asked very frequently to “stop, go or change direction” .
Getting past the product- market fit phase, and figuring out a repeatable, scalable sales model are essential preconditions to successfully building a indirect sales route to market. It is this strategic inflexion point that determines the optimal launch time.
In conclusion, channel partners are an essential part of any long term successful scaling strategy, especially when a start-up gets ready to enter the mainstream market. However building a performing channel take time and consistency. It is the focus, timing and manner of the execution that will make a difference between success and failure.
1 https://www.saastr.com/7-thoughts-building-first-partner-program/
2 Section 4- https://a16z.com/2017/02/18/12-things-about-product-market-fit/
3 Fred Wilson- Section 9- https://a16z.com/2017/02/18/12-things-about-product-market-fit/
4 Steve Blank- Section 9- https://a16z.com/2017/02/18/12-things-about-product-market-fit/
