Three Steps Before Launching a Channel Sales Strategy
By Nick Adams
In a previous post, I made the claim that the only way to sell your product at the beginning of your company’s commercialization journey is by embracing founder-led direct sales. Increasingly, it seems founders have an expectation that they can launch their company on the backs of channel partners or via organic product-led growth. This is just not based on reality and even the legend of Slack’s growth trajectory started with the founders persistence [read: begging] their friends in other organizations to try their product within a small team.
Assuming you have reached meaningful traction* and want to pursue a channel strategy to scale your business, how should you start building it out? There are plenty of good playbooks out there for how to set up your channel strategy once you commit to doing so. For starters, I would point you to Hubspot’s ‘Ultimate Guide to Channel Sales.’ For the purpose of this blog I want to focus on getting to the decision that launching a channel strategy is the right move for your company.
First, understand your true underlying motivations for pursuing channel partnerships. As a seed-stage investor, I spend most of my time with companies that have limited sales traction or no revenue at all and, in many cases, the founder has never actually sold anything before. Often when a founder starts talking about launching a channel or product-led sales strategy it comes on the heels of some direct selling struggles. During one board meeting for a company that was experiencing sales strife the CEO suggested pursuing a broad partnership strategy that likely would have exacerbated the existing challenges in the business. In that moment, the clearest way I could communicate my concern was to say:
“Think of each one of these partners as the worst sales rep you could ever manage.”
Not the most elegant way of making my point but I stand behind it. A rogue channel partner or poor strategy will undoubtedly create a lack of pipeline visibility, misaligned incentives, loss of brand control, channel conflict with your direct reps, and slower customer feedback cycles. Some of these risks can be mitigated as your business matures but can be the kiss of death for an early-stage company, so proceed with caution and focus.
Second, gather data about how customers in your target markets tend to purchase new software. Is there a precedent for buying from partners? If so, you may be able to pursue a channel strategy earlier than others. For example, European companies tend to buy through partners more often than US companies. And Cybersecurity tends to have a higher concentration of channel sales. As investors, when we evaluate companies planning for a channel sales strategy, we really like to see someone on the leadership team who has previous experience building out an effective partnership model.
Third, once you know why a channel strategy makes sense and could be a viable option, consider these questions:
What do you need most from your partners?
What is in it for them?
How will you both make money?
How will you sell and what are the rules of engagement?
How will you train and support them as your partner?
How will you collectively support your customers?
Once again, I will refer you to the Hubspot blog for a comprehensive guide to launching your channel strategy that outlines the various options to choose from when considering each of these questions.
If you want to explore a channel strategy before finding predictable product/market fit, I recommend starting small. My advice is to focus on 3-5 target partners to start. Especially for the less mature businesses out there, it will take some time to find the right partner profile and then there will be months, possibly years, of evaluation and negotiation just to structure the partnership in a way that works for both parties. I once spent a year forming a partnership with a Fortune 500 company which was capped off by spending the working days between Christmas and New Years locked in their conference room negotiating the final documents. We got it all done around 9 pm on New Year’s Eve so we were able to book the deal for that fiscal year at the expense of my [already limited] social life.
When done properly, channel sales can be a very valuable asset for your company. It can afford you instant credibility with customers and leverage for your sales, implementation, and customer support teams with minimal increases to headcount. Just be sure you are acutely aware of the risks and over-prepare for the inevitable challenges that will arise.
*Meaningful traction doesn’t have a fixed definition but some experts suggest waiting until you have at least $20 million in annual revenue before implementing a channel sales strategy.
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