I’ve met with some very smart leaders that believe (at least initially) the channel will be their magic bullet for overcoming the frustrations of an expensive, inefficient, unpredictable sales force. The conversation usually goes something like this:
CEO: “Our product is so far ahead of everything else in the industry that we should be selling it for twice our current price.”
Me: “So with that kind of value proposition you must be killing it -right?”
CEO: “Well, not exactly.. As soon as we get past <XYZ> hurdle with our sales and marketing, then our growth will really start to kick in.”
So at this point in the conversation, I understand that I’m only seeing the tip of the iceberg. If the CEO is a product guy, it is not surprising that he believes the main roadblocks to his growth are sales and marketing issues. And by the way, the opposite is also usally true – leaders that evolved from sales and marketing DNA believe most of their problems are product-related. It would be great if reality would align with their beliefs, but real solutions are almost always a messy combination of both.
So, as the product-centric CEO thrashes around trying to solve his “sales problem” the mirage of a friendly channel starts to look pretty good. Just think! No more frustrating conversations with salespeople that don’t REALLY understand the product. Lower fixed costs for a team that isn’t performing up to expectations. No more expense reports for questionable dinners or demands for new laptops. No more complaints about the support team or the comp plan. And as an extra benefit, customer distractions and headaches would be kept to a minimum because partners would be responsible for support.
After carefully adding up the “gives and gets” of a channel program, the CEO reluctantly agrees to share 30%, 40% or even 50% of the revenue with partners. In return it’s only fair to expect rapid revenue growth and relief from the headaches associated with pre-sales and post-sales support. His team will finally be freed up to focus on it’s real mission, which is building great products. If the company is well-funded, the next move will be to build a business case based on “conservative estimates” of market penetration and kick off a search for a well-connected channel guru who can put together an effective program.
However, if you put yourself in the shoes the channel partner the perspective is quite different. Of course when you explain the benefits of your product to them, they nod their heads and seem to agree. But in their mind the very first thing they want to know is how much demand is out there for your product. Are their customers asking for it? (probably not). Is the company providing “qualified” leads? (again probably not – keeping in mind that their definition of a qualified lead is an order that needs to be fulfilled or a sold deal waiting for implementation.)
If you take a step back for a second, this attitude is understandable. Most companies have a hard time supporting a direct sales team even when they receive 100% of the deal revenue. And their team is focused on only a single product line. The channel partner’s calculation is less forgiving. He is being asked to support the sales effort for your product on, say, 40% of the deal revenue and his team must split their attention between two, three or twenty other product lines. While there are economies of scale that can be leveraged, in general they are less able to afford hand-holding customers through a long and risky sales cycle.
No matter how great your pitch is, potential channel partners will put your opportunity into one of two categories:
The first is a product line that will bring them a significant number of profitable new customers with a minimum of effort This is the holy grail and the reason why Cisco, HP, Microsoft, Marketo and Salesforce have no problem recruiting new partners.
The second, less compelling category is a product that will help them sell more and earn more profit from their existing customers. This could be a product that enhances their current solution or a product that helps them serve customers more efficiently. In all likelyhood this is the category you will fall into. When you practice your pitch it is very compelling.. “So Mr. Partner, even if you attach our product to only 10% of your current customers in the first year your profit will increase by 38%!”
But if you’re in the partner’s shoes, your existing customers are your biggest asset and no matter how compelling the pitch, you are wary about “leveraging” them for the benefit of another company, no matter how compelling your spreadsheet is. So unless your current sales and marketing efforts are producing an excess of real qualified leads and has a stack of bottlenecked projects waiting for implementation resources, the chances of finding a channel partner in shining armor is very slim.
Despite these hurdles, hundreds or thousands of small and medium companies somehow manage to develop productive channels every year. Rarely do they find the channel is a magic bullet that saves them from the frustrations of their own sales team, but with the right approach they can develop a ‘win-win’ channel program that results in a better, faster path to new markets.