GrowthPoint works with many different emerging technology companies and, as such, we see a wide variety of entrepreneurial sales and marketing efforts. Many are ad-hoc and developed incrementally, without a well defined strategy. Most start with direct sales and then begin to contemplate engaging with channel partners. Given this perspective, we felt it would be useful to share some of our insights to help early stage entrepreneurs think through how best to leverage an off-payroll channel strategy to more effectively address the market. We will discuss what needs to be in place to develop a successful partner driven sales channel.
Channel partners come in a variety of forms and each form will perform different functions for you. There are OEMs, ODMs, distributors, value added distributors, resellers, system integrators to name the classic ones. We will discuss four primary structural ways to think about channels.
In order to determine if channel partners are ready for you, it is first important to determine if you are ready for channel partners. There are three pillars holding up a channel strategy, economics, repeatability and brand. Do you have a business model to share the economics with a partner? Is your solution repeatable so that partners can deliver your solution? Do you have a level of demand in the market place already? All this adds up to; “Does the channel need you?”
Assuming the pillars are in place to support some form of a channel, the first step is to decide which channel partners you want. There are a lot of competing influences for the channel partners you are targeting. To establish a channel it is critical to treat it as a long-term investment. Supporting a channel requires a program with thresholds, tiers, benefits and training. With this you are ready to engage.
The first thing to think about engaging channel partners is the use of resources. Consider the cost from consumption of, channel versus Company resources and what you are trying to achieve with those resources. This determines the economics of the channel. If it is demand fulfillment, or demand creation, or both, then the commensurate channel compensation needs to make sense. This concept must match the rationale for using partner resources to execute on the plan better than the company can with just internal resources. Key rationales for using partner resources are to:
- Extend: Address markets, geographies or Industries the company cannot reach,
- Augment: The Company creates the demand, but partners fulfill demand,
- Replace: Potentially replace existing resources.
Channels work when they lower costs per order or add incremental value. If you have to manage your partners on a one to one basis, you simply drive your costs up. It is therefore imperative to manage partners programmatically i.e. on a one-to-many basis. Key programmatic elements include:
- Entry requirements to qualify partners to make sure they are value added
- Exit parameters to take them out of the channel
- Thresholds to qualify partners for larger benefits
A channel management program also requires investment in training, tools, support and incentives. In summary, think of your investment as a portfolio of partners and managing that investment is a portfolio management exercise to achieve the right levels of:
- Market Coverage: Geographic and/or Industry coverage
- Delivery Capacity: The ability to deliver and how much they can deliver
- Technical Competence: Level of skill in your products and services
How do we keep channel partners engaged? Channel partners are running businesses and they have choice, so you want to be the partner they want to do business with. To be the channel’s partner of choice the Company needs to be:
- Be easy to do business with: be responsive, consistent, & reliable
- Predictable – Don’t frequently change the partnering model. Every time you change the partnership, partners have to adjust their business model
- Cost effective – when you start calculating what you want a channel partner to do (extend, augment, replace in-house resources), how much are you willing to pay for it and what do you want them to do versus the company do in-house.
A strategic alliance partner is a partner that influences the demand or co-sells with the company. If you have a good product, a good business model and customer demand Alliance Partners will come to you. Then, the hard decisions are which ones to invest the time, money and effort in. Putting rigor and process around a strategic alliance model requires resolving the company’s positioning on two important axes.
- Financial Return
- Revenue potential
- Investment required
- Strategic Fit
- Competitive stance
- Investment the alliance partner will make
- Market footprint and installed base the partner brings to you
When it comes to strategic alliances, be clear about return and strategic fit.
Managing Director and Co-Founder of Growthpoint Technology Partners
Industry Channel Veteran & former VP/General Manager at Hewlett Packard