The Channel 101
When and how can partners help your business get to the next level?
— Houman Haghighi, Menlo Ventures @Houman81
I recently hosted a webinar with Dave O’Callaghan, Managing Partner of Vation, who shared his extensive expertise on indirect go-to-market sales and partnerships. Dave has been a sales and channels lead at companies like Hitachi, Cisco, and VMWare — he shared some great insights for growing technology companies that I wanted to outline here.
For most tech startups, creating a great product or solution is only the first step toward building a successful company. Your go-to-market strategy is what brings you home, and you will have a variety of direct and indirect sales channels to help build revenue and market share.
Many new companies begin with direct sales, which provide maximum control, but require maximum effort to reach customers. This is entirely appropriate at the outset as you want the most amount of touchpoints with your customers. Most companies gradually engage partners as they grow. Partners can often provide resources or relationships that help small companies scale and move toward profitability.
In perfecting your strategy for indirect selling, it helps to find avenues to success for both your own company as well as your partners. Let’s start by defining the different indirect go-to-market options:
Resellers are partners that act on your behalf and sell your product to the potential customersc. This is a strictly transactional model. Some partners, like a value-added reseller (VAR), may enhance your product by adding features, or by packaging it together with other technologies. This is the simplest and fastest way for a startup to expand its customer reach both geographically and vertically.
As with many types of partnerships, clearly established rules of engagement are essential to avoid confusion or conflicts between the internal sales team and channel partners. This should include standardized wholesale pricing that maintains a healthy profit margin while also enabling the partner to earn a fair cut. Deal registration can help clarify which party gets credit for a sale and measure partner performance — are they just fulfilling orders or are they creating demand?
Technology partners certify, bundle, and embed specific software solutions within their own products, enabling your solution to reach the partner’s customer base with no direct sales investments on your end. This type of partnership includes direct relationships between engineering teams that help integrate the technologies and certify their quality to customers. An endorsement from a partner helps a new technology gain valuable credibility and visibility. As an embedded technology partner, your solution may be built into every product sold by a major manufacturer, which can bring outstanding revenues.
Systems Integrators create design architectures and deploy third-party solutions as part of long-term consulting engagements. This process can take a year or more, so businesses should be prepared to wait for the payoff. Any agreement should stipulate specific terms so your company can plan accordingly, or terminate the agreement if results don’t meet expectations. Consider a pilot program to prove the model and ensure profitability for both parties.
Of course, the potential upside is worth waiting for. Having a company with advocates preaching about your solution will open up massive new revenue streams and growth opportunities. These large organizations have the people, processes, and tools to engage customers globally.
That said, it’s important to avoid getting lost in a big corporate structure. It’s not their fault — big systems integrators are working on hundreds of projects at once. To help yours stand out, find people in the organization that can gain a deep understanding of what you do. Figure out how your project can help them achieve their goals. Of course, you should still craft specific rules of engagement that work for both parties.
Service Providers bundle your solution within existing services they deliver to their own clients. As with systems integrators, service providers can deliver huge revenues for an early stage tech company. For example, a major telecommunications provider might share your technology with millions of its customers. Or a managed service provider might wrap your security solution into their offering for large corporate customers.
For these partnerships, it’s essential to craft favorable terms for the recurring revenue model. Technology integration and support relationships also play a major role.
Where to begin?
Don’t feel like you have to launch all four types of partnership at once. In fact, that’s a recipe for failure for a small company. It’s best to begin with one partner type and then layer in the others. Some models may never fit your needs.
To decide which model to embrace, examine your company’s lifecycle and understand what stage of development you are in. It may sound tedious, but it’s actually a valuable internal exercise for any startup. Before you begin discussing this with your team, it helps to define your terms. If you’re a startup, you should be able to place your company into one of the following phases of development.
Emerging — Sales require heavy engagement and potential customization — those “fingerprint” deals. This type of company may still be defining its market and is typically utilizing direct go-to-market sales.
Scaling — Sales are accelerating. Deals and pricing can typically be standardized. The focus is on building revenue, and potentially gross margins. These companies should consider contracting with resellers, technology partners, service integrators, and service providers.
Maturing — Markets are established and the company may be publicly traded or considering an IPO. Financial focus is on gross margins or EBITDA. This company should consider partnerships with distributors which offer international expertise, finance support, and other broad-market capabilities.
As you examine your own needs and financial goals, make sure they align with those of potential partners. Many will have different timelines and financial pressures. For example, if your product is more than a year away from launch, it will probably be difficult to attract consultants or salespeople who have to meet sales targets for the current fiscal year. You have to make sure your product has achieved product market fit and is commercially viable prior to engaging partners. Too early of an engagement, prior to being “market ready”, it could mean that you would not meet the marks and potentially close the door for engagement when you are ready down the line.
And always remember that each partnership model includes investments from both parties, whether that’s people, IT, or money. And as investments flow back and forth, so does information — leads, demand generation, and customer and product information.
The best partnerships deliver shared profits that keep both parties satisfied. Ultimately, success will depend on your level of trust and clear mutual goals. Do it right and you can look forward to hyper growth as you accelerate your go-to-market.
