Many successful enterprise software companies have significant channel strategies. What is a channel strategy? To me, it is about how to leverage an external network of partners that can resell another company’s product, refer leads to that company, or enter into formal partnerships to go after deals together (specifically when one company has a killer feature that the other company’s product doesn’t have).
Another way of putting this is: sell with, sell through, sell to.
I have seen numerous startups try and fail to set-up their own channel strategy early on – early typically being less than $1-3m ARR. Should they have explored these opportunities this early on?
My own personal experience would suggest that until you are on at least $5m ARR and potentially even $10m ARR, you should really think about whether it is worth dedicating the time, resources and investment that it takes to reap the benefits of having an active channel strategy. Why? Well you know why you want an active channel, but think about it from your partners’ point of view. What do they get out of it?
- If you don’t know how to sell your product at this stage of your company’s life, why would another organization know how to sell it any better than you? You need to have a fine-tuned repeatable sales process so you can understand exactly who you should be selling to and how. Then once you know what your target customers look like, you can start to think about partners that can refer to you more of them.
- You’re still in the customer development phase. You’re still learning what features customers of certain sizes and love and absolutely require. You need to have direct relationship with these customers to continue to learn the small nuances of selling to them, keeping them happy and continuing to build on top of their needs.
- Your ACV is too small for them to give a sh*t. 40% of a sub $100k deal just isn’t goint to get a channel sales person to take interest. Unless it helps their org close much larger deals for a strategic purposes, then they will not give your product the push that it needs. As an early stage startup, your total contract value is most likely going to be low with your first 10 to 25 customers (and most likely even more!). You don’t know the value of your product yet becuase it hasn’t been in your customers hands for long enough. Most channel partners will only sell software that they can make a lot of cash on. If your ACV is only $10k and you have a more than generous 40% fee, they still only make $4k per transaction. It’s not worth them getting out of bed for.
Once your product and sales processes’ are mature (mature = having a repeatable and predictable sales process), then its time to find out what heir your partner’s quota is and work out how you can help them achieve a large $$$ amount of that. Is this through them selling your product? Or is this by allowing them to leverage your product for their purposes to beat their competition?
So if we’re too early to “sell to” and we can’t “sell through”, is it worth investigating into a “sell with” approach? This is the approach that I have seen work the best for our early stage businesses. After failing to get traction by teaching another sales force how to sell their products, – they found a way to treat them as lead gen. Show your partner what a red hot prospect looks like (no more than 2-3 things to look out for) and that you’ll come in with them to sell your piece if they identify anyone with these needs.