Editor’s Note: Each week, Fast Company presents an advice column by Maynard Webb, former CEO of LiveOps and the former COO of eBay. Webb offers candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at email@example.com.
Q. When is it time to start selling our software through third-party channels? I think it could be a big differentiator for my company, but some say it’s still too early and I should focus on selling directly. –Founder of software startup
Many software startup founders dream of having a channel business. Who wouldn’t want other organizations out there selling on your behalf, telling your story, absorbing the cost of sales, and sending the money back to you? It sounds too good to be true! And while it is a legit way to amplify your business, for many companies it’s too early and it makes more sense to focus on your direct sales efforts first.
A channel business, by definition, is an enterprise selling multiple products in a very cookie-cutter, boilerplate approach that can add value at scale. Often at a startup, you are learning your way into go-to-market and doing high-touch, visionary sales, which are anathema to channel partners. They are not set up for that. While your goal is to land a marquee account, theirs is to sell lots of things to lots of people.
Since their salespeople are selling lots of products–not just your product–you need to ensure that your value proposition is easily understood, so that it will be easy to sell versus the rest of the products.
Everything must be so crisp and concise and consistent that it’s almost formulaic so channel partners can pitch your message and sell your service seamlessly.
If it’s not, your product won’t get the attention it deserves. This is why most companies don’t look to develop a channel strategy until they run into issues of scale.
I wanted to be able to answer this question as precisely as possible, so I approached my network with expertise in this area. Mercedes Ellison, the CEO of Everwise, is a recognized leader in the software industry and has held senior executive positions in sales, marketing, and business development with companies such as SuccessFactors/SAP, Saba, Hyperion, Siebel, and Oracle. She has proven experience growing existing business, developing new revenue streams, and achieving double-digit profit growth.
“The idea of a ‘channel’ can be very seductive,” Ellison says. But she shares the following realities to keep in mind:
Executing a channel strategy is more than putting your product on someone else’s price list. It means giving up control of sales cycles and the end customer and giving up margin.
To be effective, it requires an ongoing investment in channel enablement, demand generation, and support. Additionally, you’ll need a willingness to segment the market your direct team pursues versus the channel and infrastructure to track opportunities to avoid channel conflict.
The right time to invest in a channel strategy is when you can afford to make the ongoing investments to ensure it’s a success and those investments make more sense than continuing to add direct sales people. The caveat to this would be if your product is easily embedded into another solution where the value add allows you to access other prospects or markets. Some smaller companies will also use a “channel” to represent them in geographies or verticals they want to expand into. (This still requires the investment detailed above.)
It’s important to remember, you know your product or service best. You care about it more than anyone else will. When you sell yourself, you have direct access and accountability to your customer. You control your brand and reputation.
I’m very appreciative of Ellison’s expertise and input. Normally most startups don’t pursue a channel business early in go-to-market, but see it as a competency to develop as you’re building scale.