Lessons learned after 9 months of channel development [for upraising B2B software companies]
How you go to market, sell and distribute a product is vital for any company. The strategies a company would adopt vary on the type of the business – its product, target market segments, competitive landscape, pricing policy, resources at company’s disposal, etc, etc. When and how you develop a channel strategy is vital for the success of any company today. However there are many considerations – for example, the channel development of a B2C (Business selling to Customers) will be different than the channel development of a B2B (Business to Business) company. Also, a B2B business, whose product sells for $1,000 will be different from the B2B whose product sells for $50k and, soon. This is obvious.
There are things that are less obvious – should I adopt a one-tier or two-tier distribution model; how should I price for the channel; will the channel off-load my sales/support, and so on. This is where it gets tricky. You need to take a systematic approach, build a strategy and document the assumptions you make. And then test the channel development strategy, while implementing the feedback from the market in constant hypothesis-validate-learn-improve cycles.
Growing a channel has a life cycle, just like any human being. In the early days you “do things that don’t scale” – you subscribe first customers direct, one-to-one. At this point, no channel wants to adopt your product since you have a small number of customers. Channels generally want products that “sell themselves”. Well, products that “sell themselves” are more of an exception, still the channel requires simple, mature and packaged solutions, which are easy to advertise and deliver. Their value proposition should be crisp, their advantages obvious, still defendable and the value they deliver – immediate. “Sell it and forget it” they say.
While I am by no means an expert in this domain, I’ll share my harshly learned lessons from channel development strategy for mission-critical B2B enterprise software. According to experts, this type of business is the toughest thing one can attempt. The average deal size is sizable, which means long negotiations and a long sales cycle. Mission critical products are extra hard to push – even when the value proposition and benefits are clear, companies are hesitant to adopt it. There is always a “what if” which can be only addressed by either extensive testing or by validation from (relevant) existing happy customers. It’s a chicken and egg problem.
What I came to learn is that channel follows the famous “Diffusion of innovations” cycle itself, the same way as your products get adopted by customers. Just as you should not spend (waste) your time with onboarding “Late Majority” customers early on, you should not chase the Arrows, Ingrams and Avnets of the world. Direct comes first. You start by talking to Innovator and Early Adopter (actual) customers. Even if your strategy is to become “100% channel” at some point, you cannot go there directly. You need to prepare and grow into it. It is a natural evolution. You start with polishing your product for the customer and getting a reasonable number of direct customers on board.
You need to work on your product to make it more mature, to increase its usability and add features that will make it applicable to a wider market. In the same way, for your channel development, you need to develop a separate set of features for the channel – your channel agreements, pricelists, NDAs, marketing, and sales collateral. You need special training for the channel’s staff, you need to design marketing activities and promotions that run through the channel, while in parallel you keep all your direct marketing activities. It’s a full-time job by itself.
Unless you already have established a relationship with some of the big names or OEM (I will not even touch this one here), my advice is to select a small number of channel partners who are specialists in your domain and work only with a limited number of these. They’ll most likely be less-known and smaller in size, but will be more attentive to you. In the early days we did the sensible, but a wrong thing – we approached the names that first appeared in our search on storage channels. This is not the right approach – the better thing to do is to pick 2-3 partners who deeply understand the domain and see the strategic advantages of your products, why and how it can disrupt the industry. Focus your attention on the ones who get it, and are eager to work with you. Do not spread yourself too thin. Do not go and try to close 10 channel partners at a time. Less is more. Quantity over quality. Look for a partner who is proactive and engaged, even if they’re small. They’ll help you polish your product faster, than any “big name” can.
As anything new your product will be great in some respect, still it will lack the features needed for mass adoption. And that is OK. Work with 3-4 channel partners to refine and build the product the market desires, and not what “big channel” tells you. They’ll always come with “if you only do THIS ONE FEATURE” and your product will be a KILLER. It won’t. Big vendors do not push innovation, and there is nothing wrong with this. Their role is not to seed innovation. Their role is to help you scale in an efficient manner once you do the first few steps.
To sum it all up – pushing a new product, even if it’s innovative (vs. “me too” product) is not trivial. You need a lot of customer and market research (always start with the market). Then you need to do a channel development strategy, based on a series of assumptions. Your next goals is to run a series of experiments to validate the most critical set of assumptions and either confirm or refactor them. Be quick in doing this, be focused and don’t spread yourself too thin – work with less than 5 partners who are experts in the field and are responsive. When you reach to market pull – then most likely you’ll start receiving raising number of channel partnership requests. And this will follow your market success, not precede it. Good luck and head up – even Apple started with just one first sale and it was not a channel agreement.
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