Software Channel Development – Getting the Foundations Right
I have 20 years of experience in channel dynamics and I’m currently working with two owner managed businesses that need to build an indirect sales channel in the UK. One client needs to do this because the economics of their product and service offer have changed and they can no longer support a direct sales approach. The other is expanding internationally from a small country, where they sell direct, to the UK where they need to sell through local partners. What I find fascinating is that while the channel has changed and adapted over the past two decades, software entrepreneurs are still making the same, incorrect, assumptions about how to execute a channel strategy. Here are two of the common (and most costly) ones.
The first incorrect assumption is that there will be lots of partners out there who will want to sell the product. There is more than one reason why this assumption is incorrect. The first reason is often owed to lazy product management. First-class product management will ensure that you have identified all competitors in the target market and have effectively positioned the product against them. Failure to do this will prevent you from finding your ideal customer and hence your ideal channel partner. The second reason this assumption is incorrect is that you have not fully understood your own business model. Failure to fully understand key elements such as the value proposition, the key resources required and the cost structure of your business will lead you to look for the wrong partners. The third common reason this is an incorrect assumption is not fully understanding your potential partners business model. They are an independent business that will pursue activities that are profitable to them. If you do not understand how they make money, you will not be in alignment with them and your ability to sell through them will be severely impaired.
The second incorrect assumption is that your channel partners will behave like an outsourced sales force. They will not! Many ISV’s assume that signing the partnership deal is the end of the process. In reality it is just the start. Channel partners need to be pro-actively managed, and in the early days of the partnership over managed, to ensure that you achieve the mind share that you need from their sales force. Be prepared to sell with before you reach the position of being able to sell though. Your partner’s sales force will have their targets. You will need to provide compelling reasons why your product will help them reach it.
Perhaps the challenge for owner managers is to balance the need for analysis and planning prior to selling through a channel with their natural desire for immediate action. When I trained as an engineer I was taught that changing a line on a drawing was cheap, but changing a design when you started to build it was very expensive. Twenty years of channel experience has provided me with ample evidence that this holds true for channel building. Saving money at the expense of inadequate analysis and planning costs many times the ‘saving’ when you move into the execution phase.