The IT revolution is not only causing a change in how companies use technology but how ISVs (Independent Software Vendors) and other IT service providers market and sell that technology. A strategy focused on channel sales can drive significant growth by more quickly evaluating go-to-market opportunities, expanding into new markets, engaging a sales team that can hit the ground running, and target marketing initiatives to new groups of decision makers.
This roadmap to channel sales will walk you through the stages of channel development from channel evaluation, to market validation and go-to-market strategy, preparing your business to launch a successful channel strategy, and finding and on-boarding the right channel partners to drive revenue growth.
Section 1: Benefits of an Indirect Sales Channel
There are a number of benefits to building a distribution channel and those benefits run much deeper than simply saving money by not having to hire an in-house sales team.
Channel Sales
You may want to seriously consider a channel sales model if…
1. You have decided to shift your sales focus from small business customers to mid-size or enterprise.
Each of these three segments – small businesses, mid-size businesses and large enterprises – have their own unique characteristics. In a small business environment, you are most likely selling to the company’s owner/CEO. He is a businessman who has a number of responsibilities on his shoulders and simply wants your solution to help him achieve his business goals or eliminate a challenge that he is currently facing. This is a business sale as opposed to a technical sale.
Mid-size companies may have a small IT team, but they may or may not have a CIO in charge. For a mid-size company that does not have a CIO, it is often the CFO who is in charge of the IT department and is the person responsible for the IT decisions. In this case, an IT administrator or engineer will most likely be asked to do the research needed to develop a short list of solutions based on the company’s requirements and the list will be turned over to the CFO. The challenge for your sales team in this situation is that the sales conversation will be more technically focused at the beginning and then transition to a business focused conversation when speaking with the CFO. Is your direct sales team equipped and comfortable speaking in both technical and business terms?
Large enterprises have a CIO running the IT team, taking care of the daily IT needs of the company and working on implementing a comprehensive and cohesive technology and business strategy that will serve the company well into the future. Today’s CIO is required to have a positive effect on the business’ bottom line and, as a result, needs to focus on more strategic projects which will drive their company’s growth. You need to help the enterprise CIO eliminate challenges today but also look into the future and provide solutions that will integrate into a forward-looking technology infrastructure and help them meet their business goals in the coming years.
What each of these descriptions shows is that there are different decision makers and different ways of selling as you stop selling to on group and start selling to another. If your company’s strength is in selling your solution to small business owners and you want to begin selling to large enterprises, rather than building a new team of people who are expert at selling into enterprise companies, you can enter a new market more quickly by using indirect channel partners who are already experts at selling into the enterprise and have an already established customer base.
2. You are expanding into new territories.
When expanding into other countries, it is certainly easier, quicker and less costly to utilize a channel business model. But, don’t dismiss this sales model out of hand because you are simply expanding into different regions of the United States.
An ISV in North Carolina who is targeting Asian companies that have offices on the West Coast of the U.S. in cities like Los Angeles, San Francisco or Seattle may benefit from partnering with resellers in those cities who already have a relationship with these companies, understand the unique cultural differences, and can speak to customers in their native language. These customers will feel more comfortable building a relationship with a channel partner who is intimately familiar with their ways of doing business rather than your company, who will take considerably longer to come up to speed.
3. You are talking to line of business executives rather than the traditional CIO.
When looking to acquire new hardware, software or other technology solution, department heads or line of business executives would have traditionally discussed their needs with their company’s director of IT or CIO. The CIO or another member of his team would then reach out to appropriate IT providers. They would conduct research, determine which technology solution was most cost-effective, which would most effectively integrate into the company’s existing network, and was most compatible with the other hardware and software currently in use.
Today, cloud computing and Software as a Service (SaaS) applications have changed the way in which IT products and services are purchased, who is purchasing them and the speed with which they are being implemented. Line of business decision makers like a VP of sales, CMO, or director of finance can now conduct their own research to find the solution that is most appropriate for their needs and purchase, deploy, and use the technology without ever speaking to their internal IT department.
Because channel partners have a deep, 360 degree understanding of a client’s entire organization, they know the right people to target with the right messages at the right time and can close the sale more quickly.
4. You are targeting new vertical markets.
The key to business success is not trying to be all things to all people but to specialize, differentiate and target customers with messaging that resonates with them. The quickest way to do this is to focus on specific industry verticals such as legal, education, healthcare, government, associations, financial services, non-profit organizations, etc.
Industry-specific channel partners understand the needs of their market and their customers extremely well. They know what solutions clients are currently using, if there is any gap which your company could fill, who the leading competitors are and if they can integrate your solution into their existing suite of products and services to deliver a more complete and differentiated offering.
To take this one step further, some partners have begun to focus their sales and marketing efforts at a micro level. For example, channel partners who target the legal industry may now focus solely on mid-size law firms in New York who specialize in corporate law while others may target small boutique firms that focus solely on litigation cases. Working with these potential partners will enable you to reach your target audience faster and build a differentiated solution by combining your offering with those of your channel partner.
Section 2: Go-to-Market Strategy / Market Validation
The most famous quote from the 1980’s movie Field of Dreams is “if you build it they will come.” This is the mindset of some businesses who believe that their product or service is exactly what the market needs so all they have to do is launch it and customers will come knocking on their door. This is certainly a myth.
It is critical that you research if your product or service is something potential customers really want, if similar products already exist, who your competitors would be, if it is an entry point to a new market or an upsell opportunity to an existing market. Before you actually execute on a go-to-market plan, you need to validate whether the solution, target market, and potential customers are all the right fit.
Understand the following to determine if there is a real opportunity:
1. Market Segmentation / Market Research:
The first step is to determine if there are enough potential customers in the market in which you are interested in entering to make all of this hard work financially viable. Reviewing market research conducted by independent third-party analyst firms will give you an overview of the size of your market, opportunities, the leading competitors, etc. Examples of analyst firms and technology associations that study the IT services industry include IDC, Gartner, Forrester, 451 Research, and CompTIA.
The next step is to do an internal and external analysis. Inside your company, engage your sales team to learn their feelings on this new opportunity. They are on the front lines of the sales process on a daily basis, having conversations with customers, attending industry events and selling against competitive products.
Outside of your company, survey your customers. Ask them if your new solution is something they would be interested in. What would the benefits be? Determine why they would choose your solution over that of a competitor. You can also gain a lot of valuable information by participating in sales calls or listening to recorded customer service conversations. Mining the help tickets of your technical support team can also uncover valuable insights. Your goal is to develop a unique value proposition.
2. Market Penetration Strategy:
Is your market penetration strategy going to be an entry point or an upsell/cross-sell opportunity?
The point of market entry is the point at which new customers become interested in what you have to offer. They may be changing their business focus, looking to grow into a new market themselves or their needs have evolved. By positioning your solution so that customers become familiar with it as soon as their need arrives, your company and solution can become the standard by which all other competitors are measured. This is a great position to be in and increases the likelihood that companies will purchase from you.
Alternatively, current customers who are already using your solution successfully will be more open to considering a new offering from you which provides additional services or is a more sophisticated or enhanced version of the current product. This upsell opportunity is likely to be successful as customers have already established a relationship with your business. Cross-sell opportunities enable you to sell complementary or related products to an established customer base.
3. Product Roadmap:
Does your new, proposed solution fit within your existing product roadmap? This roadmap should include your plans for new products and upgrades which you will launch over the next 18 months or so. Will the solution you are considering fit within your existing product roadmap? Is it complementary and will help round out your portfolio so you are able to offer a more comprehensive solution or is it just the “flavor of the month?” If you have decided to develop an AI solution simply because Artificial Intelligence is the hot topic at the moment, you will not be as successful selling a single product as you would be selling a more cohesive offering.
4. Buyer Persona:
It is critical for both your sales and marketing efforts to have a complete and clear understanding of exactly who your target customer is and what makes them tick. Create a buyer persona where you explain the details of your target customer’s business and the profile of the decision maker(s) at that business. Address points like the company size, location, industry, whether the decision maker is business or technology focused, if they are a corporate executive or run a specific department, etc.
When evaluating your target customer, remember that the largest customers may not deliver the most revenue. Also, a healthcare provider or law firm could have the highest close rate for a security solution but have the longest sales cycle because they need to ensure that the solution will help them meet stringent compliance requirements.
5. Customer / User Engagement:
How will your potential customers engage with your company to purchase your solution? One option is for them to interact with your sales team – whether that is your direct sales team or the sales professionals who work for your channel partners.
The other option is a self-service model where a prospect visits your website, learns about the product, signs up online and begins using it without ever speaking with a salesperson.
Since the requirements for each are very different to execute, it will be important to determine up front which option will be more effective.
6. Marketing Communications:
Once you have done your market research, understand your market penetration strategy, developed your buyer persona, and know how your customers are going to engage with your company and your solution, you will be able to complete the marketing component of your go-to-market strategy.
Your marketing communications strategy will include both brand building/brand awareness and demand generation activities but the percentage of each will be dictated by your current position in the market and your business goals. For example, if you will upsell your new solution to your existing customer base, those customers already know your company, so brand awareness is not as important as generating leads through newsletters, your website, webinars and other demand generation activities.
If you have decided to enter the healthcare industry where you have little visibility or brand recognition, you will need to begin with a brand awareness campaign so that healthcare providers become familiar with your company and services and then ramp up your demand generation campaigns.
7. Leverage Brand Equity:
Is there an opportunity for you to leverage the brand equity of other well-known vendors and manufacturers? For example, maybe your solution is a CRM-based product which enables customers to slice and dice their CRM data in new and unique ways. This might be a product that companies like Microsoft, Salesforce or others would be interested in bundling with their CRM solutions and offering to their channel partners.
If this is the case, your marketing efforts can benefit as well. Since you will be able to use the logos and other marketing resources from Microsoft and Salesforce, the brand equity of these well-established companies will enable you to get the attention of prospective customers who might not have given your company a second look otherwise.
Of course, if you are going to market with a new solution and were considering hiring your own sales team, you would evaluate all of the items that I included above to determine if you have a viable product, if there are companies interested in buying the product, if your sales team could actually sell it, who the competitors are and if you have a unique value proposition.
But, when deciding that an indirect channel sales strategy would be the more profitable and quicker option, many ISVs or other providers tend to overlook some of these items or believe that any issues can be resolved by the channel partner.
This couldn’t be future from the truth. Your solution must align with the needs, motivations, and goals of the customer but your business model and sales strategy must align with the needs, motivations, and goals of your channel partners to have a successful, long-term partnership.
Once you have completed your market validation / go-to-market strategy and decided that channel sales is the road you want to go down, the next step is to ensure that your company is “all in” and ready to execute on a channel strategy. The key components of this model should include preparing your internal teams, considerations for partner recruitment, partner evaluation, program structure, marketing, and support.
In the next blog post, we will evaluate each of these components as we continue down the road to channel sales success.