Define your channel strategy in 3 steps and stay on course
Each November sailboat captains make a 1500 mile passage south from the Northeast US to the Caribbean. For safety, they’ll often join one of 3 rallies; the Salty Dawg, NARC and the Carib1500. This offshore adventure takes a lot of careful planning to select the best sailing route, weather window, equipment, provisions, and crew. Without a detailed sailing plan on where they are going and how to get there, many boats would not safely reach their destination.
The same can be said for channel selling. Without a detailed channel strategy, you, your team, and your partners can be in for an uncomfortable ride, as I have seen firsthand more than once or twice.
Why a channel strategy is so important
Without a clearly defined and agreed upon strategy, you have little hope of knowing where you are going or how to get there. Too many companies sign up partners, create a channel program and build a channel team, but haven’t articulated their channel strategy.
One company I know invested millions of dollars in their program, team, distributors, and national resellers. Yet their channel partners were flapping in the wind like loose sails and there was little hope for a positive return on investment. This stemmed from two fundamental problems. First, they lacked a clear understanding of the channel. Second, no one had documented their channel strategy. It was my job to develop and execute a channel strategy to turn around this unwelcome predicament and breathe new life into their channel business.
Three critical steps in developing and executing a channel strategy
I’ve learned there are at least 3 critical steps in developing and executing a channel strategy. The first, covered in this article, is defining the strategy. The second and third, which we will cover in future articles, are gaining alignment on the strategy and finding the right team, tools, and techniques.
Step 1 in developing a channel strategy: gathering feedback
Before putting pen to paper on a strategy, my first priority is to gather feedback up, down, and across the organization. I want to know what perceptions people have of the channel goals, the team, and our partners. A few of the things I’m looking to discover include:
- Do people share or have differing views of the channel objectives?
- How do they view the capabilities and limitations of partners?
- What do they see as the core strengths and obstacles to the channel business?
- Do they see the channel helping them, or as a threat to their goals?
After getting an internal perspective, it’s time to get an external viewpoint. Start talking with partners of different shapes and sizes to get their thoughts of the company’s channel efforts. Some questions I like to ask partners include:
- Why did you decide to become a partner of ours?
- How do you benefit from our partner program?
- How do we help or hinder your success?
- What’s one thing you’d like us to start doing?
- What’s one thing you’d like us to stop doing?
Gathering partner feedback has several benefits beyond the data. It gives you an opportunity to meet a variety of partners. You can learn about their business model, goals, and challenges. It gives the partners a chance to speak their mind. Many times they feel like no one is listening. Just make sure you follow up once you have your strategy and goals clearly defined.
Another good source for external feedback is outside consultants and industry analysts. They often hear what partners are saying about your channel program and may be able to give you an unfiltered view of what partners really think. And what is their perception of your channel program and channel “friendliness”? You many have some work to do in changing those perceptions.
Step 2: defining the channel strategy
Finally, after gathering internal and external feedback, it’s time to start articulating all the elements of the channel strategy. Following are some questions you need to think about when your first launching a channel business, and keep asking as your channel business matures.
Channel or Direct?
The first question you need to answer is whether you going to be direct-led, channel-led, or channel-only company? (Read Why it’s time for a 100% channel strategy) Gaining senior leadership alignment on this single question can be very difficult, but it is the foundation of a successful channel strategy.
Many companies take a segmented approach. They apply different sales strategies for different market segments, for example channel-only for the mid-market and direct-led for large enterprise accounts. As your channel business matures, you may find more and more segments or geographies where it’s more profitable to go channel-only.
One or Two-tier distribution?
The next question is will you have a one or two-tier distribution model? In the one-tier model, you sell directly to partner who sell to the end customer. In the two-tier model, you sell through a distributor who sells to the partner. Some important factors to consider when making this decision include:
- What value will the distributor bring in helping you grow sales?
- Do you have enough sales volume through the channel to compensate the distributor for their value add?
- Does selling through a distributor make it easier or more difficult for your partners to buy and sell your products?
Local, regional, national, or global partners?
Finding the right type of partners to sell your products starts with your customers. Who do they typically like to buy from and work with? You also want to consider what level of service expertise is required to implement and gain value from your products, and what type of partners have or are willing to gain those skills? And can you offer the margins and investments required to gain the mind-share of the type of partners you’re seeking to recruit?
Resellers or MSPs?
Digital transformation is driving a shift in customers’ buying behaviors. They gone from buying products that take years to implement and get a return on investment, to wanting to buy business outcomes sold in the form of managed services. This means you may want to put much greater focus on developing Managed Service Providers who can add their own IP to your products to offer a niche outcome-as-a-service. (Read A Tale of Two Channels)
With the high-level channel strategy defined, you can now work on defining the top goals for the next 3 years. Typical high-level goals include channel revenue by geography and/or product line, channel participation rate (% of new sales through partners), and the numbers and types of partners you want to recruit and enable.
Step 3: How will you measure success?
There’s a famous leadership adage “inspect what you expect”. In sailing we are constantly inspecting boat speed and heading, wind speed and direction, and sail trim, while looking out for boats or other potential obstacles on the horizon. Likewise, as channel chiefs, we want to define key channel performance indicators (KPIs) and how they’ll be measured and reported. This helps us know if we are on course or in need of adjustments to reach our goals. Here are a few of the channel KPI’s I like to measure. Some are indicators of past performance; others are indicators of future performance.
- Pipeline (# of deals and $ amount)
- Revenue (partner generated
- Channel participation rate (channel revenue divided by overall sales)
- Number and $ amount of opportunities passed to partners
- Number and $ amount of opportunities originating from partners
- Partner win rate
- Expected finish
Knowing how you are performing against target on each of your KPIs will help keep you on track. Set up an online reporting dashboard available to you, your team, and others supporting your channel strategy so everyone is being driven by the same data.
Avoiding the hole in the water where you pour money
Most boat owners know the saying that “a boat is a hole in the water into which you pour money.” Investments in the channel without a clearly defined strategy can be your big hole in the water. But having a strategy is just the first step. In my next article, I’ll discuss how to communicate your strategy and gain alignment to ensure everyone on the boat is trying to sail in the same direction.