As they grow, many technology companies evolve their go-to-market strategy from a direct sales model to a model that includes both direct sales and channel partners. In this evolution, management adds channel partners in order to scale their sales resources more cost-effectively than is possible by hiring only direct salespeople.
Unfortunately, the resulting go-to-market model often includes inherent conflicts that impact the company’s competitive effectiveness and success in the market. In these companies, direct sales and channel partners don’t understand how they are supposed to fit together, don’t have an effective way to resolve conflicts when they occur, and sometimes sabotage each other. Symptoms of these conflicts include:
- Complaints by the members of the direct salesforce (from individual sales reps up to and including the head of sales) that channel partners “add no value” in specific deals or across the board.
- Never-ending debates between the CEO and CFO on whether channel partners are really necessary and worth the 30-45% discount.
- Sales management “looking the other way” when a salesperson takes an order direct instead of through a channel partner in situations where channel partners normally get the order.
- Channel partners guarding the identities of their prospects and customers from the vendor, to avoid the possibility that vendor personnel will tip off other channel partners or take the deal direct.
- New product launches that are planned and executed without any partner involvement, even though management expected that partners would start selling the new product as soon as it was announced.
Each of these symptoms is the tip of an iceberg of confusion and mistrust, misdirected or wasted efforts, internal bickering instead of competing with the company’s real competitors for the customer’s business.
If your company has these problems, what can you do to reduce and eliminate them?
The first step to fixing these problems is to clarify which customers should be pursued by direct sales and which should be pursued by channel partners. The ideal is to have a simple, clear and unarguable line that separates these two market segments — the “direct” segment from the “indirect” segment.
One example of such a clear line would be a list of named “house accounts” aka “hard deck” that the company sells to directly, with all other customers “off limits” to the direct salesforce and therefore available to channel partners without competition from the direct salesforce. Another example would be to segment the market by company size, transaction size, or some other attribute that’s easy for everyone to discover early in the sales process. A third approach is to assign specific products to the direct salesforce, and other products to the channel, which works as long as it’s clear to everyone, including potential customers, that the products are so different that no one can easily substitute one product for the other.
The smart way to figure out where the line should be drawn is to model the financials for the different choices. The Route Calculator is a great financial modeling tool that can be used to evaluate alternative boundaries for market segments that can be covered by a direct salesforce or by channel partners, with the output being the “location for the line” that produces the most market share or revenue growth or profit (or any combination of quantifiable goals). The Route Calculator is an integral part of Paramarketing’s approach to optimizing the ROI on marketing and sales.
However the line is drawn, it must be enforced. Poachers who cross the line must be disciplined, and the deal redirected to the correct party, so that others won’t cross the line in the future.
Unfortunately, the management of many companies believe that they cannot implement the ideal solution outlined above. They see their world in shades of gray, not black and white. They may lack the will to draw a clear line between one market segment and another, or between one set of products and another, because they fear it will limit their growth or their ability to change their mind in the future. Companies that are built through acquisition often find themselves full of overlapping products that are not easy to separate for different channels.
The solution for these companies is to take it a step at a time, starting with documenting the “gray area” where deals can go either way (to direct salespeople or to channel partners). Over time, they need to reduce the size “gray area” in order to widen the sizes of the opportunities that clearly belong to direct and indirect channels.
Every company should have a go-to-market strategy that maximizes profitable growth and minimizes wasted efforts. Conflicts between direct sales organizations and channel partners impact both growth and profitability. The problem is not the conflict; it is a lack of rules and poor enforcement of the rules. That’s something that management can and must resolve.