Have you ever seen a company decide they want to create an indirect sales channel for growth and geographic expansion, but yet do everything they can to make sure they are not successful? It is hard not to just scratch one’s head and wonder if these companies do not understand channel success factors or some within the company actually want the channel to fail to prove they don’t work.
Before building a channel, there first must be an understanding of what are the appropriate channels for your business, as not all channels work for all industries and products. Once one determines the right channel types, a suitable program and compensation package must be developed to ensure success. The type of support and training that you provide the channel is also significant to the success including having the right channel conflict model.
Sometimes very large companies make every mistake in the book, due to corporate arrogance. They believe due to their size that if they announce they have a channel –partners will come. These companies tend to have had a direct sales force and someone corporately decides that adding an indirect channel is the way to expand. As they start, they usually stick the indirect channel under the VP of Direct Sales which is a classic mistake. This is someone who is not going to upset their sales guys so they develop “rules of engagement” for the channel to follow that protects the direct. Next they create an unattractive program and compensation package with contracts that only a lawyer can understand. The contract tends to be one sided tipped in favour of the company, not the partner. Most channel partners tend to not seek legal guidance due to the cost. About the time channel begins to gain traction, the direct sales force begins to feel threatened, so the company changes the rules with addendums to the contract in order to suit them even more. Usually the channel manager will be someone from direct sales that is assigned to look after the channel. If they actually hire a true channel manager, that person will become frustrated quickly as they are already set up for failure before they begin. At some point the direct sales force begins following the channel partners around and undercut the channel and take their sales. Each year the partner quota grows and their territory shrinks. The channel slowly dwindles and the company pats themselves on the back for having tried indirect channels and return to a direct model. This model is just as costly as it was when they started and if they had set the channel up properly they could have been successful and still retained a happy direct sales force.
On the flip side the complete opposite can happen with a small business who is creating a channel. The small business will be thankful that they have found someone who wants to sell their product. Small businesses tend to feel this is a partnership between companies, so they will not have a contract because a partnership is about trust. There is truth to the saying that good paper makes good friends. You do not want to find out that your channel is selling your competitor’s product. Without having any contractual obligations which state the exclusivity of selling your products in that particular industry, you may find yourself stuck and that your competition will end up with a copy of your price list. Another dilemma that can happen is when the small business is looking for channel partners for a new geographic region. They find a potential channel partner for the territory. The partner then tells the small business that they want exclusivity and they jump at the opportunity thinking that will solve all their problems for sales in that geographic territory. What you may find nine months later is that the partner has only made two sales. The partner has not been given a quota for that territory and is not required to submit pipeline or forecast reports, so they continue to do what they want.
Do not be discouraged or beat yourself up if you see yourself above, as it is easy to fall into the pitfalls of channel development and management. I have lived through both environments and both situations are salvageable if the right steps are put in place. If you look at some of the most successful companies, they are prosperous because of their indirect channel which has given them the growth at a much lower cost of sale: Microsoft, Hewlett Packard, and Cisco to name a few. Most still have direct sales forces as well, but they are focused where they should be – on large named accounts. The question is why would you spend money on high priced sales people to have them chase small customers– it just is not cost effective.
RK Fischer & Associates