Wednesday, March 25, 2009

Route-to-Market and the channel

One of the most critical elements of a product success is the route-to-market.  My own thinking has evolved over the years - initially I thought that product success was all about technology and the product; the next stage was that effective messaging and positioning was the most important; finally, I started to think about the importance of having an effective route-to-market.

Of course the answer is that product success is a mixture of everything above, and more.  But let's explore route-to-market, which is simply defined as how you get your product or services to customers.  This is especially critical for startup companies - you may have the best product in the world, but how do you get it in the hand of your customers?

Remember that creating a route to market is about maximizing leverage.  You want to get a multiplier effect from your investment, not a 1 to 1 alignment.  If your business sells by direct sales touch, it's very difficult to scale the business quickly and economically.

Of course you must optimize the route to market around the target buyer and markets as defined in your business plan.  These days it makes sense to maximize returns from online selling (Dell anyone?).  I know this is very basic and obvious, but how many people are really doing everything they can online prior to embracing more traditional models - are you really optimizing your web searches, web selling, online community, blogging, new media etc etc. I'll leave it to the thousands of blogs to help you better understand how to get the most out of online selling, but as an example, check out the Google Analytics Blog.

When you are selling a product other than online, such as most enterprise solutions, you must embrace a different route to market, and this is typically the channel.  A channel is a 2-tier route to market where you sell to a small number of distributors, and they in turn sell to their own networks of resellers (however for a startup you may start out selling directly to resellers until you can get distributors interested).  The channel varies by market, buyer, and vertical  and there are some importance differences between the US channel and Europe (where Value Added Distributors or VADs are common), and the Pacific (especially in Japan, which is very unique). 

Novell is a classic example of a company that recognized the power and leverage of a channel - they quickly grew to above $1bn in revenue without selling directly. This was my first exposure to channel selling, and Novell did it very well.  I was a Novell reseller in Canberra, Australia, and we bought from a distributor (ComTech). In currently terminology ComTech would have been called a Value Added Distributor (VAD), because they did more than just move product - they trained and supported their reseller base, ran events, generated leads etc.  

The benefit of a channel is that it provides great leverage.  You have the channel partner's sales people out selling your product, being your representative.  You can reach worldwide and regional markets via a channel partner who understands the target market, customer, and local languages/customs.  A VAD can take pressure off your own support and training staff, and is almost an extension of your own company.

These days many distributors are what we call "box-movers", and just sell product to resellers without services.  However, these distributors (such as CDW and Software Spectrum) still create valuable leverage by being able to address a large reseller base, stock physical products, deal with local import/export laws, plus you only need to collect money from them (instead of hundreds of resellers).

When we started Netoria back in the mid 90's our route to market was 100% the Novell channel - we went to the Novell web site, got a list of their resellers and distributors, and targeted them to sell our products (SFlogin, SFlock, SFsend, Schemax), and show them how these products helped sell NetWare 4.  Our business plan was to piggy-back off the Novell channel, and it paid off! Initially we still had to sell direct in some markets, but we always priced above what the channel could sell for, and told the customer they could get it cheaper from a reseller. 

The biggest downsides of the channel are that you have limited visibility into your pipeline and customers, and unless you motivate them, the channel partner won't sell.  A channel partner won't sell your product unless:
  1. they make good money, and/or
  2. by adding your product into the mix they sell a bigger solution, and/or
  3. they can sell services alongside your product
Typically reasons 2 and 3 are much bigger, as margins are very small on products, and customers may ask for multiple quotes to make sure they get a cheap price.  There are ways to help reward value selling partners, such as deal registration and pass-back of a certain sale percentage, but I'll cover these in a separate post  (Ross Brown, the Citrix VP of WW Channels, implemented their excellent Advisor Rewards program).

Don't forget that there are different types of channels - networking channels, security channels, server channels, etc.  Target the type of channels partners who sell to your customers (Duh!).

What your company needs to do is motivate the channel partner to sell and reduce the friction of dealing with your company.  Think like a channel partner, and figure out what you'd like to sell a new product:
  1. Value proposition. Aka "what's in it for me".  Show the partner why their investment is worth their while.
  2. Training.  Show the partner how to sell, how to position, how to do a proof of concept. Give them product for free or at cost.  
  3. Support.  Give the partner easy access to help when they run into a stumbling block
  4. Leads.  This is critical - pass good, qualified leads to the channel partner.
  5. Marketing support. Give the partner assistance with marketing.  help them run their own seminars for their customers aka Seminar in a box.  Give them easy access to collateral.
  6. Recognize and reward. Show how much you value their selling, and help resellers grow their business
  7. An environment of trust.  We want mutual business success.  Resellers will very quickly drop companies they feel are going to compete with them.  I can recall back in the 90s when Novell introduced their own (direct) paid consulting services it caused tremendous friction with the channel. At Netoria, if a deal came through directly that a reseller had initiated, we sent the reseller their margin.  Our intention was to stop selling directly altogether, but we were acquired by Novell in 1999 before this could be implemented.
When ever anyone brings a business plan to me for review, the first thing I'll ask about is their route to market, and for enterprise products, the channel is king.

1 comment:

  1. Phil,

    Right-on. Keep it coming pleasssssssssse.