Tuesday, March 29, 2011

When to Build Sales Channels

Many technology companies are aware that they need to build sales channels or increase their number of active partnerships, however they prefer not to distract from their direct sales focus.  Early to mid-stage companies may be under pressure from their investors to increase revenue as quickly as possible and they may not have the internal expertise, resources or time to pursue developing sales channels.  When should these firms step off the treadmill to build channels, and how can they get it done?

Determine the strategy of the business.
The first step is to determine the exit strategy of the business.  If your company is developing a technology to sell to a well-established organization, then developing sales channels will not be as important.  However, if this is not the situation, then you may consider building partnerships for the following reasons:

·       Grow revenue
·       Increase sales reach because you can’t afford to grow sales force organically
·       Break into a new market
·       Go international
·       Look attractive to potential acquirers because you have existing, productive sales channels in place

Phil Odence, Vice President of Business Development for Black Duck Software, a technology company that helps development organizations manage their use of open source, believes that partner development is very important.  “Leveraging channels is almost essential to a small business, for a technology company to build business outside North America.  Another party can share some risk, where you don’t have to front the money for new employees, office expenses, legal fees, taxes, etc.  There is little involved and you pay as business is booked.”

Establish timing.
Once your company chooses to build sales channels, it will be important to keep in mind that it will take time to realize revenue from the new partners.  It may take 6 months or more because first you will need to get your partners on board from an education, sales and administrative perspective.  Then your partners will be ready to approach their customer base, follow-up on leads and go through the sales process.  Due to this time lag to realize revenue, it is critical to start the partner development process immediately so you can see the benefit more quickly.  Continue to focus on direct sales while you build channels to maintain a parallel effort.  It is risky to place all your eggs in one basket, either with solely a direct or partner sales approach.  Spread the wealth.

Find the best resources.
What if your company does not have the internal expertise, resources or time to develop sales channels?  If you have budget available, here are some options.

Tap a senior Alliances executive who can build channels.  Odence advises, “Put a fairly senior person in channels.  This is a big investment so it doesn’t have to be a full-time role at first as the person can do other things to add value to the company. Using someone internal may make sense for this reason.  The individual needs to be versatile enough to be able to put deals together as well as build relationships.” 

This senior employee can also work with the sales and marketing teams to help their efforts, or work on projects for other executives while building channels part-time.

Hire an outside consultant who can assist with strategy and partner development.   Odence suggests, “Another option is to go outside the company to get channels going by hiring an external consultant to help you understand how channels fit into the overall business strategy, and to jumpstart partnership development.  The consultant can do the legwork for you until you are in a position to hire a full-time Alliances person.”

Hiring a consultant relieves the cost burden of a full-time employee.  If your firm has a small budget to work with, you can hire the consultant on a project basis to get started with developing sales channels.

In summary, it is important to first determine your sales channel strategy and then pursue it immediately to realize the revenue benefit as quickly as possible.

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