Direct vs Channel Go To Market – Time to Market, Scaling, Profitability, Product Fit equation #GTM

Today I’d like to share some thoughts on elements that play in the decision to use a direct selling motion (ie. Your Company invoice directly The Customer) vs a Channel-mediated one (ie. Your Company invoice a 3rd party (reseller/distributor/var/etc.) that invoice their customer).

As usual YMMV (your mileage may vary) and one doesn’t exclude the other, even for the most direct company a small share of channel-mediate sales still happen. Indeed the key is to align the mix of go to market motions to your strategic intents.

Here I will cover some elements, from a seller perspective, that can assist identify the motion that best suits your intent. And to keep things simple, I’ll cover what for me are the top 4 drivers/levers – there are many more ! I’ll write maybe in a second instalment if your feedback in the comment sections asks for it ;=)

Even more reasons to go one way or the other exists, and should be considered, from a buyer perspective –they deserve a full article too.

• Time to Market
• Scaling
• Profitability
• Product Fit

Time to Market

Direct sales is usually the first route a company opens, when a start-up wants to test product market fit it starts by selling directly to potential users. There is no deny if you own the relationship end to end, it is faster to bring a new product to market, and to get the feedback loop actioned.

That said, the perceived speed might be not so fast, once you account the full selling motion – quote to cash. If for example, your company has to be recorded in a procurement system on the customer end, it might add weeks to the purchase order release, while with a channel partner involved, they might already have been reference and hence skip the administrative time.

Selling through channel is perceived slower as we tend to account for the on boarding, training and sales readiness of the partner – but that’s biased, as it only occur once, while a partner should sell many. Nevertheless, it’s critical the partner is enabled properly and the best way is by bringing some of your direct business to them, and assist them in the deal closing of some of it – sort of tutoring them.

Partners may also get you faster to an adjacent market you have never participated, they might have already customers receptive to your offer, and skip the relationship-setting-burden you would suffer as a new player.

Of course, partnership type also play – setting up 2-tier distribution , recruiting value added resellers, co-creating solutions with managed service providers – each brings a different value proposition and pro/cons in term of time to market

Scaling

As you grow your business, enter new markets, build new products and portfolio - the question of scaling becomes critical. How quickly can you hire new sales rep, enable them, and have them reach productivity ? Are you able to sustain the strain on the other resources (operations, it, talent acquisition, management) concurrently ? It seems easier to hire a bunch of new sales rep … compared to recruit a set of regional resellers … but believe me, the two have pro and cons, and there is no “one rule” to prefer the one or the other, you must know your business and have a defined strategy to identify the best compromise.

For instance entering a new country, with unknown culture to you and uncertain product/market fit – might be better served by setting up an exclusive partnership with a local player. They will know the market, can help you tune the offer to it, have already established operations and relationship. One of the most successful company I know, has grown in just that way :

-       Have a local partner start reselling as exclusive

-       As business grow have them “ring-fence” operations related to your company business in a team, then a company

-       Spin-off such operations as a separate legal entity

-       Acquire and integrate in your own business such legal entity

On the other end, scaling direct sales require thinking about field versus remote resources (another subject I’ll cover separately) , of course growing a contact center – especially you concentrate an entire region in a single place – will be faster and less costly than growing a field force that is distributed across multiple countries and no office. That said, technologies like eLearning, Video Conferencing, PodCasts are greatly assisting in such a dauting task.

Profitability

When you look at how much margin you have to share with your partners, often the first reaction is channel is a more expensive go to market – but once you look at the savings made in scaling your back office, marketing and more importantly the opportunity cost associated – then you will realize it’s not that different, of course it’s important to still evaluate such a difference, and make sure you are not leaving money on the table by being too generous in margin share (albeit that has other values).

Direct sales are relatively simple to master from a profitability stand point, with the exception of sales compensation – that would require writing a bible-long essay – your finance folks will not have much difficulty to account profits vs expenses. Still make sure , especially if in growth mode, to consider the growth costs (hiring, unproductive time, training resources, yeld management, etc).

Experience tells me that the rule of thumb is to follow a schema like the below, alert : this is VERY VERY generic, and must be tuned to each particular case :

As the relationship bond importance increase , and the average deal size too, you might want to bring in Account Executives – even in SaaS and Cloud they will be relevant and make a difference.

As the business is more transactional (extreme:consumer) and the transaction value is lower – consider a very scalable, low touch distribution channel.

It’s unfortunately not uncommon to see companies take this upside down, and have account executive selling $10K deals … surprise, they are usually losing money …. Exception, if the recurrent revenue stream (maintenance, etc.) is back loaded (razor/blade strategy)

Product Market Fit

That brings me to cover the critical element, is your product fit for a channel/distribution selling motion ?

It mostly is a matter of repeatability, if the product requires much customization/adaptation to the single customer use case – it’s unlikely that a channel partner will be able to profitably win business.

So beware, as you develop a strategy that you might have to reposition the product – at times the same product sold through different channel might end up having a different name.

A great example I’ve met recently, pool robots – notably from the company Maytronics. Their historical selling motion is through pool specialists (2-tier reselling) , but with the raise of internet they have switched on ecommerce through the likes of Amazon … how to avoid conflict ? They have created different product lines , addressed to the different selling channels – so you can’t find the same product across and compare price. An example of the sophistication one need to get to maximize a go to market strategy.

Bringing it to a close

Selecting the right mix of direct sales vs channel sales requires to have a clear understanding of your business, the strategy you want to implement and the market your operate in. It's fine art and at the crossing of product, sales and marketing competencies.

This article has just scratched the surface of the topic, which subtopic you want me to deep dive on ? Can you share examples that either confirm or take a different perspective on any of the above?