What's With The Direct Sales Claw-back?

In a World where Partner Sales Dominate GTM Strategy, Many Vendors are Making Curious Sales Strategy & Leadership Decisions

In the past 6 months we’ve seen a stack of research confirming the ascendent role of indirect partner sales in IT Vendor GTM strategies. Salesforce told us 90+% of vendors sell with partners in one way or another. Jay Mcbain & Canalys told us 73% of total IT sales flows to / through / with channel partners. And CompTIA told us the number of channel firms in the US alone increased by nearly 1/3 since 2020.

Channel people everywhere have memorized the statistics and repeat them frequently to validate the role of indirect partners in driving revenue / growth / profitability for IT Vendors. As the total contribution of revenue from indirect partners continues to grow, business schools are embracing indirect sales partnerships as an essential component of every business strategy.

So it’s settled. Channels matter. Nice.

And yet … in the same 6-month window I have noted an odd trend in senior leadership appointments and strategy changes among IT Vendors: leadership positions are being filled with people who have career backgrounds primarily in direct sales. And those leaders, unsurprisingly, are deploying strategies that sound less like “channel-first” and more like “channel-if-we-have-to.” There has also been an equally common trend towards new CEOs who don't default to an indirect sales model.

What gives?

On one hand, this is the latest swing of the legacy pendulum in GTM strategy adjustments. Over the years, this cycle has been quite predictable: when markets are strong and customer spending is high, vendors embrace channel partners as a variable-expense mechanism to maximize market coverage and accelerate growth. But when markets are down and spending is uncertain, vendors claw back sales revenue via direct routes to avoid the Cost of Sales attached to partner margin.

Note 1: Channel partners have experienced this pattern many times, and have learned to filter vendor sales strategies and channel program “enhancements” through a cynical lens ... often to their detriment.

Note 2: Despite these “seasonal” cycles of vendor GTM strategies, the general trend has been strongly towards vendors selling more and more to / through / with channel partners ... and market-wide forecasts predict further channel growth. But your business is not "market-wide" so you need to address this issue with your "audience of one."

The recent trend of putting direct sales humans in charge of GTM strategy appears to be more than just a blip. The channel is still the strategy ... but in many cases it's operating under "new management." It’s not just one or two times I’ve heard this story … literally dozens of vendors have made this switch, and the implication is more than individual channel leaders being displaced.

A few weeks ago I had a chance to interview a CEO and a Board Director from an established software firm (identity not disclosed to protect the innocent), and I wanted to understand their thoughts on this pattern, among many topics about their go-to-market strategy. Why are vendors putting direct-sales humans in charge of indirect channel programs? And does this indicate that vendors are pulling away from partner sales strategies? The answers were enlightening and appropriately blunt, including:

“The amount of revenue flowing through our indirect channel partnerships has grown significantly, so much so that the performance of channels is now a material factor of our overall revenue and growth,” said the CEO. “So we can’t afford to mess around with the program or deal with uncertainty in revenue forecasts. We chose to put a serious adult into the leadership position who can command the respect of our leadership team and control the performance of channel partners.”

Ouch. CEOs are fond of saying, “it’s not personal, it’s just business.” But that felt personal.

Then there was this:

“Selling with channel partners is a great way to reach customers we can’t cover with our direct sales team,” said the Board Director. “But we need to find some way to increase the confidence and accuracy of revenue forecasts … and that’s what direct sales leaders have been focused on for decades.”

So you’re saying that accurate forecasts aren’t what channel leaders are known for?

Whether or not the opinions of these folks are representative of the prevailing attitude of the IT industry, they do pose some legitimate questions that channel leaders need to be able to address to win support (and budgets) for their partner-centric initiatives.

• Can you position your channel-centric strategy in terms the CEO understands? Unless the CEO happens to have had a career path that included a stint in a channel role, chances are they don’t have a pre-disposition to agree that the “only” way to go to market is via partner channels. (Blasphemy.) Can you explain “why” channel in addition to “how” channel?
• Can you make a clear financial argument in favor of channel economics the CFO will buy? Having partners that love your products and your programs is nice. Having partners who generate revenue at a lower CAC and higher LTV with lower fixed costs is better. Can you demonstrate a superior ROI for your channel programs?
• Can you convince your CRO to bet his / her career on the forecast accuracy of partners who may not be thrilled to share pipeline data? Having lots of partners is nice … having lots of partners who generate revenue is better … having lots of partners who generate consistent, predictable revenue growth is best. Can you demonstrate a reliable method for maintaining control of revenue forecasts via a community of independent businesses?

NOTE: The correct answer to each of these questions is YES. Of course you can … because you and I have learned how to demonstrate those answers from a generation of channel leaders who came before us and pioneered those business model proofs.

But here is the killer reality: that’s not what non-channel people say about us when we’re not in the room. And that’s something we need to change. Because the inability to answer these questions in non-channel terms is the reason for the trend towards putting non-channel people in charge of channel programs.

To be perfectly clear: I’m a GTM dork with a financial bias towards certain sales routes at very specific times / stages during the maturing process of a solution market. That’s not the same as “all channel all the time because it’s the best no matter what.” I’m not likely to tell someone the channel is the only ever answer to all GTM questions. But I am definitely able to explain when and why a channel strategy is the correct GTM that even direct sales guys will accept. No claw-backs necessary.

Can you?