Startup Insights #3


This article is the first in a series of articles that will help you identify the right sales channels for your business.

It all starts with your product.

Your options consist of direct and indirect sales channels. Direct channels establish a 1:1 relationship with each of your customers while going indirect sends your product through one or two tiers of channel partners. The choice between these depends on several key parameters.”

Firstly, you need to determine your product’s complexity and plans.

  1. Is it self-explanatory or does it rather require a consultative sales approach?
  2. Are you intending to build a services business around it?
  3. Will you be selling in your country, or will you be going abroad as well?

Contrary to what you can read in many articles, a complex product does not necessarily mean you have to sell it directly. When I was running Citrix Central Europe, we had a portfolio of products that needed consultative selling, but still, our Go-To-Market Model was 100% indirect. Whichever option you choose, it’s crucial to ensure the customer receives satisfactory support throughout the sales process and during the implementation and operations phase. This can be done by either your resources or by Value-Added channel partners. At Citrix, we had a mixture of both, whereby sales fulfillment always had to go through a 2-tier channel. If you wish to leverage an indirect channel and your product is complex, you need to seek different types of partners than you would for a simpler product.

Key considerations about going direct.

Undoubtedly, a direct sales approach is the most expensive option, even if you limit your sales efforts to a few salespeople and a manageable number of target customers. Especially, when you are a startup with no “credit history” with a particular customer or market, building trust with your prospects, being responsive and available, and having quality resources are crucial to your success. If you therefore limit the number of target customers so you don’t have to spread your resources too thin, your risk goes up. Why? Because you will depend on just a few deals which therefore become must-wins. On the other hand, if you increase the number of prospects the intensity of customer support suffers. The trick is to carefully qualify the opportunities in your sales funnel and then decide which ones and how many you can realistically pursue. It is okay to qualify an opportunity out! During my entire career, I had more than once the pleasure to explain to my bosses why I shrunk my funnel. While pursuing your prospects, your most expensive cost item is to invest time and resources into the wrong deals or companies.

Especially, when you are a startup with no “credit history” with a particular customer or market, building trust with your prospects, being responsive and available, and having quality resources are crucial to your success.

Also, do not underestimate the cost, time, and internal effort required to handle fulfillment when contracting directly with a corporation. Negotiating a contract can be a lengthy, tricky, and expensive process as you will require legal support before you ink a paper. When you are a young company, they might be trying to load all the risk on you, as they know you are very keen on winning your first customers. This could make you more willing to make concessions and take more risks.

Why should you still consider a direct sales approach?

Assuming you can afford the cost and the associated risks, the key advantage of a direct sales approach lies in your ability to fully manage and determine your actions during the sales process. Since there is nobody else involved, you can keep the channel margin you otherwise would have to give to your partner. Furthermore, you maintain ownership of the customer relationship, rather than relinquishing it to or sharing it with a third party. This would create a dependency that you must be comfortable with. A direct setup will provide you with a faster learning curve about how your product is perceived by the market since feedback will be equally direct. Another significant advantage is that your product won’t have to compete for attention and focus with other products in a partner’s portfolio. This one can be huge.

Beyond the numbers.

In general, my strong advice is not to make big compromises regarding quality when hiring people. This is especially true when hiring customer-facing heads, like in sales. There is only one chance to make a good first impression and all business is between humans. If you pay peanuts, you are likely to get monkeys. There are people out there who can be motivated by more than money, so set the right triggers when you interview them. Good people will help you to build trust and to execute well.

If you pay peanuts, you are likely to get monkeys.

I still remember a call with the SVP of HR in the early days of our startup HRDigital. He represented a 5000+ people German tech company. Before we signed the contract, he wanted a call with me and one of my co-founders. The course of the conversation showed that he had a mental agenda that he was working through. The goal was clearly to find out whether he could trust us as a reliable supplier. Never forget that the people at the customer’s end of your sales funnel are placing their trust in you and will be held accountable for the internal acceptance and smooth operation of your solution. The company became a customer soon after our call and we managed to significantly extend our footprint over time. While this one went well, we had another instance where a household name company in the German retail market decided against us. The reason they gave us: your product would do the job, but you are too small as a supplier. After we buy it, you might disappear. On top we do not think that your resources are enough to adequately support us. Such is life in a startup. If this happens, consider it a natural part of your growth story, and avoid becoming frustrated. Remember, when the going gets tough, the tough get going!

These two examples hint at another factor you will have to consider when interacting with your prospects directly. Not all vertical industries are created equal when it comes to their willingness to engage with young companies. Much of that has become much better in recent years, and it might differ from country to country. However, it remains a factor you must consider. In the tech industry for instance – per my above example – you will be more likely to succeed than in a traditional large retailer who follows his beaten paths.



Next: In Part 2 of this article, I will delve into the intricacies of opting for an Indirect approach and the factors you must consider when making this decision.  I am happy to receive your comments on LinkedIn.

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