The Power of Strategic Planning: Building a Successful Channel Sales Program

In the fast-paced world of startups, having a solid go-to-market (GTM) strategy is vital for success. A well-executed GTM plan helps startups effectively position their products or services in the market, reach their target customers, and drive revenue growth. One crucial element of a comprehensive GTM strategy is a well-designed channel sales program. However, without strategic planning, startups may find themselves struggling to leverage the full potential of their channel partnerships. In this blog post, we'll explore why strategic planning is essential for creating a successful GTM that incorporates a channel sales program.

The software-as-a-service (SaaS) market is on a growth trajectory, with spending to reach $195.2 billion in 2024, up from $146.3 billion in 2021, according to Gartner's latest forecast released in October 2022. Channel Partners will be a big part of organizations accessing that spend efficiently.

Further, Gartner predicted in 2021 that 85% of organizations will embrace a cloud-first principle by 2025. This is evidenced by the growing number of SaaS-based applications in use today. A recent survey of 740 IT and security professionals revealed that SaaS applications experienced an 18% year-over-year increase in net growth between 2021 and 2022, with organizations now using an average of 130 applications.

So, what does SaaS market growth and maturation mean for growth in 2023?

You need a strategy!

Creating and initiating an effective channel strategy is one of the hardest challenges organizations and channel strategists face today. Due to rapid changes in the macroeconomic conditions, industry, and SaaS, vendors must be more deliberate, and outcome-focused. Channel programs are no longer a one-size-fits-all approach. Many suggest they never have been, but their programs tell a different story.

The scope of this document will be to outline considerations for building a “Channel Program/Plan” for SaaS and provide a framework, observations, and recommendations that can help any size company navigate the gauntlet of decisions that must be made as you enter the brave new world of a subscription economy through the channel.

Despite the value partners bring and the fact that > 80% of technology solutions are transacted through them, relatively little has been written about developing and managing a channel when compared to direct selling. I was shocked when my customers alerted me to this. When it doesn't exist; you build it...and here it is.

This document can help you better understand best practices in channel management and give you some food for thought when you consider what’s best for your organization.

Background

At ChannelSales.AI we've seen countless channel strategies/programs, almost all of them extremely ineffective and approached as though one-size-fits-all. Channel Program fail largely because of three (3) reasons.

1. The plan lacks a strategy.

2. The Level of Effort is misunderstood by the entire GTM team.

3. The GTM is poorly defined (including ICP).

Companies like Cisco, HP, and Oracle have a vast global reseller channel that touches (not necessarily drives) 80%+ of their overall revenues. For  this document, we’re going to focus on early-stage start-ups and how they architect the right channel for their GTM. Architecting, recruiting, enabling, etc. looks fundamentally different to companies who are $0- $25M ARR. We’ll focus on those given that’s where many challenges exist. To make channels successful, strategic adaptation must become an ongoing, iterative process of hypothesis, experimentation, learning, and action.

Definitions

Let’s start by defining the various terms we’ll be leveraging through this document including channel and GTM methodologies.

Value Add Reseller (VAR): is a partner that resells solutions adding value beyond the manufacturers solution and has/develops relationships with customers that can potentially lead to repeat business.

Direct Market Reseller (DMR): Broadline reseller who typically focuses on larger volume and manufacturer's lower margins. Lower 'services' or 'value add' beyond the relationship they have.

Managed Service Provider (MSP): third-party company that remotely manages a customer's IT infrastructure and end-user systems.

Managed Security Service Provider (MSSP): Much like a MSP but highly focused on “security” offerings.

Distributor: An intermediator between vendor and reseller, leveraged for different reasons depending on products/services and need.

Systems Integrator (SI): an organization that implements enterprise-wide IT applications within an organization; typically doing some level of custom work.

Hyperscalers: Cloud vendors like AWS, MSFT Azure, and Google Cloud (GCP)

Direct: Sale of product/services “directly” to the end user/customer.

Indirect: Sale of product/services “indirectly” meaning through a partner or marketplace.

Hybrid: Sale of product/services where more than 90% of revenue is transacting indirectly; however, some portion is still coming direct.

Original Manufacturer Equipment (OEM): Integrated support strategy for 3rd party systems, software, and components. [Won’t be addressing in this document].

Product Led Sales: Will not be addressing in this document.

Step by Step Process for a Holistic Channel Strategy

All too often plans, or strategies fail because the organizations approach to strategy isn’t holistic. At many innovative new businesses, leadership excels at identifying ways to generate value by addressing unmet customer needs—yet don’t adequately analyze what it would take to capture a sufficient portion of that value. This is why our channel strategies fail to materialize revenue year after year. This document is to make sure we factor in all the key elements to reverse this cycle and drive channel performance that is predictable, repeatable and scales.

Step 1: Build/Confirm GTM Assumptions:

There’s a detailed document provided by ChannelSales.AI on this process outlining in detail how to do this. The outcome should provide a complete strategy that encompasses carefully coordinated choices about the business model with the highest potential to create value, the competitive position that captures as much of that value as possible, and the implementation processes that adapt constantly to the changing environment while building the capabilities needed to realize value over the long term. Sometimes referred to as “Product-Channel fit hypothesis”: Which channel is best suited to reach our market? Align the business unit strategy with the overall channel strategy, define the ROI and KPIs, and decide which partner set or tier(s) to focus on.

You cannot build a successful Channel Strategy without aligning to a detailed GTM strategy.

We must be able to clearly articulate how you expect to go to market.

1. Who do we sell to/through? (How do we sell?)

2. Which market (company size) are we focused on?

3. Who is our Champion/Buyer? (or ICP)

4. What do we sell them?

5. What markets do we serve? (Regions)

6. Why do they buy?

7. Why do they buy from us?

Additionally, you'll want to answer these four (4) questions to identify the TYPE of partners you should be working with:

Why are we building an indirect sales channel?

• Customer Acquisition: example - reach SMB, Enterprise and/or a specific Vertical

• Onboarding/Enablement

• Training

• Regional Reach: example: to gain access to Japan, Australia, UK, Middle East, etc.  Other

Detail the reasons so you can start to identify which partners are the right partners to spend time with. Focusing on the right partners will deliver far greater outcomes given the cost of time is considerable for a start-up/scale-up company.

What do we need to invest in to build the channel (people, process, product/tech)?

• Does our team understand how the channel works?

• Are our processes (example: in product messaging) ready for channel partners so that we appear channel friendly/neutral?

• Are we trading in different currencies? Ready to handle Fx fluctuations? Is our product ready to take on a MSP channel?

How do I get my partners to sell my products/services versus those of my competitors?

• What level of access do we have to the partners we want to work with?

• What is our competitive positioning that the partner will take interest in?

• New Tech vs. Legacy Tech?

• Customer displeasure with status quo vs. Our Solution?  Margins available through our solution

• Adjacent technology to what they’re selling today?

How do we plan, get reports, and be able to manage indirect business?

• How do we report on Channel Initiated vs. Fulfillment deals?

• How do we report on MSP/MSSP business to understand unique customers, license distribution, growth ARR vs. NRR or Expansion vs. Contraction at the account and per customer level?

There may be other questions to ask of your GTM team to ensure you’re setting up channels correctly and designing in productivity and efficiency. The above must be part of the discussion otherwise you’ll find misalignment and a host of frenetic activities that will result in real inefficiencies. Each business has its unique mix of strengths and talents, so there will always remain an element of judgement in the decisions you have to make on who to partner with - balancing relative strengths in some areas, weighing up the differences you can leverage now and the future, and the relative deficiencies in others.

Note: Working through this exercise will create alignment around the investments that will be necessary to support your channel strategy/approach. This will ideally alleviate two (2) of the top three (3) issues that channels have. Lack of a holistic approach and the GTM is poorly defined. We’ll address these in another blog.

Step 2: Align Channel with Corporate Objectives

Based on assumptions defined, it’s time to validate how goals/objectives translate to a predictable model. This step is almost always missed by revenue leaders and assumptions are made that are far too vague. What we typically hear is “The channel should drive 25% of our number”; meaning the channel will account for 25% of the company’s bookings as incremental (not fulfillment). While this may be true, implications on cash, where MDF might be invested or regions supporting this number are essential. Time of year can also impact how the channel performs. Be specific.

Example: Results by Channel Type: VAR/DMR vs. MSP/MSSP.

For some organizations, this is straightforward as you may not have a MSP/MSSP program. If you do, don’t make the mistake of assuming they behave the same or assumptions can be ‘genericized’ given these are very different channel models. Break these out in your modeling.

• ACV/ARR bookings by VAR/DMR channels vs. MSP/MSSP channels

• Pipeline Creation by VAR/DMR channels vs. MSP/MSSP - Conversion rates: Opportunity to Close Won

• Average Age: How long does it take to close? Don’t assume deals identified by the partner will be the same as those that marketing might identify.

• Average Deal size: by VAR/DMR channels vs. MSP/MSSP channels.

• Average Length of Contract (i.e., committed revenue)

• Average Days Outstanding: Receivables

Example: Results by Region: (the above might be different by region … do the work to understand)

• Regional ACV/ARR expectations from North America vs. EMEA vs. APAC, etc.?

• Mix by Channel type by region?

• Fx Implications (assuming you trade in multiple currencies)?

HINT: Cohorts not Averages wherever possible.

Model Tops Down & Bottoms Up

Now that you have some of the higher-level expectations outlined, it’s time to model how you achieve these results by modeling both tops down and bottom up. For example, if the assumption is that the channel will contribute 25% of the ARR/ACV to the business, build a model to support that and verify it passes the “sniff test”.

In the scenario above you can assume that if the historical trends hold, that you should have ~ $1M and you’ll need to identify X number of opportunities within the first 2 months of the Qtr.to reach the intended outcome.

In the scenario above you can assume that if the historical trends hold, that you should have ~ $1M and you’ll need to identify X number of opportunities within the first 2 months of the Qtr.to reach the intended outcome. OUTPUT: At this point we have the Operating Plan, Goals and Objectives, Identified the right partners, and understand our channel mix by partner type and mix. Now it’s time to execute on recruitment, enablement, deal registrations, adding the right mix of partners, etc.

Step 3: Identifying the Right Partner Type & Partner Selection

As we’ll continue to suggest, there is no shortage of strategies when selecting the “right” partner. What’s important is that you can articulate why one partner is better than another. There’s also no shortage of criteria you can apply; however, channels are about operating leverage (reach, voice, proximity to the customer) and these variables should always be present:

Each business has its unique mix of strengths and talents, so there will always remain an element of judgement in the decisions you have to make on who to partner with - balancing relative strengths in some areas, weighing up the differences you can leverage now and the future, and the relative deficiencies in others. Consider taking a structured approach to your partner selection decision making. Channel partners also have many options when it comes to vendors. A typical partner works with many vendors – maybe even carrying products that directly compete with yours. Partners (Non MSP/MSSP) don't typically work with one brand.

Therefore, partner intimacy and consistency are core elements of any channel strategy. Here are a few elements to keep in mind.

• Right match. Spend the time to vet, qualify, and get to know partners (quality over quantity – always).

• Enablement/Training. Develop training programs that make selling your solution easy. If you struggle to enable internal sellers; enabling partners will be impossible. Enablement is a constant process; it’s iterative.

• Program Clarity. Ambiguity is the Achilles heel of channel programs. Predictable and Fair are absolutes. Don’t cut corners here. Make sure your program aligns to goals and objectives. HINT: If it looks exactly like a previous company, you were in; it’s not going to work as well as it could.

• Consistency. Channels relationships are about the alignment and consistency of your field. If every seller isn’t doing their part, the performance will suffer. Channels are real work if you’re doing them correctly. Channels will underperform if the sellers aren’t engaged.

"The relationship between partners, technology service distributors and suppliers is changing as the channel moves into 2024. Even if your programs were working in '23; you should still be working through this exercise".

Step 4: Program Development / Guides

By making sure that a strategy has detailed descriptions updated regularly, simple incentive rules, necessary supporting documentation, and educated and trained partners, programs are naturally easier to understand and adopt. Guides should differentiate and think through parameters such as Deal Registration, Minimum Advertised Pricing (MAP), Benefits by Tier, Margins, MDF, Coop funds, Trademarks, etc. Challenge the norm where it makes sense. Differentiating your program is something you own.

Examples:

• Do you really need 3 tiers like the other 90%+ of the market?

• Are you rewarding larger partners over the mid-market VARs who might be best for you given your new to the crowded space?

• Are you trying to disrupt a market? Does your program reflect that?

• Are you crystal clear on how you handle renewals? Do you offer any incentives for partners who drive renewals early?

Example of a MSSP Guide that propelled AlienVault to incredible success:

CLICK on IMAGE (right) for Program Guide

If your programs aren't working, logical transformation is the only surefire path to success. There are many ways to transform and modernize the channel ecosystem, from re-thinking your strategy, alignment, or embracing the latest channel incentive approaches. Now is the perfect time to reassess and improve operational efficiencies and explore new messages/models that accelerate productivity and efficiency.

Step 5: Recruiting Partners / Nurturing Pattern

Recruitment: Sales channel recruitment can happen in two ways: inbound recruitment and outbound recruitment. With inbound recruitment, potential sales channels come to you. This might be through your company’s reputation or a partner request form on your website, paid advertising, etc. Inbound recruitment requires little work on your part, but it doesn’t always yield the partners that best fit your needs. Outboard recruitment requires more of your time and money but allows you to seek out the partners you want to work with. That speeds up the time frame of adding a partner to your team. Hint: both take significant time to do well. I would strongly recommend early-stage companies working through an outbound strategy described later in this document.

Onboarding: Onboarding new channel sales partners is just as important as onboarding new employees and should follow many of the same steps. Your partners likely have some business experience but not even with that experience, they still won’t know your value proposition inside and out. That will take time. Ensure your partners have immediate access to training in products, features, pricing, sales process, and your company’s goals for a long-lasting partnership. Expect that the best training, however, will come inside of the pursuit of deals. Establishing a strong relationship early on makes the partnership more likely to succeed. It also creates a model for open communication so that measuring sales channel status is easier down the line.

Nurturing: There’s a hole in most channel programs and oddly enough it’s not difficult to fix — It’s the pitch. More to the point, the lack of clarity or simplicity of “the pitch”. For success, partner sales representatives need a compelling sales pitch that meets buyer pain points and matches the right solutions at the right time. The challenge that marketing and sales teams face when selling through indirect channels is effectively arming these reps with compelling content that positions their products correctly against competition and in a way that is focused on the buyer’s specific needs. There are many strategies for how you might stay top of mind; however, none better than a weekly email outlining a communication that can be distributed to the channel partners customer. This is an email that your partner can send to their customers on a rep-by-rep basis. This serves two (2) benefits:

Step 6: Measure

Measuring the success of a channel sales program can be complicated because you’re analyzing the metrics of two related but distinct companies. The key is to predetermine specific metrics to measure internally for each company and overall, as a partnership. It’s also essential to run regular evaluations on partnerships to see where they are holding strong and where they may need more work.

Here are a few you might consider: Keep in mind that you need to be able to report on Deal Registration vs. Fulfillment or “what the partner is bringing to the firm.

• Annual sales bookings: ACV and TCV / Deal Reg vs. Fulfillment

• Transactions: Net New Customers / Deal Reg vs. Fulfillment

• Transactions: Upsell/Expansion / Deal Reg vs. Fulfillment

• QoQ Pipeline Creation: ACV basis / Deal Reg Average Discount: % / Deal Reg vs. Fulfillment

• Deal Registrations to Deal (Conversion)

• Deal Registrations by Region

These are just some examples. There are plenty of others depending on your business and what you’re trying to achieve with your channel programs.

Channel Considerations

Challenges Getting Support Early This is the area that is most misunderstood by organizations. You’re a company that is just getting started and you’re trying to gain access to your target partners identified by working through the process outlined above. Most organizations will do the following as they stretch to gain traction assuming there’s a shortcut. If you’re Channel Leaders are promoting these paths, I can almost assure you that you’ll become impatient with how slow this process is:

1. Pay large sums of money to the distributor to recruit partners on your behalf. – Don’t do this. These results will disappoint you.

2. Pay to gain access to larger DMRs like SHI or CDW. – Don’t do this. Spend only on training/speaking/enablement. Not access.

3. Try to schedule meetings with Channel partner executives to get their blessing to proceed with the relationship. – Don’t do this unless you have a personal relationship. This will be a meeting that likely goes nowhere, and you’re still left with winning hearts & minds of the field (quota carriers/engineers).

"Sales efficiency is Capital efficiency ... so be wise when considering where/when to spend channel dollars."

So, what is a company to do if they want to get started:

• Existing partners first: Pull reports that outline which partners your organization has transacted through the most. Fulfillment and Deal Reg. Reengage here assuming they fit the same criteria as the ideal partner profile. Educate your teams on the number of deals transacted. Educate them on the talk tracks with the partner. Roll-play out loud and iterate based on learnings.

• Train your entire revenue team to the strategy: Take deals to the partners you want to work with assuming they’re going to transact through the channel. “SHI is our preferred partner” for example. Work bottoms up with the partners you want to work most with. Be focused on where you’re transacting deals. Engage and develop relationships with these sellers.

• Spread out, Weekly touchpoints: Look at your map, align resources around partners where a win in California can help you in another region. Nothing beats wins. If your teams are spending time with partners where there’s no overlap, the amount of work is considerably higher. In the example below wins in FL help in CA and vice versa.

What does your map look like?

• Do your Account Executives (AEs) know at least five (5) partner reps of each of the partners they work with? Are they working with more than 5 resellers? If so, it’s too many given this takes a real investment of time.

• How often are they speaking to them? What are they speaking about?

• Are you tracking that outreach in SFDC?

• Do you have a channel “play” for your partners to reach their customers every week? This is typically and email that is canned and ready

If you’re the channel or revenue lead for your organization, these are just some of the questions and areas you must be aware of. Assuming a single CAM (Channel Account Manager) can drive the entire strategy for five (5) sales reps is simply a failed strategy.

Note: Channel partner sales reps are bombarded with content from every manufacturer. Content that isn’t focused on opportunities they have in the pipeline. Partners don’t know how to represent their various vendors correctly—the vendor’s value proposition, business issues and solutions. Most partner reps simply don’t use sales or partner portals—especially if they represent several manufacturers. And many reps struggle to communicate solution value to executives around business pains.

Inspect what you expect. We’ve seen the most success from those organizations who work through this entire exercise, document everything and understand that enabling internal sellers is critical. Additionally, you need to know that all your sellers are NOT calling the same channel partner reps. Be professional and spread out. No two (2) sellers should be reaching out to the same channel rep to stay “top of mind” or establish a relationship. If you outline the partners, reps, contact information this gives you an opportunity to identify gaps and opportunities to help your team. List them out, document them in your organization’s CRM and make sure that weekly outreach is occurring. Where gaps exist, your CAM can start filling those gaps and make introductions to the AE.

Assuming each AE is working with five partners (resellers) and clearly understands how the ecosystem works in harmony, how to speak to each and where their jobs starts/stops when it comes to channel – good things will follow. You will find that your sales teams will start sharing wins, lessons learned, etc. that will help every other seller in your organization. Teamwork is essential.

SKU Strategy Considerations

Deciding what products and services to offer through the channel is a decision that should not be taken lightly. This is as strategic as the decision to sell via an indirect channel in the first place.

Here are a few of the important considerations to consider:

• Services SKUs: which SKUs will you provide without approval vs. those that need approval?

• Onboarding, Training, PS, NFR (Not for Resell SKUs).

• New product launch. Is there an opportunity to use the channel strategically as part of a product launch?

• Promo codes, early access program, etc. These have different revenue implications.

• Exclusivity: Will this product only be available through your partner network? Only certain channels (MSP vs. VAR)? Only in certain regions, etc.

• Fx: (Foreign Exchange Rates): How will you handle fluctuations?

• Hyperscaler Marketplaces: Private vs. Public offers? Pricing shopping, etc.?

• Federal: Should you treat Federal differently? Protect your GSA and Federal contracts, etc.

Investment Considerations

There are very real investments if you expect a channel to work well. Some will look at the “pay to play” investments; however, I will recommend you invest in none of those. Paying distributors to market/recruit – No. Paying resellers to attend their SKO (Sales Kick-off) – No. These are some of the investments of time/alignment that should be considered, however.

• Executive sponsorship. Executives need to be involved and support this program on an ongoing basis. Far too many leadership teams don’t entirely understand the channel program. This should be understood by all elements of the revenue team, including executives.

• Investment in people. Have the right personnel to manage your channel (sales, marketing, support). If not, can we develop them? Most organizations assume sellers understand the channel. This is almost never the case.

• Tech Stack. Some organizations may want to invest in a partner portal. Not necessarily a requirement but something to consider.

• Implementation of reporting to all systems: CRM, ERP, Marketing Automation, quoting, etc. Implementing your tech stack correctly is essential.

• Compensation considerations: Is this overlay, individual contribution, etc. What is the cost of revenue for this investment if overlay?

Now that we’ve covered the key considerations for a successful channel strategy, it’s time to sit down and develop a workshop with your teams to align on your investment/approach.

Far too many organizations will not do the work and will scratch their heads on why the channel isn’t delivering the value it probably could if the work is done. This isn’t a shortcut; however, when done right it becomes a significant growth accelerator.

Conclusion / Next Steps

Your channel strategy must be holistic if it’s going to work and scale. As stated above, “strategy” has always been about aligning the organization behind a clear direction. Today it must be broadened to become an integrated set of choices about the business model, competitive positioning, and capabilities required for long-term success. By managing the complete strategy landscape, revenue leaders will greatly increase the odds that their firms won’t crash and burn in the channel or in their overall GTM approach. In short, if you’re going to dive into channel sales, the first step is figuring out the purpose of your future sales channels.

Don’t invest time and money in channel sales without a clear directive. Otherwise, those resources will go to waste. Craft a statement of purpose for your partnerships, and make sure it aligns with your company’s overall values and goals. Once you identify your purpose, it’s easier to see what kinds of partnerships would benefit your company and which business model you should use.

Reach out if you'd like to engage in building a world class channel program for your firm. info@channelsales.ai