The preceding articles in this section applied to virtually any type of partner that a company could engage with in providing a complete solution for a customer. This article will discuss probably the most common and most important partner relationship that a company should consider. It is a partner that will provide customer contact either directly through their existing sales organization or through their well-established distribution network. The importance of scalable revenue through an efficient distribution network is discussed in the articles in Chapter Two of this series, “Revenue: The Wonder Drug” and “Distribution is the Only Thing that Matters.” After obtaining external validation that the company’s product or service is fulfilling a worthwhile need that customers are willing to pay for it now, the next challenge a company faces is to expand customer engagements. Unfortunately, the special one-on-one treatment, usually by the CEO, that found, engaged, and closed initial customers is not scalable. New methods used by others in more widespread locations are required to increase revenue to the next level.
For small companies with limited resources, pursuing initial sales in a limited area is the most efficient approach. This model is referred to as an epicenter model. After initial success has been obtained, the logical approach is to expand outward from the epicenter. It follows the stone thrown in the pond ripple effect with the pursuit of sales radiating from the initial core area. Unfortunately, many companies, after their initial success, plan to quickly expand with a national or even an international footprint. In many cases, national coverage is required if the company is targeting national or international companies that need ubiquitous solutions. Sales pursued through the Internet or other location independent channels present the same challenge unless the products or services can be totally remotely provided and supported.
For products or services that require direct, in-person customer interaction, establishing a national sales footprint is very expensive and represents a significant resource drain which takes a long time to mature and produce results. As a general rule, sales representatives need to be within driving distance of their customers. This arrangement avoids costly, last minute, airline travel. When prospects call requesting a meeting, sales reps simply will not respond by saying “I will visit you in two weeks when I can obtain a low-cost airline fare.” Instead, they will fly out the next day and spend $2,000 instead of $200 on an airline ticket. If multiple prospect visits are required, the product or service sale needs to be quite high, with excellent margins to support the associated sales travel expenses.
Another major issue that companies face when employing a new sales force is the difficulty of getting attention by knocking on the front door of prospects. The pressure on business people today is high and ever increasing. Individuals seem to be more focused on simplifying their lives rather than being exposed to new alternatives that require them to leave their comfort zones. Consequentially, a new sales rep with a new product may have an extremely difficult time reaching the proper individuals within an organization. Persistent pursuit is the only alternative. Unfortunately, it requires time and money and is, most likely, expensive and inefficient travel.
A method to determine the optimum placement of sales reps is to place them where the most likely customers for the company are located (no-duh). If the company’s customers follow population density, the National Football League city franchise model is good starting point for consideration. Some consolidation in the North East, California, and Florida can reduce the numbers to 25 of the 32 NFL franchises. It doesn’t really matter whether the final number is 20 or 30 offices. The point is that the cost of setting up offices, recruiting individuals, and supporting their activities will be very high and accrue significantly while the new team fills the sales funnel with viable local prospects. Clearly, exploring an alternative to this model should be carefully studied before committing to this expensive approach.
Webinars and video conferencing can be effective alternatives that might possibly avoid the need for direct, face-to-face prospect interaction. Unfortunately, in many cases, these online techniques are more effective in solidifying customer engagement and moving prospects through the sales process than actually closing business.
Probably the best approach to interacting with customers on a personal face-to-face basis is not to do it all! Instead, rely on other organizations that act as an independent sales channel that can represent your product or service to prospects. These partners will act as “local guides” following the concept discussed by Sun Tzu, the Chinese military strategist, circa 500 BC. In this context, the local guide concept involves individuals that are local to the target market, know the customers and, ideally, already have established relationships with them. Their local knowledge can significantly reduce the time and effort involved in customer engagement. With this arrangement, the company can focus on training the partner and arming them with their knowledge of their product or service and rely on the “local guide’s” distribution expertise.
Finding channel partners is very easy. There are many companies that have regional, national, or international presence and outstanding customer contacts that are constantly trying to expand their product offerings. Unfortunately, finding the “right” partner is very hard. The company must carefully examine the potential partner’s culture, goals, and capabilities before moving forward. Even well-intentioned partners with seemingly the right align with the company can stumble in meeting the company’s expectations. The company often is the root cause of this less than positive outcome. Many of the items listed in the article “Partnership Risks and Pitfalls” can result in channel partner failures.
In addition to the items listed in the “Risk and Pitfalls” article, a few other issues should be considered during the early stages of partner discussions. Some of them are listed below.
- Why is the potential distribution partner considering adding your new product line to their portfolio? Are their existing products losing favor with their customers for any number of reasons such as obsolescence, saturation, or competition? If so, is their interest based on “desperation” to maintain their gross revenue levels, and are they considering a relationship with you for the “right” reasons?
- How will the partner treat your product or service? Will they expect it to totally conform to their existing product standards that could even include consistent packaging, model numbering, labeling, reformatted manuals and on-screen labeling? How will their processes accommodate your product as it is, or will you have to accommodate them in such areas as previously listed as well as order processing and fulfillment?
- How obscure or transparent does the channel partner expect you to be in dealing with the customer during pre-sale, sales implementation, and during post-sale activities? If your heavy involvement is required, do the terms on the agreement provide adequate compensation for you to cover these activities?
- Although the partner may call on the same customers that you have targeted, are they calling on the appropriate groups, departments, and individuals that you are interested in?
- Do you anticipate the sales process and sales cycle for your products will be similar to those of the channel partner’s existing products? If not, setting proper expectations with the sales reps may be problematic. If, for example, they are used to selling more commodity items or selling products with one sales call, and your product requires multilevel selling over an extended period of time, sales reps may simply not be motivated or equipped to follow that model.
- Does the potential channel partner already sell similar products or services to yours? For example, if you have a software service product, and they are accustomed to selling hardware commodity products, there is a good chance that they will not be successful. It could involve the sales reps not being equipped to handle the differences, or it could be the customer’s view of the channel partner or their sales rep.
- Are you capable of providing the training and on-going support, including collateral material, proposal preparation, customer service, on-site pre-sale and post-sale support that the sales reps from the channel partner are accustomed to? If so, can you provide these services, taking into account simultaneous demand from multiple sales reps? Also, employee turnover can be an ever-present issue. You may be required to provide continuous training and support as personnel change over time.
- Will the proposed arrangement allow you to maintain some level of direct customer contact (“house accounts”) to allow you to have unimpeded access to customers to monitor trends through firsthand experience?
- Will the partner share with you their go-to-market, product support, prospect status (sales funnel), and actual sales forecasts with you regularly to help you better forecast demand, understand sales impediments, and the competitive environment?
- Do you have a sense that the channel partner is genuinely interested in driving revenue for your product or is their interest more aligned with rounding out their portfolio for appearance sake and fulfilling an occasional need?
There are two other significant factors that you need to consider. Both of them, exclusivity and business arrangements, are the subjects of separate articles in this series.
Between the “Risk and Pitfalls” article and this article, it would be easy to conclude that partnering is not worth the trouble. To the contrary, working with business partners is essential in all but the simplest businesses. By doing so, you will be able to more clearly focus on your core competencies while relying on others to do the same. The discussions in these articles are intended to better prepare you TO form partnerships, not to provide you with reasons to avoid them.