Nine Out of Ten Channel Partnerships Fail

In the world of B2B software everyone wants to get someone else to sell their products. If you can find another company that already has relationships with your target buyers, then you can not only lower customer acquisition costs, but also accelerate growth. While many software CEOs share this dream of leveraging external sales channels to expand distribution, very few are successful at executing successfully upon the vision.

The board meeting minutes of technology companies are filled with war stories like these:

“Big Telco (insert Verizon, Sprint, AT&T) was going to resell our product. We spent two years enabling and training them only to sell three deals.”

“Consulting Firm (insert Accenture, Capgemini, Deloitte) was going to recommend our product to their accounts. We spent three years working the relationship but never could get more than two or three partners at the firms to buy-in.”

“Mega-ISV (insert SAP, Oracle, Infor) was going to add our SKUs to their price list. We invested eighteen months in testing and certification but the deal sizes were not big enough to attract the attention of their sales team.”

The hopes and dreams of many technology CEOs have been shattered by channel relationships that sucked up lots of resources, but never delivered on the sales projections.

Channel partnerships in the area of B2B software and other complex technology solutions have a very high failure rate. I have never seen any quantitative research or studies performed. However, in my experience, for every ten partnerships you sign, you will be lucky to have one deliver any real results. Many of the partnerships start off with a blissful honeymoon period. Two executives at different companies fall in love with the idea of joining forces to attack the market with a competitive advantage. Aspirations of violating the laws of basic arithmetic abound as talks of “one plus one equals three” dominate joint go-to-market sessions. But as time goes on and few sales emerge, the partners drift apart. Few go through a formal divorce, but instead simply move on to bigger and better things. The few deals that were consummated as a result of the initial sales efforts are the only remaining long-term proof of the partnership. And in hindsight, the partnership looks more like a series of one-night stands than a serious relationship.

However, just because channel partnerships have a low probability of success does not mean that you should give up and focus on selling direct.  But to maximize your chances of success, you do need to understand the reasons why these types of partnerships fail. Many executives attribute channel failures to misaligned incentive plans and flawed compensation models in the sales organization. “It didn’t work because we didn’t double comp.” However, in my experience the root causes for channel failure are not that simple. More thoughts in a future post.

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