In a recent post, I shared that in my experience nine out of ten channel partnerships in the area of complex B2B solutions fail. The struggles are often blamed on poor execution in the field or poor alignment of compensation. However, channel partnership failures are not always the result of sales leadership or sales operations mistakes. Many channel partnerships are flawed from the start due to a lack of alignment in #1) target buyer personas, #2) average deal size, #3) distribution model, or #4) selling expectations.
#1) Target Buyer Persona Mismatch
Access to Decision Makers
Many companies do not perform the appropriate level of diligence on the types of relationships and buyer access that channel partners really offer. Executives become mesmerized with the list of accounts that a channel partner has 90% of the Fortune 500, but do not invest the time to really understand where the relationships exist.
AT&T is really strong in the US hospital sector. Our ideal customer profile is the mid-sized health care provider. Therefore we should aggressively pursue AT&T as a distribution channel into health care. Maybe. Or maybe not. It depends upon who AT&T has relationships and access to at these hospital groups. It is likely that AT&T’s sales organization is primarily selling telecommunications, security and data center services to the CIO organization. If your offering is typically sold to a line of business leader in the human resources organization then AT&T may not be a good channel for you. Just because AT&T has a relationship with Corporate IT does not mean that they will be able to get access to the human resources department.
The buyer persona mismatch occurs frequently, especially when trying to reach enterprise accounts. Large companies have tens of thousands of employees representing hundreds of buying centers and budget holders. The odds that a channel partner is talking to the same buyer you are trying to reach are low.
#2) Quota Alignment Mismatch
Deals Are Too Small
Another common mistake is the mismatch between quota targets, average selling prices and typical deal sizes. For example, suppose you are selling a software application with an average deal size of $100K. Your channel partner can offer additional value-added products and services into a bundle that grows deal size to $200K. This may be a large deal to your sales team, but that is not the relevant question in channel sales. The relevant question is whether it is a big deal to the partner. Suppose the sales representatives at the channel partner have an average quota of $3M. Why invest six months to sell a $200K deal that represents less than 10% of quota? You don’t have to be a rocket scientist to realize that such pursuits are not a good use of time.
The deal size mismatch is one of the most common mistakes I have observed in channel partnerships. Everyone wants IBM, Accenture, Capgemini and Oracle to resell their products. But the partners, managing directors and business development teams at these mega-vendors have supersized quotas. Six figure deals do not move the dial. The sales teams at these companies are “elephant hunting” for eight figure deals.
Nonetheless, there are plenty of examples of these mega-vendors do agree to resell low-ticket software applications through their distribution channels. In order to make the deal sizes larger, however, the channel partner may add $1M of their own products and services on top of your $100K software application. In these scenarios, you have lowered your cost of sale by selling through a channel, but you have increased your price by 10X. How will your win rate change when the customer is comparing a solution sold directly by your competitor for $150K to the $1M+ bundle being resold by your partner?
#3) Distribution Mismatch
Hunters versus Farmers
Just because your deals are too small to attract the attention of the field organization, does not mean all hope is lost. Most technology sales organizations these days have several different sales teams. At a minimum, most tech companies have a group of hunters and a group of farmers. The farmers might be hidden under the a larger Customer Success or Account Management organization, but they are usually there. Most companies seek channel partners with a large install base of existing accounts in their target markets. However, at many companies it is not the hunters, but the farmers that are growing these existing accounts. Farmers who typically are goaled on smaller deal upsells could be a great channel for products with a lower average deal size.
However, many companies make the mistake of starting with the hunters in the field organization. Only after struggling to achieve traction with the field organization do they pivot towards partnering with the farmers in Customer Success. By that point it may be too late. The executives at the channel partner may have lost interest after having invested time in training and enablement programs that yielded no results.
#4) Expectation Mismatch
Centralized versus De-centralized
Many channel relationships are negotiated with the product management team or partner solution organization. However, these headquarter teams rarely have control or significant influence over the field sales organization that is responsible for driving deal activity. At many large companies even the CEO doesn’t have control over the sales team. The field is where the rubber meets the road. If you don’t have the buy-in of the sales leadership then you don’t have any buy-in at all. To complicate matters further, some companies simply have decentralized sales models in which each different geographic region or vertical team operates autonomously.
Decentralized models are especially prevalent in the professional services sector. Companies such as Accenture, PwC, Deloitte, EY, KPMG, and Capgemini are highly coveted as channel partners by tech companies as the consultants in these organizations are often very influential in software vendor selection. However, these large professional services organizations have historically run very decentralized go-to-market models. One sales leader I worked with described one of these firms as “the land of a thousand princes.” If you secure the buy-in from a partner in Accenture’s energy practice, that only means you have agreed to go to market in targeting oil and gas companies in the greater Houston area. It does not mean that the Consumer Products division has any interest in pursuing joint sales in Chicago, Milwaukee or Cincinnati. Nor does it mean that the Media and Entertainment practice at Accenture will have any interest in reselling your solution into the New York or LA.