Channels give companies a way to leverage their existing skills while they quickly and flexibly access the capabilities of others. They often involve less capital commitment and risk than do acquisitions. This is a big advantage when developing new markets in which a company’s management capabilities are unproved. As a result, channels are generally a preferred vehicle for building a new business. Unfortunately, there is a high failure rate in channel performance and management often does not really know where problems lie or how to fix them.
What is the Channel Gap?
The Channel Gap is the divide between low performing channels and the potential net new revenue that a well formed channel partnership can generate. On one side of the gap is a technology company’s desire to efficiently and rapidly penetrate new markets, to drive sales and to lock up key channel partners. On the other side of the gap is the channel’s desire to take orders, minimize its cost of sale, and avoid cannibalization by the vendor.
The Channel Gap remains a barrier until the two sides can be bridged by creating an optimal economic model, a “joint venture” partnership framework, and the maximum value being delivered to the right target market. All of which will give the partnership an extreme competitive advantage to rapidly capture market share.
What causes poor channel performance?
• Economic models are in conflict
The economic models that drive technology companies and channels to form partnerships are inherently in conflict with each other. Left unaddressed, these differences will automatically cause poor channel performance.
• Channel development timing is wrong
Technology companies choose to develop channel partners at the wrong time in the sales lifecycle of its offering. If tech companies are late to adopt channels, they run into channel lock‐up, where the best channels partners have adopted competitive solutions.
• Lack of a blended direct/indirect strategy
Technology companies arbitrarily apply their direct sales strategy to their channel strategy. When a direct sales strategy is applied to a channel, it results in a lack of cooperation between the direct sales force and the channel, channels competing against each other, and commoditization of the technology product.
• The numbers game – more is not better
When developing channel partnerships, technology companies traditionally default to a volume strategy and rush to sign up as many channels as possible. The hope is to make incremental gains, but this approach spreads the channel support budget too thin, ultimately decreasing ROI.
• Lack of a joint venture-like relationship
Failing to address what each companies’ resources are and how they will be brought to bear will lead to poor channel performance.
In today’s economy, channels are the preferred vehicle for new business development. Most organization’s channels, however, are not optimized due to the problematic effects of the channel gap. Stay tuned for our next entry to learn about bridging this channel gap.