Channels have long been a staple of software sales.  To meet the global and industry specific needs, software companies have relied on channels to reach the elusive customers.

As luck would have it, I was involved in two instances, last week, where a channel strategy was being adopted as a predominant sales strategy, albeit in completely different markets. Both companies however, were similar in that they were selling enterprise software and were in the early stages. While I had my thoughts on the rights and wrongs of going the channel route, I decided to reach out to a few in the know. They had confronted this challenge and made decisions one way or the other.

So based on all the discussions here goes, the Pros and Cons of going with a channel strategy for a software company, especially in the early days

Pros 

1. Channels (VARs or Partners) are already entrenched in the customer base you want to sell into. They have established relationships that will give them easy access to the decision makers. So there might be some quick wins to be had.
2. The Channel is expected to bring in the much needed industry vertical experience after having been on the ground and have a good understanding of the inner workings of a prototypical company in the industry. This can serve as a good reference point as you develop the early base product. Maybe even the product roadmap down the road.
3. Early stage companies are long on vision/ideas and short on budget. And very short on sales expertise. So Channels can present a way to get some traction without having to invest heavily into a salesforce.
4. Channels can augment the salesforce even in the latter stage of a company in geographies and micro-verticals where the company does not have a presence or want to venture into.

Cons

1. Early stage software companies are fluid in their very nature. The product, people and the marketing goes through a lot of churn in the early stages as the company tries to find a viable business model, product resonance and in one word raison d’etre. At this stage getting unfiltered feedback from the target customers is critical in establishing the value proposition. Having a Channel partner as an intermediary becomes an unnecessary nuisance at this stage.
2. The logic that Channel Partners, with their “deep domain expertise”, will become the sounding board for your product roadmap is a flawed thought. The deep domain expertise is subjective based on what they offer in terms of service. Call me cynical, but when it comes to building a product, that at its very core might one day challenge their sweet spot (of providing last-mile services) will be viewed as a threat. Why would they then be completely behind improving such a product?
3. The incentives of a channel partner and the software are not always aligned. They will never be in most cases. Having two partners who need different things out of a particular deal will mean the product will have two masters. The product team has to tread the line where they leave enough for the Channel Partner (like a System Integrator) to add their value (read services). This goes against the whole expectation in the new world of software. Gone are those days when a prolonged implementation cycle preceded a software delivering true value. Software-as-a-Service has firmly ended that gravy train.
4. Pricing/Revenue forecast is going to be a challenge given that you are relying on a third party to meet its commitment. Ideally, a company would like to have partners guarantee or agree to certain performance numbers. But given the desperation of a early company, I am not sure you will have much leverage with partners. You just want to move the needle.

Channel Partners come in variety of ways – VARs, Solution Partners and System Integration Partners. The virtues of  partnering with Solution Partners whose solution might complement yours and be a net additive in terms of value to the customers is very clear and smart. I think having VARs and System Integration Partners early on creates a self-inflicted isolation from customer interactions, that is not good for the company. So if/when possible focus on establishing a clear resonance in the market place before you start bring VARs, System Integrators into the discussion.

About Subraya Mallya

Subraya Mallya is a technology executive, entrepreneur involved in conceiving, building software businesses. In this blog, he focusses on business and technology strategies around Business Model, Product Development and Marketing. Connect with me on Twitter - @subrayamallya