Paul Melchiorre: When to Prioritize a Channel Partner Sales Model

Pictured: Paul Melchiorre, SAB Member at Volition Capital

Over the years, I have received countless questions on best practices in sales and go-to-market strategy. Today, I wanted to spend some time answering one of the most important ones that I feel is particularly pressing in the current macro-economic landscape: When does it make sense to build an internal sales operation versus leveraging a channel partner model?

Particularly, this is a question I am being asked frequently now. If you are stressing over this question, you are not alone. Companies are feeling the pressure to not only grow but grow fast. In a macro-economic environment like this, sales are needed earlier to drive towards profitability faster and increase your chances to raise capital if necessary. In a higher interest rate environment, you will be hard-pressed to raise multiple meaningful rounds of capital without promising revenue matching your burn rate.

Feeling this pressure, many founders who are prioritizing building a direct sales model earlier, have underestimated just how hard it is to do. The infrastructure of a strong sales organization cannot just be built with the snap of a finger. You have to hire sales leaders, the right SDRs, train them, there is a ramp-up period, and there will also be turnover too. Also, there is no guarantee that the professionals you hire – at each level – are the right hires and will hit their quotas consistently. These challenges are only further exacerbated when looking at the enterprise sales space. 

In an effort to circumvent some of these challenges, a great strategy can be to work with channel partners to create a sell-with, sell-through, or an embed model. Especially at the enterprise stage, being part of a channel partner program with a large enterprise can give you access to sizable contracts that you otherwise would not have had access to as a smaller, yet rapidly growing company. These enterprises have been selling consistently to companies for 20+ years and there is a brand name and reliability that will be hard to replicate on your own.

At the surface, there will appear to be a “downside” to using a channel sales model by having to give up 20-30% of your margin to the partner. However, there are a couple questions you should ask yourself when worrying about this tradeoff. 

One, as I mentioned a moment ago, would you even have had access to these deals in the first place if it wasn’t for the channel partner? Two, what other areas are you saving meaningful costs in by pursuing the channel model? You will likely be saving a sizable chunk of change when it comes to hiring/paying FTEs as well as spending less on marketing. Additionally, you can also save meaningful time and money on the implementation and support of your product by having your channel partner lead these efforts. As I like to say, always remember to think about the entire picture.

Arguably, the most logical area to pursue a channel partner sales model is when looking at the international markets. For many companies, it does not make sense to try and learn a new market and establish operations in regions like Latin America, Middle East, Japan, etc. Finding a great partner to work with to either JV or form a partnership with can be a great way to bring in additional revenue without driving up costs and losing focus.

One last thing that I wanted to touch on today is how can you identify the right channel partner. Off the bat, ask yourself where the alignment is between what you are doing and what the channel partners are doing. Yes, there can be benefit to you being another one of 5,000 vendors on a given platform from a revenue perspective. 

However, the best channel partnerships come from when both companies identify a strong overlap and value add for each other and build off of this to become a preferred, differentiated resource. This is where the real magic can happen. Like any area in life, most one-sided relationships do not end well and it is important to make sure that is not the case with your channel partner. 

Finally, you should avoid “press release relationships” where there is no tangible benefit operationally, but rather just a marketing win. Of course, they do not cost you anything but there is no value. Always drive your sales organization towards the north star which is sales and revenue.

For companies at earlier stages of growing their business, these concepts might not yet sound relevant. In some ways this is true as the most successful businesses often times find themselves growing through a founder led sales model. However, in these earlier stages, a founder should be keeping a keen eye on what market procedures are working, what policies are working, what enablement capabilities are working, etc. so when it is time to work with a direct channel partner, your product is ready to roll. To put it clearly, you should be thinking about channel sales partnerships from day one as it will be a critical component to ultimately becoming the scaled company you want to be.

 -Paul Melchiorre

Do you want to connect with Paul Melchiorre? Check out his Linkedin profile here.