Distributors & Channels - Part I - Finding The Right Ones

This is the story of a sales channel located in Asia.

My employer signed them up after they promised huge sales in exchange for minimal time and effort. Active they indeed were, but sales were nonexistent. When asked what was going on, they would lash out and explain to my employer that they were successful despite evidence of the opposite and that as a foreigner my (future) boss did not understand their country.

That particular agent got terminated before I started my new position. But the damage was done – in my employer's eyes, Asia-Pacific was a limited, demanding market. And limited expectations meant limited investments and budgets.

I had my work cut out for me. I had to show results before hiring local teams. I was remote so using channels still made sense. But I had to make them work out.

Fortunately, I did. 

Here are the lessons I learned along the way, starting with how to pick channels susceptible to help you build up sales quickly.

Channels are not born equal.

There is a wide variety of organizations that claim the ability to resell software solutions. They all have in common that they get paid commissions on sales, usually by being granted a discount off the price list. 

In Software, we can break them down in roughly four categories:

• Sales Agents: they are often smaller organizations that specialize in a specific segment of the market. They have a Rolodex of clients where they regularly sell. Their technical expertise is usually limited.
• Added-Value Resellers: they are similar to Sales Agents, but they usually possess broader technical know-how. They can learn how to sell the tool effectively, inclusive of presales proof of concepts, but first level support would still need to be delivered by the principal (that is, your organization).
• Distributors: they often bill themselves as a full-fledged sales and marketing house to your organization. They would participate in local trade shows and seminars – they may even also organize private events. And they can offer first-line support for your software (after being trained, of course).

It is important to gauge correctly which category a wannabe channel falls as it should inform our expectations regarding the relationship and the discount that is to be granted to the channel. Some organizations may try to overstate their true abilities and thus create unrealistic expectations in the process.

Beyond financial considerations.

Size and financial incentives should not be your only factors when considering a new channel. Market access plays an important role. You may sign up the most fantastic distributor, but if their contacts are mostly in companies where your solutions are not easy to sell, sales will be meager until you come up with a way to sell into their sweet spot.

Likewise, does their existing offering catalog include complementary solutions to your own? If so, it may allow them to successfully upsell existing clients - a very potent strategy. Conversely, the presence of competitive tools may become a drag on sales, especially if these solutions are easier to sell then your own.

Jack of all trades, master of none.

The internal organizational structure of a prospective distributor is also crucial. Are sales personnel being asked to focus on specific clients or specific products? If it is the former and your solution is not the easiest sell in their catalog, then sales reps will act rationally and favor other solutions to fulfill and exceed their quota. 

In my experience, a sales team dedicated to your solution or a handful of non-competitive (and ideally complementary) solutions works best. This is because the personal interests of local salespeople are naturally with yours. If they win, you win.

Finally, attitude is a critical indicator of future performance. Pay close attention to what a wannabe channel says. They will try to sell you on a relationship – that is to be expected. But beware if they make bold statements about quickly building up sales to stratospheric levels. Truth is, sales and marketing take time, and clients rarely “just buy” from “friends”. 

Exclusivity is a double-edged sword.

One consideration that can come up during your negotiations is the issue of exclusivity. Essentially, an exclusive distributor has the exclusive right to sell your products and services in a given territory. Your counterpart will often point out that is the best way to “maintain harmony” in the market. 

In my experience, exclusive channel relationships can be successful – but only when the organization you entrust with that valuable tool does what it takes to justify that trust. And they should do so quickly. 

One of my star distributors did precisely that: they quickly introduced us to many accounts in different industries, worked closely with us to close a few initial sales, immediately engaged in extensive marketing of our solutions, and more. In short, did everything they could to establish a sustainable pipeline.

Is anyone surprised they turned out to become our leading reseller worldwide?

Fat cats lack appetite.

On the other hand, when I joined that position, my employer was signing up a very promising distributor. On paper, they indeed were – after all, they already made a complementary product wildly successful locally.

Unfortunately, they proved to be a disappointment. First, their engineers listed all the reasons why a solution like ours would never work in their market. Worse, they sometimes stated they would not or should not try to sell them until we fixed our tool. They were complacent – the lack of sales was our own problem, not a shared issue. 

We ended up terminating them. 

Later, when we appointed someone – a direct employee - who actually spent time building the market up, we started increasing revenues. The difference? He had a sense of urgency.

Found your pearl? Time to set them up for success!

Identifying channels and choosing the optimal strategy between exclusive and non-exclusive was only the beginning. Next came how to ensure these new channels would perform admirably. Should I allow multiple channels to operate in a single market? How should I incentivize them? All excellent questions - which I will attempt to address in my next opus.

In the meantime, your comments (and likes!) are very much appreciated.

This article is part of a series of articles on international sales in the Software and High-Tech industries. Next: Distributors & Sales Agents Part II - Managing Them Effectively Previous: Adapting Global Strategies To Local Markets In The Software Industry