Sales Channels Equal Accelerated Growth and Greater Valuation

So Why Don’t More Startups Use Them?

I was recently reading an article on Tomasz Tunguz’s blog, “How a Merger of Salesforce and Slack Would Change the SaaS Landscape” The article is great and focuses on why Salesforce and Slack fit so well together. Tunguz feels, with the merger with Slack, Salesforce strengthens its position and will drive more users to be on Salesforce more often. On the other hand, Salesforce provides a strong sales channel to Slack that should significantly accelerate sales and revenue.

Tunguz’s evaluation is a great example, for me, of why sales channels are so critical to evaluating future revenue and greater valuation. Sales channels are an essential building block for any startup, yet many don’t spend the time needed to build them.

So, what is a sale channel?

Let’s start with what a sales channel isn’t. It’s not what I call a “simple direct sales” method. Take a look around at different startups and you’ll realize most don’t have a reliable sales channel generating and accelerating net new revenue. Most have a simple sales outlook which means they’ve hired a bunch of salespeople and have asked them to hunt for new business. This isn’t to say that these companies haven’t built processes that drive sales. It is to say that direct sales don’t accelerate revenue year over year in a predictable way. Please note, I said ACCELERATE. There’s not doubt that companies can grow via direct sales, but typically the growth isn’t predictably exponential.

What does a healthy sales channel look like? Here are some factors to consider:

1. It generates predictable and accelerated revenue growth.
2. Contractural relationships should make a sales channel sustainable over long periods of time.
3. Leadership has committed substantial resources to ensure the success of the channel
4. It includes partners, resellers or affiliates that have contracted to achieve established goals year over year.
5. There’s an important “element” in place that makes the connection between a channel, partner, reseller or affiliate natural and exponentially valuable to both parties.
6. It’s supported by a robust marketing plan.
7. It has a partner management or affiliate management team in place that understands that they are the glue between marketing and sales that ensures high levels of execution.
8. It has sales teams that support unique channels that fully understand the strategy that’s being executed.
9. Bonus: A sales channel driven by a Platform as a Service (PaaS) strategy will typically accelerate faster.

What does a health sales channel do?

1. It should show durability during down turns in the market.
2. It should accelerate revenue growth exponentially faster than other revenue segments of the business.
3. It should create stickier customers.
4. It should deliver greater value to the customer.

What does Tunguz have to say about all this? Let’s go back to “How a Merger of Salesforce and Slack Would Change the SaaS Landscape” and take a look. What are the upsides to the merger that can be informative for startups?

1. “Combining with Salesforce would enable Slack to sell through Salesforce account executives and the Salesforce channel…”: Thousands of Salesforce AE’s, customer support and solutions engineers could bring Slack to market via a sales machine Slack could never duplicate. Startups and emerging should be looking for similar opportunities.
2. “Slack + Salesforce enables superior integration of instant messaging workflows …”: For me, the key word here is integration. That’s one of the “elements” I mentioned above that brings greater value to the customer. Any startup that has a platform or portal should be looking for similar opportunities. Tunguz drives this point home by writing “imagine if Slack integrated natively into the entirety of the Salesforce ecosystem…”.
3. “AEs use Salesforce a few times per day at most – and then begrudgingly. Slack is a perpetual background process used many times per hour. “: This is perhaps, for me the most important point. Sales Channels should increase the use of the product. Imagine what increased use means to a startup’s predictable growth.

Due to all the reasons above, plus one more, sales channels multiply the value of any organization when being evaluated. What’s the plus one? Sales Channels provide the canvas that potential investors can work on top of as they evaluate additional strategies to increase output over and above what’s already been achieved.

The last question is, if all this is true, why don’t more companies have robust sales channels? In my experience there are several factors getting in the way.

The first and, maybe, the most prominent is a feeling that simple direct sales give you more control over your success than alternative sales channels. This belief is rampant among entrepreneurs and very difficult to prove false, especially in the short term.

This brings me to the second point; time. Sales channels take time to develop. It takes time to recruit good partners, solidify the relationship, train them, and activate them before revenue is generated, but it’s worth the effort. Direct sales may perform better in the short term, but not the long run.

Third, channel sales are complex. Financial resources along with supporting software, portals and platforms are vital components to the success of any channel. The effort to launch them is serious and challenging.

All of this adds up to the need for patient commitment. However, with the right strategic plan Channel Sales pay off in big way.