There are many approaches to B2B sales, but in general the two biggest will be “direct sales” — where you sell directly to the end customer/client — and “channel sales” (also called “indirect sales”), where you use resellers (VAR) or any other third parties (system integrators).
A lot of times in a new entry B2B situation, business owners think resellers are the right way to go. The thing is: resellers don’t actually solve your initial sales challenges. Here’s why.
What makes them believe that channel sales is the right approach? They can provide you a much larger reach, right? Especially if you don’t know the market as well? And with resellers or channel sales, you don’t need to struggle with market differences and local talent acquisition. Your upfront costs will be less than building out a direct sales team. So far, all of this seems logical.
Problems with resellers / channel sales
There are four main problems. I’ll break them quickly:
- Complexity: Resellers and channel sales approaches work best in high-volume, low-margin business models. Vice versa? They usually fail. High touch, complex and consultative selling is typically against their business model.
- Homophily: Homophily is a business concept you’ve probably seen — it’s when people stay within and only focus on what they already know. This is a big problem with resellers. They stay within their own verticals. I’ve been in sales for decades and I’ve rarely seen resellers reach out to new verticals, industries, or territories.
- Business Plan: If you have investors or stakeholders, they will want a realistic business plan. This is much harder with channel sales and resellers because the base commitment isn’t there.
- Risk aversion: To a certain extent, we’re all risk-averse — but resellers are absolutely risk-averse. It’s hard to land big fish or chase big revenue if you’re entirely risk-averse, and that’s a problem you encounter in channel sales. Resellers are like the guys in this study on risk: they basically need a 200 percent assurance that there’s a light at the end of the tunnel before they will go all-in for you.
So how do you overcome the problems with resellers?
If you’re entering a new market at low-volume, high-margin on the B2B side, you need to begin with direct sales. It will cost a bit more and have a longer runway to ramp up, yes. That is true. But, you can use outsourcing — basically partner with a local expansion expert to help you scale up around cultural differences and talent acquisition. (That’s what we do.) The goal is to get direct feedback from the market and to learn quickly, better understand your product’s fit with the market, more closely align value proposition, and get 4-5 reference sales under your belt.
At that point, it’s potentially safe to consider resellers or channel partners. And exactly these 4-5 reference sales are the 200 percent assurance a reseller is looking for before he starts to invest.
What else have you seen about channel sales and/or resellers of note?