Direct sales or Channel or Distributor?

We have the pleasure of being involved in the early stages of many fascinating start-ups in the tech space. At some point in the journey the question comes up about direct sales vs channel/partner sales vs distributor.

Each business should have the conversation about the different sales strategies to extend reach and drive revenue. Each approach has its unique advantages and considerations, making the choice a crucial strategic decision for companies in the early stages of development. And it might change over time as you scale up and mature. Let’s explore the distinctions between these three approaches and discuss when they might be the best fit for your products or services.

Direct Sales: Total Control and Customer Engagement

Direct sales does not require explaining. Here are key aspects to consider:

Complete Control: With direct sales, you have full control over the sales process, customer interactions, and branding.

Customer Engagement: Direct sales enable you to build strong relationships with customers and gain valuable feedback. It may, however, be hard to get direct access to your target customers.

Finding the right people: We see many start-ups get into a hire and fire cycle with sales reps.  You need a great sales framework for them to be successful, you need to find the right reps for your business and we recommend using a specialist to source the right talent (tip - they are not looking on Seek or LinkedIn for a job).

Product Expertise: Your sales team should be experts in your solution, capable of direct customer engagement and fully understand the value it provides.

Margins: Since there are no intermediaries, direct sales often deliver higher margins.

Sales maturity: Direct sales requires a reasonable level of maturity in your sales framework.  You should have a sales framework that includes a sales process focussed on the buyer, and sales methodology to properly qualify opportunities and an approach to managing your direct sales team.  Don't hire and leave them to float or drown.

Sales Channel Partners: Strategic Alliances, Market Expertise and Expanded Reach

Sales channel partners are companies where their interests align with your products or services. Managing a sales channel partner involves forming strategic alliances with organisations that have complementary offerings, target markets, or expertise. Here are some key aspects to consider:

Mutual Goals: Sales channel partners share your objectives and are deeply invested in your solution’s success. Walk away if this is not the case.

Knowledge Transfer: Partners require in-depth knowledge about your solution, necessitating training and continuous communication.  Some sales support is also required in most cases.

Joint Marketing: Collaborative marketing efforts help promote your technology within the partner's customer base.

Strategic Alignment: Partnerships can be highly strategic, tailored to specific geographies, markets or verticals.

Margins: Profit margins are lower with a Channel Partner as they need to have sufficient margin to warrant their investment.

Sales maturity: Managing a channel partner will be better if you have a level of maturity in your approach to sales. A lack of maturity can lead to the channel partner “pulling the wool over your eyes”. You should be able to talk to the partner about the buyer's journey on your solution and help them qualify deals, especially if they rely on you for demos (you don’t want to demo to everyone). You also need to manage forecast deals from the channel partner for your supply chain and cashflow.

Distributors: Handling Complex Markets and Simplifying Logistics

Distributors are companies that (typically) purchase your products in bulk and resell them to their own customers, often in various geographical areas. Managing a distributor relationship entails a different set of considerations:

Scale and Reach: Distributors can help your technology reach a broader audience by tapping into their established networks and logistics.

Simplified Transactions: Distributors handle many logistics aspects, including order processing, warehousing, and sometimes even customer support.

Margin Considerations: Distributors typically purchase products at a significant discount, impacting profit margins.

Brand Control: You may have less direct control over branding, marketing, and customer interaction through distributors.

Sales maturity: This can be low with a distributor as you are effectively outsourcing sales and marketing to them in their territories. A mature “distie” will take input from you but they are mostly about driving your product into their network and customer base.

Choosing the Right Strategy for Your Technology Company

Deciding between direct sales, channel partners, and distributors requires a thorough understanding of your technology, target market, and strategic goals. Consider:

Product Complexity: Complex technologies might benefit from direct sales or sales channel partners who can provide in-depth support and education to customers.  This is further enhanced if there is a considerable services component to a technology product installation or implementation. Simpler products may be easier to sell through a distributor.

Physical Product: If your product has a physical component, a distributor’s logistics capabilities will be an advantage, especially in other geographies.

Geographical Scope: If you need to quickly penetrate multiple regions or countries, a channel partner’s or distributor’s footprint can be advantageous.  Hiring into multiple geographies quickly with a direct sales team can be a challenge.

Brand Control: If maintaining strict control over branding, marketing, and customer interaction is crucial, direct sales may be preferable.

Market Expertise: Evaluate whether your partner or distributor has the expertise and experience to effectively represent your technology in their respective markets (often more complex markets for you).

Ultimately, the choice between direct sales, channel partners or distributors depends on your specific product, market, and strategic objectives. Each approach offers its own set of advantages and trade-offs, and a well-considered sales strategy can be a significant asset in accelerating your solution’s success in the market. . A combination may also work for you, eg direct sales in your home country, channel sales in similar countries (eg same language) and a distributor for completely different countries (eg a different language, different business laws).

No matter the choice, you still need a sales framework to drive consistent results.