So you're a cleantech entrepreneur, and you've developed a system that lots of potential customers should buy. The economics work; the system (whether hardware, software or whatever) works; it's ready to go.
But you're a small startup. You have only a couple of folks who do sales-type activities, one of whom is the CEO. And you want to be able to sell a lot of these systems quickly, but you simply don't have the capabilities to do that by yourself.
And so, like many other B2B and B2C startups in the cleantech sector, you turn to an indirect selling strategy. That means relying on channel partners: distributors, sales reps, service providers, VARs, integrators and contractors.
After all, these established players already have customer relationships, they already have the feet out on the street, and they already have a track record of selling things. It's often the logical choice, versus the alternative of raising a ton of capital to support ramping up a big direct sales force, if that's even an option for you.
And yet, in more than a decade of investing in such startups, I've seen these efforts fail way more often than succeed. The effort is launched, the channels are identified and signed up, pipelines are discussed in several board meetings, and it starts to feel like it's just a matter of time until a nice inflection point is reached. But only months later, the CEO/Admiral Ackbar suddenly alerts everyone that the startup is in danger.
To pull off successfully selling an innovative new system through existing channels entails a lot of risks and difficult details that many entrepreneurs either aren't aware of until they're already in the thick of it, or which are simply too hard to crack even with advanced warning.
How do many of these efforts fail?
- Neither the startup nor the channel partners really know how to sell the system. If it's truly an innovative system, it often doesn't fit existing sales narratives. Is it a total-cost-of-ownership sale, or a savings-from-day-one sale, or a sale around some other type of benefit? Is it clear what the very best applications for it are? Will it be annoying to implement? Do you know exactly which people at the customer organization to target? Do you even know how best to describe the system? Too often, the startups expect the channels to figure all this out for them. Trust me on this: they won't.
- Do you have the right incentives in place for the channel's sales force? Too often, the startups and management at the channel partners work hard on corporate-level economics to create what appears to be a win-win, and yet for the actual salespeople who are supposed to sell the system, they look at their structure and/or incentives and prefer to sell other items on the line card.
- Do you know how to manage conflicts within your channel partners? Often, the channel partner is a business unit within a bigger company, with other business units that could be perceived as being in conflict, which can make things difficult. Or in an even more common scenario, you sign up multiple channel partners and discover that you have to spend more time refereeing who gets what in terms of sales opportunities (because of geographic overlap, etc.), rather than actually booking sales.
- Who's going to actually take on the risk? This is a new system that hasn't been sold before. The startup probably doesn't have a lot of cash, so it needs revenues as quickly as possible. But the channel partners don't want to pay upfront in any significant way themselves, until they know there will actually be sales volumes. Often there ends up being a "false dawn" for the startup, where it sells a few systems to channel partners to give them some initial inventory, and that fools the startup team into thinking they're headed for a big sales ramp-up, but then those initial systems (whether hardware or software licenses) don't actually move. And so that early revenue becomes the only revenue.
- How can you accurately track your sales pipeline when you're dependent upon asking channel partners to let you know what they're trying to sell and to whom, if even that? How do you know they're being accurate (and trust me on this: they're not). And without having an accurate understanding of the pipeline, how do you know how to plan your own capital needs and financials? Or even just whether the dogs out there are actually eating the dog food?
- How can you plan how many and what type of resources you're going to need to devote to this effort? Even if you're selling indirectly, you still need to manage a sales team to do that, and you'll often also need to devote some technical resources to support in some form as well.
And there are more risks to think through, as well. I've seen many startups celebrate signing up a key channel partner as if that's the successful end of a major effort, but in truth, that effort is just beginning.
As a sector, we need more success stories. So it's kind of painful to look back on all the impressive systems I've seen introduced to the market which have then fallen flat, not because of a failure of the innovation itself, but simply because of a failure to sell it. In this industry, the failure rate of these exercises is simply too high -- it must be fixed.
So here are some thoughts, for what they're worth, for any entrepreneur getting ready to tackle an indirect sales effort in our markets.
Start out by doing direct sales
This will cost you a few months or more versus what you hoped for in terms of sales ramp-up, but it's worth it. First of all, you learn for yourself how to sell the system. This is invaluable feedback that you just can't get through your channels.
Second, when you show you can win a few lucrative accounts, that will encourage better channel partners to work with you and motivate their salespeople.
And third, you were probably fooling yourself with your hopes for a sales ramp-up anyway, without having these learnings in hand, so it's really not that much of an opportunity cost in the end.
Don't assume your channel partners are competent
I mean this in the kindest way possible: existing channels in our markets suck at selling things for startups. Often, it's not their fault -- there's a mismatch of what the startup is trying to sell and what the salespeople in the channel have sold for their entire careers to date.
But to be honest, often it's just simply a dearth of sales 101 skills. I've been shocked to see how lackadaisical many salespeople are in these channels: a consultative sales models where they forget to consult; outbound proposals that aren't followed up on; sales efforts that are allowed to drift for months with no close in sight.
There are obviously major exceptions to this pattern. Some of the startups I've worked with have been able to work with some really energized and knowledgeable channel partners. But you can't just assume that will be the case. So find sales enablement tools (my portfolio company Noesis has put up a few webinars on this topic that I think are helpful) and arm your channel partners with them. If they need help, give it to them with things like easy financing options, easy proposal creation, and so forth.
Set them up to have everything they need to succeed. And then triage the heck out of your set of channel partners, focusing your efforts only on those who show they truly can and will sell.
Make sure you're targeting the right type of channel partner
It's not just as simple as finding people who sell things to your ideal customers. That's a good start, but do they actually sell analogous things? Do they have the right knowledge to sell your value proposition?
One of our other portfolio companies, for instance, struggled for too long with a set of channel partners that seemed like obvious choices, only to discover too late that those partners actually didn't have the necessary knowledge of energy to complement their other technical skills and successfully sell an energy-related technology solution. And so sales just didn't happen, even with obvious customer ROIs.
Reward and highlight early leaders in your channel set
Here's a basic rule of thumb: salespeople don't sell whatever makes money; they sell whatever is the easiest way to make money. So it's great to take some early successes and use them as case studies to broadcast to the rest of your channel set. It's a nice recognition for those early awesome leaders. But it's also a way to show everyone else you can make money quickly. And pick the brains of those early leaders to figure out what would make it even easier for them to sell the system.
Force one single sales process
This is difficult -- you're the fledgling startup, they're the experienced market veterans, and they know how to sell stuff their way. But if you don't tightly control the messaging and positioning, the way pipelines are reported and tracked, and the way systems are sold and implemented, you're never going to get to any kind of predictable and repeatable sales process.
I've seen examples where even within a startup sales force, they end up with multiple ways of selling systems, as each salesperson evolves in his or her own way. That causes chaos by itself -- imagine what it's like to have that same dynamic across a wide range of channel partners. There will be grumbling, and it may mean having to de-select some channel partners who simply can't handle it. But once you know how to sell and track your system (see point #1), drive that as a very consistent process across all channel partners.
Be quick to realize what makes your system hard to sell
Few people actually will give honest feedback on this, and they might not even recognize it themselves, so you have to work hard at figuring it out. I guarantee you there is some aspect of your system that makes it unanticipatedly difficult to sell -- a kludgy installation, a mixed message, a multi-stakeholder sale, something.
It could be a core challenge or just an ancillary issue, but either way, it halts sales in their tracks. In many cases, this ends up being a very difficult problem to solve. But if you don't recognize it and then devote yourself to solving it, your sales will not ramp up. Period.
I have a dream that some day the channels in energy, lighting, controls and water will look a lot more like channels in other innovation-embracing technology sectors, where the path to indirect sales ramp-up for a startup is very clear and well-worn. But we're far from that today.
Knowing how to navigate this gap is a key success factor for cleantech startups, so hopefully these thoughts will help. At the very least, plan your ramp-up capital needs pragmatically.