We’re arguing here that your channel partner strategy plan needs to be based on what your buyers need, not on what you need. What type of channel your buyers need, and how many channel sales people you need to provide to meet that need, changes as the market matures.
We’ll show you how to work out your channel partner strategy plan based on what your buyers need, and how many sales people you need, in this week’s show.
So we’ve talked quite a lot recently around market maturity and we’ve used Geoffrey Moore’s Chasm Theory. And we’ve used that as a framework for explaining that as the market matures and as their attitude towards buying a certain product or service changes and evolves, what they need or in fact more importantly, I should say earlier, they’re all important, the first question for us to ask as marketers is what kind of buyer is ready to buy this product or service right now. And that’s what changes. All the other questions that I’ll come to channel, change is a consequence of that. But let me go back to underscore that again.
In a very, very early stage of a market, the only buyers willing to buy at that point are those who are willing to take a risk in order for some early return. Then the next group of buyers are those who are looking to buy or ready to buy but only if the solution really looked perfect for companies like them, and then everybody is willing to buy. And when everybody is willing to buy it’s a kind of a little bit off course, a bit ho-hum, then the market starts to decline and only some new uses and some new users will save us from a rapid decline.
Now, if that’s who’s buying, what they need also changes over time. We’ve already covered that. What I want to cover today is who they need to buy from because that too changes over time.
So let’s take a look at what the buyers need. The very earliest buyers, the early adopters, they want to innovate. They’re looking to use your product or service to create some advantage. So they want to be as close to the point of innovation as they possibly can and that normally means buying directly from the innovator. Now, if it’s your innovation, well and good they should be buying from your directly. If you’re a reseller of somebody else’s innovation, think carefully about whether this is the time in the market that you should be putting your efforts in. Often it’s not. The early adopter wants to buy from the innovator themselves. And frankly, the innovator wants that too. The innovator actually wants to be selling directly because they can hear all the feedback. Now, the next group of buyers here in ‘Bowling Alley’ are slightly more pragmatic. They want to see buyers just like them who’ve already used the product or service. They want trust and they want confidence and that still comes from buying directly, typically not through the channel. Now if you can give them enough trust selling through a channel, you might consider it, but default setting: you’re still selling directly. It’s also a bit too early if a channel doesn’t want to get involved. Third party resellers typically want to be involved when the market is growing at it’s greatest and it’s not yet. So don’t expect a channel to do spade work for you. You should do it.
Now, as you move into ‘Tornado’, that’s the phase when buyers know they need to buy a product or service like this, it’s a question of whose do they buy. And now, they probably actually want to buy from a multi-product channel. They’d prefer to buy from a company that can give them your product maybe even a competitive product side-by-side, but certainly your product and all the other things necessary to make a complete solution. So whether it’s tied to pendent resellers, or multi-product resellers, you can work that one through. But certainly what your buyers need is convenience, and often that means being able to look at alternative products. Now’s the time you should be selling through a channel. What your buyers need in ‘Main Street’: With ‘Main Street’ kind of everybody has bought once or twice and they’re buying again, typically in B2B. And in ‘Main Street’, it’s now what we call the infrastructure buyer who is doing the buying. It’s I.T. It’s not the end-user department. Or it’s Finance, not the end-user department. Sometimes it’s even procurement, but again it’s not of the end-user department, as maybe it was earlier.
But if they want to buy, well if they’re a big buyer, they want to be buying from you, the vendor, directly. So we’ve actually gone from being deliberately direct, probably direct, deliberately through a third-party channel and now to Main Street. Again, for the big buyers, direct. What about small buyers? Well, they’d like to buy directly as well, but really, what do they care about? They care about buying from the easiest channel and as margins have started to decline, you need it to be a low friction channel. What does that really mean? We’ll come to that. But we’ll focus on the buyer for the moment. It means they wanted to buy the way they wanted to buy. In ‘Main Street’, they’re going to dictate terms. The big buyer is going to insist on buying from you directly and the small buyer wants it to be super convenient. Now as we decline, we’ve got two types of buyer: we’ve got the laggards who are finally coming on board and they really don’t get to dictate state of play because the market’s in decline and you have to be really careful about your channel strategy. But, if you’ve ridden that wave of hyper-growth really well and you are the gorilla in the market, you probably want to slow the decline down. You’re now selling new uses and new users of your product or service. What does that buyer need? It’s like the early adopter in the very first wave of the market. They need to be buying from the innovator, whoever that is. That might be the vendor; it might actually be a really clever channel who’s built a new solution based on the product. Whoever is innovating for that new use or new user, that’s who they want to buy from.
The second part of our thinking here needs to be about capacity. How much sales channel do we need, direct or indirect? I want to give you two concepts that we need to somehow reconcile. The first one is how much capacity do we need? The demand side of this is how many buyers going through each stage in the journey and how many meetings will it require to get them through each stage? Multiply the number of buyers by the number of meetings. Add the product of all of those rows together and what that’s going to give you is the number of meetings that you need for each period. That’s the demand side. Now let’s look at the supply side, and that is what kind of sales capacity do we have. That’s the product of two factors.
First one is how many reps do we have? Now if you’re going through a third party channel don’t say, “Look, I’ve got 10 resellers and I’ve got 3 reps each therefore 30.” Because if they’re selling your product and ten others, you might have 5% or 10% of their time. So be very careful about considering how much selling capacity you really have. Again, I’ll stick with a third party channel example, if you added the amount of time that you get from each of the reps across each of your resellers, that’s your capacity. It might add up to two or three full time equivalents across 30 reps. And that is the equivalent of having two or three full-timers that’s spread across 30 who sell multiple things. Careful. That’s your number of reps. If it’s direct it’s easy. How many sales people do you have? But if you’re a small business and as directors of the business you are selling, be careful not to count yourself as one, because you probably also do payroll, product development, admin, put the rubbish out. I know how that feels. So it’s not all of you. I might spend maybe 25% of my time selling. So I only counted 0.25 of a full time equivalent. Full-time sales person might be one then another director who maybe spends 50% of his time might be 0.5. Therefore, 0.5 of the other director, one full time rep and 0.25 of me would make 1.75 full time equivalents.
Now, for each FTE, how many meetings can we conduct in a given week? Now, remember that you’ve got holidays to allow for. You’ve got sick leave to allow for. You’ve got public holidays to allow for. You’ve got training time. You’ve got admin time. So be realistic. My starting assumption is normally five. The average FTE in complex B2B can handle five meetings per week. Now, you might have a model that can handle more, or that can handle fewer. Think about starting with five. How many FTEs x how many meetings per week and that’s now your inventory. Your utilization therefore is a function of your inventory compared with your demand. If you are sitting at 50% utilization, what that says is that either you can handle twice as much market or half as many reps. If your capacity or your utilization is sitting at 200%, that means you either need twice as many reps or half as many buyers going through the funnel. But there’re some variations on that. Let’s stick with the 200% example, what if we can actually increase the number of meetings that our reps can have by adding inside sales and some sort of sales support function, could that get our number of meetings up? Equally, number of meetings consumed can we actually get that down by asking marketing to step up to the plate and take more of the responsibility to move buyers through those early stages in the funnel and expect sales to do a little less. Now, I would argue that’s the side of a modern marketing function. One that successfully helps sales people to get involved a little later in the sale, and does the early work on their behalf.
Lots of things to think about as you contemplate what sort of channel and how much you need.
Shortly we’ll show you how to do this in Funnel Plan. But before that, we’re going to do two things. Share with you our conclusions and invite you to receive other blogs like this. Let’s get to the conclusion first.
Getting concrete about what we actually need. If you think that your market is at the early stage of its maturity, you’ve only got early adopters willing to buy at this point, you want to be selling directly. If you’re the innovator, sell directly. Collaborate with your customers. In ‘Bowling Alley’, they’re looking for trust. You probably want to keep going directly unless you’ve got a really industry knowledgeable partner who can step up. Once you’re in ‘Tornado’ phase, you pretty much want as many arms and legs as you can get. So you are going to be selling through a reseller channel in a large part of this time and quite frankly, that’s what your customers want anyway. In ‘Main Street’, for your largest customers they’re going to insist on you selling directly, so accommodate that. And your smallest customers, you need a mass channel. That might be web, that might be telesales. It could be stores. Think about mobile phones, these days small businesses have to get their mobile phones from the local store that also sells to the consumer market. Why? Because we’re unwilling to pay $200 a month for mobile phones. At the prices we are willing to pay the vendors have no choice but to sell through a store location and therefore as buyers, we have no choice but to buy through that location. It becomes a function of economics at this point.
As the market declines, we’re now heading towards end of life for the market. At this point, the ideal channel will be, if you’ve ridden the cycle well and you’re trying to extend it, then you really want to be selling, probably still directly to your largest customers, but for your new users, end new uses, definitely directly. So you’re still going direct. Again, think about it, we’ve gone from direct to probably direct or maybe industry specialists, to definitely through a third party channel to direct and direct.
Now, here’s the one exception. As our market declines, we’re still in this downside of the market. As the market declines if you haven’t ridden that curve well, you need to be really, really careful. You’re not the gorilla; you’re one of the chimps. You need to probably bury your technology in somebody else’s product and let them do the selling. So what’s your channel? Well, frankly you’re an OEM. You are the original equipment manufacturer and your product or service gets buried in somebody else’s and they are your channel. That’s the one exception. Now we need to think about how much capacity we need, and I’ve already given you the parameters. You need to compare your inventory, how many full time equivalents x how many meetings per week can each have, compared to your demand on that sales inventory and that is, how many buyers progress through each stage in the buyers journey and how many meetings does each of those progressions take. Compare one against the other. That can be complex and hard, but I’m going to show you shortly how to do that in Funnel Plan in seconds.
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Let me start by explaining some context. You already know that the Funnel Plan captures your complete go to market: your objectives, your strategy, the tactics you’re going to use end to end and the velocity that you need to achieve to meet your numbers and therefore the tactics needed to deliver.
But today we’re talking about strategy, in particular channel strategy. But we can’t start with channel strategy. We actually have to start with who the buyer is. When we understand the ideal client profile and the segments that we’re going to find those buyers from, then we can choose our strategy. In particular we need to think about how mature are each of those markets. Let’s flip into the Funnel Plan software and I’ll show you how we validate the strategy including the channel, once we’re already clear on who the target market is. So let’s choose our blogging video. We want in particular to take a look at strategy, but as I mentioned I’m going to start with the target market and being really clear who they are. Now in the target market we’ve identified the ideal customer profile, but we’ve also identified the target segments where we’re going to find them, the type of business and the role that we’re targeting. Now here’s the killer we believe that those types of buyers are 20% of in early market and 80% of them are in ‘Bowling Alley’. Either way, we therefore need a direct strategy. So our sales channel is going to need to be direct at this time. Don’t expect your third party channel to do your spade work for you. Until you’ve created a market, it’s not the time to bring a channel on.
Now we can take a look at what the channel needs to be. And the ‘who can best uncover the buyers?’ question is really like an ICP that I referred to before, the ideal client profile, but in this case it’s an ideal channel profile. I’ve already said the channel is going to be direct, but clearly we want marketing to take a role in profiling and warming the prospect before sales gets involved. Then we’ve got direct sales and we know we need direct because it’s an innovative buyer and they’re specifically not just any old direct sales force. These are not infrastructure buyers good at selling to finance, admin, procurement and IT, these are sales people good at selling to innovative buyers – very important. They’re trained to identify and extract to find needs. In other words, they’re visionary sales people. So for sure they’re direct but they’re a visionary sales force. Really important we get the right character, not just the right style or the right shape of channel.
We want referrals from an innovation council. Now the suggestion there is that we’re going to start an innovation council, get the early adopters together and call them an innovation council. And an early adopter or two in the chamber, presuming the assumption there is a chamber, some chamber of commerce that you’re a member of.
So we’ve got some referrals going on from early adoptive types and a direct sales force. But particularly not only are they direct, but they are supported by marketing and they’re sales people competent to sell to innovative buyers. They’re visionary sales people. Now, how many do we have and how many do we need? Well we’ve got seven sales people in the beginning of year one. So year one is broken into quarters and Q1’s broken into months. Those 7 eventually become 12 at the end of year 3, and we think that between them they can do about four good meetings a week. Now, I know we want them to do more, but remember that a sales person has to earn a meeting, plan for it, conduct it and follow it up. We think we can actually go to four.
But you can see with that sales force, we’re going to be out really from the get go. You can’t have 121% utilization except for maybe a month, but not for three months and getting worse and ending up around 200% at the end of the year. You just can’t do that and so we’ve got some big decisions to make. Really, there are three big levers we can pull here to fix this utilization. Of course we can hire more sales people. But what if our economic model simply doesn’t allow us more sales people? So what are the other levers? Well we can ask them to be busier. Despite what I said before, maybe we need to get them up to four or even six meetings per week. Now, if four was actually the correct answer, you can’t just ask them to work harder. It’s not that simple. We actually need to support these sales people with maybe some inside sales. So we can have an inside sales person who will support these seven or eight sales people and their job will be to maybe earn their meetings.
We’ve got a client here who has a 1:1 ratio of between inside sales and field sales. The job of the inside sales person in that company is to allow their sales people to have three or even four meetings every single day. It’s a valid moral. Don’t just change the number down here. If you’re going to change the number of meetings, make sure you make a deliberate decision to hire some inside sales. Now, we could do that. The final lever that we get to pull, mindful that our problem is pretty much across the board, that is over time it’s consistently a problem. Let’s go back to our funnel velocity and look at how many meetings have been allocated for each stage in the journey. Now, we’ve allowed for three and a half meetings and perhaps that’s our well worn average, and those three and a half meetings are consumed. Two meetings to get from need to offer and offer to preference, need to offer took one meeting and offer to preference took one meeting. We’ve only allowed a half a meeting from gap to need and half a meeting from interest to gap. That’s not excessive.
In a lot of companies, we expect our sales people to do the gap identification and the need identification. In this business, we’ve already asked marketing to step up to that plate, so I really don’t have a lot of room to make adjustment there and I’m still sitting at over-utilization. The third lever just isn’t going to work. I have no choice on this occasion other than to go back. take a look at my inventory, that is go back to the strategy channel. take a look at my inventory and either increase my sales people or ask them to do more. The decision that I’ll make is I’m going to ask them to get up to seven or eight meetings per week. That’s going close to two a day. But to support them, I’m going to make a significant investment in inside sales to achieve that efficiency. That’s the only way I can get that utilization down.
‘Next week on Funnel Vision.’
I’ll show you on next week’s show how to set your competitive strategy and how that changes as the market matures. But for now, may your funnel be full and always flowing.