Nine Keys To A Winning Startup Channel Strategy

By Ernst Gemassmer

Once you have succeeded in developing a solution and obtained initial funding, the next challenge is to penetrate the relevant domestic and international markets. For that, you need to implement a winning distribution channel strategy. Common channel strategies include direct to customer, distributor, and joint venture arrangements.

For many markets these days, the channel owns the market. In other words, you may have the best product, but no distribution means no business. Here are the steps I recommend to face this issue successfully, and effectively build or align with productive channels:

1. Finalize an overall ‘go to market’ strategy before you begin. It is absolutely essential to map out a ‘go to market’ strategy that works for your industry and product. Use this as a roadmap to guide and measure your successes and failures.

2. Evolve the channel strategy as you grow. The simplest way to start is to identify channel partners (also known as distributors) to handle your business in specific and well-defined geographic regions. As you business grows you will need additional channel partners. You may also want to consider establishing joint ventures or even wholly owned sales channels, but proceed slowly because it is difficult to unwind joint ventures.

3. Avoid exclusive arrangements. Potential channel partners will do everything possible to obtain an exclusive relationship with your company. You may want to give a channel partners a head start of a certain time period. Avoid exclusive arrangements if at all possible. In many countries terminating an exclusive arrangement can lead to an expensive legal process.

4. Deal with channel conflict openly. Channel conflict is inevitable as you add additional sales channels. Also, if a US customer exports a significant amount of your product into another market, the local partner may complain. The best recommendation is to openly confront and discuss arising channel conflicts with your partners in a businesslike manner. Generally, conflicts can be resolved in an amicable manner.

5. Change distribution partners only when required. When a channel partner does not meet his obligations, despite proper training, management and consultation, a change should be considered. Ensure that termination is amicable and is in line with your contractual (distribution contract) obligation as well as in line with local legislation.

6. A distribution partner is a true partner. Some of the advantages of a distribution partner are the following: thorough understanding of local markets and customers, as well as ability to finance his purchases, thus improving your own cash flow. In addition the partner can assist in product localization as well as providing essential, in country product support. In exchange for all partner services, they generally receive a discount of up to fifty percent from prevailing US list prices. Ensure proper product and technical training.

7. Recognize local laws governing channel partners. All channel partner relationships should be based on written distributor contracts. This contract should be identical for all channel partners, since you would not be able to manage numerous individual contracts. Resolution of disputes should be in your home territory, but obtain local legal advice to ensure that your contract is not in conflict with local legislation.

8. Joint ventures work but require dedication. Once a local market has developed, you may wish to have more direct participation in another specific market. This can be achieved through a joint venture. Assuming adequate financial resources, the distribution partner could be a good candidate for a joint venture. However, be aware that you will need to dedicate significant human and financial resources to a joint venture.

9. A wholly-owned channel is expensive but warranted at times. Assuming that your joint venture is a success and yet you desire more control, you may wish to consider buying out your venture partner. At that point you will control the business in totality, with all the challenges and rewards related to doing business in another geography.

My advice is to proceed cautiously and logically through the steps mentioned above. You will enjoy the exciting ride, even though at times it will feel like an out of control roller coaster.

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Today’s article is presented by one of the founders of our Startup Professionals team, Ernst H. Gemassmer. He resides on the West Coast, and has long helped entrepreneurs there, as well as providing turn-around assistance as interim CEO, and International coaching. You can contact him directly at ernst@startupprofessionals.com.