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When Should a Startup Transition from Direct Selling to Selling Via Partners and Channel?

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Startup Transition

For B2B startups, one of the biggest challenges and costs is “sales”. Especially if the product costs greater than $10K annually. While many of the lower price point SaaS products might spend more money on marketing, the immediate costs of hiring, managing and growing a sales team is a big challenge for most entrepreneurs.

I hear from a lot of entrepreneurs who try to “develop” a channel, the frustrations of working with a large company’s sales force.

In the attempt to tap into their existing customer base, they end up educating the “channel” sales team on questions to ask prospects, how to qualify opportunities and how to handle objections and not getting enough from the process.

In still other cases, entrepreneurs try to work with partners in the ecosystem – system integrators for example or existing products in adjacent spaces and trying to engage with their sales and technical sales professionals to help position and sell new products to customers. They realize after many weeks or months that the teams are rarely given an incentive to do anything more than sell the company’s own products.

While I am a big fan of trying to drive indirect sales via partnerships and business development efforts, I also believe doing it too early sets the wrong precedent for startups.

 The question is “When is too early to engage partners to sell”?

There are no actual numbers, but some rules of thumb that I follow.

First, if there is enough demand for your products that you are unable to return customer calls or you are unable to fulfill requests from customers for meetings, then you should engage partners. The best and easiest way to help build a loyal partner base is to drive the initial business to them.

Second, you should have enough case studies to cover at least 3 use case scenarios in your top industries as examples. What that means is that you should have 3 possible case studies of how your product helps drive initiatives in a specific industry that the partner operates in, where you are targeting to get customers.

Third, you sales cycle time should be reducing 10% per opportunity and your sales process must be defined enough so it is consistently predictable. For most companies, this does not happen until you are selling for a year and have about 30-50 customers already.

I usually get the question that if these were already in place, why would you need partners? The short answer is to scale.

Similar to funding from institutional investors, if you already have a business that’s doing well and growing, then funding and partnership sales helps you scale quickly not to generate the initial excitement. 

In fact, my suggestion to enterprise B2B startups is to not consider channels and partnerships for selling until they have raised their series B funding from an institutional investor.

Channel sales for startups
Channel sales for startups

Channels take time to develop and you have to invest a lot of money to gain the benefits over a long period of time.

I would highly recommend you be in control of your own destiny and push yourself to directly engage, generate and close your initial leads and customers.

Channels can come much later in your journey.

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Creating Artificial Constraints as a Means to Innovation

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Artificial Constraints

Many of the entrepreneurs I know have created new innovative startups thanks to real constraints they had. For example, I was hearing AirBnB’s Brian Chesky, on the Corner Office podcast and he mentioned that when he and his cofounder were trying to get some money to get started and the only way to keep afloat was to “rent” their air bed they had in their room. That, then led to Air Bed and Breakfast, which is now AirBnB.

This was a real constraint they had – no money to “eat” so they had to make it happen somehow.

I have heard of many stories of innovation where in the protagonists had real constraints of either financial, technology, supply, demand, economic, social or any number of other characteristics.

The interesting story that I have also recently heard of how Facebook has “pivoted” from being a desktop offering to getting a significant part of their revenue from mobile is how they were given the arbitrary constraint of only accessing Facebook via the mobile phone.

So there are ways that you can create “artificial” constraints to force innovation to happen.

Most larger companies and some smaller ones as well, have to constantly find ways to create artificial constraints – to find a way to innovate and be more be a pioneer.

While some constraints are good – lack of funds at the early stage for example and lack of resources, there are entrepreneurs that are stymied by these constraints and those that will find  a way to seek a path to go forward.

I think this is a great way for you to think about innovating in a new space. If you have constraints, find a way to use it to your advantage.

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The Great Mobile App Migration of March 2020

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Mobile App Migration

Over the last few weeks as many in the world have been in lockdown, there has been a temporary “mobile app migration” happening. There are new apps downloaded and they replaced existing apps on the “home screen”.

While some of these apps are likely temporary use, for e.g. I have 6 “conferencing apps” – Zoom, Uber Conference, Webex, Google Hangouts, Blue Jeans and Goto Meeting. That is because of the many people I have conference calls with – each company seems to have chosen a different web conference solution.

Other apps seem like they will have staying power – Houseparty, for e.g. which has games, networking and video conferencing all built into one app to keep in touch with friends and relatives.

Houseparty

The apps that have moved away from my “home” screen, which I expect will come back once the crisis will be behind us include – Uber, Lyft and all the airline apps from Delta, Alaska and United.

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Perseverance with the Ability to Pivot on Data: 21 Traits We Look for in Entrepreneurs

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Perseverance with the Ability to Pivot

There are 5 key inflection points I have noticed which makes founders question their startup, to either make a call to continue working on their startup, pivot to a new problem or quit their startup altogether.

It is at these points that you really get to know the startup founder and their hunger and drive to be successful. I don’t think I can characterize those that choose to quit as “losers” or “quitters” because of many extraneous circumstances, but there is a lot of value that most investors see in entrepreneurs who face an uphill part of their journey to come out on the other side more confident and stronger.

These five inflection points are:

  1. When you have to get the first customers to use and pay for the product you have built after you have “shipped” an alpha / beta / first version. Entrepreneurs quit because they have not found the product-market-fit – because the customer don’t care about the product, there is no market need, or the product is really poorly built, or a host of other reasons.
  2. When you have to start to raise the first external round of financing from people you are not familiar with at all. Entrepreneurs quit because while it is hard to get customers and hire people, it is much more harder to get a smaller set of investors to part with their money, if you do not have “traction”, or “the right management team” or a “killer product”.
  3. When you have to push to break even (financially) and sustain the company to path of being self sufficient. Entrepreneurs quit at this stage because they have now the ability to do multiple things at the same time – grow revenues and manage costs, and many of them like to do one but realize it is hard to do that without affecting the other. So, rather than feel stuck they decide to quit.
  4. When you have to scale and grow faster that the competition – which might mean to hire faster, to get more customers, to drive more sales, or to completely rethink their problem statement and devise new ways to grow faster. Entrepreneurs quit at this point because they are consumed by the magnitude of the problem. They overassess the impact the competition will have on their company, give them too much credit or focus way too much on the competitors, thereby driving their company to the ground.
  5. At any point in the journey, when the founders lose the passion, vision or the drive to succeed. Entrepreneurs quit a these points because they have challenges with their co founder, they don’t agree with the direction they have to take, or encounter the “grass is greener on the other side” syndrome.

While I have observed many entrepreneurs at these stages at  discrete points in time, I have also had the opportunity to observe some entrepreneurs in the continuum, and I am going to give you my observations on 3 of the many folks I have known, who, have quit.

Perseverance separates great entrepreneurs from good ones
Perseverance separates great entrepreneurs from good ones

One went back to college to finish his MBA after getting a running business to a point of near breakeven, another found the business much harder than he originally thought he would and got a job at a larger company and the third was just unable to have the drive to go past 11 “no’s”‘ from angel investors.

Over the last 8 years, if I look at my deeper interactions with over 90 entrepreneurs, who I would have spent at least 100+ hours each, I would say that of the 24 people that are not longer in their startup, the one thing that stands out among the ones that persevere is that it is not “passion” or “vision” at all.

It is the inherent belief that they are solving a problem that they believe is their “calling”. They also don’t believe that there is any other problem that’s worth solving as much, even though there may be easier ways to make money.

So most of my questions of entrepreneurs to test whether they will pivot or quit are around why they want to solve this problem (which I am looking to see if they know enough about in the first place) versus any other one.

The answer to that question is the best indicator I have found to be the difference between the pivots, the leavers and the rest.

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