- August 1, 2024
- Posted by: Channelnomics
- Category: Ask Channelnomics
Early-stage start-ups bring innovation to the market and need the channel to cover the addressable market, but they often lack the appeal and resources to make partnerships attractive and rewarding.
At Channelnomics, we field questions about best practices, partner strategies, and channel programs every day. In this series, called “Ask Channelnomics,” we answer some of the questions we receive most from vendors.
Question: Does Channelnomics have any insights on early-stage start-ups ($1M to $2M) and partner interest in working with them? Have you seen resellers, managed service providers (MSPs), and integrators pick up early-stage products successfully?
Answer: The relationship between early-stage technology start-ups and value-added resellers (VARs) is complex and often challenging. For start-ups with less than $10 million in revenue, attracting the attention and commitment of established VARs can be an uphill battle, despite the potential to deliver and capitalize on innovative solutions. These companies often have limited financial, technical, and human resources to support partners and lack the brand recognition and marketing resources to drive demand and attract customers.
One of the primary challenges is the mismatch in scale and expectations. Early-stage start-ups often aspire to partner with large resellers, such as CDW, SHI, and Insight, hoping to leverage their extensive client networks and sales capacity. However, these major players typically focus on partnerships that can significantly impact their bottom line, which a small startup is unlikely to achieve. Conversely, smaller VARs might lack the resources or willingness to invest time in nurturing a relationship with an unproven start-up.
There’s often a disconnect in understanding the dynamic between VARs and start-ups. Many of the latter have unrealistic expectations about the role of VARs in their growth strategy. They may anticipate that resellers will independently drive business development and sales efforts on their behalf, failing to recognize that they’re competing for attention against numerous other products in resellers’ portfolios.
The education factor presents another hurdle. Smaller, lesser-known brands often require partners to invest considerable time and effort in educating customers about their value proposition. This contrasts sharply with established brands that benefit from market recognition and shorter sales cycles — attributes that are naturally more attractive to resellers. The adage “No one ever got fired for buying [insert well-known brand]” underscores this challenge for start-ups trying to break into the market and attract productive partnerships.
Additionally, early-stage start-ups often must overcompensate partners through higher front-end discounts and back-end rebates to lessen partners’ investment risk. Smaller companies, particularly those backed by private equity or venture capital, are often reluctant to surrender their margins to partners as they try to build revenue to cover operating and other growth costs.
This doesn’t mean that start-ups are without options or value in the channel ecosystem. A more effective approach for early-stage companies might be to focus on teaming agreements rather than traditional channel partnerships. This strategy involves the start-up identifying opportunities through direct-sales efforts, particularly within larger enterprises. When such opportunities arise, start-ups can leverage teaming agreements to collaborate with partners that already have established relationships with the target customers.
This approach offers several advantages:
- It allows start-ups to bring concrete opportunities to VARs, rather than relying on VARs to generate leads independently.
- It provides a framework for one-off engagements, which can evolve into more substantial partnerships over time.
- It aligns the interests of the start-up and the VAR around specific, achievable goals.
Successful implementation of a teaming agreement strategy requires start-ups to be proactive in their sales efforts and realistic about the value they bring to potential partners. By focusing on creating mutually beneficial scenarios, start-ups can gradually build credibility and relationships within the partner community.
There have been instances of resellers, MSPs, and integrators successfully adopting early-stage products, although these are often the exception rather than the rule. Success stories typically involve a combination of truly innovative technology, a clear market need, and a start-up team that understands and respects the realities of the partner business model.
The exception to this start-up challenge? Unicorns, which are well-funded technology start-ups that garner high interest from the investor community and enterprise customers. These companies often have accelerated revenue growth rates that lead to high valuations. Those valuations lead to greater levels of investment, which, in turn, provide funding to underwrite channel development programs. The market interest in unicorns also means they have brand recognition that attracts customers.
While successfully engaging with VARs is challenging for early-stage start-ups, it’s not impossible. By adopting a strategic approach focused on teaming agreements, bringing concrete opportunities to the table, and gradually building relationships, start-ups can navigate the complexities of the channel ecosystem. The key lies in understanding market dynamics, setting realistic expectations, and being willing to invest in building mutually beneficial partnerships over time.
Do you have a question for Channelnomics? Send it to info@channelnomics.com.
Check out other Ask Channelnomics installments in the Channelnomics Insights section.