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Channel Matters Blog > March 2013 > Reducing Channel Conflict - Part One

Reducing Channel Conflict - Part One

by Harold Sunata
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Let me know if this sounds familiar. Your company has a great solution for the markets you serve. Your company decides to use both direct and indirect routes to market. You recruit great partners and develop existing partners to sell the solution. The selling begins, and your phone starts to ring off the hook.

Unfortunately, they are not calls for orders as you'd hope, but calls from both direct and partner sales, complaining:
  • The partner or direct sales team is getting in the way of deals
  • The partner or direct sales team is not doing enough to identify and close deals
  • How am I going to be compensated, and how much, on deals?
Instead of managing your overall channel strategy and driving sales through partners you end up spending most of your time as a referee.

So what do you do? Pull back your partner program and rely on direct sales to pick up the pieces? Absolutely not! Channels are here to stay. They are becoming a more important sales channel for most companies. Do you storm into the office of the SVP of sales and demand that all sales will now be driven through partners? Better have your resume updated.

You understand that both direct and indirect routes to market are crucial to your company's success and that optimizing the way both work at the field level is the only answer. With this in mind, here are three areas that you might want to look at to reduce channel conflict, to enable both sales teams to work in a complimentary, not adversarial fashion:
  • Compensation
  • Partner Selection and Enablement
  • Company Alignment
This is the first part of a three-part series on reducing channel conflict. We'll start with compensation first.

Compensation

While it is an oversimplification to say that sales people are coin-operated, there is no doubt that compensation plans do and should drive sales behavior, for direct and indirect sales alike. For this reason, both vendors and partners should use compensation as an important way to drive their objectives.

As vendors and partners explore ways to use compensation, there are a few things direct and indirect sales executive teams should consider in their compensation plans:
  1. They should be fair and profitable for the direct sales team and partner sales team
  2. They should be a reflection of and drive the field engagement model you desire
  3. Direct and indirect plans should be developed and implemented together
  4. They should reward and incentivize the individual, sales management and entire company
A couple of my own experiences reflect these lessons learned.

Case-study one – dual compensation in a territory led model
Early in my sales career, I was a direct sales rep responsible for a server product line in a named territory. As my company desired to expand its market reach, one logical route to market was through channels. Channels provided the scalability, market solutions, and market influences that would facilitate expansion in the timeframe desired.

The model the company wanted to adopt was cooperative direct and partner field engagement. They didn't want to segment accounts by company size, industries or geographies. They wanted the solution to be represented seamlessly to the customer, to have both sales teams nurture and harvest the territory together.

So the compensation plan that was rolled out was dual compensation. Direct reps were paid for both their direct sales and partner sales in their territory, and the channel reps for deals they closed. What a great win for the direct rep, right? With this kind of compensation, you'd think I didn't need to show up for work, and I got my golf handicap down to single digits.

Hardly; although my golf handicap was the result of more than just a lack of time!

The way my company drove the economics of dual compensation was to raise my quota dramatically. In three years, my quota tripled. With a larger quota, I had to rely heavily on partners to identify and close deals along-side my direct efforts.

At the time, we did not have traditional channel managers as many organizations do today, so I had to assume the role of both channel manager and direct sales rep. I had to identify, recruit and develop partners within my territory, including VARs, SIs, and ISVs and invite other partners into my territory, while still doing my day job of account planning, territory management, and engaging on specific sales opportunities.

A great plus for this dual role was that I knew the compensation plans for both direct and indirect sales inside out and used it to my advantage. Partners became an integrated part of the team, with joint territory and account planning to generate new opportunities. And it wasn't one-sided, with me dictating marching orders. The best partners I recruited had leading solutions or presence in the market place. They not only opened new opportunities for me as they resold my products, they were also partners with my competitors and by default any win for me meant they were not selling my competitors product.

With partners that held up their end of the bargain, such as generating new opportunities and closing deals on their own, I connected them with other reps in other territories, with industry teams in my company to expand their success, and there were occasional "bluebirds" (qualified deals that could be closed with a lower level of effort) passed their way. I could focus on managing my territory strategically, understanding growth markets, accounts, industries, solutions, personally working key opportunities as needed. To be sure it was a demanding job, but one of the most rewarding of my career.

The results for me, my partners and my company were outstanding. Although my quota tripled in three years, I ended up making quota and more money each year due to dual compensation. My partners grew and were profitable with good margins, and the company grew their market share and profitability without having to add three times the number of direct sales reps. A nice example of how a well thought out compensation plan can drive great economics, great field engagement, and great results.

Case study two – compensation on the whole-solution

In another example, while I was with a global software company, we decided the best way to market for a new solution was to partner with another global company that provided leading technology on which our solution would be built. In this instance, the best route to market for both our company and our partner company was through an OEM agreement.

As an OEM offering, the partner product was embedded with ours. The resulting solution was developed, priced, bundled, marketed, sold, and supported by us. The terms of the OEM agreement allowed us to be profitable on each sale. Early on, I insisted that our sales team, from the individual rep to the SVP of sales, be 100% compensated and recognize 100% quota attainment on the sale of this new offering. While I got push back from lots of people in the organization, 100% compensation and quota attainment won the day. Of course that meant the new sales plan and quotas being rolled out had to reflect the inclusion of this new solution, but it was the right decision.

As we launched this new OEM solution to the market, it was an immediate success, primarily because it was a great offering for our customers but compensation played an important role. Because they were fully compensated, every sales rep in every geography and vertical took this new product to their customers. They and their managers did not have to worry that focusing on the sale of this product would detract from sales of other products that carried better quota attainment or compensation.

In carrot and stick fashion, I was able to go to the SVP of sales to not only put an incentive program in place to accelerate the sale of the OEM product, I was also able to get him to send a "friendly" email to all the regional VPs with a ranking on where each stood on the sale of the new offering. I immediately received several emails. One was from the regional VP at the top of the list, thanking me for my help while telling his managers to redouble their focus on the product. A few other emails were from regional VPs at the bottom of the list asking for my help.

For our OEM partner, the success of our product was a great win for them as well. We paid them a portion every time our solution was sold and we were able to create a footprint of their technology in many of the most important companies they were also selling to.

However, as an OEM product, we did run into some channel conflict due to compensation and compensation was a big part in resolving the conflict.

As is typical with many vendors, when their products are embedded and sold as an OEM solution, their direct reps do not get compensation for OEM sales in their territory. The reasons are logical. OEM margins are typically much greater to OEM partners, the solution is not sold standalone, the embedded products are limited to the embedded solution only, and so on. In many cases, this does not cause a major problem in the field.

In our case however, the intersection with key customers between our sales team and the vendor sales team was so prevalent and so important, the vendor reps and their managers found it difficult to back away from a sales engagement, especially with large and high profile deals, which slowed down our sales efforts and confused the customer.

Although the vendor did not typically compensate their sales teams for OEM sales, we sat together and jointly came up with a compensation plan that was fair, made economic sense, modeled the desired field behavior, and benefitted everyone and both companies involved. We came up with a plan that would partially compensate the vendor reps and their managers if they could prove they were already engaged with a customer we were selling to. If they could, they received enough credit to allow us to sell our embedded solution unencumbered. They could then work with the customer to expand their footprint with additional licensing and complimentary products. This got our sales teams and their sales teams working each other and not against each other, to close deals at some of our most important joint customers around the world. Another example of how compensation can drive sales and field cooperation.

In summary, compensation is an important lever for both vendors and partners to drive revenue performance and to model desired field behavior. Done right, it can greatly accelerate results. Mismatched, it can severely hamper or sabotage even the best offerings and sales efforts. Vendors and partner need to work together to make sure they develop compensation plans that are aligned with their overall mutual business goals.


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