Startup Sales Channels — Pros & Cons — Part 2

This is the 2nd part of a series on sales channels. The first part dealt with ads, your network and conferences; in this part we will review channel sales, referrals and content marketing.

Channel Sales

What: Where another company distributes your product to customers, using their existing relationship with those customers. Also known as ‘business development’ or ‘partnerships’.

Pros:

  • Scale — Rapid distribution and revenue in large quantities that would otherwise not be possible for your company without the channel partner’s large customer base.
  • Credibility — A successful partnership coupled with a high performing product, on a well known platform, often makes it easier to close other business development deals and hire great talent.

Cons:

  • Fees — Every channel partner that brings valuable distribution will want a piece of your sales. Sometimes this channel ‘fee’ can be so large it prevents you from building a business. For example, Apple charges 30% on all digital purchases made through apps, making ebook sales unworkable on the platform.
  • Weak Customer Relationship — As your channel provider owns the customer relationship, your company’s ability to provide a great service is weakened. When a customer has problems, they will likely complain to the channel provider, especially for billing issues, making it hard for your company to deliver a good resolution.

Referrals

What: Your customers recommend your service to other potential customers, sometimes with a reward incentive for the referrer and referred. For example, Dropbox offers additional free space for every new customer account referred by an existing customer.

Pros

  • Low Cost — Limited ongoing costs, and low difficulty engineering work. Mostly restricted to the cost of the rewards for successful referrals.
  • Limitless Scale — If your customers refer other customers, and those new customers refer others; then it’s only a matter of time before you reach everyone on the planet.

Cons

  • Engineering Time — It may not be a lot of work to build a referral program but it still requires significant time to set-up and test, plus the ongoing maintenance and customer support that come with free incentives.
  • Not for Every Business — While a business like Facebook gets better for a customer if more of their friends are customers, not every service inspires referrals. For example, a business selling hair loss replacements might struggle to get referrals as it requires a customer to reveal some potentially sensitive details.

Content marketing

What: Written, audio, or video content that is interesting to your potential customers. When a potential customer consumes this content, they’re also exposed to your offering.

Pros

  • Viral Potential — If you create something that goes viral on social media, you might receive huge distribution and an audience for future content. For example, Zapier produces viral content on remote work, whose audience is likely to be interested in their cloud based service.
  • Long Tail SEO Inbound — Once the content is created, it can be found by potential customers for many years to come — especially via search engines.

Cons

  • Production Resources — Creating interesting content is difficult, time consuming, and virality is far from guaranteed. Sometimes, high quality production requires specialist skills and equipment that can be costly.
  • Slow Ramp Up — If your content does not go immediately viral, it can take 6 weeks or more, for your content efforts to produce a reliable and regular stream of potential customers, if at all.

If you can make these sales channels work, they can provide immense scale; but each one also has serious drawbacks that your company will face regardless of the channel’s success.

In the next article, we will look at the pros and cons of 3 other sales channels: cold emails, customer advisors and consulting.

Sterling Road invests in pre-seed B2B startups based in North America. Full process here: sterlingroad.com/process.
You can reach me here:
ash@sterlingroad.com

Thanks to Kaego Rust for their help on this article.
Photo by
Jason Dent

Pre-seed Investor. Email: ash@sterlingroad.com. B2B, US only. I work with founders for 3 months before investing. More info: http://SterlingRoad.com/process

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