Managing channel conflict in a high-growth environment

Having multiple channels to market can be a huge lift to your business and can be especially powerful in the B2B software space. There are dozens of examples of multi-billion dollar channels that have been built. Classic examples like Intuit's decision to partner with accountants show us that this decision can profoundly change the trajectory of your company. Why wouldn't you do it?

Daire wrestles with a difficult call

Arguably the biggest drawback is that it creates the potential for conflict between your partners and your internal teams. Channel conflict is nasty all around and can be disruptive for your customers. It can make it confusing for the customer if they're not sure who their appropriate point of contact is. At its worst they can be put in the middle of a dispute between your company and your partner. 

It's a bear of a problem to manage - there are few easy fixes and difficult trade-offs need to be made. Let's walk through some of the key decision points and how to arrive at a structure that's right for you.

Thinking about the purpose of your channel

The most fundamental decision you make that will impact the amount of channel conflict you see is the purpose of your channel partnerships. Partners can fulfill multiple purposes in your go-to-market engine - they can help with selling, take on some of the onboarding load, or provide value-added services to your existing customers. However it's unlikely that they will be able to fill all of these roles simultaneously. This leads to the first big decision - what role do you want your partners to play in your go-to-market strategy? Within this, there are three broad options.

Increasing customer stickiness

Many channels exist to provide additional services that make your product stickier and reduce churn. These partners are especially helpful when your product involves significant expertise or experience, which enables partner value-add. A great example of this is Google's AdWords partners. These partners can help AdWords customers build more effective campaigns and improve their ROI, for which they can charge the end customer. Because higher ROI will often also translate into increased ad spend this also creates value for Google. 

Improving margins or providing scale

Channel partnerships can also be used to protect margins or provide scale. Salesforce's implementation partners are a great example of this. Implementing Salesforce required expertise and can be very labour-intensive. It would've taken Salesforce years to build up an implementation team that could handle the customer volumes their sales teams were bringing on. By leveraging IT consulting firms to carry out much of this implementation work Salesforce is able to access scale and avoid the operational complexity and cost of having a team internally doing this work.

Generating incremental revenue through new business or upsell

Channel partnerships can also be used to bring you new business that you never would have been able to access on your own. Channel partners can bring an ability to tap into customer segments that are otherwise unavailable to you - for example in regions where you have no presence. However while these partnerships can be the most impactful, they are also the most complicated of the three options presented here. Because it's the most fraught, it's worth stepping through this one in further detail.

Creating "win-win" dynamics in your channel partnership strategy

Managing conflict through rules

One solution is to create a dynamic where everyone has clear guidance around who should interact with who, when they can interact, and how they interact. If your customers, partners and employees are all clear on this you should be able to mitigate most conflict. This can be tricky, but there are some situations in which this is easier to implement. 

The first is when customer journeys are company-initiated or most business comes from existing customers. If you're in this type of situation you can easily assign specific customers to different parties and make expectations clear to customers, partners, and your internal teams.

The second is when there are few types of partners or sales teams. If you have multiple types of channel partners or sales teams the potential permutations for how they can interact with customers get very large, and it can be challenging to manage these interactions through rules. For conflict prevention, fewer touchpoints are better.

The third is when customer relationship dynamics are relatively static over time. If your customers' needs or requirements shift over time and they will need to work with different internal teams or partners over time this makes creating a coherent set of internal rules that solves for your customers much more difficult.

Unfortunately for growing companies these three boxes are rarely ticked. In a high growth environment most of your customers are new. Your product and their needs are also changing over time. Because of this, for high-growth companies managing conflict through rules and policy will only get you so far, which brings us to our second lever.

Managing conflict through incentives

The second set of strategies involves tinkering with incentives for the different parties to drive desired behaviour rather than focusing on rules. It is much more powerful, but much more difficult to get right. Inherent in setting incentives is a managing trade-offs.

Incentive structures can get complicated, but let's walk through a simple example to illustrate the broad set of options that you can pursue. Let's imagine you have an incentive structure where you pay a 10% commission to partners and to salespeople. For a $100 deal, you have three broad options illustrated in the table below - pay one person everything, pay each person a portion of the commission, or pay both. 

These options effective shift the burden of conflict around between three parties - the company, your internal sales team, and your channel partners. Salespeople and partners will be happiest in the double compensation environment, but that puts pressure on your company's margins. The company is happiest in a situation where no incremental commission is paid out, but this might discourage employees or partners to do things that are misaligned with what's best for the customer. This is the dynamic that creates the trade-offs inherent in managing incentives in your channel relationship.

Deciding what to do is situation-specific and complex. However one thing that is consistent is that your north star should be to choose the structure that creates the best environment for your customers (provided you can make the economics work). If working with both a partner and a rep is confusing for customers, you probably don't want to encourage it by having your incentives pay both parties in full when it happens. On the other hand, if customers derive significant value from working with both (and you can afford it from a margin perspective), paying both parties can work great.

Channel conflict can be a game-changing accelerant for your company, but managing the complexity it creates can also create indigestion. By establishing clear guardrails for everyone involved and carefully crafting an incentive structure that solves for your customer, you can avoid many of the pitfalls and keep everyone happy.