Podcast, Interview
a16z Podcast | B2B2C
- In pre-chasm markets lacking budget or customer education, Value-Added Resellers (VARs) and Managed Service Providers (MSPs) often lack the sales force to pitch new products, creating uncertain success where partners extract all economic rent due to an extreme power differential.
- Enterprises generally require an 18-month sales cycle with significant educational conversations before the market is defined, during which channel partners act primarily as lead generation sources registering deals rather than selling directly, necessitating vendor salesperson presence in the account.
- Channel partners will only sell independently without vendor intervention once the market matures and develops pull-based demand; until then, startups must create the market through direct sales and professional services, a process expected to take a long time.
- Entrepreneurs should expect "almost never" for free product distribution via the "Messiah" of channel partnerships in enterprise markets, as buying dynamics there remain almost identical to the direct sales model where the vendor must maintain a direct relationship for renewals, expansions, and upsells.
- Building a second product or context is highly inadvisable for startups unless it is a deliberate pivot, as this transition marks the biggest jump in operational complexity and effectively creates two companies with divergent sales cycles, support models, and professional services requirements.
- Relying solely on a channel strategy before establishing brand awareness or demand risks placing startups at a disadvantage with no leverage, potentially causing them to be ignored by end users or lose money attempting to gain channel access.
- Adopting a B2B2C model where consumer data is treated as exhaust or where the vendor has no rights to the consumer poses a risk of becoming parasitic to the middle partner, which can lead the partner to flip the startup out for a competitor or extract more economic rent if the arrangement becomes commoditized.
- Incumbents owning the channel hold tremendous leverage over partners, requiring startups to navigate this by finding non-preferred channels or segmenting the markets to avoid direct competition.
- Creating pull-based demand before engaging a distribution channel is expected to result in a much fairer balance of power regarding the economic split compared to entering channels without existing demand.
- The speaker predicts that entrepreneurs who believe engaged channel partners will sell their products without ongoing vendor involvement are operating under a major misunderstanding, noting that even major companies like Apple maintain channel strategies to reach customers despite potential friction with specific retailers.