Lecture
Ben Horowitz on Product Distribution and Sales Channels
- Sales channels and distribution are defined as the vehicle for delivering a product to a customer, with options ranging from online and viral distribution to outside, inside, and retail sales forces.
- Designing a sales channel should be driven by product characteristics and target customer needs rather than founder preferences, peer success, or personal comfort levels (e.g., avoiding fancy suits).
- Matching the wrong channel to a product leads to fundamental failures, illustrated by the analogy of attempting to sell a jumbo jet to United Airlines through a Foot Locker store.
- Product characteristics determining the channel include installation requirements, the ability to be delivered online versus physically, and the complexity of understanding the solution.
- Target customer factors influencing the channel include decision-making structure (single decision-maker versus group), organizational size, and whether the customer is a consumer or business.
- Workday, a sophisticated HR software provider, utilizes a direct sales channel because its target audience involves complex, multi-stakeholder decision processes where the CFO, head of HR, and all managers are involved.
- Workday employs high-end, sophisticated salespeople to guide customers through purchasing cycles that occur only once every 10 to 20 years, during which organizations lack internal competency.
- Salesforce.com initially utilized an inside sales force to target sales departments in small companies, as their product offered convenience over the deep feature set of incumbent enterprise solutions like Siebel Systems.
- Salesforce expanded its channel strategy to include an outside sales force as it moved upmarket, gained functionality comparable to Siebel, and faced larger departments with more complex decision-making units.
- The comparative cases of Workday and Salesforce confirm that channel strategy is a function of product and target market dynamics, not the reverse.