Closing business sales for HighTech

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here's where channels come in um in the big framework so the question first question is where do you sell solar PV do you sell it on Amazon some people are selling it free shipping free shipping if you pay 68 $100 they'll give you free shipping who is s force exactly right um but you know here's here it is people are selling PV on Amazon um you know is that the right strategy or do you sell it through integrators like some of the companies I just mentioned Solar City levity sunedison you know Sunrun um where do you sell electric motorcycles and you know this is a one of the uh super duper electric motorcycles that have come on the market lately uh you know would you buy well you're not the target market maybe uh you know how many people are going to buy a $122,000 are you the target market are you could be could be yeah could be would you buy a $12,000 electric bike uh online no why not be able to ride it first ah you want to try it first interesting right you want to kick the tires you want to kick the tires you want to kick the tires so good thanks for that um so let me Define channels channels are organization whether it's inside your company or outside uh who are in charge of making the product your product available uh and selling the product and services to the Target customer so they take your product from here to the point of sales okay but it's not just Logistics these are the four main functions of a channel one sales sales promote demo negotiations allow customers to kick the tires okay uh Logistics take the product from wherever it's built whether it's in Japan or in China or in Detroit and you bring it in to the point of sales right uh distribution inventory Transportation all that stuff three Finance Finance is huge in many product opportunities and you should know if it is in yours so cars bikes solar PV all these things Finance is essential period okay so you want to provide Finance you're not a bank but you want to bring in the Bank does that make sense okay uh support education information all of these things okay so these are the four things that a channel does now depending on yes so I saw a slide from sity and it said that it was a quote from the solar energy Association of America was the president yeah saying that the creation of the solar lease was the most Innovative like introduction or Innovative product the solar Market's ever seen just shows you how powerful the the financing element is perceived you know yeah did you all hear this so basically Solar City is saying that solar lease the invention of the solar lease is the most powerful innovation in solar uh I you know it definitely uh makes the point that Financial Innovation is as important as product Innovation Technology Innovation to make some of these markets succeed and you know I I I agree with that uh what made the SE plans happen was the original PPA what's making the market happen in California certainly is third party finess so whether it's you know Pace property assisted clean energy assess property assessed clean energy or solar lease or power purchase agreements all these things are have been the main enablers of solar over the last few years absolutely of course costs have dropped which they both help but without this it it all the growth wouldn't have happened yes where is the push uh for the financing is it from the Solar City or is it from the banks which pushes to the customer who pushes yeah they're not pushing they're not pushing right it's part of the whole product who takes the initiative Solar City has to offer the whole product now it is it their money somebody comes in whether it's Google Ventures or US Bank or Wells Fargo or B OFA basically puts up the money because that's their business but to the End customer they don't know it's transparent all the they know is this they're going to get electricity from this these panels on the rooftop and they're not going to put up any money does that make sense why not the push from the banks like uh Wells Fargo recommending okay these products the customers when they are financing it so instead of Solar City may not have reached to all the places and all but these banks have reach to each and every corner of the states so so so the question is why why why doesn't R Fargo get into the solar business is that question like they can say we have like how they say we have financing for houses financing they why don't they say that they do say it they do say it what they do say it uh but you know the truth is that at this point folks want the whole product so when you go buy a car to the dealership do you know who the bank is who's financing it you know the dealer puts the together the whole product right does that make sense okay uh good question so in term back to the channels um no matter what Market you're in there's an almost infinite array of Channel possibilities especially when you get to New Markets and new geographies mean you can sell something if you're the supplier goes to an agent goes to an oem goes to Manu another Wholesale Distributor goes to a retailer goes to the end user now you don't want that many but in some markets you'll have to okay or you can go straight boom okay to the uh End customer how do you decide and that's what I'm going to talk about how do you decide whether to go straight or to go through through which of these uh channels and in which markets okay and this by the way works for both physical and digital Goods so you know just the fact that Google is a digital good doesn't mean that they don't put their Network on the New York Times and you know AOL and whatnot who in turn distribute their ads which is Google's business to their customers does that make sense so in this case the New York Times would be a distributor of Google's uh ad network does that make sense so it works for both digital and physical Goods okay um so why is this important why is choosing a channel important uh you know first of all the channel can help you expand effectively and efficiently um you know in the case of uh F5 for instance ingr micro represented 22% of revenues in 2005 ingr micro is the largest uh distributor of uh electronics in the US they're like a 3040 billion company that most of you have never heard of okay uh um but they are huge and they have hundreds of you know telemarketing people who know their customers and they're pushing your product and so on and so forth um when I was at print Nation I hired a lot of people from Ingram Micro uh because they knew Logistics they knew telemarketing they knew all these things and I got to know Ingram Micro very well um you know the channel can help you lock out the competition so you know when uh AOL was shopping for uh a search engine Google kicked Overture out they actually invested in AOL for the right to be their search engine uh but at that point you know AOL generated uh 12% of Google's revenues which made the uh investment worth it um and this is key um when customers go to dealers for assistance 90% of customers will go with the brand that the dealer recommends this is a this is from Gartner okay that's why you have to be at certain points where there are dealers or you know the best buys of the world or whatever uh you know the channel can also help you achieve the whole product uh but you know the first three are pretty important so channel is something that a lot of people ignore I mean a lot I know a lot of companies in Silicon Valley that get started and they say you know I'm not going to sell direct I'm just going to go through the channel Ingram Micro or this or that and that can be a mistake because one thing that channels may not do for you is you know create awareness help you create a brand uh and so on and so forth um so how do you choose a channel four steps one feel the pain okay go what are the three most beautiful words ask the customer ask the customer okay ask the customer so you start where the customers are and ask them will you buy will you buy my electric bike online okay ask a 100 of them and if 98 say well no because I want to try it before I buy it then whether it's the sure you want it or not it is what it is but you go and ask does that make sense two and I'm going to get into all these four is there a strategic fit between this Channel and your corporate or marketing strategy is there a strategic fit so if you're L with all does it make sense for you to sell at costom plus is there a strategic fit there's no strategic fit you can't does that make sense two three is there a product fit so even if the customer wanted it there and even if it was strategically uh you know fit the strategy of the company does that channel have what it takes to sell your prodct product to push your product okay and that's going to change along the life cycle four does it make Financial sense for you mean so even if the first three conditions are met are you going to make money which at the end of the day is what you're in business for right is there a financial uh you know does it make Financial sense so you need to perform your profitability analysis and I'll get into all these four and this is the way it's going to look okay four steps you basically list all your channel candidates uh and then this is the decision is there will customers use this channel the red would be yes yes yes the white would be no is it a strategic fit you know you're down to three is there a product fit you're down to three and then it does it make Financial sense you're down to two Okay so this is going to be four steps uh so number one the golden rule is that the customers will buy more if you take the product where they are so you ask the customer will you buy this online will you buy this at Best Buy will you buy this you know at the Stanford Shopping Center will you buy this at an outlet mall will you buy this and so on and so forth and if so what else do you want so you won't buy it online what if we give you the opportunity to we drive it to your place you can drive it around and we drive it back will you buy it online H interesting right so you can be a little bit creative with some of these Services okay what's the largest car rental company in America enter it's a private company enterprise Enterprise what do they do they pick you up they pick you up true does that make sense they pick you up I don't know where they are physically but I know they're going to pick me up okay and they are the largest car rental company in America okay so you may be a little bit creative in terms of the way that you do these channels okay but you know ask the customer go through all the candidates and and ask about possibilities even if they say no be a little bit creative okay so number two is there Strate do you have a question no uh is there a strategic fit is this coherent with your uh strategy so Dell for the longest time had a direct strategy and in fact that was their competitive the source of competitive advantage that was the source of competitive Advantage for Dale the fact that they went direct okay and they had a very tight supply chain uh but they left Best Buy and comp USA and fries and all these on the table so Dell could not in fact penetrate 100% of the PC buying Market because they left about 50% of the channel untouched they did okay and and that's where HP won in other words and and and comp back and so on but of course they left money on the they gave best buying all these a big margin so you know Dell could compete on price but they could not be where many customers were and many customers of PCS wanted to touch them before buying them they just did yes so the initial excitement around was the bill to order yesili and that's kind of why probably they didn't want to go into these retail channels and later on perhaps once they reach theal Mass they decided we're going to do well that's right that's right but for a long time did you all hear that I mean they were very successful building to order uh and they built up a really large market share but they hit a ceiling that the only way to go above that was to go into the channel and then they did decide to go into the channel um but it was not easy because it wasn't in their DNA they just did not know how to do channels right they just didn't well then they're competing with like Lenovo exactly Lenovo and and exactly and and all these other companies right um so you know it was a whole ball game Al together it's not just you know put drop a PC at at or whatever it is that you sell at Best Buy there's way more than that and I'll get into that but does this this make sense the Strategic fit okay so number three is is there a product slash Channel fit so I'll let you go over some of the product attributes but you know there are products where you need to sit down and negotiate every single time okay uh and you know whether it's a P rights or usage or warranties or whatever uh an example I you know in many lives ago uh I used to be the director of strategy uh bizdev at RSA security what did we sell encryption okay actually we didn't sell we licensed encryption software and every time you license uh this software so software that goes into other people's products so basically we licensed it to Microsoft they put it into Internet Explorer we licensed it to Netscape they put it into Netscape Navigator so basically you know 100% of every browser and every web server in the world had our RSA encryption okay SSL RSA each and every company needed to sit down with us to sign a license and each time we would negotiate on cost how many units uh for which product because it wasn't a broad license to do anything they wanted no each product you want it for Explorer okay so let's do a deal for Explorer does this make sense so not every product is like this and you can't grow very fast if you have to do this but if you're in the licensing business could we sell this online no no way does that make sense uh you know does it need to be customized so you're selling I don't know CRM software your Oracle uh and and it's on site uh do you need to customize this uh so if you need to customize it then you can't just download it we need to sell one by one and so on and so forth um now I mentioned at the beginning of the day the night um that you need to simplify simplify simplify you cannot grow very far very fast if you need to do all these things things but in the beginning you may have to okay and then you simplify and simplify and simplify okay this is what's going to end up happening what's going to end up happening is that the whole product may be a little complex at the beginning of the life cycle but then you want to simplify it as quickly as you possibly can so that by the time you're in hyper growth basically it can scale you want to scale as quickly as possible all right and as you simplify then your channel options open up because more people can sell it it's easier for more people to sell it okay so far so good so uh here's the interesting uh since I started with electric bike Best Buy is going to sell electric bikes does that make sense yeah Best Buy is going out of business I think huh I said isn't Best Best Buy going out of business Best Buy no I don't think so yeah huh yeah they're closing stores yeah absolutely um but you know what's the product does it make sense don't they sell like fridges and Stereos and TVs what's the logic probably with the better customer reviews the customer reviews yeah but but what's the logic of selling a bike uh at a an electronic store you can plug it in right so if you define yourself if you define Best Buy as we sell anything that you can plug into the wall I mean you know uh did they sell uh fridges and and and and and and washers and dryers 15 years ago well they I don't think so they probably realize that like the real hardcore fanatic bike rider is not going to go well that's not who their target market is and then maybe realize that you know the target market that they're trying to sell this product to actually lines up perfectly with the demographic that you know is a Best Buy custom yeah I don't know who their Best Buy customer is right but aren't they going like you know upscale and selling the $5,000 you know sound system as opposed to the $200 sound system and is that the same target market as a $10,000 electric bike I just don't know I mean I'm I'm I'm I'm you know uh but basically this is what they said this is the yes so I guess this whole um yeah products you should be selling in alignment with what you currently do yeah so I mean the same could be said for example again but Apple you know jumping from computer to phone yes you know that believe is also kind of at the time like you know what are they doing why why are they in this market right but they didn't right so they didn't jump into a phone they they they jumped into the MP3 player You MP3 player you know what are the why why would they choose to do that so it just seems that yeah sometimes there's clear yeah um products that don't align with the company and and it fails but but clear clearly there's also examples where it's easier to Gras absolutely and apple had many failures before the I the the the iPod right the Newton and the you know printers and whatever right so it's not clear it was not clear at the time that they were going to win and I agree with you right right but we're focusing on the channel if you if you do have the right product do you want to sell it in this channel right this is an example of product perhaps not aligning the Chanel so it is possible yeah that that I don't know that that it's not aligning it but but hey they're experimenting right um so number four you do financial analysis make sure what is the cost per transaction of each one of these channels and what is the revenue per transaction for each one of these channels does it make sense even if there's product alignment strategy alignment and all does it make Financial sense you have to make money at the end of the day can I just quickly come back to the last slide with the Chan which one the the motorcycle uh Best Buy yeah you know what I me Channel space is scarce you know so uh that could be one way to create exposure for your product yes don't get into the channels you wish to get in so that so exposure would it be worth it to create exposure so basically that would go into the promotion budget not in into the channel budget right so uh it's not a channel strategy it's a promotion strategy but it's not the right channel we agree yeah okay good my point is channel space is scar you don't get always the channel yeah no no I I agree with you I agree with you yeah but as long as you go into it knowing full well that it's not going to be one of your channel Partners right uh that it's basically a strategy to create promotion and that's cool so profitability you know you go through the whole thing and you have a question no I have a comment a comment yes comments are good so I think the financial sense makes sense yes an analysis for you as a company but I would say that you should look at it from the partner perspective because how many times have you had Channel Partners who aren't loyal to your product you know they sell multiple Brands yes and like you said it's what they push that the so one way to decentivize them is to make sure they don't make money off and so that they don't or that they do one way to dis them right is that they don't have enough profitability to the other people whose products are carry yes it often gets overlooked great comment did you all hear that so so so hold on uh so basically uh you know if a channel say inra micro Ingram Micro sells 30,000 different skes right why would they sell yours okay now but they give us the sh wallet share Wallet information I know who they are yeah the competitors are but it's it's who's the bigger fish do you want ingr micro more or does ingr Micro want you more it's you know it's not just the incentives it's both it's both I mean it's a whole I mean you have to managing channels is a big deal okay if by the way if you have that problem you're doing great okay if you have to manage Channel conflict you are doing great okay that means you're being successful okay and you know you can take a whole course on managing channels right uh but the fact is you do need to leave enough money on the table for the channel to push your product period because they have or may have a lot of your competitors so that makes a lot of sense and you have to take that into account here okay do not underestimate how expensive the channel is okay both in terms of margin and in terms of extra incentives uh absolutely they're expensive uh so like I said uh usually what's going to happen is your whole product is going to basically you want to simplified as you go through the life cycle and that's going to open up Channel possibilities which is going to open up revenues and so on um one reminder a couple of reminders and then I'll answer your question um Channel analysis is unique for each combination of product target market and stage in the adoption life cycle okay so you have have a threedimensional kind of channel strategy each time you move through the adoption life cycle your channels are going to change each time you move to another Market your channels are going to change okay so you need to be prepared and ahead of the curve in in in terms of managing and in terms of getting into the channel right and 30 of your uh compers are also doing that so when you call Ingram or you call whoever they're getting calls from your 30 best competitors uh why would they do business with you okay so you need to anticipate this is channels arcad where you need to anticipate where you're going to be in 6 months okay you need to anticipate that that's you need to anticipate where the the Market's going where the the the life cycle is going because you can't just show up at Best Buy and say will you sell my stuff it's a long sales process okay so you need to invest and you need to be prepared to engage the channel and this means it infrastructure you need to plug into their infrastructure so like I said at print Nation we have had to build you know we had they had the apis we had to plug into theirs right and in the beginning it was not compatible with our software so we had to do all that work okay uh Logistics joint marketing programs very very important incentives very very important uh product information you have to give it in the format that they want okay uh uh legal issues uh I mean all these things you have to get ready ahead of time uh you cannot accomplish all this overnight even if you're Cisco okay all right questions yes