Entrepreneurship

Hiring your “best” friend as a first employee, at your startup – pros and cons

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Many startups have co founders who are best friends. I have heard of many cases when that has worked out well and a few cases when it did not. I would say in more cases than not, it has worked out (anecdotal). Hiring your best friend as the first employee has different connotations for your startup. You want to hire so that the person is individually proficient and collectively efficient.

The word “best” indicates to me that you know each other very well. There are secrets you’d keep from your family and other friends, but not from your friend.

The word “friend” indicates someone you know for a long time. This person is not someone you worked with for 1-2 years, but typically someone you either grew up with, studied with or worked with for an extended period.

Sometimes this can apply to your spouse or significant other as well.

Your best friend comes by and you start to think, why dont I ask her to join my company?

Even if they are not a “perfect” fit for the role you are trying to hire, you think you need a utility infielder anyway, so why not get them on board.

First the pros:

1. She knows you very well, so it is likely you will have a good relationship and be able to talk about anything about the business. Even if you have a co founder, running a startup is a lonely business, so having a sounding board, who wont judge you is a great advantage.

2. She can help you see things you dont see. Most entrepreneurs (not just Steve Jobs) create a reality distortion field around themselves, so having someone who can objectively point out the flaws in your argument, without you getting defensive will help you go a long way in your ability to grow as an entrepreneur.

3. You trust the person instinctively so it is likely you will be able to have them take on any role and be supportive when they make mistakes. This helps a lot when you have to explore new markets, attempt a new technique to sell your product or investigate a new architecture framework to use.

The other advantage is that the journey is a lot more fun when you like and enjoy working with the people you interact with daily.

Now the cons:

1. If you are both alike, (regardless of what people say, I think most people are best friends with people who are *very* similar to themselves), then it is likely you will see things the same way. This makes your company fairly uni-dimensional. Opportunities are best created when there is a good mix of different skills, talents and perspectives. Diversity creates dissonance, which leads to new ways to think about the same problem.

2. They may not be the perfect fit for the job – either because you need a front-end UI person and they are a back end developer, or they are a marketing person and you need a quota carrying sales person or if they dont have connections in the industry you are trying to tackle.

3. They are more likely to take liberties in the company (rare, but happens). This creates an environment where other professionals you hired will feel a sense of resentment towards the employee, since they believe your best friend will snitch on them.

In the last 3 years, I have seen about 120 companies go through our accelerator programs and looking back I notice about 10 cases where a best friend was hired as an employee (as opposed to a similar number of cases where the best friend was a co founder).

I cant think of a single case where it ruined a relationship even though the company did not do too well.

In my own personal opinion, bringing on your best friend to work with you at your startup is one of the best things you can do.

Entrepreneurship

Funding the best company from each accelerator is a better strategy than funding all from the top program

Yesterday, I had the chance to talk to a friend who is an angel investor and an entrepreneur. Over the last 1 year he had a chance to view our work at the Microsoft Accelerator and he was keen to come and talk to me about funding companies from our program.

Over the last 3 years, we have helped over 350 companies at Microsoft Accelerator programs worldwide, which has resulted in 15 acquisitions. Over 85% of the companies got funded after our program, largely from angel investors. Looking at these numbers, he was keen to participate in the upside.

He was considering joining a syndicate which allowed investors to buy a chunk of a startup fund, which invests in all startups coming out of YCombinator. He was asking my advice on why he should consider investing in other accelerator companies at all instead of putting his weight behind YC companies.

Angel list syndicates are the new and efficient way to invest in a lot of startups using a single instrument. Think of them like a Mutual fund for privately held technology companies.

If you buy into the construct that accelerators are the new MBA programs for entrepreneurs, then it makes more sense to invest in the top graduates from every program than all the graduates from a single program.

Here is some evidence as to why based on research and in this piece it is presented by Malcom Galdwell.

The research so far suggests that the best performing students from even the worst colleges perform better than the worst students at the best colleges.

That’s even when you consider that the students at the top college performed better in standardized tests than the top performers in the not-so-good colleges.

The question is then does this hold true for tech startups as well? There is very little data to suggest that it is possible to make a completely data driven argument for the case.

Considering that companies going through accelerators made up < 10% of all Venture funded companies worldwide last year, there will be good data only in a few years.

If you look at the historical data and compare 3 programs – YC, 500 startups and TechStars, the data seems to indicate that it might make sense.

YC has funded 800+, 500 startups over 700 and TechStars over 400. The top 10 companies from each of these programs, has outperformed the remaining 95% of the startups from the other programs.

Again, the data set is limited, but it proves the theory.

The second question is how do you know which are the top startups from each cohort or program before or at demo day?

If you look at traction as a proxy or mentions in the press ( I am going to use TechCrunch and VentureBeat as examples), during the demo day, then traction “seems” to be a better indicator. In fact, if you bet against the press, you’d do very well. So there might be a contrarian investment thesis around not investing in companies that the press anoints as the “best companies from the demo day for each accelerator”.

The final question is does this hold true for all accelerator or just the top 10 accelerators?

That means should you just fund the top 10 companies from the top 10 accelerators or the top 1 company from every accelerator?

That’s also a question that’s not easy to answer directly, but you can make some educated guess via proxies.

If you look at the 1500 companies that have gone through accelerators over the last 2 years (check out SeedDB), you will notice that 21% of them have gone through multiple accelerator programs. So the best from each program (or the worst, not sure) make it to other programs as well to eventually be among the top in the top programs.

So I think the best strategy is to fund the top 1 or 2 companies from each of the top 100 accelerators, instead of all the top program or the top 10 from the top 10 accelerators. 

Entrepreneurship, Funding

Founders make good money when a VC funded company exits very rarely

Dragons:

A dragon is a company that returns an entire fund — a “fund maker.” VCs can have dragons in their portfolios just as LPs can have dragons in their portfolios.

Unicorns:

Many entrepreneurs, and the venture investors who back them, seek to build billion-dollar companies.

Decacorns:

Billion-dollar companies join a club of “unicorns,” a term used to explain how rare they are. But there are more than 50 of them now. There’s a new buzzword, “decacorn,” for those over $10 billion

Cartazonos:

The company where founders make significant money as well as investors.

According to Wikipedia: 

Unicorns are not found in Greek mythology, but rather in accounts of natural history, for Greek writers of natural history were convinced of the reality of the unicorn, which they located in India, a distant and fabulous realm for them.

The growing number of startups with unicorn valuations is leading many entrepreneurs to believe that they will be billionaires when their startup realizes the $Billion valuation externally, or when they get an “exit”.

Turns out the only time the founders get an exit that’s worth the effort is when all the stars align.

Here are 3 examples of good, bad and ugly.

1. Good: Cloudera’s funding resulted in founders (4) worth more than $250 Million in paper.

2. Bad: The cautionary tale of RedBus acquisition for employees and everyone but the founders.

3. Ugly: Get Satisfaction gets acquired by Sprinkr for < $50 Million after raising about $20 Million so far and the founders get washed out.

Gives you pause on the “headline” announcement for the huge fund raising that companies do.

If you are a founder and are looking to hit pay dirt, you will do that only when the exit is aligned with investor interests after their liquidation preferences and return restrictions.

 

Management, Mentors

Communicating stretch goals internally versus milestones externally

I got an interesting question from Brian of Slope the other day on the process of communicating internal stretch goals (which should be much higher than the external milestones) to your board or investors.

If you have bought into the discipline of setting milestones and measuring the right metrics to support them, then you will realize quickly that you will need to push yourself and your team harder to set goals that will require you all to persist even against difficult circumstances.

The first step to come up with milestones is when you and your management team (or you and your co-founder, when you are small) meet together to understand where you want to be and when. That usually tends to happen at your kickoff meeting or your offsite or when you decide you want to plan and execute against your goals.

Lets say for example, in 12 months, we should have 15 paying enterprise customers, or 10,000 daily active users or 500 transactions on our eCommerce platform. The metric and the milestone would be something you have derived from various discussions including what your think you are capable of doing, where your competitors are, what the market adoption rate will be etc.

Then the next step is to understand the list of items that need to be done , their dependencies and synchronized in order for that to happen. For example, your product needs to have a set of features, or your need to demo your product 30 times to specific titles and roles in your target prospect, or you will need to hire these profiles in your company, or if you need to help obtain the initial set of users via word of mouth.

Now, before you and the team decide whether the goals are achievable I’d advice you work on the process bottoms up. What that means is what you think you can do as opposed to what you should be doing.

Lets say again for example that you can realistically process successfully 100 orders per day, but you believe that without you doing 250, you wont be the market leader, or you wont get the valuation you’d like, then I’d still document the bottoms up number first.

Typically the top-down number for your metric will be something the market dictates. That’s not very much in your control. In any event, I’d ignore all competitor information until you know how you can do better yourself.

Once you have decided that metric and the goal achievement number, you should run it by your 1-2 top trusted advisors before your communicate it more broadly.

The next step is to communicate that to your board (if you have one), or to your advisors (if you dont have an advisory board, I’d recommend you do that first) or to your existing investors. Most entrepreneurs ask me what the difference should be between the externally communicated goal versus the internal stretch goal you set for the team.

I dont think there’s a formula, but typically I have seen on the boards I advice a 15-20% difference, on average.

That means if your goal internally is to hit 100 orders/day, I’d commit to 85 / day to the board.

The final step in the process is to communicate to your entire team again, typically in an all hands meeting. I’d do this even if your team gets larger. That also gives your entire team a chance to ask questions and see the same information that has been committed to the board.

Entrepreneurship

Top 5 tips on coming up with #startup metrics that align with milestones

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Startup milestones both internal and external help you understand and explain how your company works, grows and scales. While most entrepreneurs will continue to tweak their milestones and keep setting new ones as they scale, the metrics that underlie tend to change as well.

The way to think about metrics is that it should answer the question:

If we align all the resources at our disposal to optimize and improve this metric, will my startup do better the next time we measure this?

Most entrepreneurs initially measure everything or nothing at all. Operating from gut (measuring nothing) is as bad as operating with lots of useless data (measuring everything). When you measure everything (or as much as you can), you tend to get overwhelmed and try to optimize everything.

Which is why most every accelerator program I know of, advises entrepreneurs to pick one metric and focus on them.

Without trying to give you a list of metrics that you should consider, I thought I should outline the thinking process you should follow to come up with the metric you should care about, measure and track.

1. Leading vs. Lagging metrics: Metrics fall into multiple segments, but the are usually leading vs. lagging. A leading indicator tells you what’s going to happen to your business, while a lagging metric tells you what happened. For example, usage of your product with customers is a leading indicator, but revenue is a lagging indicator.

2. Financial vs. Operational metrics: A financial metric, as it implies, affect your top or bottom line. An operational metric is useful to track and improve your efficiency. For example, Customer Acquisition Cost (CAC) is a financial metric, but Conversion Rate is an operational metric.

3.  Actionable vs. Reporting metrics: An actionable metric is useful to change behavior. A reporting metric is useful to disseminate among key stakeholders. For example, % of candidates who applied for any position is  a reporting metric, % of those who you interviewed is actionable. You can change an actionable metric and it will affect quality. Change a reporting metric and it will look good, but not affect the way you operate much.

4. Primary vs. Derived metrics: Primary metrics are measured directly, derived are determined by a formula or combination of 2 or more primary metrics. For example, number of visitors to your website is a primary metric, visitor engagement, i.e. # of visitors and time spent on site is a derived metric.

5. Absolute vs. Relative. Measuring absolute numbers for a metric tell you where you are at a point in time, but a relative metric give you a sense of the metric over time. For example, # of open bugs is absolute, Growth in # of  blocking bugs is relative.

Given the segmentation and type of metrics, and that they serve different purposes, if I had to choose one metric, I’d choose:

A metric that’s leading, operational, actionable, derived and relative until I raise my series A funding.

You need to choose only one metric and it will be hard to pick one without others, but I’d highly recommend you do this exercise and paste the metric everywhere and communicate it constantly, so you can have everyone align around it.

One of my companies had a bell that they rigged up that would constantly ring when the metric turned south. The pain of listening to that bell was so bad that the entire company would rally around it to “switch the bell off”.

SaaS

Starting with an SMB focus vs. enterprise for SaaS companies. Which is better?

In the initial days of your SaaS startup, when you are doing user development, you may find that your product will help both SMB (Small Medium Business) users as well at Enterprise users.

There’s a tendency to then focus more on the “customer” development than the user. Assuming you have spent enough time on the user, there is a serious possibility of getting distracted from your mission by doing “both” at the same time.

Here is a dichotomy for entrepreneurs – Knowing that the milestone of Monthly Recurring Revenue (sans Churn) is the most important metric for SaaS companies, many entrepreneurs try to take the “relatively” easy route to try and get more larger enterprise deals for their product, if that’s what they know.

I have found that most entrepreneurs with an enterprise background end up finding 5-10 early customers who are willing to pay for a good product, but in the bargain they end up flexing their enterprise sales” muscle instead of building the “SMB marketing” muscle.

There is nothing wrong with choosing either market, but there is a big enough difference between both.

The enterprise SaaS market will end up with longer sales cycles (even if you know the decision makers), larger deals and request for integration with many existing tools and processes.

The SMB SaaS market will end up with smaller individual sales, an inbound marketing driven “self service” approach to vending and a extreme focus on seamless “on boarding” of users (sans training).

Many entrepreneurs also convince themselves that they can do both at the same time.

Which cannot be farther from the truth.

So, the question I usually get asked is “Which one do investors prefer“?

The answer is either one, since investors care about quality and quantity of revenue, but above all they also care about empirical evidence that they money they invest in will generate the consistency in the business for the chosen model.

Inconsistencies kill fund raising cycles.

So, if you chose to say you will build an enterprise sales model, you need to show your financial, product, hiring and operational model to support that type of business.

If, however you say your company will build a try and buy model for SMB sales online, with minimal or zero human touch from your side, driven by digital marketing, you need to show evidence that you can do that over a 3-6 month (or more) period.

I have seen many entrepreneurs confuse any revenue with good revenue. Consistency matters.

You have to show investors that you have done what you want to do.

Empirical evidence trumps theories.

So, my suggestion is to pick a model, stick to it for some time, before you decide to pivot if that does not work for you. Before you raise money, showing that the model you are choosing is one you have relevant expertise and knowledge in running is going to be critical.

Entrepreneurship, Mentors

How to set milestones for your startup before you raise money from investors

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The question “What do you want to be when you grow up” is a pain to answer for kids as it is for startup entrepreneurs. Most times you just dont know. Sometimes you ask other people in the hope that it will lead to an answer that you can co-opt. Other times it is not clear yet (unlike with kids) if you will ever grow up.

Even if you dont want to grow up, I’d still recommend you spend some time putting together milestones that matter to your company for an 18-24 month period from when you start so you know what you are shooting for.

The milestones fall into many buckets, but they should answer the question:

“If you hit the milestones you set out for your company, would you be much more valuable as a startup than you are now”?

The relative sense of “much more valuable” indicates that this is very different for each company, founder, market and type of startup. Most entrepreneurs who are focused on B2B bemoan that they are measured to revenue metrics, compared to their B2C counterparts who usually are measured on user growth (or engagement).

Regardless of what you are measured on, the key is to ensure that you document the most important metrics that will move the value of your startup.

So, to set milestones, the first step is to agree on metrics to measure, and then the date by when they will be achieved.

Here are some examples.

1. Revenue metrics. Regardless of what the new “temporary” trend might be, revenue and profit trumps all. In the early stages of your company, profit will be an illusion, so I would focus a lot on revenue growth. How quickly you grow revenue and have reduced churn, better predictability and more diversity gives an investor more confidence in your business. If you need to have one metric alone in place I’d recommend a revenue growth metric. As in most things, quality and quantity of your revenue metric matter.

2. Absolute # of customers / users metric: In some cases, when the revenue is not significant initially (for example you are in the razor blades and razors model of a business) then I’d focus on growth in # of customers. Again, like the previous metric, quality and quantity both matter. If you are an enterprise software business, getting the initial key marquee customers matters more than any customer. In B2C, this is widely followed with startups tracking # of users, MAU, DAU, or engaged users, or a proxy for # of users (# of snaps sent for example).

3. # of employees: This used to be a metric people tracked, but I am not sure this really matters as much in terms of growth. I’d focus more on the quality and profile of employees alone, instead of a growth in # of employees,. If, however you are in a consulting or services business and this metric drives revenue, by all means this becomes important to track.

There are many more metrics you could track, but the key question you have to answer is “Will this metric(s) drive my startup’s value higher. You can also track metrics that are a proxy for the metrics I listed above. This is so that you can communicate it externally and get people excited about it, instead of having to share a revenue metric.

In some cases, (like Uber for example) the # of rides as a proxy for revenue might be tracked.

Then the next part after you select the metric, (typically one is preferred) is to draw a line in the sand for those metrics –

What would those numbers be and by when would you achieve them.

This part is the “setting milestones”. It has to come with a “sell by date” or “achievement date”.

Simply setting metrics alone, without the date of achievement is typically useless.

The important next steps is to break down the milestone into smaller more achievable milestones during your progress (monthly, quarterly, etc.). This is so you can communicate with your team and have them all rally behind the milestone.

Management

Why you need to do user development before customer development

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When working on customer development, many B2B startups quickly realize that their user is different from their customer. This usually happens because the price of the product is more than what the user can pay for on their credit card, or if the user wants to use the product for “work” and needs to have it approved by their manager (the economic buyer or the customer).

When I ask the question “Who is your customer”? to a startup, the answers range from a) Size of the company (Enterprise, SMB or Mid-Sized) to organizations within the company (Marketing teams, Engineering teams or Sales teams) to titles within an organization (Event planner, Release manager, etc).

When you are initially doing customer development, the user pain and problem matters more than the customer value proposition. If you do not solve a problem for a person (s), you dont have a product at all, even if your value proposition is useful to a larger organization.

The best way to do the initial user development is to practice ethnography. Spending as much time with users is key. Watching and learning from users is more important than interviewing them is what most entrepreneurs learn quickly.

The next step in your user development process is to document your “day in the life of your user”. This is the process of understanding what you user goes through on a “typical day”. I would highly recommend “chunking” the day into 15 min increments from 8 to 6, instead of 1 hour or 30 minute increments. You should get 40 segments in the users day. Put these segments in your first column. Then have 3 columns together – one for what the user “does” during those 15 min, a second column for categorizing the work into buckets that are relevant for your startup versus not relevant and third for priority of that task to the user.

Typically you will need to watch and observe about 15-20 users before you detect patterns. What most entrepreneurs realize quickly is that if the startups is not tacking the most high priority problems for the user, and instead is only # 5 or lower on the users priority list of pain points, then getting “traction” is slow and long. Growth is stunted.

The second observation I have is that the categories that the user prioritizes over what the startup prioritizes are indicative of the lack of empathy that the entrepreneur has for the users job. The best case situation is if you have been in that role – so you can scratch your own itch, but if not, what I have seen is that there is a cognitive dissonance between what the users categorizes as things for a project versus things for building network, versus meetings for example.

Finally, if you can map the users day in the life, and even if you dont tackle the top 3 problems for the user, you will find that the top 3 offer you opportunities to market to the user by helping address their biggest other pain points – this is typically done by content, tools and other products that will help you establish credibility with your user. Which gives you an opportunity to build a longer term relationship with the user.

Entrepreneurship

Cold calling does not work during, customer development process, so what does work?

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As many entrepreneurs start their customer development workshops at their accelerator programs, they quickly realize that “Cold calling” potential users to get feedback does not work, any more especially for B2B users. In 99% of the cases, most of our participants at the Microsoft Accelerator found out that they got voicemail, with no responses, over the last 4 cohorts.

Most accelerator programs tell you to call potential users, who are not your “friends and family” to prevent many cognitive biases. The first couple of weeks is spent by most entrepreneurs trying to identify potential users and spending time trying to get them to validate the problem. This is the most uncomfortable time for most entrepreneurs.

It is an absolutely important part of the development of your company, but the caveat is that many entrepreneurs find out that cold calling does not work any more. Most Americans are unlikely to pick up the phone from unrecognized numbers.

In fact, when you try to do it in B2B situations, and call the potential user’s work number, at their desk, it is worse. The number of times you go directly to voicemail is about 999 out of 1000. “Smile and Dial” is truly the most frustrating part of your customer development.

The situation is so bad that many entrepreneurs sometimes falsely believe after their customer development phase that no one truly has the problem.

Most people dont want to be interrupted, and dislike having a synchronous discussion with a stranger.

So, what are the alternatives to cold calling and what can you change.

First, you can change the “interruption” and align it with their routine, then you can remove the “synchronous” portion and make it “asynchronous” and third you can change the “stranger” to acquaintance.

1. To remove the interruption, the best is to put your feedback gathering into the flow of the problem. So, like native ads, you have to insert yourself into the normal course of the problem surfacing for your users. The best way to start this effort is to do a “Day in the life” scenario mapping of your potential user. I would typically do it in 30 min increments.

Find out when the problem surfaces and what the “Triggers” are for users. What I have found is that you can leverage moments of downtime to target your message and bring out the pain. For example if you are selling keyword optimization services to SEO marketers,  answer questions on Quora or LinkedIn Groups about these services so they are aware of the problem. Or ask a question on an active forum (something WhatsApp did) about the problem you are trying to tackle.

2. Email seems to work, to make the conversation asynchronous. If targeted, specific and brings value to your user before you make the request or have a call to action, it is powerful. Typically you’d want the email to be highly personalized (look at the users recent Twitter or social media feed) to start the conversation with highly relevant topical points, before asking for advice.

3. To remove the stranger problem, dig your well before you are thirsty. In fact, use social media (Twitter and LinkedIn groups work very well, as do Quora and SlideShare) to build “acquaintance” relationships well before you need them.

Finally, make it easy for people to give you feedback. Before they are willing to commit time to giving you feedback make them believe they will get value from your interaction as well.

I’d love to know what’s worked for you. Drop me a note on Twitter, if you have found a better way to engage users during customer development.

Sales

How to get channel sales or indirect sales going for your startup?

When I talk to entrepreneurs who are developers and they don’t have a hustler (sales person) on board, they ask me if they should outsource their sales function. I usually advice them never to outsource startup sales efforts. They then look to find partners who they can work with. The main reason they want to do this is because they find the entire process of hiring, managing and growing their sales team revolting.

Some of them talk about possible “channel” sales efforts via partners or larger companies in their domain who can help, who they would like to approach.

When I tell them about the potential costs, commissions and the customer relationship efforts that are involved, they take a second look at their direct sales efforts. I thought I’d document that for many of the other entrepreneurs who have the same question.

There are 5 models of partnerships I have encountered so far in my career. I will outline these models and list their pros and cons. While I cant say which model will work for you, and there may be other models as well, I think understanding the landscape will help you figure out which one makes sense in your situation.

First off, most channel or indirect sales models assume that the partner has an existing relationship with the startup’s customer. After all you are trying to shorten your sales cycle by using the partner’s strength.

Lets now look at these different models.

1. Co selling partnerships: These agreements tend to have a low to medium level of commitment from both the partner and the startup. If a sales person from the partner is going to meet the client, and are in active discussions on a deal and they feel like bringing your solution will help them win the opportunity, they will look at trying to position your product as well. In this case, you will have to go on the sales call with the sales person at the partner. The advantage of this partnership is that you typically dont have to do the initial “opening of the doors”. The “paper” or contract is typically separate as well. This means there will be 2 separate agreements for the customer to sign.

Pros: Since there is no commitment (most times) from both parties towards a quota or target, the discount you offer to the partner is low (typically starts at 20% and can go up to 30%). Also, since you can have a direct relationship with the customer, you can control the relationship going forward. Be sure to ensure that there are lower levels of “pass through” revenue you have to pay to the partner after year one.

Cons: There is no commitment to sell by the partner so you cant quite depend on this channel to deliver consistently. The customer also tends to get confused about the single person who will responsible for their success (the bad term usually used is one throat to choke).

2. Reseller agreements (sometimes called VAR or Value Added Resellers) : This partnership is medium to higher level of commitment. The partner will either resell your product on their paper or include your “quote” in their contract. You will hence have to train and manage their sales professionals.

Pros: There is a quota commitment in most cases, so you can be sure that sales people are motivated to sell, but you want to be sure that there are some downsides if they dont hit the commitments, else all this is a co selling agreement structured on the partner’s paper.

Cons: Since there are commitments, you will pay a much higher commission % – typically 40 – 60% are standard. Some partners may ask you for more. You will still have to train and do the lead generation to bring their sales folks into deals. Typically when you sign an agreement, even if you bring the partner into a new customer, they might ask you for the commission that they technically dont deserve.

3. OEM associations: When your product (or module) becomes part of another product and is integrated in such a way as to cause sales of your product each time the other product is sold, have an OEM (Original Equipment Manufacturer) association. These are typically for run time modules of developer products or a contact management product within a CRM system as an example.

Pros: Since your product is part of another product, you will typically be sold each time the other product is sold. In most cases this guarantees revenues and commits the partner to certain revenue goals.

Cons: Since your product is part of a module, you dont have the end customer relationship. Most OEM products also tend to generate smaller % of sales. Don’t be surprised if the final product is sold by the partner for a significantly more cost that what they pay you. Typically I have seen 10% of the final cost of the product paid out to the module.

There are 2 other models that I dont have much experience with, so I will let you give you an overview and try and address them in a future post.

4. Certified agent alliances: These are loose agency models (typical in affiliate sales) where the solo sales person who maybe has a few clients will try and sell for you. Since you have to recruit and manage each sales person yourself, these will be hard to scale. The only advantage is that the sales person is not an employees, so their base salary costs dont hit your books. This also means they are less committed to your product.

5. Distributor agreements: When your product is sold in a different geography where you need a local partner to stock (for hardware) or help educate local re-sellers, then distributors can help you with education, local tax and integration and identifying resellers. They can help you navigate a local market, but since they stock and manage multiple products for that region, getting their attention to focus on your product tends to be rather hard.

Startup Channel Sales
Channel partnership Framework

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The personal blog of Mukund Mohan