Many entrepreneurs of emerging growth companies trying to get their companies out of No Man’s Land fail to consider an important option for business growth: develop or refine a channel strategy. Especially in the services sector, many companies don’t look systematically at creating complementary relationships that could lead to an expansion of their customer base and an increase in revenues.
Let’s start with a broad definition of a channel: ways of looking bigger to the market than you actually are; strategies to team up with other market players.
Questions to Ask
Here are several questions to ask the CEO of an electrical contracting company, for example, about new channels for his business.
Are you considering hiring a sales force to achieve business growth into new markets? How about markets in new geographies? New product segments? You need to consider the fully burdened costs of new employees, including base salary, commissions, and benefits, as well as the costs of having employees on the bench when you don’t have enough work for them. There are cash flow issues and seasonal business cycle issues to be considered. There may in fact be a more flexible way to provide resources for your business than adding to your payroll and thereby increasing your fixed costs.
Do you have a business plan that you update regularly as you adjust to the market and see new opportunities? Fall is a good time of year for intensified planning. Do you have a concrete sales plan that includes specific marketing campaigns to target new service areas and achieve business growth?
Let’s say that you are an electrical contractor who has traditionally targeted on-call residential work. Consider attacking a new vertical market: doing repair work after natural disasters. You could go after this segment in various ways: for example, as a back-up, first responder contractor to a public utility. A plan to work through this channel will require research. For example, there are regulations to be considered, such as how many hours a day your crews are allowed to work. You’ll need to understand the profit opportunity. You must consider what would happen to your core residential business if most of your resources are helping with disaster recovery in another state.
Looking for solutions for your business growth challenges?
This FREE guide can guide you through No Man's Land!
Geographic Expansion
Another objective for your channel strategy: geographical expansion. One model to consider is a hub and spoke system whereby you would expand your reach while using other contractors as backup. Or you could consider taking on a specialized role such as contracting to maintain all the point of sales systems for a fast food chain.
Another common channel approach: a co-marketing agreement whereby you and complementary businesses “give to get” resources on an on-demand basis. Consider forming an alliance so that you have a pre-determined set of contracts and are pre-certified to subcontract from your alliance partner when they need assistance. Such an arrangement is equally beneficial to the other party, enabling them to respond to market opportunities faster. You’ll need to negotiate the revenue split in advance—as well as processes that give you a reasonable amount of leverage with your partner.
Such channel relationships that provide a variable work force require thinking through the rules of engagement: how you will manage operations; what each side expects of the other; what degree of readiness you are expected to maintain and what competencies you are expected to deliver; who will do what when you work together.
The Channel Model
Developing a channel model requires careful planning to understand what a channel model would look and how would it impact your business. If you are going to work with independent contractors instead of employees, you need to understand how you will engage with and pay them. You need a plan to find enough work for them that they will prioritize their relationship with you.
Finally you need to put in place the tools to manage the program, to ensure that the performance of your channels meets expectations for business growth. You must understand all scenarios to prepare for, for example how you will get resources when you need them “just in time.” If you are willing to put in the time and effort to rethink how you do business, you may well be able to identify channel strategies to create cost effective opportunities to grow your business out of No Man’s Land.
Does these business growth challenges should familiar to you? Share your thoughts with us below, and don't forget to download our free guide "Business Growth Challenges Defined: You May Be In No Man's Land."
This post was originally published in September, 2012 and has been updated. We believe it remains relevant to the challenges that our blog readers face.
