The 8 Dangers of Channel Sales - For Entrepreneurs: What Happened to Yahoo

The 8 Dangers of Channel Sales - For Entrepreneurs: What Happened to Yahoo

In the world of business, there are various strategies and models that entrepreneurs can employ to achieve success. Two notable examples are channel sales and technology companies. While both have their advantages, they also come with their own set of challenges and dangers. In this article, we will explore the dangers of channel sales for entrepreneurs, and what we can learn from the downfall of Yahoo.

Channel sales, when executed properly, can be a powerful tool for entrepreneurs. It allows them to leverage the resources and existing customer relationships of their channel partners. However, there are several dangers that entrepreneurs need to be aware of before diving into channel sales.

One of the first dangers is the need to figure out the sales model on your own before teaching it to your channel partners. Channel sales take time to get off the ground because resellers often have different priorities and focus on other products and deals that are already generating revenue. Convincing them to invest time in your product can be a challenge.

Another danger lies in the fact that resellers are often lazy and prefer to sell products where demand already exists. This means that entrepreneurs need to invest time and effort in educating resellers on how to sell their product, handle objections, and differentiate it from the competition. Additionally, resellers are notoriously bad at marketing, so entrepreneurs may need to provide additional marketing materials and programs for the channel to use.

It is also essential to ensure that there is a channel that sells similar products to a similar buyer. Without a suitable channel, entrepreneurs may struggle to find success with their channel sales model. Commitment is another crucial factor to consider. If entrepreneurs decide to use a channel sales model, they need to be prepared to fully commit to it and not take orders directly, unless there are specific rules in place.

Transitioning from direct sales to channel sales can be challenging for sales executives who are used to having more control and faster results. Channel sales require patience and a long-term commitment to building a channel. It is a different mindset that not everyone may adapt to easily.

Now, let's turn our attention to what we can learn from the downfall of Yahoo. Yahoo faced two significant problems that Google did not: easy money and ambivalence about being a technology company. Unlike Google, Yahoo did not fully leverage the value of its traffic because advertisers were already overpaying for it. By not extracting the full value, Yahoo made less money.

Moreover, Yahoo became a beneficiary of a de facto Ponzi scheme in 1998. Investors were excited about the internet, and Yahoo's revenue growth fueled their enthusiasm. Startups used the money they received from investors to buy ads on Yahoo, which further boosted Yahoo's revenue and convinced investors to invest more in internet startups. This cycle continued, but it was not sustainable in the long run.

A significant difference between Yahoo and Google was their approach to making money. Yahoo relied heavily on selling ads, while Google focused on search. Yahoo's emphasis on brand advertising and lack of targeting meant that traffic, regardless of its quality, was the primary goal. Google, on the other hand, recognized the value of search and focused on delivering relevant results to users.

One of the critical mistakes Yahoo made was not embracing its role as a technology company. Instead, Yahoo tried to be something it was not, resulting in a lack of a sharply defined identity. Yahoo treated programming as a commodity and did not prioritize hiring talented programmers. This decision ultimately led to technical mediocrity, from which Yahoo was unable to recover.

In contrast, Google had a hacker-centric culture from the beginning. They understood the importance of having talented programmers and created an environment where they could thrive. This hacker-centric culture allowed Google to attract top talent and maintain its technical excellence.

From these two case studies, we can draw three actionable pieces of advice for entrepreneurs. First, before venturing into channel sales, entrepreneurs must thoroughly understand their own sales model and be prepared to educate and convince resellers to invest in their product. Second, entrepreneurs should prioritize finding the right channel that sells similar products to a similar buyer. Lastly, entrepreneurs need to be committed to the channel sales model and understand that it requires a different mindset and long-term effort.

In conclusion, channel sales can be a lucrative business model for entrepreneurs if executed correctly. However, it comes with its own set of dangers, such as the need to educate resellers, the challenge of finding the right channel, and the transition from direct sales. The downfall of Yahoo serves as a cautionary tale about the dangers of not fully leveraging the value of traffic, ambivalence about identity, and neglecting the importance of talented programmers. By learning from these examples and following the actionable advice provided, entrepreneurs can increase their chances of success in channel sales and avoid the pitfalls that befell Yahoo.