Last week, I had the opportunity to hear Ty Abernathy share the story of building and ultimately selling Grayscale, his HR recruiting technology startup.
Grayscale’s journey had the usual startup ups and downs, including starting in one market and finding a better opportunity over time. But one aspect stood out because it’s something you rarely hear about in successful startups.
Grayscale figured out how to make channel sales work.
Why Channel Sales Are So Difficult
For most startups, selling through channel partners is incredibly difficult and often ends in failure.
The fundamental challenge is misaligned incentives and priorities. As entrepreneurs, our product is our number one priority. But larger companies have their own products, initiatives, and sales targets. Their account executives are typically compensated for selling in-house products, leaving little incentive to promote a startup’s offering.
Channel sales work best when reps earn meaningful commissions, the product is relatively easy to sell, and there’s enough money to justify the effort. Unfortunately, these factors rarely align.
That’s why I generally believe most early-stage startups are better off selling directly to customers. But Grayscale found a way to make channel sales a major growth driver.
Treat Channel Partner AEs Like Your Own Sales Team
Too often, entrepreneurs focus on the channel manager or senior executive responsible for a partnership rather than the people actually selling.
Grayscale took a different approach. They mapped individual account executives at their partners, learned their territories and accounts, and built relationships as if those AEs were part of Grayscale’s own sales team.
Rather than treating a channel partner as a single relationship, Grayscale treated its entire sales organization as an extension of its own.
Map the Partner’s Customers Against Your Ideal Customer Profile
Grayscale developed specific expertise in high-volume recruiting using text messaging, particularly in industries like warehousing.
Rather than waiting for referrals, Grayscale used publicly available information to map the customers of its applicant tracking system (ATS) partners against its ideal customer profile.
They then identified the account executive or customer success manager responsible for each promising account and concentrated sales support and relationship-building efforts on the best opportunities.
This was far more deliberate than signing a partnership agreement and hoping referrals would follow.
Go Deep While Developing the Next Channel
Grayscale continually worked to generate more business from existing channel partners by deepening relationships, identifying additional customers, and helping sales reps succeed.
At the same time, they monitored the evolving ATS market and built relationships with potential future partners.
They were constantly maximizing existing distribution relationships while preparing for the next channel opportunity.
The Risk of Building on Someone Else’s Platform
Grayscale’s customers already had an ATS, and Grayscale’s technology integrated into that system rather than operating independently.
This made ATS providers natural distribution partners, but also potential competitors. Those same partners could eventually build similar functionality or acquire a competitor.
Over time, that’s exactly what began happening.
Fortunately, Grayscale had built enough scale, industry expertise, and market presence to become an attractive acquisition target, ultimately leading to a successful exit to an established HR software and payroll provider.
The Bigger Takeaway
Channel sales are appealing because they offer access to established customer bases and sales organizations without building a large direct sales team.
But most entrepreneurs underestimate how difficult it is to make someone else’s salespeople prioritize their product.
Grayscale’s success wasn’t simply finding good channel partners. It was building an operating strategy around making those partners productive.
I still believe most early-stage startups are better served by selling directly to customers. But Grayscale demonstrated that channel sales can work exceptionally well with the right strategy and disciplined execution.
It’s a great case study in turning one of the more difficult startup distribution strategies into a competitive advantage.