Startups & channel conflict

A channel conflict is when a manufacturer competes with their distribution partner.

For example, Apple sells their own products directly online and through their (gorgeous) stores. At the same time, they sell their products through Amazon and other retailers.

Some companies like Dell always sold direct to consumer historically. Nowadays they also sell through Best Buy. And now they have channel conflict. Dell & Apple compete with their channel.

There is another type of channel conflict. But it’s a different beast all together. It’s not about competing with your channel. It’s when your channel partner directly influences your product or service. It’s when they demand a change to your product against your better judgement.

Consider the Apple iPhone and AT&T partnership. The iPhone wasn’t open for native apps when it shipped. It isn’t unlocked to work on other networks. Were those Apple’s decisions or did the channel require it? You know the answer. 

The channel required the manufacturer to do something they wouldn’t have done on their own. The channel thought it was best for “their” customer.  It certainly wasn’t the best for Apple’s customers. 

Apple and AT&T will be okay. I’m not too worried about big companies slugging it out in the market.

But this type of channel conflict is a real challenge for startups. The startup does a deal with a channel partner hoping for a great distribution deal. If the channel partner then requires the startup to cut out a feature, block certain functionality, messes with the pricing or artificially sets certain limits –  it can seriously hurt the startup. In those cases the startup needs to stick to their guns & conviction and convince the channel otherwise or walk from the deal. A bad decision can suck you dry and make everyone crazy in the end. If a bad channel deal is a pre-requisite for your business then I humbly suggest revisiting the distribution strategy.

I like seeing startups have the traditional channel conflict (ie competing with the channel)

But I get real worried when I see startups hurting themselves by doing the wrong channel deal.

disclaimer: I wrote this post quickly. Sorry if it’s rambling. I’ll mostly likely edit it a lot later. Thanks for your patience :)