For IoT Startups In A Fiercely Competitive Market, Building Channel Strategies Can Make Or Break A Business

When Internet of Things sensor startup Monnit launched in 2010, the company sold its first-generation product direct to "anyone who would buy it."

Years later, the company's channel strategy has changed dramatically, and CEO Brad Walters has launched a multi-tiered channel program with the goal of working through up to 30,000 resellers.

"While we sold direct at first, as we matured we found that partners who were vertically oriented were important for our strategy," said Walters, who signed Ingram Micro and Arrow Electronics as distributors to help fuel the company's channel charge. "Our first-generation technology was sold direct to anyone who would buy it. But over time, we realized the product was missing a lot, including an adequate margin for partners and a vertical strategy."

[Related: The 10 Coolest IoT Startups Of 2017 (So Far)]

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With investors like Cisco Systems, Intel Capital and Qualcomm Ventures all aiming to cash in on IoT's potential, funding for IoT startups is at an all-time high. IoT startups attracted $846 million in financing in the first quarter of 2016, up from $680 million in the year-ago quarter, according to a report by market research firm CB Insights.

Once funded, all these IoT startups need an adequate channel strategy. As Monnit and others have discovered, that requires solution providers who already have the customer relationships and vertical market knowledge required for IoT solutions.

IoT security startup Armis, , which recently closed a $17 million funding round from Sequoia Capital and others, is one such company looking to build out its channel program.

The Palo Alto, Calif.-company, started in 2015, offers an agentless IoT security platform that lets enterprises see and control any device or network. It hopes to use the channel's value add capabilities to integrate its platform with existing IT infrastructure.

"Our goal is to be 100 percent channel focused," Armis CEO Yevgeny Dibrov told CRN. "Today, we're seeing a huge security blind spot in vertical market organization, and this is a huge opportunity for channel partners to bring their customers a lot of immediate value and frictionless deployment. Our channel approach will help us scale and bring our platform to a variety of verticals and larger customers."

Many startups are struggling to reach customers in niche markets who may have specific requirements as part of their overall IoT solution.

After getting over the initial hurdle of creating products, distribution strategies are posing a bigger issue for startups. They can't merely sell IoT products to a broad scope of customers. They instead need to work with customers in vertical markets and each customers has its own priorities and time constraints.

For Monnit, the startup in June announced its premier IoT partner program, IoTvantage, which provides distributors, VARs and systems integrators with market-ready kits to help them easily sell solutions to end users. These include HVAC, agriculture, and industrial manufacturing kits, all equipped with Monnit's ALTA enterprise wireless sensors.

Samsara, an IoT startup that announced it had secured Series C funding this past year of $40 million, is another startup that has recognized the importance of the channel to its overall sales strategy.

"IoT is a hot space, and we do see competition from other startups as well as companies in the industrial market," said Kiren Sekar, vice president of product management and marketing at Samsara. "I think we have an advantage over some of our peers in the startup community because we've had the opportunity to build a large channel business and work with some of the best solution providers out there. The channel is a natural way to build a win-win situation and get our technology into the customers' hands."

Samsara in 2015 released its Internet-connected sensor solution, which includes wireless gateways that transmit data to software in the cloud, for industrial customers. The company was founded by CEO Sanjit Biswas and CTO John Bicket, who previously founded and led Meraki – a successful cloud networking company that was acquired by Cisco in 2012 for $1.2 billion.

A large part of Meraki's success was its channel, said Sekar, so when the Biswas and Bicket founded Samsara, they launched a channel offense right away and even tapped into existing partner relationships.

Sekar said that a large reason Samsara's products have been successful in the channel is that the startup has focused on making them easy to sell.

"The technology is designed in a way so that it is easy for partners to sell," he said. "It's easy to do a demo and proof-of-concept … this has paid off and really helps us differentiate ourselves in a market where many IoT solutions are complex to deploy – which ultimately limits the number of solution providers."

David King, the CEO of Foghorn Systems, which was named a "Cool Vendor In IoT Edge" this year by Gartner, said that systems integrators with specialized knowledge of OT play a "critical component" in consulting with and implementing the IoT platform for industrial customers.

"As companies push into the IIoT game it is creating new opportunities for consulting partners … customers don't just want to take big data and process it for insights, they want to take sensors and figure out how to make their industrial processes better," he told CRN. "It’s a very different set of businesses processes that IT systems integrators consultants can handle."

On the channel side, meanwhile, partners see working with startups as positive because they bring a fresh new perspective that is necessary to pin down the new business models and solution design behind IoT. Startups understand that they need to bring solutions and strategies to the table that trump the "traditional methods" that other vendors use, solution providers said.

"Every company has unmanaged and IoT devices in their business. In fact, in a few short years, there will be more unmanaged devices that managed devices. The traditional methods won’t work," said Jon Jensen, vice president of sales at RedSky Solutions, a Denver, Colo.-based solution provider. "So this is a growing opportunity in terms of business and helping our customers."

Redsky partnered with Armis because it was looking for a unique approach to help businesses protect themselves beyond more traditional security technology, like firewalls.

Jensen said that as more startups gain traction in the future, they need to realize the value of the channel partnerships as part of their overall sales strategy. In Redsky's case, a strong relationship with Armis has helped both companies successfully bring IoT security solutions to market quicker and more efficiently.

"This is a partnership where we go to market together," he said. "Armis already has a growing customer base, so they understand what we need to have to approach our customers, working side by side, and providing critical expertise on their solution when needed."