About three years ago, I had a conversation with an old friend that led to a post, Ten Pearls of Enterprise Software Startup Wisdom from My Friend Mark Tice. In that (quite popular) post, I shared Mark’s top ten list of mistakes that enterprise software startups make in sales and go-to-market. If you’ve not read it, take a look — particularly (in today’s environment) with an eye toward mistakes five through ten.
I enjoy talking with Mark because our skills and experience are complementary. My core is marketing. Mark’s is partners. While we’ve both done bigger things from those foundations (e.g., Mark was a CEO and an operating partner at a PE firm), I believe you’re never quite as comfortable and fluent as you are in the area where you grew up.
Moreover, since partners is generally considered even more of a dark art than marketing, it’s great to have a friend in the business. When it comes to partners, the Twitter cliché few understand this is actually a reality.
Before diving into Mark’s guest post, below, I want to try and drain the swamp by defining some basics:
- Partners should be used as the catch-all term to describe companies with whom you have one or more relationships that are presumably friendly and mutually beneficial.
- Alliances are a type of partner relationship. Alliances partners collaborate with you to help sell your software, but — and this is key — they do not sell your software.
- Channels are another type of partner relationship. Channel partners sell your software (i.e., “they take the paper”) and they may do so either working in collaboration with you (e.g., a local system integrator who does implementations and takes paper) or on their own (e.g., a software vendor who embeds your product in theirs and sells the composite).
The thing that took me years to learn is that we should classify relationships, not companies. For example, Deloitte is one of several global systems integrators (GSIs). GSI is a type of company; it describes their business. It is not a relationship type. In fact, a software vendor may have several different partner relationships with a GSI. For example,
- A North American co-sell relationship (alliance) whereby the GSI agrees to place the vendor on their recommended solutions list, work with them to sell and implement customers, and perhaps do some joint marketing programs.
- They may have a global embedded resale relationship (channel) with the GSI’s Financial Services practice where the software vendor’s product is sold as part of a bigger vertical solution, with no involvement from the vendor.
- There may be a services relationship (channel) where the GSI agrees to use the vendor’s strategic consultants, acquired at a wholesale price, blended into the team responsible for a project (and in order to ensure there is specific product expertise on the team).
- There could be a value-added resale relationship (channel) in certain regions (where the vendor does not yet have a presence) where the GSI sells the software and associated services, acting as a geographic distributor in those regions.
Thus saying, “we have a GSI relationship with Deloitte,” as you can hopefully see, doesn’t make a lot of sense. GSI is a type of company. We can and often do have several different relationships with a single GSI.
To summarize, at a high level there are two types of partner relationships: channels and alliances. Channels sell software, alliances don’t.
Note that most people are not this rigorous in their thinking and tend to use partner, channel, and alliance as synonyms and refer to companies using relationship types — and confusion can sometimes result.
With those basics in place, let’s move on to Mark’s top five recommendations for how SaaS companies can do a “channel check” — well, I suppose he means partner check, but channel check does have that alliterative ring to it.
Over to Mark 🡪
The other day Dave and I were discussing how companies are adapting to the many changes in today’s landscape and I honed in on one of my favorite topics, partnerships.
For healthy SaaS companies, 25 to 50% of ARR is positively influenced in some way by partners. Some resell. Some recommend. Some create a vacuum in the market that can be exploited (e.g., technology alliance partners). And yet, in most SaaS companies, the person looking after partners has an office that’s the equivalent of Harry Potter’s bedroom underneath the stairs and their phone only rings when the company needs a quote for a press release or sponsors for the user conference. Compound this general lack of attention with reductions in headcount and tough economic times, and partners can devolve from an afterthought to a never-thought.
As a former channel sales manager, strategic partners executive, CEO, and operating partner at a private equity (PE) firm, I talk with a lot of companies (and investors) about how to leverage partners to grow SaaS businesses. Here’s my list of top five partner-related issues that you can use to do a “channel check” on your SaaS company.
Just for fun, we’ll do it in countdown format.
5. Enablement. More often than you might expect, partners depend not on your partner program, but on relationships with individual sales reps or marketers to get the latest news, slide decks, competitive information, and collateral. The simple fix is to spin up a portal that gives partners self-service access to basic sales tools and training. Yes, you should be careful to keep confidential information confidential — and that might require a few edits here and there — but providing easy access to the latest and greatest information will really improve the health and abilities of your partners.
4. International. We could dedicate the entire blog post to going international, but we’ll keep this brief by focusing on an example I recently found working with a $50M SaaS company. They were the leader in the US market but in fourth place internationally, so I asked why they weren’t paying more attention to the international opportunity. They answered that they needed to focus on getting another few points of market share in the US and that they viewed international as “tactical revenue.” Now I’m not sure what they meant by tactical revenue [1], but my take is any revenue that we can get — without introducing new core product requirements [2] — is good revenue and if we can’t get it ourselves, then why not use partners to get it? Moreover, geographic distribution is one of the cleanest forms of partnership because you can set up distributors to entirely avoid dreaded channel conflicts [3].
But in this company, the person running partners was an entry-level marketer who lacked both the experience and the influence to drive the business. They’d signed partnerships with geographic exclusivity, partners were pricing far below market, and (despite the low prices) their win rates were far below those of the direct sales force. The worst example was when a partner who had long-term exclusivity in a major country called to inform the company that they were handing off their business to their son because he was too old to keep working in construction and who had zero software experience. (Guess we won’t be selling anything in that geography for a while.)
Don’t do this. Instead,
- Leverage geographic distributors to sell your software in low-hanging-fruit countries [4].
- Sign de facto preferred, but not exclusive distribution relationships.
- Pick the de facto preferred partner based on who presents the best market development plan for the geography.
- Hire a professional partners or channels manager to oversee the distributor relationships.
3. Pricing. There are 3 keys to channel partner pricing. First, make sure the price list is appropriate for the intended market. This is most obvious in the international example above, but it also applies domestically — e.g., if partners are representing your company in the mid-market, be sure your pricing is appropriate for the value you deliver and your position in that space. Second, be sure your pricing includes all of the elements required for success (e.g., starter kits). Don’t give partners a partial price list that leaves customers hanging in deployment or solution development. Third, always tie a channel partner’s discount to your price list and not net revenue. (Or, if you have to use net revenue, then make sure there’s a sufficiently high floor price in the contract [5].) Royalties based on net revenue almost always encourage partners to discount your product disproportionately and shift the revenue to the higher-margin portions of their solutions.
2. Sales alignment and compensation. Getting the right alignment and compensation structure requires a Goldilocks solution. Paying a kicker to reps when partners resell may cost you additional commissions and lost ARR if there was an opportunity to take the deal direct. But refusing to pay a finder’s fee when a partner brings you a big deal may cost you not only that big deal but also drive the partner (and all their other deals) to a competitor. Getting clear on how you want the sales team to interact with partners and tuning sales compensation to match is key. It’s hard work. There is no one right answer. And there will always be conflicts — the goal isn’t to eliminate them, but to manage them.
By the way, if you haven’t adjusted your sales and partner compensation models for a few years, then they’re unlikely to be “just right” today. Run a review.
1. Partner strategy. Most SaaS companies treat partners as tactical extensions to their business – necessary evils on bad days and nice-to-haves on good ones. The key is to get clarity on what you want from partners, identify and recruit the right partners on the right business terms, put together the right enablement program, and then execute like crazy.
The strategy and elements underneath it should be revisited once a year as your business evolves. You change over time and so do your partners. You need to revisit strategy and relationships accordingly.
What should you do to make sure you’re maximizing your partner ecosystem? Remember these three principles:
- Channels are about optimizing market reach versus margin.
- Partnerships shouldn’t be an afterthought. Tending to the basics of partnerships should be part of business as usual.
- You get the channels/partnerships you deserve.
There’s a simple test to see if your partner strategy and program are sound. Hop on a Zoom (or get in a conference room) with your CEO, VP Sales, VP Marketing, and head of partnerships. Ask everyone to take five minutes to write down a short description of your partner strategy and list your top 3 partners. Then spend 30 to 60 minutes talking about your answers, how well they align, where they don’t align (you might be surprised here), and what you want to do to get on the same page. Agree on a new set of goals and then set OKRs accordingly.
Once you get more deliberate about partners, there are three things to keep in mind:
- The 80/20 rule definitely applies to partners. You don’t have to do anything extraordinary to make the business thrive. Do the basics and do them well and that will almost always lead to success.
- If your company is challenged to sell direct, fix that first. Don’t fall into the trap of thinking, “we can’t sell our products, so we’ll get partners to do it for us.” It never ends well [6].
- Most SaaS companies will exit to larger software companies and the best exits often start with partnerships. It’s never too early to partner with big players and form executive-level relationships so when the acquiring General Manager hopefully signs up to pay above-market price for your company, they’ll do so with the full confidence that you can deliver.
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Notes (by Dave)
[1] They probably meant non-strategic or opportunistic revenue which is a reasonable concept when considering target markets. That is, if you have a strategic focus on financial services, that revenue is strategic in the sense that you are actively looking for more of it and thus eager to hear about product requirements that will enhance the product for other financial services customers. But, at the same time, if a pharma company wants to buy the product “as is,” then you should be happy to sell it to them. With strategic revenue, you can entertain new product requirements discussions. With opportunistic revenue, sales need to sell what’s on the truck.
[2] And if the product is properly built, localization isn’t really a core product requirement. Moreover, localization isn’t even always required.
[3] By using either contractually exclusive (undesirable) or de facto preferred partners in any given geography.
[4] That is, where it’s easy, where localization requirements are limited, and you don’t need to build language skills within your company to work with local staff.
[5] They can always call to request a special discount below the floor. In practice, this usually acts as a highly desirable big deal detector.
[6] Amen to that.
Mark is currently working as an advisor. If you want to reach him, shoot him a LinkedIn message or Inmail. If you have questions or comments, you can also post them as blog comments here and I’ll make sure Mark sees them.