The world of partner channels
In a nutshell, there are two main types of partners that a company needs to pursue – revenue partners and tech partners.
The revenue partners are the ones that bring in money. They are generally of three types:
- Referral Partners are the ones that give you leads and expect you to convert them into sales. They get a commission once the deal is closed.
- Solution Partners or resellers or Value Added Resellers are the partners that buy your product from you and sell it to their customer base. Depending on their domain expertise, they usually own the sales aspect and sometimes add value to your product by implementing it on top of full-scale selling.
- Deep System Integrators are large companies like TCS, Accenture, or HCL, who integrate your solution into their product and sell directly to their customers. You are not involved in sales at all.
The tech integration partners, also called Independent Software Vendors (ISVs), are the ones that help you extend your solution. While you focus on the core capabilities required for your solution, the ISV partners enable the adjacent technology you would need for integration. This can open up different markets, like Line Messenger for the Japanese market or KakaoTalk for the Korean market. As a bonus, it can also create an excellent synergy when you, in turn, resell the ISV partners’ products in your markets using your solution.
Tech integration partners generally fall under two buckets:
- Small-scale ISVs who are similar to your organization in size and who want to work with you.
- Large-scale, strategic ISVs whose platforms you’re building on top of, like Amazon (AWS), Microsoft, or Google.
Who owns the partner channels?
Deciding who owns the partner channels might become challenging since multiple domains are involved. Product sponsorship is more important than owning the partner channels.
Depending on the type of company, either sales or product can own the channels, but they have to be comfortable enough with each other to coordinate effectively and align on the revenue and growth goals of the company.
For smaller companies, the product team is better off owning the partner channels, but they must be very proactive. They will have to execute fast to retain the trust of their partners, especially if integrating with partners is their way to access the market.
As the company grows, the product team starts fragmenting as it expands. Different teams inside the product have their own targets and requirements. In these cases, it’s better if the channels are owned by sales, by someone who can identify the market requirements and educate the product team.
How does a small startup onboard valuable partners?
Just like an Ideal Customer Profile (ICP), building an Ideal Partner Profile is very important.
A checklist for startups:
- Start building a partner profile based on who your ideal customers are buying from. You will be able to find out the partners’ size, revenue range, geographies, vertical capabilities, and complimentary products they’ve sold.
- Your company’s priority, be it revenue generation, market expansion, or implementation services, should align with the services the partners offer.
- Do some internal math for what a partner’s unit economics would look like. Give them as many details as possible about their investment – what the first few years look like in terms of returns, the kind of implementation services required from the partner, and how much recurring revenue we can get from a customer.
- Let them know what kind of customers you have and the investments you expect the partner to make. Give them a “best case scenario” plan on top of your standard operating procedure. It will not work out in real life if you can’t show profitability on paper.
- Ask the partners what their account book looks like.
- Who are their customers? Ensure the partner’s customers are the ideal customers you want to serve.
- What is their vision for the partnership? Align on how much money the partner expects – figure out agreeable upper and lower limits.
Once you find the right partner, how do you make them productive?
Partners need to be confident with your ecosystem and services before they can position your product. Expose them to the product and get them comfortable with what it is.
To make it easier for them to get onboarded,
- Give the partners leads that you have sourced to make it easier.
- Take the partners’ customers and sell by yourself for them to learn how you’re expecting sales to happen.
- Set up a partner program with obvious benefits and incentives tied to the partners’ activity rather than the final outcome they provide.
- Make partners who can do the implementation as well. Once the sale is over, the partner can take over the implementation. This is to get them to make money quickly. Initially, it might be you doing the implementation and the partner doing just the documentation.
If they have to sell, we have to feed it.
What are some mistakes that a startup should avoid?
- Not investing in PRM tools early enough. Partner Relationship Management tools make onboarding much easier for the partner and your company and keep things structured and transparent—no need for multiple emails that can get confusing to track. If you’re getting into the partner world, PRM tools are probably the most critical investment on day one.
- Expecting immediate returns on partner channels.
Establishing partner channels is a long game, unlike direct sales. It may even be three years before you start seeing results. Management should keep checking in and looking for signs of success or failure, giving the process enough time to mature.
- Not establishing rules of engagement early enough. Cover exceptional cases – What if the partners reach out to the same customers you’re working with? What if two partners are not on good terms? While partners usually agree verbally, it is always better to cover all bases on paper for clarity and have repercussions in case of violations.
- Not properly structuring your resourcing activities. There needs to be clear and established roles and responsibilities regarding ownership and how the teams work together. Everyone needs to be on the same page about who owns which part of the process – revenue generation, pipeline management, etc.
- Having the partners work under your marketing leadership. Give the partners an independent budget (maybe a portion of your Market Development Funds [MDF]) so they don’t have to come to you whenever they need more capital. Bring the decision-making two levels down in the organization so things can move a lot faster.
On dealing with non-SaaS, on-prem partners
The market is shifting. There are many more SaaS companies today than five years ago. Everyone is moving away from the on-prem model. They are starting to be open to subscription billing and working with smaller businesses that can multiply their revenue over time. Apart from giving them a commission, here’s how you can make it easier for them:
- Look for partners operating in your space who can understand the subscription business.
- On-prem might give the partners ~40% for the first year but then remains at a stagnant 20% for maintenance. They’ll have to sell a lot more to make up for this difference, but the customer base is also diminishing. They are already feeling the pain. Show them how the money compounds with subscriptions to get them onboard.
- Even if your organization closes a direct deal, offload the implementation services to the partner to enable additional revenue channels for them.
- Don’t link Market Development Funds (MDF) to their revenue (initially). Provide MDF against their targets if the partners show promise.
- Co-funding is possible if you’re becoming a larger company – for sales experiments like breaching new market geographies to observe Product-Market Fit.
Anand’s message to founders:
- You can’t be a large-scale company if you don’t have partners.
- Build partner channels as early as possible.
- The pipeline you need to grow as you get bigger gets increasingly tougher. Without partner channels, the cost will hit the roof, and linear growth means the odds are stacked against you.
- Building partner channels makes your growth non-linear. Run your channels like a sales force. Build trustworthy partners, and expand their capacities like you would your sales department.
- Look at multiple markets and leverage local partners to grow your business.