For most of the history of software, partnerships were mostly about driving incremental revenue from resales.
Today, partnerships are likely to be crucial to staying relevant in the market, and winning and retaining business. This is because the same traits that make API-first software attractive to buyers – low commitment, and ease of integration enabling faster development times – also make it a lot easier to replace.
The question of how to approach partnerships depends on the life-stage of your business. How can new startups carve out the resources for a partner strategy, whilst perfecting their MVP and those early direct sales? What steps can they take to cover partnerships with resources, and how can they anticipate a fully-fledged partner operation as their business scales?
For this episode of the Martalks Podcast, I spoke to Jay McBain of Canalys. Jay has worked in the channel community for over 20 years now, including founding two companies which helped businesses drive partner sales.
Through this discussion it became clear that the partnerships you maintain, and your depth of integration with complementary systems, are now likely to be as critical to your company’s survival as the product itself. This means that partnerships must be in scope from day one of your startup. Even if the business isn’t quite yet mature enough for channel sales, anticipating that phase of growth is now a fundamental part of your go-to-market strategy (GTM).
You can listen to the 30-minute podcast here, or, if you prefer to read, there’s an article based on it just below.
Selling software in the ‘decade of the ecosystem’
The ‘decade of the ecosystem’ is a phrase which Jay McBain coined to explain the latest evolution in how API-first technology is bought and sold.
The backdrop to the decade of the ecosystem is a progression towards indirect sales. This happens as every market matures, since indirect sales, through marketplaces, retailers and resellers, are often more convenient for customers and vendors alike. Even DELL – a PC manufacturer which is famous for its direct-to-customer model – reported in 2022 that more than half of its $101bn revenue came via indirect sales.
What makes API-first software different is that these systems have been expressly designed for interoperability. As a result, whilst somebody like DELL can still sell a computer (either directly or via a marketplace) with relatively little consideration for the other products and services used by the end-user, this is now practically impossible in B2B software.
The software buyer today is typically looking to assemble or enhance a platform comprising 6-7 separate complementary microservices. They may alternatively be seeking to enhance or migrate away from an incumbent piece of monolithic software by adding microservice modules, but this will very likely be with other microservices in consideration, as the company plans future steps in its digital transformation.
This fundamentally changes the purpose and importance of partner sales at software firms: from an opportunity to pick up leads and drive incremental revenue, to a necessity to remaining in the running for a place in your customer’s optimal tech stack.
Jay explained three different partner channels which vendors need to have in scope:
- software marketplaces, which includes sales of software via B2B ecommerce
- partnered solutions providers, which includes technology integrations and traditional reselling
- digital agencies & systems integrators.
With regard to marketplaces: these businesses are booming as buyers demand the support and convenience that they provide in navigating an incredibly wide range of choice of competing vendors. In Jay’s words…
“There’s no chance now that you could architect and build from scratch your own ecommerce environment, to make that the marketplace of dreams or the ecommerce experience of your customer’s dreams. You’re now in buy mode. And where you buy that is now getting interesting…
“…the consumer-facing Amazon & Alibaba each have their own “…for Business” offerings. But you get into the core of go-to-market, there are about 20 ‘super-marketplaces’ that have enterprise credits, and will take on a big portion of what will be a trillion-dollar market in how technology is sold.”
Jay lists AppDirect, Mirakle, and Vendasta as some of the marketplaces which raised large sums of investment in late 2021 (Mirakle: $555, Vendasta: $120) as they compete to become marketplaces of choice.
Simply being present in marketplaces, however, is not sufficient in securing sales and ongoing revenue.
Alongside the rise in software marketplaces is the trend towards the subscription-consumption model, which Jay says is now characteristic of 76% of software companies. This is an appropriate commercial model for a microservices which is designed to be fast to deploy, but it also implies that the solution may be relatively fast to replace if a better solution comes along.
Jay advises a combination of frictionless buying, alongside deeper integrations with partnered solutions vendors, so that an initial sale translates into stable revenue.
“That initial point of sale, that ecommerce transaction, is just the first 30 days with that client. And now, every 30 days forever, you need to get a customer for life…
If I’m a nice-to-have rather than a need-to-have, I’m not going to renew that client forever, so… I want to get deeper integrations… so whether they like us or not they’re not going to pull us out.”
Unlike monolithic providers such as Salesforce and Oracle, modern API-first vendors do not have the luxury of years-long contracts or expansive functionality which makes them incredibly difficult to replace.
Deep integrations with partners allows API-first vendors to recover some of that stickiness – whilst allowing the buyer to retain the flexibility and choice in the market.
Martechs must partner with agencies as gatekeepers
There was a time when systems integrators (SIs) came in after the point of sale, to build additional functionality around their client’s new software.
Today, SIs – and digital agencies, which also now carry out a lot of integration and implementation work – are likely to be instrumental in the sale of your solution in the first place.
This shift began in the decade of marketing (which followed the decade of sales, and preceded the current decade of the ecosystem). Companies such as HubSpot and Marketo began to outcompete the likes of Salesforce with low-commitment solutions which did not require a technical buyer or a technical team to deploy and run.
This created an environment where, today, the CMO typically spends more money on software than the CIO. Since digital agencies typically enjoy a close relationship with the CMO, they find themselves in an increased position of power in the relationships between solutions providers and customers.
“There’s 200,000 digital agencies out there with employees. In those firms, 76% of them are now tech services companies, implementations, integrations, security, continuity, data, automation – they look like tech companies now.
On the integration side, Accenture now has 700k people. They’re the largest tech company by employee size now and they make an acquisition every seven business hours. The majority of their acquisitions over the last year have been digital agencies. This is because the head of marketing now spends more money on technology than the CIO – and it’s the agency that has the relationship with the CMO. It’s a match made in heaven.”
Jay adds that the close, trusting relationship between the agency and the customer means they may in fact own the decision over whether to buy or retain your software.
“In 24% of marketplaces transactions today in B2B, it’s a third party coming in on behalf of the customer, and pressing buy – this is the agency or SI.
They’re pretty much neutral; they’re not going to represent you like a reseller would. But they’re out there with your customer every day and winning you a customer for life.
Knowing these integration firms and agencies is now part of a day-one business case. If you’re coming to me as a VC, an angel or a PE firm and you haven’t got that as a page in your pitch deck, I’m going to stop the meeting, send you back home to do the work you should have brought in to me on that one PowerPoint slide.”
Partnerships are now critical to the martech GTM
The opening couple of years for any new software firm are typically spent perfecting the product, focusing on the end-user and building out those early case studies. This means that a startup’s early sales are inevitably direct, rather than through partners.
The exceptions to this are few and notable; Vue Storefront’s Patrick Friday (who spoke in our recent webinar on selling headless solutions into the US market) had five dozen partners within his first year of business, across agencies, ecommerce platforms and other solutions providers.
Most vendors will struggle to pull off such a feat with their limited resources. While that’s understandable, says Jay, the trouble is that the ‘28 moments’ – that a customer typically passes through on their way to a considered purchase – often take place outside of the vendor’s own environment.
“Just like when we buy a car or any considered purchase, we’re going to be reading ebooks, going on social media, talking to our neighbours and friends, watching YouTube videos, everything we can to become an empowered buyer, and how you intersect your customer at those early moments is critical.”
Failing to influence these touchpoints, in the decade of the ecosystem, could spell the difference between failure and success.
The good news is there’s a lot of valuable preparatory work that you can do to anticipate these 28 moments, without necessarily aggressively pursuing channel sales in those early days.
“Yes – no startup should be thinking about resellers until you have product or marketing fit. But it behoves you to find out who those 6-7 complementary solutions are, and who those 100 super-connectors are when you’re writing your original business plan.
You should have a list on your wall of the logos and the companies that are highly influential to your targeted customer, based on their buyer type, their industry, geography and sector segment.
You should know the 5-6 other solutions they’re likely to purchase, and their delivery model: whether it’s a managed model, or if they’re going to do everything themselves.”
This includes the entities whose spheres of influence encompass the buyer, even if they’re not necessarily commercial partners.
“Who owns that ebook, peer group, association etc.? There’s probably a very low chance of them ever transacting and collecting money on your behalf, but they’re highly influential and you should treat them as partners.
So understanding from your customer side in those 28 moments is step one. A $10/hour intern can get all that on one page.”
Unsurprisingly, the other critical element is good, old-fashioned networking.
“I want to know the top 100 people who are writing those ebooks, recording the podcasts, running on the board of that association, doing that speech in Vegas – creating those 28 moments that are making your customer smart.
If they knew enough about you to be dangerous, and if some of them would drop your name in a positive way on stage or maybe in the hotel lobby bar, that endorsement could be everything.”
The chances are, as a startup founder, you’re already an active networker, so that part of the process is likely to come naturally. But there’s a clear step up here: from speaking to the right people, to taking a strategic effort to plan your networking efforts around the people and entities influencing your customer.
For work that can be completed by a $10/hr intern, few founders would wish to overlook this relatively tiny investment in optimising their time. But in Jay’s view, awareness of the importance of this work is still far from widespread.
“Most companies haven’t done the basic ‘blocking and tackling’. They don’t understand those 28 moments and the spheres of influence, they don’t have all the logos, and they don’t understand the top 100 people influencing their customers before the point of sale.
I tell VC folks, if the founder hasn’t come to that conclusion and doesn’t know the names and faces and places in the industry, they’re not going to be a winning company no matter how good their technology is.”
Laying and monitoring the pathways to partnerships
Prospective partners, of course, are subject to the same competitive forces as customers: limited in number, with a limited appetite for risk, and a host of competing solutions vying for their attention.
These are problems that marketing exists to solve – so whether you’re marketing to prospective customers or prospective partners, you should work hard to influence that person’s touchpoints on their pathway to a deal.
“Every entrepreneur knows the earlier you get into a deal, the higher your chances of winning. So of those 28 moments, if I can get into the first 10, I’m going to win twice as many deals than if I get into the next 10 – and twice as many deals again into the final 8.”
The sheer number of different touchpoints across which these different interactions can take place – including spaces owned by partnered vendors, agencies/SIs and your own ecosystem – mean that technology is likely to be needed in order to do this work effectively.
Within your own ecosystem, this work sits with revenue operations (RevOps), whilst across your partner networks, through-channel marketing automation (TCMA) can be used to identify and nurture leads.
RevOps – for anyone that’s unfamiliar – is the business practice and supporting technology which provides a single source of truth on your customer’s activity across sales, marketing and customer excess. As Jay explains, there is no shortage of tools available to help you with this.
“There’s 223 companies innovating in [RevOps]. They don’t build ecommerce tools… They’re attribution companies, data-sharing companies. In the post-cookie world, there’s companies trying to help you seed those early 28 moments and generate data that you can use and get more of that early stage influence into MQLs into your system. These companies are raising hundreds of millions of dollars to go hire the data scientists that can make that work.
In the decade of the ecosystem, being able to monitor and measure and manage every moment that your customer goes through is now depending on technology, because it’s beyond what humans can do, to deploy the machine learning and prescriptive and predictive analytics needed to help you with partnerships that scale.”
TCMA, meanwhile, is the technology needed to manage collaborative marketing with partners.
“There’s 40 companies that do this at scale. It’s not the HubSpots and Marketos; in the partnership world, there’s a layer above that which is multi-tenant marketing automation. Companies today like Crossbeam, Reveal, Pronto and PartnerTap are raising hundreds of millions of dollars in this space. With these tools, I can deploy email, social, search and syndicate content at scale across 1000s of partners at once.”
Partners who choose to collaborate across TCM platforms benefit from two main different kinds of data insight: direct responses to collaborative marketing, and data sharing on mutual customers & prospects.
“It’s like having 1,000 of instances of HubSpot that I can manage in one place… You can run marketing on your platform, and when the customer clicks on that ebook, both you and your partner instantly get visibility.
Most of the activity is going to happen on partners’ marketing platforms, which you don’t own a piece of… This is where a new category called data sharing comes in… If there is a reasonable expectation that the data is safe, vendors can send this data up into a generic escrow service [in the TCMA platform] where it can be accessed by partners to enable account mapping at scale.”
One thing that Jay did not discuss, but that’s important to mention, is the value of content publishing. In a post-cookie world, where you can no longer buy data on customers, the creation of useful resources is an effective way of ensuring at least some of those 28 moments take place with your brand.
Countless founders have allocated a day or two a month to publishing in their target audiences’ space with significant success. Granted, this is not a light effort. But similar effects can be derived by taking part in other peoples’ content programs, which can spur naturally off your early networking efforts and should be within the reach of startups of any size.
Whatever your stage of development, Jay recommends that every business prepares itself for the point where marketing to, through and with partners becomes unmanageable without dedicated teams and tools.
“You’re not going to resell for 2 years – that’s fine – but as you’re building out your product, I would be investing in some pilots to get really smart about my customer and understand how many partners are there.”
Certainly, this seems critical in an age when the ecosystem will become the primary revenue driver in your API-first business.
“My go-to-market strategy is literally an ecosystem partnership strategy, completely disconnecting from that point of sale until I have the product fit, and a marketing and sales engine that’s repeatable and scalable when it comes to distributors and wholesale partners. I’ve got to build that tech in the RevOps area – now called FinOps, because it’s a bigger play here than just sales and marketing.”
Martech partnerships: the groundwork starts on day 1
“For 40 years in the tech industry,” says Jay, “the inventor or the early-stage innovator has rarely if ever won the market.”
“None of the trillion-dollar companies today invented the things they brought to market. Where do they win? We all know it’s GTM, sales and marketing, we always say – “they’re not a great innovative company but, boy , are they great marketers”.”
In today’s environment, with today’s API-first solutions, ‘great marketing’ is now necessarily a partner play.
Amongst other examples, the rapid success of Vue Storefront is clear evidence of how an effective partner strategy can catapult a business to stardom, even with competing incumbents in the space. But what seems certain to play out over the coming years is a clear differentiation, not only in how quickly businesses can go to market, but in how resilient they can be the potentially destructive forces of marketplaces.
In every other industry, marketplaces have come to dominate their markets in all but niche cases. Amazon, Google and social media networks now all own a large part of the revenue stream for many large businesses – increasing their profits and reach in some cases, and leaving the vendor beholden to their marketplace power in others, with a lot of overlap between the two.
It will be the effectiveness of your partner strategy that defines your degree of resilience in this field of play. The value that you bring to the customer, to the agency, and to the marketplace – not to mention to your investors – is now largely derived from the value you bring to the ecosystem itself.
Search for your next partnerships manager with Rosenstein Group
Rosenstein Group began recruiting the leaders in martech sales long before the decade of the ecosystem. For over 20 years, we’ve worked as the #1 executive search specialist in martech, supply chain, ecommerce and SaaS, recruiting heads of sales, channel sales leaders, and other members of the commercial team.
Learn more about Rosenstein Group here.
Or, for market analysis to support your channel sales efforts, visit Canalys here.