BSMS 39 - When you should(n't) start channel partnerships

Welcome to episode 39 of B2B SaaS Marketing Snacks. My name is Mike, and I'm the Product Lead here at Kalungi. And today, we're talking about channel partnerships and channel marketing and development. Answering questions like why should you partner or why shouldn't you for that matter, and what should you reasonably expect to give up and get in exchange for being a good partner with another company. And then we also go into the three biggest factors that you should look to when you're making a decision about making an investment in channel partnerships and then some of the potential risks and pitfalls that are associated with it.

Going all in on a channel partnership isn't always the best thing to do, especially if you're too early to add a lot of value or to beat out competitors that are already in the ecosystem. In order to get a lot of attention from your partner, you have to be the best player and come from a position of strength for their solution as well. So that's kind of what we go into today. I will say my audio gets a little bit weird. I think I recorded to the wrong input, so I apologize for that. And I hope that you forgive me. Please enjoy the next five seconds of my voice sounding nice and crisp because it is going to go away very quickly. Thank you again for choosing to spend your time with us. We appreciate you being here, and let's get into it.

Okay, so here's another one, and I think you mentioned that this question came from one of your current clients, which is: At what point do you invest in channel marketing or development of partner ecosystem?

Yeah, because this is a really hard to time. There are a lot of software companies who start with a channel program too early, and it's tricky because when you think of why do you go down a go-to-market route that includes a third-party channel or resellers or value edit partners, it's typically for one of three reasons or sometimes a combination. One is you need to validate the value of your solution. It's almost like customer research. And it's also why you get your customers to get to MVP and product market fit and partners can play a role in that, especially because you need to validate if your solution is complete enough to do what customers need.

Because, in the end, customers don't buy features; they buy solutions. They also don't buy platforms. You could do a whole episode on that, Mike, the word platform and how tricky that is because customers don't buy features, they don't buy platforms, they buy solutions or they buy someone who's going to do the job to be done for them. And so you reach out to partners early who are maybe servicing the same customers that you're servicing to both see if they have complimentary services or products that can complete your value proposition to form that complete solution for the customer. Or if they maybe have intel or insights that allow you to fine-tune your value proposition and make sure it's very, so that's something you want to do sometimes early in the lifecycle of your B2B SaaS company.

The other two reasons to partner are to access a market, to get access to an audience, to a vertical geographic part of the market, an ecosystem that you just don't have, right? If you don't have access to a certain part of the market, maybe a partner can help you with that. And then the last reason would be for r o I reasons. If a partner is able to do certain things cheaper, faster, better than you can, providing customer service or support, doing the sales, doing marketing.

If you're producing a solution, you have a fantastic software product, but you don't have a sales organization, maybe there's a partner who can do it on your behalf, and you're willing to give up some of your margin because this partner will do it, not only better, but maybe cheaper than you could ever do this yourself. So these are the three reasons, right? Access to a certain market, completing your solution with either the intellectual property or knowledge or experience from a partner who's already servicing those customers or three, because they will help you do something cheaper, faster with a better ROI than you could do this yourself. Those are three reasons. So what happens is that early in the life cycle of a B2B SaaS company, it's tempting to go to partners and to find partnerships that help you with any of these three things and then expect reciprocal interest from these partners.

And the challenge is when you're early in your life cycle, let's compare it to the T2D3 journey. If you're in that sort of second, third year, so you haven't really achieved any form of market domination in your category, you're maybe becoming a serious player, but you're not necessarily top two, top three, what channel partners will do, they'll give you some attention and they'll get excited about the first meeting and they'll applaud you for your efforts. And of course, because they see someone entering the same category that they care about servicing the same customers that they, so there's a lot of excitement, there's a lot of embracing the opportunity. But then if a partner has to reciprocate your efforts and your energy with their ability or willingness to go on the doors of their customers, position you with their customers, sell you to their customers, it's hard to get any traction unless you're the top three four provider.

Because these partners are going to be playing with all the other providers in that same category typically, or looking at you and comparing you against them. And they also have limited time, limited resources, so unless you have a certain position of strength, it's really hard if you get that introduction to Microsoft to go partner with them and it's, "Oh, this huge global market and these partner managers are all going to position our solution with our customers," and no, they're not. They're going to tell you they will, and they're going to sign you up as a new partner and hit their OKR or their objective. But for them to actually really care and give you business, you have to be one of the top-performing players. And so what happens a lot is that small software companies try to do these things too early, spend a lot of time on it, time and resources, and not maybe get the reciprocal prioritization or resources from the partners they're trying to team up with.

The other reason this often happens a little too early is because it's so tempting if you don't have your own Salesforce, if you don't have your own marketing capabilities, if you're not really able to go to market at scale, it's tempting to say, "Oh, if we partner, we can get that as a leveraged model, and now we can because we have a partnership, we can reach so many more customers and so many more such a larger part of the market." And the reality is, yes, in theory, but that assumes that these partners are going to care. So let me stop there, but my quick answer to your question, the other challenge is that when you partner, you give up things, you give up margin, so it's less profitable if you sell through a partnership. Sometimes you give up margin, you give up control, maybe these partners will own the relationship with the end customer.

So your ability as a sales business to upsell cross-sell, to drive retention, to do renewals, etc., to make sure that these customers have a fantastic experience, get onboarded correctly, all those things will be diminished if you allow your partners to take more control over that. So you give up access to the market control and sometimes money, margin or revenue, and that has to be really worth it. But yeah, the fundamental reason I always want, when I work with small software companies and they get excited about partnership opportunities, I always ask: Are you doing this from a position of strength? Do you have something they really need from you to service their customers? Otherwise, just be careful with how much time you spend on developing these partnership relationships.

Fair. I've also seen, I've been a part of a couple of projects where a huge investment was made in a channel partnership, and I also think of a channel partnership as an investment in maybe building a product for a specific marketplace and locking yourself into developing for a particular user group. So for an example, I've worked with a company that was a Workday partner, and they were pretty heavily invested in that ecosystem, but that also meant that because they were so heavily invested, they were going to do whatever it took to make sure that their product was the leading one there. And if they can beat out their competitors there, then it gives them a really strong foothold moving forward, especially if Workday continues to grow, right? You could argue, I think even with our own, so at Kalungi we have Atlas, which is a HubSpot CMS theme. Atlas would not be what it is if it were not for the HubSpot marketplace. I think as an agency, we've made a very large bet to partner with HubSpot because we think they have a great solution and together their tools and our services, our consulting, our ability to go execute a go-to-market combined with their solution creates a complete product. But we've decided to go that route as opposed to let's say, choosing Marketo or choosing Zoho or some other kind of suite.

And I would argue, I get questions often about Atlas too. Could we create a WordPress version of this? Well, yes we could, but it's not worth the time because it also means then we have to service two separate, I have to service on WordPress and I have to service in HubSpot. So if I just get really good at HubSpot and make sure that I'm going to be as competitive as possible, then I think it makes sense. So I don't know if you've seen, it feels like a cautionary tale that we're kind of weeding, but I've also seen it work very well if you can really put a lot of focus into it. But I could see it falling apart really easily if you tried too much too soon or made the wrong bet, right? If I picked WordPress and WordPress is on a decline as opposed to picking HubSpot and HubSpot, I'd seen some strong growth, we're going to grow with 'em, then it could be disastrous as well.

Yeah, you're talking about a lot of really important things. Sometimes it's better to pick the number two or the number three to partner with who are more motivated, maybe even growing faster. So that's an important thing to think about. And then if you, just like when you chase your largest customers from a product roadmap perspective, you put all your R&D efforts into whatever the largest client asks for. The same can happen with partnerships. Usually when you do a partnership, there are requirements that sometimes mean you have to do things with your r d with your product, or you have to build an integration, you have to invest in certain types of documentation. There's marketing that needs to be done for the joint partnership. And all those things I think are often underestimated and how much time it actually takes and how much effort.

So if you actually are serious about a certain partnership, go do it. It can be a fantastic leverage model. It can work really well, but you have to be able to put the right focus on the execution so that you can actually go all the way to the finish line, and then also make sure that you're aligned with the partner on their strategy and that you're not doing something with them that they plan to do themselves next year, and you're just a stop-gap. And that, again, you have to be comfortable that if you do the thing that they don't better option for them than doing it in-house over time.

That point on copying it is a really good one. I think that's the point that you had on, if your partner could copy it, it's a really good one. I feel like that, I've been hearing a lot about that from the Shopify ecosystem too. There are companies who built their entire product in this Shopify marketplace to make Shopify better. And now that Shopify is getting so big, they're essentially just cherry picking the most successful products and then building them in-house and essentially making the entire company obsolete because their entire product is focused on Shopify, and they have no other beachhead, they have no other customer base, and then there's nowhere to go.

I mean, the largest vendors in the world who control access to certain markets, the Googles of the word, Microsoft, Amazon, etc., if you partner with those, or maybe the tier right under that, if there are large partners, large technology partners that have a fantastic dominant position in a certain, like you mentioned Workday, right? A very strong position in large Fortune 500 companies, which HRM solutions. And of course if you can strike a partnership with them that allows you to sell your bolt-on solution to Workday to all those customers, fantastic. Unless they basically decide to just go build it themselves. And there's two outcomes here. One could be they acquire you, which is a great outcome, maybe if that's what you're looking for, or they copy everything you did with them and do it themselves and do it cheaper, better. And now you're out of business.

And I mean, I was at Microsoft for a long part of my career. A lot of the platform players like Microsoft, that's what they do. They create a lot of the fundamentals they partner with, and they have created fantastic value for tons of software companies in the world. But every partner of Microsoft also have to think about: How do I keep innovating, keep adding enough value so Microsoft cannot just copy it and put it in the platform? Because there's always a risk. And that's usually something you bring onto yourself if you stop innovating, for example, because if you're really innovating and you're worth the premium that customers pay for it, then Microsoft would buy you, right? They wouldn't go build it themselves. If you build a fantastic product, why would they?

Right. It's like the two factors there are, you either have to have a product that is so unique in terms of the technology that you're using it would make it really difficult to copy. So some kind of advanced, let's say you're doing OCR, which is character recognition. If you build your own OCR product that is just far more advanced, you own all the IP, it would be very challenging for somebody to copy that. In theory, the flip side of the coin would be doing something that it just wouldn't be worth. Yeah, you execute better, right? Or just more volume, I think in some ways.

So HubSpot, they have the asset marketplace where they sell templates and themes for websites and modules and building things that go onto the CMS and HubSpot. We have a HubSpot theme there, and I know, well, I don't know this, I've been proven wrong many times, but I have a feeling that HubSpot is not going to suddenly invest in a team to go build themes. It's just not worth it for them. They have so much bigger fish to fry in the product that they're building. So we're pretty safe in terms of contributing to the marketplace and creating different types of themes and things like that. It just doesn't make sense for them to go to replicate it. So we feel pretty good that we're safe from being eaten by HubSpot in our theme. So I guess it was the two ways.

Life and the Serengeti, Mike, you got to fight to survive, innovate, execute better, know your customers.