Why the future of GTM is partnerships

by Kirstin McIntosh, Something Real Ventures

Jay McBain is a chief analyst at Canalys — the world’s leading analyst firm focussed on channels, partnerships, alliances, and ecosystems. When we spoke recently, he challenged the Something Real founder community to think more widely about their GTM strategy.

Think partnerships from Day 1

Every founder is told that direct sales are critical to win first customers.

Jay adds a new mantra to this — today’s founder should understand how your customers buy in the tech ecosystem.

He explains that with SaaS now a maturing 25-year-old category, startups today build on top of existing cloud infrastructure, and alongside tech stacks that appeal to a buyer. This has shifted the market towards greater indirect sales. The consequences of this shift are significant -

“The tech industry is spending $5 trillion on technology and telecommunications, and 73.2% ($3.66 trillion) of that goes through channels. Microsoft has 96% of their sales which are business partner assisted, and even Dell has just surpassed 60% indirect. In security, 91% of spending goes through the channel, and partners make at least $2 for every $1 that vendors make.”

So you go to where your customers are.

Understand where your product fits in the 7 layers of partnership

Jay explains that “Every enterprise starts with a platform such as Microsoft, Cisco, Okta, Palo Alto, or Zscaler, and then everything else is bought through a partner in the 7 layer stack.” That new stack looks like this

1. Distributors
2. Cloud distributors
3. Cloud marketplaces
4. Tech solution distributors
5. Aggregators
6. MSPs
7. Marketplace development platforms

Cloud marketplaces are easily the fastest growing partnership layer. Today, they are doing $45 billion of revenue, and growing at 86% compounded growth.

AWS alone has rapidly become a top 10 distributor, with Canalys calculating that there is $6.40 of multiplier opportunity in partnering with AWS. To emphasise the power of this partnership layer, three large security companies recently issued a joint press release that together, they are doing $1 billion of revenue on AWS marketplace.

How do we choose our first partner?

Jay’s advice is simple.

“Become obsessed over the buyer and their sub-industry and their geography. Obsess over the segment that they are in. Understand your product and where it fits in their stack, then understand the model. If you understand that, you can then understand the channel question.”

The digital-first buyer is focussed on integration

There’s another important dimension to consider. The B2B buyer is changing. By the end of 2024, the majority of buyers will be a digital first millennial (by both numbers and budget).

“They expect you to be a part of their ecosystem. 75% of digital first buyers don’t want to talk to a person to buy a product, and tellingly, 79% of this group won’t even buy a car without Apple or Android installed. This digital-first buyer will buy something that meets 80% of their needs if it integrates well, and ease of integration outranks other decisions. Even pricing.”

To win their business, your products must be subscription / consumption friendly.

The ‘surround’ strategy — names, faces, places

Jay outlined how the customer journey is also changing.

“Customers go through 28 different moments before they purchase, and you need to surround them in those moments. You must serve them in a way that they want to purchase the product. There are partners in each of those moments that own that space.

There are also 14 spheres of influence. Understand what they read, where they go, who they follow. There is no one single throat to choke, no longer one single trusted partner. It’s actually very tactical, and very straightforward — names, faces and places.”

By doing this, you will quickly understand how to approach your buyer and become part of their spheres of influence.

Jay notes,

“There are 1,000 digital watering holes to connect on. In security, there are 270 events and 120 magazines which can influence your buyers. And 12% of people love podcasts. Find where your buyers go and influence them there.”

Who is winning at the ‘surround’ strategy?

Jay was unequivocal -

“Crowdstrike. They took the market by storm. They didn’t do it by M&A, or sign a big agreement. They studied the market in-depth and took a grassroots approach. They understood who the super connectors and key partners were in Australia.”

Today, Crowdstrike is a public company whose value has skyrocketed from $7 billion at IPO in 2019 to over $90 billion today.

How does a startup build trust with partners?

Jay likens this to the surround strategy for your customers. You surround your partners too.

1. The more visible you can be, the better. It becomes super important to have the loudest and most trusted voices translating your message
2. New partners will come to you if they are being told by customers that they need it. Often a purchase comes down to what a trusted person has told them to do. Even if, and especially if, you already have a deep relationship with a tier 1 platform — everybody wins in today’s ecosystem.
3. Partners will share data where there is an incentive to do so, and many can help you measure and monitor your sales through them

Is my first hire a Partnership Director?

Not necessarily. Jay believes that:

“Your first hire after direct sales is not a partner person, it’s a community person. Understanding the who, where, why, and the what of your buyers is what matters most.”

Pricing across different partnership layers

While still at a small scale, Jay recommends that pricing and commissions should be kept simple, and as consistent as possible, noting that 20% commission on front end and 3–5% on backend is typical for a security channel.

Generally — “Today’s partnership ecosystem means that as a company, you shouldn’t care how money changes hands. The economics of partnering is changing — we are moving to measuring partners at their point of value instead of at the point of sale, especially with the rise of the platform.“

On marketplaces — “As you move onto the AWS marketplace, your sales turn into private offers. In marketplaces, 30% of your deals are partners clicking buy on behalf of their customer. Expect roughly 25% of your sale to be eaten up in GTM costs.”

On reseller rebates — “It’s not black and white, and your rebate strategies must necessarily differ. 50% of companies will allow you to incentivise the seller. There are 500,000 resellers who sell security, on a scale from coin-operated to don’t care. However, overall, the reseller market is on a road to 3% as a cut.”

TL;DR trends in partnerships

When ready to scale a GTM strategy, Jay recommends that founders assimilate these key pieces of information in their decision on how and where to partner

1. Partnerships are not just an extension of sales — it’s a whole different approach
2. There are partner opportunities and spheres of influence throughout the customer journey
3. Understand how the economics of partnering is changing
4. Your product must work with with one or more of the existing key platforms
5. Subscription and consumption friendly
6. Integration first and marketplace friendly
7. Pricing is moving to multipliers instead of margins

Jay’s recommendations

We like to ask people for their recommendations

An influential book or podcast : The Nearbound Podcast

Your fave band / performer — Taylor Swift, having seen her perform in Paris with the family

A food we should try — always eat what the locals eat when you travel, it will always be fresh

A fact that you find fascinating — The rise of the platform. Every tech company is trying to become a platform