Achieving scale through go-to-market partnerships
Alex Rampell, a General Partner at a16z, wrote in 2015 about the importance of achieving wide distribution of your product before your incumbent competitor is able to adapt and replicate what you are selling. In this article we focus on how go-to-market partnerships can be used as one mechanism to drive the distribution side of Alex’s equation, with resultant incremental sales. There are many different ways in which this can be achieved, either individually or in combination, and we will look at some of these in this paper.
At Pi Labs when we assess companies for investment, we always want to understand how the business will achieve distribution of its product. In too many cases we find go-to-market partnership agreements which are created as a result of what we’d term a “random” prospective partner reaching out to the company and flattering it with ideas about potential sales deals. In reality these rarely work out, primarily because the purpose of establishing partnerships was never thought out clearly by the business to begin with. We believe partnerships can often be a highly successful route to market, but that the business needs to consider the objectives of the partnership strategy — and a framework needs to be put in place for execution as would be done for any other part of the company’s operations.
We should start with some clear definitions of terms. Go-to-market partnerships are often called channel programmes, and the companies with which you cooperate are channel partners. Note that channel partners are distinct from what many startups call “partners” when they actually mean “customers” or “clients”. (The only similarity with customers is that they are companies with their own business objectives). Here we will use the terms partner or partnerships to mean commercial agreements with another company to jointly achieve a common goal, normally sales related, and which is executed in the market. Where you have distinct employees covering the channel programme, they carry the Channel Manager or Partner Manager title — or possibly Business Development (again distinct from using this title as a euphemism when you are referring to someone who is actually a direct Sales Representative).
Types of channel partner
There are a number of distinct types of channel partner, which can be used separately or combined.
1. Resellers — These independent companies buy your product from you, and sell it onto their end customers. Usually, the reseller determines the end price, and usually it “owns” the relationship with the customer now and in the future — however there can be exceptions.
2. VARs (Value Added Resellers) — Similar to Resellers, VARs buy your product and sell it on whilst also combining it with their own “value added” product or service.
3. Distributors — A form of reseller where the distributor buys from you, and sells on to resellers who sell on to the end customer. This two-tier model is particularly useful for larger or more complex markets (e.g. the USA).
4. Introducers/Referrers — These could be companies or individuals, and generate leads in exchange for a fee (which could be a fixed amount or a percentage of a contract value). These are often used when the introducer has a connection to an end client, but does not want to (or is not able to) fully handle the sale and ongoing relationship.
5. Agents — A very important legal distinction to resellers — agents represent your company as your company in a market and enters into contracts on your behalf. Agency agreements are to be approached with caution!
6. Implementation Partners/Systems Integrators — Typically larger or specialist companies which will purchase your product and include it as part of a solution for their client. Often the integrator will “own” your product which simply becomes a component in their project.
How to approach designing a channel programme
The fundamental question which we would suggest that you want to answer is “how will working with a partner result in incremental sales”?
1. Figure out what you want to achieve — this could be entering new markets, providing a more rounded solution to the end customer, or accessing a difficult to reach customer group (e.g. governments which require procurement frameworks). Always remember to look at this through (i) your own eyes; (ii) the partner’s eyes; and most importantly (iii) those of the customer. Each of these three will have their own objectives to consider.
2. Research the market — in this, consider both your target customers and potential partners, and look for areas where these may (or could) overlap in some way providing synergies.
3. Reach the prospective partners — make sure that you understand early on what their motivations are, and whether these are complimentary to your own (or at least not directly in conflict).
4. The partner will be representing your brand — think carefully whether you really want your company to be represented in the market by the prospective partner — will it be additive to your reputation (or at least not detractive)?
5. Partner programmes — Consider whether you want to craft individual contracts with each partner (this can be hard to execute over time!) or whether you want to have a largely standardised partner programme overall. Larger companies often have tiered “levels” of partner programme (e.g. gold/silver/bronze) with more demanding selection criteria resulting in larger payments so you might want to begin by laying the foundations for this.
6. Contracts — take care to define all aspects of the relationship in the contract. Try to think through all potential scenarios and make sure these are accounted for.
Important things to consider
Yes, it is obviously important to figure out the financial relationship with the partner — for example what fees or percentage of revenue they will receive. But before you get to that examine the following….
1. How will the channel partner market your product (and who will invest in this marketing)?
2. How will the partner incentivise their sellers to market your product — what is the basis on which they are paid commission, and will that be a “meaningful” amount in their overall compensation. We have seen a lot of partner programmes fail because individual sellers don’t think it is worth their time.
3. Education — the partner sales team will likely need to be educated in your product to a similar level as your own sales team.
4. Your own organisation — Business Development/Channel Sales — how will you support the partner on bids, support issues, attending meetings with them in front of the customer — and how do you get sight of the partner deal pipeline as part of your overall regular sales management cadence?
5. Exclusivity — territory (geographic, sector, named accounts), time period.
6. Ongoing account management and incremental sales in the future — ask yourself “Whose customer are they really?” and make sure that you can live with the answer.
7. Who gets to set the price and other contract terms (like support)? Will you mandate the end customer price; how will you handle the inevitable exceptions? Many companies put in place a “special bid” process under which the partner can apply for changes to prices and terms.
8. Competition between partners. To what extent do you want to “rule” on these or will you have an open market. Also note there can be competition between a partner and your in-house sales team — to avoid this think carefully how you incentivise your own sellers to collaborate with partners. (We think double-paying both the partner and sales rep makes sense — but set the sellers target to include a percentage of their revenue coming from partner-led sales). A deal registration process can be used for partners to register that they first developed a lead; this also has the major benefit of the partner declaring their pipeline to you.
9. What if it doesn’t work out? Make sure you have options to terminate (or not to extend) a contract, and think through the ramifications of doing so ahead of contracting (for example what happens to the relationship with the end customers?)
And yes….
10. Payments to the partner — will they be paid a fee, a percentage share of sales, or buy from you at a fixed price to sell at whatever their choose. How much depends on many of the other points which we raise above.
In summary, partnerships can represent a fantastic way to expand your customer base — just make sure you do this is a thought-through way.
Case study: How Kamma partners with Reapit in rental licensing compliance
Our portfolio company Kamma recently raised a £3.6m investment round led by Clean Growth Fund, and in which Pi Labs completed a follow-on investment.
This week Kamma announced their partnership with Reapit, one of the major providers of software solutions to estate agents. Reapit’s Agencycloud provides its clients with “everything you need to run and grow your estate agency”…. and that now includes licensing compliance data provided by Kamma via an API into Agencycloud.
As one of the major property management software providers, Reapit serves the same market as Kamma. They are known for innovation, and yet offer a non-competing product, making them an ideal partner. As Kamma’s recent announcement alluded to, this was key in opening up new opportunities that wanted Kamma’s data surfaced through tools the business was already using. This unlocked new customers, including support for commercial conversations with 5 initial client targets and more to come. It also removed friction for current customers and — with both partners known for cutting edge technology — it supported brand objectives.
Pi Labs is currently recruiting for the latest cohort of our Growth Programme. If you’re a technology entrepreneur disrupting the way we interact with the built world, we’d love to hear from you.
