Stay single, or partner for scale and growth

by | 12 Oct 2022

Let’s start with a conceptual error that I often see, particularly among later-stage businesses. It usually emerges near the start of an engagement, when we ask them about their channel/partner strategy. Often, the response is something like:

Why should we give away our margin to a partner? We want direct relationships with our customers. We want to be in control.

There’s lot to unpack in those three sentences, but I want to focus on the belief that sits at their heart.

We want all the pie.

At this point, we’ll usually mention the Salesforce partner ecosystem, which is forecasted to be $6.19 for every $1 Salesforce makes by 2026.

IDC have projected that the Salesforce partner economy will deliver $1.6 trillion in new business revenues worldwide and generate 9.3 million jobs — a lot of money to give away and a lot of people needed to deliver it.

But that’s short-term thinking. Salesforce wouldn’t be a multi-billion-dollar-a-year revenue business without the partnership strategy that created and supported its vibrant marketplace.

It uses its partners to make more pie — way more than it could ever make alone.

Salesforce has announced to the street that it is forecasting $50 billion in annual revenue by 2026 (17% CAGR from FY2023). That’s execution at scale.

A step back

Let’s pause and look at how this really works, because money is not the only driver here. It may not even be the main driver.

We’ll stick with Salesforce as an example, then dig into what the rest of us can learn from their strategy.

Like a lot of B2B technology companies, Salesforce serves a broad, complex customer base. Here are some of the industries they serve, according to their website:

  • Automotive
  • Business services
  • Communications
  • Consumer goods
  • Education
  • Energy & utilities
  • Financial services
  • Government
  • Healthcare & life sciences
  • High tech
  • Manufacturing
  • Media
  • Non-profit
  • Retail
  • Transportation & hospitality
  • Transport & logistics

Whilst there may be a perception that Salesforce focuses only on large enterprises, they also cater for medium and small businesses.

It’s hard to imagine the complexity of serving this many markets, but if we drilled down into any of these categories, we’d find the same fractal pattern. Take the energy & utilities industry. How complex must that market be when you break it down? Each submarket. Each nation. Each regulatory framework. Each potential client bringing their unique mix of needs, use cases, data models, constraints and dependencies.

Today’s customer is faced with a whole world of challenges as they seek to optimise their business. For many (if not most), this means that they have to identify, negotiate, procure, implement, integrate, manage and support a compilation of solutions across multiple vendors to achieve their business goals and needs.

Can Salesforce provide (or even imagine) everything those clients might need to optimise the service? Of course not.

If they want to serve these markets, they need partners to create and fuel the ecosystem.

Vendors like Salesforce have rightly recognised the power of partners to fill in the gaps, providing tremendous value to both them and their users.

The wanting all the pie error is much easier to see at this scale, but here’s a thought experiment to make it simpler still.

Imagine your mobile phone without any apps. Quite a painful thought, right? And would you still use your phone to the same extent?

Back in 2008, Apple recognised that in order to drive usage of its iPhone, it needed to create a range of applications, games and services. Recognising the complexity of attempting this alone they made a strategic move to allow partners to develop apps on their iOS platform…and today they have more than 2 million apps on their App Store (something nobody would have even imagined), and they have paid developers $60 billion in 2021, or $260 billion in total since the launch of the App Store. Aside from driving value to their customers, Apple financially benefits through its revenue share agreements, which earns them between 15-30%…not a bad business, right?

Could Apple have scaled that fast if it attempted to do it all in-house?

Other objections

As we dig deeper into client engagements, we often find that the arguments against partnerships are not just about money.

  • “We do not have the right product for partners.”
  • “Our solutions require a lot of customisation, which only we can do.”
  • “Why would an organisation like Accenture want to work with us?”
  • “We want to serve our customers directly.”
Smaller firms tend to make the understandable (and wrong) assumption that partnership programs only benefit big businesses like Microsoft, HubSpot, IBM or Cisco.

In fact, the opposite is true. Establishing a partner program is one of the most effective ways in which a vendor can scale and grow its business.

Here’s an example from one of our case studies:

A mid-size B2B technology business was on the brink of bankruptcy and haemorrhaging cash. We were engaged to stem the decline and move the company back to profit.

To do this, we transitioned them to a software recurring revenue model. The strategy worked, but required reductions in headcount and marketing budget, as well as the reallocation of resources to support the new model.

Not surprisingly, this left gaps in existing opportunities and engagements — particularly customers that still needed support, and projects that still needed to be delivered.

Those gaps were filled by partners.

In line with our experience, we outsourced some of the capabilities to local delivery partners and resellers. This allowed our client to deliver on previous promises without the overheads (rent, recruitment, staff retention and so on).

Once we had started to demonstrate profitable growth, the focus changed and the CEO began to look for international expansion opportunities. This time, the Board wanted to validate market demand prior to approving any significant investment.

Again, we leveraged established partners, recruiting local specialist resellers to help drive demand. This allowed us to test the strategy without opening new offices, hiring new staff or building out a new network. Of course, the partners still needed support, but the ROI was positive and supported the future investment.

More than two-thirds of the new business was enacted by channel partners, which also absolved our client of contractual agreements, billing terms, support and so on. On top of this, the resellers brought in more than 40% net-new business to the company. This is referred to as ‘deal registration’, which describes an opportunity that is wholly created and sold by a partner.

Like Salesforce, the company benefitted from building and nurturing a channel and partner ecosystem. You can learn more about the turnaround case study here.

Why not just hire more people?

Hiring more people is always an option, especially if you have money and time to invest. But the investment is often more significant than originally estimated. Technology vendors should typically consider sales, pre-sales, solution consultants, business development, customer success, professional services, support and so on — not including the increased back-end staff and expenses to deal with admin, marketing, finance, legal and HR. The time required to hire and ramp up the different teams and people makes it difficult for many businesses to sustain the cost without immediate return.

In contrast, a partner strategy enables a multiplier effect. The illustration below gives an example of how this works in theory.

Common traits on why private equity backed software companies underperform / fail

Leveraging the channel allows you to efficiently scale and grow

Instead of targeting end customers directly, you look to recruit, onboard and enable a series of partners. Each partner has its own competencies, teams and existing customer relationships.

But…we’re special

I understand. Everyone is. You aren’t Salesforce or Microsoft or HubSpot.

But just as every technology vendor is different, there are unique and complementary partners with their own set of skills, experience and expertise.

Perhaps you need a partner who can ‘follow the sun’ and provide 24×7 support. Perhaps you need resellers, systems integrators or management consultants.

From our experience, the partners you need do exist. Here are some of the ways that the right partner ecosystem can add value to your business.

Different types of channel partners

Partner ecosystem – the different types of partners that can help your business scale and grow

Value add from a channel partner ecosystem

The potential value added by a partner ecosystem

Developing a partner program

You need to think about how you will support, recruit, enable, onboard and incentivise your partners. This is defined within a partner program — a document that outlines the expectations of both parties.

The key elements of the program should include:

  • Program description
  • Rules of engagement
  • Governance protocols
  • Commercial incentives
  • Contractual obligations

A strong partnership is built on these foundations, to the advantage of both parties.

When it’s done well, there is more pie for everyone. Often massively more.

What next?

At Citius Partners, we offer a channel partner ecosystem service to help companies scale and grow.

To discuss this, or the specific challenges you face, contact us.


Mitul Ruparelia

About Mitul Ruparelia

Mitul Ruparelia is a Managing Partner of Fortius Partners, a growth transformation partner for private equity and venture capital backed businesses. He has over 20 years of growing profitable, sustainable business units, defining strategy and leading sales, marketing, product, innovation, finance, raising investment and people management for established, underperforming, and scale-up businesses. He has helped companies scale to valuations of over $1 billion.

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