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Through Emergence Capital Partners' work in funding some of the most successful companies in the world, including Yammer, Box, Salesforce.com and SuccessFactors, ECP has gained a unique perspective on ...

Through Emergence Capital Partners' work in funding some of the most successful companies in the world, including Yammer, Box, Salesforce.com and SuccessFactors, ECP has gained a unique perspective on what works—and what doesn’t—in creating a successful business development program to grow a company. Based on this experience and the in-depth knowledge of our team of experts, this paper tackles some of the most frequently asked questions in the business development arena aimed at providing insights for SaaS startups in the B2B space.

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Using Business Development to Grow Your SaaS Startup Document Transcript

  • 1. USING BUSINESS DEVELOPMENT TO GROWYOUR SAAS STARTUPANSWERS TO 12 BURNING QUESTIONSSean Jacobsohn, Venture PartnerAs one of the only venture funding organizations focused exclusively on B2B technology-enabled services,Emergence Capital Partners has been on the front lines of the cloud-service renaissance in B2B services.Through ECP’s work in funding some of the most successful companies in the world, including Yammer,Box, Salesforce.com and SuccessFactors, ECP has gained a unique perspective on what works—andwhat doesn’t—in creating a successful business development program to grow a company. Based on thisexperience and the in-depth knowledge of our team of experts, this paper will tackle some of the mostfrequently asked questions in the business development arena aimed at providing insights for SaaSstartups in the B2B space.Business Development Burning Questions1) Why do business development in the first place?2) When in the companys lifecycle should you focus on business development?3) What types of business development deals are possible?4) What percentage of our revenue can we expect from business development?5) Which potential partners should I pursue?6) Which should I avoid?7) What type of partnership can I forge for a freemium business?8) How do I handle channel conflict with direct sales?9) In building my business development team, what type of individuals and skills should I look for?Besides the business development team, who else in our organization needs to be involved toensure the partnership is successful?10) Should I consider an exclusive deal with a partner?11) How should I structure the actual deal? What margin should the partner receive?12) How do I get my most sought-after partners to work with me?
  • 2. BackgroundDemand for Software-as-a-Service technologies for business-to-business applications is growing at anexponential rate, driven by the increased operational efficiencies and lower IT cost enabled by cloudcomputing. In fact, a recent Gartner report pegged total global SaaS revenues in 2011 at $12.3 billion, andby 2015, the research firm predicts the industry will surpass $22 billion. There is unprecedented opportunityfor innovative SaaS startups to capitalize on the surging demand and capture an early share of theburgeoning market.Aside from direct sales, business development strategies have become one of the most valuable growthtools in the SaaS startup toolbox.The problem is, “business development” not only means something different to seemingly everyone youask, but it’s also very difficult to pinpoint the right strategy to serve each startup’s specific needs and goals.In truth, there is no perfect formula. Devising a smart business development strategy can be a messy,introspective process, with much risk and reward on the line. Getting it right is even more important to theSaaS ecosystem now that SaaS has evolved beyond re-segmenting existing markets to creating newmarkets. The skills and relationships required to grow and develop a new market are very different fromthose needed for entering an existing market.A DefinitionOne of the reasons business development strategy is such an enigma is that it can take so many forms.Before we move on to tackle the12 burning questions, let’s first examine what business development mightentail, and define exactly which variety we’ll be addressing.Business development typically takes one of four basic shapes: Platform creation designed for third party developers to extend the capabilities of your company’score products. Salesforce.com and Box have all taken this approach, creating a foundation uponwhich many other developers have built new functionality and created customized solutions forspecific niche applications or industries. Corporate development aimed at rounding out your company’s main offering through acquisition ofsmaller companies and niche solutions to bundle with your core product. Microsoft’s acquisition ofYammer and Perceptive Pixel multi-touch hardware both reflect this strategy, along with Apple’s buyof Siri and AuthenTec security solutions. Solution integration for mutual benefit involves striking a deal to package complementary—butnot competing—technologies together to improve one or both products. Such a program might bedeveloped with a system integrator, a partner that doesn’t necessarily develop their own solutions butfocuses on bundling existing products, or with an OEM partner, where the partners integratesolutions into their own products. Revenue-producing partnerships with distributors, resellers, channel partners and affiliates. Theserelationships are directly tied to generating income from selling your product with revenue splits,margin specifications and negotiated distribution terms.This paper will focus on revenue-producing deals – one of the most important, yet challenging forms ofbusiness development for start-ups.
  • 3. Revenue producing business development can be hard for start-ups for several reasons:1) Most startup entrepreneurs have little or no experience in formulating this kind of deal, and many whodo, haven’t had tremendous success. The typical CEO or company founder is a product guru—atechnological visionary with a product concept who has not had the opportunity to negotiate manybusiness development deals.2) When you’re a young and hungry startup, it’s easy to get caught up in fanatically and selfishlypursuing your own goals. But, successful business development requires making your partners’ goalsa priority. Synergy and mutual benefit are critical factors in any successful partnership.3) Startups in hyper-growth mode often face a plethora of opportunities both inbound and outbound.While this is a nice problem to have, it can certainly make prioritizing and getting up and running witha business development program difficult when you’re being pulled in so many directions. Theseearly deals are also often the most time and resource intensive because there’s no model to use,which makes prioritizing even more important.4) Many startups are ill-prepared to ensure their product stays on the reseller’s radar and insteadassume the partner will just magically sell the product successfully. In reality, resellers are oftenpushing multiple products and tend to focus on the few they know the best or where they stand togain the most. It’s up to you to cultivate the relationship.Now, on to the Burning Questions…
  • 4. 1) Why do business development in the first place?It’s a valid question. It may seem obvious to some, but quite often eager startups are focused on a directsales strategy and, while they may be willing to entertain offers from potential partners, they’re not inclinedto actively seek them out. Business development offers several key advantages over a strictly direct salesmodel, including the ability to: Gain broader coverage in the market beyond direct and indirect sales. Depending on whereyour direct sales force is focused (industry-wise) or located (geographically), you are most likelyneglecting large pockets of opportunity. Business development enables you to work with partnersthat can cover all the possible market bases, from enterprise to SMB, certain verticals and keygeographic regions. To conquer all these possibilities on your own would be nearly impossible,outrageously expensive and overwhelming in scope. Instead, striking smart deals with partnersalready ingrained in their respective markets gives your company a shoe-in without the ramp-upinvestment. However, it’s important to ensure that resellers are equally as competent as you are inselling, supporting and implementing the solution, so as not to impact the customer experience. Outflank your competition by gaining distribution into segments they cannot. Partnershipsenable you to penetrate different cultures, language barriers and industries that may be tough tocrack. Leveraging relationships in these existing areas helps you make a smooth start to see wherethe success can be found, and perhaps back fill with your own sales team down the road. In 2011,Adaptive Planning’s network of over 400 global channel partners drove 33 percent of the company’snew bookings and 50 percent of new sales. Reduce capital expenses while still expanding. Business development efforts can yieldtremendous revenue potential without outrageous investment in marketing efforts, hiring a large teamor fixed cost for establishing a business presence in new territories. Instead, partnerships allow youto leverage existing infrastructure to keep expansion costs low. In fact, half of Intacct’s 2012 revenuewas generated from its reseller partners. Break through walled gardens. In certain verticals, cultures and geographies, target customersprefer to buy from a limited number of vendors, typically those with which they already have arelationship. Bundling your product with those key vendors may be the only way to get distribution.You might not be able to sell them your point solution, but when it comes neatly packaged with asolution they already know and trust, suddenly the door is much more open. For example, Intacct’spartnership with Avectra, which provides CRM solutions to associations, nonprofit, and charitableorganizations, has opened a valuable door for Intacct’s accounting software Building Brand Awareness. In some cases, it’s also about associating with a well-entrenchedpartner. As a New Zealand-based startup, Xero had a tough time breaking into the U.S. market, untilits partnership with a large payroll provider put Xero on the map in the U.S., earning the company astamp of approval from a massive player in the space. Create a combined offering more compelling than the sum of its parts. From an end-userstandpoint, some products are natural complements and provide much greater benefit when bundledtogether. Finally, partnerships can also be great test beds and a less risky proposition for pursuing aparticular offering or audience than building internally. Eliminate constraints on growth. Choosing partners that can help relieve bottlenecks, such asservice delivery capabilities, can clear the way for massive growth. Developing a large partnerecosystem can make it very difficult for competitors to supplant you from a market leadershipposition. That momentum will drive more potential partners your way.
  • 5. 2) When in the companys lifecycle should you focus onbusiness development?Business development should be on your radar from the very beginning, at least conceptually and for thepurposes of planning a business road map. However, actually kicking off such a program requires that youhave a replicable sales process with established customer successes in place. Once you’ve established arepeatable system and a successful track record, you can then begin to effectively train partners toreplicate that system based on the best practices you’ve established.How do you know when you’re ready? There is no prescribed timeline that says you must begin businessdevelopment within 18 or 36 months in order for it to work. Instead, use your internal temperature as aguide.There truly is no one-size-fits-all “best time”—it’s entirelydependent upon your goals and whether you’re in a goodposition to capitalize on the opportunity. For example,Cornerstone OnDemand launched its channel partnerprogram eight years after launching their direct saleschannel, with the goal of gaining complete coverage in themarket. Direct sales was focused on enterprise deals in theU.S. and Europe, while indirect sales had green field spaceto cover SMB, new territories (including Asia Pacific andLatin America), and unpenetrated verticals such as highereducation. Plus they were able to leverage the indirect salesteams’ focus on enormous installed customer bases such asSage (with 3.2M customers in the U.S.), gaining distributioninto customers and markets where their competitors haddifficulty penetrating without such partnerships.Business development can even make sense before your company feels “ready” in cases where a naturalpartnership presents itself and in a short window of opportunity. As long as the deal is properly qualifiedand carefully vetted, don’t automatically turn it down just because a formal program has yet to take shape.Questions to Ask to DetermineYour Readiness1) Is your sales model workingwell?2) Can you effectively onboard andtrain your own salespeople?3) Do you have enough referenceaccounts?If the answer to all these questions is“Yes,” you’re probably in a goodposition to get started.
  • 6. 3) What types of business development deals are possible?Revenue-producing partnerships can take a number of forms:PartnershipTypeDescription ExamplesWhite labelpartnershipsWhite label partnerships involve offering your product as anextension of your partner’s core offering to help them sell moreof their own product and/or retain customers by demonstratingprogression or offering a value-add. In this arrangement, yourpartner’s sales team has a quota on distribution, and often atiered system of revenue share whereby the partner earns ahigher percentage of the sale as their volume increases.CornerstoneOnDemand,ZohoCo-brandedpartnershipsCo-branded partnerships position your product as an add-onsolution to the partner’s product and the sales team might havea quota on distribution. Startups often worry that white labelarrangements will dilute their brand or cause them to sacrificetheir own identity and potentially hurt future direct sales growth.However, if you’re determined to maintain your brand in thedeal, you may also be responsible for the majority of the salesand marketing work, which demands both time and financialinvestment—and should be clearly defined in the agreement.When you let the partner market the product under their ownbrand (in a white label situation), the onus falls on them topromote it. Partnerships can also begin as co-branded andlater convert to white label based on the success of theprogram.Box,NetSuiteReferralpartnershipsReferral partnerships are mutual arrangements where bothpartners refer each other’s product to their customers and bringin the partner sales team to close the deal. This can be a fairlysimple arrangement, but it’s important that both sides areclosely matched in terms of market opportunity andpenetration, as well as individual sales rep training, finesse andskill. Reps must fully understand the capabilities and benefits ofpartner technologies in order to effectively identify referralopportunities. Not only does the referral approach eliminatechannel conflict in areas where the company has direct sales,but also it enables them to leverage the brokers andconsultants looking to deliver added value services. Sincethese partners own the customer’s ear, they can refer insolutions that are a good fit and provide services around thecore product.WageWorks,WorkdayFortunately, there’s no reason a company must pick just one model—instead, a strategic mix can diversifythe revenue stream. And, even within the various models, the channels can vary as well.
  • 7. 4) What percentage of our revenue can we expect frombusiness development?This depends entirely on how much or how few resources you deploy toward business development versusdirect sales. SMBs, certain verticals and some international markets are difficult to penetrate and coverefficiently with a direct sales force. Therefore, how much of your business is focused on those areasdetermines the revenue percentage you can expect through partners in those veins.There certainly is no magic number. We’ve seen companies where partnerships account for as little as 5percent and others as high as 100 percent, as is the case with Axcient, which derives all of its revenue fromsome 27,000 resellers. It truly depends on what makes sense for the company, its target market and theopportunities. For example, 40 percent of Cornerstones revenue is influenced by a partner: 25 percentfrom resellers and 15 percent from referral partners.While there is no magic number, several factors should play into the process of establishing a revenueprogram. These include: the relative price point of your product versus that of your partner, relative margin,strength of existing customer relationships, barriers to market entry or growth and expectations on sales,marketing and post-sale service.It’s also important to remember there may be a few tradeoffs you have to be willing to make. For example,with resellers and OEMs, you’re trading margin for a reduction in customer acquisition cost (CAC). If youhave a relatively high CAC and your reseller or OEM partner has a relatively low CAC and low margin, thenyou’ll both benefit from CAC arbitrage for a long, long time, making for a beautiful partnership. The sameholds true for other important SaaS metrics, like retention rates and cost of service. The ability to exploitthese arbitrage opportunities makes business development in the SaaS world much different from the on-premise world. In the on-premise world, access to channels was the primary motivation for revenue-drivenbusiness development activity. But with SaaS, arbitrage is where much of the value is found.
  • 8. 5) Which potential partners should I pursue?Start by identifying partners that offer products and services that complement your offering. For resellers,ideally these are often opportunities for your product to replace a lower-performing (perhaps competing)product in their suite and/or to extend the capabilities of their own product. In addition, partners thatcurrently offer B2B SaaS solutions and those who already have experience as a reseller are better fitsbecause they understand the space, and it’s often quite difficult to train individuals on selling software ifthey don’t currently do it today. Box has adopted this approach, partnering with Insight, the #1 reseller ofSharePoint and Microsoft’s #1 reseller overall, and Softchoice, the #4 reseller of SharePoint and #1Microsoft reseller in Canada.Ultimately, it’s important to choose partners that align with your joint development and sales objectives, andit helps to develop formal written plans with stated revenue goals and milestones. Worthy partners must bewilling to put “skin in the game”—to commit to training and enablement of their team, revenue targets anddedicated executive sponsorship, as well as a dedicated alliances executive who owns the quota,engineering and support commitments.At the top of your pyramid, identify a few potential game-changing strategic partnerships and work these atthe executive level. For young companies, forging a partnership with a large market leader can dramaticallyaccelerate revenue as well as credibility, as Xero discovered with its payroll provider relationship. Whilethese can take time to develop, they are typically well worth the effort. You must also be mindful that this isa competitive process, and your top competitors are likely trying to build relationships with the samestrategic vendors in your ecosystem, so you must be engaged both from an offensive and defensiveposition.For international resellers, faster success can often be found in English-speaking markets such as theUnited Kingdom and Australia. One of the challenges for smaller companies in expanding to partnersbeyond these markets is localizing the SaaS platform. You’ll also want to consider national laws on dataprivacy when looking to establish international resellers, as some countries may require the use of localdata centers, which could be cost prohibitive for smaller companies.A benefit SuccessFactors is seeing from some resellers is the ability to slow or reduce the growth of theirprofessional services resources. Some of their most experienced partners on the services side areresellers that they can outsource services work to. The great thing about software-as-a-service is that youcan use resources in one country to work on projects elsewhere.Finally, while it may be tough to quantify the criteria, identifying partners with the right talent and skill sets tomake the partnership a success is critical. A lack of resources and proper skills can make it impossible toscale and limit future growth opportunities.
  • 9. 6) Which should I avoid?Be wary of prospective partners that have competing products in their portfolio, or at least be assertive indetermining how they plan to handle that conflict. Maybe they aim to replace their difficult-to-maintainproduct with yours to streamline operations and cost. If so, this can be a very effective relationship.Also, be cautious of smaller partners that might have credit risk and those that you doubt can make ameaningful impact on revenue. Focus on quality over quantity. It’s better to work with fewer partners withmeaningful impact than a larger number of partners with minimal impact. Besides, as a startup with limitedresources, the last thing you want to do is spread yourself too thin and waste time chasing deals with littlevalue.Be aware of your strategic roadmap and that of any prospective partners. While you may not becompetitors today, as each of you build out solutions, you may become fierce competitors soon. Thissituation can quickly kill many months of hard work in building and structuring the relationship, so it’s betterto be as candid as competitively possible up front.Finally, be mindful that some of your best partners may potentially be your acquirer down the road. Whilethis can be an intriguing thought, be careful about any proposed investment in your company as such amove could preclude other partnerships or acquisitions. Good partnership can lead to lucrative exitstrategy, but only if you don’t close all the doors in the process. Such was the case for KACE, which beganas Dell’s vendor partner of network, desktop and server appliances. After Dell generated more than 50percent of KACE’s revenue with a reseller partnership, the PC giant eventually acquired KACE in 2010.Pursue AvoidSell complementary products to samebuyerSell competing productsLarge customer base that’s a good fitfor your productsSmall customer baseSmall number of partners who canmake major impact on your business& who have had success resellingother productsSpreading limited resources acrosstoo many partners and/or thosewithout experience as a reseller
  • 10. 7) What type of partnership can I forge for a freemiumbusiness?Freemium products are definitely a breed of their own, and as the adage goes, “Birds of a feather flocktogether.” Other freemium providers like adding additional freemium products to their suite, which canincrease engagement with their own products and help increase the likelihood of customers hitting a paywall. Adding free solutions to existing paid solutions can also increase engagement with partner customersand help further monetize the total solution when customers hit the pay wall on your product.WinZip added a white-label version of the freemium YouSendIt product to their solution calling it ZipSend.Not only did this increase the value proposition and engagement of the core WinZip product, it increasedthe conversion rate of free WinZip users to paid users.The e-commerce channel can very useful in the freemium game, both at the top of the funnel to generatetraffic, and at the bottom to convert that traffic with a more compelling product offering. In this way, if youhave a strong understanding of your CAC, conversion ratios and customer lifetime value, you can treat thepartner as a marketing channel, offering them an incentive per lead, giving you the opportunity to evaluatehow each partner channel performs versus one another.
  • 11. 8) How do I handle channel conflict with direct sales?Start by identifying resellers that focus on areas where direct sales isnt. For instance, if direct sales ispouring all of its efforts into enterprise business, choose partners that sell to SMB customers. If directsales is focused on North America, then build relationships with international resellers. If there are certainverticals where your direct sales are weak, identify resellers in those verticals to help you boostimpact. The goal is to work both sides—direct and indirect—to establish full coverage in the market. Inareas where there’s simply no way to avoid direct conflict, consider signing up referral partners or co-marketing and co-sale partners like systems integrators and other service providers.In the case of cloud content-sharing service Box, their model mitigates channel conflict via compensationby creating a channel neutral scenario. Box salespeople earn the same commission and quota reliefregardless of whether a deal is sold direct or via a channel partner in their region. This encouragessalespeople to give the channel partners leads and engage in co-sales with the partner.Regardless, we strongly recommend that you leverage a registration process through a CRM system inwhich the first partner to register a qualified opportunity owns the deal. However, in cases where both directsales and the partner find an opportunity at essentially the same time, they might even team together onthe deal and split the revenue and quota credit. Also, if a partner or direct salesperson can add value to adeal already in progress, give the owner of the opportunity the chance to team with the other, if theyreopen to giving up some of the incentives.Lithium, the customer-facing social community software and social marketing provider, takes an entirelydifferent approach. It mitigates conflict by having its direct sales team sell certain products to marketing,while resellers focus on selling other products into customer support.In a somewhat different model, Google Enterprise eliminates channel conflict by giving their sales repsquota credit for all deals sold by a reseller in their territory. In addition, the company requires that all dealsunder 10,000 seats must go through a reseller. In such a scenario, the quotas are increased to cover alldirect and indirect sales in a reps territory. Meanwhile, SuccessFactors incentivizes direct sales reps topush work to partners to help fuel the demand and engagement.Finally, maintaining price parity is vital to mitigating channel conflict and this should be worked into thepartnership deal. A situation in which partners try to sell your product at a different price and competeagainst your internal sales force in the same market can destroy any potential benefits and hurt both ofyour reputations.
  • 12. 9) Organizational Questions: In building my businessdevelopment team, what type of individuals and skillsshould I look for? Besides the business development team,who else in our organization needs to be involved to ensurethe partnership is successful?On your business development team, youll need a hunter who can identify, negotiate and closepartnerships, who has authority at the highest level and the ear and confidence of the C-suite. Youll alsoneed “farmers”-- account managers who will cultivate the partnerships for success, manage the accountexecutives and sales team, provide resources for enablement, and who are subject to revenue quotas. Aspecialist in partner marketing can provide tools, materials and support for partners in promoting the newproduct to their customers and prospects, as well as support the partners own marketing initiatives. Otherkey team members include solutions consultants who help train technical resources; customer supportconsultants who train the partners customer support teams on managing clients success; andimplementation specialists who train the partner on implementing the solution.In all cases, a team approach is critical whereby each of these key players work together to streamline theprocess. For example, for implementation, your partner might first observe an implementation or two, thenyou might tag-team implementation tasks for one or two customers. Finally, the partner would lead theirown implementation for one or two customers under careful supervision before they become certified. Thissystem should be duplicated in the sales and solutions consulting, as well as support, and ongoing trainingand certification should continue as new products are launched.Beyond your business development team, executive sponsorship on both sides of the table is critical tomaking sure the partnership is a strategic priority. Sales and marketing will need to be involved, and you’llalso want to consider customer, account and technical support. In fact, assigning technical resources toassist third parties is imperative to ensure the integration is seamless. Will bringing on new partners add tothe demand? Will you or the partner provide technical assistance to customers acquired through thepartnership? Again, there is no single correct answer that works for all arrangements, but it’s important todetermine the expectations up front, and ensure the responsible party can meet them.For large, complex partner sales organizations, it’s critical to socialize the partnership with the on-the-ground sales reps and managers. Don’t leave tasks to the partner VP of Business Development or Sales;instead, you must be actively involved in educating your partner’s sales force on your offering.Particularly for referral partnerships, it is important to work on building relationships and trust between yoursales team and that of the referral partners in their region. Partners favor vendors who they can trust andwith whom they enjoy a personal relationship. Your local sales team’s attendance at partner sales meetingscan have a huge impact on driving deals in the field.With OEM partnerships, your Product Management team must be involved to help scope the work tointegrate the two solutions and determine the level of investment on both sides. Once this is accomplished,both sides can review the business plan to determine if the investment matches the return.
  • 13. 10) Should I consider an exclusive deal with a partner?Exclusivity is most often associated with specific targeted market segments (i.e. geography, industry,brand, use case). In the enterprise software/SaaS space, it’s not uncommon for a software company topartner exclusively with a large services organization to develop solutions for specific business functionsand industries. Exclusivity tends to works best when a) the revenue potential is very high, and b) bothparties share equally in success or failure. Revenue guarantees are often required when either of thesecriteria is not met. Opt outs for M&A and revenue shortfalls are also common.Exclusives typically only work well if the revenue guarantees are great enough, and only if the exclusivity islimited to a small number of off-limit partners. Any revenue guarantees should also have time limits,providing an “out” in the event certain targets are not met, such as failure to achieve revenue commitmentsin two consecutive quarters, for example.Only do an exclusive deal in a specific vertical or geography in which you have no plans for investing viadirect sales in the near future and be very selective. There must very clear lines drawn with regard tocustomers in these types of deals. If not, you run the risk of massive channel conflict. As part of the deal,you also need commitment (contractual) of resource investment from both sides, and consider settingtargets around actual "billings" vs. "revenue/bookings." These targets should be aggressive and somewhatin line with targets you would expect from your direct sales team (if they sold into the partnervertical/territory).Exclusivity should always be bi-directional (unless there is a very sound reason against it). If a partner doesnot want you working with their competitors, they should also not work with yours. Also, anti-competitionlaws need to be considered, at least in Europe, so putting an exclusive arrangement in place where this isan issue takes careful structuring.However, exclusives deals are rarely effective, because they increase channel conflict, require you to giveup part of your addressable market to a third party, and limit your ability to work with other partners whomight have an overlapping client base. Another challenge is the unpredictability of partnerships, asoftentimes itll be the first model of its kind, resulting in many question marks. Exclusivity increases thelikelihood that a mistake/miscalculation will come back to haunt you. With such high opportunity cost,flexibility is key. That doesnt mean exclusivity is out of the picture, but just that it requires much betterupfront knowledge and more accurate sense of the outcome. Thus, a common approach can be limiting theexclusivity to one year as a trial, especially if the partner is a big value target (large and successful withanother product), and there are a small number of other partners interested in your product.Exclusivity can be achieved without a contractual commitment if the partnership is successful and requiresenough resources that it’s not feasible for either side to work with another competing partner. For instance,SuccessFactors does not have an exclusive arrangement with its partner in Israel, but they have yet torecruit another partner there, so it’s exclusive by default. It’s likely SuccessFactors would structuresomething similar for other markets where they dont have the bandwidth to support multiple partners.
  • 14. 11) How should I structure the actual deal? What marginshould the partner receive?The terms should be determined by multiple factors. Higher revenue share percentages, up to 50%, canbe offered for partners that can obviously make a meaningful impact on your business and require suchmargins to effectively quota their sales reps. Many times these major partners will also guaranteerevenue. Typical reseller partnerships provide 20-40% in annual recurring margins on software, but canalso scale up once revenue milestones are met or reps are effectively trained to sell without muchsupport. Typical referral partnerships pay each side 5-25% of first year software revenue, but can creep upsignificantly as volume surges. Many times half of that amount is used for co-marketing initiatives to helpgenerate more lead flow.Understanding the strategic landscape is also critical before diving into any deals. In addition to having along-term strategy built out, it’s important to also have a sense of key metrics you’ll want to test for in "beta"deals. Having realistic expectations and working toward actionable, incremental successes is much moremanageable than trying to achieve the big audacious goal right out of the gate. This provides anopportunity for the business development path to grow in importance, complexity and integration over timebased on incremental successes.Developing a tiered structure, with specific expectations, metrics and service levels designed to meet theneeds of partners at various levels, can help make the overall partnership program easier to manage.Plugging potential partners into these pre-defined categories can help establish best-practices so that eachnew deal does not require you to reinvent the wheel.Regardless of how the deal itself is structured, it must include defined goals, KPIs and other milestonesthat are satisfactory to both parties. Stated objectives can be defined on a case-by-case basis, but thingslike training and certifying a specific number of team members, new customer onboarding and revenuegoals are a few examples. Regular status reviews on a quarterly basis are also critical for ensuring that thepartnership is meeting expectations for both sides. The most productive partnerships work well becausethey are based on clear objectives and are supported by the necessary resources to meet them, includingmanagers dedicated to ensuring those goals are met.In fact, from an operational standpoint, it’s a good idea to evaluate your overall partnership portfolio on aquarterly or (at minimum) annual basis, and don’t be afraid to fire partners that aren’t living up to their endof the bargain. Effective partnerships require ongoing communication about mutual corporatestrategy. Business development needs can change, and you must be willing to make adjustments whenneeded. For instance, Cornerstone OnDemand leveraged partners to resell into the mid-market when theyhad no salespeople of their own focused on that segment. They now have 60 salespeople focused on themid-market and have begun minimizing their reseller efforts there to reduce channel conflict.
  • 15. 12) How do I get my most sought after partners to work withme?Finally, perhaps the biggest burning question of all: how do you get target partners to notice you? Thesingle best way is to start sending them business. Once you begin referring meaningful business they willtake notice and discover the excellent synergy between your products. Approach your initial interactionswith the intention of looking for ways to better serve your mutual customers. The goal is that these altruisticintentions will in turn encourage them to approach you for a meaningful partnership, rather than you alwaysbeing the instigator.There’s no doubt that your most sought-after targets are likely the same as countless other startups. But,there’s also a good chance those other startups are mostly seeking a one-way partnership that serves theirown needs, which wont get the partners attention. The mutual benefit approach is critical to gainingattention, trust and an ongoing relationship.Often times, getting one strategic partnership in a market can be leveraged to attract other key players inthat market. The bowling pin theory. If you can get the lead player in a market to partner with you then youcan more easily get the rest to partner with you to restore equilibrium in the market and eliminate the leadcompany’s competitive advantage.
  • 16. Conclusion: Build Your Own BizDev StrategySome in the industry have questioned whether any one has actually been successful in reselling SaaS.However, based on the examples cited here and many others too numerous to mention, it’s quite clear thatin fact, there are many success stories and the number is growing. Reselling in the SaaS business hasbecome a cost-effective way to gain full coverage and outflank the competition, either as a complement toor replacement for direct sales.In pursuing any business development strategy, as with any new initiative, begin with a carefulintrospection of your organization. It’s critical to align your internal staff and resources to effectively takeadvantage of the opportunity. While it can be a risky venture, identifying and working with partners thathave already been successful in reselling SaaS products—and that have already built a best-practicesmodel and process—can dramatically reduce the risk and enhance the likelihood of success. Rather thanhaving to teach an inexperienced partner the ropes, and essentially re-invent the wheel, working with anexperienced reseller enables you to take advantage of their experience, success and existing marketrelationships.