Growing SaaS: Putting Channel Partner Self Interests Ahead of Your Own

As both an entrepreneur and startup investor, Software as a Service (SaaS) is an industry that captures much of my attention for opportunity.

My company TriNet began as a tech enabled HR service and continuous investment on the platform side transformed the company to an increasingly SaaS oriented set of growth issues. More recently, my startup IntroNet launched as SaaS, and a majority of my UpVentures investments are also SaaS.

In looking through both entrepreneur and investor lens, I’ve come to appreciate the biggest challenge in growing a SaaS isn’t about product innovation, but in how to build scalable distribution.

Obstacles to Ramping Direct Sales reports that there are tens of thousands of SaaS companies, but even when including B2C, less than 7% of them grow to user bases of greater than 10,000 users.

Small user bases translate to limited revenues available to sustain ongoing sales and marketing expense and this is especially challenging for earlier stage companies pedaling hard to establish brand recognition in their chosen vertical(s).

Even when a SaaS presents a compelling solution over existing alternatives, enterprise level customers are notorious for wanting safe and recognizable providers to hitch their wagon to.

Users of all flavors are reluctant to learn new software as well as change their existing behaviors and internal processes.

The conventional approach to scaling SaaS volume is to grow a direct sales force and fuel lead generation with as much marketing spend as your wallet allows. But a puny sales team and resource constrained marketing makes this a long and tortuous startup trek, ultimately relegating too many promising SaaS companies to the trash heap – victims of SaaS infant mortality.

Building Channels Is Hard

Faced with these challenges, SaaS entrepreneurs explore development of channel partner relationships – seeking out partners who already have distribution in their chosen target market(s).

Seems plausible. After all, if the channel partner’s sales team can be commissioned on introducing your SaaS to their customers – what’s not to like?

In my TriNet experience, since we own the distribution channel we are constantly approached by other offerings seeking to partner. The vast majority never made it to the evaluation stage since those suitors were just not thinking things through on how the effort looked from our perspective.

Here are just a few of the considerations we would have when I was CEO, impeding most partner opportunities from reaching evaluation:

  • Integrating the partner offering to TriNet’s platform: IT resources are always in greater demand than supply allows, making it too hard to justify putting development resources towards enabling someone else’s platform when our list of needed enhancements always seem stuck on critical issues of our own.
  • Communicating a new offering complicates messaging. We have a big enough challenge getting customer mindshare on our current offering, thus making it difficult to justify putting a spotlight on someone else’s offering only tangentially related to our value proposition.
  • Where’s the evidence to show new revenue gains? When you’re the company that owns the distribution channel, the driver that motivates you to partner is the allure of more new revenue of your own. Too often, partner proposals failed to dig in deeply enough to be convincing that the hoped for new revenue gains come anywhere near the levels needed to offset the opportunity costs for us to properly execute a partnership.

Do Your Homework Before Proposing a Channel Partnership

In advising SaaS CEO’s who are exploring channel opportunities, I try hard to help them get behind the lens of their channel partner target to assess these and other obstacles likely to impede an objective assessment. Best to take time to walk through an evaluation of a target partner’s viewpoint with multiple sources who understand the target partner’s perspective.

Current or former sales team members of the partner may be worth seeking out, as would other offerings that have successfully partnered with the target and have a productive channel relationship.

Can you find and refer some qualified prospect opportunities to the target partner? Nothing gets attention quicker than a channel partner suitor showing knowledge of the channel and key relationships by bringing qualified deal flow to the table with no strings attached.

Your most receptive channel partners will be those you’re able to build a compelling case for how you will be increasing their revenue from your working together – both cost effectively and messaging efficiently. If you’re not able to show that up front, it’s probably worth seeking out another partner candidate where your case is more convincing.

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