When is the right time to invest in channel partnerships?
If you clicked on the headline of this article expecting a straightforward answer, I’m sorry to disappoint you. I’ve been building and advising channel programs for startups for 10 years and a convenient checklist of quantitative criteria needed to launch a channel program does not exist. It can’t exist.
When to invest in building a partner or channel program varies based on your company’s market, product, resources available, product-market fit, the maturity of your go-to-market motions, and many other factors. Some SaaS startups find success selling exclusively through the channel from the start of their sales efforts, while other companies require a longer runway to successfully sell through partners.
While there may not be quantitative benchmarks (e.g. specific revenue numbers) to tell you when it’s time to launch a channel program, there ARE a handful of qualitative benchmarks that are much more indicative of whether or not your company should invest in the resources and infrastructure to support a partner program.
Here are six questions to ask yourself before investing in a channel program:
(And if you’re interested in learning more, I am leading an in-person workshop on March 4th in SF. You can register here.)
Question #1: Is there organic momentum from potential partners (and how active are potential partners in your ecosystem)?
Are there system integrators (SI's) or agencies actively servicing your target customers? Have you been approached by other companies who are eager to partner, resell, or white label your product? If so, it’s a good sign that there could be a lot of value in building out a strategy and program.
If there hasn’t been any external interest, or obvious partnerships that would yield a symbiotic relationship, there may not be enough value for both parties.
Likewise, if potential partners play a huge role with your customer's buying process, are huge influencers, or are critical to your product and ecosystem, your partner strategy and channel programs should be an early focus.
Question #2: Are your preliminary TAM, CAC, and CRC metrics favorable?
What is the projected Total Addressable Market (TAM) of your partner business? This number can be found through a mix of industry research, publications and reports, data from historical sales, market research, and educated hypotheses.
Tools like Crossbeam can help you measure the TAM for a set of potential partners or specific partners. Once you’ve measured TAM, you will want to ask yourself if your TAM is big enough for your company to scale long term. If you complete the TAM and realize there isn’t a huge market or there are only a handful of potential partners, building out a channel function is probably not the best investment for your company right now.
For some partner models, it makes sense to model out the projected Customer Acquisition Costs (CAC) or Customer Retention Costs (CRC) for the channel based on the market data available, comps, and projected costs.
To do this, you should work with your Finance and Operations teams to understand CAC and CRC for direct sales, then forecast total expenses and sales for the channel. While some of these numbers will be conjecture and the calculations will not be exact, you should be able to make some directional decisions based on the estimates and comparisons to your direct CAC and CRC models.
Question #3: Is my product ready?
A couple key questions to ask yourself:
- “Where am I in the pursuit of product-market fit?”
- “Is my product ready for partners?”
- “Is my product team still focused on fixing basic and fundamental bugs?”
Service partners and resellers will need to be able to use your product with minimal support across multiple clients. If your product team is still focused on fixing basic bugs, it’s likely your product isn’t ready for a massive reseller network.
Likewise, technology partners will need to be able to seamlessly plug into your platform and vice versa, so you will need public and well-documented APIs. If your product isn’t ready, it may be better to either prioritize partnerships that make sense given product limitations (like an affiliate or referral network) or hold off on the investment in a partner program until your product is more mature.
Question #4: Can my sales, customer success, and support processes be replicated by a third party?
To build a channel program or a network of resellers, you will need to have a replicable process that is straight forward enough to teach to a variety of external sales professionals. The more repeatable your sales cycle, the more it lends itself to a successful channel program.
Another question to ask, especially if you’re considering a reseller model: Can a third party support the technology after the sale is done? Along with teaching partners how to sell your product, you will need to teach partners how to support, service, and manage your clients post-sale.
Question #5: Do I have internal support and access to the cross-functional resources I need to make partners and a partner strategy successful?
Partner programs rely on almost every division of the company: marketing, sales, product, customer success, customer education, operations, and legal. Launching a program will require buy-in and resources from each of these teams.
You also need the budget, infrastructure technology, and talent to manage the program. If your company is still building out these different functions or you don’t have buy-in across the board, it may be hard to get the support and resources you need to make your partners and partner strategy successful.
Question #6: What else could my company invest in right now if they didn’t invest in a partner strategy?
It takes time, money, and energy from almost all the groups in your organization to get a partner channel program up and running. It’s critical you think through what else your company could invest in if they didn’t invest in the channel.
This also means a thoughtful Buy vs Build vs Partner analysis should be completed. I use Buy vs Build vs Partner frameworks to help companies decide how to allocate resources and determine if it is best to build in house, buy, or partner to take advantage of strategic opportunities.
If it’s better to buy or build (vs partnering), or there are other parts of the business that can yield results faster, it may be more beneficial to first make the investment internally. Building a partner program should never be thought of as a “test”— no matter how well suited your product is for partnering, it will take time to scale and see the benefits.
It’s all about timing
There are massive benefits to investing in a successful partnership program, including but not limited to accelerated growth, higher brand awareness, increased revenue, scale, and access to new markets and verticals.
I believe that every SaaS startup should embrace, invest in, and market to their ecosystem from the very beginning, and that they should have or be working toward an investment in a formal partner and channel strategy. The timing of investing in that ecosystem, however, requires some finesse.
If you’re debating when and if to build a channel program, check out SaaSy’s one day workshop on Building & Growing Your Partner Strategy for Startup Execs, March 4th in San Francisco.