Can Partners Make SaaS Businesses Recession-Proof?
Explore how Rippling's emphasis on channel partnerships and their unique approach to building a partner ecosystem drive both growth and an impressive 200% NDR retention rate.
In the past 12 months, the company has managed to raise $750M, even amid the tech downturn. Let's dive in.
After a tumultuous exit from Zenefits, Parker Conrad’s return as founder/CEO of Rippling in 2016 has been nothing short of extraordinary.
Rippling stands out in the B2B SaaS landscape for several reasons, but it's their partnership-focused approach that offers invaluable insights for partnership teams:
Integration at the core: Rippling builds integration into their product from the very beginning, ensuring seamless collaboration between systems.
Channel partnerships as a growth engine: By relying on channel partners, Rippling accelerates its revenue growth and differentiates itself from competitors.
A level playing field with partners: Rippling treats partner products as equal to their own when cross/up-selling, offering customers the best solutions for their needs.
Rippling is now boasting $100-200M ARR, 1.7K employees and thousands of customers. Their ~$11B valuation has been recently backed by investors like Kleiner Perkins.
After all, their sky-high 200% Net Dollar Retention (NDR) is impressive, dwarfing the best-in-class SaaS NDR of 150%.
Conrad also has a unique approach to partnerships:
"We have a really robust partner ecosystem. Our goal is to have companies that we partner with compete against internal Rippling products on even footing. Not just in the sense of access to integration capabilities, but also access to distribution.”
Rippling's Platform: Unifying Employee Data
Employees often interact with 100+ applications across HR, finance, legal, and operations. These products didn’t communicate with each other and each data change had to be replicated manually. Rippling's goal is to unify this data in the first employee-data system of record and offer adjacent first- and third-party applications in one subscription.
Rippling has built two dozen product SKUs that it offers customers. But with 500+ third-party SaaS apps in their app store, Rippling actively recommends the best products for clients, even when it's not their own. More on this later.
Channel Partnerships: The Foundation of Growth
“Huge” portion of Rippling's revenue today is from channel partners. In fact, Rippling's CRO, Matt Plank who joined Rippling from Zenefits, chose to focus on channel partnerships from the early days.
He contrasts Rippling’s successful channel strategy with Zenefits' anti-channel stance which led to slower growth and friction in the market. In their early days, Zenefits was anti-channel and experienced friction in the market as a result. They faced hostility from the broker community, which is a crucial channel for most HCM companies.
“In Zenefits, our experience was that the entire broker community hated us. We were direct competitors, so not only did we NOT get referrals from brokers, but we also had all this friction in the market…”
Unlike their competitors, Zenefits didn't have accountant partnerships, which were a significant source of revenue for companies like Gusto.
Rippling's Channel Strategy: Learning from the Past
Understanding the importance of channel partnerships, Rippling took a different approach. Instead they decided to focus on both broker and accountant channels.
"We didn't just want to go at it alone and build this kind of direct business with competitors all around us…Brokers and accountants were two of the biggest channels that we invested in very deeply"
These channels have proven to be invaluable for Rippling, providing them a strong foundation for their growth.
Unlocking the True Potential of Channel Partnerships with Patience
"You have to have conviction with a channel because it's not going to work right away."
A common pitfall in channel strategies is expecting instant, easily quantifiable results. In reality, successful partnerships demand conviction, time, and resources. Building strong relationships with partners, acquiring customers, and ensuring their satisfaction are all part of a long-term commitment.
"Partners don't just show up and start sending you massive volume on day one…You have to invest to get the referral, win the customer, and then have a happy customer. It took us a while to get channel to work, but when we look at our revenue today, channel is a huge percentage of it"
Channel Influence: Beyond Revenue Attribution
While a substantial portion of Rippling's revenue is directly linked to channel partnerships, partners’ influence stretches further. Channel partners often influence Rippling’s deals even when they don't directly refer them. Previously, the Rippling team hoped for positive word-of-mouth from insurance brokers at the end of a sales cycle. Today, an overwhelming majority of brokers are familiar with Rippling and actively endorse the company.
"...channel influence everywhere.. It has a lot more influence than what you just measure through revenue attributed to the channel."
Key Takeaways from Rippling's channel strategy:
Rippling learned from Zenefits' mistakes and focused on establishing strong broker and accountant channels.
Channel partnerships require conviction, time, and investment to succeed.
Immediate results should not be the sole focus of a channel strategy.
Channel influence extends beyond directly attributed revenue as partners endorsement can help to positively impact a large volume of deals indirectly.
Rippling's Platform Approach: A Powerful Ecosystem for Growth and Efficiency
Rippling has a unique strategy of prioritizing R&D investment, building multi-product from the start (vs focusing on single product) and adding an app store with third-party products.
By centralizing HR, Payroll, and IT operations on their platform and offering over 500 third-party applications, Rippling creates a powerful ecosystem that drives both customer value and revenue opportunities. As the platform expands with new products, so do the possibilities for growth.
Rippling's platform approach has proven to be highly efficient for its customers. When compared to non-Rippling customers, companies with 500-1K employees using Rippling needed only 24 people in HR and IT departments, whereas their counterparts required 45 people in similar roles.
Heavy R&D Investment and Multi-Product Strategy: A Key Differentiator
With an impressive 60% of spend going toward R&D—significantly higher than the industry average of 20%—Rippling positions itself as an innovation powerhouse. This investment enables rapid product and feature development, setting Rippling apart from its peers.
Rippling's platform-centric approach and emphasis on R&D investment continue to fuel its growth and customer success.
"People thought of Rippling not as a SaaS company but as an underlying machine or system that produces new SaaS businesses, each with unusual growth characteristics and below-average sales, marketing, and R&D investment requirements because of the way they're being built on this platform."
Fostering Fair Competition Among Partners and Internal Products
Rippling prides itself on maintaining a strong partner ecosystem where both external companies and internal products can compete on equal ground. This approach ensures partners have the same access to integration capabilities and distribution as Rippling's own solutions.
"Our goal is to have companies competing with our own internal products as part of that on even footing with our own SKUs."
Employee Data: The Key to Effective App Store and Cross-Selling
“Many companies talk about wanting to be an app store for business software, but it's always clear why that's valuable to them and never obvious why anyone else wants them to be an app store for business software. In Rippling's case, the thesis on why this makes sense is the employee record.”
Rippling stands out by leveraging employee data to drive targeted cross-selling, including to the products in their app store. Employee data is vital for almost every business system, from role-based permissions to approvals and analytics.
"Employee data is not just an HR department thing; it's a fundamental primitive for business software."
Using employee data as the foundation for cross-selling allows Rippling to better understand the needs of their customers. For example, when a company reaches a size that requires offering a 401k, Rippling can inform them about relevant regulations and suggest partners for a seamless setup.
"This is an extremely effective way for us to drive business to partners and help customers that need to get up and running quickly with core functionality."
Key Takeaways from Rippling's app store strategy:
Utilizing employee data allows Rippling to better understand customer needs and drive effective cross-selling.
Rippling fosters a robust partner ecosystem that encourages fair competition with their internal products.
Sources: Exec interviews, SaaStr, Contrary.