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How to Survive a Recession and Thrive with Partnerships - with Jay McBain of Canalys

Partnerships should not shy away from difficult conversations. That’s why we got together with Jay McBain of Canalys to discuss How to Survive a Recession and Thrive with Partnerships.

If you’re leading partnerships today, you’re likely getting many questions about your opportunities, forecast and ROI in 2023.

Jay, Chief Analyst - Channels, Partnerships & Ecosystems in Canalys explained how to leverage partnerships for success and communicate their importance to leadership during the downturn. This might be the most important conversation to watch for partnership teams to navigate the current environment.

0:00 – Intro

1:00 – Tectonic shift from partnerships to ecosystems

3:10 – How to leverage partnerships during economic downturns

7:00 – Where partnership teams may focus to have the biggest leverage today

12:30 – Maximizing partnerships KPIs and communicating ROI

20:30 – Will B2B marketplaces reshape channels and partnership landscape?

24:30 – Advice to partnership leaders for 2023

Should your business lean on partnerships to weather the downturn?

If I had a chance to ask only one person in the world about how to do partnerships in a recession and challenging environments, it probably would be you. And I'm really excited that you joined us. You've been sharing a lot of amazing insights as Leading Partnership Analyst in Forrester and now in Canalys - amazing companies.

Today, I would love us to focus on how partnership managers should behave and perform in the recession. I think there are two different narratives about partnerships. One of them is that partnerships are amazing in terms of their ability to jumpstart growth, but at the same time, they are very difficult. So I would love to start with asking you, how do you think about partnerships today?

We're going through a once-in-a-generation change in partnerships. The last 40 years have really defined partnerships around the point of sale, which is for every industry, that point that your product is sold and 75% of world trade goes indirectly. So it's a really big important point in value. We're breaking down what we call ecosystems, where the points that happen, the moments that happen before that point of sale, there's 28 of them.

In a subscription consumption model, which many companies are transferring into, every 30 days after that point of sale are just as critical. In the implementations, the integrations, the habit forming, the stickiness, and that's obviously broadly across every industry are just as important. So you're breaking the customer journey into three areas in partnerships. Those partners that help get the customer to the dance, those partners that help get them on the dance floor, and then those partners that help keep them dancing every 30 days forever. That's the three swim lanes, plus the technology alliances for every company. 79% of people won't buy a new car unless it has Apple CarPlay. That's a technology alliance. There are technology alliance partners not only in software, a couple 100,000 software companies, but 800,000 emerging tech alliances, IoT, AI, automation, Blockchain, quantum computing, you have Metaverse, and self-driving cars, and drones. So those technology alliances, the strategic alliances, and the business alliances, those six things now are the modern partner framework. They're all equally important. And building a central, specific program, one program with one portal, one set of front doors is what's critical to the modern partner layer.

But if you're a CEO or in a leadership team, or maybe the head of partnerships in a growth stage SaaS company for example. You're now thinking about next year, everyone is talking about recessions, VCs are freaking out, and you're thinking, where do you put your limited resources? Should you start partnerships as a stage? Should you double down on partnerships? Should you retreat a little bit - what’s your advice?

You're talking to a partnership person, so I'm going to be biased in the answer. But I will tell you in 2008 and 2000, the last two major global recessions, the technology industry has led everyone out of the recession. So the tech industry tends to double down and partnerships tend to double down during these times. Every company is facing their own macroeconomic challenges, and we could spend an hour on what those are, inflation, supply chain, and a war in Europe, and all the different things that are happening.

But in the end, based on our research, 51% of partners are investing more in marketing during the downturn to come out of it stronger than they went in. This is a time of competitive advantage where you can invest more in partnerships. And we now have new leadership in partnerships. So again, with 75% of world trade flowing indirectly, we've always had the channel chief, the head of channels be a real sales point of sale driven person on quota. But the 20 major companies now in the Fortune 500 have now installed channel Chief Partner Officers reporting into the C-suite who have the channel chief reporting to them. And they're starting to build out organizations with influencer type channels reporting into them, retention style channels, these tech alliances, all these different six swim lanes now report into that chief partner officer as vice presidents. The biggest change organizationally is that the channel organization has always tried to build an empire, hire more channel partner people, channel account managers out in the field, trying to build an empire among themselves and have their own marketing, sales, operations, and finance all underneath, making the channel chief look like a CEO. But in the modern partnership framework, it involves all parts of the organization. So you're seeing people embed channel marketers or partner marketers inside the marketing organization, reporting to the CMO. You're seeing them embed channel sales folks, channel account managers into the local theaters into their local VPs of sales that go up through the CRO. You're seeing customer success, the partner leaders in that area, embed in front of the VP of CX. And the same with the product teams are embedding partnership people so that that API-friendly, SDK-friendly product build happens at the very beginning instead of an afterthought, same with operations and strategy and finance. So the best partner organization now is actually an embedded one. It looks like data science did 10 years ago. To be successful, you got to be in the room, you got to be in that organization and trust it. And then you can build that data lake, you can build that channel from the ground up inside the organization, and then dotted line back into the partner organization.

How to find your leverage in partnerships today?

Let me picture a scenario where I’m a head of partnerships, maybe one a year, in a SaaS company, we're growing reasonably well. But now, the cash is tight, and I would have a conversation with the CEO. This person would say, "Where do you think is our biggest leverage right now in terms of partnerships? Where do you plan to put resources in the next half a year or a year? How do you plan to win?" Let me maybe reiterate this question to you: "Where do you think is the biggest leverage? Is it in terms of acquiring users, retaining users, or upselling?" I saw that you mentioned it in one talk about seven partners during the customer journey, right? So I would love for you to elaborate on that.

You're talking as a partner person, one year in, working for a growing SaaS company. You know, a growing SaaS company is maniacally focused on just a few things. One thing is product fit. The other is getting a sales and marketing engine that's repeatable and scalable. The greatest way to inflict fear in front of that founder in front of that CEO is to go in and start talking traditional channels. Because that company is at no stage to start franchising. Until you can build a better hamburger and get that kitchen working perfectly, did you start thinking about putting a restaurant on every street corner of the world? But being a SaaS company, you're already living on rented land. You're already partnered up with a hyper scalar, like AWS, Microsoft, or Google. You're already partnered into the industry you sell in or the horizontal platform that you're creating. You already have six other products on the tech stack that the customer is buying. You're building yourself as an ecosystem company just in the framework of your business model. So partnerships, that CEO should look less like resell and more like the other swim lanes. Asking the generic questions of how can we make our product better by making it more integrated with the other parts of the tech stack? Because by the way, we learned two weeks ago that that's the number one decision criteria in channel software. We learned about three or four months ago that that's the number one decision criteria in martech software, the 9,932 martech companies. We know it's the number one criteria now when people buy a car. It's not price, it's not feature function, it's not service and support. It's literally integration. First, how well do you play in the sandbox? I would be asking my CEO, my founder, you know, "How well do we play in the sandbox? Have we built our product to work perfectly with API-first, API-friendly with everyone else in the sandbox? Are we sending data? Are we taking data? Are we raising all boats, that's a partnership play, and who's done the work to build out our stack and who's adjacent to us in every one of our customer opportunities, and making sure we're working closely with those companies? So that one plus one can equal three, co-innovation, working in value creation, working on those network effects, is a partnership strategy that should be at the board level in my company." That's stage one. Stage two is now let's talk about those 28 moments before one of our customers buys our product. What do they read? Where do they go? Who do they follow? How do they gain the trust through the system to the point where they're going to buy our product as a SaaS product?

What happened during those first 28 moments they landed with us? Well, the answer to the question is it's not all direct marketing. At best, direct marketing might win four of those 28 moments. We might win or pay for page one in Google search results. We may get one of our ebooks slotted in there, they might drop by our website for some reason, we may be ranked high in G2 Crowd. I mean, there's a whole bunch of ways that they could come by us with direct marketing. But who's in that room thinking about the 24 moments that we don't own? Who is out there, finding those 24 places and people and getting them on as partners? Could be an affiliate, affinity advocate, ambassador, could be a referral partner. It could be, you know, some sort of finder. I mean, there's all kinds of models there. There's programs there. But literally in those 28 moments, what's our partnership strategy? It has nothing to do with the point of sale. We could be 100% direct forever, like Salesforce is still pretty close to 100% direct, but they're recruiting 500,000 partners. So let your CEO know that, let them mull it over a weekend over Thanksgiving, if you happen to be in the US this weekend. But why would a company that's 100% direct be recruiting 500,000 partners? Well, they understand that before, during and after the point of transaction, the customer for life is synonymous with partnerships. Building a product that's friendly, integration-friendly to the number one bright buying criteria of our customer is a partnership strategy. The strategic and business alliances, all these things is the partnership story. And it doesn't matter. We could be 100% direct till the end of time. And we're going to be the most partner-friendly company in the world.

How to communicate KPIs and importance of partnerships

This is really great insight. I guess where it gets tricky for a lot of folks is that CEOs, especially now, think about new revenue. I just posted recently about Atlassian, where they discovered that having at least one integration makes their product twice as sticky. They mostly focus on direct relationships with customers, but they help channel partners to help their customers as well. So there's this interesting mix. The things that I'm trying to understand are: how do you communicate this within the company that actually partnerships might not translate into direct revenue tomorrow, but it will translate into direct revenue, maybe like the day after tomorrow. And it's crucial to engage in these efforts earlier than later, especially in a downturn when companies are supposedly much more open to partnering, right?

We just did a major piece of research partnered up with HubSpot and Partnership Leaders. It's a 94 page report that can be downloaded by anyone. The conclusion was a couple of things. One was that integration first messaging. But the second thing is this idea of what is important in terms of partnerships, and getting into revenue. So, the thing that we learned during the survey, it's the biggest survey that was ever done in this space. The thing that we learned is that about 50% of the folks in partnership roles report up into a CRO. When you include the VP of sales and other sales related roles, probably two-thirds of us report into sales. What ends up happening is your KPIs by your boss end up coming to sourced revenue number one, influenced revenue number two, and then like some sort of lead passing this third. That's what the survey said. So, at the same time, all of the people that responded to the survey, and it's like 660 people that responded, the number one partnerships for them are tech partners. Number two was service partners like solution partners. So, resellers, referrals, and all that stuff was far down the list. Even though their KPIs don't meet those type of partners like a tech alliance partner, a co-innovation partner is not going to lead to revenue quickly. It's going to take six months to even do a basic integration. And it's going to be tough to measure. And so, we're at a little bit of a hard spot right now, is that the people we report to want revenue and the most important things for our company to be successful are not exactly, you know, revenue led. That's a difference. And that's something that, you know, it's not easy for anyone to break through. You know, you don't want to get fired. But you also know the importance of partnerships and what kind of partnerships are crucial to an organization at whatever stage of maturity of the company. And when it comes to this, we all know in the end, I mean, all of our leaders read magazines and they read a lot of books. They know that there's never been a technology company in history that's got to the highest level without partnerships. The early days of IBM, SAP, Oracle, the newer days of Salesforce, HubSpot, Workday, ServiceNow, Marketo, NetSuite. I mean, every single successful company which has hit a trillion-dollar valuation, or hit a, you know, 10s, or hundreds of billions of dollars valuation has done it with partnerships. Every company CEO knows this, but what they're it's not a question of if it's a question of when.

all of our leaders read magazines and they read a lot of books. They know that there's never been a technology company in history that's got to the highest level without partnerships. The early days of IBM, SAP, Oracle, the newer days of Salesforce, HubSpot, Workday, ServiceNow, Marketo, NetSuite. I mean, every single successful company which has hit a trillion-dollar valuation, or hit a, you know, 10s, or hundreds of billions of dollars valuation has done it with partnerships. Every company CEO knows this, but what they're it's not a question of if it's a question of when.

They always think partnerships happen later, in a franchisee model, you got your hamburger, you've got your cup of coffee, it's time to put a restaurant on every street corner on the planet. It's not a question of franchising. That's the resell model that most of them learned in college, most of them think of channels of distribution, as franchising. They got to think of partnerships differently, and the way you do that is introduce the swim lanes differently. Tech strategic business alliances, the influence type partners before the point of sale, and those retention partners after the point of sale. The average customer today at a mid-market or enterprise has seven partners they trust. And if those seven partners are not either friendly or neutral to you, you're going to be facing headwinds as a SaaS company. You either do it now or later, but you're not going to find success without doing it very quickly.

There's a bunch of questions from the audience who asked us, one of them was tangential to what I asked. And I apologize for putting you on the spot and asking all these difficult questions to you. But you're the best expert, so I'm really grateful that you answer them. So the question is, I guess, probably coming from another C-level executive, asking how do you demonstrate the partnership profitability or lower costs of sale, compared to existing direct marketing activities?

A CEO would ask like, "Okay, why would we have partnerships?" It's like, how do you show some sort of attribution, today? So what you've seen maybe in recent reports and so on.

To quantify it, in a SaaS company the two numbers that are known by everyone walking the hallways, is the cost to acquire a customer (CAC), and LTV, the lifetime value of the customer. So, taking those two numbers, which every company starts direct, and understanding what those two numbers are, what you're trying to do with partnerships is to offload some of those costs to acquire a customer, the marketing costs, the sales cost, the engineering costs. If those things can be reduced, the delta between the two, and then the lifetime value of that customer because, by the way, with partnerships, there's a higher stickiness to the customer, a higher retention rate, lower churn rate. So, with that going up and cost to acquire customer going down, the delta between those two numbers, the partner professional has to get good at reporting on those very specific company numbers. And what happens though, and the trick is, it doesn't happen immediately. When you have a new partner, they don't offload any costs, they add cost, because you have to hold their hand through the marketing cycle, the sales cycle, and the integration implementation cycles. They're not doing anything on their own. The second deal gets a bit better, the third deal gets a bit better. But in the first six to 12 months, I mean, it's a double cost. I'm funding to channel, I'm funding my own internal teams. This is expensive. But again, on the hockey stick curve, when that partner can start doing it on their own, get a deal, sell a deal, and service a deal. And you're starting to win deals in your sleep, your cost to acquire customer almost goes to zero, the lifetime value goes up because the churn rate goes down on those type of deals. And when you start to see those deals happen in your sleep, partnership leaders very early on, you got to recognize every single one of those and put it to the highest parts of the organization. Because in an 18 month build of a channel, you know, most people get fired at month 12. Especially in these macro economic times. You got to find some early successes and make those very visible to the organization and let everyone know that even Microsoft was on a journey of partnerships early in the stage and a little bit of jumping into you know caution that this was going to work at some point.

Completely agree. Actually, I speak with a lot of partnership managers this is what typically happens and being great in terms of building momentum, both these partners, and internally is one of the things that’s [important]. I think this is where it gets the most similar to CEO right? When you need to build momentum both with your audience, users, investors and everyone else.

Another question that I get asked a lot, and somebody asked before our discussion is about marketplaces. I know that you love marketplaces and marketplaces are just devouring all these partnerships, sort of changing the partnership landscape, you know, quite significantly. And this is from one hand, but at the same time, if you speak with, and I had a chance to speak with a senior leader in Amazon. And I was asking him, do you think AWS will completely change the landscape for channels and partnerships? And he was saying that actually, maybe it will, but it will not have a significant impact. Because so many companies are moving into the cloud, there's going to be more and more software. So there's going to be still a lot of different partnership models and collaborations outside of marketplaces. So I’d love you to give us maybe a very high level overview, what do you think is happening?

It’s a big topic, we could probably spend 30 minutes on it. But at the high level, you know, places like McKinsey are talking about B2B marketplaces, dragging $17 trillion by the end of the decade. We're calling on 86% compounded growth and marketplaces at Canalys over the next number of years, they are growing on a hockey stick. The fact of the matter is our industry is also growing. In this decade, our industry doubles from 4.3 trillion to 8.6 trillion of what businesses and governments spend on technology. So, what ends up happening is marketplaces aren't killing anyone. Distributors continue to grow, even though AWS we predicted will become a top 10 distributor within the next couple of years. We have direct, which continues to be a big chunk. We think maybe by the end of the decade, marketplaces might be 1/3 of the economy, that's a couple of trillion dollars, that's big, but resell and through distribution, everything else is still going to be a couple of trillion dollars. It's just not going to grow as fast as marketplaces are. But to any company, you have to figure out your go-to-market strategy, your routes to market. If you're a SaaS company, you've got to figure out how many of your customers want to exercise enterprise credits at Microsoft, AWS, Google, Salesforce, HubSpot, whichever marketplace they're on. If they want to buy your software as part of a seven layer stack, which is today's average, you got to create a frictionless way to do that. If you make them buy direct, or if you make them buy through a reseller, when they want to buy through a marketplace, you're going to lose deals because of that. And you're going to gain more deals if you're through a marketplace and make it frictionless. You're gonna win deals from the competition because you do it better than they do. So marketplace has to be viewed on as an expansion of your routes to market. And also complementary, because it also serves beyond the point of sale, some marketing helps some retention help. There's some other things that marketplaces do as well as a benefit. But again, it doesn't kill anyone, we're not selling magazines here. There's the depth of nothing. It's just everything grows, it just grows at different paces. And as partner professionals, we have to view it as a broadening of the landscape, kind of like distribution is broadening as well into different layers, This is going to just be a very large, distributed environment, some of it indirect, some of it direct, and, you know, good chunk of growing through marketplaces.

Let me ask the last question. So what would be your piece of advice for a new partnership leader who just joined a SaaS company or growth stage company in the last year? And so what would be your advice for the beginning of next year? And maybe what are the things that you are excited about to buy? Where do you see opportunities as well?

I'll say two things. I dig into the new kind of walled garden we have in places to read, things to listen to, people to follow. There's 100 really, really smart people out there talking about partnerships and digging into some of their content is great. We now have magazines, we now have peer groups, we have associations, there's a lot that we can do to lift each other up as professionals. And this happened in martech 10 years ago, what happened in sales 20 years ago, you know, the industry themselves grew and built each other. And you may or may not work for your company for the rest of your life, there's a 99.9% chance you won't. But the expertise you gain in terms of how to apply ecosystems and channels to whatever organization that employs you is your skill set. And you've got to rise above and build that.

The second thing is I would say, we're in the third or fourth year of the decade of the ecosystem. This is the year of operations. Get very smart programmatically, process wise, the workflows, the processes, the business logic, and connect that to technology. The people that accelerated their careers in the decade of marketing and the decade of sales are the ones that leveraged the CRM or the marketing automation platform, became experts in the 11 islands of it innovation in this channel tech space, understood what these islands of innovation do and what a seven layer customer stack might look like, as you build it into your own company, to do this pre, during and after sales, to do the tech alliances, strategic alliances, business alliances, figure out the programs, the processes and the technology to do that become experts in that area. That's where you're going to succeed the most, you're not going to spend time convincing CEOs that they should be the most partner friendly people on the planet, they're going to come to that epiphany on their own, with your support. Your job is to be the best you can be and the best is to jump on to the technology and the programs that can apply anywhere.

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