Why do so many companies run into a wall when building out a tech partner ecosystem?

The goal of this series is to look more deeply into the topic of tech partnerships, building on a series of conversations Allan Adler had with Avanish Sahai on Tidemark’s The Platform Journey podcast: Part 1 - Monetizing Technology Partner Ecosystems.

This first article in the series focuses on why ecosystem-based tech partnerships are becoming increasingly important in the lifecycle of a technology company. I’ll focus on where they fit in that lifecycle, and how they are different from traditional partner relationships that large companies have come to rely on.

The B2B SaaS explosion

With the massive explosion in SaaS and a ridiculously large number of new companies entering the market—data points from Forrester suggest that we’ve got a 10X increase in the number of SaaS companies. And technology startups have come to realize as they grow that they have to work with other technology companies.

It’s just a function of how many software applications are being used by end customers. Companies that don’t figure out how to succeed at partnering with other tech vendors invariably get marginalized and see their growth curves stall.

Most early and mid-growth tech startups focus on two initial types of partnerships: the programmatic & transactional category, and the business development & strategic category.

Transactional partners include channel partners: value-added resellers, managed service providers, and sometimes smaller system integrators who tend to think, “Give me a lead, I’ll close the deal, close some software, make some services.”

Strategic partners offer fancy QBRs, and big meetings focused on long-term trajectories and product road maps. But, quite frankly, if you gave them a program, they’d spit it out like it was yesterday’s smelly fish. They are very, very non-programmatic in nature.

Ecosystem-based tech partnerships fit right in the middle.

They’ve got a lot of programmatic and transactional aspects, like a channel, but also many of the co-innovation, business development, and product road-mappy features found in big alliances. However, going to market through an ecosystem is very different from a direct go-to-market model.

The difficulty of tracking revenue attribution with an ecosystem approach

It’s very difficult to easily quantify and attribute revenues with a go-to-ecosystem approach, particularly if you don’t have a platform business model with a proven, stamped-out, repeatable motion. It’s hard to determine the causal relationship between a dollar in and a dollar out because there are a lot more variables to consider. If you go to market through an ecosystem, there’ll be thousands of points of contact.

The direct go-to-market model, myopically, appears to be a more formulaic and structured funnel leading to dependable revenue (in truth, it never is, but at least finance, rev ops, and funding sources all think, “Yep, that’s it. That works”).
If you look at B2B SaaS and the way VCs have incentivized their CEOs, and Wall Street to a certain extent, it’s very formulaic.

You put money into BD, into the top of the funnel, to marketing, and then into a channel; that spend produces a marketing-qualified lead, and that produces a sales-qualified lead or a partner-driven lead, and that produces a Closed Won.

There’s an economic formula for it. If you put this much in on the top, you get this much back. You see, the VCs are talking about formulas. Like $18 of return for every $1 invested. This highly formulaic, programmatic way of going to market, has been the de rigueur of the go-to-market for B2B SaaS.

The panoply of software companies emerging in today’s marketplace are all following this script, and the poor customer is getting bombarded with piles of direct and channel crap. Companies are starting to see conversion rates go down and cost structures go up.

GoToEco vs. GTM

Sales cycles are increasing, and layoffs are happening with the impending jaws of recession. All of a sudden, the easy direct formula that worked for so long is coming up against demand constraints.

This is the challenge many young companies face. They follow the traditional growth curve, which dictates a direct motion, and then add a channel motion, with strategic alliances thrown in for spice. They quickly realize that they can’t ignore an ecosystem motion, so they strap on an ecosystem as if it were a channel.

And it’s a recipe for ecosystem failure.

There’s a fundamental difference between going to market directly and going to market through an ecosystem.

Monetizing tech partnerships is different and difficult.

Unlike a channel, where you have a relatively straightforward give-and-get—I give you my software, you get the services—in the tech partnership, you’ve got two software companies.

It’s kind of a weird structure.

One wants to sell their software. The other one wants to sell their software. Maybe they compete. How do they work together? How does it fit into that commercial structure?

It’s all about attention

At the end of the day, with all these software companies trying to compete for the attention of one customer. The customer matters because—and this is the most important CRO/chief customer officer awareness moment—customers are misaligned with the way most companies go to market.

We use the analogy of a customer wanting a car and a software vendor wanting to sell them a steering wheel. Nobody goes to the car to say I’m going to use my steering wheel today, and yet that software company is out there saying, “Have this steering wheel; would you like to have a bigger steering wheel? How about buttons on the steering wheel?”

While customers are asking, “Why are you talking to me about steering wheels? I’m a car person. I drive a car!”

Companies tend to think about parts instead of wholes; they’re misaligned with customer expectations. This is one of the reasons why customer success organizations are delivering neither customers nor success. They’re delivering product retention, or product upsell.

There’s no customer success in customer success because we’re trying to get people to buy more steering wheels instead of thinking about the car.

The gestalt of the chief revenue officer and the chief customer officer is completely out of sync with the way B2B customers want to be treated, need to be treated, and, quite frankly are insisting that they be treated.

That’s why stamping a direct approach on an ecosystem go-to-market model is impossible, and why those that try the standard approach fail.

In our next article, we’ll start digging into what is needed to change this trajectory and to steer towards a more successful ecosystem model, including key prerequisites for success, recommended monetization frameworks and commercial models, and some examples of success.