Channel Partnerships Part II: Engaging and Closing Partners

This is part 2 in a series on channel partnerships. You can read part 1 here.

Channel partnerships can 10x your customer acquisition and are one of the best ways to grow your business. In the first post of this series, we covered how to create an ideal partner profile and identify potential partners. In this post, we will discuss how to build a value proposition that ignites initial discussions, negotiate a contract, and prepare for launch. 

You’ve got a solid list of contacts that could be potential partners to your startup. Now you need to start outreach. 

Develop a strong partner value proposition and test

Thankfully, in preparation, you defined how your company adds value to the partner’s solution and identified the ideal outcome for the relationship. Writing a value proposition for partners builds upon the value proposition for your customers. If you need help in writing your customer value proposition, I recommend using the Jobs to be Done framework. To do this, write a succinct sentence on how your combined forces make your end customer even better off and provide meaningful benefits to your partner, like increased revenue or improved customer experience. You’ll also want to allude to how you will do that – is it training for their sales reps? An integration into their app marketplace?

The best way to test this value proposition is by reaching out to partners and testing your value proposition. Start with friendlies who may already be in your network through warm introductions and share your value proposition. Pay attention to the questions that they are asking, how they talk about both the customers and themselves, and use that information to further shape your value proposition. A great way of doing this at scale is at a large conference for your industry or customer. You can talk to hundreds of potential partners in a day and refine your value proposition based on your discussions. You’ll want to nurture these leads just like a sales lead – down the funnel through multiple discussions where you can validate the needs of your partner and customer until you can find mutual alignment.

This is a fundamental exercise in empathy - their needs come first.

Negotiate a contract

The next stage in the process is negotiating a partner contract, where you clearly define how you will both work together to improve your customer’s life. There are a few key areas in the contract that you will want to pay special attention to in order to set both of you up for success:

1. First, you will clearly define whether it’s a sales or marketing agreement. This comes down to who is closing the deal with the customer – is your sales team getting signatures and billing the client or are you a pass through cost on a larger contract where the partner’s sales team is selling your product. 

2. Then, you’ll have to define how you will work together. Make sure to consider all the parties that will be affected in your organization as well as the partner organization. Will you provide training? Sales enablement materials? Access to an email list? What are the specific ways that you will be reaching the partner’s audience and who will be involved? 

3. Don’t forget to get paid! Make sure that you clearly outline how and why you will get paid, aligned with the objectives outlined in the engagement.

4. Finally, you’ll want to clearly define metrics for success. Is it increased leads? Increased engagement? Less volume in customer service? Larger ACV? Decreased sales cycle? You will also want to define a cadence where you will be reviewing the effectiveness of the partnership. We recommend a quarterly business review with your champion and the economic buyer. 

By writing this all into the contract, you will avoid surprises down the road. 

Prepare for launch

Now that you have signed a contract and defined how you will work together with your partner, you must get ready to launch the partnership. This video from Troy is a good primer to review before you start digging into the tactics of launch. You have to start with the purpose and be intentional about meeting that purpose as you plan your execution. If the partnership exceeded expectations on both sides, what would that look like? How would that impact both companies and the individuals involved in partnership? First impressions matter! You have to come out of the gate swinging, a couple of early wins are crucial in building momentum and buy-in from the broader organization. 

Once you get your purpose written and defined, you can dig into execution. Utilize the contract to create a scorecard for measurement and to define tactics and deliverables for launch. Make sure that you’ve nailed the reporting in advance so you can constantly measure and tweak your execution to maximize results. 

In the final installment in this series, I will explore some of the common tactics used by founders to find success in partnerships. 

Did this post help you in building channel partnerships? Let me know in the comments or find me on twitter @MissElisaS.

Venture Curious: NOW is the Time for Community

This is the first post in a deep dive on community as an area of investment. Make sure to check out parts II and III.

What is community?

A group of people with common interests that are living and working together, on a grassroots level, for an individual and collective benefit.

• A good community has:

  • A clear purpose that benefits the members

  • Rules for engagement to keep the conversation relevant

  • Has a dedicated space for information sharing

  • An opportunity to learn from and work with other members in the community for collective benefit

  • Instills a sense of belonging

Communities are essential to businesses because they provide tangible benefits that impact the bottom line. Healthy communities openly share information with each other that can increase customer lifetime value, increase sales leads, lower customer acquisition costs, and result in more growth for your organization. While they have existed to help us prosper as a society, they haven’t always existed in business. 

Communities provide a space for users of a product or service to share information amongst each other. Historically, this started with John Deere in 1895 creating a publication called The Furrow Magazine to help farmers learn best practices, tips for using their equipment, and new strategies to succeed in business. Farmers read stories about other farmers in over 17 regions. They discovered that it’s more effective to have customers tell the story of their products and services. 

Communities in business have evolved immensely since the founding of The Furrow. What was once a one way conversation between brand and customer became a two-way conversation due to digital innovation. Social media shifted the power structure between businesses and customers, by letting the customers give real time feedback. Smart phones allow people to interact with a brand and each other instantaneously. Consumers could forgo the trip to the mall by ordering online. Together, these advances in technology built digital communities that provided a space for customers to experience a brand together. This fundamentally changed the way that businesses sell to customers. People began to long for connection in a world of endless communication channels and sales began to take place within an ecosystem.  

People are searching for connection.

Web 2.0 opened the doors to sharing between people and businesses. Customers and companies leverage new technologies to communicate quickly and directly with each other and other stakeholders. Content is king – from blog posts, to webinars, to paid influencer ads.  We are spending more time online, particularly among Gen Z and Millenials. People are bombarded every day to buy and people’s behavior online is changing as a result. The share of people who use social media to document their lives has decreased to 20% in 2019 from 27% in 2014. So what are people doing when they are spending so much time online?

Finding connection. GlobalWebIndex and Reddit conducted a study in 2020, mid pandemic, to study online communities. They discovered that participants yielded more value from communities than social media. Communities made users feel more self confident, more validated, and less intimidated. What’s more, is that people don’t mind brand’s building communities on existing communities sites or their own. 

Through more meaningful conversations with a narrower group of individuals, communities encourage meaningful connections. Traditional marketing that pushes messaging on consumers does not work in this context. Businesses had to adjust by encouraging conversation. This caused a shift in selling for ecosystems of buyers and stakeholders.

The shift to ecosystem selling.

Sales, today, happen in an ecosystem. Selling is social thus increasing the complexity of sales regardless of the customer type or business model. The ecosystem participants are different institutions or groups that have common interest in a set of products and services and all can influence a buying decision. These participants are all interacting and communicating constantly, thanks to advances in technology. To employ an ecosystem selling strategy requires participants to build relationships and establish alignment with one another in order to succeed. One to one communication and relationships shifted into multiple communication channels across stakeholders. Community as a strategy allows businesses to address all channels and participants, regardless of goals.

An early example of a very successful company that leveraged its ecosystem for sales is Salesforce. They work with many ecosystem partners to sell add-on products it’s marketplace that deepen the customization of an instance, therefore deepening the dependency on their products. Salesforce supports communities to increase user participation and understanding of a product. They even build channel sales agreements with partners. Partners gain customers and Salesforce creates deeper relationships with customers, everyone wins. 

The reason why community is so effective for ecosystems is that community reinforces the value of the product to as many players in the ecosystem at once. Community members gain knowledge and build relationships with one another. The collective benefit of community instills belonging in members, which is sorely needed in today’s world.

Both ecosystem selling and changing consumer sentiment make the market primed for community. The time to invest in community is now.

Stay tuned for next week where I will dig into a few areas and companies that I am excited about in the community space.

Resources:

This report from Pew Research on online behavior was invaluable.

This report from Reddit on community adoption was also extremely helpful.

This journal article from the Journal of Marketing was was the foundation for ecosystem selling.

What’s an Unfair Advantage in Customer Acquisition?

Our investment thesis at MATH is centered around having an unfair advantage in customer acquisition. We believe that a repeatable method of attracting and retaining customers positions companies to beat their competition and scale. This is one of the key elements that we look for when we are evaluating the people and businesses in which we invest. 

What do you mean when you say an unfair advantage in customer acquisition?

An unfair advantage in customer acquisition is an ability to attract and retain lots and lots of customers through systems, processes, or benefits of your product or service. We want to see your customers chomping at the bit to purchase your solution. In short, this is way more than early signals of customer traction. 

Here are a few examples of unfair advantages in customer acquisition that we have seen with our portfolio companies that we love. This is by no means an exhaustive list.

Land and expand

This is a classic strategy that starts with a very narrow and focused sale into a customer base with low friction before expanding. After initial adoption, expansion can be achieved through growing the number of users, product line expansion, launching new markets or geographies, and/or acquiring adjacent businesses. This is an unfair advantage that we saw early with Acorns ETF portfolio. They created a simple way for people to sign up for an ETF and deposit money to grow their oak. Acorns expanded its product lines to include retirement investing, banking solutions, credit cards, and even investing for kids. This helped them gain more wallet share with their existing customers.

Leveraged distribution

This unfair advantage to customer acquisition utilizes channels, reseller, or distribution partnerships to reach  many more customers than your own sales force could ever reach. The best channels are the ones that get a strategic advantage from your relationship that is far more valuable to them than the cash value of the transaction.  In our experience, a channel partnership can work if it is just about the revenue share, but it is much more likely to succeed if there is other value than just revenue for the partner.  

CardFlight is a company in our portfolio that uses leveraged distribution to sell payment processing solutions to retailers through channel partners. When we first met them, they had 450 retail locations using their product. Today that number is over 90,000. Instead of trying to sell directly to the highly fragmented space of retailers, they chose to work with partners who were already selling credit card processing services to retailers but needed a more differentiated solution to compete with newcomers like Square and Clover.  

CardFlight developed a hardware / software solution that helped the legacy seller of merchant services compete.  Their partners (companies like WorldPay, Cayan, PaySafe, TSYS, etc.) have competitive offerings and win more deals.  These companies cared much more about leveraging CardFlight to get new accounts than what some small revenue share would produce.  

Network effects

This customer acquisition strategy is most often seen in a two-sided marketplace where capturing one side of the market acts as an acquisition strategy for the other side of the market. The best examples of this are businesses that have a viral loop where supply from one side brings more demand from the other side and demand brings more supply from the first side. We saw this at SpotHero, a portfolio company that aggregates the supply of parking from urban parking lots,  allowing consumers to reserve and book parking spots for a discount in seconds.  The drivers love the experience as it takes the stress out of finding parking and ensures that they get the best price, while the parking lots love it because it is free revenue for them. .  As they got more consumers on the platform, more parking lots wanted to participate and having more supply of parking led to capturing more consumers.

Product-led growth

This approach is bottoms-up where user driven adoption leads to an eventual enterprise level sale. This is an alternative to direct enterprise sales that can reduce the sales cycle time and avoid initial enterprise procurement processes. This was an unfair advantage for NoRedInk, a portfolio company that is focused on helping students improve their writing skills. They created an amazingly engaging freemium product that they marketed directly to parents, teachers, and students. Once their product took hold and there was enough density of use in a school district, the sales folks could come in and sell powerful reporting to make the teachers better and more accountable.  

Community-led growth

This is an area of particular interest to me given my background in community development. This approach aggregates a community of your target audience and allows them to share insights about your product and the problem you are solving with one another. This, like content, is a longtail play, where you need to invest the time in curating the right people in the community and galvanizing the brand promoters. Peloton is an excellent example of this, where the company was able to build a community around health and fitness. They leveraged brand promoters for Peloton in these spaces to widen their reach and the rest is history. 

While this list is not exhaustive, it’s a great example of how we evaluate whether companies would be a good fit for our investment thesis and if they will benefit from our collective strength as a team. Each and every investment we make has a clear unfair advantage in customer acquisition, so make sure that we understand what yours is when we meet you.

If you think you’re a company with an unfair advantage in customer acquisition, especially in community-led growth, I’d love to hear from you - my DM’s are open!