The Importance of Partnerships in the Great Unbundling

The API economy and a Cambrian explosion of apps are transforming best-in-class tech from monolithic tools to a stack of 20 applications that work together. Amid this unbundling, partnerships have become a critical part of early go-to-market strategy that can lead to higher quality pipeline and accelerated sales. In this fireside chat, recorded at Crossbeam Supernode 2022, CFI General Partner Sarah Wang and Bob Moore, Cofounder and CEO of Crossbeam, discuss how partnerships have changed and why the best startups invest early in building a partnership program.   

Transcript

Bob: Everybody give it up again for Sarah Wang here from Andreessen Horowitz. Sarah and I had a stated goal going into this, which is we want to make this conversation completely identical to the conversation that we would just have sitting backstage whether you were here or not, as we dig into just about everything in the realm of the partnerships universe, the market, and beyond.

There’s obviously a lot of shifts going on in the market at large, but at the same time, these really exciting things in the partnerships universe that seem to amount to a shift of their own. I just want to generally understand how real is that and how real do you think this growth through partnerships is really becoming?

Sarah: I think a lot of what you said was spot on, and, I’ll bring a different perspective, which is that of fundraising. I’ve been an investor for over a decade and seen different cycles–and full caveat, I don’t have a crystal ball into what is going on, but clearly something is going on. What’s very interesting in the fundraising market that has started to turn is not only are valuations coming down, rounds have started to not get done.

What that means is that being more efficient has started to come back in vogue. For a very long time, all valuations were completely correlated with growth. Now, if you run the math on the public markets, if you look at even private rounds, growth plus efficiency, your margin, your profitability, however you wanna measure it, is the biggest driver of what your company is actually valued at.

What does that mean for companies? I think there’s a round of belt tightening coming. To translate this further, what does that mean for the people in this room, for your teams? Honestly, partnerships are more important than ever, specifically because you’re bringing in pipeline, you’re shortening sales cycles, and you’re increasing conversion rates. That’s a very good thing. That is need to have, not nice to have, especially in this environment. In an environment where fundraising is virtually free, and the market is flowing, it’s almost more nice to have than need to have.

The flip side is that if you’re not doing that I think there is some danger. One example that came up recently, I was looking at two companies. I won’t name names, but one company is around $100M ARR, and their plan is to go to $200M. I’m looking at the other company where they’re at $5M ARR, and their plan is to go to $15M. One has 50% partner generated pipeline, and the other, the smaller one, has 100% sales generated pipeline.

As an investment team, we’re more willing to bet that the $100M goes to $200M because of how consistent their partner generated pipeline has got. That team could literally go to sleep for a year and come back, and they’d be at $200M ARR. We feel very confident about that.

The sales generated pipeline we’ve discounted that internally from $5 to $10M of ARR, so cut it in half essentially. That’s a real life example of how investors and board members are thinking about it.

The nature of partnerships has changed

Bob: A lot of what you’re saying about the importance of partnerships, would it have been true five years ago? Would’ve been true 10 years ago. And if not, why not?

Sarah: Honestly, five years ago, no. Even when Jennifer Li and I we’re doing our diligence, we talked to some old school sales folks who told us partnerships are where non-revenue things go to die. That was the misconception for a very long time, and to be fair, there probably were some not well run partnerships teams where the ROI was low back in the day.

I think what’s changed is a couple things. One, there’s just been this Cambrian explosion of SaaS applications, and it doesn’t make sense for everyone to spin up a direct sales team and go heavy at this expensive, direct effort. The shift to best in class means that you’re probably not going to get into a customer and upsell a monolithic suite the way you used to if you were SAP or Oracle. That’s just not how customers want to buy software these days. That’s not how they optimize their own internal ROI.

This ecosystem play that Bob mentioned in his opening remarks is a way of life. The ecosystem of startups and established companies is just so much richer than it was before. Customers see that, and if you’re not selling alongside the software that they also want to be using, you’re at a real disadvantage.

This concept actually plays out in that you start to see stacks. I don’t know if there are any data companies, anyone who touches the data ecosystem in the audience? You hear about the modern data stack. What does that look like? Honestly, we talk to stakeholders, it starts to converge. Everyone is saying, Hey, my modern data stack has Snowflake. It has Fivetran. It has dbt. It has, X, Y, Z in it, and if you’re not named in that, you actually start to fall behind.

The smart ones, including some of the companies in the list that I just mentioned are selling together, and that’s a really big change in the environment.

Technology and channel partnerships converging

Bob: Yeah, I may go slightly off book here because you just made me think of a really interesting nuance that we try to handle in our content, but is always a little challenging, which is this difference between technology partnerships and channel partnerships. One trend that has been really interesting for us is this convergence of these two categories, because at the end of the day, they both start to be all about the revenue of storytelling. Whether you started on the product side and building a tech integration, or you started on the services side and bringing the last mile of service delivery, what ends up happening really is this deal acceleration, this increase in ACV, et cetera.

When you talk about half of the pipeline is from partners. Is that tech partners, is it service partners? Is it a combination of the two, and do VCs in the boardroom think about those things differently or are they converging into one stack?

Sarah: Yeah, I would say the most powerful programs usually combine the two, and it’s great that you bring that up. A quintessential and by the way, some of you may partner with this company, so you can keep me honest, but one of the quintessential examples of a successful tech company channel partnership is UiPath, a company called UiPath, which works in the process automation space. The factoid that people like to share is that for every dollar that UiPath would make, UiPath would generate its partner $4. You can imagine that its partners were pretty darn motivated to sell UiPath to their customers, and Accenture has a lot of customers.

This mutually beneficial relationship very much exists in that world, and I think those who take advantage of them, like a UiPath, have really benefited from digging into this gigantic customer base that they bring.

Then the second piece I mentioned, diversity. Having all of your eggs in one basket is never a good thing. I can tell you, as an investor, when I look at a partner generated pipeline, the first thing I ask is, “Is it all being generated by one partner?” The reason I had so much conviction in that example that I mentioned to you of going from $100M to $200M was that this company had 50 partners that were all generating no more than 5% of revenue each. It was a sign to me of predictability.

Startups are hiring early for partnerships

Bob: Yeah, that’s incredible. You talked a little bit about the old stigma of partnerships and that journeyman sales person who says, partnerships is a parking lot. In the good old days of partnerships, if you had a co-founder and didn’t quite know what to do with them, and the business had outgrown them, you just make them head of partnerships.

There is a little bit of that, and what I think has been so amazing is just the rise of the partnership professional and how much credibility and importance has been placed on that discipline and the expertise that can be built up around a person that truly is a partnership leader in the purest sense of the word.

I wonder if you can talk about that a little bit about the discipline of partnerships, the importance of that partnership hire, and when this comes up in the boardroom, what are the things that, from an org chart perspective, are part of the conversation?

Sarah: Yeah, absolutely a lot to unpack there. Maybe I’ll start with the first question. One of the things that I’ve been very fascinated by as just a student of go-to-market, and actually as a prior investor in a company called ZoomInfo, I don’t know if you guys have heard of that sales and marketing intelligence tool.

One of the things when we first invested in ZoomInfo, back in 2014 when I was with another firm, that we really rode the wave of was the rise of the SDR. This is old news. It’s a decade plus long trend. Big change at the time, back in 2014, as you can imagine. People were like, “What are SDRs? They’re useless, etc.” But at the time, they were growing 3x the rate of field sales. Now, I haven’t met a company without a team of SDRs. It’s pretty commonplace.

What’s been really interesting as a student of go-to-market evolution is the rise of the PDR. Bob, one of the things you talked about on this stage just earlier was that partnerships is about collaboration. It’s not about this zero-sum game, where I’m going to have to pull this lead out of you, and then I’ll try to resist giving you anything. It’s actually the more generous you are, the more you get. That is the ethos of partnerships that I think is very different than sales and very additive to sales.

One of the neat things that we’ve seen is that, “Hey, how do you actually implement and professionalize this?” Having PDRs, or people who are really dedicated to helping partners, and in turn, having them help, you has really started to become a trend in our portfolio and outside of our portfolio.

More generally in the boardroom, partnerships is the number one hire that we hear our early companies make. For the companies that have really nailed it, our best performing companies are relying very heavily on partnerships.

I threw out there a company where 50% of their pipeline was being generated by partnerships. One of my best friends is a VP of enterprise sales. She told me that she joined her current company because she heard that partnerships we’re a big part of generating pipeline, and who wants to fight the uphill sales-led battle of 100% pipeline generation?

So, it’s the number one hire that we hear for our Series B and earlier companies. When it works, it’s very much tied to results. That’s the new era of partnerships that we’re seeing.

Selling as part of a best-in-class stack

Bob: Yeah, that’s so fascinating. In fact, when we started Crossbeam we used to say our target market is anybody that has the word partnerships in somebody’s title somewhere, and usually that’s companies with 200+ employees, or 300+ employees. We’re starting to see partnership hires get made employee #5, employee #10.

I wonder if you can unpack that a little bit. What do you think is happening? What do you think is different? Maybe it’s some of the things we’ve already touched on, but this seems like part of Cambrian explosion of SaaS apps and just the relevance of this earlier on in the product-market fit journey for these companies.

Sarah: Yeah, we now have this new wave of companies that were startups, but are now very successful, like a Snowflake or a Shopify. For them, their next layer of growth is actually monetizing their existing customer base. They’re all creating marketplaces. You probably have seen them or are part of them. That’s not an accident or experiment. They’re looking for their next avenue of growth, and there’s this bigger willingness to partner with newer companies that come back and help their bottom line, obviously, but also enrich that ecosystem that they’re creating.

And then the second piece does come back to this point about selling in a stack and being one of the default names that people go to because every buyer gets lazy, right? You don’t want to do a full RFP of everything. You just want to ask your friends, “Hey, what are you using?” If you start to hear eight out of 10 friends say the exact same names in their stack, and you have respect for them, they’re the leaders in their space, you’re like, “Hey, I can’t go wrong buying the new IBM, which is a stack of the top best software tools in whatever space you’re in.

I think those two combined have led to this migration much earlier. To your point, I do see partnerships being the 5th hire, the 10th hire, the 20th hire. From an investor and boardroom perspective, we’re highly encouraging of that. If you can get in, get your name in the door, get the right integrations in place, it’s not just a sales and marketing story, it’s also a product story. Get the right partners to be focused on you, and you’re actually accelerating way past your competitors much earlier on and creating a self-fulfilling prophecy around yourself.

Unbundling, APIs, and the staying power of partnerships

Bob: Yeah, that’s incredible. I often quote this interview that Marc Andreessen was in, where there’s this glib quote that there’s only two ways to make money in software, bundling and unbundling.

You talk about things like the modern data stack, and it’s a perfect example of this massive unbundling cycle, where what used to be this one product has now been deconstructed into an entire ecosystem of these interconnected best in class tools.

It’s almost like we’re in the midst of the great unbundling with the the emergence of the API economy and the maturity of it. It seems like almost every stack has been exploded out into these many best-in-class kind of slices of the pie. Are we ever at risk of rebundling, and do you ever see that out in the markets? When you think about this awesome connective tissue that we’re all responsible for building at this conference are there reasons to believe that’s got staying power and that’s actually the new way, or are we part of just a really interesting piece of a sin wave that is history repeating itself.

Sarah: Yeah, that’s a great question.

Bob: I try to spring things we didn’t plan for on you on stage.

Sarah: Yeah, and I’ll fully admit, who knows? But I think there are a couple indicators that we are in something that has staying power. I actually keep going back to the ecommerce example because I talked to one buyer recently. I was like, “Hey, what’s your stack?” He named 20 things, literally 20 items. On the one hand, I was like, “Hey, that’s a lot of things, do you want to consolidate?”

He told me, “I was doing everything on Salesforce before.” Sorry. I hope there are no Salesforce people here, but he said, we were all on Salesforce commerce cloud before this. It’s just in this market, we need customization. We need flexibility. WIthout that, we’re actually losing revenue and falling behind our competitors. The next gen and the new wave of tooling out there is the only way he was able to get that for his company.

In this API economy, where integrations are more seamless than ever, there’s no more trade off for companies to say, “Hey, actually, we should just go for this monolithic solution and sacrifice quality because at least all of my systems talk to each other.” We’re just seeing less of that because the trade off is not there anymore.

Proving the ROI of partnerships internally

Bob: Yeah, and user experience ends up playing a really big role, too. I think for every employee that we have at Crossbeam there are two or three SaaS apps. The number of SaaS apps we use is a multiple of the number of employees we have, but the number that we actually log into and interact with is actually, scoped within an individual role, relatively small. It’s really all of this machinery in the background that is this enabling technology. Whether it sits behind Slack, or it’s sitting behind Salesforce, or sitting behind the tools of record for a department, it becomes so much more powerful as an enabling layer and as a data layer.

That’s where I want to get back to a little bit of the inside baseball in the boardroom stuff and put it through the lens of the people that are in this room. We’ve got a lot of people that lead partnership teams. We’ve got a lot of partner managers who are on partnership teams. If they are in a meeting in a few weeks with their CEO, and they’re telling the story about why in the next year, we should double the size of the partnerships team, or we should make these really amazing investments, what are some of the things that the CEO might be looking to hear? What are the things the CEO heard in their last board meeting that they’re really trying to focus and optimize the company on?

Sarah: I’ve said this before, but it does all come back to ROI. This is where revenue is generated and accelerated. Having the stats that track that is incredibly important. I’ve seen partnerships really accelerate sales through tangibly shorter sales cycles, higher conversion rates. I think that’s the first thing.

When I think back on, what does a successful partnership program look like? What does a best in class one look like? And what is the starting off point that you can have a valid justification for wanting to expand your team? There’s a press release, you shake hands, we have a partnership. But why does that partnership exist, because that is going to symbolize how much their AEs are going to work for you. When I see that sort of very rock solid justification in place that to me is a sign of a lasting partnership.

The second piece is really, and Bob, you actually mentioned this point, and it got me really excited in the diligence process. The best partnership organizations have really infiltrated sales teams, like AEs were talking to the partnerships team nonstop. They had really discovered it in a way where I was hearing stories of AEs getting promoted 3 times in one and a half years, because they had discovered the value of partnerships data. They had not just done this, “hey, every quarter, you got any leads for me?” That kind of thing is not going to work. You’ve got to have your data real time integrated.

You’ve got to have a system for consistently mining partnership data. It’s not gonna do it for you. You’ve got to actually do that, but what is your system in place? This goes back to the predictability point, is this something that you’re continually going back to to build your pipeline? How deeply integrated beyond just the partnerships team is that process and some of the tooling? That’s what actually gets back to the third and most important thing that I mentioned, which is measuring that ROI.

Those are some of the attributes of best in class partnerships teams. When those are all in place, I see the justification sell itself.

Bob: Amazing what a perfect note to end on. Sarah Wang, I want to thank you so much for being here, coming to Philly, coming to Supernode. Thanks again everybody. Thanks guys.

Sarah: Thanks for having me.

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