I want to spend a little time on some learnings about Strategic Partners in SaaS. First, let me be clear — to make it in SaaS, you’re probably going to need to achieve real success with Strategic Partners. Because it takes a Village. And because your partners will likely, through integrations in particular, make your product better and strong. And because all together, as a group, your partners probably will have a material impact on your revenue. We’ll come back to that in a second post.
But my uber point here is that if you’re just getting going, or even if you are just past First Traction, and you are hoping / assuming some Magic Partner is going to lift your business dramatically and generate/create a ton of new business for you — get real. That’s pretty unlikely.
Because of the Law of Attach Rates.
This is a lesson I first learned early on in the days of EchoSign. I met with the VP of Marketing of a medium/large SaaS company, with 100,000+ VSB customers, that then went on to be acquired for nine figures. At this point, this prospective partner company had already been going for 5 or 6 years, and the team was a bit tired, and the VP of Marketing probably a bit jaded, and she just cut to the chase.
“Look,” she said. ”We could integrate EchoSign into our product, and a year or two ago we might have. It’s probably a B+/A- integration. Our users would like it, appreciate it, but we’d do just fine without it. So not really worth our time”.
Bummer, I thought.
“Here the thing,” she went on. ”Neither of us can really make any money off it. The best attach rates of one product to another are maybe 2% in my experience. So since this is a B+/A- affinity, let’s say 1% best case. So maybe of our 100k customers, we’d eventually — after time — get 1,000 paying customers. Even if we split the money 50/50 … that’s only $100k each a year. That doesn’t even pay for one engineer.”
And she was right. One small or medium partner can’t move the needle. And now let’s do the math for a Large Potential Partner. Let’s take the biggest SaaS company of them all – Salesforce.
Let’s do the math on Salesforce:
- Salesforce is running at about a $3 billion ARR. (Wow!)
- Salesforce has maybe 150,000 distinct customers. (A guess – they seem to have stopped publishing this about a year ago)
- OK let’s assume you get 1% of those customers somehow — that’s 1,500 customers. Which is terrific.
- Except that will probably take 2-3 years to get to that penetration.
- If your ACV is say $4,000 x 1,500 customers = $6,000,000 in ACV.
Now $6m in ACV is a great business after 2 years, don’t get me wrong. But if that’s it — then alone, it’s not enough to build something big. And it will take years, and a ton of work, and most importantly, a really great attach, to build that up. And believe it or not, this really is a best case scenario. The truth is, of the 1000+ applications on the Salesforce AppExchange, my guess is less than 10 even have > 1000 Salesforce customers. I’m pretty confident of that, based on how you used to be able to force rank AppExchange apps on # of installs.
So if you can’t really make it on Salesforce alone — can you make it anywhere?
Well, you can. First, I’ve taken a few shortcuts. Your ACV may be much higher on a partner platform in certain cases which makes the platform give you a boost (for reasons we’ll discuss in the next post) — though in general the higher the ACV, the fewer the # of customers. Second, imagine you had several of these partners … then it starts to get more interesting. Third, sometimes, rarely, there’s a Super Attach. Where you fill a big hole in a partner’s platform. But even then, the attach rate might be 2%. Fourth, if the denominator is truly epic, sometimes even a relatively small attach rate can still work wonders. See what happened when EchoSign integration launched in Adobe Reader here and in the image to the right/just above — the new user acquisition rate literally tripled overnight. But that’s an outlier — Reader is on 1 billion devices, and EchoSign is the only web service fully integrated into it. And finally, most importantly, there are a lot of Indirect benefits from Strategic Partners. You can grow a lot of revenue out of a Strategic Partner’s platform, even if directly they don’t generate an epic number of leads for you. We’ll talk about all of these in the next post on the topic.
>> But the simple point is — in SaaS, rare outliers aside — one seemingly great strategic partner simply cannot, alone, Move the Needle. It’s nothing personal. It’s just The Law of Attach Rates.
Understand this Law, how it works, and how it applies to your product, and you’ll know how to think about the direct revenue side of strategic partnerships.
(Cross-posted @ saastr)