As we enter the second half of 2024, technology companies continue to focus on recovering from a prolonged period of deceleration in both new logo and customer expansion velocity, aiming to re-build pipeline while technology budgets remain under scrutiny. Remarkably, within the span of a single year, many of these companies have rapidly and significantly transformed their operating models and go-to-market strategies to reignite their recovery and remain competitive.

For many companies, one key component of this transformation lies in indirect sales strategies via alliances and channel partnerships. We expect channel strategy to remain a focus across the software landscape in the coming years and are excited to share insights and learnings from channel development leaders across the ICONIQ Growth portfolio⁵ as well as continue to monitor the impact increased adoption of these motions have on long-term growth and scalability.  

We invite you to read more about the latest go-to-market trends here, where you’ll find our report on The State of Go-to-Market in 2024.

Software companies are embracing more hybrid sales motions

Software companies are increasingly adapting their sales motions to find more efficient alternatives to the traditional outbound, sales-led growth strategy.¹ Year over year, our study shows that a similar cohort of companies shifted away from a top-down customer acquisition method, wherein sales primarily targets executive buyers, and towards a more efficient bottom-up or hybrid customer acquisition approach wherein sales targets end-users. Notably, more and more companies are finding that it is imperative to develop the ability to land the end-user and successfully sell to executives in order to capture the sale.

More companies have built out product-led growth capabilities within the last twelve months, and shifted the mix of their sales teams away from field sales, which tend to have more prolonged pre- and post-sales cycles, and towards more hybrid and inside sales models. While this shift towards hybrid sales aligns with companies’ desires to drive growth with increased efficiency, it is important to emphasize that despite the allure of the relative efficiency of bottom-up sales and product-led growth, it is imperative that companies do not over-rely on these motions. While a bottom-up model allows teams to cast a wider net and achieve more immediate results, we believe that a mature, healthy enterprise field sales motion developed over time is critical to long-term growth for most companies. This is particularly important in order to continue to drive new logo velocity and control pipeline quality in a market where budgets remain under scrutiny.

The rise of channel partnerships

As companies adjust their direct sales strategies towards hybrid sales motions, they are also turning their attention towards indirect sales strategies via alliances and channel partnerships - especially with the rise of hyperscaler cloud marketplaces like Amazon Web Services (AWS), Google Cloud Platform (GCP), and Microsoft Azure.

"Partnerships have become our largest source of net new ARR in the last few months, surpassing marketing and sales. We’ve really evolved our indirect paths to market and are continuing to add more."
- Head of Business Development, ICONIQ Growth Portfolio Company (Infrastructure & Security)¹

Looking at the same software companies year over year, channel revenue has increased as a percent of total revenue – most notably for infrastructure companies (up 5%), followed by horizontal SaaS and vertical SaaS companies (both up 2%).

In this macroeconomic context, go-to-market leaders have also been focused on channel sales as a relatively efficient sales motion relative to direct sales. Companies with a significant channel motion⁴ decreased their average sales cycle by 25% between 2023 and 2024, while companies with no significant channel motion experienced a 10% increase in average sales cycle in the same period.¹

"Our partnerships have been an incredible source of lead generation for us. Both partner-involved and partner-sourced deals have shorter sales cycles than direct sales, and we see higher win rates for partner deals as well."
- Head of Finance, ICONIQ Growth Portfolio Company (Infrastructure & Security)³

When do companies start to build out a channel motion?

Relative to direct sales, there tends to be a long lead time between when companies establish a channel sales motion and when they see it contribute meaningfully to growth. While companies start landing channel revenue in the $5M-$25M ARR stage, channel revenue only begins to increase as a percentage of total revenue around the $100M ARR scale on average.

With this lead time in mind, it’s important for companies to start investing in partnerships early on; however, there is such a thing as “too early.” Partnerships, like marketing, fuel the fire of a well-run go-to-market motion. Early-stage companies should see evidence of strong product market fit and sustained new logo velocity in their direct sales motion before investing significantly in channel partnerships, just as they should before investing significantly in demand and lead generation.

Key partnership models to consider

It’s important to invest in the partnership models that are right for the company, the buyers, and the product - companies often leverage multiple models and there is no “one-size fits all” approach. Some of the most common partnership models include:

There are many important inputs to consider when selecting the right partnership models for a software business including product complexity, ideal customer profile, deployment model, and sales motion. While acknowledging that every company has a unique business model and partnership goals, there are some trends we’ve observed as to which companies might prioritize different types of partnerships.

For example, companies with a relatively complex product that requires significant professional services to deploy and maintain tend to prioritize an MSP model, wherein a partner owns all or a portion of the implementation process and ongoing professional services. By sharing deployment responsibilities with partners – or outsourcing them entirely in some cases - these companies can operate leaner go-to-market teams and streamline the post-sale organization. MSP models are also often leveraged as software companies expand internationally as they often have existing relationships in these new markets and language and cultural nuances introduce complexity in the deployment cycle.

In the enterprise space, many software companies believe a referral model through a large consulting firm is the “holy grail” of channel partnerships. Consulting firms act as a kind of middleman between the software company and the buyer; by already understanding the complex needs of the buyer and their broader initiatives, consulting firms can reduce barrier to entry for the seller. At the same time, buying through the consulting firm reduces risk for the customer and simplifies the procurement process.

While reseller, system integrator, and referral models have been historically common across the SaaS ecosystem, channel leaders are turning their attention to cloud marketplaces as the future of partnerships. These hyperscaler marketplace ecosystems can be challenging to navigate, so we’ve compiled the six key lessons below informed by channel development leaders across the ICONIQ Growth portfolio to help companies understand this landscape.

Six lessons for establishing partnerships with cloud marketplaces

Lesson #1: Consider sector and buyer personas

While it can be easy for companies to default to the cloud provider they use for hosting, channel leaders should consider sector and buyer personas when choosing the best marketplace partner as certain companies may have better access to ideal customers. For example, many infrastructure and security enterprises prioritize AWS marketplace because they have a strong subset of CIO and CISO buyers. Many application software companies—especially those with CFO offices or revenue buyers —prioritize the Microsoft Azure marketplace given strong relationships with those buyer profiles.

Lesson #2: Start with one and expand from there

Channel development leaders across the ICONIQ Growth portfolio agree that focusing on one marketplace partnership to start, and truly doing it right, is better than spreading partnership efforts across multiple marketplaces and co-sells. Once the first marketplace partnership is established, is contributing meaningfully and predictably to revenue, and a scalable partnership enablement program is in place, companies tend to move towards a multi-marketplace approach by selling through two or three marketplaces at the same time.

Lesson #3: Leverage strategic connections

It can sometimes be difficult for startups to get attention from large hyperscalers without an established relationship, but strategic connections such as venture capital partners can help clear a direct path into these channels. Channel leaders also recommend leveraging other companies and operators that have navigated these marketplaces before to share learnings and best practices. We invite ICONIQ Growth portfolio companies to reach out to us on the topic to see if there is any way we can support.

Lesson #4: Become an insider

Just like in a direct sales cycle, landing and retaining a marketplace partnership requires an understanding of the key decision-makers within these hyperscaler organizations. As some of the largest global companies, in can be difficult to gain access to or even identify these decision-makers and gatekeepers. Channel leaders recommend becoming “insiders” in these organizations—spend time building relationships with partner reps, hire employees that have experience working with these teams, and multi-thread within the organization to establish the right connections.

Lesson #5: Prepare operationally

As companies build the partnerships function by investing in people and alliances, it’s also important to establish the back-end systems and infrastructure to support this type of growth. Channel leaders across the ICONIQ Growth portfolio recommend having one or two employees dedicated early on to everything from channel operations and billing support—marketplaces have nuanced billing requirements that often warrant separate systems and processes—to marketplace research. It’s also important to set up a CRM to make is as easy as possible for partners to hand over new accounts or leads, and to measure revenue impact coming from partners, whether it’s fully partner sourced or only partner-involved.

Lesson #6: Enable partners for long-term success

Partners should be enabled to sell and use a product just as a direct sales rep would. That said, partner enablement programs don’t need to reinvent the wheel—many companies find success in leveraging existing sales, customer, and onboarding resources. Partner reps should know a company’s ideal customer profile, understand the features and various use cases, and be trained on new product functionality and messaging. While partner enablement is often a distributed effort within a channel development team, it can be helpful for companies with complex and technical products to leverage solutions architects and solutions engineers for more hands-on partner enablement.

Upcoming Content

As companies continue to invest in channel partnerships and build out indirect paths to market as a way to support growth in the current environment, our upcoming posts will address common challenges companies face when building out these motions. We’ll share benchmarks and learnings related to incentivizing partners as well as building and incentivizing channel development teams internally. In the coming weeks, we’ll also look more deeply into how marketing budgets have shifted year over year, and where marketing teams are investing in 2024.

We invite you to subscribe here to receive updates on ICONIQ Growth’s latest go-to-market content.

Notes

1. ICONIQ Growth Proprietary, Annual Survey of Go-to-Market leaders at B2B SaaS Companies (March 2023 and March 2024)

2. ICONIQ Growth Analytics Quarterly Recap; Q1 2024, based on quarterly operating and financial data from the ICONIQ Growth B2B SaaS portfolio and 109 public SaaS companies where data was available

3. Select quotes collected from the ICONIQ network are anonymized to protect private company information. Quotes were collected through interviews and roundtables of GTM executives. Quotes were selected based on their relevance to the above post, and were not selected based on the performance of portfolio companies.

4. Significant channel sales was defined as>30% of revenue coming from channel sales, a threshold chosen based on the average and distribution of the dataset

5. Please find a full list of ICONIQ Growth portfolio companies here: https://www.iconiqcapital.com/growth/companies

6. Product-led growth self-reported by survey respondents (ICONIQ Growth Proprietary, Annual Survey of Go-to-Market leaders at B2B SaaS Companies)

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