Why (and When) Strategic Partnerships Make Sense for SaaS Startups

A few months ago, I read an interesting article about the unique steps Starbucks has taken to drive revenue growth at a time when many consumer companies are struggling to adjust to changing customer behavior. Rather than pour cash into digital ads and social media (the channels du jour for some consumer brands), the retail giant went a different route — investing heavily in technology and strategic partnerships.

Both moves paid off in a big way. At the end of Q2, the company reported an 18% increase in year-over-year sales and a 28% bump in the number of users of its mobile payments and loyalty programs. You can read more about Starbucks specific investments in the Business Insider story, but I thought this quote from Starbucks CEO Howard Schultz was particularly interesting:

“[Partnerships provide] a unique opportunity for incremental growth, increased profitability and the opportunity for us to serve, connect with and become part of the daily ritual of an even larger base of consumers.

Take note, SaaS CEOs.

Why Strategic Partnerships Make Sense for SaaS Startups

In B2B SaaS, strategic partnerships often form when a bigger company links with a smaller startup that in some way aligns with its product, market, platform or long-term goals. This alignment can take many different shapes, but it’s generally driven by an opportunity to improve product feature sets, user experience, branding or customer acquisition efficiency.

I’ve long been an advocate for strategic partnerships in SaaS, largely because they can help a growing company:

  • Close gaps in its product’s feature set by tapping into the complementary value of another company’s services
  • Gain access to broader customer markets by hitching the wagon to a bigger, better-known brand
  • Grow revenue through co-marketing or reseller arrangements that lower CAC and improve sales efficiency
  • Expose the brand to more eyes and a bigger pool of strategic M&A targets

A good example of this within OpenView’s portfolio is Expensify, which recently announced strategic partnerships with Uber, Priceline and several other travel-related businesses. You can read more about why the Uber integration made sense in this post by Expensify CEO David Barrett, but the collective brilliance of those partnerships is personified by how they’ll benefit Expensify’s customers.

For example, thanks to the Uber partnership, Expensify can now leverage its users’ travel information to automate the physical aspect of their journey, too. When the Expensify app sees that a user has a flight coming up, it can automatically schedule an Uber to pick the person up and take them to the airport. When the app notices that the user’s plane has arrived (thanks to partnerships with other travel companies), it can ensure that an Uber is waiting outside baggage claim to take the user directly to the hotel. All of this happens through one app, and without the user having to enter addresses, flight information and so forth.

For Expensify customers, the benefits are obvious. But, for the company itself, linking the brand to names like Uber and Priceline creates enormous exposure and opens the door to incredible opportunities to grow revenue.

3 Questions to Ask When Seeking Potential Partners

Now, for the caveat: Strategic partnerships only work if your SaaS startup is ready for them and if you’ve done the necessary homework to ensure they make sense (for both partners). To help you gauge your level of readiness, I’d suggest addressing three key questions:

  1. When is the right time to seek out potential partners? Frankly, there’s no “perfect” time. Preparedness largely depends on the potential opportunity and your company’s ability to deliver real value to the partner. That said, before seeking and initiating partnerships, it’s generally a good idea to ensure your product and go-to-market strategies are well thought out and fully operational. If they aren’t, it’s going to be difficult to convince a larger brand that your business is worth partnering with.
  2. What should you look for in a strategic partner? Do you want to fill holes in your product? Are there holes you can fill in another company’s offering? Are you trying to improve CAC? Create co-marketing or re-seller arrangements? Ramp up business development? Generate awareness with larger companies for M&A down the road? There are a number of different reasons to develop partnerships with bigger companies, but you have to know what you want to accomplish before you even begin exploring strategic partnerships.
  3. Who will be responsible for initiating and executing partnerships? The person responsible for orchestrating and managing strategic partnerships will vary by your company’s size. If you’re an early-stage startup, it should probably be the CEO’s job. This person will best understand the company’s core value and they’ll have the most credibility with enterprise executives. If you’re an expansion-stage business with a mature executive team, then strategic partnership duties might trickle down to the CMO, CFO, or VP of Business Development. Regardless of who takes the lead, however, it’s important to have one person in charge of designing a partnership strategy and managing partnership activity.

At the end of the day, there’s one key thing to remember with all strategic partnerships: The more partners align with what you do or where you’re trying to go, the better off you’ll be. Finding that alignment requires a simple analysis of your own gaps and proactive outreach to prospective partners to understand their goals and issues.

For more on that process, check out this post by John McCullough, OpenView’s own head of business and corporate development. And to learn more about how small startups can land big-brand partners, I highly recommend reading this case study on Socrata’s strategic partnership with Yelp.

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Founder & Managing Partner

  • Chris Regan

    Scott, great read. Do you have any specific ideas or references for what reseller agreements look like for SaaS products? Straight commission based on MRR generated through the partner, or?

    • Suresh B

      If the reseller is largely involved in helping you “acquire” the customer as opposed to service them, then make it more commission based on bookings.. a good way to think about that % is the % you would normally spend on marketing to that customer in order to acquire them. If the reseller is involved in helping you service that customer then make it based on MRR and also have some incentive to help reduce churn

  • Suresh B

    Great article Scott.. I had authored a post in Venture Beat (http://bit.ly/1Nfx8v4) earlier this year outlining a broader framework for startups to formulate partnership strategy. Your focused article on SaaS is a good one