Georges Arnaout was the first Customer Success hire at CloudHealth prior to its acquisition by VMWare in 2018. He remains at CloudHealth where these days he is the Global Head of Customer Success, leading an organization responsible for $130M+ in ARR. Georges advises founders on go-to-market strategy as part of Scale’s Executive Network.
Direct sales isn’t the only go-to-market sales strategy available to early-stage startups.
Where to sell your product is a fundamental decision that founders make early in their go-to-market planning. And while a partner sales channel strategy is right there on the table for practically any enterprise software startup, in my experience most founders give it little or no serious consideration. Direct sales is the assumed default and there’s no real discussion otherwise.
This article seeks to clear up a lot of the misconceptions about Managed Service Providers (MSPs, though I’ll just call them “partners” here) as a go-to-market strategy and argue it is valid and available to any early-stage startup. I’ll do so by sharing exactly what worked at CloudHealth, where in 2015 I was the company’s first Customer Success hire. The strategy was simple on paper: invest in Partner Success to drive overall success in the channel.
It took some experimentation to get it right but once we did, Partner Success drove improvements in growth rate, churn, net retention, and NPS. Here’s what I learned along the way.
Misconceptions About MSPs
Early-stage founders often delay developing a partner channel sales strategy because it seems overly complex or inefficient. Arguments against it go something like:
- Partner sales channels take too much time to develop and enable. The direct model is simple, fast, and easy.
- Partner sales are great until you lose a partner who then takes a bunch of end customers with them. I don’t want to give up that control.
- Partner sales means flying blind. We’re not able to monitor the pipeline like we can with direct sales, making it unpredictable.
You can probably sense the start of a self-fulfilling prophecy here. What often happens is that even when founders or sales leaders activate the channel model, they tend to under-invest in partner-dedicated Customer Success resources and/or fail to properly adapt organizational structure. Then when the channel underperforms, it reinforces their initial hesitation about investing in the first place.
Incentives at the Customer Success level can get misaligned as well. When the channel strategy is seen as a secondary priority (which can be the case when it is activated years after the direct model), the CS leader will naturally prioritize investments in the customers that have the highest ARR or highest potential for NRR growth. Inevitably, that’s not the partner channel.
You can prevent all of those downside scenarios by investing in the success of your partners in the same way you invest in the success of your inside sales team.
Making the Right Investments in Partner Success
We shouldn’t go much further without first defining Partner Success. Partner Success is the technical and commercial partner enablement that creates offerings / services your partners will want to sell. It requires coordinating go-to-market and CX. And it provides broad support for how partners use your platform in ways that ensure the outcomes of their customers are met.
While CloudHealth did invest in a channel strategy pretty early on in its journey, the investment in Partner Success did not come until several years later. Once we made the investment, however, we saw immediate ROI in terms of Partner revenue growth, net retention, gross churn, and satisfaction.
A lot of hard work and experimentation went into the following list of best practices. Here’s what I found worked well:
- It is imperative to think of Partners as an extension of your Customer Success team and not as customers. This means that you have to invest in enabling them, providing them with the training, tools, and processes that you would use with your direct customers
- Separate Direct CS from Partner CS (but under the same CS org). As the vendor, doing the above does not mean enabling your Partners on your Direct GTM processes (i.e. traditional GTM). The definition of success varies between Partners and Direct customers. Your direct customers care about achieving the desired outcome that they purchased your platform for (ideally captured in the sales process). Partners care about revenue, gross margins, Gross Churn, NRR, NPS, etc. the same metrics that you track for your own CS team in your direct GTM. If you enable them correctly, they will be able to provide the desired outcome of their own customers and make the services they create successful.
- Be indirectly involved. The customers of your Partners are indirectly your customers. While it is not recommended to work with them directly (this defies the point of scaling with Partners), you want to ensure you are guiding your Partners along the customer journey. This can be done by sharing platform usage metrics with Partners on the health of their customers, conducting joint roadmap sessions, conducting joint EBRs with their top customers, etc.
- Equip partners with the tools for success in a Partner Program. While creating a partner program is not specific to Partner Success, it is important to ensure that all the content and (pre- and post-sales) material needed to support your partners is available in one place. This is also a place where Partners and your sales team share leads and co-sell together instead of competing for customers – something that will quickly end your relationship with the channel partner.
- Establish clear roles and responsibilities. Establish clarity with the Partner and their customers on who owns what. For example, you will be working with three core groups on the Partner side:
- The team that will create the service [PM or PMM]
- The team that will sell the service [Sales]
- The team that will support the service [CS, Service Delivery, Support]
It is important to establish the right connections between those core teams and your team.
Wrap Up: Partner Success By the Numbers
I’ve talked about Partner Success strategy and tactics. Here’s the impact we saw by the numbers.
Prior to the introduction of Partner success in 2017, the revenue originating from the channel represented 17% of the overall CloudHealth revenue and annual Gross Churn Rate was close to 11%. There was also a fast upward trend of the Churn (1% in 2015, 5.7% in 2016, and 10.6% in 2017).
After the introduction of Partner Success, the annual average Churn Rate dropped to 1% and has been hovering between 1% and 2% since. Only two years after inception, the channel business grew by 200% and now represents almost half of overall CloudHealth revenue. Net Retention remained consistently above 136%. From a customer satisfaction perspective, the Partner NPS was consistently higher than the Direct NPS and remained consistently above 47.1.
By deliberately investing in Partner Success resources, we demonstrated that an MSP-driven GTM strategy could work – and in doing so contribute to faster growth during CloudHealth’s early-in-revenue period when every growth tailwind really mattered.