Sunir Shah, founder and president of The Small Business Web, joins me, Nicki Kamau to discuss the partner as a customer, the disconnect between SaaS and the world, the opportunity for channel sales to expand and more on this episode of The Allbound Podcast.
What are some of the biggest challenges that you see vendor organizations face when it comes to partner collaboration?
This is my bread and butter right now, because I'm doing a lot of consulting for folks, and it's pretty interesting. So the companies that are doing really well, view their partners as customers of the partner team. And the ones that do poorly view partners as somehow employees in the sense that they feel that the partners owe them something in order for them to get their respect. Like, you work for us to make money. And very few SaaS companies give enough money in commissions to a partner to make a difference. Because partners make all their money, almost, from actually providing professional services on top of the software.
It’s like if I my basement rented out. I'm sure my general contractor made money on the furnace. It was probably $500. But where he made real money is actually doing the work. And so, marketing agencies make all their money from doing the actual marketing communication work, not the software. But a lot of SaaS vendors think they're the most important thing in the relationship.
The partners that are doing really well view the customer as the team. They apply the exact same discipline that the product team would apply to the corporate customers of the core product, to the partner program. So they do a lot of customer development, they do a lot of customer interviews, they're very responsive, they have a support desk for the partners, they have a newsletter, they have a dedicated community manager/partner communications person. They have actual metrics they're measuring. They're looking at the finances that is a business line. They'll do Facebook ads at events and try to market to acquire more partners. They don't look at it as a passive source of revenue.
I mean, obviously, if you invest in something, it's gonna grow. And it's also the attitude of thinking of them as customers of your partner team rather than somehow they're your employees. And this is actually a very common thing in channel, it's not just in SaaS, where you look at your channel partners as your sales staff, you treat them as such. If they screw up, you can't yell at your partners and say, "I want more quota." Good luck with that! They'll drop you and find other vendors. They don't need that from you. They're customers, you know.
And so that's really the core attitude that I find is critical. Treat your partners like they're the customers of the partner team. And when you do that, it becomes a lot more obvious what they want. It's like, "Well, we want a heads up on feature changes. We want to have sales collateral. We want to have support, or a once-a-month phone call. When you're in town let us know so we can hang out for a meal/" Simple stuff, right?
What are the biggest opportunities that you're seeing for the market as you dig into your research?
I'm gonna be a little bit controversial. Well, a lot controversial. I've been working on this problem for a long time. In fact, when I ran partnerships at FreshBooks, it was the first time I became aware of how much of a problem it was. When people would call us up and say, "Hey, Sunir, I could sell a lot of FreshBooks to my customers. But I need a cut, and I don't wanna send the customers to you directly. Can I white label it? How do I manage, the visioning and the account management? I want to have an account login." And I'm like, "Whoa, whoa, whoa. That's a lot of work. Why don't you try selling a few?"
And we had this problem where I didn't have any resources to build a channel program, or even a channel admin for them. And I didn't see any leads coming from it. And meanwhile, all the resources were going to the core product in the core marketing. Because that's SaaS. And the fundamental gaps between the traditional channel and SaaS is not the disconnect in ideas or concepts. When I was there, I had a lot of strange comments. A couple people said, "Oh, SaaS, that's just what the millennials are using." I'm like, "I don't think just millennials are using SaaS." I wouldn't call Salesforce the millennial tool, or Zendesk. It was a little bit strange to hear that. A couple people were like, "Subscriptions. Who buys that? Who buys subscriptions?" Like, everybody? Everybody.
The reason why, I think, is that when SaaS was conceived as a business model, you'd hear this language around it, especially from the futurists and the investors, that it was great because you could sell direct and make a recurring revenue. And when you sell direct, you disintermediate all the middlemen, all the value chain, and take all the gross margin for yourself. It looks like a cash cow. Because the internet, while it was a great marketing machine and you could reach all the customers just yourself. Because thinking that reach means they could reach you. But, actually, the problem is you need to reach them.
What happens was a couple things. One, there is no gross margin in SaaS. It's amazing. Because what happens is when you build one good SaaS product, guess what? The internet is huge. There are lots of competitors. It pushes a lot of the gross margin down. either because you dropped the price, or more likely, for the best products, they put a lot of engineers and designers and support, and customer success in behind the product to to keep the subscriptions going. And so there is a little bit of accounting magic. But if you realize that people won't keep using your software if you cut the engineering budget in SaaS. That's the thing. You'll lose them.
The second problem is because the SaaS companies are spending all their money on a product to be competitive. And so it's very hard to put engineering in the partner per channel. So you can't invest in the channel unless you have a vision.
The third problem is that there's a current view right now in SaaS that it's quite popular to spend a lot of money building a direct sales team inside sales, and more direct marketing to acquire. And that's fine. It works. But the problem with that is you can't literally phone everybody in United States who might want your product. You can't know everybody. You have to work the channel. And so the model of SaaS, it has disconnected itself from the channel. And you'll hear this talking to people who are potential resellers, solution providers, partners. They feel like when they send a customer over to a SaaS vendor, the vendor tries to steal the customer from them. And there's not enough money coming back to the partner.
The economics are not positive working with SaaS. And so there's a disconnect in the fundamental business model and the political economics, if you believe it, of SaaS versus the traditional channel. And I think all the exciting work will happen in order to make SaaS either work or fail will happen in fixing how SaaS can work with partners by providing them value and respect, providing them channel support. I mean, that's why Allbound exists, right? You believe in channel support in order to build up a channel. And I think a lot of the SaaS companies who have gone through the direct sales build that cycle, realizes there's a limit to that. You can only smile and dial so many leads before you've exhausted your relationships.
And those people who did direct sales a couple years ago have definitely moved more into partnerships now looking to build the channel. As I was saying earlier, the exciting stuff is that the resources are coming back to partnerships to invest in bigger, chunkier channel programs.
There's a couple ways of solving this problem. I don't think SaaS vendors will ever have enough resources that can apply to partnerships to build the middleware, to build a market. If you have a business degree, you know that supply chain management is built on logistic companies, and just SaaS, because the SaaS model broke a lot of the tech logistics. We're gonna have to build some new ones at the model, or work with existing partners like Ingram Micro or ScanSource, or distributors like that.
So there are other existing resources coming to market. And the reason I say that is that there's enough SaaS vendors now that are succeeding. There's an overall market size of B2B SaaS that has now reached a sufficient enough size. There's enough fractional resources, per vendor, that you can start paying for these middlewares, so Allbound is a good example.
There's an opportunity to start fixing some of these problems.
When I was at the ChannelCon, I would say about 20% of the audience there now had a pretty reasonable cloud or SaaS-based parts of their business. And that's a good sign too. So if you have endors like you, and maybe other vendors in the space trying to do channel support, and you have businesses on the other side who are trying to build businesses natural to it, and you have organizations like ChannelCon working on bringing people together, I just feel like a matter of time now. So I think that's the opportunity. And, of course, whoever figures out how to fix the problem stands to make a lot of money, because right now, the industry for SaaS, B2B SaaS, stands around $20 billion roughly, globally, out of $400 billion for all software.
So Microsoft alone made $90 billion. And then Salesforce probably makes $7 billion or something last year. So you could see the huge difference between the size of the SaaS market, which still is very much in the infancy, which is amazing after 13 years. It's only because we broke the business model for the distribution. But when we fix it, then it will go from $20 billion to $100 billion dollars.
And so if you think it's like, "Oh, it's not happening." It's going to happen now.