Beyond Features: How Product Managers Can Drive Success with Superior GTM Strategies

Early in their careers, product managers often believe that building a great product is what makes or breaks a software company. While great features sure help, they are not a recipe for success.

Image by Gerd Altmann from Pixabay

Back in the 1990s, a small software company set out to revolutionize the lives of office employees across the world by building an innovative suite of productivity apps. Their software was so good that every company, from small to large, had to buy it to stay competitive. Within a few years, our small startup became a unicorn, known today as the largest software vendor in the world: Microsoft.

What a nice fairy tale! I did not expect you to fall for it. I just needed your attention.

Early in their careers, product managers often believe that building a great product is what makes or breaks a software company. You ought to outcompete other vendors with new and better features. While great features sure help, they are not a true recipe for success. Success is measured in terms of revenue. No business can survive by acquiring customers at a loss for too long. This two-part article aims to help Product Managers better understand how GTM and sales models play a crucial role in their success, with a focus on B2B software.

Back to Microsoft and their master plan to conquer the world through their Microsoft Partner Network. Microsoft built a massive network of resellers, integrators, and independent software vendors to distribute their products. They created a world-class partner program designed to nurture and maintain strong ties with their partner ecosystem. With the launch of Windows 95, they introduced an OEM partnership that allowed Windows 95 to be pre-installed on computers, ensuring widespread distribution and adoption. They trained and certified partners to equip them with the knowledge and skills to win competitive deals. They built partner incentives into their channel program to help stimulate sales and customer retention.

The result? As a Microsoft competitor, you would end up competing with Microsoft. There was no easy win for the competition. Sales is a numbers game. You need feet on the street. Thanks to their extensive partner channel, Microsoft was getting a seat at the table for every deal. This largely contributed to their amazing growth. Microsoft did not build the best software product. Instead, they built the best partner network.

Go-To-Market (GTM) Models

Let’s explore the different GTMs that SaaS software companies can leverage to market and sell their products or services.

Product-Led Growth (PLG)

With this go-to-market strategy, the product is the primary driver for customer acquisition, expansion, and retention. The company’s growth strategy is built around the product. This gives PMs superpowers to make or break a company's business. The distribution model may be 100% online: customers sign up for the service and never talk to a sales rep.

Alternatively, PLG may serve as a pipeline engine: warm leads get handed over to an internal sales team. A hybrid model may exist where only customers with larger needs engage with sales reps. Who hasn’t seen “Contact our sales team for high-volume discounts” on the pricing page?

Pure PLG is common in B2C software, while the hybrid model is better suited for B2B software. It is everyone’s dream to grow a company on a PLG model. In reality, while this model is superior financially and promises to deliver scale, it is extremely hard to get right and time-consuming. Many startups promote themselves as PLG by default rather than choice. Sales reps are expensive!

Direct Sales

In this approach, you hire a sales team responsible for identifying, nurturing, and closing deals with customers. The sales team owns the customer relationship. They sell “A La Carte”, customize the offering to the customers’ needs, and offer discounts to win deals.

Business Development Representatives (BDRs) and Sales Development Representatives (SDRs) play crucial roles. They drive lead generation, execute ABM campaigns, nurture customer relationships, and cross-sell or up-sell to existing accounts. BDRs and SDRs ensure your sales reps spend their energy and time on qualified leads.

The direct sales motion is very common in B2B software. You own the entire sales process and customer relationship. The product and marketing teams benefit from having direct access to sales reps on deals won and lost.

On the downside, this GTM model is hard to scale and hits your operating margin. The North American market may be better suited to a direct sales motion with its large TAM across the US and Canada. Many companies have learned how difficult it is to grow direct sales teams in small and fragmented markets like Europe. Asia is another example where cultural specificities, market fragmentation, and regulatory hurdles offer interesting challenges.

International expansion is in every executive’s growth strategy playbook. Many companies favor a phased approach with a hybrid model that combines a tiny country sales team with a go-to-market strategy through indirect sales.

Indirect Sales

In an indirect sales model, the company uses third-party partners to sell products or services on their behalf. Many companies start with a direct sales model and expand to an indirect one. In some cases, some companies go exclusively through channel sales. In High-Tech and Manufacturing, 80% of the revenue comes from partners. We call them resellers, VARs (Value-Added Resellers), MSPs (Managed Service Providers), SIs (System Integrators), Distributors, Dealers, Affiliates, etc. Companies like HP, Cisco, and Dell built their fortunes selling indirect.

Indirect sales GTM works great to enter new markets and geographies that require skills and specialization that can be hard and costly to acquire. Companies can increase time-to-market and scale faster. There are downsides, including recruiting and enabling the right partners and building a coherent and cohesive channel sales strategy all the way to the company's employees. Surprisingly, indirect sales as a GTM strategy is often perceived as hard, complex, and overlooked by many companies and executives.

The Power of Indirect Sales Channel By Numbers

I am biased here. I spent years at Salesforce building the market-leading Partner Relationship Management (PRM) product. A PRM solution streamlines the entire partner lifecycle, from recruitment, onboarding, training, and certification to marketing, sales, support, and analytics. I have seen small and large customers deliver amazing growth going indirect across geographies and verticals such as High-Tech, Manufacturing, Finance, Healthcare, and CPG.

An indirect sales motion is a powerful growth engine when well executed. It requires patience, though. In their report, Lean Scaling: A Saas Founder’s Handbook, BCG and Accel explore the state of Saas Indian software.

They state that the median Sales and Marketing spend has roughly returned to pre-pandemic levels of 37–40% of revenue. However, the median revenue growth dropped to 26% (-11%) in 2022. One of the key takeaways from their study is that

A well-designed channel program is becoming inevitable to scale in a lean fashion.

Roman Kirsanov offers regular insights on channels and partner ecosystems. You can follow him on Linkedin. He also publishes the Partner Insight newsletter on substack. This post summarizes partner-led GTM benefits:

• half (50%) of SaaS companies have transformed their Go-To-Market strategies

• 65% of those leveraging partnerships reported increased efficiency, reduced costs, and a 56% increase in new customer acquisition

• Consulting companies from McKinsey to Accenture and EY also have found that an ecosystem approach can drive an extra 12–13% in revenue while simultaneously cutting costs double digits

• But top SaaS companies perform MUCH better: HubSpot partners drove an incredible 45% of its $1.7Bn ARR revenue in 2022. 40% of new ARR at Box is sourced indirectly via partners

In SaaS software, sustained revenue is not about adding new logos. Renewals are key to ARR growth. And guess who is best suited to get those renewals with a higher spend? Your partners, who spend years building trusted relationships with your customers because their businesses depend on it. As Roman Kirsanov puts it:

Renewals eat new business sales for lunch

All evidence points to the fact that the partner-led GTM is superior to the direct sales GTM. Now, what if I told you that you could cut by half your GTM costs with a partner-first approach? Roman Kirsanov explains that

Leading Enterprise SaaS companies attribute 2X+ more of their sales to partner-sourced leads against their less successful counterparts. This has a significant downstream effect, driving their GTM costs down by 2X and reflecting in 3X growth.

You may wonder how partnerships can drive down costs. Roman Kirsanov mentions several reasons:

To begin with, partnerships can amplify your win rate. For instance, HubSpot recently found that partner leads are 26-50% more likely to close than average

Another aspect is customer retention and the critical role partners play. Atlassian found that third-party integrations made their product twice as sticky:

When customers add at least one app or integration in Jira Software, dollar churn reduces by approximately half.

Historically, channel sales have been a strategic revenue growth engine for the most successful B2B software companies. In recent years, a new GTM motion has gained traction and shown great promise: B2B marketplaces.

Marketplaces: The Golden Elephant In The Room

B2B marketplaces are fascinating. I am not the only one saying that marketplaces represent a natural extension of the channel sales model. Jay McBain, ex-Forrester analyst for PRM and chief analyst of channels and partner ecosystems at Canalys says that

Marketplaces are the red hot 💣 topic right now. Canalys is showing 86% CAGR in cloud marketplaces and predicting Amazon Web Services (AWS) will be a top 10 global distributor (by revenue) in less than 2 years.

A B2B marketplace is a digital platform where businesses can transact and interact with each other. Marketplaces enable software vendors to create a listing for their product, get brand exposure, appear in search results, generate leads, and reach a wide audience at a low cost. On the other hand, B2B buyers have a single location to find products and services, interact with vendors, and benefit from a streamlined purchase experience.

B2B marketplaces can be seen as aggregators with an industry-specific focus. For today’s purpose, we will look at SaaS software marketplaces. However, be aware that marketplaces come in many forms and flavors across industries, e.g., Alibaba and ThomasNet for manufacturing; eBay Motors for automative parts; LendingClub for financial services; ZocDoc and MediBid for healthcare.

Numbers don’t lie. Roman Kirsanov recently shared astonishing numbers on the growth and potential of Cloud marketplaces:

• On the path to $1 trillion, Gartner estimates end-user public cloud spending will reach $600 billion in 2023

• By 2025, IDC estimates the total spend on cloud, hardware, software, and services to reach $1.3 trillion; hyperscalers control 2/3 of the global market: AWS (34%), Azure (21%), and Google Cloud (11%).

• Gartner expects ALL major cloud platform and enterprise application providers (Workday, Atlassian, etc.) to offer marketplaces for their buyers by 2026.

This shift to Cloud marketplaces is driven by the hyperscalers, who made it a central focus of their GTM and growth strategy. Kevin Ichhpurani, VP of Global Ecosystem and Channels at Google, explains their vision:

We believe you cannot be customer-centric if you are not also partner-centric… we’ll continue to evolve Google Cloud Marketplace as the go-to destination for our partners and customers to deploy enterprise applications.

Roman Kirsanov adds that:

Within the cloud spend, SaaS is the biggest contributor (30% of $600B), so marketplaces are attracting SaaS companies who need to be where their customers are. Like e-commerce vendors had to decide whether to list on Amazon or build their own distribution on Shopify, etc. many SaaS vendors are going through the same journey.

What’s in it for SaaS software vendors?

Cloud Marketplaces offer many benefits once you get listed:

• Increased brand visibility and enhanced credibility through association with well-established names in the industry, customer reviews and ratings

• Global reach with access to an extensive user base, globally and across industries

• SEO benefits from the SEO optimizations of these platforms, that typically rank high in search results

• Cost-effective Sales and Marketing with tools and resources to create personalized campaigns

• Integration opportunities, through APIs and tooling, with other products or services on the marketplace to offer a complete solution

• Security, trust, and compliance built on the backs of industry-renown brands

• Simplified payment, billing and procurement through a hassle-free centralized billing system, flexible pricing model to cater to a wide range of customers, and frictionless procurement model

There is a lot to like about hyperscalers. As a software vendor, you will have to pay the toll, but all things considered, it may not be that bad. Microsoft and Google marketplace fees represent 3% of the transaction, AWS charges 5%. For SMBs and mid-market software vendors, it should be a no-brainer. This new route to market reduces their S&M spend and may help them grow at a faster rate. It is not magic, though, and building a brand and a trusted vendor profile takes time.

I think a huge advantage of marketplaces over other models lies in their user-centric approach. Marketplaces offer a buyer-led motion and represent a shopping center in the eye of the customer. The buyer can find everything he needs in a single place. The procurement model is the icing on the cake. No more lengthy purchase approvals with your manager, his manager, his plus one, and sometimes the CFO. Customers agree to a yearly commitment to spend with the marketplace vendor and are incentivized to buy from the marketplace. In turn, buyers are empowered with a zero-friction purchase process since the spending is already approved.

It does not mean that marketplace leads get funneled to your sales rep. Customers buy solutions, not individual products. Some customers may have the in-house expertise to assemble their solution and buy direct, while others may work through partners to select the right solution. Enterprise customers often work with SIs to select the necessary software bricks for a solution. They are incentivized to do it right because they are on the hook to implement it.

The predominance of a few hyperscalers is already a reality. I expect to see an explosion of smaller marketplaces built on the same model and focusing on niche markets with curated listings. Similar to a shopping experience on Amazon, sometimes, there are advantages to going to specialized places for your shopping!

Conclusion

As a product manager, building a great product is just one part of the equation. Choosing the right GTM motion(s) and optimizing your product or service offering for your chosen routes-to-market are equally important. We touched on the benefits and limitations of several GTM models: product-led growth, direct sales, indirect sales, and B2B marketplaces. Successful software companies usually adopt hybrid GTM motions that get fine-tuned over the years. In part two of this article, we will explore how product managers can adapt their product strategy and roadmap to their GTM(s) and unlock revenue growth opportunities.