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Early-stage technology companies cultivate channel plans

Tech startups featured at the MIT Sloan CIO Symposium's Innovation Showcase are developing channel marketing strategies at an early stage in their development.

CAMBRIDGE, Mass. -- Most of the early-stage technology companies recently participating in the MIT Sloan CIO Symposium's Innovation Showcase have launched partner programs or are in the process of doing so.

Young companies cultivating channel relations early on is a departure from conventional startup marketing plans, which emphasize direct sales. But the startups featured in the Innovation Showcase, which focused on companies with less than $10 million in revenue selling enterprise IT offerings to CIOs, buck that pattern. Company executives see value in building a channel strategy from the beginning. Channel partners, meanwhile, seek out promising young technology vendors to get a jump on their competition. A partner that establishes early ties could gain the inside track with a rising star; Innovation Showcase companies from previous years include TwinStrata, acquired by EMC last year; Desktone, acquired by VMware in 2013, and CloudSwitch, acquired by Verizon in 2011.

Numerify, one of the 10 Innovation Showcase participants, provides an example of an early-to-the-channel startup. The company, based in Cupertino, Calif., emerged from stealth mode in April 2014, launching cloud-based IT business analytics applications designed to work in the ServiceNow IT service management environment. Gaurav Rewari, co-founder and CEO of Numerify, said the company invested in a channel strategy in its first full financial year.

"Very early, we said there are some things we know about our offering: We know it is tightly focused on IT buyers and those who have selected ServiceNow and believe it to be a strategic part of the overall puzzle," Rewari said. "That clarity allowed us to perhaps make an earlier investment in the channel than might have otherwise been possible."

Numerify set out to find partners experienced in the ServiceNow ecosystem and also able to evangelize a new product to IT department leadership, Rewari explained. In addition, he said the company was looking for partners who were not only cloud-savvy but had a nose for analytics. The Numerify Partner Program now has five members: Aspediens, Cask LLC, Cloud Sherpas, Innovise and Kloves Inc.

Numerify's channel inclination was the rule, rather than the exception, for the majority of the MIT-featured startups. Other early-stage technology companies with partnering plans include Cumulus Networks, DataGravity, Infinio Systems, Platform9, Sqrrl and Stratoscale.

"Relative startups aren't always thinking about pursuing their channel strategy at that stage of the game," said Jeff Kaplan, managing director at THINKstrategies, a cloud consulting firm based in Wellesley, Mass. "But it is not a bad idea to be plotting your go-to-market strategy with your channel plans in mind ahead of time, so you can design your products in such a way that they can be channel-friendly and encourage a channel ecosystem to grow."

A startup's main marketing focus is to acquire its first group of customers, obtain feedback and understand what it will take to sell its products. Any plans for the channel often come much later in the company's evolution. Possible factors  driving an earlier channel encounter include the need to gain mass quickly in a competitive market, high direct sales and marketing costs, the ability to crack difficult accounts and a desire to build what MIT researchers describe as "platform" business models that reach out to external communities.

Kaplan said young companies find it difficult to achieve scale entirely on their own, particularly in a price-competitive marketplace cluttered with players.

There is a benefit for established channel partners to be aware of the latest innovations being generated by the new generation of startups.
Jeff Kaplan, Managing director, THINKstrategies

"Very few can do it all by themselves," Kaplan said.

Stratoscale, which offers a software platform for hyper-converged infrastructure, wouldn't argue with that sentiment. The company is readying a channel initiative to coincide with the formal launch of its product.

"We are a little different in starting right off the bat in the channel, but the management team knows that this is the way we will be able to scale and better serve our customers going forward," said Patrick Guay, vice president of sales and marketing at Stratoscale.

Stratoscale's software focus makes it amenable to working with partners who can supply the hardware components and co-develop an offering for data center customers. But scale is another driver behind its channel plans. The company plans to achieve scale with respect to both the number of partners selling and supporting its products and geographical coverage. Guay said Stratoscale has begun talking to potential partners in Europe as well as the U.S.

Partnering, he said, "will help us grow a lot faster than we would be able to grow organically," he said.

Getting noticed

In some cases, early-stage channel programs arise due to partner interest in a startup. Platform9, which provides a cloud management service enabling enterprises to deploy OpenStack-based private clouds, announced general availability of its offering in January. Sirish Raghuram, co-founder and CEO of Platform9, said 25 service providers and VARs have expressed interest in the company, which he said will soon roll out a partner program.

"Many of them have been asking us -- when we came out of stealth -- for opportunities to partner with them," Raghuram said. He said media coverage has helped his company gain notice among channel partners.

Participation in broader ecosystems can also boost the visibility of early-stage technology companies. That's how Numerify came to Cloud Sherpas' attention.

"Numerify's entrance into the ServiceNow ecosystem was how we identified this company," Jason Wojahn, president of Cloud Sherpas' ServiceNow business unit, said.

In addition, Cloud Sherpas had discussions with its clients who were considering Numerify.

"As we had helped those clients adopt ServiceNow and this solution was to be integrated to ServiceNow, we were asked to advise on those discussions and decisions as well," Wojahn said.

Wojahn said Cloud Sherpas' main focus is on its primary relationships and associated lines of businesses: Salesforce.com, Google and ServiceNow. But, at the same time, the company works with its customers to facilitate not only the adoption of those platforms, but their ongoing management, configuration and integration, he said. And it's the integration discussion that has led Cloud Sherpas to other possible partnerships, such as Numerify, he added.

Partnering benefits

Rewari cited the importance of having tight interaction with an early set of customers to develop reference accounts and further define the product, learning along with the customers. For that reason, the company's partner program will roll out in two phases. The first phase, now underway, focuses on sales and marketing: Numerify and its partners share leads and sell together, Rewari said. During this phase, which will run 12 months, Numerify will exclusively deploy and implement the product.

"We want to keep the cycle of product learning very tight," he said.

But in the program's second phase, partners will "start to take on the mantle of implementation and delivery," Rewari said.

More feet on the street and the ability to establish a bigger sales footprint are traditional motivations to work with the channel. But Rewari also noted channel partners' understanding of customers' procurement processes and buying cycles. For example, some customers looking for a cloud offering may only ask a vendor to fill out a standard questionnaire, while others may require a security and architectural review.

"One partner is guiding us through the … procurement cycle in a very large financial services company," he said.

Raghuram also noted that partners can help an early-stage company navigate a potential customer's procurement system. He said some customers such as educational institutions or government agencies have a certification and approval process for vendors. Raghuram said he would prefer not to spend time becoming an approved vendor.

"The channel has already done it for you," he added.

Raghuram said he also sees the channel adding value to his company's private cloud platform. He said the private clouds built on Platform9 call for integration, tuning, configuration and customization -- roles a channel partner can play.

"There is a lot more … opportunity for the channel to add value in the private cloud," he said, contrasting that situation with public cloud, in which much of the integration work is already done.

Rewari also sees the potential for the channel to add value to its product. Further down the road, the company might tap partners to build industry-specific overlays on top of its analytics offering, he noted.

At Infinio, a company that offers software-based storage acceleration for virtualized environments, the channel partner's decision-making role with customers is a key attraction.

Arun Agarwal, co-founder and CEO of Infinio, said it is his understanding channel partners build three out of four virtualization clusters. Accordingly, partners are extremely involved in helping customers make decisions regarding data center storage performance technology, he noted. Agarwal suggested few customers will want to change their data center infrastructures without consulting their channel partners.

"They are trusted advisors of our customers," he said. "We need them to be working with us."

Infinio launched its partner program in February and in April appointed Bob Skelley as vice president, Global Channel. Skelley formerly held channel positions at Dell, EqualLogic and Microsoft.

Skelley said the company is in "full partnership mode" and is looking for partners with experience in virtualization and storage. He said regional value-added resellers under $50 million are a good fit for the company.

But while young companies benefit from channel relationships, so too do the partners.

Joe Brown, president and COO of Accelera Solutions, a solutions provider specializing in virtualization and the cloud, said his company works with early-stage companies when it believes their technology will provide significant cost savings and value to customers. The early-to-adopt approach gives the solutions provider an edge.

"Bringing early-stage technologies to our customers does differentiate Accelera from our competitors," Brown said. "However, we are careful not to introduce technologies that are not vetted."

In running the rule over an early-stage company, Accelera evaluates the value of the technology to customers, the total addressable market size, and fit with its market segments. As for the latter, Accelera has to take compliance with federal regulations into account.

Accelera also considers a young company's current customer base, technical capability, revenue and gross margin to Accelera and the company's ability to support Accelera's sales and marketing efforts.

"There is a benefit for established channel partners to be aware of the latest innovations being generated by the new generation of startups," Kaplan added. "Some of those innovations, sooner or later, are going to take hold in the marketplace."

Next Steps

Find out how to revive an ailing startup

Read about EMC's new partner programs

Gain insight into channel business models and strategies

This was last published in June 2015

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