When the impact of COVID started to reach critical mass, leading to the unfortunate shutdowns, quarantines, and restrictions we’re all now too familiar with, there was much speculation as to how different industries would be affected. As expected, there was a rush to predict the demise of many sectors as well as potential unique opportunities that could arise as a result.
The enterprise technology space was subjected to it’s share of doom and gloom early on. Pundits warned to prepare for the worst; industry experts warning that venture capital in general would be totally frozen for many months, leading some to speculate that later stage startups were in trouble while still others predicted earlier stage companies would have a low survival rate. We’ll save the Monday morning analyses of said predictions for another time, perhaps when there is more data to look back on for more accurate examination.
In the meantime, with the data we already collected from the last nearly 5 months in the enterprise tech sector, specific recurring themes are emerging which we can learn from. For the sake of this discussion we’ll remove the outlier companies actually benefitting from the COVID environment (think products and services that are in more demand now to support a remote workforce, digital transformation efforts, etc.) and focus only on the ‘average’ enterprise tech startup and how they’ve been impacted.
First, many companies are not seeing a deviation from their pre-COVID revenue trends with existing clients. Some are even seeing an uptick here as clients look to double down on trusted relationships and proven solutions in a time of uncertainty and chaos. This scenario of course favors the companies who are further along on their growth path with a strong installed base of clients.
Second, where there is a short-term slowing of revenue growth, it is largely a result of a significant drop in net new client/revenue acquisition and delays with larger sized transactions, combined with a less mature ecosystem of channel partners. This makes sense given that enterprises feeling their own impact are going to be less likely to take a chance on a new technology vendor relationship, and need more scrutiny on bigger line items in the budget. Both are scenarios which under normal circumstances would be mitigated in part by strong relationships and in-person interaction.
Where this gets very interesting is when we look at the enterprise startups who are mitigating – or in some cases eliminating altogether – the slowdown in net new business and large transactions by leveraging their strong channel relationships. At the most basic level, a network of channel partners is a low-overhead extension of a companies sales, engineering, and marketing efforts. Executed properly, channels provide highly efficient economies of scale for companies looking to outpace their competition. Most importantly, the right channel partners provide access to an extended network of pre-existing client relationships!
Think of a Series C startup who has 50 customers but just signed a resale agreement with a national integrator who has 1,000 customers. Or even a small regional boutique VAR who has 100 customers. And keep in mind the best VARs and Integrators are widely known to have better, deeper client relationships than individual OEMs because they are engaged with the client on a much broader playing field than just a single product. Those partners provide a high-velocity extension of that installed base of trusted customer relationships, leading to hyper scale in good times, and a smoothing out of the revenue path in bad times.
As we look for learning opportunities amidst these unfortunate times, this is certainly one of them for the enterprise tech sector. A prime example of a company leading the way is Synack. Synack’s Director of Global Strategic Alliances & Channel, Julia Yrani, shares “COVID-19 has dramatically changed how organizations operate, and companies like Synack that are built for remote delivery are uniquely poised to help clients secure their new environments with the help of strategic channel partners. Synack, having recently announced a successful Series D funding round in May, is positioned to continue growing rapidly worldwide, and it is the perfect time for us to deepen our channel relationships.” These circumstances have led many great companies to believe in the value of a serious channel focus at an earlier stage. With the right strategy and platform off of which to build, companies can achieve a tremendous competitive advantage by diligently selecting the right channel partners, and incentivizing them to continue being an extension of their go-to-market efforts all the way through exit.