Scaling Revenue via Indirect Channels and Platform Ecosystems
Cecilia (Ceci) Stallsmith - Slack's Director of Platform Marketing
Niall Wall - Box SVP of Business and Corporate Development
Vicki Lin - Stripe's Head of Ecosystem. .
Conference: SaaStr Annual 2019
How Do You Get Started
According to Vicki Lin of Stripe, one of the first things to do when you want to build an ecosystem is to focus on developers and API's.
She said, “Because it was such a core part of Stripe's DNA from the very beginning, it was a completely natural decision to focus on our ecosystem. A couple of things we did early on, that I think were very successful were: we provided zero friction in actually getting started with Stripe. Even today, all you have to give us is an email address and you can access Stripe's API to get you up and running as a platform and you can be onboarding customers almost immediately. We also didn't even ask people what they were trying to do. We didn't worry too much about ‘are you trying to bill for your own SAS product or are you actually trying to integrate Stripe to offer to your customers?’ In the early days it didn't matter. Now as we start to scale, it matters more because we want to help support different use cases.”
Mr. Wall added, “We wanted to be one of those rogue apps that our users were bringing into the enterprise to get their work done. So we always had this kind of weird dynamic with freemium where we would just give away 50 gig for free. But, we learned that that's kind of expensive. We were spending a lot of money serving the free accounts of the users. But that was super important, because it allowed us to be one of the top Apps that were being brought into the enterprise and then we can use security and compliance and control, that IT would actually buy into to control those accounts. So that's how we got started in building our ecosystem.”
How to Build a Platform Flywheel
On one half of the flywheel, you have product market fit and the other half you have partners and developers integrating in order to reach your users. When done right, you have a product that suddenly has a market fit and customers who are joining that product. A developer, or partner will see that product and see the potential for a lot of users. They may think to themselves… If I integrate with them, I'm going to get a lot of users or I'm going to be able to use that tool very effectively for my product.
As Ms. Stallsmith said, “And then you get demand from partners and developers and once that demand kicks up, they integrate; they build useful things on your product and suddenly your product is more useful. So if you look at the case of Slack, we actually built our first 80 integrations ourselves in house. So our platform wasn't originally built for external developers to build for all of our customers. It was built for our customers to build for themselves and for our customers to use the integrations that we built ourselves for them. This went really, really well. We saw a wild product market fit with our integrations, so much so that developers and partners were just banging down the doors to get access to our APIs, which weren't built for them to be using at the time. So when we launched our platform, we actually were taking our APIs and making them consumable to third parties for distribution on an App directory.”
Mr. Wall added, “I think earlier stage companies have resource constraints. Many people will see the benefit at scale of getting to a platform and then getting the flywheel going. But in the very, very beginning, it's important that you think about what is the alignment with your engineering leaders and the senior leadership team on what the company's trying to accomplish and then stick with it. There was always this debate about: Do we build the APIs, do we do the integrations, or do we do it ourselves or do we let other people do it?
How Do You Scale?
You really ultimately have to be solving a compelling business problem that is existential to your company and the ecosystem just happens to be the most effective tool.
Ms. Stallsmith said, “I think that's the number one thing I'm referring to with Slack, we just had so many customers using these integrations and saying they're really valuable to them. We knew that it was making our product ‘stickier’ to have really good integrations - with the products that our customers use every day - with Slack.” Addressing Ms. Lin, she asked, “How do you think about measuring the value of your ecosystem?”
Ms. Lin replied, “For us it was never like, we're going to build an ecosystem. What should we do? It was here's a real problem that our users, our partners are facing and that they want to onboard their customers. They want to make it easy for their customers to accept payments and manage their payments, once they're up and running. So that's the problem we solved. And that makes measuring value easier because you've already identified what business challenge that you're tackling.”
What Are You Measuring in Terms of Your Platform Success?
One of the ways you can measure platform success is how many people are adopting integrations. It's how many partners are asking for this value?
Mr. Wall said, “We do it [measure success] in two ways. One is on the differentiate dimension. We measure IWAU’s. - Integration Weekly Active Users. The lifeblood in many SaaS businesses is: are people using the products that we're shipping? In our case, we actually measure when we ship a new update. So for instance, [when] we integrate with Slack.
On the other side, because we use an ecosystem to reach new customers around the world, and different types of partners, we look at ARR. I mean we actually look at things the average seat price, net of margin, for a channel partner versus direct. We look at things like the net new logos, versus upsells or cross-sells, coming from channel versus direct.”
Ms. Stallsmith added, “If you're really trying to figure out, how do I measure and scale a platform or an ecosystem; you can build a funnel for your platform. At the top, you're going to think about your partners and developers. How many people are interested in building on my platform? The next step down in my funnel: If they're engaged, then they're building. Then the bottom half of the funnel is where customers actually discover, adopt and use those integrations. A lot of the time, people actually don't think to just straight up build that funnel and have a dashboard to look at the health of your ecosystem overall.”
Ms. Lin said, “One thing we have done is looked at: who are our highest value customers and what percentage of them are using one or more integrations? Is that measurably contributing to their stickiness on Stripe? As you get more mature you can tie it to: renewal rates, or ability to up sell, cross sell. But even the early days from a qualitative standpoint, you will have an early directional signal of, are my most valuable customers actually using these integrations, or not?
Pitfalls, Trap Doors, and Things to Avoid When You're building a Platform
The main rule is to avoid trapdoor decisions, whenever possible. Give yourself optionality, especially in the early days.
Ms. Lin said, “I think, in building out your processes and tooling, you should assume that you are not going to be successful. I think one of the key things that we did early on was be willing to just throw some manual process at the entire partner experience. So, partners would give us their information through a type form, right? We didn't have a partner portal. We didn't really have a very rigorous vetting of what your integration requirements should be, to be on our gallery. We weren't quite sure how many partners were going to want to be on our partner gallery. Are our customers going to find value in that partner gallery? You don't want to spend six months building out entire partner backend infrastructure, if you don't know for sure that this is the thing that is going to be successful.”
Ms. Stallsmith added, “Your partner app directory is the thing that you're always going to be like, Oh I wish it was better, but you can't get resources to make it better, because it's just like is it high enough priority? Like, should we ship this other feature above it. When I got to Slack, the first version of our app directory was a bit duct taped. And since then, it's gotten a lot more up to snuff. But I do think there is a lot of value in making the process manual at first to prove whether it's going to work or not and whether it's viable.”
The panel wanted to be sure that they gave really clear takeaways from the content...
Mr. Wall said, “The most important thing when you think about an ecosystem is organizational alignment and measurement. So you've got to be crystal clear, and that has got to come from the leadership team of the company; because it's not cheap to build an ecosystem. But, identify the: Why is it important for your business to build an ecosystem? Make sure you have an intentional and visible metrics that you can actually measure success and make sure that's aligned to your engineering and product teams and your go to market teams. It sounds simple, but from experience, if you don't do that at the get go, you're always going to be fighting for resources.”
Ms. Lin said, “I mean, mine is developers first, right? Your API’s are first class citizens. It should be as important to have your APIs be as world-class as the rest of your product and it shouldn't even be a conversation. And if that isn't the mentality of your engineering team it's difficult. Developers have a lot of different places they can go today, to build a business to integrate with, and the easier and better experience - and more value you're providing developers - the more likely they're going to give your attention.”
In closing, Mr. Stallsmith said, “Mine is going to be a little intense sounding. While I was in venture, I met with a lot of younger and older companies that were saying, ‘We're a platform, we're a platform. We're really focused on building the ecosystem.’ And I think that's awesome, and we should all strive to build that, but being a true platform is hard; you really have to find product market fit. Most companies aren’t platforms - not everyone can be the center of the wheel. Many of us are actually spokes, and that's a good place to be. For Slack, building those first 80 integrations ourselves and seeing the demand for the platform coming out of that... So build that product market fit to start.”