Screen Shot 2013-12-16 at 9.16.24 PMWe’ve talked a lot about the various stages of scaling a SaaS company.  The first 10 customers, the Moment You Have Something Real.  What Initial Traction Means (say $1m ARR).  The Long, Hard Road from From Initial Traction to Initial Scale ($1-$10m ARR).  The Cavalry That Comes Once You Hit Initial Scale.  And When You Become Unstoppable ($20m-$30m+ ARR).

Once you’re Unstoppable though, what’s the next stop?  Building a True Platform.  I don’t mean PaaS or any of that.  Or having a nice RESTful API.

By a True Platform, I mean one where Other People Can Make Money building on top of your app, your customer base, and your success.  And it turns out, no matter what vertical or approach you’re using, this tends to come together right about $100m in ARR.

To understand why you need about $100m in ARR to build a True Platform, think about The Law of {Software} Attach Rates.  The Law states: Partners with a medium-affinity to your app will attach at a rate of 1-2%.

That means, generally speaking, you can deliver maybe 1-2% of your customers to a strong partner whose own app complements you well.  This is true of Salesforce partners, Adobe partners, Intuit partners, etc.  And that’s if it’s a strong fit.  You’ll only be able to deliver 1-2% of your customers to a handful of your very best partners.

>> So it’s only once you get to $100m in ARR that you can really make your partners  $1-$2m million ARR off the leads you send them, off the integrations they build for you.

There are exceptions, High Affinity partners.  Ones that solve a huge hole or gap in your service.  But those attach rates, while they can be very high (20-30% or more), are different.  First, there can only be 1-2 of them by definition, key partners your sales team absolute needs in a ton of your deals to close them.  And second, they can become unstable.  Because eventually, each partner will just build the functionality the other provides, since it’s a critical feature gap.

And once you build that platform, at $100m, if you do it right — it further builds on itself.  I mean, if you had to choose whether to build an integration with Marketo (now well past $100m ARR) or Act|On (at maybe $15-$20m in ARR) … which would you choose?  Forget about which vendor or product you prefer.  You know Marketo is not only 5-7x the size, but more importantly, is big enough to actually deliver you some good customers, because it’s post-$100m in ARR.  And that builds on itself.  Everyone wants to build first for Salesforce, for Marketo, for NetSuite, for Google, etc.  You can do the others later.

You can see this anecdotally in a lot of SaaS companies as they start to go IPO.  They tend to do that also around $100m or so in ARR.  And by then, they generally start to roll out real, broad partner programs.  Not just APIs and a directory, but real go-to-market platforms for their partners.

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It’s a long haul.   In fact, at Salesforce this year, with $5 billion+ in ARR and growing, and almost 1 million community members, the partner team is now getting to true scale.  It’s finally become a big, material revenue contributor for Salesforce.  But that’s after 13 years, a ton of investment, and billions in revenue under its belt 😉

So by extension, you have to be careful what partners you invest in.  If they aren’t approaching $100m in ARR … then I’m skeptical that partner can deliver you a material amount of leads and revenues.  At EchoSign, we invested a lot in partners that were sub-scale.  It was fun.  And you can do joint PR and all that.  But the ones < $100m ARR didn’t really move the needle, not even a smidge.

It’s something you want to work on yourself once you’re at Scale, putting the pieces in place.  Start early.  $100m isn’t just another stop at a Pie Eating contest, it’s not just a key number for Going Big.  It’s when you can really turn what was just a killer, very successful, broadly adopted application — into something big enough to be a true platform for the rest of the world.

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