Latest / Partnerships Unraveled / 084 - Rene Bonvanie - The Long-Term Commitment to a Channel Strategy

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084 - Rene Bonvanie - The Long-Term Commitment to a Channel Strategy · Partnerships Unraveled

• 0:07
  Speaker 2: Welcome back to Partnerships Unraveled, the podcast where we unravel the mysteries of partnerships and channel on a weekly basis.
• 0:14
  Speaker 2: My name is Rick van der Bosch and I'm the CEO and founder of Chenext, and I'm here together with René Bonvani, founding CMO of Palo Alto Networks and currently partner at Battery Ventures.
• 0:25
  Speaker 2: René, how are you doing today?
• 0:28
  Speaker 1: Hey, rick, how's it going?
• 0:29
  Speaker 1: It's my honor and pleasure to be here with you today and to talk about partnerships and marketing.
• 0:36
  Speaker 2: Likewise, it was so great to meet each other four weeks ago in San Francisco and I'm honored right now to have you on the podcast here to share more with our listeners who are all active in channel, both in marketing and in sales roles, to really share a bit of your experience in building, I would say, one of the largest channels in the world right now, palo Alto Networks.
• 0:54
  Speaker 2: Could you maybe share a little bit more, rené, of how you got into channel and also the career you've had there, before we dive into some further questions as well?
• 1:04
  Speaker 2: Sure.
• 1:06
  Speaker 1: Well, I am a Dutch citizen.
• 1:09
  Speaker 1: I've been living here in the Bay Area of San Francisco for about 28 years, going up to 29.
• 1:17
  Speaker 1: And I have always worked in high-tech companies.
• 1:22
  Speaker 1: Back in the Netherlands, I held responsibility for Oracle's marketing operations throughout Europe.
• 1:29
  Speaker 1: Now, oracle was not very well known for being a channel-friendly company back then.
• 1:34
  Speaker 1: We were known for being extremely aggressive on the sales side.
• 1:38
  Speaker 1: But there was a very significant services channel around Oracle that used Oracle for implementations both on the technology side and on the application side, and that's where I really learned how to work with partners and through partners to the market.
• 1:57
  Speaker 1: In 1995, I got an offer from Oracle's CEO and founder that I couldn't refuse to come to the Bay Area and take on worldwide responsibility for the database product.
• 2:09
  Speaker 1: You may have heard of it.
• 2:10
  Speaker 1: It used to be very popular.
• 2:12
  Speaker 1: It's a little bit less popular now, but it was still very popular.
• 2:16
  Speaker 1: And six months later after I got that phone call, I had taken my wife, my two kids and I had moved to the Bay Area and spent years with Oracle working on the database product, and that included, of course, turning on more sales channels, more marketing, but also going into new types of partnerships that Oracle didn't have, for example, our partnership with SAP and that sounds weird because SAP was a competitor.
• 2:50
  Speaker 1: But every year SAP paid Oracle hundreds of millions of dollars for embedding the Oracle database in its ERP applications.
• 3:00
  Speaker 1: And the same was true for Siebel and PeopleSoft, and I had responsibility for those marketing channels as well and sales channels.
• 3:09
  Speaker 1: So after Oracle, I had an opportunity to help co-found a company called Palo Alto Networks, and that was a very different situation, very different situation.
• 3:28
  Speaker 1: When we were incubating the company it became obvious that the buying behavior of people that buy security was very different.
• 3:32
  Speaker 1: They relied very heavily on valuated resellers that would not only give people access to the product but also to a set of services around the product.
• 3:45
  Speaker 1: We had folks that were in the MSP business, meaning they would actually never sell the product to the end user, but they would run the security for the end user on their behalf.
• 4:00
  Speaker 1: So all of a sudden I found myself in a very different market and I had to adjust the sales and marketing strategy to what was a very channel-centric market.
• 4:15
  Speaker 1: And you know, we took about a year and a half, almost two years, to come up with our strategy.
• 4:21
  Speaker 1: I spent a lot of time with channel partners in the US and in Europe and in Asia before we made a number of decisions that I'll speak about later, but it gave me an incredible insight into how a high-tech channel works and for the next 10 plus years I have been holding steady on that strategy, even though there's always a lot of temptation to change it or to say, once you're very successful, I don't need my partners anymore because they only cost me money.
• 5:00
  Speaker 1: Those are the things you typically hear, and up until my very last day, because I now retired from Palo Alto Networks, I have maintained that channel strategy and today, at Battery Ventures, my role is largely to help companies in our portfolio do a better job at their channel strategy, at their go-to-market strategy, and I continue to push really, really hard.
• 5:29
  Speaker 1: Even companies that are pure SaaS, pure subscription, might just still consider having channel partners, because there is always an angle where value is added by having partners.
• 5:44
  Speaker 2: Yeah, I love that.
• 5:45
  Speaker 2: And and then it really, since making the shift from oracle as well, where there was more services partners, that the channel only became a bigger and bigger role in your go-to-market strategy, from from what I heard.
• 5:55
  Speaker 2: Well, very much so what I'm super curious about so you, you come from oracle, which is this massive brand everyone knows it and then you start building your own company, which, which is now also a massive brand, but of course, when you started it was not.
• 6:08
  Speaker 2: So I'm super curious how do you get channel partners excited in those times like when you are maybe still fighting against the other giants in the tech market?
• 6:18
  Speaker 1: Well, you're absolutely right.
• 6:19
  Speaker 1: When we started with follow-alto networks, we had to explain a bunch of things.
• 6:24
  Speaker 1: First of all, what do you do?
• 6:30
  Speaker 1: There is an art form called positioning.
• 6:31
  Speaker 1: That is very important.
• 6:32
  Speaker 1: When you come into a market where there are existing players, the way that you have to make yourself known is a technique called juxtaposition.
• 6:45
  Speaker 1: That is a very complicated word, but what it essentially means is that you need to find a positioning that is very different from everybody else.
• 6:54
  Speaker 1: It's not good enough to say, oh, I am a little bit better than Cisco, or I am a little bit nicer than Checkpoint, or I'm a little bit cheaper than Juniper, and those were the three big players, each very large, in the market that we came into.
• 7:14
  Speaker 1: The art form is to juxtapose, meaning you have to fundamentally disagree with how they do what they do, and that is not just a technology question, because you say, well, listen, they try to block things, I'm trying to enable things.
• 7:32
  Speaker 1: Now, those are very different things.
• 7:33
  Speaker 1: If you think about it in security, if their position is well, I can block a lot of bad stuff.
• 7:40
  Speaker 1: Like, yeah, that's nice.
• 7:41
  Speaker 1: But how about the good stuff?
• 7:43
  Speaker 1: What can you do with the good stuff, and what kinds of things can you do if your security is in good shape?
• 7:51
  Speaker 1: That's a different story.
• 7:52
  Speaker 1: Or if their focus is on detection, then your focus comes on prevention, and those are juxtaposed opinions about how things work.
• 8:03
  Speaker 1: You need that because otherwise you're just one of the hundreds, if not thousands, of cybersecurity companies that says the same thing in the market and nobody cares about company 3001 coming in with a similar story.
• 8:17
  Speaker 1: So your story has to be very different, very audacious, and that takes time.
• 8:22
  Speaker 1: Also, because I don't just have to convince my end customers that this is the case.
• 8:29
  Speaker 1: I have to convince my channel partners, because they too have been living in this world that was dominated by the opinions of Cisco and Checkpoint and Juniper and others like Symantec and Megafit you know all those names.
• 8:43
  Speaker 1: So I have to and, by the way, I wanted to do that in parallel.
• 8:47
  Speaker 1: But what I didn't want to do is to go to the market and then focus only on end customers, because I knew my strategy from day one is I will do 100% of my business with and through my channel partners, and so if you make that decision and that's a long-term decision, that is not I'm doing it for the next six months or the next two years.
• 9:12
  Speaker 1: That's forever.
• 9:13
  Speaker 1: Because once you build your go-to-market strategy on a two-tier distribution philosophy where I'm going to anoint distributors and then recruit resellers and service partners and systems integrators and service providers that then work through those distributors with us, that's a life-changing decision for a company and you don't want to make too many life-changing decisions because to get a divorce, so to speak, from that strategy is that's not healthy, right?
• 9:49
  Speaker 1: So I made the decision from day one and so I had to do the same job that I was doing to end customers also to my channel partners.
• 10:01
  Speaker 1: Now you do that.
• 10:03
  Speaker 1: Like I said on juxtaposition, and one thing was technology Now you do that.
• 10:04
  Speaker 1: But, like I said, that's juxtaposition and one thing was technology what does it do, what does it stand for?
• 10:10
  Speaker 1: And philosophy around that.
• 10:15
  Speaker 1: The second part is on the commercial component.
• 10:18
  Speaker 1: So how is this very different from what you are used to with your existing technology partners?
• 10:27
  Speaker 1: If I go to a reseller, why is this so different that you need to pay attention?
• 10:33
  Speaker 1: Because they have the customer relationship I didn't.
• 10:36
  Speaker 1: They have hundreds of customers that they serve, or maybe even thousands, and they have a way of making money in their strategy.
• 10:47
  Speaker 1: So how do I now go to that partner and say listen, there's a very different way of making money.
• 10:54
  Speaker 1: So back in those days and I'm talking 2007, 8, 9, so 15 years ago it was very common for a general partner to sell a security product and then have an annual maintenance component, so somewhere in the 10% to 15% recurring revenue.
• 11:14
  Speaker 1: So they sell a box at $10,000 or 10,000 euros and then every year they get $1,500 in recurring maintenance.
• 11:25
  Speaker 1: That's free money essentially for that reseller.
• 11:29
  Speaker 1: But the thing was that wasn't protected, because the customer, the end customer, could buy this from anyone.
• 11:35
  Speaker 1: Anyone who could offer it could sell them it.
• 11:38
  Speaker 1: And there was no protection in this model.
• 11:40
  Speaker 1: The customer had to pay $1,500, but if they bought it from reseller A they could shop it.
• 11:46
  Speaker 1: And then maybe reseller B said oh so let's use $1,400.
• 11:49
  Speaker 1: And the customer would not have any loyalty to that reseller.
• 11:56
  Speaker 1: So I made a different proposal.
• 11:58
  Speaker 1: First of all I said I don't want you to just buy a box, I want you to buy subscriptions.
• 12:03
  Speaker 1: So the end customer is now on an annual recurring plan.
• 12:07
  Speaker 1: So every year they don't pay me just maintenance, they actually pay the security subscriptions of an architecture.
• 12:18
  Speaker 1: And so all of a sudden the recurring component went from 15% to 75%.
• 12:24
  Speaker 1: Of a sudden the recurring component went from 15% to 75%.
• 12:27
  Speaker 1: So every year the customer now was paying 75% of the initial purchase again to the reseller.
• 12:33
  Speaker 1: But here was the twist.
• 12:35
  Speaker 1: One was that money is yours until there is.
• 12:42
  Speaker 1: So nobody can compete with you on that component.
• 12:47
  Speaker 1: So I will not allow somebody else to take that away from you.
• 12:52
  Speaker 1: I don't want anybody to underbid you.
• 12:54
  Speaker 1: So you, unless you do a terrible job with that end customer and the end customer writes me a letter and says this partner sucks, I need to go somewhere else that that deal is yours.
• 13:08
  Speaker 1: And, by the way very important the margins on that second year and third year and fourth year are the same as in year one.
• 13:17
  Speaker 1: So I'm not going to pay you a different rate on that deal in year two just because you already got a very high rate in year one.
• 13:26
  Speaker 1: I want you to make as much money because I need to entice you to do a really good job keeping that customer happy, because if the customer isn't happy, they're not going to renew and that hurts you but it also hurts me.
• 13:37
  Speaker 1: So I need you to work really hard to keep the customer happy and in return.
• 13:42
  Speaker 1: I will guarantee that deal for you in year two, year three and year four.
• 13:47
  Speaker 1: So if you think about how they were making money now, it was not only more money but that recurring component was also coming to them at a way better margin than what they used to get from a Cisco, because Cisco would discount that year two and year three component significantly compared to the year one component.
• 14:08
  Speaker 1: Because Cisco wanted new customers.
• 14:11
  Speaker 1: They paid higher margins for new customers but recurring customers not as much.
• 14:15
  Speaker 1: And, by the way, I was very adamant that it wasn't just a better opportunity for that initial component, but if a customer then decides to expand and just renew that purchase but also expand on the purchase, that too was for the VAR and, very importantly, for the same margin.
• 14:39
  Speaker 1: So an expansion deal was also going to be paid at top dollar.
• 14:44
  Speaker 1: And the thing you learn is that many partners care a lot about margins, but not just revenue but margins, because they pay their reps on margin rather than on revenue, because you know revenue itself can come at very thin margins and that doesn't really allow them to build a business.
• 15:03
  Speaker 1: What I also learned is that you know the way that resellers in general, but even distributors that make money is in two categories there's money that goes to the reps and there's money that goes to the owners.
• 15:19
  Speaker 1: If I, for example, give people a rebate that goes to the owners, it doesn't go to the rep.
• 15:28
  Speaker 1: I can just start margin.
• 15:29
  Speaker 1: But if I give them margin on deals that goes to the rep, it's just a margin.
• 15:32
  Speaker 1: But if I give them margin on deals that goes to the rep, and guess what?
• 15:35
  Speaker 1: I want the reps to work hard.
• 15:37
  Speaker 1: But it's not that I don't want the owners to make money, because they will.
• 15:40
  Speaker 1: But you have to really understand how these organizations work to put the right incentives in place for you to do that.
• 15:48
  Speaker 1: So I focused my whole strategy initially on margin.
• 15:51
  Speaker 1: So there was no, there was no rebate component, there was no earned components in this.
• 15:59
  Speaker 1: It was pure margin driven and I would pay top dollar.
• 16:02
  Speaker 1: But I would also leave enough money in that model so that distributors also could make money, because I wanted them to work hard as well.
• 16:10
  Speaker 1: Distributors also couldn't make money because I wanted them to work hard as well.
• 16:16
  Speaker 1: So we needed distributors that also did work.
• 16:18
  Speaker 1: So, unlike back then, the model that we saw where distributors held inventory and did a collections job.
• 16:26
  Speaker 1: We wanted them to build intelligence in the channel.
• 16:33
  Speaker 1: We wanted them to enable, we wanted them to have technical experience so that they could help resellers do a better job of configuration and testing.
• 16:43
  Speaker 1: We wanted them to be responsible for the quality of the channel.
• 16:52
  Speaker 1: So we put metrics in place that also measured the amount of effort in things that resellers needed, so, for example, help in certain deals, for example in quotations or in configurations, or in competitive intelligence.
• 17:15
  Speaker 1: And then, finally, we also made sure that our distributors were involved in the technical support of the end customers, because what we did not want is for there to be purely a sales channel, which is important, but that there was also a back channel with support components in it, so very different.
• 17:37
  Speaker 1: And so for us to start to build a name for ourselves, we had to be the guys that really cared about the channel but really cared about the end customer experience and had a product that was completely different.
• 17:50
  Speaker 1: And then you have to be patient, because that doesn't happen overnight.
• 17:54
  Speaker 1: It takes a few years with end customers to become a dominant partner to them, but it also takes years for that to happen with the channel, and you do it hand in hand.
• 18:06
  Speaker 1: So, even though there's always temptation to go do things yourself, you have to do everything with the channel, whether that is marketing or that is sales or promotions or whatever it is.
• 18:20
  Speaker 1: The temptation is always there to say, oh well, that partner isn't great at this and so let me go do that.
• 18:26
  Speaker 1: No, so even if large end customers initially invited us to come present what we do, I made sure there was always a partner in the room.
• 18:36
  Speaker 1: Now, ultimately it was the customer's decision which partner to do that with.
• 18:41
  Speaker 1: But let's take the example of the Netherlands.
• 18:44
  Speaker 1: If ING came to me, and when they did, I said I need Ontuit, a large reseller in security.
• 18:54
  Speaker 1: I want them in the room and Marcel is going to be the guy at Ontuit that is going to help me with this deal.
• 19:02
  Speaker 1: Now if the customer would have said well, listen, I really don't want Ontuit, thank you very much, but I want to go with another company like SecureLink, another bless-me-seller.
• 19:14
  Speaker 1: Okay, that's your choice, the end customer, that's their choice.
• 19:17
  Speaker 1: I'm not going to force them to do that.
• 19:19
  Speaker 1: I think that choice is very important.
• 19:21
  Speaker 1: But from there on onto, it would be the reseller of record for that ING deal.
• 19:28
  Speaker 1: And that helped a lot because it also focused the partner on the end customer and not on their competitors, so they never had to be afraid that somebody else was just going to come in last minute and hijack the deal, and that happens a lot, and so you do that through things like deal registration.
• 19:48
  Speaker 1: But it's also a philosophy.
• 19:50
  Speaker 1: It is a fundamental philosophy that you don't ever do a deal without a partner, and we didn't.
• 19:57
  Speaker 1: When I retired from the company, we were still 100% pure.
• 20:02
  Speaker 1: In other words, we didn't transact with ourselves or we didn't circumvent the channel in some way or the other.
• 20:10
  Speaker 2: Yeah, that's what I really love, what I'm hearing throughout your story.
• 20:13
  Speaker 2: Indeed, this is very deliberate choice from the beginning.
• 20:16
  Speaker 2: We're going all in on the channel, but then also getting so close to your channel partners to really understand what drives their business, and I think, from hearing your story, that has been such an incredible, important part of the success, which is you did not just innovate the technology, you innovate the business model of the channel partners and indeed for them.
• 20:36
  Speaker 2: I've wholeheartedly agree with you, it's all about margin that keeps the lights on eventually as well and and that's also very much in in that area like both to get them in a subscription model but then also to keep rewarding them for the renewals.
• 20:51
  Speaker 2: I think a lot, lot of vendors what I've seen in the past is that they were very like.
• 20:55
  Speaker 2: Of course, it seems interesting, like okay, maybe for the second year it's not that much work anymore, we maybe decrease the margins, et cetera.
• 21:02
  Speaker 2: But that's also why a lot of channels are really struggling with retention of customers, because indeed you want to incentivize your partners in the right way and I customers, because indeed you want to incentivize your partners in the right way, and I think that's that's very strong only like really getting to like a central strategy, like we want to drive margin for the partner and that's how we're getting them on board, combined with the fact that we have this unique technology which is going to bring a lot more customer value than what is currently in the in the market but the thing you keep in mind, though, is that you know you, when you decide these things, you make them them a first-class citizen, meaning you have to really invest in how you think about education, how you think about enablement.
• 21:57
  Speaker 1: But I also observed and the Oracle model was probably a good example is that the marketing team that I had responsibility for, we focused very much on our sales people, and then we had a substrate of that that went to the channel.
• 22:06
  Speaker 1: So, in other words, I deliberately back then and I admit my mistakes, but I deliberately kept the channel uninformed about certain things, because my belief was, if I tell the channel certain things, that may lead to the competition or that doesn't help me, and I did the exact opposite at Palo Alto Networks, and a great example of this was thinking about enablement.
• 22:32
  Speaker 1: So how do I teach the salespeople and my technical people we call them sales engineers and how do I enable marketing people?
• 22:47
  Speaker 1: So, sales, marketing and technology how do I do that?
• 22:51
  Speaker 1: Well, you build that through a portal.
• 22:53
  Speaker 1: Why don't you build an educational portal, and you have tests and you have materials and everything else, and I thought, well, if, truly, we are going to be 100% channel, then I need to give 100% of all of that to my channel partners and I need to make 100% of all of that to my channel partners and I need to make them first-class citizens.
• 23:14
  Speaker 1: So, from that day on, the learning portal for everybody parallel to networks, our own people and our partners was one portal the partner portal.
• 23:24
  Speaker 1: So my own sales reps and my own sales engineers and my own marketing people were receiving the exact same education and training and everything else through the partner portal.
• 23:37
  Speaker 1: You think, well, that's weird, because that's kind of inside out.
• 23:40
  Speaker 1: And that's exactly what we did.
• 23:42
  Speaker 1: I turned the whole thing inside out.
• 23:43
  Speaker 1: And then, you know, we had onboarding at the company, so new employees would come to the company and they would spend a week in Silicon Valley and they would learn about the technology and you know all of these things.
• 23:57
  Speaker 1: And I said, well, that should also include my partners.
• 24:00
  Speaker 1: So, guess what?
• 24:01
  Speaker 1: All my partners received the exact same onboarding as my own people from day one, and that is incredibly powerful, right, because so many partners do not really feel that they're part of the business.
• 24:20
  Speaker 1: Right, they're kind of held at a distance, and that is never a good thing.
• 24:26
  Speaker 1: Right, because I need them to be as empowered, as smart and I shouldn't fear that they take my materials and give it to somebody else and, by the way, even if they did, who cares?
• 24:38
  Speaker 1: Then you know, the competition is a few things.
• 24:41
  Speaker 1: I just have to work harder, and that should never be the reason to build a strategy where you keep your partners partly in the dark.
• 24:51
  Speaker 2: Right to build a strategy where you keep your partners partly in the dark.
• 24:53
  Speaker 2: That's what I really like in this strategy, indeed where it's like it's so transparent, like 100 transparency, and I think that's within the channel.
• 25:01
  Speaker 2: Everything is about trust and integrity, and I think that's where I get so close and when, when I hear you saying this, I'm like this makes so much sense, but then, at the same time, I'm seeing so many vendors actually not doing this like.
• 25:14
  Speaker 2: Did you also ever face any like challenges with making it this transparent, for example, or were there almost only good sides?
• 25:22
  Speaker 1: well, there was a.
• 25:23
  Speaker 1: The first interesting challenge, rick, was um, what we observed?
• 25:28
  Speaker 1: What I observed it was very common for large vendors to demand a certification of their partners and they would say, oh, the salespeople have to get certified or the engineers have to get certified, and Cisco was probably one of the best.
• 25:42
  Speaker 1: They have wonderful certification programs.
• 25:44
  Speaker 1: But then when you looked at how they did that, the same certification that they were applying to their partners they didn't do to their own people.
• 25:53
  Speaker 1: So they had strict requirements on partners and not on their own people.
• 25:59
  Speaker 1: And from day one I said well, that actually doesn't entice a partner, that actually pisses them off.
• 26:05
  Speaker 1: So why would they need certification?
• 26:08
  Speaker 1: And then the Cisco guy that shows up isn't certified.
• 26:11
  Speaker 1: So I did the unthinkable, which is, I said, our own people are on the same certification as our partners and vice versa.
• 26:21
  Speaker 1: So when two people show up, you couldn't tell the difference.
• 26:25
  Speaker 1: They're like is it the same certification?
• 26:27
  Speaker 1: Is it the same enablement?
• 26:28
  Speaker 1: But one is our badge and somebody else has the partner's badge, but essentially they have the same enablement.
• 26:31
  Speaker 1: But one is our badge and somebody else has the partner's badge, but essentially they're the same.
• 26:35
  Speaker 1: It shouldn't matter If Marcel shows up at ING and tells the story, or I show up same story.
• 26:44
  Speaker 1: If Liewer, who is his technical executive, shows up, he knows as much as my technical executive, so they know the same things, and that, to me, is very powerful.
• 27:00
  Speaker 1: Now I can tell you, my first set of sales was not very happy with that and he said well, that's, why is that?
• 27:08
  Speaker 1: Because it was unusual.
• 27:09
  Speaker 1: And I said, listen, if we want to be the company that is unlike everybody else, then that includes how we treat our own people.
• 27:18
  Speaker 1: And so you cannot say, well, cisco doesn't do this, because that actually is the exact reason to do it.
• 27:25
  Speaker 1: So we do what Cisco doesn't do and we don't do what Cisco does.
• 27:30
  Speaker 1: And so you go into their philosophy and you think, okay, and so that was a very interesting I wouldn't call it hurdle, but it was something where I had to get the new head of sales on board that this was also going to be the case.
• 27:48
  Speaker 1: The other part had a lot to do with the financial conditions that we put on reshouters and whether or not we should have a distribution channel in the middle.
• 28:02
  Speaker 1: That was somewhat unusual, certainly in the US.
• 28:08
  Speaker 1: In Europe it was very common for there to be a distributor in the middle, someone like an Exclusive Networks who is a VAD, a value-added distributor who had very good programs to recruit and enable and assist resellers.
• 28:26
  Speaker 1: But in the US it was very uncommon for there to be a distribution channel in the middle, was very uncommon for there to be a distribution channel in the middle.
• 28:32
  Speaker 1: And they exist, but they typically are seen as box pushers and money collectors, so they do logistics and collections and there's no value there, if you think about it.
• 28:48
  Speaker 1: So the temptation was not to do this in the US but to do it in Europe, and I said, no, we're going to be two tier everywhere and, if needed, I'm going to work with a distributor actually two, because I wanted to be choice two distributors that are willing to make an investment with me.
• 29:08
  Speaker 1: So I purposely invested in two distributors with whom I spent months figuring out what that service should look like and I helped create and I invested in them becoming like exclusive networks that we saw in Europe.
• 29:29
  Speaker 1: And initially there was some resistance there because he said, well, why would you make an investment?
• 29:35
  Speaker 1: Why do you purposely insert a tier into this chain when our competitors don't do it?
• 29:42
  Speaker 1: And I said, well, our competitors are wrong.
• 29:44
  Speaker 1: Because the temptation, if you take out one tier, is that you're also going to take out another tier, because if the customer says I'd rather buy it from you, what prevents you from doing that?
• 29:55
  Speaker 1: And I said I really want there to be two tiers from day one, because I like that choice and I like that we built this value chain where, ultimately, everybody knows exactly what their role is and it is not just a temporary role, it is a permanent role.
• 30:18
  Speaker 1: The distributor is in constant contact with the resellers.
• 30:22
  Speaker 1: The resellers are in constant contact with the end customer.
• 30:25
  Speaker 1: It's not just a transactional model, it is a lifetime model and I expect to do that.
• 30:31
  Speaker 1: But those two things how we treat our own internal people and whether or not we have a flexibility in the tiering those were challenged sometimes, especially when a large customer comes to you and says, listen, I don't want to buy through this channel.
• 30:51
  Speaker 1: I'm like, oh sorry, but that's what it's going to be.
• 30:54
  Speaker 1: And they say, or if they say, well, it has to go through this partner.
• 31:00
  Speaker 1: I remember when one of my very, very large initial customers said it needs to go through CDW and I'm like, yeah, they don't really fit our model because they're a catalog vendor.
• 31:17
  Speaker 1: They don't really do services.
• 31:20
  Speaker 1: But they said but we really want you to work through CDW.
• 31:25
  Speaker 1: So I went to Chicago and I spent a few days with CDW and we worked out a way that CDW was willing to bend this offering that they were going to supply to this very large military organization and I got them to invest and we co-invested, of course into this model, because what I didn't want is for there to start being exceptions right, where somebody was just doing the asset management right, but nothing else.
• 32:00
  Speaker 1: It wasn't very interesting to me because now I introduce a whole set of new partners and you know they essentially do nothing.
• 32:08
  Speaker 1: And not that I didn't want that from a margin perspective, because that deal would leave enough margin.
• 32:17
  Speaker 1: But philosophically I wanted my partners to be close to the end customer, because my thought was, if they're close, they're going to renew and they're going to extend, and if I have to be with all my customers, that isn't going to scale nearly as well with all my customers.
• 32:33
  Speaker 1: That isn't going to scale nearly as well than when I have a whole army out there of people that are enabled and incented to go do that.
• 32:41
  Speaker 1: So yeah, you have to the fact that you stay pure is probably the third thing that you.
• 32:48
  Speaker 1: It's hard because you will always be challenged by investors by the IPO.
• 32:54
  Speaker 1: I remember on the IPO Roadshow my bankers would ask me why can't you do it yourself?
• 33:01
  Speaker 1: Because that would leave you better margins.
• 33:02
  Speaker 1: Well, first of all, you don't understand the customer, because that's not how they want to buy and second, you don't understand the channel, because that expansion model is actually very profitable to both.
• 33:14
  Speaker 1: And if I can double, triple, quadruple my sales force out there with folks that are enabled and are incented, there's nothing wrong and my growth can be way faster than trying to do it all myself.
• 33:29
  Speaker 1: And, by the way, my margins will be better in the end than doing everything myself.
• 33:34
  Speaker 1: But it was a hard sale because nobody else was doing that.
• 33:37
  Speaker 1: It was unusual at that time.
• 33:41
  Speaker 2: Yeah, absolutely.
• 33:41
  Speaker 2: I think what I really hear is indeed from the start is loyalty towards channel partner, but then also very important the discipline, because there will be so many temptations along the way.
• 33:50
  Speaker 2: I think what we always hear is channel is a marathon, not a sprint, and then it's even more important to indeed really stay loyal, keep that discipline and and indeed also to your point, if you start making making exceptions somewhere, then, like it gets more and more likely you'll make bigger and bigger exceptions in the future as well, and I think that's uh, yes, yeah.
• 34:12
  Speaker 2: Have you also touched upon the end customer?
• 34:14
  Speaker 2: Like one of the things that we hear a lot in the market and also hearing from our listeners is that when you work purely through the channel, it can be difficult sometimes to generate end user demand together with your channel.
• 34:26
  Speaker 2: Like, what was your strategy from a marketing perspective to drive end user demand?
• 34:31
  Speaker 1: Well, I'm going to say something that will make some people laugh and some people cringe of the month.
• 34:33
  Speaker 1: Well, I'm going to say something that will make some people laugh and some people cringe.
• 34:36
  Speaker 1: My thesis was that my partners are good at two things selling and technology.
• 34:44
  Speaker 1: They probably have a great few sales guys and probably are even better at the technology, but they're not very good at marketing.
• 34:52
  Speaker 1: There were many situations where many of my resellers certainly the first couple of waves, the marketer was probably the girlfriend of the owner, and I say this not to cringe, but the investment wasn't really there, so I never made it a point.
• 35:13
  Speaker 1: First of all, I said listen, I'm going to make that person, whoever it is, however much you invest, whatever it is, for her experiences, I'm going to make them better.
• 35:21
  Speaker 1: So I certified, I enabled and certified the marketers.
• 35:24
  Speaker 1: Right, because that was an important component.
• 35:27
  Speaker 1: Right, because what I didn't want to say is oh well, the partners don't do any marketing, so let me do all the marketing.
• 35:33
  Speaker 1: It doesn't make sense.
• 35:34
  Speaker 1: Right?
• 35:35
  Speaker 1: I wanted them to be able to do marketing.
• 35:36
  Speaker 1: So we held marketing boot camps and we held marketing components at our partner conference.
• 35:42
  Speaker 1: We had a separate marketing track.
• 35:44
  Speaker 1: So all the marketers came and we certified them and trained them and everything else.
• 35:47
  Speaker 1: So we cared about the marketers just as much as we cared about the salespeople and the technologists.
• 35:53
  Speaker 1: But then, second, I always believed that the way to build a brand is through demand generation.
• 35:58
  Speaker 1: Brand from demand, that was my motto.
• 36:02
  Speaker 1: So I would turn on an enormous amount of brand stuff through demand.
• 36:09
  Speaker 1: So I would show up everywhere with my brand through demand generation or programs, and every partner would be involved in this.
• 36:19
  Speaker 1: They could co -brand it.
• 36:20
  Speaker 1: They didn't have to, but they could co-brand it.
• 36:23
  Speaker 1: I would give them the materials.
• 36:25
  Speaker 1: I would tell them listen, if you want to educate this, just to your own list, not to my list, let's do this.
• 36:31
  Speaker 1: Here's a URL, instead of UTMs, where we do the registration of all of this.
• 36:38
  Speaker 1: If you need the infrastructure to do it, here's the infrastructure to run this on, because lots of people didn't even have a marketing automation platform back then.
• 36:46
  Speaker 1: So run this and, by the way, all those leads and contacts that come through this are yours.
• 36:51
  Speaker 1: If you want to do segmentation, here's a segmentation tool on my database.
• 36:55
  Speaker 1: I have a very large database that you can use to do targeting in your territory.
• 37:02
  Speaker 1: Here's all the tools.
• 37:03
  Speaker 1: If you need some money to hold an event to talk about this, here's money to do that.
• 37:08
  Speaker 1: I want you to lead this, but I'll fund everything.
• 37:14
  Speaker 1: By the way, if you need a speaker, I'll provide a speaker.
• 37:16
  Speaker 1: If you need a location, I'd like it to be in your office.
• 37:20
  Speaker 1: But listen, if you do it somewhere else, fine.
• 37:22
  Speaker 1: We can talk about small MDF components, because I had a significant proportion of my marketing some of it 40, 50% allocated to MDF, especially with that length, 50% allocated to MDF, especially with that length.
• 37:36
  Speaker 1: But at the same time, I also invested in having field marketing at Palo Alto Networks, in having sales reps at Palo Alto Networks, so we wouldn't lose contact with a customer, because what it didn't want is for the channel to become an excuse.
• 37:53
  Speaker 1: Oh, the channel partner is taking care of this.
• 37:55
  Speaker 1: I have no control, and this is something I learned at Oracle, where the few relationships we had, they always ended up with this at the end of the quarter oh, the partner isn't doing their job and I have no control over the deal.
• 38:08
  Speaker 1: It's like well, that can't happen.
• 38:11
  Speaker 1: So, in the way that we thought about it, the deal was co-owned by somebody at Palo Alto Networks and somebody at the partner.
• 38:18
  Speaker 1: Now all of the communication went through the partner Quoting and configuration right, because we didn't quote to the end customer.
• 38:26
  Speaker 1: The reseller quoted to the end customer and we quoted to the distributor.
• 38:30
  Speaker 1: So the chain was always there.
• 38:32
  Speaker 1: But, believe me, I still held our rep responsible for customer satisfaction and for doing the deals.
• 38:41
  Speaker 1: I held our rep and the partner responsible for the net promoter score, and so I wanted to make sure that my end customer was happy.
• 38:49
  Speaker 1: And if the NPS went down on that customer, then I not only alerted my sales rep, I also alerted my cell apartment and both had to go fix it.
• 39:00
  Speaker 1: So you build in all these mechanisms where you never lose control of the end customer, because that's your own decision.
• 39:08
  Speaker 1: If you think you can do it without end customer contact, I think it's a risky decision.
• 39:15
  Speaker 1: I think it's a stupid decision actually to not do that.
• 39:17
  Speaker 1: But I can see it.
• 39:19
  Speaker 1: And, by the way, that was also the reason that we didn't do certain deals, because some partners came to us and said listen, I have a package and I want you to OEM your product in my package so you cannot become invisible to that end customer and you're just part of a stack.
• 39:36
  Speaker 1: No, I don't want that.
• 39:38
  Speaker 1: I don't want to be sold that way.
• 39:39
  Speaker 1: I want to always be visible to the end customer.
• 39:42
  Speaker 1: I want my rep and my organization to work with that end customer and the packaging cannot be in the way.
• 39:49
  Speaker 1: That doesn't make sense.
• 39:51
  Speaker 1: And, by the way, we do this together.
• 39:54
  Speaker 1: I'm not going to work against you with a partner, so, for example, I'm not going to go in there and do a better deal than you are proposing to them.
• 40:01
  Speaker 1: That makes no sense.
• 40:03
  Speaker 1: Why would I undercut my own channel?
• 40:05
  Speaker 1: So when we go in there, we're united.
• 40:09
  Speaker 1: We talk about one offer, we talk about one quote, we talk about one configuration and we about one quote.
• 40:15
  Speaker 1: We talk about one configuration and we're not going to fight with that customer.
• 40:19
  Speaker 1: And that requires a lot of discipline, but you build that in the organization, in the way that you run channel.
• 40:24
  Speaker 1: And to that point, one funny anecdote is I remember when we came out of the IPO and we were now a small but very successful cybersecurity company we had a few hundred million dollars in revenue.
• 40:40
  Speaker 1: I got a call from CRN Channel Reseller News, which is a big publication in the US, and they had a program called Channel Chiefs and they said, oh, you guys are really on our radar, so who is your channel chief?
• 40:56
  Speaker 1: And I said, oh, you guys are really on our radar, so who is your channel chief?
• 40:58
  Speaker 1: And I said what do you mean?
• 40:59
  Speaker 1: And they said well, who is responsible for the channel?
• 41:01
  Speaker 1: I said everybody.
• 41:02
  Speaker 1: And they said no, no, no, no, no, you don't understand, because at Sisto, it's this guy right, or at Juniper, it's this woman.
• 41:08
  Speaker 1: And I said, no, honestly, it's everybody, because if you're 100% channel, you don't need a channel chief.
• 41:13
  Speaker 1: Everybody is.
• 41:16
  Speaker 1: They said, well, that's impossible.
• 41:17
  Speaker 1: And I said, well, then I don't participate If that's your.
• 41:20
  Speaker 1: If you need there to be a person that has a title of channel, I think that's ridiculous, because if you're truly 100% channel, why would you have a channel chief?
• 41:29
  Speaker 1: And they said, well, is it you?
• 41:31
  Speaker 1: Then I said, well, yes, but no, it's everybody.
• 41:36
  Speaker 1: And I think that's the difference, right?
• 41:38
  Speaker 1: If it's part of your DNA, then you don't have channel marketing, which I never had, right?
• 41:44
  Speaker 1: Or you don't have channel sales, because everything is channel.
• 41:48
  Speaker 1: And that goes back to this philosophy, right, that if everything is channel, then you don't make it a special function in the company, it's not a special discipline, it's just you, yeah, and that makes it very different.
• 42:03
  Speaker 2: Yeah, I love that story and I think that's really where you see it, where it's truly in the core DNA of the company and everywhere throughout.
• 42:09
  Speaker 2: But also, I fully agree it's very smart to keep your own reps with their own accountability towards the end customer, and my dad also always worked in channel.
• 42:18
  Speaker 2: Sometimes channel account manager can be the easiest job there is, because if you don't do revenue, it's like, yeah, the partners aren't doing anything, and if you do revenue, it's like, oh, I'm doing a great job.
• 42:27
  Speaker 2: But I think in that you really create true accountability there.
• 42:31
  Speaker 2: There, and also what you told about marketing in terms of how you develop your partners into better marketers and, at the same time, have a very much of like a done for you or done with you maybe a better word mentality in in helping grow those partners in terms of end user demand there's.
• 42:47
  Speaker 2: There's one final question I have right now.
• 42:49
  Speaker 2: You touched upon some interesting metrics already and in channel we're always talking about revenue.
• 42:53
  Speaker 2: Of course, that's the outcome goal, but I'm also super curious like what were the key leading indicators that you tracked for your you and your team, like on a monthly, weekly basis, to really drive the right behavior throughout the organization and towards your channel?
• 43:06
  Speaker 2: Of course?
• 43:09
  Speaker 1: well, there were a few that mattered a lot to me.
• 43:11
  Speaker 1: One was the amount of pipeline that came to us through deal registration, and I wanted that to be a significant portion.
• 43:21
  Speaker 1: So on the pipeline side, that should be somewhere between 30 and 40%.
• 43:27
  Speaker 1: Meaning, marketing finds things, sales finds things, but I wanted partners to find at least a third, if not more.
• 43:36
  Speaker 1: Now, the types of deals that come that way don't always close at the same rate as deals that you find yourself, but I wanted that to be well north of 30% as well.
• 43:53
  Speaker 1: So I wanted the deals that closed through deal registration also to be more than 30%.
• 43:58
  Speaker 1: Very specifically, so pipeline growth, pipeline closure, and then the percentage of new deals that came to us through partners.
• 44:09
  Speaker 1: So not just expansion but new deals, and I wanted that to be more than 40%.
• 44:13
  Speaker 1: I want my partners to find more new customers than we ourselves.
• 44:18
  Speaker 1: It had a lot to do with the philosophy behind how I thought the business was going to grow, but I attributed a significant portion of new customer acquisition to partners, so I wanted that to be north of 40% of new customers count-wise, and so those were very important metrics.
• 44:39
  Speaker 1: I tracked, and then on the marketing side, I looked at yields.
• 44:43
  Speaker 1: So if I put a dollar in an MDF program and I didn't care whether it was matched or not matched, but any dollar, that went into the marketing machine with and through my partners a little bit to my partners because I had to still do my education and enablement, but mostly with and through I wanted there to be significant deals.
• 45:06
  Speaker 1: So my goal became for a dollar of NDF to yield north of $45 of pipeline, and it sounds crazy high but we ran it all the way to $60.
• 45:22
  Speaker 1: But my design was for it to be more than $45.
• 45:25
  Speaker 1: And that became an interesting bar to say, well, if I'm going to do a golf tournament with a partner, I'm probably not going to get $45 of yield, but if I'm going to do a lunch and learn, I may very well, or a test drive.
• 45:39
  Speaker 1: And so it gave the partners also room to configure.
• 45:44
  Speaker 1: So some programs wouldn't necessarily yield that other programs did, but on the whole my MDF always became a very great way for us to generate demand.
• 45:58
  Speaker 1: So those were the metrics that I really cared about.
• 46:02
  Speaker 1: And then programmatically, of course, I kept tracking the number of certified professionals in their organization, because that demonstrated their commitment to us.
• 46:14
  Speaker 1: Because that demonstrated their commitment to us and you know they had to be certified professionals in sales marketing and sales engineering.
• 46:22
  Speaker 1: But I also wanted to increase that number, so I introduced also more expert peers in all of that.
• 46:29
  Speaker 1: But those were important metrics.
• 46:32
  Speaker 1: I tracked and you know we had quarterly QBRs with our partners to make sure that they understood.
• 46:39
  Speaker 1: By the way, the reporting was also so any reporting that we saw our partners saw as well.
• 46:43
  Speaker 1: They could see their entire performance, including everything related to pipeline and so forth.
• 46:49
  Speaker 1: They could see that I built a CRM system inside out so I could also show them how they were doing.
• 46:55
  Speaker 1: So we didn't have to wait until QBR.
• 46:58
  Speaker 1: I wanted to have a QBR because every quarter we also agreed on what the marketing strategy was for the next quarter, Because I didn't invest on a long-term basis in the sense that I didn't tell them oh, here's a pot of money that you've earned, Go spend it.
• 47:17
  Speaker 1: It was all still proposal-based and so every quarter we built a new marketing proposal for the partners.
• 47:24
  Speaker 1: But those metrics matter a lot to me more than anything else.
• 47:31
  Speaker 2: Yeah, I think there are some great metrics.
• 47:32
  Speaker 2: All of them, to be honest, are really the metrics that need to drive towards revenue.
• 47:36
  Speaker 2: You mentioned MDF and the yield that you wanted to see, and then you mentioned, I think, if I recall correctly named and non-named, For example.
• 47:45
  Speaker 2: Could you explain a little bit more around that named versus non-named yield?
• 47:50
  Speaker 1: Yeah.
• 47:51
  Speaker 1: So there's yield that you do on targets that you identify.
• 48:01
  Speaker 1: So that is.
• 48:10
  Speaker 1: I specifically go out there after a list of named customers.
• 48:12
  Speaker 1: So you build a list, a segment, a target, and you go after them and you look at the yields that you do there and then there's what they find.
• 48:18
  Speaker 1: So you kind of invest in a market and then demand comes through them.
• 48:23
  Speaker 1: But it's not necessarily related to a marketing program but also very good Because that gives you a better idea of how your brand is developing.
• 48:32
  Speaker 1: Because if they see inbound, well that's great Because that's a lot cheaper than outbound, especially if it's an earned inbound.
• 48:42
  Speaker 1: So, yeah, earned inbound, because you didn't spend necessarily to get the inbound.
• 48:47
  Speaker 1: So I wanted them to be very predictable.
• 48:50
  Speaker 1: On the named, because if I go to a segment I want you to perform really well because that tells me how well you know your segment.
• 48:56
  Speaker 1: But on the named, because if I go to a segment, I want you to perform really well because that tells me how well you know your segment.
• 49:01
  Speaker 1: But on the non-named, where it's kind of earned, I want to see improvement there as well, because I want that partner also to demonstrate that they invest in the brand, so to speak and that they develop activities or that they go find things that aren't necessarily related to MDF dollars.
• 49:14
  Speaker 2: Yeah, Absolutely, yeah.
• 49:16
  Speaker 2: Thanks so much, rene.
• 49:17
  Speaker 2: This has been a wonderful chat.
• 49:18
  Speaker 2: They go find things that aren't necessarily related to MDF dollars.
• 49:19
  Speaker 2: Absolutely, yeah.
• 49:20
  Speaker 2: Thanks so much, rene.
• 49:20
  Speaker 2: This has been a wonderful chat and I myself learned a lot.
• 49:21
  Speaker 2: I'm very sure our listeners did as well.
• 49:23
  Speaker 2: Thank you very much for sharing today.
• 49:26
  Speaker 2: If our listeners want to connect or read more from you, what's the best place for them to follow you?
• 49:32
  Speaker 1: Yeah, I'm very active on LinkedIn.
• 49:35
  Speaker 1: It's very easy to see me on LinkedIn and I publish quite some materials on the Battery Ventures blog about channel strategy, pipeline strategies, product-led growth strategies and so forth, so that's where they can follow me as well.
• 49:53
  Speaker 1: Awesome.
• 49:54
  Speaker 2: Thanks so much, Rene.
• 49:55
  Speaker 2: Thank you to our listeners for listening again and see you next week.