ISVs are often described as “the gift that keeps on giving” once you setup the partnerships. It is indeed true that ISVs can produce the most revenue with the least amount of work once the partnership is setup, but it has to be setup in the right way from the beginning and it has to be focused on success.
I have built ISV ecosystems that create predictable revenue. In order to better communicate the complexity of creating ISV partner frameworks that work in a repeatable manner, I frame the process in what I call the ISV operating system. It’s meant to communicate all the levers and steps to develop a succesful ISV program, starting with complete internal alignment and around scorecards and cadence, so that we can focus on what matters and stop what doesnt. This approach drives unified goal setting, cross functional communications, shared expectations and shared direction, resulting in expanded reached, improved close rates, partner retention, and increase lifetime value for your ISVs.
To start with, we must really focus on understanding our internal requirements. ISV teams exist to create revenue. That’s the mission. Nothing else matters. In order to do this cleanly, we need to start with the sales mission, with complete alignment with the CRO and the sales mission. We need to understand our goals and sign up for our share of the quota. That’s our number one mission.
The enabling engines within the company are your partners in other departments. It’s critical to setup those alliances early on. These cross functional teams help you tie it all together. Among them:
Sales Leadership: This one should be a no-brainer but many times it isn’t. I’m not talking about just the CRO. I'm talking about the line managers that run regions or verticals. I’m talking about alignment at a sales to sales level. I’m talking about them being part of your business and you being part of theirs, with complete QBR participation, sales and quota commits, weekly or bi-weekly cadence with dashboard business reviews, and total collaboration. I typically like to track targets, KPIs versus those targets, pipeline, commits, etc. and have those roll up by level all the way to the CRO. This is where the rubber meets the road.
Legal: They are absolutely critical in the development of the program as well as in every single negotiation. I recommend making them part of your cross-functional steering committee and keeping them as involved as possible. They will help you with in many areas, including setting up contracts (both regular contracts for all customers where protections are put in place that will only be available to ISVs as well as the ISV templates), Term Sheets/LOIs (that contain the levers that you will use to negotiate in the different phases), term negotiations on the contracts as well as bullet proofing the contracts, and then enforcement communications (letters to the partner due to breach or non-compliance).
On contracts, you need to ensure that your current standard contracts protect the company against 3rd party use (which is the foundation of what you negotiate), and that there are limits to access by 3rd parties. Likewise, you should have an ISV ready contract with those grants but with the guarantees that you need to have to reduce risk. These contracts will be your “easy path” to the majority of your ISV deals. The large complex ISV deals need to be negotiated, so I’ve included a stage by stage guide below.
Remember, legal is your protector. They will ensure you reduce your risk and will watch your back, but you have to give them something to start with. Ensure that you start with the levers that are important to the deal and they will help you with them.
This is an absolutely critical team for you.
Partner Marketing: If there is one team that you need for operational success, it’s partner marketing. We all know how to use marketing for branding, campaigns, and the like, which of course is valuable, but that’s not what I’m talking about. Partner marketing can do a lot more for you than just that. They are often connected to other partner marketing teams and can often help you obtain the partner MDF that you can use to develop your program. They can help you create ISV specific branding and help you with the co-branding that you will need for logo/vanity programs. Make sure that their success metrics are tied to yours and involve them early.
Sales and/or Partner Operations: This Team is not only your enabler, the team that setups up your terms in the systems, and makes “stuff” happen for you. They are also critical for you being able to source the data you will need for your dashboards, and to do whatever is necessary to ensure your team gets the quota relief credit it deserves.
Product (Engineering/Marketing): This team have almost as much as stake at your success as you do. They will be absolutely critical in a bunch of different areas of your success, including giving your most important ISV partners access and influence over the roadmap, early access and testing, joing reference architectures, etc. They might be too busy to be part of your steering committee, but make sure that you communicate progress and stay close to them.
Sales Enablement: Becoming part of the everyday life of a sales account executive requires that you are part of their life from the beginning. If you start with the account exec onboarding, you will not only “train” the AE, but it will signal to him or her the importance of ISVs.
Training and Enablement: As one of the most critical teams to work with, they will support your onboarding process, work with you in creating guided paths for your ISVs, and will assist you in creating “Red Carpet” programs for those very important ISVs.
Support: They often ignored but critical to your success. Communications with support leadership are critical. Ensure that they understand what ISVs are the most important, that there are mechanisms in place to involve you early in issues, and that they understand your team’s roadmap and mission.
Professional Services: I often tell people that if product engineering is the engine of the company, professional services are the wheels that put the power of your product to the ground. I will probably write a whole section on the partnership with PS, as it’s too much to just include here. Make sure that you are closely aligned with them, that they are part of your negotiations, onboarding and enablement, enforcement, etc. I have created “red carpet” programs as part of large ISV contracts that include annual PS credits (funded by carve outs from the contract as well as discounted rates from PS). The more PS you have in your ISV deal the more likely you will have a sucessful partnership.
Other Alliances Teams: Many times, there is an internal competition between alliances teams for the share of attention from the business. This is not healthy. Look at the other teams as your siblings that want to help you. I have used alliances managed by other teams to provide MDF for my programs, and often at very large scales. At one company, I received over $200K from AWS. At another close to $1M from a hardware chip manufacturer. None of that would have been possible without close alignment with those other internal alliance leaders.
It’s important to use those teams to tie ISV plays directly into the field motion. In other words, ISVs should be part of the everyday for all account executives, not a once flyover presentation on how cool it would be to do ISVs.
One way to gain commitment from the critical members of those teams is to develop a cross-functional steering or advice committe. Include only those teams that can really provide input and put guard rails in place to ensure that it’s about the sucess of your program versus theirs.
The quiet silent type doesnt work in this type of role. Everyone, from SDRs to CxOs need to know what you are doing and how your team is progressing. You can start slow, but ensure that you become part of the everyday conversation. There are several vehicles you can use for this. Here are a few examples:
Dashboards: Your mission in the company is to generate revenue. The way to communicate progress towards that goal is to do it via CRM fed dashboards. You can track and show everything from AE, region, and Macro sourced and influced pipeline and commits, to closed ARR, win rates, targets, ICP/IPP target achievements, etc. that will drive your daily conversations with AEs, sales leadership, and CxOs, to your QBRs. If there is one tool that you need to have, is this one. In the last 3 companies that I’ve been in, I have developed these dashboards in looker, as it gives me the flexibility to drill down and across while outside of the CRM (for licensing purposes), but they could be built on anything from Excel, to PowerBI, to directly within your CRM.
Internal Newsletters: I recommended to start these once you have a business to report. This can serve as a “win wire” and enablement vehicle that can create that “jealousy” factor to drive other AEs to push for ISVs in their region. Get creative here with strong content and story telling.
Social Media: Do as much as you can to push your message externally in mediums like LinkedIn and X while publishing success stories with AE names attached to it. Even use AE quotes, but be careful, following all communications protocols.
The old saying, “success breeds success” is absolutely real. Ensure that you talk about your program and that prospects know about your product, your company, your program, and your success. LinkedIn and X are great places for this, as are magazine articles and online content. Work closely with your marketing team and make sure you have a steady flow of outgoing messaging to get your message out there.
Just as we know what an ideal customer makes for our product, we need to define and target what the ideal partner profile for a company at this stage is. Typically everyone wants to see embed their platform in the largest solutions out there for fast growth, but those are typically the hardest companies to penetrate. At one company, we grew our ISV business by 17x net new revenue and 10x in the number of ISVs in 3 years by focusing on repeatability of wins. We looked at where we were being succesful and focused our efforts in winning those areas. We developed architectures, contents, and enablement. We researched the market, created targets, and obtained contacts. And we absolutely owned those spaces. We became the leader in those areas, making new sales to other ISVs in those areas way easier. And then we expanded to adjacents. Whales are nice, but large tunas are more plentiful and can provide way more revenue and long term loyalty.
There are several areas that can be negotiated in your ISV contract, outside of the standards (price, discounts, payment terms, contract length, usage gates, exclusivity, training, support, go to market (both general and dedicated), co-marketing, and vanity badges/logos). Here are my levers by area:
Economic Levers (beyond list price): Net pricing, discounts and rebates (tiered, gated, retroactive/included, SPFF-based), payment terms (both for kickoff and on-going), contract length, rev rec structure, guarantees (minimum commits thru periods), MDFs, transaction mechanisms (margin, direct, marketplace, etc), price protection (maximum price increases, discounts to match maximums in area, etc).
Product Levers: Product, Features, and API access, roadmap access, roadmap influence, customer advisory committee access, early access, beta programs, certification, validation, integration, joint reference architectures, data access rights (including telemetry, usage, and analytics), integration depth, etc.
Go To Market Levers: Involvement in general and/or dedicated go to market programs, red carpet programs, sales motion ownership, field support, field enablement, certification, account mapping and alignment, joint pipeline targets when required, pipeline inspection, referrals, executive sponsorship, co-selling, co-marketing, etc.
Governance Levers: Dedicated sales and alliance managers, escalation paths, executive sponsorships, QBR cadence, change of control provisions and protections, partner tiers and segmentation, agreed upon cadence, external joint communications, etc.
Legal Levers: IP ownership, derivatives, indemnification, security audit, compliance audit, data residency and compliance, terminiation definitions, wind down protections, survival clauses, non-compete, non-circumvent, no poaching, etc.
Onboarding and Enablement Levers: Onboarding timelines, SLAs, training and certifications (both free and paid), support tier definitions and agreements, implementation support, reference assets, support escalation process, platform access (production, testing, development sandbox, early access), etc.
Marketing and Positioning Levers: Vanity badges and partner level logos, publicity and marketing mentions, roadmap mentions, analyst inclusion, keynote and user conference placement, joint customer story telling and publications, use of partner level terms, etc.
Control Levers: Exclusivity scope and duration, rights of first refusal, first look/first access rights, region or area carve outs and duration, consesion timing/ending clauses, ability to re-tier, etc.
These levers are critical to negotiate and manage thru the negotiation process. Negotiating them at the right time is also very important, as you should not give up your leverage without give and take.
As you are negotiating your deals, the levers above will pop up almost instinctively. However, some are core to your stages and should not be negotiated away too early. I have a 7 step process for the ISV lifecycle that can be followed that has those levers. Note that these stages are really focused on your large ISV deals. Most smaller ISV deals will have those steps baked into your standard ISV contract, that you developed with legal back at your programs inception. Here are the steps.:
Pre-Approach (or Stage 0): Our internal preparation. This is the prep work required to find the targets and enter negotiations with leverage clarity and internal alignment. Here you will need to understand what it is that you can negotiate away vs non-negotiables, what is your walk away position, what alignment you are seeking, what your competition (and theirs looks like), and you power map by plane (based on the levers above). The reality here is that since leverage is highest before commitment, optionality of the levers above is more valuable than the economics at this stage. Be careful to not pre-concede road map access without obtaining something for it, over promise GTM or anything else, and don’t yet signal urgency. You need to start to build your MEDDIC here.
First Stage: Discovery. This is where you have to shape your expectations and anchor your value. You need to find your MEDDIC champion here and determine your EB and capture metrics. This is where you have to frame the problem in a way that shows why this partnership matters, develop the strategic narrative, assessment technical feasability, and do early power mapping. Be careful here to do detailed economics, talk about exclusivity, or do deep roadmap commitments. This is just discovery. This is a good time to start executive alignment, get field appetite, and confirm integration interest. Watch for non-commitment to the opportunity.
Second Stage: Development of the term sheet. This is where we lock in the things that are important to both parties prior to legal negotiations. Also, this is where you will establish who has the power across all of the different levers. You have to establish the foundation of revenue attribution, what/where/when/how of development/integration and sales, routes to market (is this a truly embedded solution, integrated, will it be sold as part of their deal or will you have a referral process, will you do distribution thru them, etc), go to market support and what go to market will be established, negotiate access to and influence over both the integration roadmap and your own platform’s roadmap, outline the deal and partnership governance model, negotiate any exclusivity and exclusivity exits that you might have, etc. At this state, you will begin to negotiate, at a high level, revenue shares, discounts, and gates, contract length and renewability, market development support, market definition, and market focus (including vertical, sub-vertical, and geo). You will need to watch out to not yet negotiate on price, platform/product/API tier access, long term exclusivity, and branding.
Third Stage: This is where the fun really begins: the commercial negotiation. This is where you will trade your economic power (pricing/discounts/gates) for structural power. They will ask for big discounts, exclusivity, margin compression, more access to roadmap, MDF without accountability, go to market top level benefits, etc, This is where the value that you have been building will pay off. You can trade discount here for commitment (prepays, yearly commits), and growth (thru revenue gates) and enablement SLAs. If you are negotiating on revenue share, you will need to negotatiate access to revenue numbers, pipeline inspection rights, and attribution control. Trade your MDF for revenue targets and pipeline inspection. Negotiate KPIs and communication rights (cadence, dashboards, etc). You can also negotiate payments here across time periods, as one of your blockers will be current year budgets. In this stage you need to ensure that you don’t negotiate anything away that you can’t take back. Everything needs to have guardrails. There should be NO permanent concessions as they all need to be tied to performance. You have to stay disciplined here and offer no discounts that are not somehow tied to performance thresholds across a very specific time period. Remember that pricing and discounts are easily visible, but the control mechanisms for the alliance are not. Make sure that you protect yourself.
Fourth Stage: It’s all about Legal. You now have the term sheet that guides the conversation, you have your commercials, and you have your governance and commitments. It is now all about using your legal partners to ensure that you dont end up upside down. A mentor back in the 90s called legal the “Power Erosion Prevention” team. I think that’s a perfect description. Trust your partners here, as they have the company’s and your best interest at heart. Here you will focus on protecting your backside. Amongst the levers that you need to focus on are audit rights (including phone home features and on demand audits), indemnity caps, pass-thru terms and conditions, data ownership (customer, process, and analytics), change of control and survival clauses, termination rights, attributions, end user data access rights, remedies for failed audits, IP ownership definition, derivative works addressed, security obligations, customer and employee poaching restrictions, non-compete language, etc. Watch out for too broad audit rights that dont give you any power, unequal indemnication, unilateral change in commitment, silent exclusivity via multiple contractual terms, etc. If their legal demands increase your risk, then you can counteract that risk contractually by reducing you commitments (term, tiers, termination flexibility, GTM commitments, MDFs, performance gates, etc).
Fifth Stage: Pre-launch. This is your last chance to ensure that you have the power to execute the great agreement you negotiated, not just obtain signatures. Make sure that you have named owners on both sides, and that they are committed. That whatever enablement you need is in place an starting to be delivered (including development, field (if not just embedded), marketing, support, etc). Ensure that your support model is not only in place but has been “tested”, that whatever environments you negotiated are available (demo, sandbox, development, testing, production). Check your deal registration process if your deal includes referrals. Do NOT launch if you feel that there is misalignment. Ensure that your KPI, communications, and cadence are in place.
Sixth Stage: 0-90 days. Tracking to performance. This is where you are dilligently following up on your early KPIs, including enablement, integration/product development, go to market preparation, pipeline collaboration, executive engagement, etc. You might need to do early corrections here, both internally and externally. Early escalation is key to success if you see cracks. You can adjust just about anything here, including your enablement, your KPIs, Sales Motions, Governance Gaps, etc. Watch out for misses and statemetns about “We are still doing “ X.
Seventh Stage: Post deal renegotiations. This is what I call the “floating island stage” as it can happen any time both parties feel the need to do it. Here you can renegotiate to optimize, going back to stages 3 and 4 to optimize the realities of the alliance. This is where if an alliance is underperforming its commitments, you can renegotate the tiers. If audits reveal misuse, you can trade penalties for commitments, or if the alliance is bigger than the benefits, you can roll out the red carpet in exchange for commitments. The first renegotiation often defines the long term balance of power.
Power in ISV partnerships is not defined by the contract alone. I tried to infer and state that above, but I think it does merit to state them clearly. These are what are often referred to in sales as the power planes, and those typically shift over time stages (pre-signature/negotiations, post-signature/early implementation, and at scale). Those power planes are based on the levers above and include economic control (who/what/how of flow of money and economics over time), product and technical control (who/what/how of integration and embedding depth and roadmap influence and access), go to market control (who/what/how of driving deals and market growth in the field), governance control (who/what/how to manage the relationship, including setting priorities, escalating issues, steering the agreement, and resolving conflicts), partnership tier and ecosystem control (who/what/how to shaping narrative and perception of the partnership).
Whomever controls those plains has the power in the relationship. You want to ensure balance for both parties, as your ISV partner has to be succesful for you to be sucessful, and your role is to make that happen, but you have to make sure that you are extracting the maximum value out of that relationship for your company.
The number of ISV partnerships that fail to grow outside of the initial deal is staggering. Most are “kicking the tires type of relationships that can spectaculary fail without the proper mechanisms in place to ensure success. Watch out for PINOs (Partners in Name Only), which are partnerships announced but not executed, toothless agreements, revenue share without access or attribution control, embedding or integration without KPS and timelines, co-marketing without field anablement, executive sponsorship without power escalation authority, discounts without gates or commitments, and exclusivity without performance guarantees, exit timelines, and extensions without merit.
Before signing any large ISV contract, sit down with your manager or a colleague and go thru the levers above and honestly discuss those red flags. It will save you much headache and heartache later.