The conventional VC wisdom is simple: Early-stage startups should avoid channel partners. They complicate the business, dilute margins, and distract from finding product-market fit.
For open core companies, the advice is more nuanced. Your open source software is already distributed through channels you don't control. Hyperscalers might build on your technology. Installers could deploy it for their clients. Resellers may package it into their offerings. The question isn't whether partners exist—it's whether formalizing these relationships helps or hurts at your stage.
The pre-$1M ARR rule: Default to “no”
If you haven't crossed $1 million in ARR, your default answer to channel partnership opportunities is typically no. You lack the resources, processes, or leverage to make these relationships work effectively.
Channel partnerships require time, attention, and often upfront investment in training and support. Every hour you spend managing a partner relationship is an hour you're not spending talking to customers, iterating on product, or closing direct deals. At your stage, that trade-off rarely makes sense.
The exception: A partner approaches you, representing an existing, active user of your open source software who has urgent, specific feature requests they're willing to pay for. Not just someone aware of your project—someone actively using it with real pain points. That's your signal to engage. Before you say yes, ask: Is an end customer deployed on our open source software? Do they have three burning feature requests? If the answers are yes, explore the opportunity. Otherwise, pass and focus on direct sales.
Post-$1M ARR: Be selective and strategic
Once you've proven product-market fit and crossed $1 million in ARR, channel partnerships become more viable. But you still need to be selective about which opportunities to pursue and how to structure them. The best channel partnerships fall into clear categories:
Resellers with existing customer bases: MSPs, IT outsourcing companies, or specialized consultants who already serve a specific audience and want to offer your solution under their brand. These work when the relationship is simple—essentially "Company Name powered by YourProduct" with minimal customization. If a white labeling request requires more than CSS changes and a logo swap, decline it. Complex customization deals consume enormous resources and rarely generate proportional revenue.
Government sales: Government agencies typically buy software through channel partners. Open core companies tend to have channel partners/MSPs reaching out more than is usual for an early-stage startup because of high open source software usage in the government. If a channel partner contacts you about specific government customers already using your open source software, it’s an opportunity worth exploring.
Partners representing active users: When someone approaches you saying, "We have a customer already running your open source software who needs enterprise features," that's the gold standard. These customers know what they want, understand the value, and are ready to pay.
Strategic hyperscalers: When Google, Microsoft, or AWS starts building functionality similar to yours, approach them proactively. "This is awesome. We'll give you a non-exclusive license to use our open source technology. In exchange, we'd love attribution in your announcement." The upside is massive distribution. The downside is just hearing no.
Do your homework, have a shared plan
Before you have your first real conversation with a potential partner, do your homework. Understand their customer base, their market position, and why your product fits their portfolio. But more importantly, make them do their homework too.
A good channel partner should come to you with a clear understanding of why your product fits their market and how they plan to sell it. If they're approaching you without a concrete plan or just hoping to "explore opportunities," that's a red flag. The best partnerships happen when the partner already sees the opportunity and is ready to invest resources to make it work.
When you do meet, paint the picture clearly. If you're selling security software and talking to a partner who works with government agencies, be explicit: "Our product is tailor-made for government customers because of X, Y, and Z. We see this partnership as an opportunity to reach agencies who need self-hosted solutions with enterprise security features." But then flip it: Ask them how they plan to leverage that positioning. What's their strategy? Who specifically will they target?
Then build a concrete plan together with agreed-upon deliverables and timelines. This isn't optional—it's how you separate real partnerships from time-wasting relationships. Your plan should address:
- Sales targets and expectations: Be explicit upfront. How much will they sell, and when? If you're targeting 10 customers in Q1 and 25 in Q2, put that in writing. If they miss targets by a wide margin, you need to know quickly so you can reallocate resources. Vague hopes about "exploring opportunities" don't work.
- Lead sharing protocols: Will you share all leads in their territory with them? What happens when you get an inbound lead from a customer in their market—do they handle it, or do you? Decide this before conflicts arise, not after.
- Co-marketing investment: How much will each side invest in marketing this partnership? Who owns content creation? Who manages campaigns? Co-marketing sounds good in theory, but fails in practice when expectations aren't clear. Put dollar amounts and specific deliverables in the agreement.
- Field training specifics: How many of their people will be trained on your product? What's the format—live sessions, recorded materials, certification programs? Who pays for travel if in-person training is required? Great partners will invest in training their team. Poor partners will expect you to do all the work.
- Sales incentives: Consider offering double commission for the first quarter to get them motivated and prove the partnership works. Front-load rewards to create momentum. If they close three deals in their first month, that success builds motivation for month two. If they close nothing for three months, you both lose interest.
- Support protocols: Who handles the first phone call when a customer has a problem? If the partner fields initial support requests, what's the escalation path? What issues do they handle versus what gets passed to you? Define service level agreements and response times. Unclear support protocols kill customer satisfaction and damage both brands.
- Product roadmap alignment: What features are coming that will help them sell? What customer feedback should they funnel back to you? Regular sync meetings—monthly at minimum—keep everyone aligned on priorities and progress.
The best channel partnerships feel like extensions of your own team. The partner knows your product deeply, represents it accurately, and has direct incentives to succeed. They're not just forwarding leads—they're actively selling, supporting, and growing the relationship.
Before you finalize any partnership, ask yourself: Can I articulate exactly what success looks like in six months? Do we both know our responsibilities? Have we agreed on specific, measurable outcomes? If the answer to any of these is no, keep negotiating or walk away.
When partnerships become a trap
Channel partnerships fail for early-stage companies when:
- You're chasing speculation. A partner wants to "explore opportunities" without representing an existing customer. This is a distraction disguised as an opportunity.
- You're outsourcing customer discovery. Partners can't do your product development for you. If you don't understand your customers directly, no partner will fix that.
- You're negotiating complex custom deals. Four-month negotiation cycles for white labeling arrangements or custom features signal a bad partnership. Good partnerships are quick and clean.
- You're building dependencies. If a partner owns the customer relationship entirely and you have no direct access, you're not building a scalable business—you're a subcontractor.
The federal government is the one exception where channel complexity might make sense earlier, but only if you have existing government users of your open source software and a partner who can navigate procurement requirements on your behalf.
Partnerships follow success; they don’t create it
Before you engage with any partner, ask yourself: Do we have product-market fit? Are we closing direct deals? Do we understand our customers deeply? If the answer to any of these is no, channel partnerships won't help. They'll just distract you from the fundamental work you need to do.
If the answers are yes, you have traction, you understand your market, and you're seeing organic adoption—then strategic channel partnerships can multiply your distribution. Structure them to your advantage: front-load payments, keep deals simple, concentrate on a few high-quality partners who work with your existing users.
Partners follow success. They don't create it. Build something people want first, then use partnerships to scale what's already working.