by Tim Smith, PhD, 16 April 2003

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When hundreds of thousands of transactions per month are required in order to achieve a million dollars in revenue, businesses must embrace a low cost approach to reaching their market. One low cost approach is through channel distribution partners. In 1999, AssureBuy selected to embrace this approach.

AssureBuy
Organized in ’94, AssureBuy (www.assurebuy.com) initially approached customers through direct sales. In ’99, AssureBuy’s board selected Rick Johnson as CEO. One of his first moves was to change AssureBuy’s approach to the market from direct sales to a channel distribution strategy. I spoke with Mr. Johnson and Kevin Hogan, an AssureBuy Director, to discuss their process and the results of this strategic change were revealed.

Strategic Change
By ’99, AssureBuy had a number of underperforming business activities as well as more than 150 business clients for transaction processing. Mr. Johnson selected to focus AssureBuy on transaction processing and dispensed with the other lines of business. With the new focus, he needed an efficient route to market and elected a channel distribution approach.

Some of the factors that determined AssureBuy’s channel distribution strategy include resource constraints, industry fragmentation, customer variety, and whole-solution partner variety.

Channel Partnerships Forged
By 2002, AssureBuy had established 3 channel partners: BottomLine Technologies, Retail Decisions, and Chase Merchant Services. BottomLine Technologies engages Fortune 500 clients. Retail Decisions reaches hundreds of large US corporations as well as global institutions. And Chase Merchant Services has tens of thousands of customers with a primary focus on large corporate clients.

In its channel strategy, AssureBuy maintains a distributor neutral relationship. Each distribution partner is rewarded approximately the equally based upon sales. There are neither territory nor vertical market restrictions. Channel competition is allowed to occur, but it rarely does due to the AssureBuy spot solution for specific end customers.

Once a prospect has been identified by the channel partner, the terms of the sale are negotiated directly with AssureBuy. AssureBuy cannot become an invisible partner for the end client because the technology must be directly integrated with the client’s system. As for ongoing transaction fees, billing can be done by AssureBuy or its channel partner.

The effect of the channel strategy on revenue was immediate. In ’99 prior to establishing a channel distribution, AssureBuy had relatively zero growth in revenue. By ‘00, revenue had doubled. It continued to climb by 30% in ’01 and 5% in ’02 despite the poor economic climate. With these achievements, AssureBuy was prepared to further embrace their channel strategy.

Reaching Microsoft
In October ’01, Mr. Johnson enjoyed a CSA luncheon with Steve Ballmer, CEO of Microsoft. In a speech to the gathered executives, Mr. Ballmer shared his .net vision for small businesses and invited CSA members to email him with their ideas. Mr. Johnson acted on this invitation and sent Mr. Ballmer a proposition. Within an hour of receipt, Microsoft responded.

During the next quarter, Microsoft Channel Managers met with AssureBuy’s CEO and CTO, Jeff Punzel, to determine AssureBuy’s position within portfolio of value offerings. Because of the potential synergies between AssureBuy and MS Great Plains’ Account Management Software, Microsoft Channel Managers moved the opportunity to MS Great Plains.

AssureBuy courted Great Plains over the next several months. AssureBuy’s message to Great Plains focused on their business and technical strength. In the first quarter of 2002, Great Plains invited AssureBuy to become a Solution Developer Partner.

To complete the process and gain access to the MS Great Plains Value Added Reseller (VAR) channel, AssureBuy paid MS Great Plains for certification and made technical adjustments to their product. By August ‘02, the first integration was complete. When Great Plains released 7.0, AssureBuy followed through with an upgrade released in the 4th quarter of 2002.

Great Plains Relationship
As with other distribution relationships that AssureBuy has entered, the MS Great Plains relationship is nonexclusive. AssureBuy maintains the potential for entering into competing relationships with other vendors of financial management software. Likewise, MS Great Plains will maintain its distribution relationship with 5 other direct competitors to AssureBuy as well as create further distribution relationships. MS Great Plains is neutral as to which solution developer achieves a larger market share within their channel.

To maximize the potential of the Great Plains VAR channel, AssureBuy will need to contact the individual companies within that channel. MS Great Plains however will not grant direct access to their VAR channel. To reach these VARs, AssureBuy must purchase further services from Great Plains such as exhibit space at conferences, advertisement space within newsletters, or direct mail distribution through Great Plains. In each case, Great Plains maintains the point of contact.

With minimal channel marketing undertaken to date, AssureBuy has been able to achieve results. Since the Great Plains distribution relationship has been created, the VAR channel has produced six new customers with a $55,000 annualized boost to recurring revenue, exceeding the direct cost of purchasing the relationship.

Strategic Importance
The strategic value of the Great Plains relationship arises from branding and target market access.

As a Great Plains Certified Solution Developer, AssureBuy can co-brand its solution with Microsoft. Using consumer behavior theory, one might also claim that the co-branding relationship grants AssureBuy access to many of the same mental value conceptions buyers have of Microsoft. These cognitive clues provide business customers with the assurance that AssureBuy can deliver reliable solutions.

AssureBuy had identified a target market of small and medium sized businesses, in which 55 million Americans are employed. MS Great Plains has 20,000 to 30,000 users in that target market. Their ability to reach AssureBuy’s target market increases the strategic value of the MS Great Plains relationship.

Expectant Future
Looking to the future, AssureBuy plans to add more channel distribution partners. Currently, they are in discussion with 5 other partners including some in Electronic Bill Payment and Presentment (EBP&P). Beyond this set of partners, AssureBuy expects to continue adding channel relationships.

Which should be more important to AssureBuy? More channel partners or further development of existing channel partners. When asked, Mr. Johnson and Mr. Hogan both agree that earlier and higher profits would come from further developing their existing channels.

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Tim Smith, PhD is a principal at Wiglaf, a Market Research and Sales and Marketing Strategy consultancy serving tech-driven businesses operating in business markets. Small and medium sized businesses select Wiglaf for our quantitative and fact driven approach to intelligent revenue growth. www.wiglaf.biz.

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