Breaking into the Mini Niche

The dominance of the horizontal reseller is slowly dwindling as more resellers are venturing into mini-niche markets

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Clark Haley prides himself on being the Master of One. In this case, that's one market. The owner of the San Antonio-based firm Business Computer Systems has always "believed in niches," and has focused on the rental management market since 1991.

In fact, the rental market contributes to 25 percent of the firm's revenue, but 60 percent of its profit.

"When you work with a specific market, you become an expert on something very specialized without carrying around all the other information. You narrow your focus, in turn doing a better job for your customers," says Haley.

Partner Insights

It's those profits, appealing in the face of margin squeeze on core accounting modules that is driving vendors and resellers to vertical strategies that become increasingly specialized. The standard logic is that the narrower the niche, the fewer the competitors, which results in less discounting and often a greater opportunity to sell services.

Many resellers that have decided to specialize have developed their own applications and BCS is fairly typical, marketing its own Automated Rental Management, a multi-user, multi-location system that integrates with Sage Software's MAS 90.

Being able to offer a link to a widely used product like MAS 90 is a plus, because many specialized products are written for platforms that require more investment.

"Many smaller industry-specific publishers have a smaller install base, and can't spend the money to move many of the companies from a Unix system to Windows. It's easy for us to do with the Sage product," adds Haley.

ARM tracks inventory, processes rental contracts, tracks details about each piece of equipment, and provides drivers with route information, equipment details, bar coding, and point-to-point driving instructions. It also includes a full point-of-rental/point-of-sale functionality with the ability to process cash reconciliation for multiple terminals and cash drawers.

Haley provides this example: a customer was having an issue with a legacy system that tracked inventory and wrote contracts, and also had a separate accounting system. The company wasted time with duplicate data entry, and rates were inconsistent. The legacy system was beginning to fail and only one person in the company knew how to use it.

BCS moved the user to its Windows-based package, integrated with MAS 90. It also studied the client's business processes, and trained the staff on the new processes.

In addition, it trained the client's management on how to utilize newly available information in the system.

"While there were some efficiencies to be gained in the operations of the business as a result of the switch, the real gain came in the form of better access to meaningful information, which allowed the managers to look at their business in a new way and make strategic decisions that allowed them to be more competitive and, ultimately, more profitable," says Haley.

Mini Bank Accounts

It's easy to say that resellers can profit by specializing. But there are some obstacles. For example, the ability of narrowly focused small companies to pay for new technology is an important one in some markets.

"This is a significant issue in the alarm security industry," says Jim Lee, president of Alpine Management Solutions. Alpine, a Fenton, Mo.-based company that serves the alarm security market, queries prospects about the size of their customer bases and number of employees. It also asks which systems they install.

"Those that focus on residential and small commercial are usually cash-strapped because the margins on installations are typically low as they compete against Brinks and ADT," he continues. "If a company installs large commercial fire systems, access control, and other higher-margin systems, they are better prospects for us."

When marketing to prospects with little cash, Alpine emphasizes its Internet- service model, AlarmBase Professional On-Demand, since a subscription can cost less than purchasing the software to install it locally.

Besides being short of cash, these targets may also be short of staff.

"The challenge for us is to help them understand the ROI of investing in new technology," says Haley. "Smaller companies tend to be short-staffed, and implementing a system with any level of complexity is an issue for these organizations."

BCS qualifies all prospects for their ability to implement and pay for systems. That is accomplished through interviews, before leads are turned over to local resellers.

The situation is different in the apparel market, says Jon Walker, president of Ensemble Business Software, a Beavercreek, Ore., company that serves that market. There are not a lot of small apparel companies that have been operating for years. There are a number of start-ups, which Walker says have the same functional requirements as larger, more mature companies.

"Old companies that did not grow either became M&A targets or became marginalized," he says. "At any rate, one of the first steps in our sales process is the creation of a needs analysis document that is partially designed to price qualify prospects."

Vertical Initiatives

Resellers are increasingly heading down a vertical path, with several fresh vendor initiatives in place to help them along the way.

Recent launches include a program from SAP for its Business One software.

Last year, SAP partnered with Praxis Software and Valogix to develop industry-specific software for small to midsized automotive after-market businesses. The partnership will result in integrated e-commerce and inventory management capabilities for SAP Business One. SAP plans to add about five similar packages by year-end in other vertical markets.

Getting Immersed in an Industry

Jim Lee, originally the CFO of an alarm company, realized how hard it was to manage business, so he founded Alpine Management Solutions in 2000 to develop, sell, and support accounting and management software for alarm security companies.

"Since starting business, we have partnered with ABF Security in St. Louis to develop our solution," says Lee, president of the Fenton, Mo.-based company. He continues, "Collectively, both companies have years of experience in the alarm industry, finance/accounting, and software development. The increasing competitiveness of the alarm industry drives the interest in solutions like ours." Alpine is projecting 2006 annual revenues of $150,000 with future year-over-year growth of 50 percent for several years. The key to that growth is knowledge.

"It's important to learn as much about the niche as possible and to gain an understanding of the problems facing prospective customers. Our partnership with ABF Security has been a tremendous source in this regard. For example, while designing key aspects of our software, we worked side by side with ABF employees as they performed their daily tasks," says Lee.

All alarm companies have similar challenges such as selling more systems, getting higher margins on sold systems, improving the productivity of installation and service technicians, providing better customer service, and controlling inventory, according to Lee.

Starting with Shakopee, Minn.-based Open Systems' Traverse as its accounting system, AlarmBase addresses client needs in the following areas: customer contacts, systems, recurring billing, job management, customer service, quote/proposal management, and inventory control integrated with job management. Alpine structures its transactions with a term of five years. For a medium-large sized alarm company with approximately 4,000 monitored customers and 12 technicians, typical pricing would be approximately $25,000 upfront for software and services, and a monthly payment of around $1,000 would include software maintenance and limited technical support.

Terry Colton, senior application consultant of Portland, Ore.-based Polar Systems, says, "The No. 1 thing when working with a niche is to have genuine expertise. You need to be able to show the client your experience. Either you're lucky enough to have had a big job in the industry that taught you what you needed to know or you hire someone that knows the industry."

Colton sold Novato, Calif.-based AccountMate's product into a large nursery seven years ago. The implementation called for heavy modifications, and "taught me all about the nursery industry."

Since then, the firm works with growers in two ways: customizing AccountMate, or working with a company that has an industry-specific solution for growers and Colton provides the link to AccountMate. "AccountMate has the ability to be modified and is the perfect accounting for verticals because it's malleable. A lot of software written for verticals has bad accounting," adds Colton.

Although Colton also still sells horizontally and 10 percent of her revenue is attributed to the vertical, she says, "The advantage of a niche is the marketing techniques. Verticals tend to be a tight-knit community, nationwide. Working with one company introduces you to another, and you establish credentials within the industry."

"Once we worked with the ISVs to create the solution, we brought interested partners together, and held a three-day training course for the product," says Dan Kraus, vice president of SAP Business One, SAP America. "We also created templates, charts of accounts, and marketing for the solution."

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