by John M. Covaleski
Washington - Accounting software resellers that are developing specialized niche practices face almost as many hurdles as opportunities, say consulting professionals who have carved out successful technology-related niches.
While niche practices offer the opportunity to add revenue and to provide a greater depth of service and expertise in chosen areas, the hurdles include high entry costs, extended periods to establish a practice, the challenge of learning a new market and a constant battle to attract clients and be recognized as experts in a new niche.
However, the opportunities are too important to pass up during a time of stalled sales for accounting software, according to the niche professionals who participated in a panel discussion at the recent American Institute of CPAs’ Tech 2002 conference here.
"All of us are struggling to find new ways to develop business. We can use niche practices as a way to differentiate ourselves," said panel moderator Chuck Wunderlich, business development vice president for a technology subsidiary of Chicago-based accounting firm BDO Seidman.
The panelists themselves noted that the first steps when establishing a niche practice or expanding an existing one are often the most difficult ones.
"You’re looking at a minimum of $10,000 in equipment fees and training in the first 90 days," said Nicholas Hoad, a principal with Atlanta-based Macdonald Consulting Group. He described how his company, a leading reseller of accounting products by Best Software, added Best’s customer relationship management product solution SalesLogix to its CRM niche practice.
He also said, "CRM vendors are a lot more intense in their training than back office [accounting] software vendors." He noted that SalesLogix training lasts six days and attendees do not automatically pass. "Best does pre-testing [of its prospective students] but it’s still tough."
Macdonald Consulting, which had focused primarily on accounting software sales and services since its inception in 1999 began developing its CRM niche practice in early 2000. "We saw it as an excellent opportunity as accounting sales [have] slowed down," Hoad said.
CRM, like many other niche areas, also requires selling techniques that differ dramatically from accounting sales. "The end users are salespeople, not accountants, and they have a very different attention span. Their focus is making money and selling," Hoad said.
On the upside, niche specialists said that investments in new product offerings could be recovered with a few successful installations of the product. They also stressed that many niche practices and vertical market offerings have greater sales potential than horizontal accounting systems.
Hoad said that companies that expand into SalesLogix can recover their initial costs with their first solution sale, and he predicted his firm’s CRM systems sales to outpace accounting product sales in 2003. Macdonald Consulting targets middle-market companies from a few million to about $500 million in annual revenue.
David Beck, a CPA and president of SystemLink North America, an accounting software reseller that has expanded into business intelligence software, also noted high barriers to entering his niche. A required 10 days of training for resellers costs from $600 to $900 daily, and its takes about three months to become proficient.
However, he also said that growth prospects for business intelligence software are strong and the niche brings his firm to larger end-user companies that "don’t skimp" regarding technology and services. Beck’s business intelligence clients include security products company Mosler Inc. and oil industry giant Exxon Mobil.
SystemLink handles business intelligence software from Brio Software Inc., of Santa Clara, Calif., and accounting products from Accpac International, in Pleasanton, Calif.
Specific types of technology, such as CRM and business intelligence, are among the most prominent niche opportunities available. Also prominent are vertical industry niches.
John Francis, president of St. Louis-based NFP Consultants, which provide technology products and services to nonprofit organizations, warned practitioners to define their niches very specifically. "A broad approach to any niche may be biting off more than you can chew," he said.
He noted that the nonprofit industry, which is generally considered a niche by itself, contains many sub-niches, such as government organizations, hospitals and universities, and then there are sectors within the sub-niches. Trouble comes when consultants, while on an engagement with clients, come across a niche idiosyncrasy they’ve never heard of.
Francis recalled his own experience: "I thought I was well-qualified to handle the government sector, but on doing my first demo, I realized there were intricacies in the market I didn’t count on - like how do you enter a cash receipt for stump removal? I realized then that there’s a lot to learn and you can’t follow a vertical without appropriate qualification."
He also warned practitioners to choose niches with an eye on the types of clients that they will generate. "Often you will fund vertical markets, but they’re not chock full of grade ÔA’ clients. Focus on niches with a preponderance of A-level clients and then focus further on those clients," Francis advised.
A specialist in nonprofit industry software developed by Micro Information Products, Francis sold $1 million worth of those products last year and has been the vendor’s Reseller of the Year three times.
Lynn Klein Berman said that her firm, SWK Consulting, of Livingston, N.J., was inspired to expand from accounting software to the evolving niche of warehouse management systems by a desire to provide advanced technologies to clients. "I’m a busybody and like looking into people’s operations to see what will help them run more smoothly."
The 10-employee reseller of accounting products from Best Software expanded into warehouse management systems in early 2001 and now has six reference-able clients in that niche, Berman said.
One of SWK’s biggest WMS moves has been to develop an interface that integrates Best’s popular MAS 90 and MAS 200 accounting software with Radio Beacon, a WMS that uses bar code and radio frequency technology to track the flow of inventory in warehouses. The link enables details about that inventory flow in the warehouse to transfer real time to the MAS 90/200 system in a management office.
SWK also offers clients its own internally developed electronic data interchange program, MapADoc, which has several warehouse management capabilities. That system also integrates with MAS90/200.
However, it appears that Radio Beacon has greater WMS market potential. To begin working with it, Berman said that SWK had to pay an $8,500 authorization fee to the product’s developer, Radio Beacon Inc. of Toronto.
She credited the Radio Beacon company for assisting her firm with its first installations of that product. "We started out small [in handling Radio Beacon] and they really helped us by enabling us to get a couple of installations under our belt," Berman said. "Without that help, we would have had to staff up right away and expose ourselves to a lot more expense."
Berman stressed the importance of marketing to new niche areas. "You have to infiltrate your collateral into your niche market, otherwise no one will know who you are," she said.
Effectively tapping into a new niche, Berman said, requires a combination of the following marketing techniques: direct mailing, telemarketing, Web site information, print material, monthly newsletters and obtaining leads from the vendors of your products. She also stressed creating incentives for sales people to pursue clients in your firm’s new niches.
Berman noted a particularly good reason for expanding into WMS from accounting software. "Less than 5 percent of the market has warehouse management systems in place, unlike the accounting market where there’s 92 percent saturation," she said. "So there’s only one place for us to go, and that’s up.
