How do you reach small business owners? That question has been the central challenge for Kirk Simpson and James Lochrie since they founded Wave in 2009. Because of the size of the small business market, it's an enticing one for a new firm. But it's also notoriously challenging to reach.
Because small business owners are so busy with the day-to-day headaches of managing their operations, it's difficult to get their attention. And because there's lower revenue per customer than in the corporate market, a company needs to reach a lot of them while keeping the lid on costs.
"The road to success is littered with people who have tried to go after the small business market," says Mr. Simpson.
How, then, has Wave succeeded?
Mr. Simpson and Mr. Lochrie had been friends for ten years when they founded Wave, a Toronto-based company that provides small businesses with cloud-based invoicing, accounting, payroll, and payments software.
Mr. Simpson had start-up experience and Mr. Lochrie had developed expertise in providing financial advice to small businesses.
The partners realized that current financial products on the market were too cumbersome and inflexible for small business owners to use effectively, and knew they could do better.
They wanted to cut out manual entry of financial data as much as possible, and bring all of a business owner's financial tools into one seamlessly integrated package. Wave now provides cloud-based software products that do invoicing, accounting, payroll, payments, receipt scanning and personal finance all in one place.
Their target market consists of businesses with nine employees or fewer, 90 per cent of all businesses in North America. How were they able to attract customers in that big but difficult market?
Mr. Simpson says that the core question they faced since the started was: "How do you bring customers on board at a cost of acquisition that makes sense?"
Since Wave is an online business, they realized that they needed to acquire customers online, and in a way that was scalable. As Mr. Simpson puts it, "We had to build an engine to bring in a lot of businesses."
Word of mouth was key for Wave, and to earn those recommendations, the company focused on a very specific customer: businesses with nine or fewer employees.
"We could charge hundreds of dollars for software, if we tweaked our focus to include features for 20– or 30-person companies," Mr. Simpson says.
But he believes that those features would compromise the experience for core small business owners or consultants who uses Wave.
"Because we're focused and disciplined in how we build Wave, our customers know that we understand them and care specifically about their needs – and that makes them very highly likely to recommend us."
Though he wouldn't disclose specifics, Mr. Simpson describes the company's approval rating as "off the charts" compared to industry averages.
The face of their acquisition engine is their website. Mr. Simpson warns that companies need to take a long-term perspective to the development of their site. He advises that it's going to take some time to get it right, and because search engine algorithms change, it needs "constant care and nurturing."
For Wave to be consistently where it wants to be in search results, there is continual iteration with content and links. The company has implemented a number of tactics to increase links. For example, they have a "pro network" of accountants and bookkeepers who work with Wave and tend to link their own websites to the company's.
They had a Small Business 500 initiative, involving 100 posts written by bloggers, with five tips for small business owners in each post. They highlight guest bloggers who have good social following on Facebook, Twitter or LinkedIn among small business owners.
Mr. Simpson emphasizes that to get these things right, it's absolutely essential to have in-house technology skills so they're there when you need them and can be incorporated into strategic decisions on an ongoing basis.
A second part of the solution rests with their customer acquisition channels – the ways in which Wave acquires customers. Not all customers arrive at their website directly through a Google search. Wave has built viral loops into the products so that when customers add collaborators to an account or send an invoice to their own clients, these people are offered the chance to try Wave.
Wave is also focused on getting their apps where small business owners are looking for software, which is increasingly in online stores. Mr. Simpson explains that over the past two or three years, more and more small business owners are using Google calendar, Gmail and Gmail contacts, and so are used to cloud-based tools being used for important functions in their business.
Wave was one of the first businesses in the Google Chrome store – it cost them $5 to list their products, and some, but not a big, development effort to integrate their products with the store. But the payoff was huge. The editors loved their product and within a week they were one of the top featured apps. Wave products are now among the most popular business apps on the Google Chrome store, and this store has accounted for hundreds of thousands of customers for the company.
However, Mr. Simpson cautions that it's important not to be too dependent on any single customer acquisition channel. Wave is constantly trying out dozens of channels. They analyze their historical data – metrics like rate of conversion-to-active customers, churn rate, average revenue per user, and life time customer value – by channel, in order to determine how they should prioritize their channel development efforts.
A focus on the cost-effective acquisition of small business customers has paid off handsomely for Wave. Since 2009, the company has grown to about 70 employees and has over 1.5 million users on its platform from almost every country around the globe. They have received over $20-million in venture capital financing from investors in Toronto, Boston and Silicon Valley.
The company now acquires over one thousand new customers each day and almost all of them with a near-zero cost of acquisition because they find Wave through their own search activities. Their focus on constant monitoring and adjustment, and their lack of dependence on any one channel partner, has enabled them to crack one of the most difficult B2B markets.
Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.