Building a better mousetrap is one thing. Persuading businesses to try it is another.
Consider the challenge of Indianapolis-based marketing-software maker Autobase Inc.
About 1,400 U.S. automobile dealers have installed Autobase's system, which helps manage sales leads, customer contacts and records. Autobase sales topped $16 million in 2005, and the company made both the Inc. 500 and Deloitte & Touche's Technology Fast 500 for two years running.
But to make inroads at the remaining 21,500 U.S. dealerships, Autobase must get them to switch from another marketing system--or, more often, adopt one for the first time.
This month, the 140-employee company helmed by CEO W. Scott Webber inked a partnership with tech heavyweight Microsoft Corp. that might fuel additional growth. The deal will allow Autobase to piggyback its software on Microsoft's as the Seattle company launches products aimed at auto dealers.
It's crucial for small software companies like Autobase to find strong partners because few auto dealers have the resources or confidence to risk buying a stand-alone software package.
"[Marketing software's] benefits are known, they're established. People understand if you use [it], you can be more productive," said Surresh Vittal, senior marketing technology analyst for Cambridge, Mass.-based Forrester Research.
"Now, [Autobase] has to convince the network of dealers that it's got core technology that's mission-critical, and without it, competitors have an edge."
Founded in 1988, Autobase spent its first decade and a half building that better mousetrap and introducing it to automobile dealers one by one.
Founder Bryan Anderson, 46, is the son of a car salesman who spent time on the lot haggling four-wheel deals himself.
One day, while working for Beck Toyota on the city's south side, he bought some primitive off-the-shelf database software and began using it to track his sales prospects. He soon became the dealership's top performer.
It wasn't long before Denny Beck asked Anderson to share the software with Beck Toyota's 20 other salespeople. Anderson got his mother and father to help with data entry and Autobase was born.
"The light bulb went off. We realized we could build something effectively," Anderson said. "From there, we basically found someone to develop it further full time."
Anderson spent years criss-crossing the Midwest selling the system to other auto dealerships, logging 80,000 miles annually on his tires.
In 2004, he had about 94 employees and had gained enough traction to land heavyweight help. Anderson sold a majority stake in Autobase to veteran technology executive W. Scott Webber and Boston-based venture capital firm Summit Partners. Terms weren't disclosed.
Webber, 53, is best known locally as the former CEO of Software Artistry Inc., which in 1995 become the first Indianapolis software firm to go public. After IBM Corp. bought it two years later for $200 million, Webber bided his time mentoring companies he invested in.
Then, Summit Partners asked him to evaluate Autobase, and he saw an upstart ready to accelerate into overdrive.
"It looked like a good opportunity with lots of upside," Webber said. "You've got a small company in Indianapolis with a handful of salespeople competing with $2 billion companies in this space. And by a long shot, [Autobase] is the market leader [in its marketing niche]."
Two enormous companies--New Jersey-based Automatic Data Processing Inc. and Ohio-based Reynolds & Reynolds Co.--provide the dealership-management systems that dominate the market.
Neither firm targets Autobase's marketing specialty, however. To maximize sales, Autobase must easily integrate with both systems, as well as with Microsoft's.
Otherwise, it would be all too easy for the firms to attempt to try to build a foothold in Autobase's niche with their own dealer marketing applications.
"For Autobase, it's important to have a diverse set of partners," said Thilo Koslowski, vice president and lead automotive analyst for Stamford, Conn.-based technology research firm Gartner Inc.
Webber's first tasks after becoming CEO were to deploy a national sales force, hire executives experienced leading fast-growing companies, and put in systems to ensure customer satisfaction.
The company now has offices in Chicago and Cleveland and is in the midst of developing the eighth version of its software.
Like earlier versions, the software helps dealers remember the details of every showroom visitor, then automatically reminds salespeople when and how to follow up.
Now, it's building on that by adding "virtual marketing." The concept allows auto dealers to channel money they once spent on blanket television campaigns into more precise sorts of advertising, such as permission-based e-mail and telephone calls. Last month, Autobase announced a partnership with local e-mail marketing firm ExactTarget and rolled out the feature at the National Automobile Dealers Association Convention in Las Vegas.
Customer maintenance and training, or basic "blocking and tackling," as Webber calls it, are just as important for Autobase as innovation.
The automobile sales market is made up of thousands of independent dealers, each with its own peccadilloes. There's not much process standardization, and Autobase's software is only as good as the information users provide.
Penske Honda Sales Manager Julie Janssen uses the Autobase system every day. Janssen said it helps her dealership close sales with about 36 percent of the people who visit the showroom--which she calls an unusually high percentage.
Janssen said she previously worked for another auto dealer that had the Autobase system. But she said the dealer didn't use it properly, and saw less bang for its buck.
"The whole industry is changing. It's much more service-oriented, about staying in touch with your customers," she said. "It used to be if people came in and didn't buy, dealerships would say, 'We'll get the next one.' But the whole thought process is way different than it used to be."
Training individual dealers is a time-consuming process Autobase can't neglect. Webber said the firm has done well on that front so far. It's retained 95 percent of its customers annually, thanks to its nationwide network of on-call technicians.
"I've been in the software industry for nearly 30 years now. Software companies kill to get a retention rate over 90 percent," he said. "We don't send them a diskette, a hearty handshake and say, 'Good luck.'"
Because Webber steered Software Artistry through an IPO and sale, some observers wonder what his exit strategy will be for the venture-capital-backed Autobase. Perhaps he's hoping one of the company's strategic partnerships will one day evolve into something more.
For now, Webber remains cagey about prospects. But he wouldn't rule out a buyout if investors start to see Autobase as the next YouTube.
"Your strategy isn't to sell a company. Your strategy is to grow it," Webber said. "But you never say never."