Every company knows it needs to keep tabs on -- and sell more to -- its old customers. But nobody capitalizes on a client list like Great Plains Software
Think of software and you might think of Silicon Valley or Boston's high-tech highway. But Fargo, N. Dak.?
Oddly enough, in that windswept farm country, Doug Burgum has built a thriving software house that's the envy of many a big-city competitor. Thousands of companies run their PC-based accounting systems on products that roll out of his Great Plains Software. And while the software itself is top-notch, nothing has been more instrumental to the company's success than Burgum's long-horizon management style. Step by step, it has made Great Plains a powerhouse in an intensely competitive field.
The story opens in 1981, when a few Fargo businessmen started an Apple computer store. With applications software rare in those pioneering days of personal computing, they hired programmers to create a basic accounting package. The software venture was such a hit that by 1983 it was operating as a separate company. What it needed was marketing talent to move it to the next stage. The owners called Burgum, who at the time was a McKinsey & Co. consultant in Chicago.
Although he was living a heady life in the Fortune 500 fast lane, Burgum was intrigued. For one thing, he wanted to return to North Dakota. He felt confined in the buttoned-down world of high-priced consulting; his style ran more to jeans and sneakers. But mainly he wanted a shot at running a company of his own instead of serving as a hired gun for others. So in the spring of 1983 Burgum joined Great Plains, and in 1984 he and his family bought out the founders.
Burgum brought to the helm of his then $3-million-a-year, 20-person software company some strong convictions about business management -- ideas that dated back to his youth. He'd grown up in Arthur, N. Dak., a tiny town where his grandfather had homesteaded and later started the Arthur Farmers Elevator Co. It's still owned by the Burgum clan, and working there during the summers, young Doug internalized its long-term outlook.
"When you've got a grain elevator, the people you serve are landowners, and they move the ownership of that land from father to son," he explains. "My cousins are serving the grandsons of the people my grandfather served. That was the only business example I grew up with. You served customers for a lifetime. There was no such thing as a quick buck."
Those homespun values shaped Burgum's thinking. Superb customer service, long-term partnerships with people -- those were the keys to a viable enterprise. He held on to those values throughout his education at Stanford, where he earned an M.B.A., and refined them during his three-year stint with McKinsey. "I saw large companies struggling to meet quarterly earnings and lots of pressure on the short term," he says. "Japan, meanwhile, with its long-term approach, was building excellent companies. When we bought Great Plains I was 27, and I figured we had a great opportunity to build something where we'd instill in people that long-term mentality."
That was the management plan Burgum designed, a kind of tortoise-versus-hare strategy of patience. He wanted to gather momentum and market share slowly but steadily; by cementing that attitude into the Great Plains culture, he reasoned, he could begin to differentiate his company from its competitors.
It would help, he knew, that the market for accounting software was one his philosophy fit. "Accounting is not a fad," he explains. "Nobody says, 'Gee, business is off, I think I'll stop keeping my books.' It's a fundamental thing you do in good times and bad. Our customers use this stuff for years and years. If you treat them right, you have them as long as they are doing accounting, so long as you listen to their needs and meet them."
It would also help, he was convinced, that he had just the tool for listening to and meeting those needs -- and that he had figured out how to use it. Great Plains would compile a state-of-the-art customer list and turn it into the company's major marketing advantage.
By now it's safe to say Great Plains has done that in spades. The engine powering the software company past competitors has been a near-fanatical commitment to customer service and satisfaction. And by customers, Burgum means the legions of small and midsize businesses, in more than 400 industries, running their accounting systems on Great Plains products. And he means the company's "partners" -- the 1,500 resellers, the 1,000 installers, and the 345 software developers who represent and work with Great Plains across the country.
Many people talk about good customer service, but at Great Plains it's an all-out crusade that starts with getting the right employees. In some ways, recruiting high-caliber people is easy at Great Plains. As one of the state's premier employers, it draws some 2,000 applicants a year and might hire 50 during a big growth phase. But Great Plains brings a special zeal to the way it selects employees. For instance, because 80% of new hires start in technical support, fielding phoned-in questions from Great Plains users, they are required to have degrees in math, business, or computer science. RÃ©sumÃ©s, transcripts, and references are carefully checked. Those who make it to the interview stage confront not individuals but teams of managers and supervisors, all trained in interviewing. Some candidates face as many as four teams.
"We believe in getting multiple perspectives of candidates," says Howard Hansen, head of the human-resources department. "We look for potential. We want people who can do well in the job we're hiring them into, but who also have the dynamics and capacity to push out the parameters of their job descriptions, to make change occur. And we place a high priority on people who demonstrate the values that are important to us, who understand what it means to take care of customers who have high need levels."
The focus on customer service permeates the whole company. Raises hinge on attention to customer needs. Quarterly goals quantify it. Programmers get bonuses for speedy responses to customer questions that can't be handled by the technical-support specialists. In annual reviews, 30% of the total evaluation is based on values and attitudes.
"There's an esprit de corps there that you rarely find in any organization, where universally people are friendly and helpful," observes Trey Black, a Great Plains dealer in Tucson. "I went up there for the first time six years ago, and I wanted to prick these people with a pin to see if they were for real."
When employees are that dedicated and spirited, even outsiders take notice. Ray August, a Price Waterhouse certified public accountant in Hackensack, N.J., who annually reviews accounting-software companies for PC Magazine, says: "What is most impressive is the enthusiasm of Doug Burgum's people. I've been to most of the software-development houses, so I have a good basis for comparison. Software is a service more than a product, and the biggest part of that service is what Great Plains does so well -- the coddling of the customer, the technical support, the help along the way. It's really a phenomenal customer-service organization."
The level of service is enhanced by a singular circumstance: though Great Plains Software end-users number in the tens of thousands, the company knows exactly who every one of them is.
The company began compiling buyer profiles in the early 1980s. Software in those days was full of bugs; to make sure users could be notified for corrections, the company wrote into each module a code that blocked work after 50 transactions. And to unlock the software, customers had to register with Great Plains to get "keys" -- unique, 10-digit numerical sequences. When customers called in for their keys, Great Plains asked some 20 market-research questions. Among other things, it gathered names and information on locations, business sectors, and company sizes.
That system remains in place, and according to Burgum it's never provoked a complaint. "Trying to automate accounting makes for plenty of frustration," he says. "Within that context, registration is a nonissue. If you're spending $3,000 or $4,000 on software, and it's clear this will allow us to update you if there are problems, you see it as protecting your investment."
Surprisingly, no competitors required anything like this. Some, like Real World Corp., in Concord, N.H., made it optional. "We include registration cards in all the software we send out, but we don't enforce it," says Reed Hazen, head of customer service. "Certainly we market to the user identities we have, but we refer them back to our resellers for products and support. At Great Plains, which is geared to deliver support across its whole user base, all those identities are needed, and it has a very workable system."
The difference in tactics harks back to Burgum's goal -- building his business on long-term partnerships. "So much of the industry is focused on making the quick sell, pushing as much product as possible," says Dan Malmstrom, Great Plains' sales vice-president. "Why capture all that data if you're not that concerned about service? But when you know the customer and partner information in this industry, you can leverage it for decades."
Indeed, as Great Plains has grown, it's learned how to exploit its customer list in numerous ways. All customer data are stored in computer banks and are available to everyone in the company. Depending on the need, the data can be manipulated to serve everything from software development to lead tracking to sales. Always, though, the information is used to mutually benefit company and customer alike.
Consider the Great Plains technical-support division. Vendor support is always helpful to software users, but with accounting it's critical. Imagine a panicky construction-company clerk who can't figure out how to cut checks on payday, while anxious workers mill about the payroll shack. You want to get somebody on the phone, pronto.
In 1983 Lori Laub was hired as the first support specialist. Today, as vice-president of customer assistance, she oversees a technical-support staff of about 65. The evolution of that division illustrates how the customer list has built profitability and customer loyalty.
Until 1987 Great Plains sold its products mostly through retail stores. Those stores were "box movers," seldom equipped to support the merchandise. As hardware grew more powerful and software more complex, customers needed high-quality local installation. Great Plains adjusted by shifting distribution to value-added resellers -- accounting firms, computer consultants, and software installers. They could walk a newly automating company through the increasingly intricate process. But until that channel developed, Great Plains itself was the sole lifeline for customers in distress. From the start, Burgum wanted to offer the best support in his sector. Sales and market share, he felt, would rise accordingly. At first Great Plains handled all questions for free. But in 1984, as call volume and support costs grew, the company began charging for help.
Since Great Plains knew who its customers were, it was able to market support contracts. The $50 standard plan, good for a year, entitled a subscriber to four free calls, with a fee for each additional one. The $150 premium version allowed for unlimited telephone support. Anyone not on a plan paid on a per-call basis. To encourage customers to sign up, Great Plains offered plan subscribers 30% discounts on major software upgrades, plus free updates on incremental improvements, like moving from Version 5.0 to 5.1.
Still, snags remained. "We had this policy of returning all calls the same day," Burgum remembers. "We'd fight to get them all done by 7 p.m. central time, but you'd end up leaving a lot of messages for people. That wasn't good enough. Given the pressures of accounting, the right answer a day or two late is the wrong answer."
Moreover, the two-day overhang on callbacks made life miserable for the support specialists. Customers harangued them. "You'd literally start the call the second or third day with their yelling at you," Burgum says. "You can't get good people to take those calls."
Lori Laub, however, proposed a rather bold solution, which Burgum backed. Starting in 1987 Great Plains guaranteed response times to customer calls. The client would get a return call within one or three hours, depending on what the contract cost. If a deadline was missed, the customer got a $25 coupon good for products and services. "We weren't sure we could do it," Laub says. "Nobody in our sector had ever tried it." It got frantic at times, but overall the system performed well.
It got even better in 1989, when Laub spearheaded yet another innovation. Concerned about rising phone bills, she explored ways to control costs. The solution, she determined, was an automatic call-distribution system.
"I had no idea Lori was doing this until she came to me with this big-cost item," Burgum recalls. But Laub's initiative was exactly what he wanted to see. He pushes authority down through the ranks and urges innovation from the bottom up. "I give the green light whenever I can," he says. "I can't make all the decisions. The only way people can grow is if you let them take risks."
In this case, the risk paid large dividends. The call-distribution system was installed and bridged with the customer database. Now when users call and punch in their account numbers -- their 10-digit phone numbers -- the system knows instantly who is calling, which software modules that customer owns, and which support plan he or she is on. The call is automatically routed to a specialist trained to deal with it.
In most cases, by the time the specialist picks up the phone, he or she is already looking at a computer screen featuring a wealth of information about the caller. The specialist knows how often the customer has called before, who handled the calls, and what advice was given over the past six months. With no need to recap previous conversations, they get into problem solving faster.
Granted, all this hasn't been easy. Or cheap. To date, Great Plains has invested $678,000 in the new phone apparatus and related software, plus $452,000 for the computer terminals. But the new system has been worth the expense. It makes everything so much speedier, Laub says, that the equipment has more than paid for itself in phone-bill savings.
It also has yielded stunning results. On a typical day, 1,100 calls come in, and half are handled by a support specialist immediately. Since the advent of the guaranteed response, 99.13% of calls have been returned on time. A tote board in the customer-service department keeps a daily running tally of calls returned within the guarantee. The record: some 126,400 in a row.
Customers so appreciate the service that the specialists routinely get thank-you letters, flowers, and gifts. One specialist was flown to Chicago with his wife to attend a Bears football game and have dinner with a customer. Even the "partners" get in on the act. Bill Sorensen, a Great Plains dealer in Dallas, throws a margarita party for the support folks at Stampede, the annual resellers meeting in Fargo. "More than 30% of the referrals I get are from existing customers," he says. "So you know there are lots of satisfied users out there, and support has a lot to do with it."
With reaction that positive, Great Plains is able to attract quality people to handle the phone queries. Every one of them is a college graduate. Some are CPAs. "It builds on itself," says Burgum, "and service gets even better."
The bottom line certainly doesn't suffer. As support quality has increased, so have support-plan prices. Maintenance contracts start at $125 a year. Then come the standard and premium versions, priced from $295 to $1,525, depending on options. Each plan includes free updates, 30% upgrade discounts, and a payroll-tax-change service. At the top is the $3,595 comprehensive package for larger customers who want the works. They even get 32 hours of schooling at Great Plains University (GPU), which rotates through major U.S. and Canadian cities.
"Every time we've raised prices, we've encountered very little resistance," says Laub. "I think they've learned to trust us to deliver what they need." Indeed, 68% of Great Plains customers are enrolled in one plan or another. The company strives to maintain that high rate, and here again it relies on its customer list. All new buyers get direct mailings describing the services. Meanwhile, dealers pitch the plans to clients; they get 10% commissions on them. Resellers make money consulting for their clients, but vendor backup is important, especially for small-dealer operations.
Reseller Lindy Thomas, for example, runs a one-person shop in San Francisco. "I have 65 Great Plains customers, who always turn to me for help," says Thomas, a CPA. "But I like to go on vacation once in a while. While I'm gone, I know that my people will be taken care of."
Back in Fargo, Dawn Mathern's installed-base sales group tracks customers whose support plans are expiring. With eight weeks to go, they get a reminder in the mail. If they still haven't renewed with one week left, Mathern's team hits the phones. "We always follow up and make sure they got on a plan if they wanted to," she says. "If the check doesn't arrive, we call them again. We even send mailings to people whose plans have expired to try to get them back."
That effort pays off. In recent years renewals have averaged 85%. Support plans have contributed about 20% of Great Plains' revenues. Payroll-tax maintenance adds about 4.8%, and training chips in 4.4%. In 1991 those services brought in approximately $6.9 million, nearly a third of total sales.
"We've learned that you don't need to view customer support only as a cost of doing business," Burgum says. "It can be a profit center. For us it's become a nice annuity."
Computer technology is evolving so fast that a company like Great Plains is only as good as the software it develops for tomorrow. Great Plains uses its customer list to ensure that the next generation of its products will meet real customer needs.
At any given time, for instance, the company is managing 10,000 to 15,000 active suggestions. They stream in from resellers, CPAs, and installers. Some come from the trainers, who talk with customers at GPU classes. Others make their way in via support specialists. The ideas range from the sublime to the ridiculous, but all are filed in a suggestion database. The product-marketing team peruses them at least quarterly, searching for patterns. "We compile a roster of all the different things that might fit together into a module," says Cecil Bordages, director of product marketing. "We try to find some logical way of grouping them into a feature list."
That's generically how you develop software. What distinguishes Great Plains is the effort invested in determining what features customers can really use, and then testing and refining them before a general release.
For starters, marketing-research manager Catherine Bickle conducts annual new-customer surveys. These are in-depth, 20-minute phone sessions, using a questionnaire 14 pages long. "We take people who have owned our products for 6 to 12 months, and draw up a statistically valid sample of about 600," she says. "We ask them all sorts of things. Basically, we try to forecast what they will need five years from now."
Beyond that, Bordages's unit runs user-satisfaction surveys and partner surveys. It draws on the customer list to find beta sites to test new products. And it runs competitive analyses to discover what the enemy is up to and how it can be defeated. The unit goes so far as to track down "lost leads" -- prospects who bought competing software -- to see how they made the decision.
Finally, Great Plains makes extensive use of some 50 user groups around the country that meet monthly or quarterly. Sales, marketing, and development people from Fargo go into the field to discuss current or projected needs with people using the company's software every day. Those kinds of initiatives allow for a market-driven approach. "When you do all these things, what you bring to the table is really easy to sell," says sales chief Dan Malmstrom. "We offer people exactly what they've told us they want."
The company's savvy use of the customer list culminated in the spring of 1991, when Great Plains rolled out Version 6, in its biggest sales campaign ever.
Programmers had translated some 2,000 suggestions into more than 100 new features. Ten new modules were set for release -- everything from accounts receivable and cash management to payroll and inventory. They came with bright new packaging, new documentation, and new manuals.
The first marketing wave addressed the distribution channel -- the more than 2,000 resellers and installers who act as Great Plains' primary customers. In early April the company's account managers traveled the country, conducting partner meetings and explaining the benefits of the upgrades. Most important, each dealer was given an "opportunity work sheet."
"We were able to run the customer list by reseller," says Don Nelson, director of channel management. "Each dealer got a complete list of his or her customers, including the support plans they were on and the modules they owned." To make sure all customers were included, Great Plains identified "orphans," users whose vendors had retired or gone out of business, and reassigned them to active local dealers.
The work sheet also spelled out how much money dealers could make if their clients bought upgrades. By and large the dealers earned 50% commissions on modules they sold to new customers, and 10% commissions on upgrades that their installed base purchased. Follow-on services -- installation, customizing, and training -- could boost their revenues.
To speed sales, substantial discounts applied if clients bought Version 6 products before May 31. New Great Plains customers pay $795 for most modules, but existing users upgrading before the deadline got them for $89. "That sounds as though we took a big hit, but we could make money even at that price," says Malmstrom. "Installed customers had paid full retail at some point. Maybe they'd spent $7,000 already for eight or nine modules. With this program, they could keep all that software current for $700 or $800."
On the second marketing wave, Nelson's team appealed to customers with personalized direct mailings to the entire installed base. The letters detailed the product improvements, describing how they met business needs. Customers even got individualized invoices, so they'd know exactly what upgrading would cost.
The resellers got copies of those same letters. "I knew what my clients were looking at, and I knew the week the mailing would hit their doors," says David Haabestad, who was a New Hampshire-based dealer at the time and is now a product-marketing manager for Great Plains. "So I had it on my schedule to start contacting them after a certain date. I was not a great marketing machine myself -- I was reactionary. This enabled me to be proactive."
With all that groundwork, response came fast and heavy. By the end of May, after just three weeks of shipping product, 34% of the company's customers had purchased Version 6. Within three months of release fully half had upgraded. That May was the biggest month in the history of the company -- in one day alone it moved 13 tons of product. And as the May 31 deadline approached, even Burgum was down in the shipping room, working almost around the clock in his trademark white sneakers.
He's done well by the humble lessons he learned at the grain elevator. By putting customer satisfaction above all else and shunning the fast buck, he has succeeded, bit by bit, in his strategy of long-term viability.
Now the tortoise is breaking into the clear. In a field in which many companies have shot out of the blocks and then lost steam, Great Plains has grown every quarter for 11 consecutive years. Revenues have climbed at a compounded annual rate of 37%, while sales of the closely held company have reached an estimated $25 million. And in surveys of CPAs who evaluate and support PC-based accounting systems, Great Plains has swept top honors for five years running among a dozen or so competitors.
"Year after year, you see Great Plains pulling away from the pack," says Lindy Thomas, the San Francisco dealer. "It is bettering the product and everything it stands for."
Ray August, the Price Waterhouse CPA, agrees. "With the dedication of all those people, Great Plains will be able to go in a lot of directions other people, because of limited resources, won't be able to go. You have 380 people there living and breathing Great Plains Software every day. And that sort of momentum is going to be very hard for anybody to stop."