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Focus, Simplicity and Service

The Boston Globe had an interesting article in its Sunday November 2, 2008 business section “Keeping it simple for the customer.”  The article presents some of the milestones and perspective of Gail Goodman, CEO of Constant Contact (CTCT), from her decision to join the firm in 1999 until now.

Constant Contact is one of the firms listed on our On-Demand Index. The company provides on-demand e-mail marketing and online survey solutions for small businesses, associations and non-profits. It has approximately 200,000 customers who are located primarily in the United States. It is expecting sales of about $86 million this year, a 70 percent increase over 2007 and employees about 400 people.

Goodman discusses the milestones, changes and tough times encountered since she joined the firm. Her business insights, though, are worth considering regardless of the business you are in. The insights gleaned from the article are:

Focus. Determine who you are trying to sell to and what you want to sell them. And once you know the who and what, then focus intently on those targets.  Excel at one thing rather than be average in many things.

Keep it simple. Why did the iPod beat out much more sophisticated mpeg players and other portable devices? Apple kept it simple and easy to use. Constant Contact has prided itself on providing a simple to use product that gets the job done.

Service. Too often today it is tough to deal with a vendor’s support organization and you often have to pay for phone support. Constant Contact breaks the mold by providing free and useful customer support. In addition, Constant Contact provides “how to use their product” support resources but also materials and webinars on how to be more effective at e-mail marketing.

Constant Contact went from on-premise to on-demand software because it was simpler and more cost-effective for their customers who are typically small businesses. But, as I have mentioned before, the on-demand aspects of their offerings is a tactic.  Without the right application(s), pricing (their average customer spends $35/month) and support, no one would buy their products whether they are on-demand or not.

The bear market has taken its toll on most stocks but has hit on-demand software stocks especially hard. CTCT is down -44% year-to-date (YTD) but that is still better than the overall on-demand index performance of -52% YTD.

There are those that feel that Constant Contact is vulnerable to an economic slowdown that may hit small businesses hard. A severe recession is likely to continue to hinder growth and keep profitability out of reach. Goodman mentions that business failures could thin the ranks of their customers or prospects. In addition, there is a concern that their customers’ customers may be experiencing e-mail overload or that there is a gradual shift, especially among younger people, from e-mail to Facebook and text messaging. Both of these situations would mean that e-mail marketing may be becoming more ineffective.

The “glass is half full” counter argument is that small businesses will continue to invest in e-mail marketing because it is effective and inexpensive. And in economic slowdowns, it is still important for a small business to reach out to its existing customers and prospects (in fact, it may be even more important than in good economic times.)

When looking to invest in an on-demand software company you need to evaluate its business model, its products, its management and its business execution just like you should in any company.

(I don’t own any Constant Contact stock, but I do use their service for my newsletter BI Briefs.)

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