Flint's Blog

Marketing On Your Invoice

Businesses that send bills to consumers (B2C) have known for a long time that inserting stuffers or adding a message to your billing statement every month will often result in a 0-2% response rate depending on the offer.  These might seem like low response rates but bill messaging & stuffers are an inexpensive way to communicate and upsell your customer base.  For some reason, most businesses that send bills to other businesses (B2B) haven't caught on to this yet.

Our VP of Marketing, Mitch Rose, has a great post on this here.

The basic theory is that you're paying for the postage and the paper anyway, why not add a message?  It's free, it's being read by your customer, and it may be the only communication you have with them this month.  The only possible reason not to do it is because you're too busy.  I could imagine someone from  marketing bringing this message to the CEO of a company "I'm sorry but I'm just too busy to talk to our customers."  WHAT!!! 

This is the time where I would go with one of my favorite sarcastic motivational lines "Let's set the bar a little lower and we'll pass out shovels."

The Value of the Network

Most businesses would love to have the Network Effect that have made companies like eBay wildly successful.  Simply put, the more users use something the more value that is created, which leads to more users wanting to use it.

We recently were at SAP's Sapphire user conference in Orlando and heard a lot of discussion about a  network that was going to allow billers and payees to seamlessly deliver bills electronically.  This is not a new concept. 

A number of banks banded together back in the 90's to create a consortium call Integrion.  The banks weren't thrilled that CheckFree and Intuit had a stranglehold on the bill payment market so decided to put a bunch of money in a pot and build a payment network.  Ultimately I don't think a single payment was made through Integrion when they folded up shop.

Apparently the lessons learned from this endeavor were soon forgotten and the banks decide to tee it up again.  They threw some more money in a pot and formed Spectrum. This time with even loftier goals.  Not only did they want to rout all payments through their network, they were going to manage all bill delivery as well.  This network met a similar fate of not processing a bill or payment before it was quietly put to rest.

Both of these networks met a similar fate because they didn't follow what in hindsight seems to be blindingly obvious.  There needs to be a value proposition for all participants in the network or it just won't work.  The reason eBay is successful is because they offer tremendous value to both the buyer and the seller.  The ATM network is even a better example and the banks certainly get some credit here.  Banks avoid paying tellers to handle withdrawals and consumers get the convenience of 24x7 access and avoiding long lines.

Spectrum and Integrion failed because they didn't make their networks financially compelling for billers to rout their bills through.  They were good concepts and certainly there was enough friction to make this interesting, but imposing a tariff that exceeds the value is a sure fire recipe for failure.

Ultimately someone will figure out a working bill presentment and payment network that will be compelling for all participants - banks, billers, and consumers - but it's a hard problem.  Billers don't have the necessary IT infrastructure, consumers have ingrained bill payment rituals that are hard to change, and banks move slowly - and that's why it hasn't happened yet.  Or maybe I'm wrong.

Do Long Term Contracts Lead to Unhappy Customers?

The Business of Software Blog had a great post recently (see here) about why locking customers in for the long term can often be a bad thing.  One of the big takeaways is that when customers are locked into long term contracts then your goal is primarily to get customers to sign the contract. Keeping them happy becomes secondary because what are they gonna do, they can't leave.

The outsourced billing space operates primarily on long term contracts as well.  The theory put forth is that a certain amount of equipment time (printers/inserters) needs to be purchased/reserved and that if customers could leave whenever they want, then it would be incredibly difficult to forecast capacity and therefore impossible to run the business.  I think for the most part this is a complete fabrication.

At the very high end of our market where customers are mailing out tens of millions of bills per month, this logic is true.  In fact, some of outsourcing vendors actually will buy not only additional equipment to service a customer but also additional facilities to house the equipment.  I agree that long term contracts make sense here because you're asking a vendor to commit a lot of capital and they need some assurance that they've got the business for a fixed amount of time.

However, this large end of the market probably accounts for < 2% of the billers who outsource or are candidates for outsourcing.  For the other 98% of the market, the equipment needed to satisfy their billing volume is minimal.  Therefore the argument that you need to protect the vendor for the capital outlay doesn't hold up.

Now for my blatant Billtrust plug.  Over 99% of our customer contracts have the following clause:

Unconditional Guarantee: If at any time Customer is dissatisfied with the performance of Billtrust or for any other reason wishes to cease using the Billtrust CompleteBilling Service, Customer may terminate this Agreement by providing written notice to Billtrust.

We do this for a few simple reasons.  I want our customers staying with us because they love our service. I want everybody in our organization to know that if we don't do a great job, that customers have the right to leave.  I absolutely don't want customers staying with us because they legally have to.

So after almost seven years in business, I think we made the right call.  Our customer retention rate is over 99% in an industry that churns 10-15% of their customers annually.  Our customers are our best salespeople because we try our best to keep them thrilled with our services every day.

What Would The Customer Want?

Several years after starting Billtrust we felt the need to have a guiding principle for engaging with customers.  When you handle millions of bills per month for hundreds of customers, there is a fair amount of questions, concerns, and sometimes complaints from customers. The famous line of "The Customer is Always Right" never felt right to me.  In fact, it is seriously debunked here.

After much deliberation (or maybe it came to me in a few seconds but "After much deliberation" sounds far better), we came up with a question as our guiding principal.  Every time we need to make a decision, we would ask ourselves "What would the customer want?" 

Here's a real example that occurred a few months ago when we strayed from our principal.

A customer sent in a billing file in to be processed that failed processing because it was missing a fax number.  A customer service rep immediately called the customer and let them know there was a problem and ask them to correct the file and resubmit it.  That’s good customer service. 

But is that "what the customer wants"?  My guess is no.  For something as basic as a missing fax number, maybe the customer just wants that item mailed out instead, or emailed back to them.  In fact, you probably don’t know until you ask.  That would be great customer service.

Some non-believers will argue, well wouldn't the customer want us to send out all of their bills for free?  Well maybe short term they would.  But long term if we did that we wouldn't be in business so there obviously needs to be a balance.

We need to earn a customer's business every day because we live in a highly competitive market. This guiding principal has helped us immensely.  What do you think?

Planning a Business, Product, Idea, etc.

There was a great post recently at The Business of Software blog entitled Why you should burn your business plan.  The gist of the article is that it's not so much what is in your business plan, it's that sitting down to actually think out, draft, edit, and forecast is by itself a crucial exercise.  I couldn't agree more.

Writing in general is a painful exercise for me.  I don't particularly enjoy it, I make basic grammar errors all the time, and would prefer to just manage by feel.  However, anytime I'm faced with any type of significant decision - whether it's a new product, a new direction, a new management structure - I always try to get my thoughts on paper (not real paper of course).  It's not particularly fun but there's just something about writing it down that makes your brain think differently.

I spent a lot of time on the original business plan for Billtrust.  We were going to provide an outsourced billing solution for the QuickBooks marketplace.  Intuit had recently decided to become more open with a software developers kit and it seemed like perfect timing to provide a value added business service like outsourced billing.  That first business plan was so wrong it's comical.  However, that doesn't mean it was a waste of time.  I had set some milestones in the plan and within six months it became pretty obvious that the plan wasn't working and it was time to "re-plan" (re-plan is secret  code for you better come up with something else).  Fortunately for us our solution was fine, it was just that we were targeting the wrong type of customer and were able to recover.

Sometimes the writing is just for me.  Other times I circulate to my management team because I don't feel strongly about my conclusions or need additional input.  If I'm going to distribute externally, I always have my Mom do some editing for me.

No matter how much you dislike the process, spend the time and write it down.  No one ever says "Darn, what a waste of time collecting my thoughts and putting them on paper."

Is Electronic Billing Really a Green Project?

One of the questions I often get asked is "Does electronic billing really save trees if the people print out bills to their local printer?"  The answer is a resounding yes even if every bill that is delivered electronically is printed out.  This is not realistic since lots of people don't bother printing but let's assume worse case they do.  Let me explain...no...let me sum up. (Bonus points if you know who made that quote famous).

First a quick backgrounder on what actually happens prior to the bills appearing in your mailbox.

1. Bills get printed out using one of two types of printers - "cut sheet" or "roll fed".  Cut sheet simply means that the pages are cut to size prior to printing.  Roll fed means a big spool of paper is printed on and then cut after printing.  This is a net neutral on savings since basically the same amount of paper and energy is used.

2. After printing, bills are fed through high speed machines called Feeder/Folders and Inserters which collate, fold, stuff, seal and stamp the bills.  Billtrust use Bell & Howell equipment but there are several other vendors like Pitney Bowes in this business.

There are two bigs savings here.  From a raw materials perspective, the savings are roughly 50% since no envelope is used in electronic billing (assuming a 1 to 2 page bill).  From an energy perspective, it's a big gain since the bill doesn't have to go through the insertion process and if you've seen our electric bills...

3. Bills are then placed in trays, which are put in cardboard sleeves, strapped and barcoded with the destination 3-digit or 5-digit zipcode.  These trays are then delivered to the USPS for mailing.  Some mailers add an extra step and deliver bills to a Presort House which commingles mail from lots of mailers to achieve postage discounts. 

Electronic billing delivers some marginal fuel savings here on the transport of the bills to the local USPS but let's just call this a push.

4. The post office does of one of two things with the trays.  If the tray is barcoded locally, then they open up the tray and put all of the mail on a huge sorting machine that more granularly sorts it for delivery.  If the tray is barcoded for a another location, the tray is either trucked or flown to another postal facility where the bills go through further sorting.

This is a huge savings in fuel obviously since electronic billing has effectively no delivery cost.

5. Once bills are ready for delivery, they then are delivered by the postman.

  More big savings here since this fuel expense is skipped.

So to sum up...the savings may seem minor for each bill, but if you do the math, the savings are quite dramatic.

There are roughly 30,000,000,000 (that's billion) bills delivered each year in the US.  Let's assume each bill is one page.  If 10% of the bills are delivered electronically and assuming only half the people print them out, that saves roughly 500,000 pounds of paper per year.  The fuel expense is tougher to calculate and since I think I've made my point, I won't bother.  However, transporting half a million pounds of paper to your mailbox ain't cheap.

And that's not it!  Electronic bills often result in electronic payments which have equal savings as compared to delivery and handling of paper checks.

Electronic billing is a big Green Project and we're proud to be part of it.

My Tricks to A Reasonably Unconnected Vacation

Fred Wilson has a good post on how to balance life and vacation.  I find it impossible to completely unplug from work during vacation.  I suffer some kind of anxiety attack if I don't check email at least every 24 hours (more like every 2 hours during waking hours).

Step 1: Give up all hope of remaining unconnected.  The earlier you give up, the better you'll feel. 

Step 2: Change your voice mail greeting and tell people to not even bother leaving messages.  Optionally leave your email address on your message so that you can handle things asynchronously.

Step 3: Keep your cell phone off.  I once blew 2 hours negotiating a merger on my cell phone that in hind sight we probably shouldn't have done.  I could have, and should have, skipped the call.  If your team and coworkers can't handle any fires that come up, they'll figure it out.  People actually lived without cell phones once.

Step 4: As Fred said, all family events get priority. 

Step 5: Scan email infrequently and respond to as few things as possible.  You don't want to get into email conversations.

Step 6: Make sure you have an understanding spouse or ignore all of above.

Making the Move to Electronic Billing

One of our big focuses at Billtrust is how to help companies implement an effective EBilling strategy.  An EBilling strategy is not a web site where customers can review and pay their bills.  An EBilling strategy is not emailing or faxing bills to customers.  An EBilling strategy is not an auto-debit product.  These are all pieces to a strategy.

The first part of an EBilling strategy is a comprehensive set of solutions that allow you to distribute bills and accept payments electronically.  Sending out paper bills and accepting paper payments is incredibly expensive (some studies have it pegged at $10 per invoice!).  It's only going to get worse with postage hikes and material cost increases. The second part of an EBilling strategy is having a well thought out plan on how to motivate customers to migrate to EBilling.  We're firm believers that you shouldn't do the first without the second because you're results will be disappointing.

We have some of customers with over 50% adoption of EBilling.  While we think the we have a great EBilling product suite, this isn't enough.  There have been plenty of other vendors who offer good EBilling solutions that have single digit adoption rates.

The key in my mind is part marketing and part economic.

First the economic - EBilling software vendors have an economic incentive to sell you a large ticket product and then move on to the next prospect.  Whether you get 5% or 25% of your customers online doesn't affect their revenue stream.  Legacy print & mail vendors actually have an economic disincentive to have customers move to EBilling because each customer moved is one less paper bill that they can make money on.  Billtrust has crafted our revenue model so we make about the same amount of money on a paper bill and an electronic bill but our margins are far better on the electronic side.  Therefore every time a customer moves to EBilling, our biller partner saves money, we make better margins, and the customer is happy.  A Win Cubed (A Win-Win-WIn situation for you non-geeks).

Second is marketing - EBilling has proven that "if you build it, they will come" is a complete fallacy.  You can't just throw up a EBilling web site and expect people to show up.  You need a plan.  About 18 months ago I sat down with Mitch Rose our VP of Marketing to strategize and we came up with that plan.
We call it e-Adoption and it is a complete marketing strategy that we devise for our customers on how to motivate customers to move to EBilling.  Without sharing all of our secrets, I will tell you that customers have no interest in moving to EBilling to save the biller money.  They want to know "What's in it for them?"

So the key take away for this is:  When you're looking to get into EBilling, make sure your economic incentives align with whomever you partner with and that you've got a strategy to motivate customers to make the move.

The Most Valuable Programming Lesson Ever

I learned the most valuable lesson of my software life back in the early 1990s when I worked at BrownStone Solutions.  BrownStone sold mainframe Data Dictionary / Repository software to Fortune 1000 companies for $250K+ per implementation.  Real esoteric stuff with data modeling, metadata, meta-meta data, and other incredibly uninteresting stuff to 99% of the population. 

We had one competitor that we saw regularly in the market that would routinely kick our butts.  None of us programmer types really knew about the routine beatings because our bosses subscribed to the mushroom management theory of running a company. In 1995/1996, Platinum Technology, headed by Andrew "Flip" Filipowski bought both of the companies.  The competitor company got bought for something like 15 times what Platinum paid for BrownStone. 

After several technical meetings where we were trying to come up with what our combined offering should like, it was apparent that their solution was barely a software product, it was more of a bunch of code that consultants put together in the field.  How could we be losing to these guys?

As much as it pained me at the time, I learned that great software is just not enough to win in a competitive market.  Without great sales, marketing, consulting, and execution, you need to be awfully lucky to be successful.  However, the opposite is often true - bad software will sometimes be enough to sink a company although if you're really good at sales and marketing, then that can overcome a lot of software messiness. 

Our competitor out-executed us in all the areas that I didn't even realize at the time were important.  Seems obvious now but not something they taught at RPI to us Comp Sci types.

Is the Post Office going to exist in 50 years?

I was out for lunch with a bunch of our managers today and we were discussing last night's episode of Lost. For those who don't watch, it's basically a soap opera for both men and women that is completely addicting for those that watch and completely mystifying for those that don't.

So one of our managers who doesn't watch starts to talk about his new favorite show Startup Junkies which is television specifically programmed for HD TV and is an ongoing story about startup called Earth Class Mail.  If I understand it correctly, the idea is that people give up their mail boxes and have everything mailed to this company where they will sort, categorize, store, and retrieve their mail all from a browser.  Interesting concept and seems to be taking Paytrust to the next level for everything other than bills.  I imagine they'll have some of the same challenges as we had with consumer adoption and automation.  I hope it works.

Anyway, what was my point?  Oh yeah, is the Post Office a dying business?  When is the last time you got a personal communication in the mail?  My Mom still mails me birthday cards but I can't think of another instance.  All my bills go to Paytrust, all my personal communications are email/phone, so the only thing that still comes in my mailbox is junk, bank statements, junk, and stupid prospectuses for class action law suits that I imagine somebody makes money on, just not me.

The Post Office just announced their third postal hike in three years.  They spend a fortune on gas, first class mail volume is going down, and they are stuck spreading the decreasing revenue they make over the same number of fixed delivery routes.  Each time postage goes up, we at Billtrust cheer because that means electronic billing is even more attractive and we get more customers.  It also leads to less US Mail volume because billers/advertisers look for alternative ways to reach their customers/prospects.  Which means less volume.  Which means the post office needs to raise rates to cover their fixed routes and employees.  This is a Vicious Circle that I don't see ending without a deep drop in energy prices which seems unlikely.

So where do things end up?

I don't think it happens over night but over the next 50 years my bet is that there comes a point where it is just not cost effective to have mail delivery service for a bunch of catalogs.  Everything is ultimately delivered electronically.  Don't have a computer or web access?  Go to a web cafe.  Think this is crazy.  There is something like 10-15% of the populatation that is unbanked that literally has to walk in to payment centers to pay their bills (probably not reading this post).

Or maybe I'm wrong.