The story of Infusionsoft
The Infusionsoft founders’ story
Our customers are small businesses. We understand small businesses. And we are maniacally focused on small businesses. We focus on customers that are 1 to 25 employees. They can get our software and grow with us up to 100 employees. But the real sweet spot for us is businesses with 2 to 10 employees, and that’s where most of our customer base is.
I have to start with our founders’ story, because we were our customer.
We didn’t have any ambitions to raise capital or build a big company. We were trying to get a business going and survive. The extent of our vision was “stick it to the man” and have our own company.
At the time we were building custom software, and found it tough to get these small business customers to engage and use our services. Our challenges were trying to generate leads, following up, delivering custom software development service, and then supporting our customers. Plus, all the accounting stuff, and all the various things that you’ve got to do to run a successful business. We were tenacious people, but we were thinking “this is a little too hard.” It was killing us.
Then we got to a point where we started to have a little bit of success using the software that we had created. In particular, we saw how using our software’s marketing automation and CRM capabilities was not only helping us as a company, but also helping our customers grow their businesses. We saw how it took a little bit of the chaos out of their world and made it possible for them to be successful.
We began to get excited about what we could do for small businesses. After focusing on that for a couple years, we started to get some traction and found our passion: taking our CRM and marketing automation software to small businesses.
From the beginning, our “why,” the reason we get out of bed, is helping our customers be successful. And more importantly, we hate seeing small businesses fail. And we know small businesses fail at an alarming rate. We’ve been on this mission to help small businesses be successful and, specifically, to simplify growth for millions of small businesses worldwide.
Our first 10 year mission: Climbing Mount Everest
The early stages were tough. We were all about creating sales and marketing software for small businesses. But, believe it or not, the category didn’t exist. Marketing automation wasn’t even a thing when we were first talking about this.
Then we got our products going. We got out of the custom software world and created our Everest mission. This was our 10-year plan from 2007 to 2016 to create a sales and marketing power tool for small business owners.
It was fun for us to help small businesses harness this power and grow, while helping them automate all the manual work of following up on leads or customers.
For a while, the plan had been to build the company up and sell it off. We are from Arizona and everyone there invests in real estate. So we thought let’s just sell it and go invest in real estate.
But along the way, we got to this point where we decided we don’t ever want to sell this company. We love doing what we’re doing. We fell in love with serving our customers and helping them succeed.
As we got closer to the top of our Everest summit, we realized there’s a lot more to this. From the time we started the business to where we were now, the market for small business software had exploded.
And if you’re a small business owner wearing all the hats, trying to figure out which solution is right for you is a joke. Like Seth Godin says, “In a world where we have too many choices and too little time, the obvious thing to do is just ignore stuff.” If you’re an entrepreneur or a small business owner, that’s especially true.
$100M in annual sales, but our customers still suffer
We are in this new world where there’s all this technology and all these tools are supposed to help small businesses be more successful. But the reality is all those solutions tend to create more of, as we refer to it, the “Kludge.” It’s just chaos.
With 150,000 users and a $100M in annual sales, business was great. But small business owners were still suffering from the Kludge.
We were getting closer to the end of our Everest mission, but we also felt like we were just getting started. We wondered “What do we do about this? How do we stay really riveted on our purpose and our mission and make a really big impact in the world?”
Our new 10 year mission: Mars
Starting in the beginning of 2017, we changed our Everest mission to our Mars mission.
Our Mars mission was less about creating a power tool for small business marketers, and more about simplifying growth for millions of small businesses worldwide.
We’re still providing that powerful automation tool, but we’re helping small businesses create order out of the chaos that they live in everyday so they can deliver great service to their customers. We want them to have efficiency, time savings, and great productivity so they can still grow their businesses and have a life.
How we realized partners are critical to our Mars mission?
As we started to see some success, we found that partners were critical to the growth of the business.
I want to emphasize that we’ve found if we’re not careful, we get so focused on only growth that we lose the way in the process. What we found, over and over and over the last dozen years, is that it’s about service not sales. If you make it about service an amazing thing happens. Service first and then the sales happen.
You might look at this and say “Okay well your playbook says from 2004 to 2009 it was all about sales. What do you mean service?”
Well, from 2004 to 2009, that chapter was about partners that helped us sell. And then from 2010 to 2016 this was about partners that helped us scale. In 2017 to present, as we’ve been in this Mars mission, it’s really about us serving partners and together helping small businesses succeed.
Our early years with partners: influencers
I want to take you through our playbook. Let me start with the early years of 2004 to 2009 and the partners who helped us sell.
When small businesses are super busy they’re not going to put out an RFP to determine what software to use. Back then they would go talk to somebody they trusted before they made a buying decision.
Now the partners I’m talking about here weren’t signing up for the Microsoft Partner Network. They weren’t implementing software and they weren’t technical at all.
These were people like Ryan Deiss, CEO of Digital Marketer, who had a huge email list and huge influence with small business owners. These were influencers who had a large audience because they’d written books or had blogs or other ways of reaching out to small businesses.
So we built relationships with 25 trusted influencers, and got about 2500 customers through them. That’s how we grew from $1 million to $10 million.
The interesting thing is that if we tried to pay influencers to promote our product, it didn’t work. What mattered to them was what our software did in their business. So the first thing we did was serve these influencers by getting their business growing with Infusionsoft. And once we did that we couldn’t take the bullhorn out of their hands.
The first chapter in our playbook was actually about serving small business owners, which resulted in sales.
Our army of partners didn’t work because they could sell..
From 2010 to 2016 we raised capital and began to build out a partner ecosystem.
Here we were able to grow the business to about a $100 million run rate and we got to about 25,000 customers.
We built an army of partners. But again, when we started the program we thought we were building a partner network that was going to sell the software. We talked to them about the rev share, we talked to them about all the benefits, and we talked to them about the recognition and the awards they’d get.
But they didn’t sell very well. What we found was if they were fans of the software and they would help small business customers use the software. Only when they heard the enthusiasm from their customers would they start to sell the software more.
It’s very interesting. When we’re raising money, our investors will always talk about our partner channel in terms of sales and distribution. But that wasn’t the reality. The reality was that it was a service network first. That helped our customers be successful with the software first, and then sales came.
What happened when we set sales quotas for partners?
A few times along the way from 2010 to 2016 we would veer off that path and get too focused on partner sales goals. But our partners would say “It’s not my frigging quota. Don’t do that to me.” They just wanted to serve customers.
So if we worked with them, and we recognized them for the value that they provided in helping our customers be successful, they would sell more.
Thinking about the “Service Partner Network”
The service partner network is a little different than our influencer partners. These were small marketing agencies or consultants, such as webmasters, graphic designers, or others who provided marketing services. These folks would be fans of our software and using it in their businesses, so they would become partners.
We built a partner network about 400 strong by the end of 2016. We were having a really fun time helping customers be more successful. We would talk about multiplying customer success through these partners and it was fun to see.
Not only were they bringing services to the table but they were building integrations. They became another type of partner – not just a service partner, but a partner who extended the functionality of Infusionsoft and made it possible for our customers to do more with our platform.
We focused on our marketplace with the same passion we felt at the beginning – to help small businesses succeed. We recruited dev partners, and service partners who had the same vision. By the end of 2016 we had about 400 active partners who were driving the small business success.
But as we got to the end of that Everest mission, we saw we were just scratching the surface. We could do more to help small businesses succeed. It was time for us to be even more strategic. So we set out on this Mars mission.
Our Mars mission required us to focus on serving partners
I just showed you how we scaled to $100 million through partnerships. But here we were in that same place. We weren’t being strategic or organized about how to drive the Mars mission. I
So, I talked to you how service behind sales drove our first $10 million. And then I talked about how partners serving customers was critical to $100 million. In 2017, we kicked off our next stage, which is all about serving.
We decided to completely reimagine the partner strategy and partner experience at Infusionsoft. I actually led this for about 90 days, and it was fun. I looked at every aspect of our partner programs. I spent time with our partners, prospective partners, and customers who had worked with partners. And I learned that we were making some of the same mistakes as before – giving lip service to our partners, but not truly planting them at the center of our strategy.
What we’ve found more recently is that if you focus on serving partners and putting them at the center of your strategy you’ll see amazing efficiency, productivity and growth.
Our counterintuitive decision: let partners serve our customers
And that’s where we are now. We’ve now got about 35,000 customers, about 1,500 partners, and over 1,000 integrations. We have totally focused on helping our customers be successful by serving partners.
Now this is a really interesting shift for us because all through our Everest phase we were so passionate about serving small businesses directly, that that passion sometimes conflicted with our partners and what they were doing.
The key shift here was for us to take that passion for small business owners and put it behind our partners, too. “We’ll help you be successful and you help our customers be successful.”
To do that, we had to do something that was counterintuitive for us. We had to take a step back from the customer face-to-face experience and get behind our partners. We had to trust our partners to serve our customers effectively.
We mutually focused with our partners on our customers’ health scorecard. By doing that we were all working for the same thing—to help small businesses (our customers) be successful.
When we trusted in our partners to do that, our partners then felt less competition for service work and so on.
The boldest move: from customer success to partner success
So, we decided to back off and say “Hey, we’re going to push that service revenue out to the partner system.” Considering that 20% of our revenue was service revenue, this was a bold move.
…Our board members wanted to talk about that move. It was a significant strategic shift.
We parted ways with a lot of customer facing employees. We loved them and they were great contributors to our award-winning culture, but we needed to make the shift. Some of them moved and became part of our partner success organization, but the customer success organization got a lot smaller. That was tough to go through.
Then we began to build a new team around serving our partners and making them part of our strategy. We created a new organization, and brought on a new executive focused purely on partners and constantly bringing up the partner perspective.
We brought tools, we brought software, we brought all sorts of things to the table to help partners be successful. It was a total shift for us. We were literally doubling down on the strategy of “growth through partners.”
That strategy permeated the entire company. It was not just the shift in our P&L that took $15 to $20 million away from service work, but it was actually pushing all kinds of resources to our partner’s success. We did things like webinars, business booster series, and onboarding for partners so that they would be successful. We made ourselves available during office hours. We took all our expertise helping customers and applied it to helping partners be successful.
It took some people awhile to “get it.” Our partners would begin to see what we were doing and say “Wait. Is this really happening?” We put the program in place at the beginning of 2017 and by our annual Partner Conference in November that year they got it.
It also took time for our employees to get it. There were little pockets in the company resisting this shift. It took a lot of work to iron that out and get them to be enthusiastic and supportive of our strategy.
How we built a partner success team
We built a team, a Partner Success organization, that is all about helping our partners be successful in their business using Infusionsoft, and then taking the software to their customers and the people in their sphere of influence.
We brought Tom on board as our partners leader at the executive table. We created regional partner leaders, success coaches, and a Partner Advisory Group. We’d had a Partner Advisory Group before, but frankly our partners weren’t wild about it and neither were we, so we got much more intentional. We really let them in to what we were doing and, most significantly, we really listened to them in terms of product advice and feedback that they had for us.
We did a lot of product research. In the past, we’d always grown our partner ecosystem through our customer base or marketing team. This changed, and we started focusing on recruiting partners and bringing them onboard.
I also recruited the former GM of Quickbooks Online to be our Chief Product Officer and eventually our Chief Operating Officer. Our partners understood the significance of this, because they had seen how important the partner ecosystem was to the Quickbooks Online.
Creating a partner edition of Infusionsoft
But maybe the most significant thing we did, the one that really caught our partners’ attention and go, “Oh, I get this,” was that we created an edition of our software just for them.
We created a partner edition of the software that gives them the ability to manage their customers and their customers’ applications for Infusionsoft much more effectively.
It gives them the ability to see their customer’s health score so they can go in and diagnose if there are issues or double down if things are going well. That was a powerful thing.
Another big thing for us has been letting partners specialize and bring their domain expertise in a particular vertical to bear to help our customers be successful. We dabbled in verticalization, but allowing partners to drive that has been fantastic for us.
Partners help us focus on what we need to do: product
I can say without a doubt that doubling down on our partner strategy has been effective. I mentioned we’re only a year into our last stage, but we’re growing nicely. Customer growth has been strong these past few quarters, and partners have been driving this.
We told our partners that now, “We’re going to really push the services to you. And were going to really focus on the software. And together we’ll help small business succeed.”
The effects of allowing partners to drive services while we focus on the software have been incredible.
It has allowed us to do some things with the product that we had to do to accomplish the Mars mission. And it has allowed us to make that transition from a really powerful sales and marketing automation solution to the CRM system that simplifies growth for small business. That’s a big jump and requires a lot of product focus. And so that’s been a big thing for us. Our partners have made that possible.
I’ll share with you lots of things that our partners have done directly. But the indirect effect of focusing on our partners is that they have allowed us to focus on the product.
How partners drive our 80% gross margins in small business SaaS
Let me take you through a couple of points. Our partners bring their expertise to the table in all different areas of small business. We’ve got over 150,000 users on the system. We’ve sent 15 billion emails for them and seen over 3 billion goals accomplished in the campaigns that they use. We’ve had over 15 million transactions processed using our payments and eCommerce. So that gives you a little taste of the breadth of it.
But here are the areas where partners are really driving a lot of efficiency and productivity. And I’ll summarize it by saying we’ve got about 80% gross margins in our business which is really strong. Particularly in a small business SaaS environment.
When we went to raise capital nine years ago, it was amazing because we were a small business SaaS, and we thought we’d created a pretty clever way to acquire customers through partners, but we heard again and again: “You can’t. It’s too expensive to acquire customers and it’s too expensive to serve customers. You know you can have bad margins and your CAC (customer acquisition cost) is going to be through the roof. No thank you.”
I do a lot of advising, and the aversion to small business SaaS is still there today, but it’s nothing like it was nine or ten years ago when we first started talking to investors. I’m very proud of that. I’m proud of all small business SaaS companies that have been getting traction, and that help investors say “Hey, there’s a really great opportunity in small business.” We’ve got great gross margins. We debunk the myth that the gross margins will be lousy in small businesses, and partners were a huge part of that.
Partners deliver 50% of new customer acquisition
Our partners help us expand the market. Over 50% of our new customer acquisition comes through partners.
The second point is that 45% of our customer base is working directly with a partner. Sometimes it’s many partners, and we’re trying to drive that number up.
That’s a key success factor for us. We want to drive that up. When our customers are working with partners, our customer success, our retention, our lifetime value, all go up significantly. It was amazing to see how the partners drive the profitability of a customer. They drive the unit economics of the customer.
Why it’s so important partners now do 90% of our onboarding
This next one was huge. When I talked about all of those customer-facing service people we had in Infusionsoft, a lot of them were doing onboarding work. And now 90% of our onboarding is done by our partners.
Together we’re focused on helping the customer be successful, but that’s a key factor for us. Two years ago that amount was about 20%. So we made a pretty massive shift as we double down on our partner strategy. About 64% of our customers have a healthy customer health score of about 60.
The last point is we’ve grown the Certified Partner base about 90% since the end of 2016. Nothing begets success like success. As partners are successful the word spreads and momentum builds for us.
This fact probably underscores it better than any. Before, when I listened closely to our partners I heard again and again and again, “Hey we do more than just help you sell.” They were getting the message that “selling is all that mattered,” even though that wasn’t the message we were trying to send.
And so this refresh of the strategy where we put partners in the center was really about serving them. And the interesting thing is as we embrace them and serve them and honor them as service partners—even as partners who didn’t sell— it worked. These partners who don’t sell are now selling about 100% more than they were selling a year ago.
It’s such an interesting and fascinating thing to get behind the partners and serve them. And I love what has happened. Not just the run to 100 million, but what’s now happening as we double down on that strategy.
In conclusion, bring partners into the fold
I would encourage you, as you have your strategic discussions, to look at how you can bring partners more into the fold. The results for us have been incredible. And to me the opportunity to help small businesses succeed and do it at the scale we’re talking about with millions of small businesses, just can’t be done without a partner network.
If you’re serving small businesses, I think it’s essential. If you’re not serving small businesses, I still think it’s still critical for efficiency and the productivity and scale. Hopefully some of the things I’ve shared with you have sparked some thoughts on how you might double down on your partner strategy to help customers succeed.
Q: You mentioned that most of your partner growth comes from a distributed network of smaller partners. Could you describe the profile of your typical successful partner?
They look a lot like our customers. The sweet spot tends to be a 2 to 10 person small marketing agency. And that’s really what our partner network is made up of.
But I will say this, as we have shifted into the mission, it’s all about simplifying growth. We’ve been able to do some really cool things. Just this quarter we’ve introduced the new Infusionsoft that’s all about product simplification.
That has opened up conversations for us to have with strategic partners and larger distribution partners who, frankly, we just we couldn’t make it work with in the past because the complexity of the solution and the economics just didn’t make sense.
So while our run to $100 million was almost entirely about mom and pop small businesses that became partners for us, we see this scaling opportunity beyond $100 million starting to pick up a little bit of momentum because we can do distribution deals with larger partners that want to help their small businesses do CRM and marketing automation more effectively.
Q: How do you compensate your partners?
We struggled and struggled and struggled with his over the years. And we found we continually find little ways to improve, but it kind of gets back to the first question. The economics tend to rule out large VARS (value-added resellers) in our world, right? But large VARS just can’t make the dollars work right.
So, in the early days we paid them a one-time bounty. But as I mentioned the bounty alone wasn’t enough to get them to promote us. They had to love our software because it was helping their business grow. We combined that with a bounty to compensate them for their efforts to promote it, and that was the way that we got to that 10 million mark.
Then when we introduced our partner network and we got them together and we talked about how they could make money selling, and it just fell flat. It did not work because the dollars just weren’t there. They had to fall in love with the product. They had to love it in their business. They had to see what it was doing in their customers’ businesses.
There are no shortcuts we can take to get to where the partner will just promote us without first going through the multi-month implementation in their business. We tried a bunch of shortcuts. And so the answer is it’s the love of the software combined with some dollars for their trouble.
Another piece with these service partners is that they make their money and build their business by doing ongoing services for that customer. So it’s not just about an implementation or a small piece of service work. They’re really trying to build a client for life that they can serve in their sales, marketing, and customer service while using Infusionsoft as the platform on which they build.
And so these partners are lovers of the software. They get a little bit of economic support, some money for their troubles, but they also get some economics in the ongoing service work. And I’ll just say we toyed with paying them a percentage of the subscription as a one-time bounty and tried to find the sweet spot that would cause them to do it.
We did one year-one rev shares to make it more attractive for them initially. We’ve done perpetual for a smaller percentage. We’ve tried it all.
For the partners that have a good service business, the best model is a small percentage of the ongoing subscription where they make some dollars upfront in their hourly service work or their hourly project.
For the businesses that don’t do the service work and they just sell, that long tail subscription doesn’t work and it really isn’t aligned to our incentive or our interests as well. So for those we tended to create a bounty.
Q: How do you structure your vertical partners? Do you have to give exclusivity? And do you have to customize your software for each vertical?
We earned the scars of giving exclusivity. We would advise against that. We did that initially and found that it wasn’t a good approach. It wasn’t good for the partners either. And that’s the funny thing. We got cajoled into doing it, but it sucked for the partner, the customer, and us.
You know dentistry is a really big world and any partner that thinks they’ve cornered the market in client relations for dentistry is crazy. The reality is you can create all sorts of specialties. So our approach is to provide the platform and the tools, through the partner edition of our software, to create their flavor of a dentistry solution.
Q: How did you grow your team?
Early on the influencers we worked with didn’t want to talk to anybody except the CEO. It was so frustrating because we’re trying to grow and scale the business and they only wanted to negotiate with the CEO, or they only wanted the CEO to speak at their event. It was tricky.
And then we hired a person who was strong enough to say “no, I got this.” They were strong enough to say that to the partner and the CEO, by the way. And then we had two or three people who managed the relationships with these 25 partners. We also had a couple of support people behind them once we got to where they were out speaking at a lot of events and that sort of thing.
Then, as we built a Certified Partner Program, we messed up so many times. We had people that were doing some marketing and then also trying to help partners. One person would certify partners. But you know it was the fog in the mirror test. It was just that we didn’t have the resources to help them be successful. People were wearing different hats. And this is where raising capital was so important for us.
It’s so ironic because you think that if you don’t have capital then you can’t do it all yourself. So obviously you’ve got to have a bunch of partners. But actually, for us we had to have capital in order to build a true partner program that we could get behind to help them be successful.
After we raised capital, we started to get it figured out a little bit more. And we were able to build a stronger team. But even then they were like a small partner team within marketing. Then sometimes they move over to sales. Then they’d be in product. They were just getting bounced around. It wasn’t until we created a partner organization and made partners central to our strategy that it all came together.
And you know I look back on it, and I’m as passionate about partners as anybody. We were all passionate about partners, but for whatever reason in those strategic conversations at the executive table, when there wasn’t someone who was constantly talking about partners they would get the raw end of the deal.
So today we have an organization that is very strong and focused. Lots of different teams. You know they’re all about helping partners succeed. And we’ve got the rest of the company that understands that partners are central to our success.
Q: From a partner’s perspective, how would you prioritize the list of all the things you did to make your partner program work?
Well one of the things I love about partners is that they are eternally discontented, right? So, if I brought us a stream of our partners they would ask, “What about this? What about this? What about this?” And I love that. It’s fantastic. It helps us be better for them and for our customers.
But later they would say, “Yes. Things have really been great here, as we’ve been making advancements over the last 18 months.” So I would say that having an organization that’s focused on their success causes them less conflict and less wondering about where they fit in at the company. Before, they were left at their own devices to figure out how to get into the company in effective ways. Now they have contact points. They’ve got people who are focused on them.
I believe they would say they feel less internal conflict about the strategic significance of partners. I think they would also say we prioritize product. And that has made a huge difference for them because, at the end of the day, it’s all about the product for them. We were slow in some of our product advancements as we were getting toward the end of that Everest mission. There were a number of reasons for it, but now are partners are happy about product really getting a lot of momentum.
Q: Can you quantify how the product is now oriented toward partner success? Example: Out of 100 features in your last release, how many targeted partners?
It’s a good question and my answer is going to be a bit artificial but I’d say it went from about 10% or 15% to about 40% or 50%. That’s fair to say.
Q: You talked a bit about how you compensate partners today. How did you compensate early influencers like Ryan Deiss when you only had 25 partners on board?
It really was the bounty. We would pay them a chunk upfront. And if they were the top producers we’d give them a chunk up front and 10% of the ongoing perpetually. So it was pretty expensive from a CAC standpoint.
You can’t really track it, but we also saw pretty clearly that after we spoke at events customer acquisition lifted. And our partners saw that, too. They were questioning why they didn’t get credit for stuff that happens two months down the road after they came to an event. So we had to make the compensation strong enough so they could get a chunk of money by getting someone to buy the software.
But again I can’t emphasize this enough. If they didn’t love the software and, more importantly, if their staff members weren’t loving the software it wouldn’t matter. We got influencers and their staff to love us because we created order out of the mess of systems they used in their business. When their staff say “Infusionsoft is doing amazing stuff for us,” then they’re willing to promote us and get paid something for it.
We tried over and over to have it be just a financial play for them. It just didn’t work. If they didn’t love the software it didn’t happen.
Q: You said you have 1,000 integrations. How does your technical partnership program interplay with the service space partnership program?
A lot of our partners do service work and have an integration with us. What I’d say is we tend to treat those partners who do both as a developer partner, because their needs are a little bit unique. Many developer partners will have multiple apps that integrated with us.
We have more service partners than developer partners, because we have multiple integrations per developer partner.
We were probably were the slowest to get it right with dev partners. If I brought in service partners and dev partners, then the dev partners would be the ones that say they felt neglected. They’re getting to a place where they’re feeling a lot better about that. But we’re still working on it. We’re still working to improve the support for them.
I would just say with dev partners the key thing we learned is you’ve got to be really fast and responsive because they’re trying to write code. They’re trying to do something and if they can’t get a quick response it’s very frustrating for them. So you’ve got to give them a different kind of treatment than you do the service partners.
Also, when customers have an integration with us the retention goes through the roof. We saw that, and realized we need to spend a little bit more time and effort helping these dev partners.
Q: How did you convince your board, your staff and executives to make the shift toward serving partners?
We really did help them see that in order for us to serve small businesses at the scale we intended, we couldn’t do it serving direct to customer. Fortunately, they totally got it.
They could see that that was working, and it wasn’t like we were overnight turning off $15 million dollars. It kind of tapered off. That was good, because boards do not like abrupt things, obviously.
It was partly that they understood that to accomplish what we wanted to accomplish we had to do it. It’s just necessary. And partly they were savvy enough to see it. It also helps to have great board members. Geoffrey Moore from Crossing the Chasm is one of our board members and he’s a big believer in the leverage that partners bring to the table. That became the key word. I learned to use that “L” word many times as I talked to our board – “leverage” – and it has totally shown up. Last quarter we were at 81% gross margin. The gross margins have gotten better and better. And so that’s really powerful when they start to see the results.