Lessons from the 'Small Business Web'

Business development wasn't working for BatchBlue Software, an eight-employee Providence startup that makes online customer relationship management tools for small business. CEO Pamela O'Hara spent a year trying to partner with another company to let her customers easily e-mail the lists of contacts they organized with her software. One e-mail marketing company bounced BatchBlue's calls around, and another was enthusiastic but never followed through.

So after failed attempts to strike a deal, O'Hara's team wrote its own code to sync its software with MailChimp, an Atlanta-based e-mail marketing company. Using MailChimp's application programming interface, or API—a set of tools that lets outside developers write programs that interact with another piece of software—BatchBlue gave its clients the e-mail function it couldn't achieve through conventional dealmaking. "That's when we realized this is a viable way of doing business," O'Hara says.

BatchBlue and MailChimp are among a tiny but growing network of small online software vendors that have committed to letting anyone who wants to build on their tools to do so. The effort, dubbed the Small Business Web and launched at the SXSW conference in Austin, Tex., in March, aims to use open platforms to help small software-as-a-service companies compete against much larger players in the industry. The group is now 20 companies strong. By enabling clients to purchase an array of software from different vendors that works smoothly together, the venture hopes to provide more value to customers than any one of these companies could alone.

Potential Competitors Collaborate Instead Not every firm in the Small Business Web is integrated with every other company. Some even compete in the same market. But they have all committed to publishing APIs and making their products integrate easily, without locking customers into any one platform. "The difference between the Small Business Web and just publishing an API is you see multidirectional connections," says Sunir Shah, "chief handshaker" (or head of integrations) at Toronto-based invoicing firm FreshBooks. The ecosystem of interlocking software the group is trying to build will help online software companies compete with desktop software suites like Microsoft (MSFT) Office that have long been integrated but don't offer the flexibility of software-as-a-service.

The Small Business Web represents a fundamentally different way of doing business, where potential competitors open themselves to collaboration. "Networks allow us to produce and consume in different ways," says Umair Haque, director of the business strategy think tank Havas Media Lab and a Harvard Business Review blogger. He says the Small Business Web is an example of "asymmetrical competition," where small players can compete effectively against dominant companies in concentrated industries. "What we will increasingly see is networks of smaller players deciding to get asymmetrical against the bigger guys," he says. There are few cases of similar networks in other industries, though Haque does cite online advertising networks as an example of a similar strategy.

The benefits for customers are clear. Matt Payne, managing director of British card maker ecocard, says using invoicing software from FreshBooks along with CRM from BatchBlue saves his company 20 hours a week in work that was previously done by hand on spreadsheets. Ecocard began using FreshBooks to quote prices and send invoices early this year, and after trying other CRM companies settled on BatchBlue in part because the programs already worked together. "Things have to work straight out of the box," says Payne.

While their clients benefit from a network of online software tools that can talk to each other, the companies in the Small Business Web benefit from increased referral business. Ecocard signed up for FreshBooks on the advice of the company's Web designer, and Payne has since recommended the companies to 20 or 30 business associates. "It's just been a very fast growing avenue for us," says BatchBlue's O'Hara. She estimates about 40% of the firm's business comes from referrals by partners, and since launching the integrations BatchBlue has been growing by 30% each month, up from 10%. The company has stopped buying paid advertising—its last Google search ads went dark in May—and now relies solely on word of mouth.

Focusing on Core Strengths The network also lets entrepreneurs stick to what they do best, knowing that clients can easily go to affiliated companies for other needs. "Instead of having a really watered-down solution that does everything half[way], we focus on a solution that does one thing really well," says Thomas Pederson, vice-president of business development at Zendesk, a 20-employee startup from Denmark (now based in Boston) that provides online helpdesk software for customer support. Zendesk recently joined the Small Business Web and integrated its software with FreshBooks. "We've seen a large number of signups specifically from the FreshBooks integration," Pederson says, although many of those users are still on free trial subscriptions, so it's not clear how many will become paying clients.

The Small Business Web also taps into a trend in the software market: Companies are increasingly using flexible online tools, paid for with monthly subscriptions, for business functions that used to require high upfront investments and customized IT setups. "The way they're set up and the prebuilt integrations, it removes the need for a lot of the IT," says Liz Herbert, senior analyst with Forrester Research (FORR). "It's now moved into a point-and-click configuration type model." Such solutions are particularly appealing to small businesses trying to hold down costs.

Of course, there are risks to the group's approach. Haque warns that the network must maintain its openness to avoid becoming an exclusive club. O'Hara says no software-as-a-service company that has asked to join the Small Business Web and published an API has been refused. The loose alliance has grown organically from five members in March to 20 today, but she envisions thousands of companies someday joining and committing to the group's open standards. She says they all should have three things in common: "You have strong customer support, believe in open availability of your API, and you want world domination."