Shift to Third Party Administration
Stage: Growing company
Client Name: Available upon request.
A growing company in a changing environment is forced to innovate and change its business model.
Traditionally, companies maintained their records in house using the clients’ software or with systems developed internally.
The company had an installed user base which paid annual maintenance fees. This served as necessary cash to support and maintain existing users, system enhancements and product development.
A Changing Environment:
With the increased popularity of transactions that involved outside vendors, and a regulatory requirement to settle transactions in a more timely manner, the user community was moving away from licensing software and moving towards third party administration (TPA) to handle the record keeping.
If users employed a TPA, their relationship with the software company would terminate and the annuity from annual maintenance would cease. New sales would be in direct competition with TPA’s. The company would be forced to sell against deep-pocketed competitors.
The client was faced with dilemma; develop a new product to meet the needs of TPA’s, and cannibalize its user base, or face an uphill battle selling against industry giants.
Based on my input, in lieu of competing directly with TPA’s for sales, the company partnered with several TPA’s and developed customized software solutions, service level agreements and implemented a royalty arrangement to compensate for its loss of direct sales and the associated annual maintenance.
- Millions of dollars in annual revenue, which far exceeded the company’s loss of annual maintenance.
- The collaboration of new product development resulted in better software.
- The company now sells with the TPA’s not against them.
- Working closely with TPA’s positioned the company as a thought leader in the industry.
- The new product features resulted in improved service for end-users.