NEW YORK (TheStreet) -- Dressing up like Elvis or a Nascar driver may not seem like the most effective way for a CEO to allay investors' fears as his company heads into a difficult quarter. But for Intuit (INTU) - Get Report chief Brad Smith, donning crazy costumes -- as he does on a regular basis to celebrate company milestones -- exemplifies Intuit's strategy of how creative thinking can lead to posting positive numbers, regardless of what the market bears.
For example, Intuit's recent push into connected services -- mobile applications, social networks, and cloud-based initiatives -- has helped the 26-year-old tax prep software firm bring in new revenue that offset the losses brought about by the recession, which hit small business -- Intuit's core customer base -- especially hard.
Brad Smith, CEO of Intuit
In its second-quarter results announced last Thursday, Intuit reported that 66% of the company's revenues -- about $900 million -- came from its connected services sector. That lifeline helped quarterly profit increase 34% and revenues rise 8% over the same quarter last year, to $837 million (analysts had expected $813.6 million). Revenue from these services increased 22%, despite fewer charges and a lower number of tax filings.
"Most people think of us as desktop software, but when BofA/Merrill Lynch recently listed who they consider to be the top 12 cloud companies, we came in at No. 3," Smith told
. "We're pulling in about $1 billion in from our software-as-a-service
or Saas division and it's growing at a compounded rate of 48% annually."
Translation: despite the proliferation of its red and green boxes of Turbo Tax and QuickBooks lining shelves in stores like
, Intuit is no longer just a software-in-a-box company.
"What I like about our position is that we don't force customers into a choice -- if they're happy with desktop, we have it," said Smith.
Since taking over the CEO spot two years ago, Smith has identified a four-pronged plan for growth beyond the box: Moving into mobile and Web-based products to reach a younger demographic, increasing its global market share, moving into sectors "adjacent" to small business tax prep like payments processing and healthcare, and increasing its network of partners and third-party developers to deliver small business solutions via cloud computing.
In January, Intuit announced a partnership with former tax prep rival
, in which the software giant will work with third-party developers via its cloud platform, Azure, to create new products for Intuit's customers.
"Intuit is one of the better-run companies that we follow when it comes to looking at the CEO and CFO," said Brad Zelnick, an analyst with Macquarie Equities Research. "They know how to differentiate."
The third CEO of Intuit, Smith identified the company's growth areas by sticking tight to the two basic tenets that Intuit was founded on: Constant observation of customers and allowing employees ample room to innovate.
In 2004, when asked about fostering a company culture that favors innovation, Intuit founder Scott Cook told
Fortune Small Business Magazine
, "First you have to understand the customers intimately, deeply, from observing them working in their offices...it's got to be full frontal contact, otherwise you misunderstand their needs."
Today, Intuit conducts 10,000 hours of customer observation a year; Smith himself spends 60 hours a year in customers' workspaces. He recently got back from a visit to Bangalore, where a watch retailer was testing an early version of a mobile CRM program Intuit is developing. It's priceless, said Smith, to "be able to go out and watch them use your applications."
The company has also incurred cost savings after observing customers' behavior online. About a year ago, employees alerted Smith to patterns emerging on the company's QuickBooks Web site. Not only were customers asking questions, they were answering each other's questions more frequently than Intuit's own support staff, tackling about 70% of the questions. Intuit's latest product offerings feature beefed-up Web sites, places where employees monitor the forums that customers use as a business-based social network. Intuit has also seen fewer customer calls in its service center.
Taking a cue from
, whose Mountain View, Calif., headquarters are just down the road, Intuit allows employees to devote 10% of their work week to projects that don't necessarily fit within their job description, projects that may "improve a customer's life." Smith says that in the last two years, Intuit's new product pipeline is five times larger than the average of the past ten years, and that over the last 12 months, more than 50 products drummed up by employees working in "unstructured time" have hit the market.
However, despite the splash that some of these periphery products are making -- from programs that make health care processing easier to apps that allow California taxpayers to import their W2 via an iPhone -- investors are still worried about the next three months. Tax season is historically Intuit's biggest quarter, but the nation's small business sector remains slow to recover and the IRS expects to see less people filing tax returns.
"It doesn't worry me
that Intuit is finding new markets they can focus on to add to their revenue base," said Zaineb Bokhari, an information technology analyst with Standard & Poor's Equity Research. "What I'm looking for is what impact the broader economy has on Intuit's main business."
Smith, who has said that the economy's bounce back will look more like the Nike Swoosh than the V shape that some economists have predicted, acknowledged that he's still seeing a loss in his payments processing business, the sector made up of some 255,000 small firms who pay Intuit to be able to accept credit cards. But while the average dollar per merchant was down 3% for the second quarter, it was down 8% for the first quarter and 9% for the previous year.
"We are seeing modest recovery in the marketplace, but I do think it's going to be a slow slog to get back up on the other side," said Smith.
In the meantime, he'll keep wearing the crazy outfits if it means helping to foster Intuit's unique culture.
"I'm gullible for anything," he said. "Thank heavens no one's asked me to shave my head -- I'm quite particular about my hair."
-- Reported by Maggie Overfelt in New York
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