If you polled a cross-section of companies about their most important software, accounts payable and accounts receivable software would likely not rank high on their lists. It’s the kind of unglamorous, workhorse software that’s necessary, but often taken for granted. 

Then, late last year, the cloud-based b2b payments company Bill.com went public—and became the second best Bay Area tech IPO of 2019. The company’s software replaces the paper invoices and checks that mire 90 percent of small- and medium-sized businesses, providing the basis for a customer network of 1.8 million US businesses.

In the two months since its IPO, Bill.com’s stock has risen more than 60 percent, reaching a market value of $4 billion. And while the company’s UI leaves much to be desired, its core product—sending payments and getting paid—works efficiently. So how did Bill.com, a decidedly unsexy, 13-year-old product, become the dark horse success story of 2019? Network-driven distribution.

The company’s entire customer acquisition strategy, partner network, and pricing model is designed around virality. That distribution playbook is enough to overcome the product’s limitations. And the ascendancy of Bill.com can be instructive for other startups thinking through their growth strategy. 

How to fuel network-driven growth 

1. Minimize friction.

At the outset, it should be a no-brainer for people to try the product and easy to continue using once they do. By eliminating the hassle of printing, mailing, and tracking of paper checks; managing invoices; and collecting payments, Bill.com’s online payment system solved an obvious pain point for businesses. Its platform also integrates with Quickbooks—which more than 80 percent of small- and medium-sized businesses use for bookkeeping—making it easy for customers to sync payments with their accounts.

2. Require low commitment, deliver high value.

It’s free to send or receive payments to any paying Bill.com customer, which gives customers an incentive to try the product. However, here’s the catch: It costs a small subscription fee of $39 to 69 per user, per month to use most of Bill.com’s functionality—a price point that’s just enough for the cost-conscious SMB customer to feel compelled to use the product. Bill.com then charges an additional transaction fee every time a customer makes a payment. 

This model enables companies to capture customers early, when they may be more concerned about SaaS fees, then make more money on payments as customers conduct more transactions and become more entrenched in the product over time. In the third quarter of 2019, for example, transaction fees amounted to about 30 percent of Bill.com’s total revenue; from 2018 to 2019, transaction fees grew 105 percent. (By comparison, subscription fees grew just 57 percent.) We’re likely to see more software companies monetizing via payments in this way—Shopify, another example, makes approximately 40 percent of its revenue on payments. The business alignment is clear: revenue grows as more transactions flow through the platform.

3. Compel growth through design choices.

Product design drives growth. If someone sends an invoice via Bill.com, the recipient is forced to also create a Bill.com account to make a payment online, rather than go through the cumbersome process of mailing physical check. Similarly, customers can invite payees to create an account to receive payment. Thus, customers themselves drive sign-ups and help bootstrap the network. 

This method—forced account creation to drive acquisition—is the same tactic taken by enterprise companies like Zoom and Dropbox. It’s preferable to referral credits because it doesn’t require any additional effort on the existing customer’s part (like, say, sending invites) and it incentivizes an immediate business need (faster payment). This acquisition strategy also allows Bill.com to collect valuable customer information. 

4. Identify adjacent growth channels.

What additional channels can advocate for your product—and, ideally, benefit in return? This applies not only to payments networks, but other software as well, particularly those in which brokers, agencies, and advisors are relied on. For bill pay, for example, Bill.com built a salesforce that specifically targets accountants, eventually building a partner network of 4,000 accounting firms. Why? Accountants are trusted advisors for SMBs; often the small business owner relies on his or her accountant to make financial decisions or process and pay invoices for them. A similar partner-driven distribution model has been adopted by Gusto, Guideline, and a number of other SMB software companies. 

More than 50 percent of Bill.com’s customers and 45 percent of revenue are derived from its accountant partners, who either advocate for the product or use the product themselves on their client’s behalf. For accountants, the benefits are obvious: the software streamlines the task of processing invoices and managing customers’ finances. 

5. Tackle large distribution nodes.

Bill.com also partnered with a number of large banks, including Bank of America, JPMorgan Chase, and PNC. These are great sources of aggregated supply. Here, scale is key—bank partners were likely won over by Bill.com’s sizable network of 10,000 customers (at the time of their first partnership). Though selling and onboarding these types of large partners is challenging, once secured, they create a considerable competitive advantage, as switching costs increase.

Thanks to its distribution strategy, Bill.com’s network effect is obvious: the more companies on the network, the easier it is for the customer to use it. If a payee is in the network, the payor doesn’t need to enter and verify bank and payment information or worry whether the payment is secure. And deliberately targeting high-value nodes (e.g. suppliers that are part of every company’s stack, like accountants) is important to driving network effects. 

As a result, the product becomes incredibly sticky. Whether customers love the product or merely tolerate it, they’re unlikely to go through the trouble of reloading their suppliers and customers onto an alternative platform. Eighty percent of Bill.com’s revenue comes from existing revenue—its payment volume is not only increasing, but accelerating.

Data will drive the next phase of growth networks

But despite Bill.com’s impressive network effects, its business model reveals untapped opportunities—for Bill.com, a competitor, or a startup—when it comes to using data to increase the strength of these network effects. The company doesn’t feed data back to its customers, which could be beneficial in providing analytics, intelligence, and forecasting tools. With the invoice data it collects across customers, Bill.com could help its customers to understand which suppliers are more or less likely to pay on time and to benchmark against their peers. That data could help customers forecast their AR and AP, create a map of vendors, or even launch a capital lending product. 

The more companies use these products and contribute their data, the stronger the network effects, and the more valuable the product. Using data to drive stronger network effects isn’t unique to Bill.com—it can be generalized to any software that creates a data exhaust. 

What conclusions can we draw from the success story of Bill.com? It’s another case in which distribution trumps product (in this case, a sufficient, but imperfect product). Achieving this level of network-driven growth right is difficult, dependent largely on the sequencing of the go-to-market strategy and the ability to leverage partnerships. Thoughtfully designing a product around its most powerful advocates for distribution can make solving a business need—even a seemingly sleepy one like accounts payable—a breakout success.

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