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PenSoft Story - Case Study

Peninsula Software of Virginia, Inc. (PenSoft) was incorporated in January 1990.  Retired Air Force Lt. Col. Leroy Newman, with his engineering and business management experience, serves as president and CEO.

PenSoft designs, develops and manufactures payroll software specifically to help small to mid-sized businesses and payroll service providers process virtually any payroll and related tax requirements faster, easier and more cost effectively.
Committed to offering the best value in payroll software, PenSoft provides program support unsurpassed in the industry.  Our sophisticated, comprehensive software packages make one of the most complex, time-consuming tasks employers face as simple as a few keystrokes.
An annual product, PenSoft® Payroll is constantly updated throughout the year to remain current with the employment tax code of all 50 States, Washington D.C., Puerto Rico, Guam and the Virgin Islands.  Multiple software editions are maintained to meet the myriad payroll requirements of any company from one employee up to 2,000 employees.
PenSoft relies largely on distributors, customer referrals, and the internet to continue the company’s rapid growth.  PenSoft has grown to support thousands of clients with a highly trained staff of degreed accountants, computer programmers, program support consultants, and business experts.
By 1995 PenSoft had hired the core experts in product development, accounting and program support to create, maintain and support customers in pockets derived from bulletin boards throughout the United States.  We had grown to a total of five employees.  1995 was the also the lowest point in PenSoft’s history with excessive debt and stagnate new customer sales.
In August of 1995 PenSoft responded to an article in the local newspaper, The Daily Press, discussing a matching grant program the Virginia Center for Innovative  Technology (CIT) initiated with the Southeastern Virginia Network (SEVAnet – the precursor to VECTEC) to determine the value of small business presence on the internet.
PenSoft had already researched this new marketing avenue called the internet, web, and/or www and had determined the commercial entry was too expensive a gamble to take when the company was so strapped for funds.  The CIT grant offered a less expensive entry ($1,000) for PenSoft to test the waters.  Additionally since SEVAnet was part of Christopher Newport University the project offered a training component along with initial website development and hosting.
Our initial website, completed in December of 1995, was 3 pages of information about PenSoft and PenSoft Payroll.  Since this was prior to modern search engines it took time before we realized any business from this presence.  In March of 1996 we got our first order from a customer who found us on the internet.  By the end of 1996 we had received $22,500 from new customers who found us on the internet.  This was sufficient revenue to entice us to continue developing our site.  Each year these revenues increased and this was the single most important event in turning PenSoft around to a profitable business.
After 4 years with VECTEC PenSoft graduated and moved its website in-house to expand its capabilities including domain controllers, exchange servers, data storage systems, backup systems, etc.  The training we received from VECTEC was instrumental to continued development – “teach me to fish versus feed me for the day”.  Our customer base had grown nationwide with customers in every State.
We expected to get end-user sales from our web presence, but there were some unexpected results too:  (1) Accountants started using PenSoft Payroll to provide payroll services for their clients.  (2) Software distributors added PenSoft Payroll to their lists of business software they could sell to their clients.  (3) Other software developers requested interfaces from our software to theirs increasing offerings to their clients.  Since payroll is such a dynamic product with up to 50 tax changes during each calendar year these other software developers found it easier to partner with us than to develop and maintain their own payroll.  (4) We even received a lot of international interest but due to the nature of our software and tax code requirements it was extremely difficult for us to venture outside the U.S.  We did create a Canadian version with their specific tax codes and distributed it for 2000, 2001 and 2002.  However we were unable to increase our market share to a profitable point and discontinued the Canadian product after 3 years.
PenSoft recently moved into its own newly constructed building with 6 Mbps bandwidth.  This bandwidth allows us to do much more than to just sell products on the internet:  (1) We now have full online product ordering with credit card approval and immediate software downloading capabilities.  (2) Our product shipping is totally interfaced with our customer database and automated with UPS.  (3) We offer a 24-hour internet knowledge database with responses to many often asked questions.  (4) We have developed online services complementary to our payroll software:  (a) Remote Client is offered to accountants, payroll processors and multi-location companies as a means to collect time and attendance data through our online service and import it directly into their payroll software saving them time and money.  (b) We recently have been approved as a collector and transmitter to the IRS of employment tax forms (IRS Forms 941, 940 and 944) from our customers through our website.  This eliminates the need to print and mail these forms saving our customers time and money.
With our website being a major contributor, and the advent and improvement of search engines, we have grown in excess of 20% each year since 1995 to a multi-million dollar company and have been profitable the last nine years.  We currently have 19 employees and have increased our product and service options to our expanded customer base.  Our accumulative revenues due to web presence have exceeded $10 million since its meager beginning in 1995.  Additionally, greater than 97% of our revenues come from outside the Commonwealth of Virginia thus expanding the State’s tax basis.  Without access to broadband our company’s growth would have been severely hampered.