Deal Radar 2010: Allegiance, Inc.

Allegiance, Inc. offers feedback management software to help organizations grow and increase profitability through better customer and employee loyalty and engagement.  Through its Allegiance Engage SaaS platform, the company gathers survey responses and unsolicited comments in real time into a centralized online system, saving time, effort, and money.

Allegiance was founded in 2005, when SilentWhistle, an ethics compliance company founded by Adam Edmunds, merged with Allegiance Technologies, a provider of Web-based feedback tools founded by Dr. Gary Rhoads. The company’s new offering focused on gathering and analyzing feedback from employees and customers. In July of last year, Allegiance acquired Inquisite, a provider of online survey software based in Austin, Texas.

Adam Edmunds, who is now CEO of Allegiance, founded SilentWhistle, his first company, while still in college. In 2002, two years before he graduated, the new Sarbanes-Oxley ethics compliance act was passed, and this motivated him to start the Web-based program SilentWhistle when he recognized an opportunity for an anonymous ethics reporting system. In 2005, the company acquired Allegiance Technologies, a business started by Rhoads, who was a marketing professor at Brigham Young University (BYU). The new company became Allegiance, Inc. and focused on gathering and managing feedback, including suggestions and complaints.

Initially, Edmunds submitted his business plan for SilentWhistle to a BYU competition but one of the judges, venture capitalist Spencer Tall of Allegis Capital, did not vote for his plan. Three years later Tall not only invested in Edmunds’ company, but also became its biggest promoter.  Today, Edmunds has acquired five other companies, making Allegiance, Inc. one of the major providers of loyalty software.

Early on, the company was funded by angel investors for an undisclosed amount.  In 2007, it received its first round of funding in the amount of $4 million from Allegis Capital. Although the company says it does not need to raise more money, it may use funds from existing investors to accelerate growth and M&A.

When Allegiance, Inc. was formed, many companies did not use any particular method to gather feedback from customers and employees, or they used systems that were developed in-house such as printed comment cards, telephone surveys, or email that, in all likelihood, sat in someone’s inbox.  Companies would hire consulting firms to do an annual employee survey that took months to analyze, making the data less relevant and useful than it could be.

Allegiance’s main competitors include these homegrown solutions as well as other survey and feedback management companies such as Qualtrics, Vovici, Confirmit, and Germany-based Globalpark, which is part of Outsell. Allegiance believes that it has been able to stay ahead of the competition by offering a complete system that is simple to use, while adding professional consulting services to help customers understand and apply the data to improve loyalty, the lack of which, according to all of these companies, is expensive: Allegiance says that it can cost 150% of a position’s salary to replace an employee who leaves that position.

Allegiance developed the Engage SaaS platform to continually collect and analyze information from customers and employees through multiple channels such as email, the Web, print and phone into a central database for analysis and action. The system uses a case management approach so that all feedback is assigned to the appropriate person and automatically escalates if the issue is not resolved or responded to in a timely manner. This involvement can increase customer loyalty, which in turn leads to more business and referrals for the company.  According to research by TARP Worldwide, when customers who have complained are then satisfied, they tend to be up to 8% more loyal than if they hadn’t had a problem at all.

Although the total market research industry is over $30 billion in size, the survey and feedback management market is a yet undefined and is estimated to be about $1 billion to $2 billion. The company focuses on segments such as retail, call centers, financial services like banks and credit unions, pharmaceuticals, and subscription service providers.

In its early days, the company got a foothold in the industry by attracting some large banks, such as Zions Bancorporation in its home state of Utah. Allegiance has over 500 customers with thousands of users in countries around the world.  Customers include Fortune 500 companies like AT&T, Chevron, Dell, Intel, Visa, Citi, USAA, Johnson & Johnson, Marriott, DuPont, Xerox, SAP, Siemens, USPS, FDIC, Gap, and Target. In 2009, Allegiance was ranked 58th on Inc. magazine’s list of the 500 fastest growing, privately held companies in the United States.

The average deal size at Allegiance has grown from under $10,000 in 2005 to $40,000 in 2009, with several deals over $250,000. In 2008, revenues crossed $6 million and by 2009, they had reached almost $10 million. The company reinvests its profits for future acquisitions. It also plans to focus on organic growth, with a high number of customers and larger deal sizes.  It will consider making small acquisitions in the United States and accelerate its growth internationally.

As for an exit plan, Edmunds says, “Allegiance is prepared for a long future. In the next two to four years, we believe the market will continue to consolidate, and we plan to be on the leading edge of that consolidation movement.”

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This segment is a part in the series : Deal Radar 2010