SaaS for SMBs: PR Is the Same, but Valuations Have Radically Changed

SaaS for SMBs: PR Is the Same, but Valuations Have Radically Changed

I saw an ad this morning for SurePayroll, which triggered me to learn more about the company. I was intrigued because while I had heard of SurePayroll, I had not realized it was part of the larger, more established small business payroll company Paychex. I discovered that SurePayroll was acquired in 2010 by Paychex for around $115 million.

A key sentence in the release about the shift to SaaS for payroll seems like it could have been written today: “The acquisition combines SurePayroll’s next-generation, web-based payroll platform with Paychex’s 40 years of payroll experience and world-class customer service, and provides small businesses access to a SaaS-based technology that allows customers to process payroll in minutes, anytime or anywhere, using a web browser or iPhone application.”


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Service Titan, Square Move the SMB SaaS Ball Downfield

Service Titan, Square Move the SMB SaaS Ball Downfield

Two recent news events offer some additional insights into the trajectory of SaaS for SMBs. As we have said previously, we expect many zigs and zags as SaaS companies who focus on building software for SMBs try to find their sweet spot.

The size and valuation of Service Titan’s D round — $165 million with a post-money valuation of $1.65 billion — tells us that these SaaS platforms are demonstrating both growth and resiliency among SMBs. Yet Service Titan is not a simple product, which may explain why the company today has just 2,500 business customers using the platform and an estimated 50,000 technicians.

In terms of the overall market — 2,500 is a drop in the bucket — but Service Titan seems focused on operators with at least 20 technicians, and there are far fewer of those. The $1.65 billion valuation raises even more eyebrows when you consider the per business or per subscriber valuation is $660,000.

Another question that pops out of this news is, what is ServiceTitan going to do with its new wad of cash? Are there that many more local businesses in the home services category that have at least 20 technicians? Does its product roadmap envision ServiceTitan becoming the operating platform for its customers?

Those writing these large checks must feel pretty secure about the company’s fortunes. While  During the print Yellow Pages heyday local and SMB generated incredible revenues and margins. We really haven’t witnessed this level of excitement since, except perhaps in a few areas like SEM.

In other SMB software news, Square announced this week that it is adding an option for merchants and business owners to offer their employees health care, retirement benefits, and other human capital services. In the CNBC article Square indicates that health care and human capital benefits were cited by 42% of Square users as a top new product request. This reinforces our view that Square and others SMB SaaS companies would be rounding out their product and solution offerings to include services that are immediately adjacent to their core business and sometimes even less adjacent.

It’s easy to imagine additional consolidation in the SMB SaaS space as some of the larger companies seek to increase their wallet share and ownership of the SMB business management platform position.

At the Tech Adoption Index, we’ll continue to follow these important moves in the SMB SaaS world and share our point of view.

Vendasta Goes Freemium to Expand Agency Pipeline

Vendasta Goes Freemium to Expand Agency Pipeline

Last week Vendasta announced it was shifting to a “freemium” model targeted to small digital agencies. This release raised a couple of immediate questions. First, I wondered if this was a real shift in strategy or just a more public announcement of something that Vendasta was already doing. Second, I wondered if the shift had any substantive impact on the willingness of small agencies to engage with Vendasta.

I reached out to Vendasta CMO Jeff Tomlin — someone who is always willing to have a conversation. He was direct in his answers. Number one, he said that before the change agencies would have to speak with a sales rep and sign up for $249 and then could provision products and solutions based on the needs of the end customer. With the addition of a freemium model, an agency can jump right onto the platform and grow their Vendasta business as customer demand dictates.

Second, Jeff said that since they soft-launched the new model, they’ve seen a substantive increase in the number of small agencies jumping on the platform. This is proving to be very helpful since what Jeff said is they had found the CAC (customer acquisition cost) associated with the very small agencies to be prohibitive.

Much has been written about how challenging SaaS “freemium” models can be, with plenty of strong voices advocating for and against this business strategy. Check out this rundown of some successful “freemium” models. In most cases, these models appealed to millions of prospects and had relatively small monthly pricetags e.g. $9.99.

It seems Vendasta sees its growth opportunity resting with small digital agencies. By lowering entry barriers, Vendasta hopes it can significantly expand its partner reach. A more jaundiced view would have Vendasta disrupting its own model with the freemium approach to regain lost momentum in the marketplace.

Interestingly, I also read that they have just hired Jeff Folckemer formerly of Hearst and LocalEdge. Jeff brings to Vendasta a wealth of experience in local media from his time at Hearst and related entities for nearly 20 years.

Editor’s Note: Vendasta Chief Strategy Officer Jacqueline Cook will be speaking at the LSA’s upcoming Tech Adoption Summit, Nov. 6-7, at The Laundry San Francisco. Her topic will be: “Why Do They Leave? Tricks for Keeping Customers on Your Platform”, based on research Vendasta has done on the factors that drive customer churn.

Check out the podcast we recorded with Jackie on this topic back in June on this topic.

Softbank, Hard Cash and Warm Hearts 

Softbank, Hard Cash and Warm Hearts 

Looks like Goliath investor Softbank may place yet another huge bet on the WeWork. Softbank already put nearly $4.5B into the real estate play that has been rumored to be preparing for a public offering. According to filings, WeWork losses continue to mount as they race to expand the footprint of the co-office business.

I was struck months ago when David Galvan, a longtime friend of LSA and TAI, said to me, in effect, “Maybe instead of being in technology, we should be in real estate like WeWork.” Dave has always been an astute observer. His take was that the co-office model was the big winner in the start-up ecosystem. Seems like Softbank agrees.

What interests me about the seriously high valuation — around $40 billion — is that the WeWork model seems relatively easy to replicate. Sure they’ve built a brand that has become a noun and maybe that alone is the reason for the considerable valuation. But finding vacant office space around the country and the world to develop into co-office space is easy.

WeWork has focused on major metro markets and even major streets. You know, the ones we all recognize instantly — Mission Street in San Francisco, 23rd Street in NY, Michigan Avenue in Chicago, Barton Springs in Austin and so on. Yet they’ve only covered a small portion of the U.S. market. According to this blog post shared space represents only 1% of the total office market. And WeWork does have a large competitor in Regus, which is now almost 30 years old has 3,000 locations in 900 cities and 120 countries. There are other competitors as well.

What is driving this? Perhaps it is as simple as the thirst entrepreneurs, business owners and professionals of all shapes and sizes that want to feel connected to other like-minded individuals. As you scroll through the listings of all these co-office options the common theme is one of community and connection.

As much as technology enables us to be digitally connected, the truth may be that humans still desire interaction with other humans. I saw this up close last week when I attended a gathering of high-performing Managed Service Providers (MSPs) at a Robin Robins event in Las Vegas. When I asked the MSPs why they fly hours to be part of the event, they universally said something along the lines of “the opportunity to connect with other business owners.”

I guess what I am saying is that community and connection are really what’s at play here. WeWork recognized this human need and turned it into a multi-billion dollar business. How is your business providing a platform for customers (consumers or business owners) to connect? If your platform isn’t, maybe you should examine how it can.

A Day Around Dreamforce: The Growing Power of Sales Enablement

A Day Around Dreamforce: The Growing Power of Sales Enablement

A luxury of living in the Bay Area is that I don’t have to spend $500 to $1,000 a night to sleep in an average hotel near the annual Dreamforce gathering. So I took advantage of the easy commute and attended an offshoot of the nearly 200,000-person Salesforce annual gathering — the Sales Enablement Soiree at the Four Season Hotel.

The Sales Soiree is put on by Highspot — a leader in the important area of Sales Enablement that operates adjacent to the CRM space. It was interesting enough last year that I decided to go again this year.

My first observation is that sales enablement is growing in importance and gaining in stature. The definition of sales enablement is a bit fuzzy but think of sales enablement as a cadre of software tools that can, when implemented correctly, raise the overall professionalism and success of a sales organization. Below are some of my takeaways from a day in the City.

  • We will see guided selling and prescriptive sales management in the coming years as machine learning is leveraged — this may mean fewer salespeople overall but more sales analysts and technicians.
  • 81% of B2B buyers make their buying decision based on their customer experience along the sales process and only 19% make it based on features and price — this ties to my view that we are living in the age of commoditized products and the differentiator is the customer experience.
  • Leading sales companies train more on sales skills than on products and features — this ties to delivering a great customer experience.
  • NPS scoring — companies should have their salespeople score their managers, trainers and sales enablement people on an NPS score — in other words, treat the sales rep like a customer.
  • 17.3 pieces of content are shared before a close — this could include emails, eBooks, webinars, brochures — those content initiatives better be first-rate.
  • The best sellers know to review and share more content with a prospect in the early stages of the sales process — while the weakest sellers don’t do this until much later in the sales process.
  • More than 30% of the best sales reps are already looking for a new job — and they evaluate opportunities based on the quality of the sales managers and sales tools and tech — this makes the job of recruiting even more challenging for companies that don’t invest in sales management and enablement.
  • Customer obsession — successful companies put the customer at the center of everything they do — companies that do not are likely to fail in today’s ultra-competitive environment.

A final observation. Sales and marketing functions are drawing closer and closer every year as data and technology have become more and more important. And while things are converging, it won’t stop marketing leaders from complaining that sales leave hot leads on the floor and sales leaders from complaining that the leads are lousy. So where does that leave us — focus on the customer experience — it just might be the ultimate sales tool.