Top 10 Small Business Software Stories of 2018

Top 10 Small Business Software Stories of 2018

It was a busy year for the small business software industry. Some of the leading SMB brands raised piles of money, made game-changing acquisitions, and launched new products and services to box out competitors and make their platforms stickier. We took a look back through the Tech Adoption Index blog, newsletter, and Twitter feed to remind ourselves of the biggest SMB technology events of 2018.

Here’s our list on the 10 most important SMB SaaS stories of 2018.

10. Office Depot Rolls Out Business Services

As a retail business with transactional relationships with most of its customers, Office Depot needed to find ways to build deeper customer relationships in order to fend off direct competitors like Staples and a range of disruptors from Amazon to WeWork. Hence the company’s push, which we reported on back in February, into both business services and co-working space. Office Depot reports that some 5.9 million SMBs operate within three miles of its stores. It aspires to play a much bigger role in supporting these businesses, well beyond selling them paper clips and toner cartridges. 

Office Depot also targeted IT services providers as resellers for its “Workonomy” IT and business services offering for SMBs. And it experimented with a WeWork style co-working space at a new store in Los Gatos, CA. These experiments are works in progress but they signal how legacy an SMB brand like Office Depot needs to adapt to an increasingly SaaS-driven SMB marketplace.

According to an Office Depot midyear earnings presentation, Workonomy purports to offer small businesses services that include business and health insurance, something it calls “customer service as a service”, hiring services, business coaching, and tax services.

Office Depot Goes Deeper into Services, Adds Co-Working Space

9. Wix Launches Ascend Platform 

One feature of the 2018 SMB software landscape was the growing race among Squarespace, Square, and Shopify to assemble the right package of services in order to become the “one stop shop” to help small businesses run everything from marketing to finance. Website builder Wix signaled that it wanted in on this turf war with the launch of Ascend, its own take on the all in one, full-stack, small business operating system.

It certainly makes sense for Wix to move toward an all-in-one solution. Selling inexpensive websites at scale is a costly endeavor with customer acquisition costs rising every day. With a broader solution, Wix can expect to raise customer lifetime value, essential to offsetting ever-rising customer acquisition costs.

Wix Makes an SMB-OS Play with New Ascend Platform

8. Service Titan Raises Big Bucks

When Service Titan announced its $165 million D round in November, at a valuation of $1.65 billion (following an earlier $62 million C round), we wondered how a company with just 2,500 customers could be valued so highly. Then we learned of the buyout of MindBody for $1.9 billion and its 67,000 customers (see item No. 2). Here’s the simple math. MindBody’s 67,000 customers were valued at about $28,000 each while Service Titan’s 2,500 customers were valued at $660,000 — a jaw-dropping 23 times more. This really points to two vastly different business models – one focused on customer acquisition, the other focused on selling extremely high-value solutions to a niche market. It will be extremely interesting to watch how these two companies shape the future of SMB SaaS market.

ServiceTitan raises $62 mln Series C

7. GoDaddy Acquires Main Street Hub

As we heard from GoDaddy’s Irana Wasti at the 2017 Tech Adoption Summit, the domains and websites platform has been aggressively building out its marketing stack. So it was no surprise when GoDaddy acquired Austin-based marketing automation platform Main Street Hub last January.

At a valuation of just $175 million after raising $65 million it was probably a less thrilling exit than Main Street Hub’s founders and investors might have hoped for. Interestingly, Vista Equity Partners, one of the firms on the selling end of the Main Street Hub deal, was on the buying side of the $1.9 billion MindBody deal (see No. 2). This suggests Vista found the vertical focus that MindBody has been pursuing favorable to Main Street Hub’s broader horizontal approach.

GoDaddy Acquires Main Street Hub, Now Offers Social Management to Its 17M SMBs

6. ZipRecruiter Rakes in $156 Million Raise

Customer experience is king in small business software, and job matching app Zip Recruiter saw an opportunity to make the process of finding good candidates for job openings easier. Zip Recruiter made two early bets that have paid off. First, it invested in AI to improve its matching capabilities. And second, it took a mobile-first approach before it was an obvious choice. In October, the company raked in $156 million in new venture funding to accelerate its already rapid growth.

ZipRecruiter raises $156 million to match job candidates with employers

5. Web.com Sold to Siris Capital

While we wondered about the high valuation of Service Titan – $660,000 per subscriber – the Web.com transaction offered another data point – $588 per subscriber – and there is no missing K in that figure. With a reported 3.4 million customers, Web’s transaction demonstrated that purely pursuing customer acquisition at any price does not lead naturally to an attractive exit. While early shareholders may have done well with this deal, the per customer valuations hints at some softness in Web.com’s business model. 

Web.com’s $2 Billion Sale; What It Says About The Value of SMB Platforms

4. Square Enters HR/Payroll Space

In November Square also announced it would move into additional slices of the SMB operating system by enabling their merchants and business owners to offer their employees health care, retirement benefits, and other human capital services. This push into another valuable slice of the SMB wallet puts Square at perhaps the forefront of consolidating SMB wallet share. As with its other moves into adjacencies, time will tell if Square’s foray into the human capital stack further solidifies its very critical role in the SMB space.

Service Titan, Square Move the SMB SaaS Ball Downfield

3. Gusto Tops 60,000 Customers, Offers Free Product 

We’ve covered Gusto for some time now as it pursues a piece of the payroll, benefits and human capital space. The legacy market leaders — Paychex and ADP — have a combined $78 billion market valuation. So it was no surprise that Gusto could raise a C round of $145 million at a $2 billion post-money valuation. With some 60,000 customers, investors valued Gusto’s current customer base at about $33,000 per customer. This suggests that investors see Gusto continuing to take share from the market leaders. They do it today without a direct outbound channel relying on inbound leads and some CPA partnerships. Our guess is that they’ll need to grow even faster in 2019 to make their most recent funding round look like a smart investment.

Gusto Tops 60K Customers, Adds Free Product

2. Mindbody Sold for $1.9 Billion 

A $1.9 billion valuation for a scheduling software company with 67,000 customers is yet more evidence of how investors are bullish on small-business platforms and are making very big bets on who is positioned to scale from customer counts in the tens of thousands up into the hundreds of thousands and beyond. As we noted in item No. 8 in discussing ServiceTitan’s big year in fundraising, investors are betting on two pathways, one focused on customer acquisition (MindBody), and the other focused on selling extremely high-value solutions to a niche market (ServiceTitan). This isn’t a zero-sum game. Either model could succeed or fail. But if one bet pans out more than the other, that may signal where more of the smart money will flow in 2019. 

Mindbody Slated to Be Sold for $1.9 Billion; Is Scheduling Still an SMB Anchor?

1. Square Acquires Weebly 

Square’s acquisition of site-builder platform Weebly is yet another example of Square moving directly into an adjacency. At a purchase price of $365 million on an investment of about $80 million, it was probably seen as a good but not great exit for Weebly. According to Pitchbook data, when Weebly took a C round of $35 million in 2014, it’s post-money valuation was $490 million. This means Weebly went for roughly a 25% discount on its peak valuation. It will be interesting to see how much energy Square invests in Weebly and if it enters the marketing stack wholeheartedly. These transactions don’t always end well. Intuit’s $500 million acquisition of DemandForce comes to mind as one of many transactions that looked good on a whiteboard but ultimately failed. We expect Square to do better with Weebly since offering presence is a natural adjacency for Square and a key element in staying a step ahead of competitors like Shopify and Squarespace. 

Podcast: Weebly, Square and Omnichannel Commerce

Charles Laughlin and Neal Polachek contributed to this post. 

 

 

 

 

Tech Adoption Summit Session Recaps

Tech Adoption Summit Session Recaps

On November 7, LSA hosted the second Tech Adoption Summit in San Francisco. It was an exclusive, c-level event focused on the future of SMB technology adoption and the implications for technology providers and sales channels. The following are summaries and links to individual session posts.

SMB Panel: The Demand for Service and the Problem of Scale

“After another successful SMB digital marketing bootcamp yesterday at Yelp’s San Francisco office, we kicked off the Tech Adoption Summit, which continues today, with a presentation of new data on small business technology adoption. That was followed by a panel discussion of small business owners.

The panel included the owner of a multiple office dental practice, the owner of a 39-person termite control company, a plumber, a mortgage broker and an executive from a small but rapidly growing accounting firm. It was a great cross-section of business owners. With the exception of the plumber these were relatively sophisticated businesses that had multiple employees.”

Click here to read more.

After 20 Years of Hard SAAS Lessons, Verizon-Owned Yahoo Small Business Primed for Growth

“Responding to session interviewer Greg Sterling during a fireside chat at the Tech Adoption Summit today, Kushagra Shrivastava, Managing Director for Yahoo Small Business, talked about how Yahoo Small Business has evolved over the past 20 years.

While giving a nod to competitive pressures brought by new products coming to market, he added that there is also the need to always be sure that product development is keeping pace with customer needs and ensuring that pricing remains competitive. Yahoo Small Business has also been able to build on its brand, even after two decades in the space. “Yahoo thankfully still enjoys incredible brand value,” he explained at the morning session.”

Click here to read more.

Tech Adoption Summit: What Does the C in CRM Stand For?

“Enterprise companies manage relationships. Small and local businesses have relationships — and they hinge on being able to track and understand conversations. That was a key point of Broadly CEO and Co-founder Josh Melick’s Headline Talk during LSA’s Tech Adoption Summit 2018.

Melick went on to say that innovators often forget that small businesses are unique, with their own set of requirements and problems to solve, and skinnying down enterprise-scale solutions are likely to fail. Why? Forgetting to design for difference inevitably results in product issues (like the Apple Watch’s heart sensor, which didn’t interact as effectively with darker skin tones or wrist tattoos).

Nowhere is this seen as clearly as with CRM systems, said Melick. If it’s a Fortune 500 company, it makes sense to have a CRM that’s essentially a database to track the thousands of customers they have. But a small business owner likely knows most — if not all — of her customers because they live in the community too.” Click here to read more.

Tech Adoption Summit 2018: Some New Perspective on the SMB Landscape

What makes building and selling innovation to small, local businesses so challenging?

Bob Yakominich – Broadly’s Vice President of Sales and a veteran of American Express, Zip and CitySearch, among others – joined the Tech Adoption Summit to share some perspective.

Unlike enterprise companies, SMB owners wear many different hats – they work both in the business and on the business, Yakominich said. That has three key implications for those trying to sell to them:

  • First, it’s much harder to break through the clutter of all they’re dealing with to connect in a meaningful (and productive) way.
  • Second, more companies are excited by the prospect of working directly with the decision maker and a theoretical faster path to close, increasing competition of late, particularly for marketing dollar spend.
  • Third, SMB owners are agile and decisive – but while they may quickly sign with you, they’ll just as quickly look to others if the promises you made in your sales pitch don’t match the reality of working with your product.

Click here to read more.

POV: SMB Telesales Don’t Work, Need ‘Product-First’ Approach

One of the highlights of last week’s Tech Adoption Summit in San Francisco was ThriveHive CMO Adam Blake’s thought-provoking discussion of SMB customer acquisition. The presentation was called, “Product First Go to Market Strategy.”

To lead off Blake talked about how, according to third-party data, SMB customer acquisition costs have gone up 50% in the past five years. While there are multiple reasons for this, it probably argues for new sales and marketing strategies and tactics.

Click here to read more.

#LSA18: The New Market for SMB Services

#LSA18: The New Market for SMB Services

The New Market for SMB Services panel featured a great mix of perspectives from leaders in the solution market with a cohesive message. Consumers are driving the change and demanding personalization. SMBs need to navigate and offer the same level of engagement with consumers as the Amazons of the world. It’s up to technology and solution providers to bridge some gaps to make that easier for them.

Panelists moderated by Neal Polachek:
Louise Lachmann, CEO & Co-Founder of Mono Solutions
Sandy Lohr, CEO of Matchcraft
Josh Melick, CEO & Founder of Broadly
Allyson Van Houten, Senior Marketing Manager at MailChimp

Consumers Are Driving The Shift

Neal asked if it’s the mobile experience that is shifting business to the cloud and the consensus was, well yes, but ultimately it’s the consumer that is driving the shift. Sandy Lohr made the blanket statement that there is “no debate” about the importance and significance of mobile. She mentioned her recent trip to Brazil and how the majority of small businesses have went straight to mobile. No longer mobile-first, there it might be mobile only.

 

Read more on LSA Insider 

#LSA18: When is an App not Just an App? When It’s Part of Zoho One

#LSA18: When is an App not Just an App? When It’s Part of Zoho One

The day’s featured speaker, Zoho President Raj Sabhlok was introduced by Charles Laughlin, Project Lead for LSA’s TAI (Tech Adoption Index).

From its roots in network management software 22 years ago, Zoho has evolved into a multinational online services provider with some 35 million users worldwide including many SMBs. (Notably, this has been accomplished while remaining privately-owned, with no VC funding).

At last count, Zoho offered over 40 integrated functional applications in a suite they style as “Zoho One”, the “operating system for business”.  Raj articulated the ethic driving their product evolution as the desire by SMBs for apps that are more integrated and easier to use — findings consistent with research by LSA’s TAI (Tech Adoption Index).

 

Read more on LSA Insider

#CloudSummit: Machine Learning & AI’s Impact on SMB Marketing

#CloudSummit: Machine Learning & AI’s Impact on SMB Marketing

“If you don’t have a Machine Learning and AI slide in your investor deck, you are not getting funded,” SurePath Capital’s Mark McLeod told the SMB Cloud Summit audience last week, slightly tongue-in-cheek. Earlier in the day there was a discussion of how machine learning and AI would potentially impact the SMB marketing ecosystem.

The session, called “How Will Machine Learning and AI Impact SMB Marketing?” featured speakers from Google, Facebook and iPromote.

Facebook’s Anand Arivukkarasu and Google’s Simone Styr discussed machine learning in the context of Facebook Messenger and Google AdWords. Styr said it was easier to name Google products that didn’t use machine learning than those that did because the technology is now so widely deployed within the company.

As Facebook gears up to launch Messenger as a chat plugin for websites, allowing business owners to tap in to its 1.2 billion users, Arivukkarasu and his team are looking to support businesses by training the Messenger engine to understand the user intent and ultimately respond on the business owners behalf.

While he said that natural language processing in Messenger is at an early stage, Google’s Styr spoke of how AdWords can already optimize a campaign to generate more leads for an advertiser without them having to make manual adjustments to the bidding strategy with “smart bidding.”

Smart bidding is one illustration of how technology is now able to do what people previously did. However there are still challenges for small businesses to reap the benefits of smart bidding, including setting up conversion tracking on their sites and having enough conversion data for the system to work.

Along these lines the question of “DIY” vs. “do-it-for-me” was extensively discussed: how will machine learning and AI impact campaign provisioning and service in the future?

LSA’s Tech Adoption Index research found that the biggest factor in cloud services adoption and self-service is the age of the business. As we wait for the Baby Boomers to retire and Millennials to take over the decision making, iPromote’s Gregg Albright spoke about the short and mid-term need to help businesses, who are either not willing or not able to do so themselves.

Resellers and partners, such as local media publishers, are still well positioned to support SMBs today and level the playing field so all businesses have the opportunity to benefit from the advances in technology. Automated omni-channel ad creation technology, as provided by iPromote, allows resellers to provide these services with new levels of efficiency.

It’s fairly clear that machine learning and AI are going to have a significant impact on the marketplace. Publishers and resellers will need to evolve to continue to deliver value to local advertisers, as tasks that were once fulfilled by people are increasingly taken over by machines.