Happy Belated Small Business Saturday! + Other SMB News
👋🏾 Welcome Back! What to Expect in This Month's Newsletter
Welcome back! We hope you had a great Thanksgiving, Native American Heritage Day and took some time to support some local businesses! We’re back in your inbox with some news and learnings across the SMB Tech sector - including some nuggets of wisdom from the GGV SMBTech Summit.
📜 What's New With the Crew?
Tessa launched her fund, Capitalize VC and we're so proud!
Sydney and Jen met up for the first time in years at a Kauffman Module - thank goodness for science + vaccines!
📰 SMB News Roundup
VC-backed rollups mean that small e-commerce businesses are rolling in the deep (Fortune)
American Express reports an all-time high of $23.3B in consumer spending for this year's Small Business Saturday
TechCrunch reports that e-commerce growth is slowing as shown by a decline in online spending compared to last year's Black Friday
New startup Bimble raises a seed round to help consumers curate recommendation lists for their favorite local businesses
Career development platform QuickHire receives funding to connect blue-collar workers in the service industry to jobs and advancement opportunities
✍🏾Deep Diligence
At the SMB Syndicate, we celebrate events and conversations around technology being built for SMBs, so this month we’re recapping the SMB Tech Summit hosted by GGV Capital.
TLDR: This year’s summit touched on a few key takeaways for founders building for the SMB market.
💎 Digitization: SMBs are digitizing more than ever and seeking technology that reduces friction, improves productivity and allows SMBs to focus on their core competencies. Additionally, hiring shortages impact the speed of SMB digitization because it pushes owners toward software solutions in the absence of human resources.
💎 Sales: The SMB market falls right in the middle of enterprise and consumer in many ways. The SMB market relies on ACV with smaller deals and faster sales cycles than is seen in the enterprise space, while also seeing adoption and churn rates that resemble the consumer market due to low switching costs.
💎 Product: SMBs are showing a need for greater centralization of digital services, suggesting that migration toward centralized or integrated platforms is a trend that will only continue.
💎 Product: Within vertical SaaS, there is the opportunity for fintech and payments to be incorporated into product solutions to deliver on very specific financial needs, reporting and insights, payroll, capital and lending in a deeper way than general industry platforms, such as stripe or Paypal offer.
🛠 Quick fix solutions don’t always result in scalable processes for future growth. Build for the future. - Faiza Hughell, Chief Customer Officer, RingCentral
RingCentral is a publicly-traded company empowering SMBs with cloud-based communication and collaboration solutions. We heard from RingCentral’s Chief Customer Officer, Faiza Hughell, on some of the lessons she’s learned over the years about building for SMBs.
When building solutions for the SMB space, the goal is to create products that help SMB customers grow and scale. So what happens when your customers do just that... grow? Faiza had some great pointers for founders on how to balance SMB vs Enterprise-grade solutions as customers outgrow self-service offerings meant for small teams and require more robust offerings with features that serve scaling businesses.
It’s not about going from SMB to Enterprise. It's about figuring out the pathway to do both. The key is to offer different SKUs. You need to have the essentials that keep it simple for companies who are one-person shows with no employees, but eventually, you’ll want to have a standard version for customers with additional needs for more complex use cases.
Check in with customers frequently and listen to what they’re saying. Then let that inspire your innovation and use their feedback as a source of learning what features should be built next.
👥 SMB owners are looking to hire 2x in comparison to pre-pandemic hiring levels and they are seeing less than half as many applications as before the pandemic. - John Waldmann, Founder and CEO, HomeBase
Elizabeth Gore the Co-founder and CEO of Hello Alice and John Waldmann the Founder and CEO of HomeBase discussed the state of SMB Tech and shined a light on the importance of hiring talent for SMBs. Hello Alice is a navigation tool for SMBs to source funding, new customers, and a community of fellow business owners. HomeBase helps small businesses manage teams and hourly workers in one place.
Elizabeth and John highlighted that hiring is one of the greatest challenges for small business owners. It’s no secret that Covid-19 impacted SMBs and their employees in detrimental ways. Hours were reduced which naturally led to a reduction in income for SMB employees. However now, small business owners are looking to hire 2x in comparison to pre-pandemic hiring levels and they are seeing less than half as many applications as before the pandemic. There has been up to an 80% decline in applications per job due to location requirements and aging employees deciding to pursue early retirement.
So what is differentiating those small businesses who are winning the talent war? Pay for low-income work is up 6% in comparison to pre-pandemic levels, but data has revealed that pay is not the top variable that employees are looking for. They are also looking for a great work experience. Things like schedule flexibility, the integration of technology to make their jobs less difficult, team performance-based pay (ie: temporary revenue shares), and increased pay frequency (switching to weekly pay cycles) have proven to be just as important as the hourly base wage.
🔄 There is a need for greater centralization of digital services which will spur a migration toward integrated platforms. - Danielle Cohen-Shohet, Co-founder and CEO, Gloss Genius
Danielle Cohen-Shohet the Co-founder and CEO of Gloss Genius gave us a peek into the beauty and wellness industry as a mission-driven company that provides software and payments for salons and spas.
Gloss Genius spent its early years as a bootstrapped company, financing itself from its revenues which gave them a much more nuanced approach to the evolution of Gloss Genius. This forced Danielle to focus on providing value to the customer on a budget which forced her to put a lot of strategic thought into the product roadmap and prioritize the things that would make their customers successful. This also drove Gloss Genius to build a deep understanding of their unit economics prior to scaling with VC dollars.
SMBs are showing a need for greater centralization of digital services and Danielle believes that migration toward a single platform is a trend that will only continue into the future. SMBs don’t have the ability to juggle numerous platforms and value products that are easy to use in a centralized or integrated way. Danielle urges founders building for SMBs to focus on:
Affordability - Price points that are affordable
Accessibility - Democratize access, reduce barriers to usage through effective design
Ease of use - Consumerization of SMB tech means the UX/UI is beginning to mirror consumer tech products
📈 Vertical SaaS products create alignment between the business model and the value delivered so that you’re ultimately working in concert with your SMB customer. - Dave Vasen, founder and CEO, BrightWheel
Dave Vasen the founder and CEO of BrightWheel has become a leader in SaaS for early childhood education helping preschools, daycares and after-school programs run more efficiently.
Dave believes that building modern SaaS that customers can rely on is recipe for success if you’re attacking a vertical that is big enough to support scale. He compares his journey in early childhood education to MindBody in fitness and wellness, ServiceTitan in building management, Toast in restaurant payments and Procore in construction management.
Vertical SaaS is unique because once you’re in, there’s a large technology stack that requires solutions that are vertical specific. From managing staff to communicating with customers to taking payments. There is often an opportunity to ultimately create the entire backend operating system to facilitate multiple solutions in one place. However, this requires a deep understanding of a customer's needs, understanding the underlying nature of the problem, building trust and offering post-sales support.
Within vertical Saas, there is the opportunity for fintech and payments to be incorporated into product solutions to deliver on very specific financial needs, reporting and insights, payroll, capital and lending in a deeper way than general industry platforms, such as stripe or PayPal. Through a vertical SaaS offering, you create alignment between the business model and the value you’re delivering so that you’re ultimately working in concert with your SMB customer.
🚴♀️💨 SMBs have a faster sales cycle than enterprise deals, and the low switching costs make adoption and churn resemble the consumer market - Mahyar Raissi, founder and CEO, Open Phone
Ryan Denehy the founder and CEO of Electric and Mahyar Raissi the founder and CEO of Open Phone discussed the modern SMB tech stack. Electric is a SaaS solution that provides outsourced IT for SMBs. Open Phone is an all-in-one business phone system for SMBs and startups.
Ryan and Mahyar are seeing SMBs becoming more comfortable with purchasing technology, buyers are getting younger and have an increased willingness to pay for SaaS tools that help them to look more professional, enable teams to work more efficiently or spend more time in their core competency. The average SMB customer now spends more on software than office space and has gone from purchasing 8 software solutions → 35 solutions on average, with a subset using 50-100 saas tools to operate their business.
70-80% of software buyers are not IT people because SMB customers don’t have IT or change management departments, so when selling into SMBs you need a highly efficient way to take care of customers after you sign them. This takes resources to the tune of 20-30% of the company being dedicated to customer support.
🏰 Founders who make the strategic choice to focus on the size and type of SMB they will serve can build more differentiation and can create a bigger moat. - Gokul Rajaram, Executive, DoorDash
Gokul Rajaram is currently an executive at DoorDash with previous professional experience at Square, Google and Facebook. He looks at segmenting the SMB market by size of type:
Size: freelancer, sole proprietor with contractors, proprietor with 1 location and some employees, multi-location, and franchise
Type: restaurant, retail and service providers
As a professional and early-stage investor in SaaS solutions for the SMB market, Gokul urges founders building for SMB to make a strategic choice and focus on a specific size and type of SMB. The more you can focus, the more differentiation you can create and the bigger moat you can build. Examples of this are Toast and Slice, each going after a very specific type of restaurant. Given that SMB churn is almost as high as consumer tech, reaching 3%-4% per month, Gokul also looks for compelling customer acquisition strategies and the opportunity for strong organic growth when going after the long tail.
Gokul sees the back of the house as a massive opportunity for SaaS companies to build solutions in a lighter way and looks for companies that can ultimately implement a fintech strategy to funnel monetization through transactions instead of solely through subscriptions. He believes that transactions will win in the long-term as SMBs are coming online at faster rates and digitizing their systems of record. Once transactions are online, that opens up a world of opportunity for financial services including lending, factoring, working capital, insurance and banking.
We’ve seen companies like Facebook acquire Instagram, Amazon launch AWS, Google acquire Youtube and Square launch Cash App. It seems like the key to success may also be adding a second product line. Gokul supports this hypothesis, recommending that the best time to pursue a second product line is when the first (your core product) is bulletproof. The second product should be only one degree of separation from the first and should serve as a multiplicative product vs. an additive product.
📅 Upcoming Events
We are in the kitchen on an event for early 2022. The theme? Hint: there will be plenty of wine! We'll share more details soon.
Thanks for reading!
Best,
Sydney, Tessa and Jen
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