Multi-Product, Multiple Choices: How to Determine Product Priorities

Dave Yuan, Founder and General Partner at Tidemark, with Ershad Jamil, Former Chief Growth Officer of ServiceTitan. ?This article is part of a series from?Tidemark’s Vertical SaaS Knowledge Project.

Earlier in the Vertical Saas Knowledge Project , we argued that Vertical SaaS vendors (VSVs) are “born multi-product.” Most VSV founders and CEOs will nod in agreement, before quickly asking the natural question: where should I start??

So, we invited a friend, Ershad Jamil, former Chief Growth Officer of Service Titan, to help answer that primal question and share his framework for prioritizing expansion opportunities.??

I love this essay because we?start with first principles, but go deeper into the specifics of the “follow-the money” and “follow the workflow” frameworks in the past. Finally, Ershad shares a matrix to help you stack rank expansion opportunities.?

And because we are Vertical SaaS nerds, of course we will continue to push deeper. If you are a late-stage vertical SaaS company and interested in brainstorming and some deep bench marketing, please DM me and we’ll set up a session.?

First Principles

By now these concepts are likely (hopefully) second nature to readers of the VSKP, but it’s always good to start with first principles! The long-term goal of a Vertical SaaS company is to create a diverse portfolio of revenue generating products that drive stickiness in the customer base. The stakes are high to get this right: expansion offerings oftentimes represent multiples of the initial SaaS ARPU. The benefits of being multi-product are significant for both parties in the transaction:

For the Vertical SaaS Vendor (VSV):

• Creates new revenue streams with high gross margins. You can increase overall gross margins for the entire company while having dramatically lower acquisition costs per product.
• Allows for diversification on top-line growth. Not all products have to hit annual goals over time; it’s a portfolio approach that allows for a more nuanced growth strategy.
• Enables for higher stickiness/retention of existing customers on the core software by increasing Net Dollar Retention.
• Attracts prospects due to the additional features/functionality that can be a differentiator to competitors.

For the merchant:

• A better experience for their customers (for example, they can do payments in same UI)
• A better experience for their own staff by the need for multiple apps
• Ability to generate additional revenue via marketing automation
• Ability to be more efficient (through something like embedded payroll and reduced errors via manual calculations)

So back to our original question from the original essay: How should a VSV determine where to expand?

Pools of Merchant Spend

A good approach is reviewing the customer’s P&L to understand areas of spend and where the VSV can provide value. This analysis should be done by customer segment—SMB, Mid-Market, or Enterprise will have vastly different needs. An example of an SMB customer is below.

Conducting diligence with customers and reviewing their expenses can help to uncover opportunities to create solutions to deliver value to the customer and allow them to consolidate spend with the VSV.

Follow the Workflow

In parallel, understanding the customer's workflow can help prioritize where the customer may need multi-products and ultimately help prioritize what to build based on economics, level of effort, and customer adoption.

For a $600b GMV example in the US, we can look at tradespeople (roofers, floorers, plumbers, etc.). They have a variety of software to choose from, but a Vertical SaaS company can provide the ability for tradespeople to consolidate many disparate systems and software. Across the workflow for a contractor, there are a ton of opportunities to add on products. These products are typically replacing existing software for contractors (i.e., share of wallet approach). Contractors are moving spend to the SaaS product. Expanding GMV take is one of the strategic advantages for a Vertical SaaS vendor (VSV) to increase wallet share and stickiness.

Workflow Steps for a VSV in the Trades

#1 Marketing acquisition: Helps companies target new customers (e.g., a homeowner who may need to fix their floor).

• Direct mail - Ability to send direct mail from the software. An integrated solution replaces a manual and local direct mailer that companies use.

#2 Inbound & outbound communications: Helps companies answer phone calls, SMS’, dial out to customers, etc.

• VOIP/Telecommunications (phone, SMS, etc.) - Ability to take and dial out from the software, along with sending SMS, etc. An integrated solution replaces a local provider or a VOIP solution that is not integrated.

#3 Dispatching technicians: Helps companies track trucks on the road, driver behavior, maintenance on the vehicle, and location of the vehicle for features like ‘route optimization’.?

• Fleet Management & insurance - Ability to track vehicles through hardware on the trucks. An integrated solution replaces existing GPS solutions.
• Fleet Cards - Ability for fleet drivers to use fuel cards in the field and tie the payments back to the core product. The office staff can monitor and track fleet payments and fleet drivers can obtain discounts at the pump.

#4 Servicing in the home or business: Helps technicians in the field perform more efficiently.

• Pricebook - Ability to show customers a catalog of services, material, etc. This could replace a vendor provided pricebook or a custom built pricebook by the contractor.
• Forms - Ability to build complex forms in the software. This could be enhanced forms functionality if needed.

#5 Taking payments: Helps technicians and office staff accept payments and reconcile appropriately in one solution.

• Credit Cards - Ability to take credit cards remotely, online, etc. This replaces the company's current CC solution with an integrated experience in mobile and desktop with features like online payments, auto reconciliation, etc.
• Checks - Ability to take physical checks, mRDC, ACH, etc. out in the field or in the office. This would replace bringing back physical checks to the office and then taking them to the bank or using a machine in the office to process.?
• Customer Financing - Ability to allow customers to pay through embedded financing (BNPL). This would be an integrated experience where customers can use financing for the job and get approved in a matter of seconds in the app.

#6 Marketing retention: Helps companies retain their existing customers and increase brand reputation online.

• Email retargeting - Ability to hyper target existing customers through tailored campaigns. This is an extremely valuable solution for companies that rely on repeat customers.?
• Reputation management - Ability to manage reputation in the software and reply to reviews to maintain a high brand. Also could allow companies to track reviews by technicians and award those with high reviews over time.
• Ads - Ability to pull in ads data and flight ads. This wouldn’t replace the robustness of Google, Facebook, Bing, etc. but it would allow the companies to have better insights on campaign performance and optimize ad spend & results.
• Websites - Ability to build and maintain the website of the company to optimize SEO and allow for widgets like web scheduler, reviews, etc.

#7 Financial Technology in the office: Helps office staff to obtain funding, pay employees, and potentially do all ‘banking’ in the software. E.g.,?

• Business Financing / Capital - Ability to obtain loans to help with working capital. Ideally the solution is within the app with a simple application. The app could also recommend when to obtain capital based on financial results (i.e., pull in accounting/GL level data and make recommendations)
• Payroll / HR - Ability to pay employees in the software vs. existing payroll solutions, etc. = embedded payroll. Can also go ‘up-funnel’ to build HR capabilities for their customers (i.e., background checks, onboarding, talent management, etc.).
• Insurance - Ability to tie in insurance to other products (e.g., workers comp, vehicle insurance, general liability, etc.).
• Payables - Ability to pay vendors in the software (e.g., AP automation) via ACH, direct ACH, virtual cards, etc. The great thing about payables is that the contractor does not pay for it, the vendor does (which also complicates adoption).
• Banking as a Service - Ability to conduct Neobank functionality in the software. This is an early stage add-on product for most SaaS today.

The Payoff

Each potential expansion product should be measured by the impact it has on the VSV, the merchant, and the merchant’s customer. As a starting point, the following should be evaluated:

• ARR impact
• Gross margin impact
• Customer adoption impact
• Retention impact
• Level of effort to build & launch the solution
• Ability to obtain high customer adoption of the solution

The table below is an example of potential multi-products for a VSV company to help prioritize the products and solutions the company can build. With R&D always having to prioritize core vs. add-on, this framework can help to understand the order of what to build & deploy over the years.

*The table above depicts the high-level impact from a specific vertical SaaS perspective only and is not directly applicable to all companies.

It’s also important to understand who does the billing along with who actually pays for the product (i.e., the VSV or their merchant customer). In general, the larger the software company's customer (in revenue, employees, etc.) the higher likelihood there is to adopt more products due to additional staff able to take on managing the products and their workflows, in addition to the realized benefits of paying for various products and their impact.

Share your thoughts

As with most things, prioritization of expansion products is highly contextual. So let’s talk and get more into the specifics. If you’re a late-stage VSV and want to go deeper and do a benchmarking?and brainstorming session, reach out to us at [email protected].

We love the idea of bringing together a community to explore the boundaries of Vertical SaaS and are excited by what we can learn from each other. If you have thoughts or comments or want to get involved, reach out to us at [email protected]. If you would like to keep updated as we publish these essays, sign up?here.?

This article is part of a series from?Tidemark’s Vertical SaaS Knowledge Project.

The information presented in this post is for illustrative purposes only and is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by Tidemark or any of the securities of any company discussed. Companies discussed in these posts may include current Tidemark portfolio companies and/or prior investments made by Tidemark employees while at other investment firms. These companies identified above are not necessarily representative of all Tidemark investments, and no assumption should be made that the investments identified were or will be profitable. The information in this post is not presented with a view to providing investment advice with respect to any security, or making any claim as to the past, current or future performance thereof.