The Small Business Boom in America: Happening Now, Powered by SMBTech

by Chelcie Taylor , Investor and Jeff Richards , Managing Partner

Small businesses (“SMBs”) have always been a mainstay of the American economy, representing 44% of U.S. GDP and 46% of private sector employment. But the last few years – since the COVID pandemic started – have truly been a renaissance for SMBs. More than 5 million new business applications were filed in 2021 and 2022, and a record 5.5 million in 2023.

“Why now?” one might ask. Several reasons, including millions of “office workers” who got a taste of remote and flexible work during the pandemic, the government stimulus that helped citizens save cash to invest in their new venture, and the rise of the “gig economy.” However, we’d argue that perhaps the most important factor is the country’s flourishing SMBTech ecosystem, spearheaded by leaders like Shopify, HubSpot, Toast, Square, and others. Over the last decade, these companies developed tools and technologies making it easier to start, build, and grow a small business offline (physical/real world / Main St, etc) and online (ecommerce / websites, etc.).

Ten to 15 years ago, it was not uncommon for a restaurant, coffee shop, or nail salon to not even have internet access in its facility. The rise of the iPhone, cloud software, and ubiquitous wifi changed that. Today’s business owners are savvy technology users, using booking software from companies like BLVD and Autoleap, payroll and team management from companies like Gusto and Homebase, and billing and payment from companies like Square, Stripe, Brex, and Brightwheel.

Introducing This Year’s SMBTech50

Today, we’re announcing our annual SMBTech 50 list in partnership with Nasdaq, Stifel, and Fenwick. The list highlights the top 50 private technology companies serving the global small business economy, as nominated and voted upon by more than 30 venture capital firms that invest in the category. You can view the list at www.smbtech50.com. These 50 companies collectively raised over $29 billion in venture capital and employ tens of thousands of people all over the U.S.

As you might expect, almost every SMBTech company is embracing AI in a big way, and we highlighted some of the leaders in our analysis. We believe AI will have a positive transformational impact on SMBs, enabling owners to effectively sell, market, and manage important finance and accounting tasks like billing and collections. In short, AI should be an enormous net positive for this segment of America’s economy.

Looking at Today’s Public Leaders to Inform Tomorrow’s Rising Stars

As we highlight the top private companies in the sector, we wanted to spotlight two public companies that have created hundreds of billions of dollars in market value over the past decade – HubSpot (NYSE: HUBS) and Shopify (NYSE: SHOP). Remarkably, the combined market capitalization of these two companies at IPO in 2014 and 2015, respectively, was $2.1 billion. Today, the combined market value is over $120 billion. Investors who bet on these two companies and their ability to empower the growth of America’s small business economy have been richly rewarded.

We partnered with Parker Lane, managing director at Stifel, and the firm’s lead analyst covering the software and SMBTech sectors to look at the growth of HubSpot and Shopify and highlight a few “lessons learned” from these remarkable growth stories. HubSpot and Shopify are two of ten SMBTech companies to complete IPOs between 2014-2019, a group that has collectively generated more than $220 billion in market value.

Shopify: Aligning with Merchant Success

The most successful SMBTech companies share several key characteristics, with the critical element being a clear alignment of value with their merchant customers.Unlike large enterprises, many SMBs do not have CTOs, IT executives or large allocated budgets to purchase technology. As a result, they want vendors who can offer a very clear impact/value beyond what they charge for their software and services. SMBs also want to “buy more from the same vendor,” which favors providers who can effectively develop and offer multiple product lines that can be easily integrated and simple to use.

Shopify is one of the great technology growth stories of the last decade, having grown revenue from $200 million in its IPO year of 2015 to a run rate of $8 billion in 2024 ($2 billion in the most recent quarter). The company provides a mix of software tools – sold on a subscription basis – along with billing, payments, and logistics services for merchants. Importantly, Shopify clearly aligns its success with the merchants it empowers – as a merchant’s revenue/GMV grows, so does Shopify’s revenue. In 2015, Shopify merchants generated $7.7 billion in sales (GMV); in 2024 the company is on track to generate more than $250 billion in sales. TLDR – a roughly 30X growth in sales for merchants has translated into a similar increase in revenue for Shopify.

Per our note above about SMBs wanting to buy more technology from the same vendors, Shopify has also done a tremendous job of expanding its product line over the years (we’ll discuss the same for HubSpot below).

Shopify’s alignment of growth with its merchants is key for successful SMBTech players, and we see many of today’s top names in the SMBTech50 doing the same. Stripe takes a percentage of its merchants’ digital transaction value. Companies like Brightwheel and GlossGenius have a model similar to Shopify, with both software and payments and thus a growth model which reflects both customer expansion and end merchant revenue growth.

HubSpot: The Power of Product Expansion

HubSpot generated tremendous value for investors, growing from a roughly $700 million market capitalization at its 2014 IPO to more than $25 billion today. It has done so with a capital efficient model and consistent growth via product expansion. Revenue growth has been remarkable, going from $116 million in 2014 to more than $2.6 billion in the last 12 months ending June 30th, 2024. HubSpot does not have a billing/payment model tied to merchant sales in the same model as Shopify’s, so how has it achieved this growth? Hint: product expansion (see Chart D).

HubSpot has also done a remarkable job of incorporating its product expansion strategy into its sales and marketing model, with an ever-increasing number of new customers starting their relationship with the company using more than one product module.

This multi-product strategy is also key to driving one of the most important metrics in software: Net Revenue Retention (NRR) rates above 100%. NRR is a mission-critical metric in software broadly, but especially important in SMBTech because the end customer base can be volatile in its own right – the age-old mantra is that roughly 20% of SMBs go out of business every year. So how does one build a software business selling to SMBs with >100% NRR when 20% of the base might cease to exist every year? Product expansion, combined with excellent products and a strong customer success function.

In a nutshell the “secret” to remarkable growth and value creation in SMBTech boils down to phenomenal product execution and alignment with customers. Easy to say, hard to do. Shopify and HubSpot are two of the great IPO stories of the past decade. Suffice to say, the rising stars on this year’s SMBTech 50 list are no doubt taking many pages from their playbooks.

Eyeing the Next Generation: The 2024 SMBTech 50

This year’s list includes well-known names like Stripe, along with earlier stage stars like Drata and Rilla. Almost half of the companies on the list have each raised $100 million or more in venture capital. While we don't have access to specific financial numbers, we can draw parallels to Shopify and HubSpot based on their strategies, sectors, and funding.

1. Multi-Product Strategies: Following HubSpot's playbook, companies like Homebase have expanded beyond the core scheduling product to offer a suite of solutions, including payroll, hiring, and team communication, to its >100,000 end customers. Similarly, ServiceTitan has broadened its offerings to include marketing and pricing modules alongside its core field service management software. (ServiceTitan merchants served more than 25 million U.S. households in 2023!)
2. Embedded Fintech: Taking a page from Shopify's playbook, many SMBTech 50 companies are integrating fintech solutions to increase their attach rates and alignment with customer success. For instance, Brigthwheel has built a robust payments system alongside its early childhood education software. It now handles several billion dollars in payment volume. GlossGenius powers payments for tens of thousands of salon and spa owners.
3. Generative AI Automation: We are pleased to announce the newest SMBTech 50 category: Gen AI Stars. A common theme amongst this inaugural cohort of companies is that they are leveraging AI to automate key business functions. For example, companies like 11x and Clay are enabling SMBs to scale sales efforts more efficiently by automating prospect outreach & intelligence, freeing up sales teams to focus on closing deals. Additionally, AI-powered back-office solutions, such as Rippling for HR and payroll, and Rillet for ERP, enhance operational efficiency for SMBs.

Conclusion: The Future is Small (Business)

The rise in SMBTech companies is more than a trend—it's a fundamental shift in how America's small businesses operate, compete, and grow. We believe AI will be a tremendous tailwind for SMBs. After a 15-year adoption cycle with mobile, cloud, and payments becoming a standard part of daily operations, we expect SMBs will rapidly embrace AI.

We expect AI technology providers to support small business owners by augmenting core functions like sales, marketing, accounting, tax preparation, bill payment, and customer care. This technological leap will free up lean teams to focus on growth and serving customers.

The benefits of AI couldn’t arrive at a better time, with record numbers of new small businesses being launched. We expect to see rapid product innovation from well-known leaders like Shopify and HubSpot, as well as the rising stars on our SMBTech 50 list. The next 2-3 years will likely see more technology innovation for SMBs than we’ve seen in the last decade. It’s going to be fun to watch (and be part of!).