#075: The Full Stack Playbook, Two Interesting Thoughts, Get On Airplanes
#075: The Full Stack Playbook, Two Interesting Thoughts, Get On Airplanes
One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.
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Alright, let’s get to it…
One vSaaS Breakdown:
Full Stack Companies
Full stack companies have been interesting for some time (ie. One Medical). But a new crop of full stack is popping up with M&A as a key strategy (ie. Metropolis, Splash).
I asked @MichaelStenclik, who co-founded & scaled Tend Dental w/ this approach, to break it down for us:
First off, let's talk the advantages of building a full stack business:
Capture more of the TAM – when a SaaS product might have category comps or IT budgets that limit pricing power, you capture the entirety of the value created
Don’t have to worry about sales cycle times – your employees are the users of the product
You have a high degree of visibility into usage of the product – what’s working, what’s not, what you need to tweak, and can iterate quickly
Next, the disadvantages of full stack businesses:
Capital efficiency – services have true marginal costs, and often material capital expenses – utilization becomes paramount
Speed to scale – takes a long time to build new markets and acquire new locations
Operational complexity – a lot more things to get right, and humans are inherently more challenging to manage than code
Multiples for services based businesses have historically been unfavorable, and it can be hard to bring investors along
So when is this strategy right for you?
TAM might be too small on SaaS fees alone
Sales cycles are really long and/or expensive
The path to capital efficient growth with tech is well understood
Ok, so let's go to it....
Here's the step-by-step approach to building a fully vertically integrated business:
Phase #1: Build a “beta” service / sandbox
What’s the most capital efficient way to spin up your service?
New Build vs. Acquisition
Buy off shelf software to start seeing customers ASAP
Start collecting customer feedback on what’s working, what can be better
Phase #2: Build an operating system
Brand identity
Kit of parts for new builds
Software stack that covers end to end service experience – progressively bring in house things that are unique to your model
New market launches, collateral, shared services, etc.
Phase #3: Build an unfair talent advantage
Who is the key revenue driver in your business? Make their job easier – take work off of their plate that can be managed by product
Provide a path to growth – in many SMBs promotions are less common. Can scale change that?
Commission based comp – if revenue is higher than average company in category, everyone wins
Equity based comp – if margins are better than average company in category, everyone wins
Benefits – often poorly considered and an easy lever to win early
Phase #4: Expand margins
Drive new customer volume at favorable CAC
Roll out margin accretive services
Labor arbitrage using AI or low cost resources
Leverage scale to increase price, or decrease marginal costs
Right size overhead to match frontline services
Phase #5: Optimize capital stack to fuel growth
Use cash proceeds from existing platform to fuel market expansion
With predictable cash flows, find favorable debt terms to maximize return on equity
In the current environment, there’s been a serious shift toward cash flowing tech businesses. Full stack, if done right, can give you that virtually overnight.
But, you'll get many different answers on whether or not this play fits into the traditional venture capital model...
I'm personally a big fan of these businesses, and think a new capital stack needs to emerge that sits between VC and PE to fund them.
One Biz Story Two Interesting Thoughts:
One ‘How To’:
Getting On Planes = Sales Hack
How many customers did you visit f2f in the last year?
If you're selling $25K+ ACV deals and your not doing this your leaving a lot of $$$ on the table.
Get on planes.
F2F selling really really works.
One More Thing:
Participate in the vSaaS Benchmark Study!
Building software for a specific industry and eager to learn what success looks like (especially from a venture fundraising perspective), and how you stack up among your peers? You’re in the right place, because I have partnered up with OMERS Ventures, Mosaic, and Benchmarkit to gather the data for what we hope will become a set of useful, cross-industry benchmarks for vertical SaaS and software businesses that should benefit the whole community.
By participating in this survey, which should take just a few minutes of your time, you’ll help yourselves and other founders like you:
Know your goalposts as a vertical software company (instead of having to rely on ill-fit comparisons to horizontal software providers)
Know your goalposts within your own vertical (with the proviso that we get enough volume in each respective category – so share with your peers and competitors!)
Know what investors are going to care about and grade you against when considering an investment
If you’d like to participate, follow this link.
Survey responses will not be linked to your email and will be held strictly confidential by Benchmarkit and OMERS Ventures. Individual responses will only be accessible by Benchmarkit and OMERS Ventures (including related OMERS entities) and will not be shared with any third parties except on an aggregated basis. Aggregate results of this survey will be shared with participants in August.
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