#101: The "Industry Engineer", Do You Have An Escape Hatch?, The Story of Service Titan
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:
The ‘Industry Engineer’
I’m introducing a new concept I think every vSaaS company should implement..
One of the problems with vertical SaaS is it doesn’t get written about enough. All the content today is tied to ‘SaaS’ but in most cases that just means broad horizontal SaaS.
One of the pain points I’ve lived through is leveraging learnings from horizontal software founders and finding out they DON’T WORK in vertical / industry-specific software.
A perfect example of this is Industry Engineers and why you should think about introducing the role at your vSaaS business.
Most of us are familiar with Sales Engineers - the folks who tag along with an Account Executive and can get very deep in the technical aspects of their offering. Sales Engineers are very popular / prominent in technical SaaS products or integration heavy SaaS products.
But one of the biggest problems in vertical SaaS is industry knowledge.
You have two choices typically…
Hire a SaaS Sales Person and teach them the industry
Hire a Sales Person who is already in the industry
I’ve found both of these actually don’t work.
#1 takes ~18 months. You can say it’s 6 or 12 or whatever but if you really ask yourself this with deep intellectual honesty it’s usually much longer.
#2. Unless your in an industry where there is actually talented sales professionals (my experience is that there typically isn’t) you end up getting someone who wants a big pay check to not do the type of work that venture or PE backed start-ups require. VSaaS is major league sports in most cases and these guys/gals typically just aren’t cut out for it. Additionally, they pitch you on all of their relationships but what happens is a few early wins and then the well goes dry.
So what do you do?
Today I’m introducing the concept of ‘Industry Engineer’.
Instead of Sales Engineers you go and hire folks whose sole job was to implement technology at the business your selling into.
For example, if you’re selling into car dealerships, you find someone whose job was to literally implement, manage, ensure success of all the different software they used.
This person is a legitimate supercharger of your sales org.
From there, I hire a SaaS sales guy/gal, who is willing to grind. Who does a ridiculous amount of inputs that are needed to be successful. The guy/gal that makes an infinite amount of phone calls, touches, gets on airplanes, etc. The one who has a chip on their shoulder, the one who has no plan B.
Depending on your ACV you can think about how many industry engineers you need per sales person to still make the economics work.
IE if you have a $200K rep that can do $1.2M in sales you can afford an industry engineer to spend all of their time with this person. You’re still in ~5X land here.
If you have a $100K rep that does $400-$500K in annual sales than your probably looking at one industry engineer to support 2-3 reps.
You can leverage Sales Engineer Ratios the same exact way to study what may be a good fit for your business. Here’s a good overview to reference.
I’ve talked to many founders that have nailed their vSaaS GTM motions out of the gate by doing this.
If I could go back and do it all over again I WISH I had read this article because it would have saved me MILLIONS, not to mention the pain I went through to get to this conclusion.
So, learn from my mistakes, and consider the industry engineer role seriously.
I don’t think it’s a thing quite yet, but I do expect it to be for vSaaS companies in the near future.
PS - I have 100+ writings just like this one in the Vertical SaaS Bible. Go check it out :-)
One ‘How To':
Do You Have An Escape Hatch? 👉 🆘
One of the things that gets lost in the SaaS content universe is taking the time to map out your Plan B / Escape Hatch.
Why? Probably because most of the folks writing content are VC’s that want you to swing for the fences. Remember they need 2-3 home runs per fund and if the other 95% of companies fail, so what?
So nothing against my VC friends here, but if your the entrepreneur or operator, you don’t have the luxury of big bet diversification.
So what do you do?
Always plan for the downside scenario.
Always, always, set yourself up to have an escape hatch.
Let’s dive a bit deeper on that…
In 2020 I was on top of the world. My business had just tripled ARR (and we were in the 7 figures so this wasn’t a small feat).
I raised a big time Series B from a big time Silicon Valley fund.
But I made it very clear to them, and to our executive team, that we would structure the company in a way that if we ever fell off the venture track it all wouldn’t be worth nothing.
And you know what? That’s exactly what happened.
In 2021 I crashed from 200% growth to 30%. I was selling a solution to an industry full of pen/paper and during COVID they had to go digital. They didn’t have a choice anymore. But post COVID a lot of them went back to their pen and paper ways.
I tried to reignite the growth in 2021 and in 2022 with the Series B dollars we had but even with some serious investment we couldn’t juice the business past 25% YoY growth.
I had two choices at that point, pull the escape hatch or bet the business on one more year of spending significant dollars trying to stay on the VC track.
I decided to pull the escape hatch.
I laid off half the company, I focused on getting to profitability, and I immediately took us off the venture track.
Maybe you’re more risk tolerant than me, but I was not willing to lose 5+ years of hard work.
So what’s the lesson here?
You need to understand what your escape hatch is, what it looks like, and when you have to decide whether or not to press the button.
It doesn’t matter if you have $100K in revenue and your bootstrapping or if you have $100M in revenue. You have to be aligned on this with your management team and board. Not all of your employees, but definetly your management team and board.
For a lot of SaaS companies, if you can get to $8M+ ARR, grow north of 20% YoY, have good retention, and be break even, you can probably sell to Private Equity for 4-6x ARR. Now that’s not the 10X+ multiples I was raising at when I was on top of the world, but there was a path to getting to an exit that would make some investors very happy, and the ability to take care of the management team for all that they’ve done.
What you’ll find when you actually press the escape hatch, execute on it, and sell to PE is the VC’s end up being very appreciative that you got them some amount of their $$ back or even a slight multiple on it.
Will you be popping champagne with them? No, of course not.
But you’ll have proven yourself as a competent operator and I’d bet they’ll take another shot with you on the next thing.
Plus banking some serious dough for yourself isn’t a bad thing given all that you’ve done.
Just think about it.
I will always have my Plan B / Escape Hatch planned. Every. Single. Year.
Taking VC shouldn’t mean that your business is ZERO or HERO.
You’ve worked too hard for that.
One Biz Story:
ServiceTitan Case Study
Service Titan just officially filed for their IPO. I will do a deep dive on the IPO prospectus soon, but for now enjoy a case study on them:
2 Armenian immigrants built a ~$10B vertical SaaS company by creating software for home service businesses.
In ~10 years, they've helped 100,000+ technicians and 12,000+ companies.
The story of ServiceTitan, an amazing company you've probably never heard of:
Vahe Kuzoyan and Ara Mahdessian are the founders of California-based software company, ServiceTitan. ServiceTitan is a cloud software tool that streamlines every aspect of a home service business. These are plumbers, electricians, HVAC pros, carpet cleaners, and more.
In 2022, customers leveraged ServiceTitan to:
Complete 30M+ jobs
Process $25B+ in transaction volume
The founders started the company to help their parents, who were home service contractors. And they haven't looked back since. Let's dive in 👇
Ara Mahdessian was born in 1985 amidst the chaos of war in Tiran. In a similar timeline, Vahe Kuzoyan, born in 1983, and his family struggled in Armenia. It was a difficult time for both families.
Both families fled their countries to find safety in Southern California - home to America's biggest Armenian community. Growing up in an immigrant community, they witnessed their parents' hard work and determination firsthand.
Both their fathers became successful building and plumbing contractors despite facing language barriers and logistical challenges. Ara and Vahe took keen note of this.
Ara and Vahe first met on a college ski trip for Armenian students. Ara studied at Stanford and Vahe was at USC, both studying software engineering. After graduating, they teamed up on several consulting projects.
In 2012 they came together to build ServiceTitan — A software platform that could help home service businesses streamline their operations and provide better service to their customers.
News spread fast in the Armenian community that the co-founders had a tool that could ease entrepreneurs' most frustrating operating problems. And that was it. The business swelled. Fun fact: Vahe's parents were the OG beta customers.
In its early days, ServiceTitan focused on plumbing, HVAC, and electrical businesses. Vahe and Ara knew they needed to scale quickly. They focused on building a great product and finding the right people to join their team. And they did...
In 2015, ServiceTitan raised $18 million in Series A funding led by Bessemer Venture Partners. This pivotal moment allowed them to expand their team, refine their product, and reach even more customers.
In 2016, ServiceTitan launched a mobile app for technicians and integrated it with industry-leading tools and partners.
By 2017, ServiceTitan had become a force to be reckoned with, amassing over 1,000 customers and processing $1 billion+ in transactions. This incredible growth attracted another $62 million in Series B funding, and the company’s valuation reached $2 billion in 2018.
By 2019, the company had:
800+ employees
3,000+ customers
50,000+ technicians
Talk about exponential growth!
By 2020, ServiceTitan had more than 100 partners. With this added ammunition, they rolled out a slew of new features such as marketing analytics, custom reporting and financing integrations.
In 2021, ServiceTitan raised $500M in Series F funding led by Tiger Global and Sequoia Capital Global Equities. This gave the company an $8.3B valuation, five times more than its previous valuation of $1.65B in 2018.
ServiceTitan made another strategic move in 2021: They acquired Aspire Software, a business management software for the field service and construction industries. Aspire had 50k+ users and processed $4B+ in annualized transactions. The acquisition made sense.
This strategic move expanded their reach and laid the groundwork for even more ambitious growth. By 2023, just ten years after its inception, ServiceTitan had grown into an industry titan, boasting 7,500 customers and impacting the lives 100,000+ technicians and office staff.
The platform had processed a jaw-dropping $20 billion in transactions, proving its immense value to the home services sector. At a tiny processing fee, the revenue through their FinTech offering is ENORMOUS.
But beyond the numbers, ServiceTitan is proof that the American dream is alive and well. Two immigrants who set out to solve their families problems now help so many people just like them. And they've likely become near billionaires along the way. Absolutely amazing.
Have a product or service that would be great for our audience of vertical SaaS founders/operators/investors? Reply to this email or shoot us a note at ls@lukesophinos.com