At Mindbody, a Lesson in Focus

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mindbody-logoTen years before Jack Dorsey doodled the first sketches of Square, Rick Stollmeyer, a former nuclear submarine officer, saw an opportunity to build software for the growing segment of small, health and wellness businesses which had started to pop up in cities across the U.S. In 2000, he founded MindBody in his garage, and spent the next decade building the software company into an under-the-radar success.

But times have changed. An explosion in cloud computing paired with more affordable and accessible hardware has swung the doors open on the small enterprise software market, dramatically accelerating the growth and competitiveness of the industry. After a decade with little outside capital, the company has raised over $110 million dollars in the past four years to compete with the likes of Square and a deluge of smaller entrants.

Street Fight recently caught up with Stollmeyer to talk about the underlying challenges facing Square’s model, the blurring line between marketing and operations, and what the explosion of local technology today spells for small businesses tomorrow. 

In the past two years or so, we’ve seen a deep verticalization in the local marketing and commerce businesses. Talk a bit about the thinking behind MindBody’s verticalized focus, and how the strategy has evolved over the past decade.
I was a nuclear submarine officer and this is the most complicated thing I’ve ever done in my life. We’re talking about the nuances in how you manage schedules in both appointment books, classes, and enrollments. How you manage the various payments against those schedules, which are not a one-to-one relationship. How you manage the relationships with the customer. How you pay your staff.

A vanilla solution just cannot address it with that much depth. When we decided to enter the beauty industry in 2010, we had to gut and completely re-engineer our appointment book just to handle that. The notion that you’re just going to have this vanilla solution satisfy their needs in any kind of a meaningful way — we just humbly suggest that’s impossible.

Square seems to believe that its possible to build across verticals. Even with $400 million in the bank, do you think that’s viable?
I had to smile because I thought “Boy, these guys do not lack for self-esteem.” It is not that easy. If you’re going to book everything from pest control to flooring contractors to bowling alleys and auto repair and do hair salons and yoga studios, and martial arts studios, and day-spas, you have got a big thing to do.

It’s a tall order. And our decision has been to stay very focused under a centralized thesis of health, wellness, and beauty. And that’s enough to keep us busy for a very long time and to build a very valuable company. What our thesis centers around is the notion that these trends are accelerating. They’re not going away.

MindBody recently released a consumer application, which allows users to book appointments with merchants who use its software. Talk a bit about the role, which demand generation plays for a SaaS business like MindBody?
Demand generation — the ability to both increase the value of the consumer that the business already has plus bring additional consumers to them — is a huge opportunity. There’s a lot of underutilized capacity in the industry and in most urban areas.The majority of the capacity in most cases is not being used during business hours. So a lot of us have felt for a long time that there’s a real opportunity there.

In essence, that’s what Groupon tapped into, right? But in a very messy, kind of value destroying way. They said: “Let’s start with cutting the price in half. And then we’ll take half of that and give you, the business owner, one quarter of what you would have gotten.” And pretty soon you and every other business on your block are chasing the same consumers with these programs, and you’re chasing each other to the bottom. We think there needs to be a much more pinpoint demand generation mode.

With the consumer product in tow, how does MindBody approach the growing sector of third-party booking applications?
We think there’s some very interesting startups in our ecosystem and we’re supportive of them. Companies like Classtivity, BurnThis and others who are creating some interesting consumer portals. And we have a great relationship with Spafinder Wellness. But I should also say we’re developing our own consumer brand.

We have a network that’s large enough. We have more businesses in our network than OpenTable has restaurants. So we have the ability to create a network effect on our own. At the same time, we can be open to (and we are open to) other consumer portals that have a lot of traffic. So there’s a number of relationships that we have and some I just mentioned.

Meanwhile, Booker, for instance, only has about 8000 locations. They can’t get there. They’re not big enough. They started at this game about five years after we did.

Technology may shake up industries early on, but often it eventually reinforces economies of scale and leads to a few dominant leaders in the market. In the battle between big brands and small business, are independent retailers better or worse off today than a few years ago?
A lot of the reason why you would join a large franchise centers around the superior information technology and business processes that they can bring you. If you can get that out of the box from a provider like MindBody or Booker, or some of the others that are there, why do need a franchiser? Why do you need a corporate head, which just adds overhead?

Ultimately, I think we have to look at the consumer. How does the consumer experience get better by large brands? And it’s an interesting question because it kind of depends on the vertical. For instance, certainly woman would tell you, she could care less whether her hair salon was a chain; it’s about that experience in that one salon that she goes to every time and most often, to that specific stylist that she goes to.

One could argue that technology is actually supporting the atomization of the market and ultimately down to the practitioner level. It’s a really interesting topic and I don’t have an answer for you. I think it depends and it’s going to be a very fascinating thing to watch over the next decade.

Steven Jacobs is Street Fight’s deputy editor.