Sometimes, it’s good to do one thing very well. But other times, a company needs to do a bit of everything in order to succeed. It’s one of those big, important strategic questions that can shape whether a startup thrives, survives, or dies.
It’s a dilemma that has reached a tipping point for the deluge of startups looking to reinvent the way local services are bought and sold. On the one hand, a handful of software-as-a-service companies have built big businesses rethinking the software used by service providers to manage their businesses; and on the other, a group of consumer-focuses firms have grown on the back of Uber, Handy and others. And increasingly, they are eying each other’s products.
The latest news comes from MyTime, a San Francisco-based startup headed up by RedBeacon founder Ethan Anderson, which has grown quickly in its core markets. Today the company is announcing a new $9.25 million round of financing, led by Khosla Ventures’ Keith Rabois, who also serves on Yelp’s board, and Mark Suster of Upfront ventures. More importantly, the company is announcing a deeper push into back-office software — a move that Anderson says he aimed to avoid at the company’s launch.
The decision to begin selling back-office software appears to be both defensive and opportunistic. Some of the big companies that sell the scheduling software — Booker and MindBody among others — are pushing deeper into the marketing business, creating tension with consumer apps such as MyTime. These companies rely on integrations with these calendar software companies to surface availability and openings that are critical to the company’s core product.
The company’s new software-as-a-service product, MyTime Scheduler, offers a fairly robust suite of business management software, including email marketing, CRM and other features in addition to the scheduler. A few of the features, such as a custom messaging platform that allows service professionals to send updates and pictures to customers without sharing their phone numbers, are only possible because the company already has an extensive consumer-facing experience.
That’s where the move is also opportunistic, and marks an important bet on where the industry is headed. By controlling the system that helps merchants manage their entire customer relationship activity, from messages about follow-ups to new bookings, the company gains access to one the most valuable assets of all: the merchant’s customer list. It then can use that list to promote and expand the company’s consumer-facing marketplace, driving consumers to use the service to book with other businesses.
“The two sides — the marketplace and the schedule support each other,” said Anderson. “We decided that there was a huge opportunity to own the back-end to the merchant that allows them to bring all of their clients booking through MyTime rather than a portion of them. Having this full-stack marketplace allows you to do that.”
That cross selling and upselling is the defining aspect of the company’s model. The company has priced its back-office products well below those of competitors (Andersen says it will break even on payment processing and the SaaS product), but plans to make up the profits when customers from one business buy a service at another business via MyTime — allowing the company to collect a 37% cut for a new booking.
“We’re willing to price our service lower than everyone else, and we’re willing to lower processing rates because our goal is to steal share by becoming the best product with the lowest price,” says Anderson.
The model, which could be called “lead-supported software,” is risky but potentially transformative for the small business software industry. The big scheduling companies have already started to build sizable marketing businesses, working with the small business marketing companies to help promote a business, but the revenue model more or less has been additive and incremental.
In many ways, the calculus is simple. Does the value of having each part of the technology stack, from business management software to consumer experience, integrated into a single product exceed the value necessarily lost when a single company attempts to build multiple products.
If the product set is relatively commoditized and the businesses using the platforms operate relatively simple organizations, than it’s probably more valuable for the merchant- and consumer-facing components to work together — as they do with Uber, Lyft and others in ride-sharing. But if the back-office component requires deeper complexity and SaaS companies can continue to innovate meaningfully, then a best-of-breed ecosystem will likely succeed.
Steven Jacobs is Street Fight’s deputy editor.