Even Plumbers Need Software – Software for the Small Business Home Services Economy
From an idea solving an obvious problem to 2,500 clients who run a workforce of 50,000 across the U.S. and Canada, annual revenue is projected to top $100 million this year for software vendor ServiceTitan who supply software for small business.
After landing their first major round of investment in 2015, the co-founders of one of L.A.’s fastest-growing start-ups had to make a major decision.They were flush with cash, it was time to start hiring more employees.
Four years later, ServiceTitan has grown to a company valued at $1.65 billion by building a software suite for the plumbers, electricians, HVAC-repair people and garage-door installers of the world. The tech hubs of Silicon Beach and Silicon Valley had largely ignored the $400-billion home services economy, allowing these two friends helping their fathers work as plumbers and contractors to see that huge untapped market as an opportunity.
In March 2018, the company raised a $62-million round of venture capital. In November 2018, it raised an additional $165 million and with few competitors. ServiceTitan appears to have room to just keep growing, a relative rarity in today’s crowded tech landscape. Since 2015, the staff has ballooned from 40 to more than 600 employees, with a satellite office in Atlanta.
The founders both moved to L.A. as young children in the ’80s. — Mahdessian from Iran, as a refugee fleeing the brutal Iran-Iraq war, and Kuzoyan from Armenia, then a part of the Soviet Union. Mahdessian’s family landed in Glendale, where his father started a contracting business. Kuzoyan’s family started out in East Hollywood’s Little Armenia, then North Hollywood, and “finally made it to the promised land of Glendale,” he said, once his father’s plumbing business found some success.
The boys focused on school, helping their fathers over weekends and summers. Mahdessian got into Stanford; Kuzoyan got into USC. Both majored in computer science and seemed destined for cushy jobs at big-name tech firms: Facebook, maybe, or Google. But when they met on a joint USC-Stanford Armenian Student Assn. ski trip they found a new path that took them back home.
“We talked about our lives growing up, and seeing our parents struggling with their businesses,” Mahdessian said. Kuzoyan had been tinkering with some software to help his dad. And Mahdessian had already told a firm in Glendale, CA. that he’d try to cook up something similar. They both knew how small home services businesses were run on a mixture of paper forms and one-off programs, thick appointment books and crude Excel sheets. They realised they could build software to streamline the whole operation.
After graduation, they started coding together. It started out as a simple program to track customer calls and marketing budgets, so their dads could figure out whether an ad in the yellow pages or on Google was worth their time. By the end of the summer, other contractors were asking to see the software.
At the time, John Akhoian was running a Mr. Rooter franchise in Mission Hills. He had been working as a plumber in the Valley since he was 17, and like many in the industry, he didn’t get into the business for the paperwork. The dispatch system ran on a discontinued type of database software. Invoices, sales reports and orders came in a mishmash of analog and digital forms. Plumbers had to haul big books out into the field to show customers pricing and product info. “I knew it was possible to make all of this computer-generated,” Akhoian said, “just nobody was willing to work on it.”
But Mahdessian and Kuzoyan were happy to keep adding new functions to match the needs of their growing client base. For five years, they kept building an all-in-one software suite for local customers, then they realised they had to change. “This is embarrassing, but we first built it as a desktop application. — We literally missed the internet, and this is in 2007,” Kuzoyan said. “We didn’t have this grand vision like what we have today.” The mass adoption of high-speed internet fundamentally changed the software business.
Customers used to pay big upfront fees for floppy disks or CD-ROMs, and repeat the process whenever an update came out, then Salesforce came along. In 1999, it became the first big company to take advantage of the new connectivity by selling software not as a discrete product, like a loaf of bread or a power drill, but as a subscription service.
This software-as-a-service business model (known as SaaS in the tech world) let customers instantly expand or contract the number of devices running the software. Getting new updates on the fly and access the same info no matter which computer they were using, and it let the SaaS companies bring in reliable rivers of money.
Under the old model, developers sank years of work into a new version of software, betting that customers would upgrade. Now, they had locked-in customers paying up each month — all they had to do was keep them happy. The model has grown Salesforce to a $123-billion company, San Francisco’s largest tech employer, and been embraced by tech start-ups and venture capital firms alike.
As they talked to more contractors, the ServiceTitan team realised that if anything, SaaS was even more useful outside the bounds of a typical white-collar job. With just an iPad linked to the cloud service, a plumber could check and update a dispatch calendar. Show customers an always-updated inventory catalog, take notes for the next visit, and even process payments on the fly. — And the back office could see all this happen. With location tracking, they could even check whether the plumber was knocking off early to hit the pub, or doubling back to a house on the weekends to do an all-cash side job for a customer.
“Nobody was thinking about this industry, right?”. Mahdessian said. “But it is a core part of life. Who else provides the basic necessities of life — water, relief from the scorching heat in L.A., or the crazy cold in the East, and then light and electricity? It’s the basis of civilisation.”
Investors soon bought in. Byron Deeter, a partner at Bessemer Venture Partners, met up with the founders in 2015, in Kuzoyan’s dad’s shop, to shake hands over their first $18-million round of funding. “That customer empathy and love and understanding, just coming from that world, has served them extremely well,”. Deeter said. “It gave us complete conviction that they could build this product.”
Deeter foresaw challenges in attracting trades aside from plumbing, where ServiceTitan began, and growing quickly in an industry split into a galaxy of small operations. But word spread fast, and ServiceTitan started signing contracts with some of the country’s largest home service franchises, regional chains, and has enlisted hundreds of five- and 10-person shops, too. “We went from a world where it was push push push, and then it started to pull,” Kuzoyan said. “We’ve been holding on for dear life ever since.”
ServiceTitan has racked up more than 2,500 clients who run a workforce of 50,000 across the U.S. and Canada. Annual revenue has doubled yearly since the company raised its first round, and is projected to top $100 million this year.
The threat of competition from one of the software sector’s true giants, or getting undercut by a newer (and cheaper) start-up, is always present. But to date, heavy hitters such as Salesforce, Microsoft and Oracle have stayed out of the home services business, focusing their cloud-based field software efforts on healthcare, IT and manufacturing.
“They want to sell million-dollar packages to billion-dollar companies,” said William Hsu, a managing partner at Mucker Capital, the Santa Monica firm where ServiceTitan first found seed funding. “The small and medium sized business market is really, really unsexy,” he added, leaving the field open for ServiceTitan.