Real Is Mandatory
“Then you better start swimmin’ or you’ll sink like a stone
For the times they are a-changin’.” — Bob Dylan
The venture markets are a-changin’ with investors and public markets demanding rational business models, visibility to profitable growth and inherently sound economics. Companies like Homejoy and Sidecar have gone under while stars like Uber have raised capital at flat valuations from a year ago. Companies going public are now being valued off of EBITDA multiples (what is this?). The old is new again as greed has swung to concern, heading to fear in the venture business as the IPO markets and multiples have compressed.
Historically, this has been when the true breakout companies shine. They are maniacally focused on customer needs, efficient capital use and culture as their less disciplined brethren are swept away in the tides. Trial by fire as they say. Real is mandatory in Darwin’s eyes.
An example of this has been our company, SMS, who crossed a major milestone this week, raising $150m from Goldman Sachs and continues to grow at 50–100% a year while having been increasingly profitable for each of the past 7 years. Few companies have pipelines like theirs approaching several billion dollars. Our journey with SMS Assist has been exceptionally rewarding as we’ve rolled up our sleeves next to an extraordinary team and founder. They have built one of the fastest growing enterprise companies in the country, in one of the grittiest industries through technology…facilities management. SMS’s story is both inspirational and instructional in a world of increasing headwinds and fading unicorns.
The power of the SMS platform is simple. The ONE platform controls over 500,000 sub-contractor technicians performing over 1 million services across 46 services like HVAC repair, landscaping, floor strip & wax to over 100,000 locations. Store managers and home owners simply drop a service request into their residential or corporate portal and ONE’s cloud systems pre-qualifies (e.g. for HVAC, did the circuit breaker trip or is it a real problem), identifies the most qualified sub-contractor based on over 420 tracked metrics, dispatches, manages the service, confirms & rates the service, pays the provider and delivers reporting for over 70 levels at the corporation…all automated without a man in the loop other than an occasional escalation to the call center. While traditional firms or in-sourced solutions rely on call centers and owned/operated fleets with few people on their tech teams, SMS delivers most of this on an automated basis with a 140+ person global technology team. The company has been profitable almost since inception. They run weekly scrums to codify best practices and process learnings into their business logic in the cloud.
One of the greatest barrier to entry/competitive advantage in venture is that rare entrepreneur who has exceptionally deep domain knowledge and strong technology chops going after a gritty industry with a technology and elegance. They are rare. Flawed competitors fall into two major categories. One is the star technology team which doesn’t appreciate the traditions, relationships or behaviors of the industry. The other is the industry team with deep domain expertise that simply automates existing processes with complex, uncompelling technology. Mike Rothman is a true “unicorn” and visionary along with his star lieutenant, Marc Shiffman. Mike has a brilliance to see things that others simply can’t. They are exceptionally detailed oriented, highly complimentary to each other and able to translate complex business needs to technical requirement with tenacious speed while also seeing a larger strategic vision for the future. They also have a palpable sense of inevitability in their belief and have fused talent from industry, the Valley and the Midwest.
While SMS has a lot of hard work ahead of it to realize its full potential, it has done a number of things right:
- conviction…when you talk with Mike Rothman, he has a Steve Jobs like inevitability about him. When there is setback, he figures out alternative plans A, B & C. He redefines tenacity. Jim Clark (founder WebMD, Netscape, etc) used to say “Great companies are built. They are willed into existence”
- know your core advantage…early on, they realized their “tip of the spear” was technology and focused heavy resources on it, ramping the tech team from 10 to 140+. They are continuously automating and building business logic into the cloud which allows them to handle more locations & services with existing infrastructure. More locations/services gives greater density and lower operating costs, leading to lower pricing with strong profitability.
- hire strong…Mike has hired strong management around him. Many founders under-hire, feeling intimidated. Mike has brought on stars like Shiffman from Ron Perlman, Matt Renner (top Oracle sales head), Mike Travalini (top RE ops manager from Starwood) and others.
- focus…while the SMS platform could expand into Industrial or other sectors, they have stayed focused on where they can compound advantage/density in retail and now residential. Too often, firms grab opportunity wherever they can and do nothing well.
- rapid execution…this team moves from concept/opportunity to implementation and test with significant speed. They rolled out a corporate portal for retail store managers to trigger/manage services in only 6 weeks. Many would over design this and take 6–8 months. Simplicity is king.
SMS has been a great partnership with Pritzker. They quickly follow-up on resources and opportunities we bring them (or promptly say “no thanks”). We introduced a top technologist and operator to them and they engaged him, pivoted their platform to the cloud, rolled out mobile and expanded their team. We introduced a major institutional REIT to them (SMS was only in retail at the time) and they rolled out a major residential offering, staffed up a residential team and ramped business to nine figures in less than a year. We introduced a top enterprise sales advisor to them and they re-engineered their sales organization, hired a top SRO from Oracle and brought on 10 “chairman club” calibre sales people from industry and the Valley. This is how culture, vision, execution and responsiveness all meet.
We love our companies that bring next generation solutions with real business models to real customers. Whether it is companies bringing new technology to old industries like Fleetmatics (NYSE: FLTX), TicketsNow (acquired by Ticketmaster), Eved or technology firms bringing innovation to emerging fields (Viv and x.ai in AI; Mapbox and Airmap in GeoSpatial/Drones; Augury in IoT; SpaceX in transport or Facebook in Social). Real is Mandatory and Substance is King.
These times are a-changin’. Business models and fundamentals will increasingly be tested. Many in this market have not been through a down turn nor can fully appreciate the magnitude of its implications. Whether you have a month or two years, take this time to pressure test your business and assess if you’ll be the benefactor or the victim in the coming cycle. Also, look around and see if you have the people around you (team, advisors, investors, board members, partners, etc) that will help you thrive during these times. As Warren Buffett always says, “when the tide pulls out, you see who is wearing a bathing suit”.