The Secrets to Selling and Scaling in Vertical SaaS with Slice’s CRO Loren Padelford - The Entrepreneurial Way with A.I.

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Tuesday, October 8, 2024

The Secrets to Selling and Scaling in Vertical SaaS with Slice’s CRO Loren Padelford

#SmallBusiness

Can you build a very large business within a single industry? Yes, you can. How? At the last Workshop Wednesday, Slice CRO Loren Padelford answered questions on how to build a vertical SaaS company for SMBs and create a massive TAM opportunity. Loren is in month six at Slice and previously worked at Shopify pre and post-IPO, Podium, and Bill.com.

For context setting, Slice has over $100M in revenue and tens of thousands of customers in their platform. Who is their customer? Independently-owned pizzerias. At first glance, that might not seem like a viable SaaS business, but in the U.S. alone, there is $50B worth of order flow and spend through those pizzerias. That’s $50B worth of TAM in a single vertical in one country. Globally, it’s far larger.

Why pizza? Everyone eats pizza. When they’re happy or sad, when it’s Celine Dion in Paris or the Tour de France winner scarfing it down before even getting off his bike, people will always eat pizza. There’s no downturn in this vertical because pizza is social fabric.

And why independent pizzerias? There are around 30k-40k independent pizza shops in the U.S. If you combine Domino’s, Pizza Hut, and Papa Johns, there’s about 20k, so independent is a larger market than “Big Pizza.” Slice provides software and services that help these shops run better, gain insights into their shops, engage with their customers through marketing, and even sell them pizza boxes at a discount.

It’s the full ERP for a pizzeria, essentially. People miss that in vertical. To win for SMBs, you need to own the whole operation stack for them to achieve the ROI they need.

You Need to Own the Whole Operation In SMB Vertical SaaS

For a pizza shop, it isn’t rocket science or that complex of a business, so you can chip away at jobs to be done and give them world-class solutions. Entrepreneurs aren’t out there looking at software all the time, so they aren’t looking for point solutions for everything. They want partners, which is why Domino’s is so successful, with $6B in revenue from 9k stores.

Domino’s is essentially a tech company masquerading as a pizza shop. It gives franchisees a massive technology stack and a completely unfair advantage, making it the most dominant pizza shop in the world. Slice is applying that idea to independent pizza shops by building all that capability for the individual operator.

As an SMB vertical SaaS company, you need to solve all of your customers’ problems. You give them the same tech stack capabilities as Domino’s. On top of that, you can lever up thousands of shop’s pizza box volumes and get a discount, and lever up the marketing dollars of thousands of shops and apply it to be more effective than any individual shop could be.

You want to look at your vertical and see how you can give an individual shop the leverage of thousands of shops. Doing that creates a vertically integrated business that’s highly valuable to the shop owner.

Point Solution vs. Doing It All

If you do the math for vertical SaaS for SMBs, you have to earn at least $10k a year from these small businesses to make it work. If you just sell POS, you don’t make that much, and TAM doesn’t pencil out. You need to do it all.

We went through a cycle where PLGs were a thing, ads were cheap, and ROAS was high, but you can’t really do that anymore. So, you have to make more money to justify the sales process and recognize that a lot of what drove the first generation of this was rapidly commoditizing and chasing people to the bottom.

Where is the value curve for the customers? What do they value vs. what have we spent a lot of time and effort building? There’s no longer a perfect overlap. What tech has built is no longer a high-value curve because we’re good at building it and made it a commodity.

What next value curve will generate enough revenue to justify the machine? As far as the point solution, there are extremely high-value point solutions. Once you find one and build a big business in it, other people enter the space, build a lot of optionality, and start to create the commoditization of these high-value spaces.

You can go a long way if you’re early enough in it. We’re seeing now in all businesses, including Slice, that no single thread is high-value enough to stand alone and create billions of dollars of return, especially in SMBs.

You Can Focus In Vertical SaaS

No single thread could have built Shopify, so you have to start looking at other things in the vertical of that space and say, “Where else can we add value that isn’t well done, and where does the shop want the integration?” The sum of parts becomes an interesting play.

When you’re vertical, you can focus on a problem set at a level of depth and care that you wouldn’t reach horizontally because you have so many masters.

Fundamentally, Slice is in the business of trust. Shop owners are entrepreneurs. It’s not a company for them. It’s their identity and life. The care required to do it well and build solutions that work requires it to go deep. You have to think of it as the whole shop, not just an e-commerce business.

So, if you show up with a single-point solution and haven’t paid attention to the shop, they won’t trust you. When you bridge that trust gap, customers expose other component areas of much higher value to them. You can access that and broaden opportunities.

Winning 100% Market Share

Loren wants 100% market share for pizza shops. You’re solving for the whole shop, not a component of the shop. And when there is $50B rolling through that shop, that’s your TAM in one vertical in one country. How do you get to it?

Pizza is a good option for those who want to adopt a single solution. That’s why Domino’s is such a good proxy, with 9k stores and $6B in revenue. Right now, Slice has more than 9k pizza shops and only $100M in revenue. The ramp is massive, with 30k to 40k independent shops in the U.S.

To start, you have to absorb and do some of the jobs and problems that SaaS has traditionally avoided. Eventually, every shop that opens will open in your platform because you solved all their problems.

In a highly specific, verticalized business like Slice, there is an opportunity to get very high percentages.

What Metrics Matter

”Do you have a gross margin target?” Jason asks. When you look at Toast, gross margins are quite low, but the multiples are still great. Shopify has something like 50% gross margins, and Toast is in the 30s.

Loren considers Slice early, a growth startup company at $100M. As CRO, he doesn’t care about valuations, only revenue. Does he care about margin? Yes, it’s an interesting story component, but it’s not a business driver.

The driver of the business is still growth. You want space to grow and drive your business profitably. If you don’t want to take money, you shouldn’t have to.

The whole basket of metrics matters, but growth is the North Star. Think of it as orders. There is $30B of order flow flowing through pizzerias. How much of that is running through Slice?

If you’re consuming the job to be done that is driving order flow, it’s cascading through revenue, profitability, and everything else that matters. If you’re not driving that, you’re starting to decline because all things are fed from the growth of the shop.

Selling in a “Downturn”

There are no macro impacts at places like Slice, Toast, Klaviyo, Shopify, and Samsara. Loren believes there are always good times and bad times. There will always be companies in every industry that defy logic.

Loren’s conclusion? You have to figure it out. If you’ve fallen on hard times during a “downturn,” you didn’t have the product, processes, or execution capability. If you look at the best sales reps, they smash their numbers no matter what.

Most businesses fall under a power law, where a small number of people run them, yet the company continues to add headcount and spread it out. Stop doing that—over-index on people who over-perform regularly.

Go figure out what they’re doing. Find a way or realize you weren’t the top three in the market. No one needs number six in tough categories.

How to Find a Top 20% Sales Rep

Are the top 20% of sales reps product experts? “The barrier to entry to success in sales is always the same thing: work. That’s the barrier,” Loren shares. You have to work your butt off, and sales wasn’t supposed to be easy for everyone. That has never been the case.

Sales’ greatest filter is brutal work. It’s been removed in the last 15 years from most organizations because of the internet, but those people aren’t experts.

They just work harder, learn more, and are more curious than everyone else. They spend more time in the product, and recognize they are part of it. All great sales reps behave this way because that’s how you become great.

We’ve made this middle group of sales reps who think they know what they’re doing because we’ve fed them leads, which was easy for a while. But it’s hard again. The great reps study more on their own, listen to calls, do demos repeatedly, have every product on their laptop at home, and know shop owners personally.

A top 20% sales rep isn’t special because they’re born with some skillset no one else has. They just work harder than everyone else. People spend their careers trying to find the Michael Jordan sales rep without realizing that Michael also shot 1,000 free throws every day. He worked harder than everyone else.

The CRO Role at Slice

Most of Loren’s job at Slice is in the foxhole with the team, looking at spreadsheets, watching input and output values, looking at the math, drawing trend lines, working out process steps, talking about how to improve the conversation, and deciding where to allocate marketing funds to drive lead flow.

Sales and marketing and GTM aren’t magic. It’s science. If you don’t know the math, your trend line, and your progress, and you aren’t evaluating multiple components at the same time, how do you make any choices? That’s the role of CRO, to help the company understand its potential and draw a line, saying, “This is how we can grow from a bottom-up perspective, and come top-down to pressure test that and see if you can bend that curve.”

As CRO, you need to know the levers that make a difference, and not necessarily revenue. “I fundamentally believe no one wakes up and does revenue,” Loren says. It’s an output of what people do. What do people do? They make calls, go to meetings, do presentations, write copy, ads, and blog posts.

Not all have the same levered effect on your outputs, so you have to be clear on levers so you’re not spending a bunch of time tinkering with something that has a 0% impact on anything.

How Do You Market to Busy SMBs?

One thing that usually doesn’t work for a business like a pizzeria is a bunch of email cadences written by a rep. General SMBs aren’t in front of email all day. They’re working. How do you market to busy SMBs? “I don’t know yet,” Loren laughs.

Slice is trying a lot of things for this real and very challenging problem set. Entrepreneurs are busy, so how do you get them to talk to you? You can have outside sales reps walk into shops. Shopify taught Loren that you need to create more value than you take.

Slice is a trust business, so if you show up and jam a product down their throat, they’ll want to know who you are and why they should listen to you.

Community is important for many small businesses. Trust, value, and time are also essential to any SMB. How do you show them value before they make a choice? You can go to community events or walk into their shop and ask how you can help. Maybe that’s making a connection with another pizza shop or giving them valuable data on the market.

You’re planting seeds for trees that won’t grow for years, but you will need them in years just like you need them today. So, teach them, help them, connect them, and create value for them without asking for stuff.

How to Sequence a Vertical SaaS Model When You Want to Own the Entire Operational Stack

Owning the entire operational stack is a lofty and admirable goal. As an early-stage company with limited resources, how should you think about sequencing products and features?

You want to go deep with customers. Ask questions and determine the biggest challenges and opportunities for improvement across hundreds of businesses. At pizza shops, they want to talk about orders. They want more orders.

Where did Slice start? With things that affect orders like an online store, POS, and phone. The customer’s problem set leads you. It’s the only way that works.

You can lead by what makes you money, but that’s challenging because it can run out on you. So, you want to make products that solve customer problems so that you can make more money to make more products that solve more problems.

To begin, solve the biggest problem that will impact your customers and create the most value for them. Your early product should solve an obvious problem for that customer that they agree is a problem they want to solve. Those are the things they’re willing to pay for.

 

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Amelia Ibarra, Khareem Sudlow