🔨 9 Key Learnings from Studying ServiceTitan
Overlooked #159
Hi, it’s Alexandre from Eurazeo. I’m investing in seed & series A European vertical solutions (vSol) which are industry specific solutions aiming to become industry OS and combining dynamics from SaaS, marketplaces and fintechs. Overlooked is a weekly newsletter about venture capital and vSol. Today, I’m sharing 9 key lessons from studying ServiceTitan which is a vSol for construction contractors (e.g. electricians, plumbers, HVAC).
This is the second article in my series dedicated to the construction industry. In my previous piece, I covered Procore, the publicly listed vSaaS giant in the construction industry. Today, I’m sharing key insights from studying a private company called ServiceTitan, which also operates in this sector. In upcoming articles, I'll explore noteworthy startup trends in the construction industry and present a personal thesis on vertical solutions (vSol) as an industry operating system, inspired by Procore. If you build or invest in the construction industry, I’d love to meet you! You can reach out at adewez@eurazeo.com.
Ara Mahdessian and Vahe Kuzoyan co-founded ServiceTitan in 2007. It began as a summer side-project to assist their fathers, who are both contractors in residential construction and plumbing. ServiceTitan has since evolved into an all-in-one platform catering to contractors in the commercial and residential sectors, with four primary product pillars: front office, field operations, client experiences and management insights. Throughout its history, ServiceTitan has successfully raised over $1.1bn, including a $200m series G in Jul. 2021 at a $9.3bn valuation. It attracted investors including Index, Iconiq, Bessemer, Battery, Tiger and Sequoia. In Jan. 2022, at the peak of the bull market, it was planning to go public at an anticipated valuation of $18bn and in Jan. 2023, ServiceTitan reached $460m in ARR. This post is not an exhaustive deep-dive into the company but rather a concise sharing of insights gained from studying it. For a comprehensive deep-dive on ServiceTitan, I recommend Contrary’s article on the company.
Learning n°1 - Quickly test the water to go upmarket
Historically, software solutions targeting contractors primarily focused on small businesses with a single owner and a few technicians. On the other hand, ServiceTitan began its journey by serving the mid-market segment (4-40 technicians) before strategically moving upmarket to cater to what they refer to as the enterprise segment (40-400 technicians) and the mega-enterprise segment (400+ technicians). This positioning enabled ServiceTitan to achieve a more exponential growth compared to competitors focused on serving SMBs. Moreover, targeting the mid-market ICP allowed ServiceTitan to support a people-intensive sales strategy, which would have been unsustainable (in terms of CAC payback period) if they had remained solely focused on the SMB segment.
Learning n°2 - Expand your total addressable market as you grow
ServiceTitan started as a vertical SaaS to help contractors in the residential plumbing segment manage their field services operations. Since then, it has expanded into multiple directions: (i) it added multiple segments in the residential sector (HVAC, electrical, water, chimney, garage door), (ii) it entered the commercial and construction markets, (iii) it added multiple products to build an all-in-one SaaS platform to manage a contractor’s business, (iv) it embedded multiple financial services into its platform (including payroll, consumer financing, and payments), (v) it moved upmarket and (vi) it expanded into new geographies (starting with Canada).
Learning n°3 - Don’t rush to embed financial services into your SaaS platform
ServiceTitan waited a decade to reach 1k customers before launching financial services in 2017, starting with payments and financing that technicians could directly offer onsite to end-customers. It waited another 5 years to launch a third financial services product, payroll, which was added in 2022.
Learning n°4 - Build the serial acquirer muscle
Like several vSol, ServiceTitan is a serial acquirer. It has acquired 9 companies in the past 5 years. It used acquisitions for two main reasons: (i) to acquire a product suite and a customer base in an adjacent vertical to expand its addressable market (e.g. residential water treatment, commercial landscaping), (ii) to acquire a customer base to be transferred into the ServiceTitan’s platform at a less expensive price than acquiring it directly. It’s a playbook also used by Mews, which is acquiring old school PMSs in order to transfer their customers to its modern PMS.
Learning n°5 - Build for several stakeholders in your value chain
ServiceTitan is obviously building for contractors, but it has built many interfaces benefiting to end-customers of these contractors, both in the residential and commercial sector. For instance, as a residential end-customer, you will interact with ServiceTitan to book a job from a contractor’s website, to track the technician while he is on the road to your home, as well as to validate and pay the estimate made by the technician on the fly at your place. This strategy makes ServiceTitan’s platform more sticky and creates an indirect monetisation opportunity - in this case, processing payments and/or offering financing to end-customers.
Learning n°6 - Leverage industry expertise
Ara Mahdessian (cofounder and CEO) and Vahe Kuzoyan (cofounder and president) had a deep understanding of the contractor’s business because their families are contractors and because they spent several months on a side project to build software for their families before starting ServiceTitan.
Learning n°7 - Private equity roll-ups as a software adoption driver
In trades, there are many private equity funds rolling-up small contractors and ServiceTitan serves most of the largest 25 trades roll-ups in the US. In addition to aggregating contractors, these roll-ups try to accelerate organic growth and profitability. Adopting an all-in-one software platform can be a great way to achieve this, making a vSol like ServiceTitan the ideal digital partner for them.
Learning n°8 - Be the premium software in your market
ServiceTitan is the most comprehensive but also the most expensive software solution in its market. It’s 3x more expensive per technician compared to solutions like Jobber or HouseCall Pro which are going after SMBs. Moreover, ServiceTitan has launched Pro version of its modules to enhance this premium positioning. Being seen as premium helps you to become the market standard and increases the willingness of your customer base to refer your product.
Learning n°9 - Onboard customers with the same cadence and specialisation as when acquiring them
ServiceTitan has a complex implementation process that could take several months for large customers (50+ technicians) and that involves several work-streams, including data migration, data cleansing, accounting, phone system integrations as well as training. To be successful, ServiceTitan built specialised sub-teams in its onboarding departments and set clear timing goals to maintain a strong cadence for customer onboarding.
Thanks to Julia for the feedback! 🦒 Thanks for reading! See you next week for another issue! 👋