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What Made ServiceTitan a Rocket Ship?

What Made ServiceTitan a Rocket Ship?

A conversation with CEO Ara Mahdessian

As part of my Substack series on Growth Endurance, I wanted to speak with the most successful late-stage SaaS companies out there. ServiceTitan is #7 on the Forbes Cloud 100 list of the world’s top private cloud companies. So I was psyched to sit down with CEO Ara Mahdessian and learn how he has been able to grow his company so fast for so long.

This conversation is super relevant to any CEO or other executive looking to sustain high growth rates long into the future.

It will also have particular relevance for CEOs and executives running vertical SaaS companies, since ServiceTitan offers software for the trades — initially residential plumbing maintenance and repair businesses, and ultimately many other verticals.

In this conversation we discussed:

  • How to showcase the ROI of your product — a topic particularly relevant in this macro-environment.

  • The role of private equity in driving software sales — and inversely, the role of software in driving private equity acquisitions.

  • How to design and manage your board.

  • And many other topics that fascinated me!

You can read the lightly edited transcript below or listen to the audio version. Let’s dive in!

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Allison: Ara, thank you so much for joining us today to talk about your incredible growth trajectory over the last several years. I'm so excited to have this conversation with you.

Ara: Allison, I’m very grateful to be here. Thank you so much for having me.

Allison: I'd love to get into the “why” behind your historical growth trajectory. What do you think are the primary reasons why ServiceTitan has been able to grow as fast as it has for so long?

Ara: I don't think we knew this at the beginning, but we began to realize it as we continued our journey. It turns out that the industry is way bigger than we expected. The life support systems in residential and commercial properties are plumbing systems, the air conditioning systems, and electrical systems. These are extremely critical for all of our lives.

The trades typically don't rank very high on the glamour scale, but they absolutely do on the criticality scale. Water, power, heat, air, these are life support systems that everyone needs, and you might not realize it until the air conditioning stops working in the middle of summer, or the power goes out in the middle of the night, or your toilet gets clogged during Thanksgiving dinner.

These plumbing companies, these air conditioning companies, and so forth are the true heroes. They leave their families, drive across town to come and rescue yours. And we're equipping them with technology that helps them run a much better business and allows them to grow very significantly.

So first and foremost, the market is massive and it's critical. And then the other important thing is, in the world of business software, you only earn your customer's paycheck or revenue from them if you deliver outsized value. That has to come in the form of you helping them increase their revenue or you helping them lower their costs. And thankfully, ServiceTitan does both and does both in spades.

We have customers that might be a million-dollar annual shop. That'll grow up to five. A five will grow into 10, a 10 will grow into 50, a 50 will grow into 100. And now we have customers that do over a billion dollars of revenue. They have seen a lot of that growth on the ServiceTitan platform.

Allison: You mentioned that you were surprised to find how large the market was. I'm sure, as a founder, you had a strong instinct around how big the market could be. But certainly you were a category creator pushing this along, so it's hard to know in advance. Do you think that there might have been some snooty Silicon Valley people in the early days who thought this is a demographic of folks that aren’t "sophisticated" enough for software? O that the adoption curve is going to be super painful? And if so, how did you respond to those folks in the early days?

Ara: That's absolutely right. The reason why something like ServiceTitan didn't exist until now is because this market has always consistently been underserved by every type of vendor, whether technology or otherwise. There are a lot of misconceptions and misperceptions about the industry. As I've shared, these companies run very sophisticated businesses. These businesses have all the same functions that any other business has, the same functions that ServiceTitan has. They have marketing. They have sales. They have customer service. They have payroll. They have inventory. (I guess inventory is the one thing the tech company doesn't have.) But this industry needs the same type of software that we use.

Today, almost every tech company uses something like a to supercharge their sales teams. They use something like a Marketo to do marketing automation. They use something like a NetSuite to manage the back office, introduce efficiency and streamline everything.

Contractors just can't use these off-the-shelf, generic, horizontal solutions because their workflows are a little bit unique. They need software that is specifically designed around their workflows, and that's where ServiceTitan shines.

Allison: Do you think there are any lessons here for other vertical SaaS companies that are trying to push their way into a market that might have an initial software stack, but where there's some sort of category creation involved?

Ara: Absolutely. The paradigm going a decade back was, if you're building a software company, you pick a category, like CRM or ERP. You build software for that category, then you try to find as many different heterogeneous types of companies that can use that software.

But the vertical software playbook is, you pick an industry, you pick a type of customer, and then you build software tailor-made for their workflows and that then earns you the opportunity. If you do a great job at that, you earn the trust and the ability to then build all the other types of software that that type of customer might need, and that's how ServiceTitan started.

Originally, when you think about managing plumbing and air conditioning companies, a lot of it typically revolves around scheduling and dispatching. You have all these technicians in the field that need to go to different jobs and different locations. There's a lot of emphasis on routing, scheduling, dispatching, and that's where we got our start. As we did a great job of serving that need, we earned the opportunity to then offer, for example, specific marketing automation software that is designed for contractors. We earned the ability to offer a specific price book. The close analog might be like CPQ for our customers, to then offer things like an integrated telephony system that brings very strong, incredible ROI and unique benefits that no generic telephony system can bring.

As you can imagine, there are still plenty of opportunities to create even more of these products.

Allison: I'd love for you to take me through your observations of your market over time. When were you convinced that the growth in your market was actually very large and growing extremely quickly or would grow extremely quickly in the future? Was the market growing at the same rate every year? Was there some year in your history where there was a breakout?

Ara: Certainly, the market has been very sizable for a very long time. The need for running water, for refuge from the biting cold or scorching heat, the need for electricity, has always been there. And the market has generally always been growing. It's very resilient. It's grown through all the recessions and close to depressions that I know of.

Interestingly, it's grown even faster recently, I think through a combination of two things.

One, these businesses have become even more sophisticated in the past few years. This is where you have really seen the creation of these very large enterprises. Back before ServiceTitan, I can't remember too many companies that passed the $10 million-a-year revenue scale, especially the $50 million, particularly the $100 million scale. Now there are a lot of these companies that have grown. Some have grown from $50 million to now over a billion dollars in revenue.

The second thing is, during COVID, as more and more people locked down and as the importance of the home grew, people wanted greater safety, comfort in their home and they were even more willing to make these investments. I suspect the industry did grow slightly even more as a result of that, but I do think it's always been big. It’s always been growing.

Allison: Do you think that there are other lessons for vertical SaaS companies in terms of many different kinds of industries becoming more comfortable with technology recently? Aside from more demand from end customers because they were staying at home, is it also that these trades companies were forced to become more comfortable with technology because of the pandemic?

Ara: I do think so to a certain degree. As the lockdowns happened, even these businesses needed to adapt and, in many cases, operate in a remote environment, and that accelerated the need for technology.

Here’s something to keep in mind for vertical software businesses going through any kind of macro climate, whether it's something like COVID — as soon as COVID hit and as soon as the lockdowns happened, pretty much all businesses were shut. Then within a couple weeks, the world realized you can't live without getting your toilets unclogged or fixing your air conditioning in the middle of the summer if it's 118 degrees in Phoenix. So, these trades were labeled as essential.

At that point, we worked with our customer base. We worked with the industry to figure out how we can then actually help them not just survive through this crisis, but to thrive in this crisis. We looked at the performance across our customer base. We realized that up until the lockdown, while industry revenue was starting to decline, underneath that trend, there were actually plenty of businesses that were thriving through this period.

We reached out to them and we asked them what they were doing differently. They shared with us how their communities had greater demand for certainly indoor air quality products that eliminated germs and bacteria in the home. They shared with us what steps they were taking to protect their technicians and to protect the homeowners so that homeowners felt comfortable inviting a technician over. They shared all these best practices about how they had adapted their operations to continue to succeed in a COVID environment.

Contractors love to help one another out, even in many cases where it’s direct competitors. It's the most beautiful thing I've ever seen.

We told them that it's fantastic that you're thriving, but as you can imagine, there's an entire industry of other contractors that could benefit from all the sage advice you have. We asked if they minded if we shared this with others. All of them said to feel free to share, and they would love to share. So, we started hosting these webinars for our customer base, where we talked about how they can adapt their operations.

And immediately, this entire industry lifted, to the point where revenue across our customer base was higher than it was pre-COVID.

Our customers are incredible entrepreneurs. They’re very innovative, and they adapted their operations to really succeed and thrive during this period. They were able to take care of their communities and you can imagine how much help everybody needed.

Allison: You also mentioned that one of the reasons why your market has become really primed for software sales over the last few years is because you're seeing larger and larger customers, with larger and larger amounts of revenue. Is that because of private equity roll-ups that are happening in the industry? What's driving that?

Ara: We're seeing it actually across both fronts. There are individual owners and operators that are not private equity-backed that are growing their businesses to incredible heights. I have one customer that was probably around $5 million when he first joined ServiceTitan. Today, he's over $200 million. He did it organically with no PE money.

And of course, we have plenty of private equity-backed. I think out of the top 25 private equity-backed, the vast majority chose ServiceTitan as the platform to standardize on. The feedback that we've heard directly from them is that the reason why this is possible today is because of ServiceTitan.

Now, obviously, the doesn't mean ServiceTitan is the only reason for their growth, but it's one of the key ingredients that makes for this roll-up approach to be managed well and easily. They've told us it's ServiceTitan.

Allison: I have seen this PE roll-up phenomenon in several different industries. And I've seen it drive software purchases. Part of it might just be that some PE firms are very operationally oriented. They want to optimize the go-to-market, for example. Maybe in your case it’s customer service or the operations of the companies they buy and bring together.

In some cases, it also seems like the PE firm is looking for rolled-up metrics across all of the locations or units that they're buying, and software is the key to that. Is that relevant for your software sale as well?

Ara: Absolutely. The rolled-up metrics is critical for them to be able to manage a business at such scale without having to try and do everything manually, which not only is incredibly costly, but just very error-prone. And it's hard to get the metrics in real time if it's manual.

The other key component is that ServiceTitan is not just about managing a business. ServiceTitan automates and enforces all the best practices that lead to the highest outcomes.

So, if a PE firm has rolled out 50 locations, they don't just want reporting on how well those 50 locations are doing. They know about the right marketing processes, the right sales processes, and the right customer service processes. And they want the software to automate and enforce all those processes across the 50 locations so that all 50 have the highest close rates on sales, the highest average tickets, the highest level of lead generation. ServiceTitan allows them to do that very seamlessly.

Allison: How have you thought about your revenue build over time? Obviously, organic growth, as we've been discussing, has been extremely important to you. What about other inorganic sources of revenue, or maybe some of them will be organic but require more deliberate effort? For example—geographical expansion, launching new products, acquisitions, new verticals.

Ara: ServiceTitan started as a single-product company focused on a single customer segment. We had effectively a scheduling and dispatching software that was specific to just one trade, only plumbing companies. And not all plumbing companies, but only residentially-focused plumbing companies. That is, the plumbing companies that only service homes, not commercial buildings. And not all residential plumbing companies, but only residential plumbing companies that specialize in service and replacement work.

So, if your toilet's clogged, that's the plumber we would sell to, but if you're building a new house from the ground up, the plumber that built the plumbing infrastructure was not our customer.

We took an approach that was very unique at the time, because at the time, the approach was to build software and try to sell it to everyone. The challenge there is that you build something that is okay for everybody, but not amazing for anybody. In the world of business software, people are not really willing to pay for okay. They want amazing, especially at the price points that make for a great business.

By taking that approach, sure, it limited the number of customers or logos we could sell to, but it allowed for this extraordinary ROI that we could deliver for a residentially-focused plumbing service company.

Once we were able to deliver incredible ROI we had customers that loved the product and sang it from the rooftops, which quickly accelerated our customer acquisition. Only then did we methodically extend into the next customer segment, which was, at the time, HVAC.

HVAC has largely 80 to 90% of the same needs, but it has an incremental 10% to 20% of functionality required for that trade. We successfully delivered there and then kept using that same playbook. We went to electrical next, and now we're in 10 different trades. We are also now expanding into lighter-weight construction-focused companies. That was our expansion on a customer segment basis, and we have many more trades to go to in the future.

The second growth vector was the product expansion. On the product front, originally, it was medium capability across every function the contracting business needs. It was medium level of capability in sales, marketing, customer service, inventory, payroll, financials, and so on.

We learned that customers also wanted a very high-end professional level of capabilities in each of these areas. So then we built what we call a Pro product, which is effectively an add-on product that you pay additional money for, for each one of these functions.

Today, we now have a marketing Pro product that customers pay extra money for to get very professional marketing capabilities. We have a reputation management product. We have a price book product, integrated telephony product, and so on. And of course, as you can imagine, the product portfolio will continue to expand in the future.

Of course, even if you’re single-product, the easiest expansion vector is actual customer acquisition. There, the better the product is, the higher the ROI, the faster the word of mouth is going to travel, and the more customers will get it quickly.

The other expansion benefit we get is that our software helps our customers grow—significantly. We’re, talking about $1 to $10 million, $10 to $100 million in revenue. As the companies grow, they hire more technicians. The first thing that they do when they hire a technician is add another ServiceTitan license. So, the beauty of our business model is very much aligned with our customers’ success. As they grow their business, we earn more money.

Allison: How are you tracking the ROI that you deliver to your customers? This is relevant for a lot of companies across many different software industries now because we're in a strange macro environment. You really have to prove that your software is delivering value.

I also think it's relevant for selling into industries that may not be accustomed to buying whatever type of software you're selling. They need more data to show that it's worth it to renew. So, how have you convinced people that you've demonstrated ROI over time?

Ara: Great advice for any founder. We are very methodical, like most things, about understanding what are the key metrics our customers care about in their business. This means understanding the drivers of their business, and then actually measuring it.

So, of course, the top-level one is revenue. We will track things like, how many leads do they generate? What is their conversion from a lead to a sale—what they call the average ticket or the revenue per sale?

We'll break down all these drivers. We’ll actually track it and we'll make sure we are delivering on our commitment to our customers. In the sales process, we're not going in there touting scheduling functionalities or dispatching functionalities. We're talking about the value they're going to get and how this is going to help them increase revenue, increase their average ticket, increase their close rate, and increase the number of leads they generate.

It's very important to us that we deliver on our commitments to our customers. So, we track it and make sure our customers are seeing the gains that we talk about. That’s when we know whether we built the right thing and built it in the right way such that customers actually get value, so they continue to do business.

Allison: When you track those metrics, I'm assuming you're showing them in a dashboard in your product to your customers. Is that right?

Ara: It's very well highlighted in the app so that contractors are aware at all times.

Allison: Do you benchmark customers against each other? When I was at Gainsight, we would show customers that based on their particular type of business, where they’re located, and how large they are, they're in the bottom 30 percentile of companies. We’d show them that this means there's a lot more room for them to improve because similarly positioned companies are getting more ROI. It could be a tactic for convincing them to work with us more on best practices or invest more time in the software. Have you done anything like that?

Ara: That is absolutely a great idea and opportunity for improvement at ServiceTitan within the app. Where this happens today is, we also have the largest community of contractors in a Facebook group. And every day we have one contractor after another posting their ServiceTitan dashboard in that group. They’re comparing everything—revenue growth, average ticket, close rate, technician performance. It happens organically, but yes, we do want to make that available to customers in the app.

Allison: It definitely spurs the competitive dynamic, which can result in good outcomes for everybody.

I look back a little bit about "modern growth tactics" like product-led growth and would love to understand a little bit more how that might apply in your vertical. I imagine when you got started, I’m guessing you were probably doing some kind of traditional inside sales, outbound. Has that evolved over time? How have you embraced more product-led growth tactics in your strategy?

Ara: We certainly do a lot of the traditional activities. We do a lot of outbound efforts to talk to contractors. We're at a lot of contractor events. We do a lot of very targeted digital advertising. For customer acquisition, what we have found is the best type of product-led growth is when the product delivers so much value to a customer. Given how tight-knit this industry is now, every contractor talks to every contractor, ServiceTitan comes up organically in a lot of these conversations, resulting in a lot of inbound requests. There are opportunities to do more product-led growth directly through the app in the future, and these are things we will explore.

Allison: Constructing and managing your board tends to be a topic that a lot of founders start to learn about around maybe Series B or Series C. They've raised a couple of rounds at this point. They have at least a couple of VCs on their board. They might be looking for an independent, and they're trying to figure out what to do with this group of people they’re supposed to meet with on a quarterly basis. It can feel like they're your boss, but the practical reality is that founders are usually in charge, or at least have the opportunity to manage their board more proactively. What tips would you have for folks about how to approach their board?

Ara: If we're talking about how to approach existing board members, I think we should also consider just how to construct a board if you have the opportunity to construct or reconstruct. Ultimately, I think founders need to think about what value and what contribution do they want from board members and in what types of areas. Is it general business experience on how to build and scale tech companies? Is it expertise in a particular area, like customer success or sales or product?

If you can be intentional and thoughtful about what you need, it becomes easier to find the right board member that is going to deliver on the value. But then irrespective of what type of expertise you want, the other critical thing is just alignment of values and intentions. If you have generally smart people with good intentions, with the same values as you do, you often will arrive at the same answer after robust and healthy debate. That doesn't mean that everybody will always have the same opinion. The opinions will be diverse and varied and different, but after robustly debating it, as long as you have the same incentives and interests, very high likelihood that with the right level of logical reasoning, data, anecdotes, intuition, you'll arrive at the right answer.

Allison: I love your focus on values, and I totally agree with you that alignment of values across the board is very important for its strong functioning. How do you test a board member in an interview for values fit?

Ara: You have to be systematic about almost everything in business. If you want to find values alignment with a board member, you have to treat it like any other interview.

I assume most companies have memorialized what their values are. In our case, it's changing lives, achieving the extraordinary, and building a dream team. Then I would think hard about what the key questions are that you can ask that will best surface this individual's alignment with those values? That should be a candid and transparent conversation.

It was the same conversation that we had with our first institutional investor, whom you know quite well, Byron Deeter. We told him how important it is that we have people that have the same vision that we do.

More importantly, for us, this is a personal story. We started ServiceTitan because of our dads. Vahe, my co-founder, his dad and my dad were both contractors and we started the business to help them. So, every customer that we earn their trust and ownership, for us, we see our dad in them. It's very personal that we deliver on every commitment we've ever made to a customer.

We told Byron we’d love nothing more than to partner with him, but we needed to be certain about this because there is no divorce in this type of marriage with an investor. We're going to do everything we can to build the biggest and best business that we can. But we're going to do it the right way, and we're going to do it by taking care of customers. We asked if he was aligned with that.

We let him know that there will be certain decisions we will need to make that, in the short term, may seem like a waste of money. But we know this industry, we know how tight-knit it is, and in the long term, these decisions will pay dividends.

One of our largest customers today had signed up for ServiceTitan four years ago and went live with it. The implementation had not gone well. I didn't know him very well at the time, but my chief revenue officer, Ross, came to me and shared with me that we had this customer with a problematic implementation. He told me how much it was going to cost to fix the implementation, and it was a six-figure number.

I said, "Why are you coming to me?"

And he said, "Because it's a lot of money."

I said, "You know our rule. We take care of customers."

We ended up doing right by this customer. That customer has now become ServiceTitan's number one evangelist. They’ve probably referred tens, if not $100 million of business to us in the past few years.

At the time, I had no idea it would turn out to be this big. But today, it may have been literally the best financial investment I've ever made, and that's how this industry works. You honor your word, you do right by people, and our customers have built our business for us. And if you violate that principle, they may do the opposite.

But it's just the nature of business and the nature of the connected world today. Do right by people. They will do right by you.

Allison: I love that focus on investing in customers.

Let’s talk about what recommendations you would have for founders in managing their board in regards to growth. Obviously, we're in strange macroeconomic times. Last year, the motto in board meetings was primarily growth at all costs. You just raised a lot of money at a sky-high valuation. That typically leads to a strong focus on investing, growing, hiring and driving out your competition.

This year, valuations are much lower. Everyone's trying to reduce burn. It's no longer about growth at all costs.

How do you recommend that founders manage their board through this dramatic transition in tone? And do you think it should be that dramatic? If you're a successful company who has a ready market, strong product-market fit, you're demonstrating ROI to your customers, should you still be more conservative about your burn? I'm challenging the consensus here a little bit.

Ara: This isn’t so much a conversation about what’s the right approach—how much growth vs. how much profitability. The conversation today is about what is right in this market.

Take the argument of the extremes. Let’s say the cost of capital is really, really low and you can raise a billion dollars while only giving up only 1% of the company. If you can invest in growth and everything else and grow faster, you should probably take the billion dollars for 1% of the company.

If you're in an economic climate where the cost of capital is so high that to raise even $50 million, you're going to have to give away 99% of the company, do you want to spend years building the company that you're only going to have 1% of five years from now?

Today, the cost of capital is really high. It's very hard to raise money for many companies. And even those that can, it's expensive. In this case, it makes a lot of sense to reduce burn. It makes a lot of sense to reduce investment in things that are not critical, and it goes back to the opportunity cost and the ROI threshold that you're willing to invest in them. That threshold has gone way higher now—way, way higher.

So, when the cost of capital was lower, projects that made sense a year ago, no longer make sense to invest in. And great businesses are adapting, as hard as it is, because we ultimately are not in the business of good markets and bad markets. We're in the business of creating great, significant global impact and enduring, durable companies. As such, we will have to go through great markets and bad markets. This probably won't be the first and only time we go through this, and we have to adapt each time market conditions change.

Allison: What are some final tips you would give to vertical SaaS founders?

Ara: One, take a meaningfully-sized vertical.

Two, the stronger the ROI, the greater the business you're going to have. So, ServiceTitan has spent years and lots of money building software that provides transformational levels of ROI that it's hard for me to find a lot of other examples.

Three, you got to do it the right way. You got to take care of customers. That's the only way to build a great big business in vertical software because everybody knows each other.

Allison: Great tips. Ara, thank you so much for this very enlightening conversation. It was a lot of fun.

Ara: Allison, thank you so much. I’m very honored to be here. I had a blast, and it’s always great to see you.

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