Sub Club Podcast: The Rise of Consumer SaaS — Eric Stromberg, Bedrock

0:00[Music] [Applause] hey you're listening to the sub club podcast a show dedicated to the best practices for building and growing subscription app businesses we'll share insider secrets from the top subscription apps on the app stores let's get into the show hello i'm your host david barnard and with me today revenue cat ceo jacob id our guest today is eric stromberg the founder and managing partner of bedrock a technology investment firm with roughly one billion dollars under management the firm has made investments in companies like flock safety plaid kamia the athletic and many more eric is also the founder of check the payroll infrastructure api and universe software the holding

0:48company for vertical fintech businesses on the podcast we talk with eric about the importance of refining your pitch how to build a moat in consumer sass and why your month one churn might not be as bad as you think hey eric welcome to the podcast i wanted to dive right in and talk about your now famous screenshot essays it's a really incredible format and i just want to kick off the conversation we're going to talk through some of some of the ones more relevant to to the sub club audience but i just wanted to ask like what inspired you to create this format yeah well first of all thank you

1:27for having me and now famous is definitely an overstatement but i'll take it so thank you for that um yeah so i guess i'll start with a story that actually did inspire me on the screenshot essays which is relevant to some stuff um hopefully we'll touch on uh on this podcast uh in 2013 and 14 i was building a company called oyster and it was the netflix for ebooks and i had the very you know good fortune of having as a mentor this guy barry mccarthy uh who most recently joined peloton as the ceo but prior to that was uh was that spotify the first meeting i ever had

2:01with barry um you know he's famous for going to the white board so he um he said you know let me teach you a little bit about the subscription business that you're building he went to the white board and he basically explained to me this idea that um as subscription businesses get older as their uh cohorts age the churn just kind of naturally comes down over time and it was a very simple chart accompanied with like 30 or 45 seconds of voice over and actually just became something of a life of its own where you know i took that idea and whenever i would be closing a candidate i would

2:34walk them through that idea whenever i was pitching investors i would walk them through that idea and it was like it was one chart on the whiteboard and then a little bit of a voiceover and it really struck me you know many years later that every business has something like this um you know every business has like you know to really understand the nuance they're like two or three things that you just need to understand and it's one chart and a little bit of a voiceover and so that was actually the inspiration for the first screenshot essay could i distill this idea that i've been telling

3:01people so many times over and over down to like one chart and 30 or 45 seconds of voice over and that concurrently dovetailed with kind of this feeling that i had was that business writing writ large was just kind of trying to boil the ocean so should could i could i distill something down to like a minute or less and um you know i posted the first one with very little expectations um and people seemed to like it so i i kept writing them i try to write as many as i can it's way better it's better every anybody's relieved at this stage not have to read a thread so yeah

3:30exactly no threats no threats you got my commitment no threads on the uh for me ever you know i i probably saw your very first one and then have followed everyone since um and it's kind of taken a life on its own so we'll link to this in the in the show notes but you've got screenshot essays.com i will say it's a little frustrating that they're screenshots because uh i couldn't copy and paste without like making it i know i know i do we actually didn't start a screenshots they started as could i write something really short and then it was like two sentences more than

4:01a screenshot i was like i gotta make this a screenshot and then yeah like the format took the screenshot i've gotten that feedback though people are like we want the text gotta stay with the screenshot yeah now you got to but i did want to ask what what what is your process for creating them and so what i was going to say a minute ago was that i think the reason they really hit home for me and a lot of people i think why it really has taken on a life of its own is that is that distilling ideas and information down like that really is such an

4:28unappreciated skill or it's like you don't appreciate it until you see it but it's like such a hard thing to do so i just wanted to know like do you have a specific process or did i mean you know writing short takes like 10 times as long as writing along so these things take you you know weeks or how does that go yeah the process uh has um has evolved over time i actually always start with the the visual so because i'm kind of a visual thinker i like to think in in charts and graphs and and frameworks and stuff and so i actually open up keynote which is my uh

5:01which is my tool of choice to make those beautiful graphs in the essays and uh and i and i kind of copy an old slide make a new slide and just start thinking through the chart and then i've found that once i get the chart down everything flows from there whenever i writer's block it's not writer's block it's you know chart creation block or something and uh and then once i can break through that um i start to write around it but um you know all of these things that i've written about really are um things that i find myself saying to other people whether they're

5:29businesses that i've invested in um you know businesses that we've bought through universe software a business that i've built these kind of core essence of what drives the business and then when i find myself explaining it to somebody like three or four times i'm like okay i should probably write an essay about this i mean it's uh it's a skill you have to hone as an investor sounding smart in like a 30-minute meeting right exactly exactly yeah exactly we talk for like 10 of the time with the entrepreneurs so when we talk we we got to get right to the point say something impressive yeah it's

6:00always it's always harder than it seems i think applicable to to our audience and then part of the reason i wanted to talk about this is that and i feel like we need to do this for revenue cat like we need to do a better job a new product marketing manager started today um you know the marketing team we've talked a ton about different kind of positioning things and like i i think for most apps out there for almost anybody listening to this podcast who is running a business like try and do a screenshot essay of like what's meaningful or what's you know what distribution advantage do

6:34you have what what's unique about your business and boiling it down is if you guys want me if the marketing team wants me to do more content just tell me if it's if it's stuck to the size of a scratch you're welcome anytime jacob you're welcome anytime on uh on screenshot essays.com you're welcome all right i think you hit like the three ideas that i have i think you already wrote about so like i don't know okay perfect you get creative but yeah i mean it's true though it's i mean what's there's that like uh overused mark twain quote like i would have wrote you a shorter letter but i didn't have

7:04enough time uh it's really it's actually really challenging to to write and you have to you have to be really comfortable not saying things right i think it's really it's a really uh yeah you have to have a lot of confidence to be like okay i'm going to leave that out i'm going to leave this out i'm going to leave that out i'm going to kind of assume that the reader's going to follow this and they may or may not it's a it's a fine yeah it's a tough it's a tough game to balance leaving out the context but like still maintaining the the overall point of the

7:32message 100 and and just to bring it back um to you know developers and those building companies like whenever i write these essays there's always points that i'm like oh man like i didn't want to cut that right but you do and i think the same is true in building any company right whenever you're pitching the company again to investors to the press to to people you're going to hire there's like 10 talking points that you that you talk through that you speak through and you see someone's eyes light up and you hate to lose eight or nine of those but often that's what you need to

8:00do right to really land the punch on the one thing that the one point you're trying to make and with my essay i find that all the time it's just okay what am i actually trying to say here what's the one takeaway because then you know in one screenshot you don't have much time to jump all over the place well that's a great lesson for for product development too i mean you know that's the constant battle it's like there's 10 features you always want to build and all of them are great but what's that those one or two you need to focus on right now yeah only two or

8:29three will matter and most people cannot really understand two or three right about your product at least in that initial pitch right when you're building a platform or something maybe a change it's so painful because you're like i spent so much time on these other 10 things and like maybe these other 10 things were so much harder to build than the two things that you actually want to hear about yeah but i got to put that to the side right well let's dive into the meat of this then um i think this is one of the first screenshot essays i saw of yours or at least an early one that lit lit up

8:58my mind being so focused on consumer subscriptions myself um was the one where you talked about duolingo bumble and the rise of consumer sass and how it parallels b2b sas so i'd love for you to give us just kind of a i mean you could almost read the whole screenshot essay and it'd be a tldr because it wasn't too long come on exactly so so give us a little summary of your ideas uh there and then i'd love to to ask some questions about your thinking yeah for sure and i'll put some context around it um it really uh was written as a rallying cry for those building in consumer sas to

9:36say hey you know i know people might be overlooking your business or underestimating it um but there these businesses can grow much larger than anybody thinks um and you should have confidence in that and so what gave me the confidence to write that is that i started my career in 2010 um working actually at a consumer internet company um but at the time i vividly remember that all of the oxygen in the room all anyone was talking about were consumer companies it was google it was amazon it was facebook which was on the rise and in fact if you as an entrepreneur said i'm building a sas business people would

10:09look at you and like like one step up from building a lemonade stand right it was like wow you must not be ambitious you're building a saskatchewan we had an sdk i had an sdk company doing something not that dissimilar from revenue cat and like all the advice we got was like just grow your users like everybody was pitching us like a if we had just like slap the slap the sass fee on it whatever made it a size company oh we'd be in a different effort but yeah totally yeah and it made sense like the the data supported it right so like google in 2010 was a 300 billion dollar company

10:40and then salesforce which was like the best sas business you know after you know 10 years of building it's a 10 billion dollar company right and so and then there weren't many even billion dollar sas businesses and so like the data supported kind of the narrative that everybody was saying and obviously if you fell into that narrative you just got it completely wrong right so fast forward to today in many ways the most interesting businesses of this generation are all sas companies right there's shopify zoom square etc and so what people got wrong was that they were comparing two different types of businesses that were actually on

11:13different evolutionary timelines and so the kind of internet giants of web 1.0 came up a little bit earlier than a lot of these sas companies and the sas companies came up later with kind of later built that infrastructure so different evolutionary timeline playing out on different time scales and so i made the comparison to consumer sas today where you know sas has had the benefit of 20 25 years of this infrastructure being built out of companies building companies are people building companies um and people learning how to build those companies and consumer sas by comparison is just way newer and so um you know apple only

11:50launched an app subscription 2011. like like i know you all know that but like a lot of people don't focus on the limited audience right audience and then stripe same thing around that same time and google at the same time so like it is new in this in the spectrum of internet evolution like it is very very new so the point i was making that essay is consumer sas is on a different later evolutionary timeline than sas it should not be compared to it in terms of the overall market caps or sizes of these businesses it should not be dismissed out of hand as just inherently smaller

12:23we need to give it some time to play out let's check the receipts in 10 years when some of these businesses like discord like you know duolingo have another 10 years of growth behind them so i i love that the the goal behind this was to be a rallying cry but but i have to ask you because these are the things i think about is you know b2b sas now you know multiple 100 billion dollar companies and and lots of decacorns and and like hundreds of unicorns it seemed but part of the reason for that is that you were creating a ton of value to businesses who aren't

12:56shy about paying up you know to save employees time to increase productivity to um to grow the business and uh so in some ways it makes sense you know how profitable those sas businesses are but i i do still wonder like in consumer sas is it really that big of an opportunity like are consumers willing to pay you know can we make make it up on volume uh in consumer sas like what do what are your thoughts about like how consumer sas gets to be that big yeah so i'll come at this from a few different directions number one is just the starting point which is that uh

13:34consumer spending in the united states is like two-thirds of uh spent so it's like greater than business spend right so you start there now of course there's a lot of things people are spending on that aren't ultimately going to be captured by apps but just as a starting point there's no inherent reason why consumer sas or consumer spend should be dramatically less than b2b spending so that's kind of my starting point i think the second point is the way these things play out over time of how businesses can find a wedge and then expand into adjacent areas is just dramatically underestimated and so if you look at something like shopify which

14:09today is kind of the hallmark example of a phenomenal sas business that has expanded for the first 10 years of shopify's life it was sas only it wasn't until 2013 that they launched payments and then a few years later they launched capital and more recently they launched banking and uh and cards and today fintech or merchant services is roughly you know 70 of its revenue right and so if you had said in 2011 like what's shopify going to become how big can it be you would really only be thinking about the sas opportunity and you'd be actually missing the vast majority of the opportunity that they would pursue

14:43over the ensuing 10 years and so part of this is a bull so part of it is well consumer spending is is the majority of spend in the united states the other one is just the belief that i have and kind of these innovation cycles that i've seen play out many times over which are entrepreneurs find a wedge they then find creative and interesting ways to expand on that wedge through new infrastructure that pops up to enable them and then there's this beautiful cycle between more applications being built more products being built more infrastructure being built to serve those use cases and on and on and on and

15:14so part of it again is just this belief that that innovation cycle is still in flight uh within consumer subscription yeah and you know something we've talked about on podcasts too i'm curious to get your take on this is that as a percentage of consumers spend spend on software is is invented but it's tiny um you know so people do only you know spend maybe you know 30 50 100 a year on things like this but at the end of the day you know if you if you're going out to eat you know you're spending 100 200 bucks on a nice dinner out you know and if there's software to help

15:50make that a better experience if there's a you know foodie app that highlights the best things to order at certain restaurants or gets you into to heart you know wait lists and things like that you know if you pay 60 bucks a year for something like that when you're dropping you know hundreds of dollars potentially a month on on eating out like it does seem like there's still opportunity to provide a lot of value to consumers um and then like you said go into these these adjacent spaces like we just talked to uh fish brain lisa from fishberry and on the podcast recently and yeah they're they're expanding out

16:23into other yes um marketplace and other things we're in a hobby where people spend a ton of money on fishing um so yeah it's really fascinating but what do you think about so first like how where's that extra spend potentially going to come from you know is it going to come from you know not buying another meal by you know paying for an app not buying another outfit because you buy a uh outfit tracking app or something so and then then the second question kind of tied into that is like at what point do consumers kind of hit that subscription fatigue of of not feeling like uh

17:00software's valuable enough to spend that much money you know where uh subscription after subscription after scripture now we see you know you see posts on it uh all the time so what are your what are your thoughts on those kind of intertwined ideas yeah you know i come from this this school of thought which is um the only way to fight subscription fatigue um is to to build better products that serve people better and in more complex and interesting ways right and so you know one answer to that question is the very tactical which i i somewhat reject which is oh you got to switch everybody over

17:32to one-year plans or two-year plans and you got to send more emails and you got to get your crm better and you got to acquire better people you know better customers on facebook like that blocking and tackling will get you you know five or ten percent the way there but what's gonna really improve your business and kind of break through what i refer to as the carrying capacity of the business which is basically when you know churn equals new customers and you basically start leveling out to actually cut through that carrying capacity you need to drive product improvement right and product improvement can be um for some companies if you're a

18:04content-based business it can be you know better discovery helping people find things better you know for other types of businesses it can be accumulation of data in some interesting way and then and then feeding that back to users so that would be like the straw of example it could be expanding into adjacencies like financial services um or some combination of all those things and um you know i would point to something like doordash right which which is actually if you look at it in many ways a consumer sas business right um you know they started as a marketplace and obviously that's the lion's share of their business but but

18:34but you say if you ask the question well how do you get a user to just pay you a little bit more in subscription fees every uh every month that's a hard question if you ask well how can you serve them in more interesting ways that's a really interesting question and so doordash you know they have a take rate on the um on the actual orders they also have this subscription product uh that has done very very well they then use that position to now actually you know they're launching um lending products for the other side of the marketplace the actual restaurants and so if you

19:05look at it in a more holistic way as opposed to just how do you get people to pay more in sas fees or subscription fees it really does unlock potentially order of magnitude increase in the kind of market share or the wallet share that you can get yeah there's i mean you i would think it back to your analogy with shopify and i think fish brand example's actually good with this but i was struggling to think like for a b to b the platform play makes a lot more like makes a lot of sense or at least you've seen it enough times right like you build a platform your

19:32businesses have all these other use cases i think for consumer it's a little trickier the door dash example is great right because they have this like these apps are like moving towards the direction of like the the chinese unit app for everything kind of because ubereats is doing the same thing but then i when i think of like the i want to say average but like your your your your day-to-day subscription sas content based you know exercise whatever it is like you can think of any category it's a little bit harder to draw the analogy of like how you move out and i think that's that's i think

20:04one of the the challenges and maybe that's what we're waiting for you know we talk about this this uh this jump from sas being the monsters now and and consumer sas being the relatively like single unicorns or deck of corns and then when we look at them as hundred billion dollar companies that's the leap they have to make right it's like figuring out what that what that platform how you do a platform playing consumer yeah i think you when you when um a few companies start doing that um others will follow uh and that's what's so beautiful about how these cycles play out is that they're very

20:37efficient and when shopify figured out the financial services thing there's you know now in every market you have a vertical fintech company that's building you know sas plus financial services for that specific market and um and i'm excited to see that innovation continue to push on consumer sas i'd say to answer your question of like you know yes if like doordash you can actually aggregate the demand side of any potentially two-sided marketplace you can build a bridge to something like payments um or some other opportunity and so doordash did this there's a company called peak that has done this for uh for travel so they own kind of the demand side and

21:16they've kind of used that to expand to the travel company side um you know your average exercise app you probably have to think a little bit more deeply about it but certainly if there's lots of consumers using your app there is demand there that you can potentially serve in a more meaningful way and then use that to to kind of expand uh commensurate and that actually is perfect segue into your your next and you kind of touched on a lot of this next screenshot essays is the uh the hidden moats in consumer subscription so yeah tell tell us uh kind of the idea behind that one

21:49yeah so i mean i love this one because um it is the foundation of how i think about consumer subscription which is that um you know when i started my company oyster the first month that we launched after we launched i think we had about 15 percent churn so i looked at the numbers and i said 15 churn that seems really high i then checked it against kind of what netflix was seeing and what these act scale companies were seeing and and they should call it three four percent of the time churn and i was like wow we must have like a really high turn business on our hands and then i

22:21talked to a few other people who said like no that's not how it works right when you launch you have an influx of new customers those customers by definition are very very early in their life cycle early users churn at higher rates than older users it makes sense right if you see value you stick around and you're less likely to turn over time if you don't see value you leave early and so comparing a business that is in the first month of launch to a business that's like 15 years old and the majority of its subscriber base is older than 10 years it's just a complete

22:54apples to origin comparison so i outlined this idea to help consumer subscription founders really understand that um one if you launch and see a high churn rate relative to benchmarks like that's okay like um you know expect it um what's more important is that you reach some sort of asymptote which basically means at some point that churn starts to level off and so maybe it's 15 in month one but by in month two it's 10. so it goes down about five percentage points then maybe month three at seven and a half you know and then it's you know it's seven then you know it's kind of starts leveling out

23:29and doesn't keep dropping at a linear rate that's actually more important and so uh that was that was a genesis of writing about it because it wasn't something that i understood as an entrepreneur but when i learned it it really gave me a new lens with which to think about my business yeah and it's um as having been on the other side it can be very uh you feel very weak as a as an app builder because the time scales that you receive that information it's too long like you can't look once a month and you're and you're you're you're living this life of being data driven

24:01and like you want to be measuring like are we improving this and not it's kind of difficult like you can't over the scale of years um but sometimes you don't have that long right depending on your fun timelines and things like that which is why i always just say look at the the rate of change that's really the only thing you can look at is is it getting better over time or is it staying the same if it's staying the same you have a problem churn should be coming down over time on a cohort basis yeah it seems like that's kind of the important takeaway too is for

24:31and we're we'll be working on some benchmarks ourselves since we have a ton of great data that we can do that with um but it's to look at those benchmarks as cohorts not as overall so when netflix reports a three percent churn of their entire user base that is kind of uh handicapping versus like if they actually reported on a cohort level churn it would look very much more like what other consumer sas companies are are facing yes and then kind of the other uh part of that essay that you didn't quite get to yet was how over time those users who don't churn continue to

25:08provide revenue month after month over month so you start building up and inside revenue cap we have this chart that it's this like layer cake of your cohorts where ideally you're kind of building that over time and if it and you know we see it in our data there's some apps where it's like the cohort will spike and then it goes to almost nothing and then the next one spikes and goes to almost nothing the next one spikes and goes to almost nothing and you're not really layering on those retentive cohorts but in a great consumer sas business you start to layer those those retentive cohorts where you

25:41get two three years into it and you've had fifty percent retention year over year and now you're making fifty percent on top of whatever you're you're growing that next skit board and so now you have the cash flow to build every cohort does that spike thing like there's no app in the world that doesn't have a spike in a right right right the best apps it doesn't go to zero and that's all you need that's right like yeah like and like it's highly sensitive if how close it is to zero but yeah i mean that's what you're hoping for right versus versus b2b sasser you don't get that spike in decay

26:15typically it's a much smoother cohort curve and then as you layer that cache part of the point of the essay was that you then use that extra cash flow for marketing for product development for r d to actually continue to build additional modes yeah that's right um and and this is why the at scale subscription businesses like spotify or netflix or even a level you know smaller than that um you know like a duolingo they're actually very hard to compete with because they have these older subscription bases that churn at much lower rates on a blended basis so call it two three four percent and so as a new entrant

26:54again you you come in and you're turning at 15 a month you have to spend a much higher percentage of your revenue just to replace your user base every month you have to spend 50 you know 15 of your revenue uh potentially or more to replace it you know netflix only has to replace three percent or two percent of its user base and so they have more capital to actually go out and do r d to acquire better titles things like that and so it actually does become over time a very very significant note for the business that does happen to build organically and so the good news for the

27:24founder or the entrepreneur is you have to deal with a substantially higher churn rate versus maybe an established incumbent right off the bat but if you can overcome that it actually just naturally without you really doing anything else other than building your business uh becomes a moat against potentially new entrants yeah and do you think this means that we're kind of ending in this like winner take all like our column and headspace kind of too big to fail now where like they just are kind of smart right you think about not just yeah you were talking about the returning or replacing the churn i mean there's this there's this other problem

28:00of getting people to churn in the first place where they get it like you have to invest in a tremendous amount of capital to even get to close to a scale like assuming that you're scaling via paid acquisition but all acquisition is paid in some way right it just depends on the leverage you have but like you have to build in to get to that scale and like yeah like dude like how do i don't know what their subscriber numbers are but it's crazy it's by far the best language learning or the biggest language learning app out there it's not even the best like it's fine but if you go on

28:29like language learning forums like everybody's like dual lingo yeah it's it's a good thing right like it's not terrible it's not great right there i think there are other better competitors out there like but they they have a huge mountain to climb to get even close i think with duolingo specifically um you know i don't know what their retention looks like i haven't looked at it recently but they just have a an unbelievable top of funnel right so you know if you say to a friend hey i'm going abroad and i want to learn a language you know i want to learn a little bit just the thing that's top of

28:57mind is duolingo right it's just the thing that everybody uses and so like the i'm a big fan of analogies but the analogy with something like that is they just um you know they're on a beach and just every day you know tons of fish wash ashore right just tons and tons of fish wash ashore and they just have to grab a few of them you know while walking down the beach uh leisurely right whereas if you're competing with them you got to go deep sea fishing and stock up on the you know the gas to get there and spend the time and you know maybe you don't catch any fish but

29:24that's really hard to compete with right that's like a competitive advantage of a different variety which is they just have a massive top of funnel and so to compete with them you know you just you almost can't right you have to do something completely different or asymmetric or some new innovation that feels substantially better or different i mean i was going to say i mean that when you think of the ecosystem just of language learning as an example like i think there's probably a lot of second or third tier compared to the size of duolingo companies that that's supporting like duolingo supports that ecosystem by bringing in casuals or

29:55whatever and then people want to get more serious they want to try something different and whatever but yeah like you said like you need to you have to do some the top will do a lingo they'll either have to really drop the ball and like stop paying attention uh or you'll have to do something like totally that they cannot beat right uh otherwise so yeah these and that that's your mo point right like the mo is very real what what other moats do you think subscription apps can build with that cash flow or how do you think you know when you're advising companies like as they get to year two year three and the

30:29finances are looking a lot better the cash flows looking better where do you think the kind of key strategic points are to be thinking about and investing that cash flow into because you know a lot of apps it's like well okay we'll just spend more on marketing and you know we'll just like keep scaling scaling scaling do you think there's other places to kind of strategically build out these modes absolutely it ultimately comes down to what type of business you are so for a content based business which is a which you know i know is a very popular category to build within the app store i think there is a decision point that

31:02every content-based app needs to make which is are you a platform to enable other content providers to reach customers so this would be the roku example right roku is not ultimately a content provider they exist as kind of a choke point where they are rounding up lots of customers who come and expect great content and then they want as much content as possible to be on their platform right they're an open platform you know the counter to that would be something like peloton which um you know they uh so the flip side being a platform is to be a content producer so peloton is a content producer netflix is

31:38a content producer right they produce content and they want it to be everywhere i think it's tricky to try and do both to try and build both a platform or a distribution choke point as well as be a content provider because you're investing in so much content a lot of dollars and the question is well why aren't you elsewhere right consumers are in a lot of different places they're not just on your app why don't you go meet them where they are right and that is fundamentally at odds with trying to round up as many customers as you want and so you know for the content-based

32:07businesses i would first ask that question do you want to be a platform that enables lots of different people to reach lots of different content or do you want to be a content provider and once you decide on that it kind of dictates which strategy you can take for growth yeah we kind of talked about this uh earlier but you kind of mentioned in passing that fitness apps are a really tough area are there any fitness apps and you did already kind of mention strava but you know in that kind of a competitive category are there things you see companies building moats and in ways that are

32:40potentially applicable to other subscription apps yeah so i'll give a quick plug for a company that the business that i helped start universe software we acquired last year it's called equilab and it is the largest community of horseback riders so equestrians and i think it's a really instructive example where basically they built a product that did very accurate gate tracking for riders and so people who are riding they want to know kind of at a very detailed level what was happening with the horse at specific moments in the ride so they basically built this it's actually pretty hard to build technology to understand what was happening based on

33:16the movements of that horse and so they used that one tool as a way to basically aggregate all of these equestrians in the world and then went deeper into their workflow so that's kind of the theme is like you start with a wedge and then you go deeper in the workflow so another product they launch on the back of that is actually a safety tracking feature where basically when you turn that on if there's impact someone that you select is notified of that impact so obviously when you ride a horse you know you can fall off the horse and that can be really bad right and so what they offer is the ability

33:47wait if you fall someone gets notified now it's built more deeply into your workflow it's not just a product for you it's a product that you're using with with somebody else and so it makes it you know on the margin a little bit more sticky they then said okay where you know where are these equestrians actually riding they all ride at these horse stables which have other people who are riding right and so you know can you share what you did can you connect with your community at that horse stable again going from a single player mode to maybe a double player mode to a multiplayer mode getting much more

34:16embedded in that workflow and so you know it all comes back for me to to just product how do you build more product to serve that customer in uh more unique ways more deeply embedded ways and that would be one example and and exploiting the needs you're in right like not not that's right not just copying straw open strava and be like oh i'm doing a horse workout everything whatever like i'm doing right like that's not going to work yeah you have to you have to exactly and i think there's a lot of that for better or worse of just looking at what other people do and trying to copy it you

34:49learn a lot that way but ultimately it comes down to what your customer's doing right like you know you wouldn't get that safety feature by looking at you know trying to copy something from calm right another one that they're that they're working on is posture right so people want to have good posture when they're riding like that's just super unique and idiosyncratic to uh to the market that they operate in yeah you're making real champions out of your customers too let me tell you right when you're when you're focusing on problems that nobody else has helped them with right you're going to create really loyal really loyal customers and maybe

35:21like who knows how big equestrian stuff is i don't know how bad maybe it's not as big as the language link market maybe it's bigger who knows but it's not it's not but if you still can build that if you can be that moat builder you can build that do a little in that marketplace like go for it right like that's that's that's going to be a great business yes yeah you brought up a universe i wanted to ask you more about that so one of the things i i love about your perspective is like you're writing these screenshot essays you can talk about this stuff but you've got skin in the

35:50game too so you're investing in companies through bedrock and now you kicked off universe software you're actually buying and helping to operate these businesses uh so give us a pitch the elevator pitch on what universe is and why you bought this equestrian app yeah absolutely so um we started uh so bedrock the venture firm that i co-founded we incubated universe software uh last year um and the team operates out of atlanta the uh the starting point for us was uh there's this business constellation software uh which is in canada and is a you know 30 to 40 billion dollar public company the way they became that was by uh in a in

36:30the late 90s starting to buy vertical sas businesses so at the top of this podcast we talked about those businesses being really underestimated for a long period of time they just started buying them in the 90s and then they've now built up a portfolio many years later of hundreds of these businesses as the world has kind of shifted to appreciate them much more deeply so we we kind of asked the question what would constellation look like if it was started in 2021 as opposed to 1995 and we coalesced on an idea that basically there were a lot of sas businesses both b2b prosumer and potentially even

37:07consumer that were adjacent to very large financial services opportunities so i talked about shopify that's a great example right you know another good example would be something like toast which you know built the point of sale and has since expanded you know obviously to payments to lending to payroll these financial services that they were able to ladder into because they had solved this very very complex a productivity use case for their for their customer and so the idea was basically can we buy these software businesses these sas businesses that sit adjacent to fintech opportunities and then actually launch those fintech opportunities so things like payments banking

37:45cards payroll and lending on the back of the initial wedge that that company has carved out for themselves and so um you know our one of our first acquisitions i'll talk about it in much more specific detail was really a prosumer app that primarily had distribution through the app store it's called the point fix and they really became the leading software that micro smbs so call it you know one or two person smbs whether it's a barber or a you know nail technician or you know a hair stylist they use for scheduling so they block out their time they share it with their customer base and that customer base schedules an

38:23appointment they do not do payments on the back of that appointment booking but it is a very natural extension for them and oftentimes that um you know barber wants to take a deposit to reduce no shows so payments was very natural so we we acquired that business um that was sas only at that moment in time and we're expanding into financial services and so the goal of the uh of universe software is to build a holding company of these vertical fintech businesses that all go deeply uh tailored toward need of a specific vertical you know in that case it's uh these these micro smbs and actually build what ultimately looks

39:00like the 21st century version of a bank so 10 15 years ago 100 years ago if you needed financial services you'd go to your local bank branch we increasingly believe that small businesses will turn to their trusted software to serve that same purpose and we're building a collection of these that go deep on a specific vertical to do that so where does the equestrian app fit in because you talked about a lot of aspects of of why the equestrian app has a moat and how they're expanding into different use cases for that specific niche but where's the the fintech opportunity there yeah really great question um so

39:36what we look for is an adjacency to a flow of funds and and that can be payments or payroll so on the payment side you know it's invoices it's appointments it's booking it's contracts it's maybe even crm and and loyalty on the payroll side it's scheduling it's time tracking it's hiring and onboarding and with equilab in particular going back to what i said earlier about doordash when you can own the demand side and really have a great user base of demand you can actually use that to build a path toward the business itself in this case it's it's stables and most specifically booking of appointments with coaches payments for services

40:16around the horse because often people will who use equilab will put their horse with a specific stable and they have to pay for services and so i'm not going to go too deep into what we have planned but basically we found it to be the most strategic entry point into that specific market was to own the demand and i'm going to ask because i i would assume you know this off the top of your head what do consumers spend in the u.s on horse related things it's significant it's significant so like we look for markets where we can see a path to 5 to 10 billion of gmv

40:50and so you know maybe a question isn't isn't quite at that level but it's very significant as it relates specifically um you know it's it's a it's a user base that does not mind spending uh for this hobby that they are so so passionate about right i guess i never realized that was such a key part of your thesis was like the bridge into fintech and payments and things like this which i guess makes a lot of sense we're talking about these platforms the transition of a consumer content driven experience driven app into a more platform experience like where else do you go i mean there's not a whole lot of

41:22other platform plays there um but i'm curious like how i mean this seems like the problem that universe is set to solve but that's kind of a big gap for the folks that make apps jumping into fintech yeah i mean i'm just 100 100 and so and so this is this is why it's so interesting look i'll say full stop like you know not every app in the app store is right for this so you're right if it's a content business like even the business that i built oyster you know probably doesn't make as much sense but but you'd be surprised how many of these businesses actually do sit

41:53adjacent or maybe one step away from some point of transaction and then once you own the point of transaction it naturally does lead itself very cleanly down a path to at least banking and then potentially things like cards and pay advance or invoice advancing and so but it's not going to be it's not going to be exactly right for everyone one of the things that we do look to solve here is you're right a lot of founders of consumer sas businesses or even sas businesses build it to a certain point they've built a phenomenal business it may not make sense to go raise a ton of venture capital

42:29but partnering with universe who acquires the business and then actually the other thing i'll mention is we do not operate the businesses so we help we support we augment the teams that are in place to basically as we call it go further together and so if yes that idea of taking on financial services is daunting and it is like i built these businesses and so there are a lot of fraud and risk elements to it um owning a master balance account allows you to have better terms with service providers it's a daunting thing and part of what we want to do is come partner with us go you

43:00know execute against that really ambitious vision and we're going to help you get there so you probably can't talk too much to all the opportunities you see and i i would imagine you probably have ongoing talks with other uh apps in the in the space but are there any opportunities that you see that you can mention in this space that that you're particularly interested in yeah um it really does come down to has the custom has has the app developer built a product at the productivity layer so we call it productivity layer is the sas part of the business the financial services layer is payments and

43:34everything else we look for productivity layer deeply embedded deeply ingrained behavior that could be supported on a 10-year time scale and so that's really important like if we're gonna if we're going to pursue something and buy it we want this to be something that someone could use for 10 plus years and something like equestria if you're if you're riding a horse today you've probably been doing it for 10 years and you do it the rest of your life right if you're a hair stylist or a barber today you're going to be doing it in 10 years so we look at the longevity and then to the point i made earlier we

44:05look for a strategic entry point so that could be you know booking is the most obvious example of it invoices you know documents those are all entry points to payments and then scheduling time tracking hr onboarding that's all entry points to payroll these businesses don't all exist in the app store but you would be quite surprised how many do exist in the app store yeah that's interesting and we were kind of kind of me up on time so i wanted to give you an opportunity to actually pitch i mean i imagine there are some people in our audience who might be interested in selling to you is there you know how

44:38should people get in touch or what would kind of your pitch be to a founder who's kind of gotten as far as they want to go but they see opportunities and and might be interested in talking to you um yeah so one reach out uh you can find ways to reach out to us on our website uh universesoftware.com we have a lot of these discussions and can fairly quickly say in you know 15 or 20 minutes hey we think there might be a path here or or b there's not a path here but again if you're if you're a developer who has built to you know a software product

45:09used by some substantial amount of people that you feel is adjacent to fintech and you can see it kind of transforming into serving all the needs of for financial services of your particular market and you want a little bit of help getting there universe can be a phenomenal partner the other thing is if you want to do it and you want to just do it on your own and you want to learn we're more than happy to have that discussion as well yeah i mean it's a challenging thing for uh apps in this category like when you get to the point of like maybe thinking about a liquidation event or something

45:40like this you're probably not big enough yet to go public there's there's not as many paths going forward um if you're trying to find an acquirer that has a uh like some sort of topical match right like oh i'm selling i'm a book app i'm selling to a book company so like that's very challenging right because there's not that many acquirers that have the same thing right so when you're when you have something where you all are more application agnostic or you have some like broad parameters um you can do a lot worse than somebody who actually knows these businesses or you look at like a private equity like a straight

46:10private equity doesn't care about what you're doing and like things like this like it's good as a founder to know these opportunities and options and yeah and i think it's really cool what you guys are doing so thank you thank you and and to the point we made earlier like uh we're trying to lay the foundation for the infrastructure to to build this industry right and it's one element of it it's not right for everybody but it's one element of it and and that's why i love what you all are doing at revenue cat 2 you're laying this infrastructure that makes it easier for these people to launch great

46:37businesses and then you know in turn five or ten years from now maybe there's some new infrastructure that needs to be met because these have reached a scale that you know nobody ever envisioned and they need new things yeah i mean you've got my gears turning now and like what do we build because like you know and in some ways it reflects that journey you're talking about like i've sold on the app store so it's kind of sold sass on the amsterdam so it's kind of like you know my game and most of us here are kind of from that same background but we definitely uh we see a lot of businesses at the

47:07point fix is a great one um i don't know if we're working with it directly yet but um but i've talked to a lot of these where you will be soon if you're not already wow i certainly talked to folks that live at this world where like there's a sas component but then there's also a transactional component and marrying those two things can be really messy from a infrastructure perspective from a compliance perspective like all kinds of stuff and and i think it's it's something that holds this whole industry back in a lot of ways right because you can't use one payments provider you have to like walk this arbitrary line that

47:39apple draws and you know any anywhere that there's like unnecessary pain is a great business opportunity so we'll we'll keep thinking about it awesome i was actually just talking to ryan jones about this this weekend he he texted me because he's looking at uh our stripe integration and um it's like what there's no you can't use metered billing you know and with revenue cat and stripe i was like well if you look at the current kind of stable of businesses we serve that's like a really edge edge case because you can't do metered billing on the app stores and so it's kind of forced apps into this very

48:13specific business model around subscriptions but it's like there's this whole other world out there that like we need to expand into and that subscription apps can expand into as the tools to be able to do that on the web and to be able to push people out to the web uh mature yes all right well that's a great place to wrap up just so many opportunities uh eric it was so great having you on the podcast we're gonna have uh links to your website links to the screenshot essays uh twitter uh anything else you want to share as we wrap up no thank you all this is fun

48:49to make sure you never miss an episode subscribe to the show and your favorite podcast player thanks so much for listening until next time [Music] you