The Huge (And Very Small) Frontier For Venture Dollars

by Scott Petty, co-founder of Signal Peak Ventures

When you think of the next big thing in venture funding, the corner store or local mechanic isn’t what comes to mind. Yet very small businesses (VSBs) are one of the last untapped bastions of innovation and, by association, venture dollars.

Innovations in SaaS have made core VSB functions like lead conversion, scheduling, CRM and secure transactions available online for the first time ever. As VSBs are in a rush to adopt these solutions that larger businesses have had for many years, one thing is becoming clear: the opportunity to deliver “big company” solutions to very small businesses is significant.

Hungry for technology

Owner-operated companies with approximately 5-15 employees, VSBs drive one-third of the national economy. Growing up, many of us knew VSBs as local mom-and-pop shops, such as restaurants, auto repair shops and dry cleaners. Today, that classification has expanded to include the more than three million virtual workers who make a living as freelancers, agencies and e-commerce operators.

VSB owners don’t always have a server in the back room, but definitely have a smartphone. They are similar to prosumers: comfortable using tech and apps, and hungry for simple, yet sophisticated solutions that will help them run their businesses. A great example is Square, which is seemingly serving every coffee shop and taco truck on the planet, because it gives VSBs a complete point-of-sale solution they can use on any device.

An untapped market

Until recently, few providers could effectively sell to VSBs. The market is fragmented with high churn, so customers tend to be expensive to reach and to convert. Scaled-down enterprise solutions miss the mark in terms of price, features and functionality. But recent innovations in SaaS-driven business models have come of age on the backs of B2B solutions, and providers are finally learning how to cater to the underserved VSB market.

Low initial start-up costs and easy setup make SaaS based solutions an attractive proposition, both for VSB owners and as venture investments. Applications from companies like Booker, InfusionSoft, eFileCabinet and Bookly prove that once integrated, VSB-specific solutions become keystones within the business, providing core functionality that can’t be replicated elsewhere. Infusionsoft lets VSBs automate their sales and marketing processes, helping small business owners grow sales and spend more time actually running their business. One small  residential painting business, for example, increased sales by 300% after replacing cold calling and door-to-door sales with Infusionsoft’s marketing automation and CRM tools. Another example, eFileCabinet, used by 153,000 companies including SMBs, essentially puts the traditional file cabinet online by letting small business owners store, share and file away their documents in a compliant setting. VSBs such as accountants and insurance agents can be more competitive by being online, mobile and staying compliant.

A new kind of customer

The vast majority of VSBs don’t want to be the next Fortune 500 company. They want to grow and succeed, but are generally not interested in scaling on a massive level. Most are run by owner-operators who are involved in all aspects of the business. Their business is their identity—and often their families are involved as well.

Even the largest providers must communicate that they understand and care about VSBs’ needs, on a personal and financial level. In return, VSBs can be the most committed of customers. Users are sticky, and the services have potential to be used by VSBs around the world. Moreover, younger VSB owners and many small e-tailers in particular have come of age in the sharing economy and are comfortable with the crowdsourced feel of SaaS, making this a market that will grow into the future.

VSB might stand for very small business, but the potential is huge. SaaS, the cloud and data analytics have ensured that the intuitive, user-friendly and savvy solutions that VSBs need are finally available. With many venture backed companies successfully targeting s the VSB market, we are sure to see many more companies launch and grow to  address this underserved corner of the economy.

 

Scott Petty co-founded Signal Peak Ventures (FKA vSpring Capital) in 2000 and has been a Managing Director since its formation. Earlier in his career as a consultant with Bain & Company, Scott worked with multiple IT and non-IT companies, re-engineering their strategies for optimum results. Scott is a past member of the Board of Directors for the Rocky Mountain Venture Capital Association.  He also has served on the Board of Directors of the Lassonde New Venture Development Center at the University of Utah.

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