The statistical likelihood of growing a tech startup to a billion dollar valuation is infinitesimal, hence the mythical moniker “unicorn” for outfits that pull off the feat.
And those odds apply to startups seeking to disrupt market sectors prized by venture capital firms, such as health care and finance. The odds get longer if – like Glendale-based ServiceTitan Inc. – you have an app for plumbers.
“There are industries like finance and healthcare that suck the air out of the room,” said Vahe Kuzoyan, ServiceTitan’s chief product officer and co-founder. “Making a product for plumbers is probably the least sexy thing you could do.”
ServiceTitan might be an ugly duckling in the tech world, but it recently raised $62 million from Battery Ventures, bringing its funding total to $161 million since Kuzoyan co-founded the company with Chief Executive Ara Mahdessian in 2012.
ServiceTitan sells a cloud-based software service to plumbing, heating and air conditioning and electrical companies to manage workflow, marketing, customer service and billing.
The company has annual revenue in the “tens of millions,” and hopes of passing the $100 million mark this year, according to Kuzoyan, who declined to get more specific even as some observers speculate it could be the next tech outfit with a billion-dollar valuation.
“Traditionally (venture capital) hasn’t been interested in this space,” said William Hsu, managing partner and co-founder of Santa Monica’s Mucker Capital, which was an early ServiceTitan investor. “But ServiceTitan’s software is so much better than the legacy software. They’re charging from four to ten times the price and still winning deals. The market is supportive of a billion dollar company.”
Family experience
Kuzoyan, 34, and Mahdessian, 32, are both sons of parents who immigrated from Armenia and worked in the home services trades. Both majored in computer science, Kuzoyan at the USC, and Mahdessia at Stanford University. The pair started the company right out of school in an effort to address challenges that confronted their families.
“I saw it first-hand,” Kuzoyan said. “I moved here when I was six with my parents from Armenia and got to see my dad do all sorts of odd-jobs. He worked at a gas station, drove a taxi, and owned a plumbing business.”
ServiceTitan charges more than 2,000 clients a monthly subscription rate that’s based on the number of plumbers at each company. ServiceTitan wouldn’t provide a range of prices but said the cost for its customers comes to an average of about $3 per service call.
ServiceTitan has 400 employees with plans to hire an additional 100 engineers and other workers with Battery Ventures’ recent capital injection.
Vahe and his investors insist there are few, if any, serious ServiceTitan competitors, noting there’s a broader trend where single companies dominate certain sectors with apps geared toward specific services. Examples include Procore Technologies Inc. with construction management software, or Viva Health Inc. with health care administration.
“It tends to be a winner-take-all market,” said Vahe.
Slow to integrate?
One potential sticking point for the company: home service professionals can be slow to adopt technology.
Simi Valley-based Dutton Plumbing Inc. General Manager Eric Falconer, one of ServiceTitan’s first customers, said other business owners in the market are often reluctant to try new systems.
“There’s a lot of businesses that will prefer to use paper or Google calendar,” he said. “There’s a lot of people in the industry that don’t see the value in software.”
Vahe himself acknowledged growing the business has required a more hands-on approach than other startups.
“We don’t live in a world where plumbers are searching the internet to find the next best software,” Vahe said. “We leverage the success of the last customer to get the next customer. It’s not about a particular set of features we have that no one else has.”
But the opportunities are there. Falconer said his business had $5 million annual revenue, which has grown to $12 million since he started using ServiceTitan’s software in 2014.
“They are definitely meeting an underserved market,” said Falconer. “There’s a lot of good people in the industry who are not the most business savvy people. Giving them this tool to be successful, they’re doing good work.”
Set up for success
Although getting mom-and-pop shops on board isn’t easy, Mucker Capital’s Hsu said doing so is more the difference in the company being a unicorn or a “megacorn.”
“ServiceTitan’s customers are professional [plumbing firms] making millions of dollars a year,” Hsu said.
ServiceTitan “can build a billion dollar business through that, but to build a ten billion dollar business, they’ll have to figure out how to service the smaller customers,” he added.
Battery Ventures partner Michael Brown, who joined ServiceTitan’s board after the $62 million round, said his firm decided to invest after an internal research study on blue collar workers.
“With the iPhone, you can give blue collar America the same … technology that corporate America has had for decades,” Brown said.
That, combined with other untapped services segments where ServiceTitan could ultimately sell its software gave Battery Ventures the confidence to make their investment.
“Their current market has billion-dollar potential,” Brown said. “Another vector of growth is more home services within residential such as roofing, pest control and lawn care. They could also go from residential to commercial. Another vector of growth is international. I think this is a company that’s likely to be a public company in the future.”
