20VC: ServiceTitan Would Not Be the Success if We Raised VC Earlier: How to Build a Dominant Vertical SaaS Business, How to Master Going Into Enterprise, When & How to Launch Second Products with Ara Mahdessian, Co-Founder @ServiceTitan

25:14By using service tighten, you'll be more successful, but coincidentally, there's a big community around Service Titan. There's an online group of 10 ,000 contractors on it. And I see the posts in there, and I even see things like somebody posting, Mama, I made it, I'm on Service Titan. It has become this thing to be on Service Titan is an indicator of success, which brings me so much pride that we have earned that kind of validation from customers. When you go out to the online brand, did you see that have an impact on customer acquisition cost? because there's the idea as you said everyone knows everyone they will talk.

25:48Did you see we don't need spend on marketing because everyone just talks? Absolutely. There's a very significant impact on customer acquisition costs and the efficiency of good or market motion. Both in surfacing pipeline, you know, getting a lot of inbound inquiries as a result, both through like the rec referrals and just so much word of mouth that ultimately when a contract that is thinking about software they decide to take a look at service time. But then of course in things like close rates and then when there's high conviction in a product because you've heard so many good things Your close rates go up But then also the willingness to pay the R poo goes up and then the willingness to buy pro products goes up people often ask me You know why is customer success so important?

26:28There are two reasons the first has nothing to do with financials. It's this business is very personal to me I like to think on the man in my word and if I give my commitment to someone You know, I will move the world to honor it when these hard working Salt to the earth contractors who built yeah great companies and it's their livelihood and their name is on the door The legacy is on the line their families are online man. I will do anything to make sure I deliver on my word in my commitment And make them successful. There's always a small but still meaningful chance that something can go wrong I don't care if it's my fault my team's fault the customers fault because you know they weren't committed, they didn't prioritize it, it doesn't matter.

27:10To us, there's a concept of extreme ownership. We have to make them successful. And so we will do everything it takes to make them successful. So that's like the personal reason why it's so important to me. After having done this for now over a decade, what I have seen is that the financial rewards of doing this are so high. It is why we get so many inbound leads. It is why our close rates are so high. It is why you said three extra whatever eggs more expensive than competitors. Why do customers then trust this to buy pro products? Why do we get pulled into new markets as a result? It is because of this fixation on making sure the customers sees ROI, which we call quote unquote customer success.

27:48Does that mean you have a higher budget for CS than other teams? Yes. It doesn't cost all that much. It's not like we're profligate in our spending or our investment and customer success. Maybe we invest a little bit more. Customer success, by the way, Doesn't happen just when customer success teams. There's only so much a customer success manager can do if the product isn't good enough How many workarounds is a CSM gonna advise each customer on if the product doesn't solve the workflow needs or even if the product Solves all the workflows but those workflows are just workflows that don't have ROI associated with them There's nothing the CSM could do to generate ROI this idea of customer success Of course is very significantly influenced by CSM's but it is equally if not much more significantly impacted by the product itself.

28:35You have to be in an industry where there's an opportunity to generate incredible levels of ROI and the product has to be built in a way to make that happen. If those two things aren't there, see usems can't do anything about it. There comes a time when you saturate the core market a little bit and when you are unable to sustain the growth levels that you need with just one product. What are your biggest that you've mentioned pro products before. What are your biggest lessons or when's the right time to do second and third products? Yeah. So as soon as the product you are currently building has great product market fit, you have a high degree of success with customers that buy your current product, then I think you should absolutely entertain the idea of building the next product.

29:20But the opportunity has to be there. Yeah, many companies have tried to be a multi product company and either in the new category that they're thinking about, there's already a great competitor that is hard to be - Is that not too early? If you think product market fit is hard, running go -to -market sufficiently is hard. CSM's are hard. When you have product market features, double down, make sure that the train runs fast, fast, fast. If I say, hey, Arra, let's do a second product. You're like, well, we need to do, like go -to -market super well for this product that's selling super well. And the CSM's are inundated because we have a lot of people now buying a second product?

29:56None of these moments are like binary. Start with some level of investment in the second product and then as you get traction the investment level increases and the same with your first product. So would I wait until I have product market sit on the first product? Go to market is like perfect, implementation is perfect, everything is perfect before starting to build the second product. I would risk being really late by doing that. I would rather once we have product market fit and for me product market fit means the only way you can have real product market fit Is if you are really good at understanding the purchasing process and the ROI case and you have built the right product to support that ROI case and if you have that it means your pitch is good, which means you should have good close rates and our pool So it won't be perfect, but it's hard for me to imagine how your product market fit like without doing a good job Marketing and selling the product but those two things are so correlated one of the killer products that you did launch Is the payments products and the financial products?

31:01Yeah, this is like the hottest thing in SaaS as you know adding financial services to a SaaS business But it took you 10 years and the thousand customers according to the team's research Why did it take so long and should you have done it earlier? Yeah, I would say that was an example of us not seeing the opportunity to build a great payment solution. And we should have done it earlier. We had good product market sit. Now, the problem with our use case is that our product is so wide, so deep that 100 % product market fit across the entire spectrum is very hard and takes a very long time to achieve.

31:40The vast majority of the product had great product marketing. We should have started the payments journey earlier. We have solution. Is there anything else you should have done? Expanding into a new customer segment. I've gone up market down market, gone residential to commercial, gone into a new trade. Most of those, I think we got the timing right. And when we're being pulled into those markets, it'll a lot, it's a lot easier than trying to brute force into those markets. You know, we got pulled into garage door by a customer. We got pulled into roofing. We got pulled into commercial. The timing was right on those.

32:12On the products front, payments we should have done earlier, payments we should have done earlier. And one of the products we did too early, the contact center product, the new contact center product, this is the perfect time. On your leadership, I think we change a lot over time. When you reflect, how have you changed most significantly as a leader? Do you think you're a What could see here now? There's a lot that I can do better. One of the things that has evolved a lot recently is like I tend to demand a lot of the people around me because I believe nobody knows the limits of our own potential.

32:49I believe that the people around me are so gifted and can drive such impact. I want to help them realize that manifestation of themselves and previously I would do the only way I knew it was just demanding as much as I could, what I've since realized what is more effective is doing my best to inspire them to achieve greatness. We just showed to about my intensity. I'm very demanding. As you know what I was glad to see, hour is created a culture of fear. People are genuinely scared, which I don't want. That makes me feel shit. How do I create that high intensity inspiration environment without having fear.

33:30So I'll give you an example from literally yesterday. I was on a meeting with one of my product teams working on a new product that we're launching, amazing product, and we're going to launch it at our upcoming user conference. And so at the end of great meeting, I asked the team, I'm like, so like, we are ready to launch this at Pation, right? they're like, yep, absolutely. And it's going to be stellar quality, right? Like, I want Apple level quality. And they're like, the quality is going to be great. But of course, the quality will get better over time. Then they said, like, are you asked this to get this launched by Pantheon?

34:05And the prior version of me would have probably said something on the order of, hey, that's not good enough. We can't just launch on time. The quality has to be a plus. We're not going to sacrifice quality just to get something launched on time. and you must do better, et cetera, et cetera. And organically, what I found myself saying is like, team, I understand we want to launch on time and with great quality. If I just wanted to launch anything on time without regard for quality, I would have brought in the B team, the C team, maybe even the D team, anybody can launch anything on time without any regard to quality.

34:39I brought in the 18, right? This is the 18, right? And so then everybody, like the reaction was, smiles everywhere, happiness everywhere, people rallying be like you got it you bet we're gonna launch this on time and it's gonna be a plus quality This product is gonna kill it, etc. etc. So I think you can drive an even better A set and an even better outcome and like you said feel a whole lot better about yourself and the people around you Feel a whole lot better about themselves is you demand excellence through inspiration over like harsh words Are you a professional? In the things that are important to me, yes.

35:18Perfectionist about product, about metrics, and driving the business. Like you mentioned, the Laurel Piano comment about fashion in certain ways, about soccer, and how I coach the kid's soccer team. Yeah, the things that are really important to me, perfectionist. You sound like a bit of a micro -manager. Paws, pause, pause. Sure. Jensen Hawaiian is also, you know, Jensen Hawaiian has 61 direct reports or 62 or whatever it is. Is micro management bad and do you think that's a first optimization? It depends on what qualifies as micro management. For example, if micro management is I as the CEO make all the decisions, yeah, it's terrible.

35:58That means either I have an incredible team around me and I'm a complete idiot and I have no idea how to give them the autonomy to make a whole bunch of great decisions because I can only make a finite number of decisions in any time period. Or it means the Timur on is not good. In which case, I'm a terrible leader for hiring, building, and coaching a 14. My job is to make sure I have a great Timur on me. So in both cases, I would have said, but if by micromanager we mean I hire people who are much better experts than myself in their domains. Yet, I am engaged and I talk to them to understand what their priorities are to make sure their priorities are linked to the company priorities, and I understand what their plan is for executing these priorities.

36:46And from time to time, I can offer them an opinion that turns out to be a really good insight for how to get better outcomes. That, to me, is at least my idea of what good leaders do. I do not believe in micromanagement where the leaders make all decisions, but I also don't believe in pass -through leadership. Do you agree that leadership is about great leadership? Is about one or two big decisions a year, or the many thousand that you make that are very small every day and every month? Great leadership is about generating great outcomes, extraordinary outcomes. Ultimately, that's what it comes down to.

37:20Now, in order to generate extraordinary outcomes, you most likely will make one, maybe two, big decisions on where to play. And that where to play could be, we're going up market or we're going down market. It could be we're going to roofing or we're going plumbing or it could be we're building a contact center product versus we're building the online scheduling product. So great leadership is about one thing to deliver extraordinary outcomes that typically involves one decision about where to play. Successfully executing where to play involves hundreds of great decisions on execution. The biggest strategic mistake that I made was I waited six years to go to video.

37:59I thought that actually people felt much less comfortable on video. I felt that they would close up more and we didn't do YouTube for six years as a result. That was an incredible, we have millions of subscribers which I'm very grateful for but not on video and that was a costly mistake for me, which we've corrected and we've done it for years now. What was the most costly strategic mistake that you made as a leader? Costly a strategic mistake. Anytime you make a poor leadership hire, it is very costly for the business because the impact scales not just down throughout the entire organization that person leads, but it also starts to creep in laterally to all the other organization and it can really threaten the functioning of a company.

38:41The lesson that we have learned from that is in the past where I've experienced is very important But in the past where we have fixated only on experience We have run the risk of hiring people who may have lived in these footsteps But like don't carry the same DNA of being a team player and not just stop writing from an ivory tower and being very involved in in the trenches How quickly do you know? You get the feeling immediately within weeks the challenges acting and not hesitating always takes at least for me took months and that is where that damages that and so what I've learned from that is that in every case I can recall now where there was doubt about an individual that doubt has every single time proven to be justified and it turned out that that person was the wrong car.

39:32It has never happened where given an extra six months nine months, there's been some transformational turn around where I've said wow I was really wrong about that person and so now the philosophy is when there is doubt there is enough conviction The hard thing I find is you know very quickly But to cut someone especially a key right higher after two weeks or three weeks It's so harsh. You've got to at least look like you've given it more of a go As you said, you gotta look like you gave them a chance. Probably 100 % of the time you're gonna end up having given too much time. If there is doubt, there's enough conviction.

40:11Final one before you do a quick fight, but we've got many mutual friends. And all of them told me that you freaking love football, not soccer. Football. How does football impact your leadership style or show up in your leadership style? There's a lot in common between how I think about service -tiden, Now I think about for example, Fobolic, I want to achieve extraordinary things. I want to make an extraordinary impact both at service time as well as, you know, when I play football or when I coach my kids football team, Fobol I see as like the most intellectually challenging sport there is. Most people just see the flashy dribbles and assume that is what makes a great player and it turns out it's like the complete opposite of all that.

41:00Ball is very technical, but it is incredibly tactical. You have to be a student of the sport to appreciate the tactical beauty. More than half the runs you see are like dummy runs. The runs are just designed to drag a defender out of position to create space for a teammate to run into. At least the football that I teach, a lot about things like doing rotations to create overloads in certain parts of the page that is complete tactics to outnumber the opponent by doing those rotations. So I pursue football with similar philosophies I pursue business. Of course I want to win. The competitor part of me wants to win.

41:35But it's more than just winning. It's more than just being better than competitors. I want to improve all the time in business and if of all to get closer and closer to perfection. So when I coach the kids team, it's winning is nice, but for me it's not the winning. I want them to play in the most beautiful way possible. Will the AMA last sustained post -messy? Certainly right now it's all the rage with messy here. The stadiums are filled, everybody's buying merchandise. But still, most real football fans here don't watch AMA last. They watch European football. They watch their Premier League teams, their La Liga teams, their set -out teams.

42:11Real football I community doesn't really watch. I don't watch AMA last matches. None of my friends do the coaches I coach with don't. The players don't. But those that are kind of new to the sport, I suspect there's significant viewership and but it'll probably take a hit after Messy. Arra, I'm gonna do a quick file with you. So I'm gonna say a short statement. You're gonna give me your immediate thoughts. What do you believe that most around you disbelieve? The importance of customer success. Who's the best ball member you would most like to have but don't have? There's a lot of people who have lived this journey before, too weird, to be a trapifier, Chris from Toast who are so relevant to what we do in vertical sass but then people like Satir who I could learn so much from.

42:52Two is great. What if you changed your mind on in the last 12 months? What do you come up with these men? I've done 2700 in cheese every 10 years. Cheese? Is van show what you thought it would be? It is turned out to be way better than the scary tales that I had in my mind. Every firm that we partner with, they've been authentic, very much invested in our success, us aligned with how we want to build a business that is both incredibly successful financially and the right way to build a business and so helpful in the journey. What do you know now that you wish you'd known when you started service tightening?

43:25How hard it would be. Wow. Although I take that back. I'm almost glad I didn't know how hard it would be because there's a good chance I may not have done it and then I'd really regret it. It's all some cost. Now I don't mind but if that was ahead of me, it's like getting your wisdom teeth pulled out every day. I think that's called marriage, but sure. Okay, you can cool yourself up the night before your first child and say, Arra, you should know this. What would you tell yourself? This two -parenthood is also incredibly hard, but I had no idea it would be this rewarding. Very family -oriented, and I always wanted to have kids and many kids, but even I couldn't imagine how rewarding it is to be able to cuddle with your kids and share the love, but also teach them about principles in life, teach them about friendship, teach them about, I don't know, math or science, teach them about football, and to see them learn and you get to do this every day and you get that feedback loop every day, like them developing and growing, and also you make an impact in the lives is the most rewarding thing that I've ever done.

44:30Do you believe in what life balance? Even if I did, it's so hard to even come close to that. I really like what I do because I like Like what I do, it's part of my work and it's a part of my life. It's just important that I'm also there for like my wife and kids for the important moments. Yeah, we make it work. It's hard, but it's not impossible. But ultimately one, this is a magic wand, okay? And you can get better with any aspect of leadership. What aspect would you most like to improve on with this magic wand? I wish I could ask questions like you. Wow, would you go all with these? if I could be even better at like assessing the real capability of a potential higher.

45:11That is so hard to do during an interview process. And of course, we invest a lot of time and effort to get like some level of good percentage hit rate, but if I can magically be 100%. The hardest thing my friend Aaron Levy said, you know, if you do hiring while you get one out of two, right? Yeah. So if I can get two out of two, life changing, company changing. Final one for you, you don't do many interviews, but people ask you a lot of questions. What question does no one ask you that people should ask you more? The question that I ask a lot that almost nobody asks me is, have you psychoanalyzed yourself figure out what really motivates you?

45:50That I find to be one of the most fascinating topics is understanding why people do or behave the way they do or make the decisions they make. Have you done that on yourself? Yeah, what what what is your answer and you ram and every other variation of that on the Achiever profile and you know What is the vulnerability that makes you want to achieve so much and is it this idea of I need to feel worthy enough and okay But then my all questions why do I have the need to feel worthy and where does that come from and whatever the answer to that is Where does that come from and I just want to go like a million miles deep on this topic?

46:25Do you feel worthy now? Man, in the founders journey, it's your first starting out. I remember when I first started out, the milestone was like, I want to hit 100 million of the error. And I thought, oh my god, how do you even get to 100 million? It's like impossible. On top of that, I realized early on, I'm like, look, if I get to 100 million, sure that's great. But once I'm at 100 million, then the expectation is going to be, I've got to get to, and I've got to keep doubling. And I'm like, it's hard enough to get to 100. How do you grow beyond that? We did it and we continued to grow beyond that, but the expectation is always there You got to grow more and whatever my next target is.

47:00Yeah, even if it was 10 billion I bet you know you mentioned Jensen when you got 10 billion the expectation is you got to grow beyond that And when he gets to 100 you got to grow beyond that so and you know it on the treadmill of always more Yeah, I called the Hensarwheel. This is the life we've chosen and we're no stranger to adversity Yeah, we gravitate towards challenges and we do everything we can to scale those challenges and find new glory We'll do that again and again. Are you are a very special dude I can see why my my friends say what they said about you Which was very atypical to be honest normally it's like a great person you should meet him But the level of platitudes was rare and so thank you for doing this.

47:38I know you don't do many I genuinely really appreciate it and thank you. I'm very flattered to hear that kind of feedback very grateful to be on the show I hope I deserve it and I hope I can earn it so thank you again. I have to say I think I just have the dream job. But for me as a vertical sass nerd, to have the chance to sit down with Aaron, ask the questions that I did there. It really is just the best job in the world. I hope you enjoyed that discussion. You can watch it in full on YouTube by searching for 20BC. That's 2 -0BC. I would love to see you there. But before we leave you today, all of you listening use tons of software every day.

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50:54As always I so appreciate all your support and stay tuned for an incredible episode on Friday with 20 sales, a sales leader in Mark Rebejge on how hub sports scaled to 100 million in Aero.