Markets by Grant | Home Services (Updated!)

9 min readJul 23, 2021

Today’s market is an example of a phenomenon I’ve been interested in: startups moving downmarket to target the long tail of consumerized enterprises. In simpler terms, I’m talking about squirrel hunting.

Orient yourself to the chart below. A common pattern in B2B software customer markets is this one: A few big businesses controlling the majority of their market, a fair number of mid-sized businesses, and a whole lot of small little mom-and-pops.

The big enterprises (elephants) often require more complex, feature-rich products and take more effort to sell into — but they reward with big dollars and long-term relationships.

At the other end of the spectrum, the long tail of squirrels are just that: squirrelly. You may not have to forge a personal relationship with each one of them or build a super complex product to meet their needs, but they’re notorious churners with acorn-sized revenue contribution. These squirrels are what I’m talking about when I say consumerized enterprise. They’re businesses, but their sophistication, scale, and longevity are low — which means they behave more like consumers than traditional B2B buyers. And this long tail of enterprise consumers has traditionally scared off startups. Why? Because most folks suspect that LTV:CAC is lower the further out you go.

Many B2B software startups would prefer to target their market entry at the elephant level: big trophy hunts for big prizes. But we can’t all afford to be Ernest Hemingway on safari, can we? Deer, lacking the panache of elephants, are still respectable game to hunt, but even deer hunting can get crowded these days. In markets where elephant hunting is too prohibitive and deer hunting is oversubscribed, only those pesky squirrels remain — and some startups (and VCs) are starting to go after them.

These startups are betting on meeting these little customers at their most basic, essential undermet needs, winning loyalty by doing so, and growing with them. They bet that their overall LTV:CAC is just as good, if not better, than that of the big game hunters.

I want to look at these squirrel hunters in the context of a market just like this: Home Services. Let’s dive in.

The Market

When I talk about home services, I’m talking about all the money that is paid to service providers for home maintenance, repair, and renovation. In other words, plumbers, electricians, lawncare, carpenters, handymen/women, etc. From now on, I’ll refer to them as “pros”.

The Stats

The Home Services market is valued at ~$506B and is projected to grow at 6–10% annually. The on-demand, online segment of the market is expected to grow at a CAGR of 50% over the next four years.
There are ~5M full-time registered home service professionals, and an additional ~4M people perform paid home service work every year.
Market growth is attributed to demographic changes (more tech-fluent millennials as consumers of home maintenance services), as well as precedent-setting innovations influencing consumer expectations (why can’t my contractor be online and on-demand like Uber?)

Consumer Trends

As you might guess, millennials are throwing a wrench in things. Today’s homeowners and residents…

Know less about home maintenance. 42% are ashamed by their lack of knowledge
Care less about DIY home maintenance. 38% would rather go to the dentist
Have higher expectations for services. 20% expect a response within 10 minutes
Value personalization via profiles and service history
Prefer to message rather than talk on the phone (56%)

Consumer Pain Points

Today’s market is characterized by information asymmetry. Specifically, a lack of…

Service visibility — what exactly is the contractor going to do?
Price transparency — how did they set that price? am I paying too much?
Verifiability of contractors — how do I know if I’m getting good help?
Availability and predictability of contractors — when, and why not now?
Communication and knowledge-sharing — who can I think this through with?

Now let’s pause.

Given the changing demographics, massive consumer pain points, generally inefficient/unsophisticated way of doing business, and information asymmetry, I bet you’re thinking that platforms are the way to go. That was true, but now the space is insanely crowded and aggressively consolidating. Google has entered the space, and SEO/SEM has become too expensive even for the big incumbents. One big incumbent, as an example, just had to shift to TV ads because it couldn’t afford to get its site near the top of your search results.

These platform players, like HomeAdvisor and Thumbtack, are making bets on disrupting the industry with fixed pricing for jobs and remote job diagnosis — trying to make home service pros into price takers and uber-style contractors. And while I do think that direction is compelling, it focuses too much on the demand (consumer) side of the platform, and misses the trends and pain points on the supply (pro) side. In other words, while consumer pain points do have to be addressed, they don’t hold the power in this market — the pros do. So let’s refocus our analysis there:

The State of the Supply Side

You likely won’t be surprised to learn that we are facing an extreme shortage on the supply side. There aren’t nearly as many pros as there are jobs to be done. And the problem is getting worse: fewer and fewer people are moving into home services as a profession.
This fact is dissonant with the belief that home service professionals will eventually be price takers, or will even be amenable to paying for leads. The majority of established pros have long backlogs and win business based on word of mouth, with limited, if any, advertising.
In fact, the penetration of platform players on the supply side is actually quite limited. Many pros try the platforms, and the majority churn. With stringent requirements on communications, availability, and pricing, most of the home service pros who use platforms for leads are either mid-sized players with admin employees (deer) or upstarts with limited work experience who need the reps (baby squirrels).

So…while the platform market is figuring itself out, we’re going to focus on solutions for home service pros — especially the long tail. Let’s revisit the breakdown, but specific to the home services market:

I chose this market for a reason: the long tail effects are quite pronounced (pun intended — see: squirrels). If you’ve dealt with a home service professional recently, there’s a good chance he/she was a one-man/woman show.

Before I break down the different solutions available to these personae, let’s review a few more trends in the space:

First, this work is highly seasonal, with the busy season taking place in the spring and summer months. Churn, on platforms and software solutions, usually takes place in the fall and winter.
Chucks with trucks are most affected by the seasonality of the work, and their businesses have the least longevity and formality as a result. Hence the nearly 50% of home service pros who don’t do it full-time, year-round.
There’s a strong owner-operator mindset in the space which hinders growth ambitions. A large portion (estimated by 70% by a founder in the space) don’t have ambitions to grow their businesses and headcount significantly (/are content where they are).
However, there are a number of consolidation strategies playing out across the space, especially with regional rollups, which benefit from obvious economies of scale.

The Solutions

A quick definition. By solutions, I’m talking about Field Service Management (FSM) software for home services pros. I’m going to sidestep support functions like payroll, HR, finance — and focus in on tools which help pros facilitate money-making business operations: things like marketing, communications with customers, job scheduling, route tracking, payments, etc.

So, let’s quickly revisit our personae. What do they need?

Regional Regina: As mentioned, the big dawgs typically look for more comprehensive tools. Their bottlenecks are tied to their abilities to achieve economies of scale and efficient utilization — features like scheduling and route optimization.
Midsized Miguel: These players might be just large enough to have an administrator and are looking to use business management software to achieve basic efficiencies. They’re looking to digitize previously manual processes like bookings, payments, and data management.
Chuck with a Truck: The squirrels are underserved by existing tools, and additionally aren’t too tech-fluent. Software providers need to meet them at their most essential needs and pain points — which are setting up a basic digital presence (ie: website), communicating with customers, and managing payments.

And what are they currently using to get the job done?

Old vs New School Users: Before discussing the solutions, let’s talk substitutes. As you might expect, the smaller these players are, the less they utilize “new school”, software-enabled methods of getting the job done. This is a fairly obvious observation about any long-tail, tech-averse market — but it’s especially important here. Why? Because the market at the long tail is severely underpenetrated. Less than 5% of small-time pros are using any of the solutions above.

For Regional Reginas, however, it’s a different story. ServiceTitan effectively owns the top part of the market (along with the familiar incumbents). Other solutions don’t come close in comprehensiveness. Some new players are betting on moving upmarket, but barriers to entry are high. As I said, not everyone can be Ernest Hemingway on safari.

Meanwhile, startups have sprung up to address the Midsized Miguels — light field service management tools which can be scaled up or down, and can reasonably address the needs of a large portion of the market. That space looked favorable, was flooded with venture funding, and now is flooded with startups. Take a look at this VC funding chart:

If you squint your eyes, you may notice a trend toward downmarket founding and funding. Regardless, I think we can agree that the field service management SaaS for SMEs is getting pretty crowded — and if you take a closer look, you’ll realize that it’s fairly undifferentiated as well. So what’s the new strategy? You guessed it, it’s squirrel hunting (or, in business school terms, low-end disruption).

Strategy: KISS (Keep it Simple, SaaS)

A quick refresher on our Chucks. They’re underpenetrated (~3%), they don’t have burning growth aspirations (~70%), they don’t have admin employees, they’re not tech savvy, they have plenty of business, they don’t have a lot of time, and they don’t have a lot of money.

They’re consumerized enterprises. They need to be won over like consumers do: with a product which meets an essential need with irresistible simplicity, and thereby creates stickiness. They need to be met at their most basic business requirements and desires, without requiring burdensome setup or admin. That means a full-fledged (or even a fledged) SaaS FSM isn’t going to work for them. And the platform model may be able meet some of their business needs, but recall that they require admin of their own, they limit autonomy and ownership of pros, and their main value prop is providing leads that today’s overutilized pros don’t really need.

Who’s Doing it Right?

ProPhone has a compelling strategy: they provide a phone app for pros to manage customer communications, and an automated website builder and marketing manager for pros looking to establish a stronger web presence. It’s irresistibly simple, and it integrates with arguably the most basic and essential business activities of pros: marketing and communications.

Despite the perceived disadvantages of long tail enterprise customers, ProPhone is betting they’ll win the LTV:CAC battle with a product that is easy to start and tough to quit. And even though growing with these pros and moving upmarket into more feature-rich tools is less of a play in this market, just penetrating the underserved long tail may be enough of a growth play in and of itself.

Payments is the other essential business activity that can be met at the low end — and Jobber is working this angle. Its phone app product starts as a payments platform and light CRM for home service pros. It avoids disintermediation by Venmo/cash via value-add features like facilitating pay advances for longer-term projects, managing auto-billing for recurring customers, and even managing collections for pesky customers. It’s easy to imagine how a tool like this expands to offer richer CRM, accounting, and booking and scheduling capabilities.

The Wrap

Hopefully I’ve illustrated my point well. The downmarket move to the long tail of consumerized enterprises takes a novel strategy to pull off, and making the unit economics and growth potential work is a big bet. It’s a bet that startups and VCs are making more and more, though — and it’s happening across industries (most notably restaurants, travel, even barbershops). Stay tuned for more, and in the meantime, please provide scathing feedback in the comments section.

— G

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