AI unlocks the small businesses legacy SMB tech can't acquire

While there have been big winners in SMB tech (Toast, MindBody, Block, etc.), the category has historically been plagued by tough unit economics that can limit growth. SMBs are tough to sell to and even harder to retain. Consequently, many companies fail to scale due to suboptimal unit economics or end up going up market to SMEs, ignoring the long-tail of mom and pops.

We believe AI can fundamentally solve this problem. Both from a product AND a GTM perspective.

Sarah Tavel, General Partner at Benchmark, first tweeted about “Do It For Me” tech back in August of 2023, giving language to something we had been kicking around.

We’ve been obsessed with this concept ever since, especially as it applies to SMBs. Facilitating work for SMBs can be a thankless task as many don’t have the operational complexity to make use of a fully loaded system of record and end up finding limited ROI from traditional SaaS.

Our belief: “Doing work” for SMBs is a game changer, especially when that work gets them more revenue.

We’ve developed our own framework to assess markets in which an AI-first “do it for me” solution will unlock some of the previously underserved 33 million small businesses in the U.S.

Our Framework

Outside of B2B marketplaces that aggregate SMBs, we see two core categories of SMB tech that dominate the market.

1. Vertical system of record: These tools offer classic productivity tooling like CRM, scheduling, inventory management, etc. for SMBs and in turn manage all their data. They offer improved operational efficiency when actually used.
2. Growth tooling and services: These businesses tend to have been a mix of software and services in the past, offering products like website building, advertising optimization, call centers for sales calls or customer service, etc. They claim to grow businesses.

The Pros and Cons of Historic Approaches

There are multiple SMB markets where these “pre-AI” businesses struggled with massive market penetration. We believe this is because ROI and COGS were misaligned in the pre-AI world.

Return on Investment (ROI of each tool)

System of record software has not provided enough value to drive mass market adoption

In certain markets, a 15% productivity gain just isn’t enough ROI to drive strong adoption, especially when SMBs are too time constrained to spend time learning how to use new technology or busy in their day-to-day tasks to plug information into the system. While many good companies and some strong venture returns have been created building a system of records, the market penetration for most SMB SaaS businesses is still <20%.

Growth tools have always attracted SMBs, but many failed to deliver on ROI

SMBs usually love the idea of growing the topline for their business as it’s an easy thing to measure. That’s why platforms like Doordash and UberEats have easily been able to scale supply even while some have incredibly high take rates. Other SMB tech tools who claimed they could help businesses grow thrived on the acquisition side, but got crushed by churn when the product didn’t deliver on the promise.

Cost of Goods Sold (COGS) - The cost of delivering a marginal unit of your product or service to your customers

System of record tools can offer attractive pricing.

Because these tools are software, their marginal cost is practically zero.

On the flip side, traditional growth tooling is expensive.

Pre-generative AI, things like website building, advertising optimization, and call answering were primarily done by humans, and consequently these services were prohibitively expensive for SMBs, which resulted in low market penetration.

How to Win in the Do-It-For-Me World

What’s fantastic about generative AI for SMB tech is that startups can finally offer effective growth tooling at cheap prices, as AI starts doing the work originally performed by humans.

Essentially, AI offers the high ROI of services at the cost of software.

While we believe AI-driven website building or call answering (ToplinePro,Arini,Avoca, etc) is an exciting wedge product, we believe that the real prize at play is to build vertical specific tools and brands in those areas in order to become the end-to-end software solution for SMBs.

Our belief is that things like AI-powered call answering will quickly become commodities as AI gets better and inference gets cheaper. What will always prevail are good business fundamentals. Leveraging a “do it for me” growth tool wedge is an excellent way to own a business's data and that data unlocks a treasure trove of opportunities that drives stickiness and defensibility.

A sample playbook below:

Multiple industries will benefit from “do it for me” SMB tech

While not every industry will benefit from the next generation of “do it for me” vertical software, we believe those that will share the following characteristics.

Inspired by Bessemer's Good/Better/Best framework, we wanted to share out way of thinking about markets.

A few industries that we believe fit this criteria include, but are not limited to, healthcare, hospitality, legal, home services and aesthetic services.