With so many SaaS companies embracing payments, why do only 10-15% achieve the expected financial results? Brian Abernethy of Utopaya joins host Joshua Silver on this episode to examine what separates the winners from the rest of the pack.
They explore:
- One huge mistake SaaS companies make when choosing a payments provider, and how to avoid it
- Specific contract terms to demand, and terms to reject, when negotiating with your payments provider
- The essential tension between take rate and adoption, and when to prioritize each
- How to boost attach rates by positioning on-platform payments as the default choice
- Why the most successful SaaS companies don't bury payments under finance or product, and how to structure the org for success
The Payments Strategy Show is brought to you by Rainforest, embedded payments purpose-built for vertical SaaS.
Grow revenue with the only payfac-as-a-service provider optimized to help you drive more payments volume at higher margins, without risk or compliance headaches.
Learn more: https://rainforestpay.com
Connect with us on LinkedIn: https://linkedin.com/company/rainforestpay
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hey everybody and welcome to another episode of
the Payments Strategy Show.
I'm here today with BrianAbernathy, who is the founder of
Utopia, a payments consultingfirm.
I've known Brian for many years, so I know this is going to be
a really great discussion.
Brian, thanks for being on theshow.
Speaker 2 (00:17):
Yeah, joshua, great to connect with you.
I appreciate you having me on.
Speaker 1 (00:21):
Well, first to get us kicked off, I'd love to learn a
little bit more about yourbackground for our viewers.
How did you first get intopayments?
Speaker 2 (00:28):
Great, great question , I think, one that we have a
common answer to, is by accident, right.
I worked in consumer goodsactually straight out of college
, and that's what moved me downhere to Charlotte and got a
little bit bored of a slowmoving business and went back to
business school while I wasstill full-time in hopes of
pivoting, and I was veryfortunate that there were some
(00:49):
folks that had gone through thesame program, that were working
at the time at T-SYS, wereactively recruiting for people
who didn't know anything aboutpayments, hopefully with a
teachable mind and so I was veryfortunate to get an opportunity
to join T-SYS back in 2017.
And that's really where I mademy entry into the space.
Speaker 1 (01:06):
And when you first joined T-SYS, what were you more
on the sales side, the productside?
Tell our viewers a little bitmore about where you got started
.
Speaker 2 (01:13):
Yeah, so I happened to land in the part of the
organization that they wouldcall ISV business development.
At the time I didn't reallyknow what it meant, but
obviously I do now.
So essentially I was in theSaaS distribution channel of
Teasys, and so I happen to havea focus on the healthcare market
, which is obviously where youand I met many years ago, but
did that for several yearsbefore taking over the entire
(01:34):
team focused on a number ofdifferent verticals, before we
were eventually acquired byGlobal.
Speaker 1 (01:41):
Certainly lots of changes in the payments
ecosystem over the last numberof years.
What are some of the biggesttrends that you're seeing?
Speaker 2 (01:51):
Yeah, I would say obviously.
I think my point of view isalways through our clients,
which are both from operators,entrepreneurs and even investors
, with the thesis of paymentsbeing a clear add-on to SaaS.
Now, if you looked, maybe 5, 10years ago, there were a handful
(02:14):
of players that were doing itvery well, but as those wins
have become more public and Ithink there's more success
stories to point to, the entireSaaS ecosystem is getting more
comfortable with embeddingpayments, which is
understandable.
That there was some hesitationwhen you think about the
complexity, the regulationthat's required in order to do
this in a compliant manner, butI think the industry has proven
(02:36):
that it is very possible and canbe an incredible enterprise
value lever, and so I would saythat there's a lot more comfort,
which translates into SaaScompanies saying well, I've
gotten maybe a bite of the Appleon payments and I know that
there's more for me to do here,whether that is from a revenue
perspective, a customerexperience perspective, and so
the overall trend that we see ismoving from kind of a hands-off
(02:58):
model with respect to paymentsto bringing it in-house and
making it a core piece of yourplatform.
Speaker 1 (03:05):
Yeah, for sure I would agree with you.
I mean, if we look at the lastnumber of IPOs whether it's
ServiceTitan my previous companyI started was called PatientCo.
That went public under the nameWaystar All of these vertical
SaaS companies have such a largepercentage of their revenue
that's coming from payments.
So I would agree with youwholeheartedly that there are
(03:25):
more good data reference pointsout there for entrepreneurs and
investors to look at and realize, hey, this is meaningful, we're
going to get a good return onit.
So definitely agree with youthere.
Tell us a little bit about whatinspired you to start Utopia.
You've been at multiple paymentcompanies T-SYS and then global
(03:47):
payments and then some othersin between.
Pretty big step to go out onyour own and start a consulting
firm.
Tell us a little bit about yourthought process and how it's
going.
Sure.
Speaker 2 (03:58):
Yeah.
So I think when I look back atthe five or so years that I
spent working for somerelatively large processors and
T-SYS and Global and Clearant, Ihad the privilege to oversee
hundreds of these differentpartnerships be formed and, as
you can imagine, there werevarying degrees of success in
terms of outcome and,unfortunately, the majority of
(04:18):
the time, the performance of theintegrated program that we
launched with these SaaSplatforms never really reached
the heights that both partieswould have expected.
I would say maybe 10%, 15% ofthe time would we get anywhere
close to the forecast that webuilt?
That got everyone excited inthe first place, and so trying
to diagnose that a little bit,as I was trying to improve my
own selling, led me to therealization that there were a
(04:40):
couple different categories thatthis fell into.
It was is the technologyaligned?
Does the product actually fitfor the market that it's in?
Is the value really there?
So, is there an opportunity totruly command premium price with
an embedded payments experience?
Do they have the right peopleand the right commitment to
owning payments truly anddriving it?
(05:01):
But it was really hard todiagnose that from the outside
when I'm trying to sell tosomebody, trying to help them
navigate.
That was a little awkward, andso I'd always felt that there
was an opportunity for someoneto sit alongside these SaaS
vendors to help them navigate.
What we both know is a verycomplex and confusing industry,
especially with such high stakesright with what they can create
(05:21):
if they do it right.
Stakes with what they can createif they do it right.
And so I was fortunate that, alittle over three years ago, I
was approached by a formerpartner of mine actually while I
was at Tesis who had taken avery large round of funding, and
the main thesis of this roundof funding was you've got to
figure out payments.
This particular business ownedabout 60 vertical SaaS companies
at the time.
A good chunk of those hadpayments exposure, but, as
(05:44):
you've seen, there weredisparate referral arrangements
with every different contractyou could imagine by subsidiary,
and so what I was able to do inthat situation was help them
run a diagnostic what is theopportunity?
Let's quantify this understandwhat the options are, and
ultimately, they chose to go andbuild their own in-house
payment solution, which is nowfully stood up today.
(06:05):
But during that process, Irealized that it was quite a lot
of fun to help a fast-movingorganization like that, with
smart people unlock thetremendous opportunity that
payments presented within theirbusiness, and I realized this is
something that I could seemyself doing, and so, about
halfway through that project, Idecided to start building the
brand behind the scenes, startnetworking for some other
(06:28):
opportunities, and was fortunateto really launch the business
in its current state about twoand a half three years ago now.
Speaker 1 (06:37):
And you run a lot of payments, RFP and selection
processes as part of yourbusiness.
What would you say are the topthings that software companies
miss when they're running theseselection processes?
Speaker 2 (06:50):
This is one of my favorite topics, joshua.
I would say that when you thinkRFP especially again having
been someone who was on thereceiving end of the major
players you think, all right,this is just going to come down
to dollars and cents and who'sgoing to get the lowest bid the
vendors who are responding.
But I think that the biggestgap tends to be on the
intangibles, on kind of what I'dcall the qualitative analysis
(07:22):
of these vendors, which isreally difficult to put into a
spreadsheet, right, when you'retrying to administer an RFP well
, why you?
And so the process that we liketo follow is I think we have a
pretty strong conviction thatwe're going to get some very
competitive commercial bids.
We're going to find vendorsthat have the ability to support
the use case from a productperspective, and so, once we
reach a group of finalists, ifyou will, I really push the
client to spend some time withthe leadership team, with the
(07:45):
team that they're going to beworking with on a day-to-day
basis, because, at the end ofthe day, payments to some extent
could be called a commodity,right?
There's plenty of vendors outthere that you, theoretically,
could have a good result with,but in my experience, what
really makes or breaks it is thepartnership itself.
So what happens in the earlystages as you stand things up?
Is the implementation strong?
(08:06):
Is there collaboration betweenthe partner and you?
Are they proactively coming toyou with roadmap opportunities,
with issues that they come upwith, with optimization
opportunities?
And I think, having worked withRainforest many times, I think
you guys do a great job of this.
But it's really hard for an ISV,a SaaS vendor, to look at this
on a spreadsheet and say, well,it all kind of looks the same.
Like which one do I pick?
(08:27):
And so I really push them totry to get a feel for these
people.
Do you feel like you matter tothem?
This is another thing that youshould consider is there are
some businesses that want towork with the biggest of big for
stability purposes.
There are others that wouldprefer to work with smaller
businesses where their accountis going to mean a lot more, and
so those are all things that wetry to capture outside of the
(08:49):
nuts and bolts of a spreadsheetthat produces a P&L.
Speaker 1 (08:52):
Yeah, I love that approach.
One thing in my business that Italk to both our prospects who
are looking at Rainforest forpayment processing services, but
also that I look upstream toany of our vendors that we're
working with, is the midnightcall question.
It's when something goes wrongat midnight on a weekend, who do
(09:12):
you want to be on the other endof the line?
And, furthermore, are theyactually going to pick up the
phone when you need them?
Because you know so oftenissues happen, you know, at
non-standard hours or at a timethat's inconvenient for one
party.
And so I think that you know,whether you want to call it
executive sponsorship or firstcall resolution or whatever
(09:33):
metric or whatever paradigm youwant to use to kind of evaluate
the responsiveness of the vendor.
I think that's just key and Isee so many people kind of skim
over that because they havegreat API documentation or the
price is cheap.
And you know we hear that a lotfrom software companies that are
just disgruntled with theirpayments A vendor today and
payments partner it's that theservice just isn't there.
(09:55):
You know the tech may be great,but if the service isn't there
it doesn't really matter,because the loudest problems
happen when there are issues.
It's not when things are goingsmoothly.
Then it's humming along quietlyand there's no issue, right.
So love that word kind of thisintangibles Fast forward through
(10:16):
the process a little bit so youknow you've gone out, you've
helped a software platform run aselection process, you're kind
of down to the end, you'veselected a provider.
What tips do you have for ourviewers on how to navigate
negotiation in the contractingphase, because I've seen a lot
of deals actually fall apart, asurprising number fall apart at
the very end.
(10:36):
Sometimes you have a sales repthat says one thing and the
contract says somethingdifferent.
Maybe you thought something wasincluded and it isn't.
Maybe there are hidden feesthat emerge at the very end that
only show up in the finalversion of the contract.
What have you seen on your endand how can folks navigate that?
Speaker 2 (10:55):
Yeah, so we really try to build this process in
starting with the beginning ofthe RFP process to make sure
that we are understandingexactly what it is that we are
asking for.
We're very clear about thatduring, so hopefully we avoid
any crossing of wires withrespect to well, we thought you
meant this model and we proposedthis other model.
Right, so we try to build thatin.
But I'd say by the end,typically that's resolved itself
, and so what we try to do isput the vendor in the driver's
(11:22):
seat in terms of confirming ourassumptions.
And so, obviously, as part ofmy consulting engagement,
there's a financial model that Ihelp the customer build.
We try to.
This is usually even beforecommitting to an RFP.
We're assessing the viabilityof payments in general.
It's well, what does yourbusiness look like?
How many customers do you have?
How quickly you're growing, howmuch volume do they process?
What's the average transactionside Card versus all those
(11:43):
metrics you'd use to build amodel?
Well, we've kind of got ourassumptions, but we like to take
and make sure that our modelsare matching up.
That, in my experience, has beena great way to shine a light on
any fees that may be hiddenmaybe are applying in a way that
(12:05):
you didn't understand or Ididn't understand.
So that, to me, has been ahugely valuable exercise.
Towards the end of theseprocesses, we've got ours kind
of tucked away and we ask themto produce one of their own and
then we compare them and thatshould shine a light on any
disparities that could be there.
But beyond that, I would saythat there are.
You know, one of the advantagesthat there is to working with a
(12:25):
firm like Utopia, who hasexperience doing this, is there
are certain non-commercial kindof levers that you can pull
right.
So this would benon-solicitation rights,
portability, data ownership, youknow, exclusivity, all those
types of things that I thinkwe've got a good understanding
of what certain vendors are oraren't willing to negotiate, and
so we try and kind of speedthat up, just in what we've seen
(12:46):
in the past.
But great, great question.
Speaker 1 (12:49):
Let's double click on that.
You know, in terms ofnon-solicitation and data
migration rights, I personallythink that's going to be one of
the biggest focal points overthe next number of years.
As more and more volume movesfrom traditional payments to
embedded payments models,Software companies are going to
start caring about it in waysthat they didn't before.
(13:10):
What are you seeing in themarket?
You know market across all thedifferent providers that you
work with.
Where is the market kind oflanding today and what would you
say best in class is today?
Speaker 2 (13:22):
Yeah, absolutely.
So.
I see this going the way ofwhat exclusivity probably was
five years ago, where it waspretty common and now it's
almost unheard of.
I think that portability rightsand non-solicitations will
likely continue to trend in thatdirection now is the reason
that they're even looking for anew vendor is something's not
working right, and so they're ina situation right now they've
(13:50):
spent a lot of time and moneyand opportunity costs building
the portfolio they've got withtheir current vendor that
they're now stuck with for Xamount of time and they're never
going to sign up to putthemselves in that same
situation if, unfortunately,this new vendor didn't work
either, and so it is becomingvery common to push back pretty
hard on that.
There are some vendors out thereRainforest included that I
think do a best-in-class job ofputting this right front and
center, saying hey, at any time,if we're not meeting the test
(14:14):
that you expect of us, thenyou're welcome to leave.
And that puts a lot ofreassurance back on the ISV, on
the SaaS platform, because atany time you guys have to show
up and win their business, andif you're not doing that, if
something goes wrong, they havethe opportunity to walk away,
and I think that that sort ofcommitment of what that implies,
of what you're going to do forthem over the long term, is
(14:35):
incredibly valuable, and so Iabsolutely see the industry
continuing to trend that way,and I would not be surprised to
see that stuff disappearentirely in the next handful of
years.
Speaker 1 (14:45):
Yeah.
Do you think there'll still besome holdouts with some of the
legacy acquirers on that, or doyou think there'll be enough
market pressure that everyoneends up caving over the next few
years?
Speaker 2 (14:55):
Yeah, I think there's certainly going to be some
healthy push and tug.
I would say that there willalways be a part of the market
where the SaaS business justsimply is not savvy enough or
doesn't realize that they evencould negotiate this, and so, of
course, in those situationswhich is probably the long tale
of the industry, if we're beinghonest, where there's the
majority of them will never haveexpertise or advice on what to
(15:18):
do here.
So I think that they'll remainbut the larger, more savvy,
potentially investor-backedbusinesses who know what they're
looking for and know what toexpect here.
I would anticipate pushing backreally hard on this.
I think it also ties to thepresence of private investment
in the vertical SaaS space ingeneral.
I've seen a dramaticacceleration in deal flow over
(15:39):
the past two quarters from whatwe see in early 2024.
And the more that thesebusinesses are bought and sold
between growth equity privateequity firms, the more eyeballs
get on payments right, and everytime one of those transitions
happens, you could probablyguess that the acquirer of the
business thinks they can do itbetter right, and so they're
going to plug them into whateverpayments thesis they've got.
(16:00):
It's really important from anenterprise value perspective
that the SaaS business be ableto very easily from a technology
, from a legal commercialperspective, pivot from their
current model to whatever theirnew vendors.
The new owner wants to do sovery, very, very important and I
think we'll continue to becomemore important.
Speaker 1 (16:19):
Yeah, certainly, with the M&A trends continuing to
increase, especially this year,we see from our team even some
of our clients who have beenacquired come back to us and
tell us that portability and thefact that we'll export all
their data actually helped themget a higher valuation on their
payments book of businessbecause they knew it was
(16:40):
immediately portable, andcertainly that's a growing
challenge for us if companiesleave us.
However, we've actually seenmost of the companies and
clients that have been acquiredend up staying with us even
afterwards, but they know thatthey have that portability.
So I do agree with you thatthat's going to be kind of front
and center going forward.
So, Brian, you obviously inyour career have worked with so
(17:03):
many different softwarecompanies, both on the provider
side, now as a consultanthelping with strategy.
You mentioned earlier on thatonly 10% to 15% of the time did
a lot of the ISVs and SaaScompanies hit their forecasts.
We've seen maybe similarnumbers directionally, but a
(17:25):
small percentage hit theaspirational goals.
Some are more successful thanothers.
What do you think makes folkssuccessful versus not?
What really is the differencebetween a company that performs
and doesn't perform with regardto volume and adoption and
traction?
Speaker 2 (17:42):
Yeah, this is a wonderful question and one that
I love to debate, and I thinkthe way that I always think
about this is who is reallyowning the payments experience
and I think a lot of this has todo with the focus that you
place on value the end customerof your software product.
(18:06):
If that is your North Star, thenI think that allows you to
reverse engineer a winningpayment strategy from a lot of
different facets.
First and foremost, building atechnology solution that
provides tangible benefit tothese businesses and allows them
to run more efficiently, givesyou the ability to capture more
margin and drive premium, which,of course, at the end of the
day, that's the revenue thatyou're going to be valued on.
(18:28):
But that can only really takeplace if there's true ownership
of the payments experiencewithin the business.
I see this all the time wherethere's a SaaS business that may
have a payments thesis They'vegot a patient, they've got a
product but no one really ownsit internally.
It's something that they sell.
It's kind of an add-on feature.
(18:49):
Maybe it's a cross-sell thatthe customer success team does
after they're boarded the onesthat I see doing a job.
I almost attribute this to amindset shift where they think
of payments as part of theirplatform.
Right, this is a core piece ofthis, almost that you'd be silly
not to use it, because look howvaluable it is, and I try and
coach my clients to reframe howthey're thinking about payments,
(19:10):
where a lot of times when abusiness is coming to you as a
vertical SaaS solution, they'relooking to streamline their
operations.
They want to run moreefficiently.
If payments is additive to thatvalue proposition, why would you
leave it out of your overallsales process?
And so when you look at theivory tower of who's done very
well with this your Toast andyour Shopify it's not exactly an
(19:31):
opt-in situation.
There is it.
It's very much an opt-out andeven a penalty if you opt out.
Of course, that takes a lot ofskill and conviction to be able
to operate in that manner.
I think you can take thatapproach with a little bit less
teeth.
And so when I see my clients dovery, very well, that's it.
It's a mindset shift of this isan opt-out versus an opt-in and
that tends to bleed its waythrough the organization.
(19:53):
Of course you've got to tiesales compensation and some
other KPIs to this, but at theend of the day, if you have
someone who owns the paymentsP&L and is committed to driving
it and you have a valuableproduct that can drive price,
that's a winning combination inmy book.
Speaker 1 (20:10):
Yeah, I was asking the same question to someone
else the other day and theybrought up the notion of
elevating the head of paymentsrole to an executive role,
versus typically.
Historically it's either beenburied in finance or in
technology or in product Becauseit is so cross-functional.
They were commenting thatthey're seeing that role have a
(20:31):
seat at the exec level table,whether it's a chief product
officer or head of payments, butreally a cross-functional P&L
owner, as you mentioned.
Absolutely.
Speaker 2 (20:40):
Absolutely, and it's such a common problem that we
actually launched a fractionalor interim version of a GM of
payments for this reason,because a lot of times it's not
a headcount to add right, and soyou could easily convince
yourself well, I don't quitehave the volume yet, I don't
know if I can afford that.
But I would argue if you don'tput that person in place, you
never will have the volume, andso you're sort of stuck in a
(21:02):
spin cycle where maybe you can'tget to the next level, and so
what that service ventures to dois to spend three, six, nine
months getting you prepared,laying the framework for someone
to come in and then put theirown stamp on it, but moving it
in the right direction where itmakes sense to backfill us with
a full-time employee who ownspayments.
That's a great offering.
Speaker 1 (21:21):
Who is kind of the ideal customer for that offering
, Brian?
How much volume do they have orwhat stage of payments would
make the most sense?
Speaker 2 (21:29):
Yeah.
So I would say that that'swhere someone is probably
getting into owning more ofpayments for the first time.
I think a good example would behey, I've traditionally been
kind of a referral partner witha legacy processor and now we're
going to start working withRainforest, for instance.
Okay, well, there's all thesenew things that we now have to
(21:52):
own that we don't really knowhow to own.
How do I set my team up to sellthis?
How do I price it?
How do I compensate my team forselling a deal?
What are the KPIs?
What cadence should we bereviewing these KPIs?
How do I enhance my valueproposition?
How do I lay out my productuser interface to optimize
interchange?
There's so many differentthings you could go through here
, and so it's probably someonewho has made a move and is
committed to growing theirpayments business and owning it,
(22:13):
but isn't quite at the stagewhere they can justify making an
executive level higher.
So that can obviously vary interms of volume.
I would say probably somewherein the $100 million plus range
where, if we were to besuccessful with this interim
project, you could easilyjustify then putting multiple
headcount against it andcontinuing to grow.
Speaker 1 (22:34):
Makes total sense as we start to wrap up here, Brian,
if you could distill everythingyou've learned about payments
and give SaaS leaders just onepiece of advice about driving
revenue and enterprise valuewith embedded payments, what
would the most important nuggetof wisdom be?
Speaker 2 (22:51):
So I want to go back to the focus on value, because I
really believe that keepingthat at the top of the way you
think about this, this entirepayments ecosystem, will lead
you to success long-term.
I think value produces resultsover the long haul and I think
that a SaaS business I work withoften would feel that way about
(23:12):
their own core product right,that it's valuable and that it
justifies its price, and maybethey're even underpricing their
core product.
But over time, that ownership ofpayments and the focus on value
will differentiate you, and Ithink that that plays out in a
few different ways.
One of them, for instance, is Iwouldn't be super caught up in
(23:32):
your take rate or the dollarsand cents revenue early on in
your journey.
I would focus on building aproduct that is a no-brainer for
your customer adoption, as manyof your customers using your
payments module as possible andthen tweaking it over time to
improve the value prop and drivemore margin.
So I think that one of thedrawbacks of having so much
profit investment in the spaceis that there is a narrow time
(23:54):
horizon to yield certain takerate results and revenue results
.
But I encourage, especially ifthe timing works out from what
the investment structure lookslike and the hold period.
I've encouraged clients verystrongly to just build the right
thing.
Focus on value, get yourcustomers to start using it and
once they start using it they'llbe willing to pay a premium
(24:14):
because they'll see howefficient it's made their
business.
Speaker 1 (24:18):
I love that.
We'll let that be the closingthought, brian.
All about value building agreat product.
Don't let the dollars and centsget in the way of building a
great product.
Build a great product and theywill.
The dollars and cents get inthe way of building a great
product.
Build a great product and theywill come.
Brian, thank you so much forjoining us.
Really appreciate it If ourviewers wanted to connect with
you.
Speaker 2 (24:36):
What's the best way to get in touch?
Yeah, absolutely.
Please feel free to follow meand send a connection on
LinkedIn.
Follow our page at Utopia orfeel free to reach me at info at
utopiaio.
Speaker 1 (24:45):
All right, brian Abernathy, with Utopia Payments,
really appreciate the time.
Thanks for being with us.
Thank you, joshua, I appreciateit.
Hey everybody and welcome to another episode of
the Payments Strategy Show.
I'm here today with BrianAbernathy, who is the founder of
Utopia, a payments consultingfirm.
I've known Brian for many years, so I know this is going to be
a really great discussion.
Brian, thanks for being on theshow.
Speaker 2 (00:17):
Yeah, joshua, great to connect with you.
I appreciate you having me on.
Speaker 1 (00:21):
Well, first to get us kicked off, I'd love to learn a
little bit more about yourbackground for our viewers.
How did you first get intopayments?
Speaker 2 (00:28):
Great, great question , I think, one that we have a
common answer to, is by accident, right.
I worked in consumer goodsactually straight out of college
, and that's what moved me downhere to Charlotte and got a
little bit bored of a slowmoving business and went back to
business school while I wasstill full-time in hopes of
pivoting, and I was veryfortunate that there were some
(00:49):
folks that had gone through thesame program, that were working
at the time at T-SYS, wereactively recruiting for people
who didn't know anything aboutpayments, hopefully with a
teachable mind and so I was veryfortunate to get an opportunity
to join T-SYS back in 2017.
And that's really where I mademy entry into the space.
Speaker 1 (01:06):
And when you first joined T-SYS, what were you more
on the sales side, the productside?
Tell our viewers a little bitmore about where you got started
.
Speaker 2 (01:13):
Yeah, so I happened to land in the part of the
organization that they wouldcall ISV business development.
At the time I didn't reallyknow what it meant, but
obviously I do now.
So essentially I was in theSaaS distribution channel of
Teasys, and so I happen to havea focus on the healthcare market
, which is obviously where youand I met many years ago, but
did that for several yearsbefore taking over the entire
(01:34):
team focused on a number ofdifferent verticals, before we
were eventually acquired byGlobal.
Speaker 1 (01:41):
Certainly lots of changes in the payments
ecosystem over the last numberof years.
What are some of the biggesttrends that you're seeing?
Speaker 2 (01:51):
Yeah, I would say obviously.
I think my point of view isalways through our clients,
which are both from operators,entrepreneurs and even investors
, with the thesis of paymentsbeing a clear add-on to SaaS.
Now, if you looked, maybe 5, 10years ago, there were a handful
(02:14):
of players that were doing itvery well, but as those wins
have become more public and Ithink there's more success
stories to point to, the entireSaaS ecosystem is getting more
comfortable with embeddingpayments, which is
understandable.
That there was some hesitationwhen you think about the
complexity, the regulationthat's required in order to do
this in a compliant manner, butI think the industry has proven
(02:36):
that it is very possible and canbe an incredible enterprise
value lever, and so I would saythat there's a lot more comfort,
which translates into SaaScompanies saying well, I've
gotten maybe a bite of the Appleon payments and I know that
there's more for me to do here,whether that is from a revenue
perspective, a customerexperience perspective, and so
the overall trend that we see ismoving from kind of a hands-off
(02:58):
model with respect to paymentsto bringing it in-house and
making it a core piece of yourplatform.
Speaker 1 (03:05):
Yeah, for sure I would agree with you.
I mean, if we look at the lastnumber of IPOs whether it's
ServiceTitan my previous companyI started was called PatientCo.
That went public under the nameWaystar All of these vertical
SaaS companies have such a largepercentage of their revenue
that's coming from payments.
So I would agree with youwholeheartedly that there are
(03:25):
more good data reference pointsout there for entrepreneurs and
investors to look at and realize, hey, this is meaningful, we're
going to get a good return onit.
So definitely agree with youthere.
Tell us a little bit about whatinspired you to start Utopia.
You've been at multiple paymentcompanies T-SYS and then global
(03:47):
payments and then some othersin between.
Pretty big step to go out onyour own and start a consulting
firm.
Tell us a little bit about yourthought process and how it's
going.
Sure.
Speaker 2 (03:58):
Yeah.
So I think when I look back atthe five or so years that I
spent working for somerelatively large processors and
T-SYS and Global and Clearant, Ihad the privilege to oversee
hundreds of these differentpartnerships be formed and, as
you can imagine, there werevarying degrees of success in
terms of outcome and,unfortunately, the majority of
(04:18):
the time, the performance of theintegrated program that we
launched with these SaaSplatforms never really reached
the heights that both partieswould have expected.
I would say maybe 10%, 15% ofthe time would we get anywhere
close to the forecast that webuilt?
That got everyone excited inthe first place, and so trying
to diagnose that a little bit,as I was trying to improve my
own selling, led me to therealization that there were a
(04:40):
couple different categories thatthis fell into.
It was is the technologyaligned?
Does the product actually fitfor the market that it's in?
Is the value really there?
So, is there an opportunity totruly command premium price with
an embedded payments experience?
Do they have the right peopleand the right commitment to
owning payments truly anddriving it?
(05:01):
But it was really hard todiagnose that from the outside
when I'm trying to sell tosomebody, trying to help them
navigate.
That was a little awkward, andso I'd always felt that there
was an opportunity for someoneto sit alongside these SaaS
vendors to help them navigate.
What we both know is a verycomplex and confusing industry,
especially with such high stakesright with what they can create
(05:21):
if they do it right.
Stakes with what they can createif they do it right.
And so I was fortunate that, alittle over three years ago, I
was approached by a formerpartner of mine actually while I
was at Tesis who had taken avery large round of funding, and
the main thesis of this roundof funding was you've got to
figure out payments.
This particular business ownedabout 60 vertical SaaS companies
at the time.
A good chunk of those hadpayments exposure, but, as
(05:44):
you've seen, there weredisparate referral arrangements
with every different contractyou could imagine by subsidiary,
and so what I was able to do inthat situation was help them
run a diagnostic what is theopportunity?
Let's quantify this understandwhat the options are, and
ultimately, they chose to go andbuild their own in-house
payment solution, which is nowfully stood up today.
(06:05):
But during that process, Irealized that it was quite a lot
of fun to help a fast-movingorganization like that, with
smart people unlock thetremendous opportunity that
payments presented within theirbusiness, and I realized this is
something that I could seemyself doing, and so, about
halfway through that project, Idecided to start building the
brand behind the scenes, startnetworking for some other
(06:28):
opportunities, and was fortunateto really launch the business
in its current state about twoand a half three years ago now.
Speaker 1 (06:37):
And you run a lot of payments, RFP and selection
processes as part of yourbusiness.
What would you say are the topthings that software companies
miss when they're running theseselection processes?
Speaker 2 (06:50):
This is one of my favorite topics, joshua.
I would say that when you thinkRFP especially again having
been someone who was on thereceiving end of the major
players you think, all right,this is just going to come down
to dollars and cents and who'sgoing to get the lowest bid the
vendors who are responding.
But I think that the biggestgap tends to be on the
intangibles, on kind of what I'dcall the qualitative analysis
(07:22):
of these vendors, which isreally difficult to put into a
spreadsheet, right, when you'retrying to administer an RFP well
, why you?
And so the process that we liketo follow is I think we have a
pretty strong conviction thatwe're going to get some very
competitive commercial bids.
We're going to find vendorsthat have the ability to support
the use case from a productperspective, and so, once we
reach a group of finalists, ifyou will, I really push the
client to spend some time withthe leadership team, with the
(07:45):
team that they're going to beworking with on a day-to-day
basis, because, at the end ofthe day, payments to some extent
could be called a commodity,right?
There's plenty of vendors outthere that you, theoretically,
could have a good result with,but in my experience, what
really makes or breaks it is thepartnership itself.
So what happens in the earlystages as you stand things up?
Is the implementation strong?
(08:06):
Is there collaboration betweenthe partner and you?
Are they proactively coming toyou with roadmap opportunities,
with issues that they come upwith, with optimization
opportunities?
And I think, having worked withRainforest many times, I think
you guys do a great job of this.
But it's really hard for an ISV,a SaaS vendor, to look at this
on a spreadsheet and say, well,it all kind of looks the same.
Like which one do I pick?
(08:27):
And so I really push them totry to get a feel for these
people.
Do you feel like you matter tothem?
This is another thing that youshould consider is there are
some businesses that want towork with the biggest of big for
stability purposes.
There are others that wouldprefer to work with smaller
businesses where their accountis going to mean a lot more, and
so those are all things that wetry to capture outside of the
(08:49):
nuts and bolts of a spreadsheetthat produces a P&L.
Speaker 1 (08:52):
Yeah, I love that approach.
One thing in my business that Italk to both our prospects who
are looking at Rainforest forpayment processing services, but
also that I look upstream toany of our vendors that we're
working with, is the midnightcall question.
It's when something goes wrongat midnight on a weekend, who do
(09:12):
you want to be on the other endof the line?
And, furthermore, are theyactually going to pick up the
phone when you need them?
Because you know so oftenissues happen, you know, at
non-standard hours or at a timethat's inconvenient for one
party.
And so I think that you know,whether you want to call it
executive sponsorship or firstcall resolution or whatever
(09:33):
metric or whatever paradigm youwant to use to kind of evaluate
the responsiveness of the vendor.
I think that's just key and Isee so many people kind of skim
over that because they havegreat API documentation or the
price is cheap.
And you know we hear that a lotfrom software companies that are
just disgruntled with theirpayments A vendor today and
payments partner it's that theservice just isn't there.
(09:55):
You know the tech may be great,but if the service isn't there
it doesn't really matter,because the loudest problems
happen when there are issues.
It's not when things are goingsmoothly.
Then it's humming along quietlyand there's no issue, right.
So love that word kind of thisintangibles Fast forward through
(10:16):
the process a little bit so youknow you've gone out, you've
helped a software platform run aselection process, you're kind
of down to the end, you'veselected a provider.
What tips do you have for ourviewers on how to navigate
negotiation in the contractingphase, because I've seen a lot
of deals actually fall apart, asurprising number fall apart at
the very end.
(10:36):
Sometimes you have a sales repthat says one thing and the
contract says somethingdifferent.
Maybe you thought something wasincluded and it isn't.
Maybe there are hidden feesthat emerge at the very end that
only show up in the finalversion of the contract.
What have you seen on your endand how can folks navigate that?
Speaker 2 (10:55):
Yeah, so we really try to build this process in
starting with the beginning ofthe RFP process to make sure
that we are understandingexactly what it is that we are
asking for.
We're very clear about thatduring, so hopefully we avoid
any crossing of wires withrespect to well, we thought you
meant this model and we proposedthis other model.
Right, so we try to build thatin.
But I'd say by the end,typically that's resolved itself
, and so what we try to do isput the vendor in the driver's
(11:22):
seat in terms of confirming ourassumptions.
And so, obviously, as part ofmy consulting engagement,
there's a financial model that Ihelp the customer build.
We try to.
This is usually even beforecommitting to an RFP.
We're assessing the viabilityof payments in general.
It's well, what does yourbusiness look like?
How many customers do you have?
How quickly you're growing, howmuch volume do they process?
What's the average transactionside Card versus all those
(11:43):
metrics you'd use to build amodel?
Well, we've kind of got ourassumptions, but we like to take
and make sure that our modelsare matching up.
That, in my experience, has beena great way to shine a light on
any fees that may be hiddenmaybe are applying in a way that
(12:05):
you didn't understand or Ididn't understand.
So that, to me, has been ahugely valuable exercise.
Towards the end of theseprocesses, we've got ours kind
of tucked away and we ask themto produce one of their own and
then we compare them and thatshould shine a light on any
disparities that could be there.
But beyond that, I would saythat there are.
You know, one of the advantagesthat there is to working with a
(12:25):
firm like Utopia, who hasexperience doing this, is there
are certain non-commercial kindof levers that you can pull
right.
So this would benon-solicitation rights,
portability, data ownership, youknow, exclusivity, all those
types of things that I thinkwe've got a good understanding
of what certain vendors are oraren't willing to negotiate, and
so we try and kind of speedthat up, just in what we've seen
(12:46):
in the past.
But great, great question.
Speaker 1 (12:49):
Let's double click on that.
You know, in terms ofnon-solicitation and data
migration rights, I personallythink that's going to be one of
the biggest focal points overthe next number of years.
As more and more volume movesfrom traditional payments to
embedded payments models,Software companies are going to
start caring about it in waysthat they didn't before.
(13:10):
What are you seeing in themarket?
You know market across all thedifferent providers that you
work with.
Where is the market kind oflanding today and what would you
say best in class is today?
Speaker 2 (13:22):
Yeah, absolutely.
So.
I see this going the way ofwhat exclusivity probably was
five years ago, where it waspretty common and now it's
almost unheard of.
I think that portability rightsand non-solicitations will
likely continue to trend in thatdirection now is the reason
that they're even looking for anew vendor is something's not
working right, and so they're ina situation right now they've
(13:50):
spent a lot of time and moneyand opportunity costs building
the portfolio they've got withtheir current vendor that
they're now stuck with for Xamount of time and they're never
going to sign up to putthemselves in that same
situation if, unfortunately,this new vendor didn't work
either, and so it is becomingvery common to push back pretty
hard on that.
There are some vendors out thereRainforest included that I
think do a best-in-class job ofputting this right front and
center, saying hey, at any time,if we're not meeting the test
(14:14):
that you expect of us, thenyou're welcome to leave.
And that puts a lot ofreassurance back on the ISV, on
the SaaS platform, because atany time you guys have to show
up and win their business, andif you're not doing that, if
something goes wrong, they havethe opportunity to walk away,
and I think that that sort ofcommitment of what that implies,
of what you're going to do forthem over the long term, is
(14:35):
incredibly valuable, and so Iabsolutely see the industry
continuing to trend that way,and I would not be surprised to
see that stuff disappearentirely in the next handful of
years.
Speaker 1 (14:45):
Yeah.
Do you think there'll still besome holdouts with some of the
legacy acquirers on that, or doyou think there'll be enough
market pressure that everyoneends up caving over the next few
years?
Speaker 2 (14:55):
Yeah, I think there's certainly going to be some
healthy push and tug.
I would say that there willalways be a part of the market
where the SaaS business justsimply is not savvy enough or
doesn't realize that they evencould negotiate this, and so, of
course, in those situationswhich is probably the long tale
of the industry, if we're beinghonest, where there's the
majority of them will never haveexpertise or advice on what to
(15:18):
do here.
So I think that they'll remainbut the larger, more savvy,
potentially investor-backedbusinesses who know what they're
looking for and know what toexpect here.
I would anticipate pushing backreally hard on this.
I think it also ties to thepresence of private investment
in the vertical SaaS space ingeneral.
I've seen a dramaticacceleration in deal flow over
(15:39):
the past two quarters from whatwe see in early 2024.
And the more that thesebusinesses are bought and sold
between growth equity privateequity firms, the more eyeballs
get on payments right, and everytime one of those transitions
happens, you could probablyguess that the acquirer of the
business thinks they can do itbetter right, and so they're
going to plug them into whateverpayments thesis they've got.
(16:00):
It's really important from anenterprise value perspective
that the SaaS business be ableto very easily from a technology
, from a legal commercialperspective, pivot from their
current model to whatever theirnew vendors.
The new owner wants to do sovery, very, very important and I
think we'll continue to becomemore important.
Speaker 1 (16:19):
Yeah, certainly, with the M&A trends continuing to
increase, especially this year,we see from our team even some
of our clients who have beenacquired come back to us and
tell us that portability and thefact that we'll export all
their data actually helped themget a higher valuation on their
payments book of businessbecause they knew it was
(16:40):
immediately portable, andcertainly that's a growing
challenge for us if companiesleave us.
However, we've actually seenmost of the companies and
clients that have been acquiredend up staying with us even
afterwards, but they know thatthey have that portability.
So I do agree with you thatthat's going to be kind of front
and center going forward.
So, Brian, you obviously inyour career have worked with so
(17:03):
many different softwarecompanies, both on the provider
side, now as a consultanthelping with strategy.
You mentioned earlier on thatonly 10% to 15% of the time did
a lot of the ISVs and SaaScompanies hit their forecasts.
We've seen maybe similarnumbers directionally, but a
(17:25):
small percentage hit theaspirational goals.
Some are more successful thanothers.
What do you think makes folkssuccessful versus not?
What really is the differencebetween a company that performs
and doesn't perform with regardto volume and adoption and
traction?
Speaker 2 (17:42):
Yeah, this is a wonderful question and one that
I love to debate, and I thinkthe way that I always think
about this is who is reallyowning the payments experience
and I think a lot of this has todo with the focus that you
place on value the end customerof your software product.
(18:06):
If that is your North Star, thenI think that allows you to
reverse engineer a winningpayment strategy from a lot of
different facets.
First and foremost, building atechnology solution that
provides tangible benefit tothese businesses and allows them
to run more efficiently, givesyou the ability to capture more
margin and drive premium, which,of course, at the end of the
day, that's the revenue thatyou're going to be valued on.
(18:28):
But that can only really takeplace if there's true ownership
of the payments experiencewithin the business.
I see this all the time wherethere's a SaaS business that may
have a payments thesis They'vegot a patient, they've got a
product but no one really ownsit internally.
It's something that they sell.
It's kind of an add-on feature.
(18:49):
Maybe it's a cross-sell thatthe customer success team does
after they're boarded the onesthat I see doing a job.
I almost attribute this to amindset shift where they think
of payments as part of theirplatform.
Right, this is a core piece ofthis, almost that you'd be silly
not to use it, because look howvaluable it is, and I try and
coach my clients to reframe howthey're thinking about payments,
(19:10):
where a lot of times when abusiness is coming to you as a
vertical SaaS solution, they'relooking to streamline their
operations.
They want to run moreefficiently.
If payments is additive to thatvalue proposition, why would you
leave it out of your overallsales process?
And so when you look at theivory tower of who's done very
well with this your Toast andyour Shopify it's not exactly an
(19:31):
opt-in situation.
There is it.
It's very much an opt-out andeven a penalty if you opt out.
Of course, that takes a lot ofskill and conviction to be able
to operate in that manner.
I think you can take thatapproach with a little bit less
teeth.
And so when I see my clients dovery, very well, that's it.
It's a mindset shift of this isan opt-out versus an opt-in and
that tends to bleed its waythrough the organization.
(19:53):
Of course you've got to tiesales compensation and some
other KPIs to this, but at theend of the day, if you have
someone who owns the paymentsP&L and is committed to driving
it and you have a valuableproduct that can drive price,
that's a winning combination inmy book.
Speaker 1 (20:10):
Yeah, I was asking the same question to someone
else the other day and theybrought up the notion of
elevating the head of paymentsrole to an executive role,
versus typically.
Historically it's either beenburied in finance or in
technology or in product Becauseit is so cross-functional.
They were commenting thatthey're seeing that role have a
(20:31):
seat at the exec level table,whether it's a chief product
officer or head of payments, butreally a cross-functional P&L
owner, as you mentioned.
Absolutely.
Speaker 2 (20:40):
Absolutely, and it's such a common problem that we
actually launched a fractionalor interim version of a GM of
payments for this reason,because a lot of times it's not
a headcount to add right, and soyou could easily convince
yourself well, I don't quitehave the volume yet, I don't
know if I can afford that.
But I would argue if you don'tput that person in place, you
never will have the volume, andso you're sort of stuck in a
(21:02):
spin cycle where maybe you can'tget to the next level, and so
what that service ventures to dois to spend three, six, nine
months getting you prepared,laying the framework for someone
to come in and then put theirown stamp on it, but moving it
in the right direction where itmakes sense to backfill us with
a full-time employee who ownspayments.
That's a great offering.
Speaker 1 (21:21):
Who is kind of the ideal customer for that offering
, Brian?
How much volume do they have orwhat stage of payments would
make the most sense?
Speaker 2 (21:29):
Yeah.
So I would say that that'swhere someone is probably
getting into owning more ofpayments for the first time.
I think a good example would behey, I've traditionally been
kind of a referral partner witha legacy processor and now we're
going to start working withRainforest, for instance.
Okay, well, there's all thesenew things that we now have to
(21:52):
own that we don't really knowhow to own.
How do I set my team up to sellthis?
How do I price it?
How do I compensate my team forselling a deal?
What are the KPIs?
What cadence should we bereviewing these KPIs?
How do I enhance my valueproposition?
How do I lay out my productuser interface to optimize
interchange?
There's so many differentthings you could go through here
, and so it's probably someonewho has made a move and is
committed to growing theirpayments business and owning it,
(22:13):
but isn't quite at the stagewhere they can justify making an
executive level higher.
So that can obviously vary interms of volume.
I would say probably somewherein the $100 million plus range
where, if we were to besuccessful with this interim
project, you could easilyjustify then putting multiple
headcount against it andcontinuing to grow.
Speaker 1 (22:34):
Makes total sense as we start to wrap up here, Brian,
if you could distill everythingyou've learned about payments
and give SaaS leaders just onepiece of advice about driving
revenue and enterprise valuewith embedded payments, what
would the most important nuggetof wisdom be?
Speaker 2 (22:51):
So I want to go back to the focus on value, because I
really believe that keepingthat at the top of the way you
think about this, this entirepayments ecosystem, will lead
you to success long-term.
I think value produces resultsover the long haul and I think
that a SaaS business I work withoften would feel that way about
(23:12):
their own core product right,that it's valuable and that it
justifies its price, and maybethey're even underpricing their
core product.
But over time, that ownership ofpayments and the focus on value
will differentiate you, and Ithink that that plays out in a
few different ways.
One of them, for instance, is Iwouldn't be super caught up in
(23:32):
your take rate or the dollarsand cents revenue early on in
your journey.
I would focus on building aproduct that is a no-brainer for
your customer adoption, as manyof your customers using your
payments module as possible andthen tweaking it over time to
improve the value prop and drivemore margin.
So I think that one of thedrawbacks of having so much
profit investment in the spaceis that there is a narrow time
(23:54):
horizon to yield certain takerate results and revenue results
.
But I encourage, especially ifthe timing works out from what
the investment structure lookslike and the hold period.
I've encouraged clients verystrongly to just build the right
thing.
Focus on value, get yourcustomers to start using it and
once they start using it they'llbe willing to pay a premium
(24:14):
because they'll see howefficient it's made their
business.
Speaker 1 (24:18):
I love that.
We'll let that be the closingthought, brian.
All about value building agreat product.
Don't let the dollars and centsget in the way of building a
great product.
Build a great product and theywill.
The dollars and cents get inthe way of building a great
product.
Build a great product and theywill come.
Brian, thank you so much forjoining us.
Really appreciate it If ourviewers wanted to connect with
you.
Speaker 2 (24:36):
What's the best way to get in touch?
Yeah, absolutely.
Please feel free to follow meand send a connection on
LinkedIn.
Follow our page at Utopia orfeel free to reach me at info at
utopiaio.
Speaker 1 (24:45):
All right, brian Abernathy, with Utopia Payments,
really appreciate the time.
Thanks for being with us.
Thank you, joshua, I appreciateit.
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