What’s after low-code? And, why should you go public?

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The Q2 earnings cycle is powering along, which means that your humble Exchange crew have been on the phone with a number of public-company CEOs working to bring you the trends and notes that matter. To that end, today we're going to check in on Appian, Paycom and BigCommerce.

After that we'll peek at fresh material that will bolster our recent dives into the BNPL world and startup competition. So, a grab bag today, and hopefully one full of goodies!

Let's start with Appian. I got to know the company midpandemic when a host of companies were hammering away, building apps using its low-code tech. At the time Appian was worth about half of what it is today. (You can read the company's Q2 report here.)

Since then the company has continued its cloud push, slowing shedding services revenues in favor of high-margin SaaS incomes. It's not the only company executing a related transformation. But for our purposes today I want to talk about what comes after the basic low-code work that we spent much of 2020 digging into.

Appian announced that it is buying process mining firm Lana Labs in conjunction with its second-quarter earnings. What's process mining? Thanks for asking. Process mining is a software technique for finding processes inside of companies that can be automated. It's all well and good to buy an RPA service for your company, but if you don't know what you can automate, you might not wind up getting full value.

All this matters in the case of Appian as the company now has process mining, RPA and low-code tooling to help companies create applications under a single roof. In practice the parts work together with process mining identifying things to automate, a workflow that is then taken up by RPA and other forms of automation - AI, human - to allow companies to better get their operations in efficient order.

I asked Appian CEO Matt Calkins about the difference between workflows and apps. He said that they are pretty much the same thing. This makes the low-code world a bit more grokable. How many apps could corporations really need, I've always wondered. The same question regarding how many workflows that companies may need to automate feels different. It feels like there's many, many more possibilities. So, a bigger TAM.

Updating my thinking about low-code, this dynamic makes me more bullish on the software method if it's more in service of helping companies digitize their operations and automate rote tasks than simply building more apps.

Turning the page to BigCommerce, the open-SaaS e-commerce platform has had a good few quarters, posting generally accelerating revenue growth despite Shopify's rising global profile. It also just marked its first anniversary since going public, so I spent a few minutes with CEO Brent Bellm to chat about what he's learned in that year, and if going public was worth it. (You can read the company's Q2 report here.)

It was, he said. He made two cases for taking companies public that I wanted to share. They add up to faster growth at BigCommerce, though Bellm cautioned that it was impossible to disaggregate growth stemming from the following factors from other elements that contributed to his company's recent performance.

Regardless, a few reasons to go public:

• Credibility: Being a public company with open finances can breed in-market confidence. Startups have an awkward habit of dying somewhat often. Public companies far less so. This means that customers are more likely to trust a company, perhaps boosting its chances of securing deals. Even more, partners are more confident in BigCommerce now that it is public, per Bellm, helping drive more partnerships and growth.
• Increased attention: I thought that I understood this element of going public, but Bellm expanded my perspective. Of course going public is a branding event. But that's where I thought this particular edge wrapped up. Instead, the CEO explained that now when his company does a thing the analyst community has to pay attention, for example. So it's easier for BigCommerce to stay in the public eye as a public company than when it was a startup. Call it boosted ambient market noise, in a good sense.

Bellm told The Exchange that going public was overwhelmingly positive" for his company. Unicorns, take note.

Then there was Paycom. This chat was mostly about talent in two ways. First, Paycom is dealing with the same competitive tech talent market as every other company. But notably it's seeing a tight supply of the talent it needs despite being far from traditional technology hubs. Paycom is based in Oklahoma, notably. (You can read the company's Q2 report here.)

But the talent market and its general tightness today is impacting Paycom in another way: The HR-tech company sells software that helps companies secure and retain talent. Those businesses, per the company's CEO Chad Richison, are benefiting from companies' putting more focus on not letting talent go after they went through all the work of getting them aboard.

Also the labor market has become very similar to the venture capital market, it turns out. Richison said that today you have to make a choice on whether to hire someone after you interview them within a few days. Before you had more time. Just like VCs today are forced to cut checks in days instead of weeks and months.

Hot economy summer, or something.

The startup BNPL market

Hope remains for the startup BNPL market, per Brad Paterson, the CEO of Splitit. Splitit allows customers to use their current credit cards to make installment payments. So it's a mix of traditional credit and BNPL. (SplitIt's Crunchbase page is here.)

Paterson volunteered to provide comment on the current market for BNPL startups, and after chatting much about the Square-Afterpay deal, I wanted to get his take on why smaller companies are going to be able to survive behemoths charging into their market.

In an email, Paterson argued that a wealth of factors, what he described as average purchase price, length of installment plan, industry vertical serviced, etc." will protect margins in the space. And that as BNPL solutions can extend beyond smaller purchases," there will be room for startups in the space.

Perhaps the better question is how much more work there is to do with consumer credit and checkout. That sounds much more like an infinite problem space than just BNPL tooling itself.

Startup competition

Returning to our earlier work regarding startup competition, Elizabeth Yin of Hustle Fund sent in a list of notes that I want to share. When we were discussing the importance of being a leading player in markets for startups, we were mostly discussing the marketplace space, areas where young companies are trying to connect different parties.

In ride-hailing, that's drivers and riders. Food delivery is even more complex, with delivery drivers, consumers and food-generative business establishments. You get the idea. Per Yin, being content with lower-tier market share is generally really tough." She continued:

The value of a marketplace usually increases as both the supply and demand sides increase. E.g., more listings + customers on Airbnb. More drivers and riders on Uber. Etc. In fact, in many cases, that is the sole value.

So, if you're No. 3 or No. 4 in the market, retention is a big potential concern, because you have to ask yourself what will enable you to keep your supply and demand sides from defecting to the No. 1 or No. 2 player that has a larger network? This is why you tend to see consolidation of marketplaces.

For early backers, they may still end up doing fine via an acquisition to No. 1 or No. 2, but it may end up being a magnitude or two off from the outcome of backing the No. 1 or No. 2 marketplace. For this reason, if there are already a couple of marketplaces that have a strong head start, early-stage investors tend to shy away from backing a new player.

Yin also answered our question startup marketplace competition generally yielding markets with a small number of leading players, and a dearth of other competitors as smaller entrants are chased out due to low market share. She added an interesting perspective regarding the impact of capital:

In general, yes, but investors also play a role in this phenomenon. Once a couple of companies get going, investors tend to pour more into those initial leaders AND others tend to shy away from backing competitors. And once money floods a space, it's really customer acquisition costs that become an issue - CAC gets driven up by the top companies. (We saw this with the rise in food delivery companies). This is why you can't really bootstrap a marketplace company very easily - you can't afford to acquire customers.

This is, in a sense, an answer to the question about kingmaking in the startup world. VCs are not deciding who wins in many cases, but the impact of capital really can skew results in the marketplace world. Now, let's stop before we start endorsing how the first Vision Fund disbursed capital!

Hugs, and get vaccinated.

Your friend,

- Alex