JS: Hey everybody and welcome to another edition of Fireside Chats. I’m Joshua Silver, the founder and CEO of Rainforest. We help software platforms add payments to their products to help make them more profitable and make customers stickier. I’m here with my good friend Tony Caudill, who has been building SaaS companies and adding payments for many, many years and I’m really excited about this episode. As we get into it, Tony, tell us a little bit about your background. How did you get into SaaS to begin with, and specifically, how did you stumble upon payments?
TC: It’s a long story, but I’ve been in vertical SaaS and payments for about 15 years now.
Prior to that, I spent some time doing management consulting, worked for Accenture for 13 years helping cable, wireless companies, content companies get into mobile, so I learned a lot in that space. Started my first company in 2013.
I had no idea it was a vertical SaaS plus payments company at that point. I think, had you said vertical SaaS and payments to me in 2013, I would have been like, what in the world are you talking about? But started it in 2013, learned a whole lot. We ended up selling it to a strategic buyer in 2018.
I stayed with the company for a few years through COVID, and then took a little bit of a break. Then earlier this year, I started up my second vertical SaaS plus payments company, knowing that it’s a vertical SaaS plus payments company this time. Started it earlier this year, and we’re just now getting in the process of getting it up and running.
JS: That’s great. Tell us a little bit more about what vertical was your first company, and what was the second in, and so people will have an appreciation for that.
TC: Yeah, my first company started, so I live in Kansas City. My wife and I had been attending a local church here in Kansas City for many years. This was 2013, so some of this seems pretty obvious now, but it didn’t then. The church we were going to really attracted younger families, lots of 30, 40-something year olds running around. We just found ourselves struggling to stay connected and engaged with the church.
Our experience was that if we wanted to volunteer, we had to go over to the system and create a username and password, and register ourselves. If we wanted to make a donation, there was a completely different system that we had to log into. If the church had an urgent need that they’re trying to help out a family or something, they were sending out email blasts, but often it went to an old Hotmail account or something that I didn’t check, and so we never were getting those messages.
I ended up going to one of the pastors that was on staff and just saying, “Hey, man, we’re not staying connected here. We’re starting to do everything on our phone, and you’re not there on my phone, which is kind of where I need you, and if you want me to be an involved member here.”
So we ended up launching the Vineyard Church mobile app, and the goal of that app was to be the one-stop shop for the members of the church. So if I wanted to make a donation, I’d go to the app. If I want to volunteer, I’d go to the app. We just wanted to make it really easy to get to all the tools, all the content that the members of the church needed. So it started there, and we just kind of word of mouth grew it to around like 50 churches, and then in 2015, we took a strategic investor round into the company to help us accelerate our growth.
And one of the interesting things that happened, kind of weaving in payments into this was kind of along that journey, there was a private equity firm that was doing a roll-up strategy of a lot of tech companies in the faith market, and we got a phone call from them one day, and they said, “Hey, we’d like to talk to you.” So we flew down, we had the meeting, we had prepared like this amazing deck that we were going through, telling them all about our business, and the guy stopped me about halfway through the presentation, and he was like, “Yeah, yeah, man, we get all of this. Our plan would be to basically give your software away for free and make all the money on payments.” And I’ve always said like what I would do to have a picture of my face in that moment because I was just confused. I had no idea what this guy was talking about, like what do you mean payments? What do you mean making money on those payments? So, long story short, on the flight home we were feverishly Googling like, “How do you launch payments? What does revenue look like?” And if you’re thinking about getting into payments, one of the worst things you can do is go Google it, right? Because there’s all sorts of bad information out there, and it’s not something you can go Google to solve. It’s just more complicated than that. So very, very long story short, we ended up launching payments on the platform, and I’m just very thankful that we did. I mean, it materially changed our business, and ultimately is one of the reasons that we got acquired a few years later. So lots and lots of lessons learned along the way. Good things to do, bad things to do, but it was a game changer for our business.
JS: That’s awesome. It’s amazing, even today, I talk to a lot of founders who may not be monetizing payments as much as they could be. We either say they’re not monetizing or they’re under-monetizing. I think it’s so important to spread that message out there. There’s also, I find, a lot of times when founders are thinking that payments just needs to be sold as a commodity. And we’re just going to compete only on price, but when you start to bundle that value together, maybe it’s actually the software they’re paying for through the payments. And so there’s a lot of different ways to look at that.
TC: I also talk to a lot of vertical SaaS companies. It’s just something I’m personally passionate about now, because I think there is just a lot of bad information out there, so I talk to a lot of just vertical SaaS founders and try to share my knowledge. I’ve found vertical SaaS companies today tend to fall in one of four buckets, I think.
Bucket one is that they’re not doing payments at all. And so they’re not obviously monetizing, but they’re not doing payments.
Bucket two is someone else’s hero, meaning like they might be doing payments, but they’re pointing their customers to someone else’s page. They’re not monetizing. They have no involvement in what that experience is like, but they’re driving a whole lot of volume to someone else’s page and helping that company make a lot of money. I’ve been down that road. And once we sort of pieced it all together and was like, “Wait a minute, we’re driving a ton of revenue for this payments company.” And we tried reaching out to some of those companies that we were helping out, like, “Hey, we’re helping you a whole lot. How about we get in on this?” And of course, they were not really interested in that conversation. But that’s bucket two is you’re someone else’s hero.
Bucket three is what I call the friction full experience, which is you have a payments partner, you’ve done some level of integration, but oftentimes it’s just like a referral agreement. Yes, it works, but it is painful in a lot of ways. And I can talk about that for many days about why that’s so painful. But that’s the third bucket, it’s friction full.
And then the fourth and final is frictionless, which to me is embedded, right? The payments experience happens completely within your vertical SaaS platform, you’re monetizing it, you’re making money, your customers are happy because they don’t have 50 different logins that they’re using. It just simplifies it for everybody and is a far better experience. So those are the four buckets that I see vertical SaaS companies falling into today. Does that resonate?
JS: Yeah. I love that breakdown. That’s a much more eloquent way of saying, I think what we at our company spend a lot of time trying to educate people on, which is a difference between embedded and kind of all the other flavors. To that end, Tony, what advice would you give founders and leaders and payments who are trying to move up the hierarchy? Maybe they’re someone else’s hero today. They’re referring customers to another merchant processor. How would you help them think about moving to that frictionless or the full embedded payments experience? What have you learned along the way? And what have you seen other people do? Are there three or four nuggets that you could distill down to help?
TC: Yeah. I think they have to think about building a payments engine. One of the mistakes that I see vertical SaaS companies making, and I’ve made this mistake, so I get it, is they think they can build it and people will come.
Adding payments to your vertical SaaS platform is not just an engineering activity. It requires a holistic strategy across product, across marketing and sales and your ops department, your success team. Everyone’s got to be aligned around a strategy. It’s just like an engine, right? An engine has a lot of different parts, so does your payment strategy. It has to be holistic, it’s got a lot of different parts. All the parts have to work together for it to work properly and get the benefits that you want. And so, yeah, it’s really kind of thinking about it like that and standing up, either hiring someone, bringing someone in that understands sort of the holistic view of what it takes to be successful with payments versus just handing it to your engineering team, saying let’s do this and they’ll go build it for you. That’s relatively speaking the easy part, especially now with some of the embedded widgets and things like that.
Companies like Rainforest and others that are out there have made it really easy from an integration perspective. The hard part is the sales and marketing and the support and all those things behind the scenes.
So, yeah, my number one recommendation would be to find somebody that’s done it and also be careful with the advice that you get out there because there are people with ulterior motives, right? They’ll point you in a direction and behind the scenes that they’re making money off of that recommendation. And I’ve seen that go really poorly sometimes, where they’ll point you in a direction, but it’s for the wrong motivation.
JS: Have you found any really good, reputable sources of objective information? Because I would agree with you. That’s actually one of the challenges that we have even with onboarding new employees. How do you teach someone payments? They’re like, where’s the book? And certainly there are more books around today than there ever were in the past, but there really aren’t great resources. There’s not a website. It’s a decade of knowledge that you’ve acquired through getting burned a whole lot of times and touching the stove when it’s hot. For someone who’s just getting into this, what resources, if any, have you found?
TC: I gotta be honest. I wish there was a great strategy I mean, my first reaction when I heard about payments was Google, right? And I think that was one of the worst things I could have done. You can’t Google this because there’s just a lot of bad information out there. So I don’t know. It seems like somebody should come up with a, you know, how to launch payments on vertical SaaS platforms 101 course or something.
JS: Market opportunity there for sure. Tony, how have you seen the embedded payment options evolve since you first got into the space? You said, back in 2012, 2013, whole different era. There obviously weren’t as many options then as there are now, but what are some of the changes you’ve seen in the last, you know, over a decade?
TC: Yeah. I think the short answer to that is everything. It should be all-in-one at this point within your platform, right? So like when I started this in 2013, embeddable components weren’t really even an option. You just found a payments partner. You went and did an integration with them. Likely your integration. They’re like, yeah, here’s our API. And it was super dated and archaic and difficult to interact with. And even when you did get the integration done, it wasn’t all happening within your platform. It was, yeah, maybe the payments were initiating there. But if the customer of your SaaS platform wanted to reconcile their account, they had to log into a completely different system over here to attempt to reconcile, which often you couldn’t even get it to reconcile.
I think the biggest shift that I’ve seen over the past 10 years is instead of your customers going to all these different systems, it should all be happening within your SaaS platform. And once I started learning about that, that was an aha moment for me, which is exactly what I’m doing with my second company. Our customers of my new company, they log into one system. And they’re able to manage all of their profiles and everything that we’ve built from a SaaS perspective, but they’re also able to manage everything from a payments perspective from within our platform too. And that is just an enormous shift from where we were 10, 15 years ago, where it was just spaghetti. There was kind of a mess going on.
JS: For sure, I would agree wholeheartedly, things have started to consolidate a lot more that you have those options. Any other big changes that you’ve seen?
TC: I think transparency, it’s become more transparent too, from a pricing perspective. And a lot of the models 10 years ago were super confusing, even for people who sort of understood it with revenue shares and things like that. And now there’s platforms, payment partners out there today that it’s really easy to understand. You basically have a buy-in, right? You’re like, I know when someone runs a credit card, I’m paying this much on interchange and this much to my payments partner. And you can just back into the numbers, which makes your modeling much easier for a founder because it’s very clear and transparent versus in the past, I feel like it’s been difficult at best to make sense of all that.
JS: Yeah, that makes a lot of sense. We’ve certainly seen a lot of things coming up in the past, but we’ve certainly seen a lot of vertical SaaS companies bringing legacy contracts to us and asking for help trying to unwind how much they’re actually making. And I’ve seen in some cases, they thought they were making a 50-50 revenue split or even an 80-20 split in their favor. And you take out the buy rates and you take out all the fees that they aren’t sharing and all these nuances and all of a sudden they flip-flop, and they’re only making 20% of the revenue versus 80% of the split. So transparency is much needed.
TC: Yes, agreed.
JS: You touched on this a little bit, Tony, but in the last two decades that I’ve been in SaaS and payments, one thing I’ve noticed is details really matter. This isn’t a big picture and you’re going to be successful, right? You’ve really got to go a few levels deeper, reporting the accuracy. We talked a little bit about transparency. Any specific details that you think in your experience really make or break a payments integration or a payments rollout? You mentioned reconciliation is one, but any others that you’d want to highlight for our listeners?
TC: Onboarding, I think is a huge one. Getting someone to sign up for payments is hard. And you’ve got to build it into your product so there’s value prop. Ultimately, the goal when you’re a SaaS company, it you’re not really talking to your customers about payments. It’s just part of your platform. That’s the best case, but sometimes it takes a while to get there. I live that and get that. But once you convince them that they should be using you for payments, then you’ve got to get them to set up a merchant account in a lot of cases. And getting them through that process can be difficult, right? So one of the lessons learned is that the merchant application and the experience of that merchant application is really important. So things as simple as like the link, the URL to that merchant application, where is it sending them? And then when your customer gets there, are they experiencing your brand or are they experiencing your payments partner’s brand? And does the merchant application ask questions using words that they understand, right? Like one of my favorites is average ticket size. If you’re asking your customer what their average ticket size is, depending on what market you’re serving, they may understand that. But there’s a really good chance they have no idea what you’re talking about. And so being able to put color around that, not physical color, but using words that they understand and speaking to them in their language is really important because it’s already hard enough to get through that process. People tend to overlook that. But if you can’t get them through the merchant application, you can spend a whole lot of cycles there with your customers and they’re going to get frustrated. You’re going to get frustrated. There’s going to be a lot of cost to it. And you’re just not going to get the volume that you could be getting. So you’ve got to make that onboarding experience as simple as humanly possible, which is hard.
JS: Yeah, it’s amazing. When you look across various industries, adoption is suffering in almost all of them. You may have a software company that has a thousand or 10,000 clients that are subscribers for that particular SaaS platform, but then you ask them how many are actually using payments. We call that the attach rate, what percentage have signed up. And then of those, how many are using it for most of their payments, the adoption. And in many cases, that’s pretty poor. There’s so much emphasis that I’ve found being spent on negotiating pricing from a payment spender and how many basis points and how many cents. If all that time and energy was instead spent on optimizing the product and the onboarding, you may actually get much higher adoption rate which is going to net you a whole lot more dollars in your pocket as a software company than focusing on the cost, really driving that revenue.
TC: Yeah, I totally agree. A couple other thoughts. One the product side, making sure payments is so weaved into your product that it just feels like one. I’ve seen too many vertical SaaS platforms like, “Oh, we’ve got our SaaS thing.” And then there’s this payment thing. It’s treated like a bolt-on. You can’t treat it like a bolt-on. It’s got to be just treated as one. It’s just part of your product. And again, that could be a journey sometimes to get there, completely understand, but that’s the goal. You’re just buying one package.
On the success side of things, I’ve seen a lot of the, “If we build it, they will come” type of mentality. My experience is that’s just not true. You can do a lot of really good things with your product to drive adoption, but you need your success team helping your customers talk to them about payments. It’s like you can’t just hand a hammer to someone and expect them to know what to do with it. You got to teach them how to use the hammer. And it’s the same thing with payments. You’ve got to teach your customers, “Here’s all the cool things that you can be doing. Here’s use cases that you probably haven’t even thought about.” And they’ll help you think about use cases too, that you can build into your product as well. It goes both ways, but you don’t just want to hand them the tool and wish them luck. You’ve got to have your success team helping them to use it as best they can.
JS: I’d love to dive into that a little bit more. You’ve, I’m sure, seen across your time in the industry, the spectrum of really great service. And on the other side, really terrible service. Give us a flavor of what differentiates payment providers that are offering fantastic, phenomenal service from those who maybe are lackluster at best, or maybe even just downright terrible.
TC: Yeah, I’ll give you an example. With my first company, we served thousands of churches. As it turns out, when you serve a lot of churches and you’re processing online donations, Sundays are really important. Those were the days that we would see most of our volume happen. And prior to auto scaling and things like that, Sunday mornings, I would wake up and at 9am, I would just start sweating. We’re watching servers, making sure nothing goes down. It was like the scariest day of the week for us for quite a while when we were getting the company off the ground. But back to your question around service, one of the partners that we were using for payments would have regular maintenance scheduled on Sunday afternoons, which was really, really, really bad timing for us. And we were pretty vocal about that, as you can imagine. But, it’s stuff like that. We shouldn’t have to be fighting this, we all want payment volume here, you can’t be shutting things down on us on our most important day of the week. You know, payments are hard, and they’re tricky. And you have to choose a partner that’s super responsive. Things like having an open Slack channel that people respond to in a timely fashion are really, really important. Because what you don’t want is, you can go find a big player that’s out there in the payments world. But maybe your only way of reaching them is submitting a ticket that goes into a black hole. And you have a time sensitive issue, you have an upset customer on your hands, because something happened to a payment, or they have to issue a refund. You know, it’s money. And you can’t mess with that. And I know you talk a lot about that, too. And so you have to have a payments partner that’s very responsive. And if most of your most of your volume is happening over the weekend, is there someone to respond to over the weekend? I mean, those are the kinds of things you have to think about when choosing a partner.
JS: Great, great advice. As we start to move toward wrapping up here in our last few minutes, what do you think’s in store for integrated payments and embedded payments going forward? What do you think’s going to happen? And also, what do you wish would happen? What changes would you like to see in the industry?
TC: Yeah, so this is sort of like payments and beyond. But I think for my second company, Duesy, that I’m building right now, I think payments is a really great starting point, it can help you generate a lot of incremental revenue, which is always a good thing. But we’re also hearing more from our early customers, like I also need help on the payout side, on the accounting side. And so I think for vertical SaaS companies, it certainly seems like it’s moving in a direction of becoming that all in one financial management platform, where your customers can handle all the payins, they can do all the payouts, they can reconcile, they can do things like buy now pay later. All the things that even normal consumers we expect to be available as options, feels like for vertical SaaS, it’s all headed in that direction, where they’ll be able to do everything in one spot, which makes a ton of sense.
JS: Awesome. Well, anything, anything we haven’t covered and and in closing, what advice would you give to founders who are either starting or somewhere along their payments journey and want to really get to the next level?
TC: I think it’s two things. One is just keep in mind, the more you can keep the payments experience inside of your platform, the better, right? I’ve lived both, as we talked about in the beginning, and I’m just telling you firsthand as a fellow vertical SaaS founder, the more you keep that experience under your brand, in your platform, the happier you’re going to be, the more revenue you’re going to drive, and probably most importantly, the happier customers are going to be, right? It’s one less thing that they have to mess with. And that’s a really good thing for all the reasons. So keep it inside of your platform.
Two, try and find somebody that’s done it. Because to our point earlier, there’s not really a one-size-fits-all playbook out there. There’s just so many variables and finding someone who can take their knowledge and share that with you. Because you can’t just Google this stuff. Find somebody who’s done it. And ideally someone who doesn’t have a vested interest. It’s good to have an outside opinion, that will point you in the right direction, based on your specific scenario.
JS: All right, so find your payment sherpa, someone to help guide you in an objective way and make sure everything is fully embedded. And the experience I think that’s great parting advice. Thanks so much, Tony, for spending the time with us. This was a great chat. It’s always good to hear from people who have done it more than once over a really long period of time and a lot of wisdom there. So thank you so much for joining us.
TC: Thanks for having me, Joshua. Good to see you.