Nick Martin, co-founder and CEO of Joe Coffee, is very concerned about the economic situation and is looking for ways his company can save money. One of the main areas of cut is software.
Martin founded the Seattle-based company with his brother Brenden to help local coffee shops become more competitive with other coffee shops. starbucksfacilitates mobile order fulfillment, analytics tracking, and marketing automation.
While the company’s eight-year run has been fairly stable during the economic downturn that began in 2022, Martin said he’s seeing evidence that people are buying fewer lattes than they were a year ago. He said he was there. The consumer downturn is a potentially troubling sign for Joe Coffee customers, and the company is aggressively tightening its belt.
Martin, 38, told CNBC that Joe Coffee has reduced the number of subscriptions. hubspotis a marketing automation software vendor that is taking a close look at its spending with payment processing company Stripe and considering whether it’s worth renewing its contract with the company.
“All of our subscriptions are under a magnifying glass,” Martin told CNBC. “You need a really good business case for new spending.”
Based on the latest earnings reports of software companies serving small and medium-sized businesses (SMBs), including local shoe stores, small restaurant chains, and neighborhood spas, the Martin brothers are not alone.
hubspot, Bill Holdings, paycom and zoom info All warned investors of potential problems. Their comments reflect broader economic data that shows consumers are feeling the continued impact of inflation and high interest rates.
Retail sales fell 0.1% in October, underscoring pressure from high prices. The Consumer Price Index rose at an annualized rate of 3.2% last month, according to the Bureau of Labor Statistics.
Joe Coffee founders Nick Martin and Brenden Martin
joe coffee
Wall Street is in crisis. While the broader market index has edged up slightly since mid-year, tech companies focused on the small business sector have been hurt.
Paycom, which provides payroll and human resources management software, announced on November 1, a day after the company announced that its revenue will grow 10% to 12% in 2024, well below analysts’ expectations of more than 20% growth. The stock price fell 38% on the day.
Two days after Paycom’s decline, Bill’s stock price plummeted 25%. The company, which provides software that helps customers track and manage accounts payable and receivable, lowered its 2024 profit and revenue outlook. Bill’s chief financial officer, John Rettig, said in an earnings call that the company “operates in an environment of increasing economic instability and economic instability.” Small businesses are under increasing pressure to adapt to current realities. ”
At the end of October, ZoomInfo stock fell 16% after the company reported a weaker-than-expected fourth-quarter outlook. Chief Financial Officer Cameron Heiser told analysts that “the world continues to be challenging” for maintaining profitability. ZoomInfo helps sales and marketing teams track leads and customers.
HubSpot shares fell 6.1% after last week’s earnings release, but the stock has since recovered. The company’s outlook was broadly in line with expectations, but growth had slowed and CEO Yamini Rangan said the environment was “unstable” as customers “continue to optimize their spend.” “It’s difficult,” he said.
“Sales cycles remain volatile, budgets are still under review and purchasing urgency remains low,” Langan said on an earnings call.
Representatives for Paycom, ZoomInfo, HubSpot and Bill did not respond to requests for comment. Since June 30th, stock prices have fallen between 12% and 49%. The Nasdaq is up more than 2% over the period.
fight for the little guy
The market sectors served by these companies are critical to the national economy. According to the Chamber of Commerce, small businesses have accounted for 40% of the U.S. gross domestic product over the past 20 years. It also employs 46% of the U.S. workforce.
Jake Dollarhide, chief executive officer of Longbow Asset Management, said the performance of Paycom and other small business providers provides insight into the current state of the economy.
“If people don’t feel wealthy, they tend to retreat,” Dollarhide said.
The Martins know what it’s like to deal with the everyday challenges of making ends meet. Their father’s small business, which built cabins in their hometown of West Richland, Wash., about 320 miles southeast of Seattle, was decimated by a larger company moving into town. Ta.
“If America is truly built on small business owners, why do they never take a break?” said Nick’s brother Brenden Martin. “Why isn’t there someone else to fight for them? That’s the main driving force for us.”
The Martin brothers have a background in technology. they both worked at microsoftand nick from there Jiro, Meanwhile, Brenden worked in product strategy and web development for various companies.
Zhang Peng | Getty Images
They also both worked as baristas in the past, loved the role coffee shops play in local communities, and wanted to help small cafes compete with Starbucks.
When Starbucks launched mobile ordering in 2015, Joe Coffee wasn’t yet up and running. But the brothers recognized a pressing opportunity in the market.
“At first I thought I missed the shot,” Brenden said. “And we realized that small businesses still need this.”
They made their big splash in August 2018 at Coffee Fest, a venue for coffee brands to announce their products and services. Just before the Los Angeles event, the Martins learned they had received $1 million in funding, their first outside investment.
They initially built a platform specifically for mobile ordering, but the coronavirus pandemic created a whole new set of demands from customers struggling to stay in business. In 2021, Joe Coffee, which now has 17 employees, created a complete software and payments suite for coffee shops.
For Joe Coffee’s business to work, its technology must deliver near-instant revenue and profit to customers already operating on tight budgets. The company does not charge a recurring subscription, only a percentage of each transaction.
“It would be nice to have one.”
Nick Martin cited rising borrowing costs as the main reason why Joe Coffee has reduced the number of software products it purchases. He said the company now has about six software subscriptions, down from 12 to 15, and their share of operating expenses has dropped from about 8% to 3% to 5%.
Decisions about what to dispose of are based on whether the product is a “nice to have” or essential to business operations.
“Can we just do this in a spreadsheet?” he said. The company then decided which HubSpot services to cut. Joe Coffee is still a HubSpot subscriber, but he’s paying for fewer seats and fewer tools, Martin said.
As for Stripe, which is privately held, Martin added that Joe Coffee is looking for other payment processors with lower fees.
Stripe said it does not comment on specific customers.
A software company’s macroeconomic story will unfold differently depending on its revenue model and dependence on specific industries.
Bill may be affected more quickly than other companies because more than three-quarters of its core revenue comes from transactional money, with the remainder coming from contracted subscriptions.
“What makes Bill more exposed is probably the amount of payments from these smaller companies,” said Taylor McGinnis, a UBS analyst who follows Bill, ZoomInfo and HubSpot.
Investors across the industry are trying to determine whether small business spending has bottomed out or whether companies are still looking for opportunities to slim down their software portfolios if economic conditions deteriorate further.
“I think what we’ve learned is that we’re more macro-driven than ever, especially in B2B,” said Brian Keene, a Deutsche Bank analyst covering software and payments companies. Ta. “If there is one more shoe to drop, there will still be downside risk.”
Highlight: Xero will continue to focus on core segments such as small and medium-sized businesses
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