March 20, 2023
A tale of two models: Blend vs. Blueprint & PointServ
Today I was doing research and came across Blend's latest stock price and financials. They're a mortgage software company that lets lenders take applications from customers online. They were huge during the pandemic, and are used by a lot of lenders. I've personally helped a company sign a contract and ramp up with them. Their software works well.
Unfortunately they spent way too much to build and sell their product. Blend IPO'd at a $4.5B market cap in the summer of '21 and employed over 2,000 people. Now they have a market cap of $320M (down over 90%), which isn't that much higher than their net cash, have done four rounds of layoffs, and surprisingly still employ about 900 people.
Some older mortgage software small businesses that I follow are PointServ (11 employees on LinkedIn) and Blueprint (5 employees on LinkedIn), each with a long list of customers. They probably have fewer users than Blend, but I think they're in the same ballpark. Both of these companies seem to operate with less than 15 people and I don't believe either has raised much capital, though PointServ may be a subsidiary of Provident Funding (even still, they seem to operate very lean). I'd guess they're both profitable, likely even after the mortgage downturn, whereas Blend lost $134M last quarter.
The lesson: For any use case where the customer base is fragmented and the market size isn't that big, operate lean. This means having a small team and raising little to no outside capital. Most vertical-focused B2B apps, like tools for mortgage lenders, construction co's, apparel retailers, you name it, fall into this bucket.
For software companies serving much larger consumer or enterprise markets, it'll probably still make sense to raise outside capital in a lot of cases, but even these rounds will be - or at least should be - smaller, with clearer milestones to hurdle before earning a follow-on round.
Unfortunately they spent way too much to build and sell their product. Blend IPO'd at a $4.5B market cap in the summer of '21 and employed over 2,000 people. Now they have a market cap of $320M (down over 90%), which isn't that much higher than their net cash, have done four rounds of layoffs, and surprisingly still employ about 900 people.
Some older mortgage software small businesses that I follow are PointServ (11 employees on LinkedIn) and Blueprint (5 employees on LinkedIn), each with a long list of customers. They probably have fewer users than Blend, but I think they're in the same ballpark. Both of these companies seem to operate with less than 15 people and I don't believe either has raised much capital, though PointServ may be a subsidiary of Provident Funding (even still, they seem to operate very lean). I'd guess they're both profitable, likely even after the mortgage downturn, whereas Blend lost $134M last quarter.
The lesson: For any use case where the customer base is fragmented and the market size isn't that big, operate lean. This means having a small team and raising little to no outside capital. Most vertical-focused B2B apps, like tools for mortgage lenders, construction co's, apparel retailers, you name it, fall into this bucket.
For software companies serving much larger consumer or enterprise markets, it'll probably still make sense to raise outside capital in a lot of cases, but even these rounds will be - or at least should be - smaller, with clearer milestones to hurdle before earning a follow-on round.
For some examples similar to the ones above, but in the project management software space, see this useful article by Jason Fried, the Basecamp CEO.