The most successful companies in vertical markets pair product innovation with go-to-market disruption. In this series we explore that marriage, how companies many have never heard of came to dominate their markets, and how they scaled with distinct tactics. These history lessons inform what we look for when investing in vertical markets at Scale Venture Partners, and hopefully provide blueprints for the next generation of vertical market winners.
Company name: Textura
Founder: Patrick Allin
Year founded: 2004
Company vertical: Construction
Market dominance: Commercial construction payments
What do they actually do: Textura is the network used by general contractors in commercial construction to manage and pay all of the subcontractors on a construction project. Subcontractors submit time and work done through Textura, as well as managing the lien process which ensures that subcontractors get paid for the work they do. General contractors have a single interface to receive invoices, make payments, and reconcile the financial management of a construction project.
Product innovation: In construction there are three key stakeholders: the owner or developer who has a vision for the project, the general contractor who manages that project, and the sub-contractors who do the actual construction of the project. Payment for all services, materials, and work flows from the owner or developer to the general contractor to the subcontractor. Liens protect subcontractors from not getting paid for labor or materials, meaning until payment is made that subcontractor has the right to take possession of the property to recuperate money due.
Before Textura, a subcontractor would submit an invoice based upon the agreed contract, and then when they physically went to get a check they would hand the general contractor a lien-waiver, annulling their right to repossess any property and confirming receipt of payment.
Textura’s platform was designed to digitize this entire payment workflow. When a construction project begins, the general contractor and subcontractors submit their payment applications and invoices electronically through the platform. These documents are stored securely and accessible to the relevant parties. Once the payment applications are submitted, the system automatically validates the information, ensuring accuracy and compliance with the agreed-upon terms. The owners or developers, as well as their representatives, can review and approve the applications digitally. This ensures a transparent and auditable process.
After the payment applications are approved, Textura’s system handles the disbursement of funds. The platform can initiate payments directly to the subcontractors, ensuring prompt and accurate transactions. When payments are disbursed, owners and general contractors are issued lien waivers. In effect, the software acts as an intermediary and escrow agent for the payments flow of a construction project.
Scaling magic moment: Textura had a significant challenge, which was that general contractors did not recognize the hidden costs of the traditional manual processes, and a ROI-driven value-based sales process was not going to be successful.
Therefore Textura turned the sales and monetization model on its head. They knew that general contractors would be reluctant to pay much for the software, so instead of thinking of them as the primary customer, they thought of them as a channel. General contractors were only asked to pay a small fee to use the software. But, if a general contractor decided to move a project onto Textura, the sub-contractor had little choice but to also use the software. And these subcontractors are what Textura monetized, with roughly 75% of revenue coming from them.
In order to make this work, Textura did not have any quota-bearing sales reps. Rather, the employees in charge of activating general contractors saw themselves as technology consultants and worked with general contractors in a collaborative fashion.
This model is difficult to launch, but with scale creates momentum and defensibility. Early resistance from general contractors revolved around having to activate subcontractors who were unfamiliar with the application or did not want to be burdened with the cost. But a subcontractor is likely to work on multiple projects at any time, across multiple general contractors, and therefore get more value from a consolidated workflow. Textura really focused on building out this network. By the time they went public, any commercial construction project had the majority of sub-contractors already on Textura making the selling proposition much easier to a new general contractor that much easier.
Where are they now: Textura IPO’d in 2013 and subsequently acquired by Oracle for just under $700M. At time of acquisition they did over $100M in annual revenue, and today are processing over $1 trillion in construction payments. Oracle was already an increasing player in the construction space, and this, alongside a couple other acquisitions at the time, made them one of the major vendors of software solutions for general contractors.