The Booming Industry Of Startups Serving Startups

/// The Booming Industry Of Startups Serving Startups

February 3, 2014  |  Blog

In the modern-day version of the California Gold Rush, there are many entrepreneurs looking to get rich the way Levi Strauss did; by helping the prospectors. The prospectors in this case are startup founders. It’s a trend that people in San Francisco and Silicon Valley are calling “startups serving startups.”

These companies do a wide variety of things, from payroll and customer support, to catering and financial planning for employees. They are catching peoples’ attention not just because of how fast they are growing, but because they have a business model that is symbiotic with the health of other startups. As a result they are specializing their solutions for different parts of small business, creating efficient sub-systems for companies that would never have the resources to spec and build such systems themselves.

“There’s been growth in a lot of these types of companies,” says Arjun Dev Arora, the founder of ReTargeter and an investor who advises entrepreneurs.

These founders have discovered a market for their products. They are plugging into startups because that’s where they can find influencers who might spread the word about their products. Working with startups has become kind of a marketing channel to some degree because many of those people are early adopters.”

Advisor is a business that provides back office services for more than 115 startups. It does accounting, bookkeeping, HR, sales and marketing strategy, and even board meeting preparation.

Advisor founder Mike Jacobson says the company was born out of a desire to help startups that were “getting the shaft” from service providers who weren’t working in their best interest. “Startups have to focus time and money on building and launching their product as well as customer acquisition,” he said. “Last thing they need is people using their money unwisely.”

What seems to be taking form is a kind of mutually supported ecosystem of these companies embedded in the larger Bay Area’s startup culture. Tushar Kumar, wealth management adviser at Northwestern Mutual, works primarily with startup founders and tech workers in the area. He says connecting founders to other founders and even investors is something his team does, even though it goes beyond what a traditional financial planning service usually does.

We try to connect venture capitalists with entrepreneurs who need funding. We provide that access to VCs. It makes us more than your traditional money management firm. Most advisers will be ready and willing to manage your wealth, but we fight tooth and nail for a client to build that wealth in the first place and we try to make ourselves central to that process.

Kumar meets multiple days a week with individual employees at Twitter and other startups. Many of them have just come into a significant amount of money, or have experienced a “liquidity event,” as he calls it. These are folks who were making $70,000 or $80,000 a year and are now suddenly worth half a million dollars. As he helps these tech employees manage their newfound money, they refer him to their friends who need the same thing.

Giving Each Other Business

It turns out a lot of entrepreneurs who service startups are giving each other business. Heather Scott and her company PurplePlantBlends provide smoothies for startups. They work with small companies that don’t even have 10 employees as well as relative giants like Airbnb, Skype and yes, Twitter.

Twitter started out as a one-off catering event…Our whole model is to create with a company like Twitter. In the process, it democratizes it for all these other companies that can’t have a full onsite smoothie bar at their location. That’s the most fun–being able to work with these companies from their beginning to scaling. It’s just been great to add a little more each time we go in. The more we learn to service them as best we can, the more we grow as a company. We think of everyone as a partner. Through that process we become better at what we do. – Heather Scott

Cater2.me is another startup that provides food to startups. The company designs meal programs for companies and is even helping Uber design and run one of its kitchens. More than 650 companies are now using Cater2.me food services in New York, Chicago, Washington, D.C, and the Bay Area.

Cofounder Zach Yungst says he wants to helps startups break traditional rules and improve their culture in the process. “It costs more to allow an engineer to go buy lunch himself in terms of productivity than to have him share lunch with someone in marketing over lunch in the office,” he said.

Part of the philosophy involves connecting office managers from different companies so they share stories and build their respective office community.

We’ll introduce a lot of office managers to others who just need insight. This wasn’t our initial goal, but we realized we had this resource, so why not bring this network to other office managers. So we started the “Office Heroes League” and now have one in New York and one in SF. This is building a network that forms other partnerships with other companies that work with office managers frequently to help them to find office space for instance. – Zach Yungst

A side effect for these startups is that they’re getting new business from these connections. “One of the smartest things that happens is you don’t have to do too much outreach and just let the word (about your company) spread by itself,” Scott said. “This has been doable for us because of that.”

At the end of the day, this is a great place to quickly get traction, because these entrepreneurs are early adopters. A lot of these guys are trying to build these relationships early. They are using a venture approach, They may not have a lot of cash but the upside is one client might be the next Facebook, which quickly went from being worth $300,000 to $20 million and beyond. So they get to participate in some of the excitement of the growth story without having to take part in the risk. – Arjun Dev Arora

Which one of these companies, if any, will become a multi-generational, multi-national corporate giant? That’s a little harder to say. Growth does appear to be happening, however. Cater2me is already in four cities and the founders say they plan on expanding even more. Jacobson said most of Advisor’s clients are in the Bay Area but they are expanding in other startup centers such as New York City and Boulder. Arora said this may be a trend that spreads to the rest of the world after getting traction in California.

That’s what’s most exciting about this. A lot of what starts in San Francisco and California makes it out to the rest of the U.S. and the world. The culture of employee perks popularized by Google, for instance. Laundry service, breakfast, you name it. I’ve seen this happen with lots of things, not just technology, but the popularization of organic food and sustainable products of all kinds. Deepening interest in health and philosophy frankly. A lot of ways of thinking about the world grow strong here and then they progress forward.

What’s really pulling people to California and the Bay Area specifically is money and resources. A study late last year showed that in the third quarter of 2013, half of all venture capital funding in the U.S. went to companies in the Bay Area. It’s where the most money, engineers, and startups located. If there’s going to be a new Levi Strauss, the odds are he or she will be located there too.

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Co.Labs – John Boitnott


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