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Mark MacLeod

Platform Innovation for Industry Domination

Special Guest

Mark MacLeod

Founder of Surepath Capital

Episode 8

June 26, 2019

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Platform Innovation for Industry Domination

What key ingredients can transform a platform into a household name? Learn what marketplace leaders are doing differently in order to achieve industry domination!

In this episode of Platform Players, Mark MacLeod of Surepath Capital shares his expert insights about how major platforms are tailoring their technologies for the next generation and maximizing their revenue streams.



This is Platform Players, brought to you by Yapstone.

What makes a platform stick? Scratch that. What does a platform need to do in order to dominate its industry?

The short answer: well, the goal posts keep changing. The long answer? Take a listen to our expert guest, Mark MacLeod of Surepath Capital to find out!

But first. This is your Platform Player FLASHBACK!


“Hi, dad.”

“Hi, Mark. Your mother tells me it’s the five-year anniversary of Surepath Capital today. Just wanted to say congratulations.”


“I still have no idea what you do, but I’m proud of you. Actually, what your job is again?

“I am a financial advisor and investor for SMB software and marketplaces.”

“If you say so!”

Mark smiled at the warm sounds of his father - a Scottish farmer, who never had the opportunity to go to college. In fact, Mark was the first one from his whole family to attend university, let alone nab an MBA.

“I’m sure Harry would be really proud of you, too.”

Yes…Harry Nixon. The man who gave Mark his first job when he was a young CPA.

At the mention of his name, Mark’s mind was transported back to the train station in Toronto, where he and Harry would meet each morning and ride into work together.

“You know the best thing about our job?” Harry would say. “We get to be of service to others. That’s what it’s all about.”

Harry was more than a boss. He was a mentor, friend, and Kung Fu Master of financial advising.

When they’d get into the office, Mark would watch closely as Harry – the owner of the company – treated each client as a close and well-loved friend, considering their lives holistically in every business decision he collaborated with them on.

And it made Mark proud.

Proud he turned down opportunities at the Big Four to work at this boutique firm.

Proud to know and work with Harry.

And yes, proud to be of service…which was eventually what led him to found Surepath Capital.

Mark’s day dream was interrupted when his assistant came in, carrying a huge cake that said “Happy 5th Anniversary.”

“I’ll call you later, Dad.”

He watched as his team filed into the room and was filled with gratitude. Each one of them worked day and night to support their clients in the most meaningful ways. Harry would be proud.

Mark searched for the words to express what he was feeling in that moment…

“You know the best thing about our jobs? We get to be of service to others. That’s what it’s all about.”


Flash Forward: Surepath Capital became the leading investment bank advising the SMB software and commerce markets, with clients that include Taxjar, Joist, and Uberflip.

So, let’s get down to the NITTY GRITTY, shall we? Kurt Bilafer! Do your thing.


Investors are just beginning to understand that the platform market is a real, viable [fast-growing segment. What makes the best marketplaces stick? I'm very excited about this conversation with Mark MacLeod, the founder of SurePath Capital who is going to walk us through investment trends, what's working, what's not, and give us some insights in how to succeed with investors. Mark, great to have you here.

Mark MacLeod:

Thanks for having me.


Of course. You've had a pretty interesting career in watching and participating in what we consider the platform economy. Would you mind taking us through a little bit of background of how you got to where you are?

Mark MacLeod:

Yeah, sure. Actually, May 31 of this year, I'll be two decades in the venture-backed startup world and more broadly. Obviously, not all of that time and platform-based businesses, but a meaningful amount of time was.

In those two decades, I spent 14 years as CFO for a number of venture-backed startups. I had the whole range of outcomes from the company went public, a 10x return, a complete write-off where we took 11 million bucks, and burned a hole in the ground, and achieved nothing, and everything in between.

We just celebrated the fifth anniversary of Surepath Capital, which is what I'm running now: our boutique investment bank. We raise growth capital for companies. We sell companies, and we help companies buy other companies. The thing that's unique about us is we do that exclusively for companies that serve the SMB markets, the small and mid-sized business market.


I know every venture capitalist has their thought leadership and awareness and stuff, but I find you go a little bit deeper in not just sourcing the deals, and who are getting raises, and who aren't. The whole state of the business, how has that helped? I think one of the things that seems to be misunderstood is that the SMB marketplace or platform segment is a real, viable, and fast-growing segment.

Mark MacLeod:

Yeah. I think large companies get all the headlines, but if you think about the North American economy, it is small business. Now, the vast, fast majority of businesses are small or mid-sized, owner managed.

I think it's important to put some scope around the term SMB because people think purely is that local merchant. It really ranges everything from the freelancers that FreshBooks serves all the way up to multi-hundred-person sophisticated businesses.

Your current business is a mid-market business, so it's basically everything that's B2B excluding large enterprises. That's just a huge cross-section of the economy. A big trend that we are seeing, and I think this feeds into the growth of platforms, is a big demographic shift. I'll give you a cocktail stat you can use at your next cocktail party.

Every day in the U.S., 10,000 people turn 65 years old. If you run the math, which we've tried to do with help from folks from the local search association, basically, by 2025, most small businesses will be run by Millennials. That has huge implications for technology adoption.

I am very far from a Millennial. People my generation, when they started a small business, probably ran it on pen and paper, Word, and Excel. But if a 20-something-year-old is starting a business today, he or she is going to run it from their cellphone. They're going to be thinking not just technology but mobile technology. They're going to be thinking technology for every aspect of their business.

That has huge implications for the size of software markets, for the growth of software markets, and certainly has huge implications for platforms specifically because there's just this expectation that if I start a business, all the tools are going to be there for me so that I have this end-to-end solution. I cover everything I need, including how I acquire customers.


Yeah. That shift is interesting. It's hard to fathom the change that we're going to see at that age, but I also think a big part of the influence of the Millennials are, like you said, the mobile first. Everything being whether it's app-based or the experience being that small screen.

Those expectations aren't just for the technology providers, but they're for everybody and everything in the ecosystem. The small business owner has that expectation, but so does the customer. Where do you see the biggest investments? What are the verticals?

I've got to imagine there are a bunch of industries and verticals that always seem right for disruption, but really, really slow to adopt technology. Those are oftentimes like the regulated industries or the complicated ones like healthcare, insurance, banking, and some of those things. Where are you seeing right now the most "disruption" right now in this space.

Mark MacLeod:

It's interesting. Honestly, I could probably take the next two hours citing examples. I know we don't have that time. The reason why I could take so long is because if you think about enterprise and consumer markets, they are winner takes all or winner takes most.

God help you if you want to start a social network today. It's a big uphill battle because that market has been won. In stark contrast, SMB markets are so large and so fragmented that there's always room for you to start a new business serving a segment of small business. There's always room to consolidate, and it's mathematically impossible to run out of an addressable market.

The point of that is there's this huge, long tale of innovative businesses that can get started and find a go-to-market window and get going. Therefore, you see tons and tons of examples of innovation. So, it could be things from Cleo, which is reinventing end-to-end practice management of the legal industry. It could be things like a client of ours, open care, which is revolutionizing how patients discover dentists and then providing more and more value to those dentists over time as they start to help them grow their practices.

Shopify, which I eluded to earlier, I think is just a great example of a company that started out of nowhere. Ottawa is a pretty small city in Canada; also, a frigid city and not that appealing. Sorry for anyone who lives in Ottawa.

You fast forward a few years, and you've got a 23-billion-dollar market cap company. I've not validated this, but I've heard that the GMV of Shopify's partners now exceeds the GMV that is on the Shopify core platform itself, which is a pretty impressive stat.

Again, if I bring all of this back to the small business owner, which is the market that we think about at Surepath all the time, the commonality. The thing that a small business owner does not have is time. They're busy serving their customers, building their products, doing their craft, whatever it is.

Technology actually hasn't changed that. As a result, when it comes to adoption of technology, there are only two paradigms that really work with small business owners.

1. It's this automated thing. It's this black box. It just does what I need it to. I don't have to spend time on it.

2. Or if it's a more complex product and cannot be simplified and automated to that extent, then I need either through software or through services and partners on top of that software to get the whole solution, so that in both cases, whether it's just an automated thing that just works, or whether it's software with other software or software with service partners. An example being I set up a Shopify store, and I pay someone to customize the theme, and integrate, and get payments, and get all this stuff up and running.

In both cases, I as the business owner don't have to spend time that I don't have and competency that I probably don't have because I never started a business in order to figure out technology. I started it because I was passionate about whatever my craft was. You're seeing that across almost every category. There may be just a couple more examples of just changes that I see more in consumer behavior that are driving changes in innovative platforms.

One is, and going back to this trend about Millennials if I stereotype, if a Millennial can avoid talking to a human being, they will. What you're seeing there actually is a real growth in kind of booking engines. So, I discover a merchant, and I can book a time, and put out my mobile browsing session.

Google has recognized this trend and is throwing a lot of weight behind their Google My Business product. Their vision is like you never even need to go to a merchant's site. You search for a need. I need a plumber in Ohio. I find a bunch. I check out reviews. I book an appointment. I maybe even pay for the appointment without ever leaving that mobile search. Just end-to-end.

Of course, that assumes if I'm truly going end-to-end, that also assumes that there's a payment at some point. So, the transaction component is a big driver in the market. Again, if I go back to Shopify, for many years strictly a software company, you look at them today, over half of their revenue is payments.

FreshBooks now has a huge payments business. We see software and payments going together really, really nicely. If I bring it back to that small business owner, there's only so much that the small business owner is willing to pay for software. What they pay in order to get paid faster comes out of a different psychological bucket.

You add those two things up and the RPU's quite interesting, but if you try to charge that same RPU just for software, they would say it's too expensive and cancel it. So, adding payments to a software business can be hugely complimentary, make the software product stickier, provide greater value to the customer they deserve, etc.


I agree. We're certainly seeing that same change. I've been watching that and participating in it for a number of years. I think the thing that seems to be driving that is the desired customer experience. If we stay with your example, the plumber in Ohio, but the end customer, they're both trying to optimize their experience.

One, try to minimize the distractions of all the tools they need to use to run my business so I can just do my work. The second one being, the customer is just looking for a frictionless experience in a familiar setting. The reality is somebody has already reset those expectations.

I think in the B2B world, what's interesting is, for a long time Jeffry Moore used to talk about how in your personal life, you are this first-class citizen. Then the moment you walked into your enterprise at work, you no longer had rights to do anything. You could no longer use the browser, and the device, and have that experience you're looking for.

I'm dating myself, but when the big movement for bring-your-own-device started happening in companies, I think it started to transform things, and we're seeing that rapid acceleration where the experience I have in Uber, Fandango, or whatever it might be, I want that across all my applications.

I think that certainly is a wakeup call for B2B apps. One of the questions, because you're so specialized in this space is, what does a small, medium-sized business platform need to do that would get your attention?

Mark MacLeod:

My attention as an advisor?


Yeah. As an advisor. As an investor.

Mark MacLeod:

Yeah. Certainly, as an advisor, I think about the possible end state for this business in conjunction with talking to the CEO about his or her vision for that business. I distinguish between horizontal solutions. Accounting software would be something that's horizontal. Every business could use it versus something that is vertical and catering to specific industry like the legal industry or the dental industry.

I think horizontal businesses are really tough. There's a reason why there aren't many huge ones. Let's go to Intuit because it's been around for four decades. There are 30 million small businesses in the U.S. alone. Four decades in, Intuit has seven million of those as customers, which is not nothing, but not even a quarter of the market four decades later.

That highlights how hard it is to build truly horizontal businesses. So, the thing that I'm looking for with horizontal businesses is evidence of real scalability usually driven by some kind of viral loop: SurveyMonkey, MailChimp-type form. Something where usage of the product just inherently drives more free users.

I'm also looking for simplicity. If you try and build something that handles every use case for every industry, you're going to build some really complex piece of software that ultimately nobody will use. You try and build for everyone, and you end up building for no one. So, looking for something that is viral and something that is intuitive and easy to use. There aren't a ton of examples of that.

At FreshBooks, we were in some respects horizontal, but we made an explicit decision to only serve service-based industries, people who said all their time and expertise were relevant. If you sold products, if you made products, if you had inventory, we couldn't serve you. That was an explicit choice.

I think with vertical markets it's a very different equation. We're looking there for industries that are right for disruption or innovation and maybe have antiquated practices today. Also, looking for industries that have available wallet.

Again, I bring up Cleo as a great example. I first was introduced to Jack, the CEO there when he was first getting started around 2008. By the way, a very tough time to be starting a company, but he's made it through. At the time, I was really worried that lawyers would not trust having their confidential documents housed on the public cloud.

Fast-forward today, and he's got a 360-person business. He is completely dominating that market. There are no signs of stopping, and they've gone from serving really small legal practices to very large international firms today. It's just been a pleasure to watch. That was an example of an industry that had very antiquated status-quo technology.

To your illustration earlier, Kurt, very painful user experience on the old-school stuff, but they had money. Never hire a lawyer who doesn't have money. That person's probably not too good at what they do. So, a really interesting market to go after, and they own it.

Mindbody is a great example of a platform company that's owned a specific market. You go to the Mindbody annual conference, and it's just a sea of Lululemon and yoga pants. They just own the yoga studio market and provide end-to-end value for them. Again, if I stereotype – if it's a complete and utter stereotype. If I'm a yoga instructor, I probably don't know a ton about customer acquisition, back office, and all that stuff. Mindbody's going to really simplify that for people, which is great.


How does a company know when it's the right time? When's the inflection point when they should pick up the phone and call you, Mark and the folks at Surepath Capital? What does that look like?

Mark MacLeod:

We have two kinds of cohorts of clients. Ones that are on the venture capital treadmill and ones that are not. If you're on the VC treadmill, you've raised a Seed, you've raised a Series A. I think it's a great idea to call us after you've recovered from your hangover after celebrating get the A, give us a call. Just so there's lots of time; we can get to know you. You can get to know us.

With lots of investment bankers out there, I think most of them are not great. So, I think it's great for folks to get to know each other and realize, "These people are great. They can deliver the goods. I trust them."

I want our companies to have the ability to get to cash-flow breakeven in runway, so before they run out of money if they're not already there. To have the unit economics in runways to raise additional capital anytime they want to, and to be known to all of their most natural buyers so they can enter into a warm, qualified sale process anytime they want to.


Yapstone is the premiere payments provider for the platform economy...say that three times fast! And while we're talking about speed, we're speeding towards the end of our show, but we have just enough time for Kurt to get up close and personal with our player.

That's right. It's time for TICK TOCK. The clock is ticking...start talking!


What's your daily routine, Mark?

Mark MacLeod:

Daily routine. I wake up at 5:30 am. Do a brief meditation, usually 20 minutes. Eat. I do CrossFit for an hour at 7:00 am. The first rule of CrossFit is you always talk about CrossFit. It's not just a religion. I work a lot. The Nature of the Deal business: you're never off. Even when you're on vacation, you're on.

I've literally closed three deals on vacation. Of course, I'm in Toronto on the East Coast, but we have an office in San Francisco on the West Coast. So, work is a thing. I'm pretty passionate about basketball and joining the Rafters at the moment, so I catch those games whenever I can. Also, I'm a very passionate yogi, so I do yoga pretty often. That's about it – not much time after that.


Wow. What's your favorite smell or sound?

Mark MacLeod:

Smell: coffee in the morning. Even though I drink decaf, I like the taste.

Sound: I don't tell a ton of people this, but it's also not super private. I used to be a nightclub and after-hours DJ. I had a record label, and I still do a podcast online every month. So, I'm very, very into Deep House. That, without a doubt, is my favorite sound.


What would you be doing if you weren't doing this?

Mark MacLeod:

I would do this for free, to be honest, as a mentor. The fact that it's extremely lucrative is a bonus, but honestly, I would do this for free. I would just want to be a mentor and advisor, two pounders in this exact context. I'm a big Godfather fan. I want to be of service, want to be an advisor, trusted advisor whether I get paid or not.


Mark, thank you so much for being here today. Really interesting discussion, and we look forward to tapping that giant brain of yours in the future to keep us up to date on the latest and greatest platform trends.

Mark MacLeod:

Thanks for having me. It’s been a pleasure.

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