How many businesses-in-a-box are there?

Every category has a transition point from when the ‘easy’ things get done to when the hard ones remain.

The first wave of internet-enabled marketplaces were products like eBay, Craigslist, Etsy, and Upwork. They had real problems to solve like reputation and payment.

But the next wave were far more challenging. Uber, Lyft, Airbnb, Doordash - a whole other level of operational complexity and risk. The reward is higher take rates.

In vertical SaaS, we’ve seen the same dynamic play out. The first wave were pure SaaS models, where you paid a monthly or yearly fee. Companies like Procore, Servicetitan, Clio and so on. Then came the way of payments-defined vertical SaaS where you could turn categories that seemed pretty shallow with SMB customers like Toast and Shopify into great businesses (of course, the first wave went back and added payments too.)

The third wave of vertical SaaS has been the “business-in-the-box” where you take on real operational risk, and make most of your money from a take rate rather than a a fixed SaaS fee. They include entrants in to mental health (Grow Therapy, Headway, Alma, and so on), nutrition (Nourish, Berry Street, Fay), travel agents (Fora), and medspas (Moxie - that’s us!).

But just like there was an “Uber for x” for everything post Uber’s success, I fear that many of the new businesses in a box are going to end up as zeros. You have to do more than squint to make the business model work, as the Uber for carwashes, Uber for car mechanics, Uber for valet, Uber for 5 minute convenience store deliveries, and so on learned.

There are three conditions for a successful business-in-a-box:

1. A supply of new entrants to the market. Better if this is already happening, but if you can induce it, that works too. This governs how fast you can grow. The best version is when there is a large number of new entrants who are overcoming some massive friction and you can increase the TAM by reducing it.

2. A major shared COGS, upon which you can drive meaningful cost reduction. It doesn’t matter if you can reduce the cost of 1,000 acupuncture needles from $10 to $5. Insurance is that answer for many of the above. This governs your long term take rate and stickiness.

3. You can play a role in shaping customer demand. This might mean you run marketing for your customers or control the customer brand. This also governs your long term take rate and stickiness.

The beautiful thing about a business-in-a-box model is a) your roadmap is both obvious and massive: every expense your customer has outside of taxes and real estate and b) you can massively increase the TAM of a category and just go insanely vertical deep (which becomes harder horizontal players to compete with)

Our original hypothesis was that there should be a business-in-the-box for funeral homes. Applying these criteria made it clear that was the wrong approach - so we went direct to consumer instead, with Meadow.

I’ve spent thousands of hours thinking about business-in-a-box model and I suspect there are only a small handful of big opportunities left, while there are far more vertical SaaS businesses left to be built.

If I’m wrong, I’d love to know why.