Takeaways from the Acquisition of Mindbody

Mindbody shareholders got an early Christmas present on Dec. 24, when Vista Equity Partners agreed to buy them for $1.9B. As a devoted yogi, I have been a fan of Mindbody for years. While it was a relatively small public company, it still offers many lessons that other SMB-focused companies can learn from.

Takeaway #1: Good things take time

Founded in 2001, Mindbody develops business management software for yoga and Pilates studios, fitness facilities, spas, salons and other retail clients. While it spans several verticals, it is best known for its omnipresence in yoga studios.

For this history buffs, 2001 was still a very challenging time to launch companies after the dot com crash. From humble beginnings, the company just kept scaling.

Source: Pitchbook

As you can see, the company didn’t raise meaningful capital until it was 9 years old. It was 13 years old by the time it IPO’d. The company had a market value of $ 548M at the time of IPO. Four years later, that value increased 3.5x.

This pattern of a slow build leading to rapid growth is completely counter to the pressure of early stage venture to grow rapidly from day 1. But, the proof is in the pudding. Meaningful shareholder value was created here. But it took a long time.

Takeaway #2: Vertical focus enables market leadership

Quick quiz: Name the top 5 business management systems for the fitness, beauty and wellness industries. Chances are, Mindbody is the only name that comes to mind (no pun intended…).

Every market in SMB is large and fragmented. There are just so many small businesses out there. If you’re horizontal, it can be very hard both to acquire enough customers to own a market and to build something simple enough that it remains usable, while catering to the needs of many verticals.

Mindbody is not horizontal. It is focused on a few core verticals and has a deep understanding of the needs of those verticals.

Takeaway #3: Build community, not users

Most software companies focus on users. The more enlightened talk about customers. Mindbody went much further. If we stereotype, chances are a yoga teacher opens a studio because of their passion for yoga, rather than their deep business knowledge. Through initiatives like it’s annual BOLD conference (never seen so much lululemon pants in a business conference ever…), its university, teaching studio owners business fundamentals, or its ONE community, Mindbody built huge loyalty and offered value way beyond its product.

Takeaway #4: Build a platform that customers actually run their business on and you won’t lose them

Churn is an unavoidable fact if you serve SMB. Most small businesses fail. Not much you can do about that. If you offer a point solution to those businesses, it’s easy for them to cancel. However, if you become part of the operating system of that business, it’s much harder to cancel.

Source: Mindbody investor relations

Mindbody offered everything from marketing to booking, collecting payments, staff scheduling. It’s basically how you run your studio.

Takeaway #5: If you actually bring a small business customers they will never want to leave you

Source: Mindbody

In addition to marketing & CRM capabilities, Mindbody has a consumer marketplace (online and mobile) where consumers can find studios and schedule classes.

Takeaway #6: Payments can be a powerful addition to your business and further entrench you with your customers

SaaS and payments go together like chocolate and peanut butter. If you deliver customers to your customers, then get in the payments flow and take a cut. It makes life easier for your customers, and you make more money. Also, what your SMB customer pays to get paid comes out of a different psychological pocket. So, they don’t count that as part of the cost of your software.

Source: Mindbody investor relations

Mindbody had a pretty balanced revenue model with a meaningful payments business being built over time.

Takeaway # 6: You need to be BIG to thrive in today’s public markets

Ranked by market cap, Mindbody was # 42 on Bessemer’s list of 44 SaaS companies worth $1B+. This made them vulnerable to take over, either by other public companies or private equity.

PE funds are currently managing $1.2 Trillion of active funds. When you add leverage, that is a ton of fire power to buy companies and impact markets. Vista has a history of doing big, bold deals like this.

Takeaway #7: Going private was the best possible thing for Mindbody

In closing, I actually think that Mindbody going private is a positive. We sold a Mindbody competitor, Pike13, last year. We learned during that mandate that Mindbody has fairly old technology and needs to go through a serious re-platforming effort.

Upgrading or replacing your tech platform is like changing a plane’s engines mid-flight. Especially at their scale. Being able to do that without the pressure to hit quarterly numbers is a great thing.

Finally, I think that their are some tailwinds in the market that Mindbody can serve better if it takes the time to modernize. First, is a general growth in online bookings. Millennial consumers (I’m generalizing here) much prefer online bookings to having to speak with a human being.

Also, while yoga has gone through a growth spurt in recent years, there are many other speciality studios and programs that are gaining huge followings. From Crossfit to Orange Theory and F45, demand for structured, time-constrained packaged fitness is on the rise. Mindbody is not really playing in these movements.

I look forward to seeing what Vista does with the company.