Nick Martin, co-founder and CEO of Joe Coffee, is increasingly concerned about the state of the economy and is actively seeking ways to cut costs. One primary target for these reductions is software. Martin and his brother Brenden founded the Seattle-based company to help local coffee shops compete with giants like Starbucks by simplifying mobile orders, tracking analytics, and automating marketing efforts.

Despite their 8-year-old business remaining relatively stable through the economic downturn that began in 2022, Martin has noticed a decline in consumer spending, particularly in latte purchases. This slowdown is a potential threat to Joe Coffee’s clients, prompting the company to tighten its financial belt proactively.

Martin, 38, shared with CNBC that Joe Coffee has scaled back its subscriptions to HubSpot, a marketing automation software vendor, and is scrutinizing its spending with payment processor Stripe to assess the value of renewing their agreement. “Every subscription we have is under a magnifying glass,” Martin said. “We have to have a really good business case to do new expenditures.”

The Martin brothers' experience mirrors the broader trend affecting software companies that cater to small and medium-sized businesses (SMBs), such as local shoe stores, restaurant chains, and neighborhood spas. Recent earnings reports from companies like HubSpot, Bill Holdings, Paycom, and ZoomInfo have highlighted potential challenges ahead. These concerns reflect wider economic data showing that consumers are feeling the ongoing effects of inflation and high interest rates.

Retail sales for October fell by 0.1%, underscoring the pressure from higher prices. The consumer price index for the month increased by 3.2% year-over-year, according to the Bureau of Labor Statistics.

Joe Coffee founders Nick and Brenden Martin have seen firsthand the impact of economic fluctuations on small businesses. Their father’s small business, which made sheds in their hometown of West Richland, Washington, eventually failed due to competition from larger companies. This personal history fuels their commitment to supporting small businesses. “If America is really built on the backbone of small business owners, why are they the ones that never catch the break?” said Brenden Martin. “Why isn’t there anybody out there fighting for them? For us, that’s our primary driver.”

The Martin brothers bring a strong background in technology to their mission. Both have worked at Microsoft, with Nick also having experience at Zillow and Brenden in various roles in product strategy and web development. They combined their tech expertise with a passion for the community role of coffee shops, having both worked as baristas in the past.

When Starbucks launched mobile ordering in 2015, the Martins saw an opportunity. “At first we were like, crap, we missed our shot,” Brenden said. “And then we realized, well no, small businesses still need this.” They got their big break in August 2018 at Coffee Fest, where they secured $1 million in funding just before the event.

Joe Coffee initially built a mobile-order-only platform, but the Covid-19 pandemic created new demands from customers. In 2021, the company expanded to offer a full software and payments suite for coffee shops. Joe Coffee now has 17 employees and operates on a model that charges a percentage of each transaction rather than a recurring subscription, ensuring that their technology immediately contributes to the revenue and profit of their clients.

In response to the economic climate, Joe Coffee has reduced its software subscriptions from 12-15 down to about six, with software expenses now making up 3% to 5% of operating costs, down from around 8%. Decisions on what to cut are based on whether a product is essential to business operations or merely a “nice to have.” For example, Joe Coffee remains a HubSpot subscriber but pays for fewer seats and tools. They are also exploring alternatives to Stripe for lower payment processing fees.

The economic strain on SMBs is reflected in the performance of relevant tech stocks. Paycom, which provides payroll and HR software, saw its stock plunge by 38% on November 1 after announcing lower-than-expected revenue growth for 2024. Bill Holdings' shares fell by 25% following a reduced profit and revenue forecast. ZoomInfo and HubSpot have also faced stock declines due to similar concerns.

The small business sector is crucial to the U.S. economy, accounting for 40% of the gross domestic product and employing 46% of the workforce. Paycom and other SMB software providers offer insights into the broader economic state. “Anytime people don’t feel wealthy, they tend to pull back,” said Jake Dollarhide, CEO of Longbow Asset Management.

The Martins’ efforts reflect their deep understanding of the challenges faced by small businesses. Joe Coffee’s model aims to help these businesses thrive, leveraging technology to boost efficiency and profitability. As economic pressures persist, the company's approach may offer a lifeline to coffee shops striving to compete in a tough market.

The broader economic impact on software companies depends on their revenue models and industry reliance. Bill, for example, is more exposed to SMB payment volumes, which could significantly affect its revenue. Investors are keenly watching to see if SMB spending has bottomed out or if further cuts are on the horizon.

As small businesses navigate these challenges, Joe Coffee's story underscores the importance of adaptable and cost-effective solutions in supporting their resilience and growth.