Interesting, can you expand on services business being lifestyle vs product being venture?
I had never heard of that distinction before and usually just thought of lifestyle businesses as slower growing vs faster.
I had never heard of that distinction before and usually just thought of lifestyle businesses as slower growing vs faster.
a) the software platform, which might make $20k/year, but you can sell thousands of them without much incremental overhead needed; once integrated, it's also extremely sticky; low customer churn and high customer satisfaction
b) a services package, which might make $50k/year, but for every 3-4 you sell, you need to hire a new employee @ $75k/year fully-loaded overhead cost
Before you say "sell both!" - unfortunately the nature of things is such that, more or less, the founder needs to prioritize selling one or the other. Consciously or not, she is prioritizing the services revenue, and as a result about 90% of new sales are services contracts. I (and the other investors) would prefer that she prioritize software. Even if it makes them unprofitable, it would make for a much better risk-adjusted bet. And this isn't like "it's a much better bet for the investors, because they can diversify risk out in a portfolio, but the poor founder would probably be left with nothing". She understands both sides and says she wants to build up the software revenue, but the culture around her (south-eastern city) is so strongly opposed to it, that the execution has been impossible. This is a classic case of where a smaller PE firm will come in and buy it out for a few million, purposefully cut the services revenue, go hog wild selling software, and flip it a few years later for 10-20x what they paid.
>she wants to build up the software revenue, but the culture around her (south-eastern city) is so strongly opposed to it, that the execution has been impossible
Do you mean the existing company culture, e.g. employees only having service-oriented skills, or the southeastern city culture, somehow being inhospitable for developing software?
I'm curious because I currently live in a southeastern city (Nashville), am about to move to another (Atlanta), and am in the beginning stages of building a B2B SAAS startup.
Or the classic case where PE buys it, cuts services and all the staff who know anything about the product, go hog wild trying to sell software and realize that that the market isn't there and never was and the services path actually was the only the way to make inroads. The investment craters and everybody loses money.
https://techcrunch.com/2011/04/24/what-should-you-do-with-yo...
For example, Uber and Lyft, both sell a service that requires a proportional amount of new contractors and employees, to scale.
Another would be Palantir, which sells services based off of a core software product.
How do you classify companies that are ambitious, but perform work that doesn't scale?