Buy and hold indefinitely assumes indefinite growth (risk #1) and that indefinite growth eventually means operating solo is impossible, so the margins eventually take a dive when you are forced to hire, but revenue will only catch up later, at which point you’ve grown again to the point of needing to hire. Thus, your margins eventually sort of cap out.
My model is to get in, fix and get out in a timely fashion (2 years). In that time, there’s enough time to fix anything and increase the ARR/valuation, perceive decent cashflows over 24 months, and then benefit from the increased ARR to sell and close a profit without ever getting into the window where hiring becomes a necessity — thus, looking for buyers with that propensity instead.
Awesome post Eyal. I specifically enjoyed the parys about review generation and competitive analysis. Super tactical.
Thanks dude, glad you liked it. 👊
Just noticing the link on reconcile.ly for the Xero marketplace "Go to listing" is broken https://apps.xero.com/nz/search/app/reconcile.ly
Awesome content. Thanks for taking the time to walk us through all this in such detail. Much appreciated!
Mistake below — It does look pretty funky, can't direct link to it. I'll get in touch with Xero and ask them what's up. Thanks for letting me know!
This is gold, beautiful blend of strategic rationale and tactics / execution. Thank you!
Wouldn't a holding company model make more sense for "Fund" II? Like acquire and operate instead of acquire and sell?
I don’t think it would, here’s why.
Buy and hold indefinitely assumes indefinite growth (risk #1) and that indefinite growth eventually means operating solo is impossible, so the margins eventually take a dive when you are forced to hire, but revenue will only catch up later, at which point you’ve grown again to the point of needing to hire. Thus, your margins eventually sort of cap out.
My model is to get in, fix and get out in a timely fashion (2 years). In that time, there’s enough time to fix anything and increase the ARR/valuation, perceive decent cashflows over 24 months, and then benefit from the increased ARR to sell and close a profit without ever getting into the window where hiring becomes a necessity — thus, looking for buyers with that propensity instead.
Hope that makes sense!