Hello {{First name|Predictable Revenue community}},

Two weeks back I wrote about why I didn't sell my company. On Wednesday I talked to a founder who'd read it and told me it felt like I'd written it about him.

He runs two businesses. One of them used to bring in most of his revenue, and this year it fell off a cliff. The other is doing fine, except "fine" keeps pulling him into the delivery work himself, because the company isn't big enough for him to stay out of it. So the founder is on the delivery team. Which means nobody is doing the founder's job. Which means next year looks worse than this one.

Then he described sitting down at his desk, knowing exactly which work would actually move the business, and losing an hour to nothing. Just blank. I know that feeling well enough that I could have finished his sentence.

But the part that stuck with me was what he'd done with the money.

Every year he took out only what he needed and put the rest back in. Hire someone. Fund a push. Build the thing that sells later for the big payday. He was building for the future, making investments that would pay off in a few years instead of pulling the money out as he earned it.

His experience resonated because I did the same thing for nearly a decade.

Here's what I think we both got wrong, and I don't think we're rare. We ran our services businesses as if they were software companies. As if some day, someone would come in and offer us a big paycheque in exchange for the business. In this fantasy, I buy a nice car and drive off into the sunset in 3 years (it's always just 3 years out).

When you have a software company with strong product-market fit (and a long customer lifetime), spending up front to win a customer can be a great trade. You make a big investment to acquire them, they pay back in (ideally) 6 months, and then stay for multiple years. The revenue compounds. That's the whole reason it can make sense to burn cash to grow. You're essentially buying an annuity at a discount.

Services don't work like that, at least the type that we both ran. On the agency side, my customer lifetime peaked at eleven and a half months. We never once got it past a year. On top of that, the average tenure of an SDR was twelve to eighteen months, so the talent was walking out the door about as fast as the clients were. Nothing compounded. Every dollar I put into growth had to earn itself back inside a year or it was simply gone.

Here's where it's easy to make the wrong decision and not realize it. Growth happens on a linear curve (think gentle slope) but expenses grow in steps. When I was at $1m in services revenue and had a 10% operating margin, I could have pocketed an extra $100k a year and been done with it. Instead, we used it to hire a salesperson to get me off the phone. That increased our costs but almost immediately accelerated revenue. Huge win. We were under water or breakeven for 6 months and then came out stronger. I took a number of these steps until we were at $5m in revenue. No matter what I did, I couldn't get our business to hit that next level. So we sat there, with our expenses ramped up and no operating profit coming in. And I didn't make the hard call to unwind the last step of increased expenses (fire people) and admit that it didn't work. I went from having a profitable and growing business to one that had plateaued and any drop in clients risked putting us into the red and the business in danger.

That first salesperson was a good bet. It paid back in 6 months and the business was better for it. My mistake was treating every step after that the same way, on faith, without checking whether it actually cleared. Some did. The last few didn't, and I left them in place anyway.

There's a Buffett idea I come back to constantly, and it's really just a question. For every dollar I reinvest in the business, am I going to get more than a dollar back? That's it, that’s Warren and he doesn't care what kind of business you run. High-cost acquisition can absolutely work in a services business. The salesperson proved that. But only if you stay on top of the numbers, and only if the payback actually clears. I never stopped checking but I did stop acting on the information I was looking at, and I never ended up taking any significant money out.

It took writing a book to see the deeper version. There's a section in the back third about why outsourcing is a bad fit for most startups, and I wrote a much meaner version first. The argument is simple. A fast-growing software company shouldn't hire an outsourced SDR team, it should build its own. A company with weak product-market fit will reach for outbound as a last resort, last 4 months, and be miserable the whole time. So the customer who actually fits is a company with just enough product-market fit to survive that doesn't especially want to grow. Your best customers leave. Your worst customers stay and complain. The perfect customer is the most medium company you can find, which is a hard ICP to serve.

I was writing that chapter when it landed that I'd spent 12 years running the business I was arguing against. No number of extra salespeople was going to fix that.

Which brings me back to the car and the sunset. I believed in that exit for years, until I found out what a services business actually sells for. One to three times EBITDA if you're lucky, and only if the revenue isn't all attributable to you. If you're the go-to-market engine and you're also on the delivery team, there's nothing to buy. Someone is purchasing a logo and an email address.

If nobody is going to buy my company, then it should be paying me well and I should be glad to run it today. Not cash as the prize at the end, but cash as the byproduct of being honest about what the business is. A services company that pays you well and that you like running is a genuinely good outcome. It's just not the one anyone posts about. So we chase the sunset, spend money that was already ours, and end up with a smaller company and none of the cash.

Predictable Revenue is 4 people now. It was 85. I take money out of it, I like the work, and I'm not waiting for anyone to show up with a cheque. The journey is the reward but it should also be rewarding. 

So here's what I'd sit with if I were you. If you knew for certain that nobody was ever going to buy your company, what would you stop paying for on Monday?

Collin

PS - Warren Buffett stepped down from Berkshire today, if you haven’t read Snowball (his biography) now’s a great time to check it out.

The Terrifying Art of Finding Customers is the playbook for founders who never planned to do sales but have to figure it out anyway. It pulls together 13+ years of building software startups, building outbound systems for hundreds of B2B startups, and more failed experiments than I'd care to admit, into a practical guide for finding your first 10, 100, and 1,000 customers.

It will help you build a repeatable way to find customers without losing your weekends (or your soul).

Order now and you'll unlock a stack of exclusive bonuses I actually use with my consulting clients: Email me the receipt and I’ll share the resources.

Email me your receipt and I’ll share the resources.