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You can throw absolutely all of the blame on MBA and finance culture. Businesses routinely sell for 7-20x annual recurring revenue. However, non-recurring reven

You can throw absolutely all of the blame on MBA and finance culture. Businesses routinely sell for 7-20x annual recurring revenue. However, non-recurring revenue is worth maybe 2-3x. It’s the same story with raising funds. If you need capital you can raise substantially more for substantially less if you have recurring revenue. It would be more valuable for a business owner to take a $1M non-recurring revenue business and convert it into a $500k recurring revenue business, stabilize, and then sell. If you think that’s asinine… well, you’re right. Something is deeply wrong with MBA and finance culture in America. We have truly lost our minds when it comes to valuations.

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dangus 4y ago
The thing you haven’t addressed is why this is asinine. I don’t think it’s asinine! It makes logical sense to me that recurring revenue is more valuable than non-recurring revenue.
- parkingrift 4y ago
  I understand the why, and still completely disagree with the base reasoning. I was part of a group that made a $10M acquisition of a software company with consistent $7M in annual sales. We converted that to $4.5M in recurring revenue and sold it for $30 million 3.5 years later. I was on the executive team that flipped the business. And I find the whole thing disturbingly ridiculous. Your examples are pretty divorced from reality. What’s the fundamental difference between consistent annual sales and recurring revenue? Of course in your example the recurring revenue would be worth more, but that’s not an example from reality. At the end of the day there is finite consumer spending. Companies aren’t really making more money by shifting to recurring revenue. They’re just increasing their value because finance bros say it’s the way to increase your value.
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dangus 4y ago

The thing you haven’t addressed is why this is asinine. I don’t think it’s asinine! It makes logical sense to me that recurring revenue is more valuable than non-recurring revenue.

parkingrift 4y ago
I understand the why, and still completely disagree with the base reasoning. I was part of a group that made a $10M acquisition of a software company with consistent $7M in annual sales. We converted that to $4.5M in recurring revenue and sold it for $30 million 3.5 years later. I was on the executive team that flipped the business. And I find the whole thing disturbingly ridiculous. Your examples are pretty divorced from reality. What’s the fundamental difference between consistent annual sales and recurring revenue? Of course in your example the recurring revenue would be worth more, but that’s not an example from reality. At the end of the day there is finite consumer spending. Companies aren’t really making more money by shifting to recurring revenue. They’re just increasing their value because finance bros say it’s the way to increase your value.
- deleted 4y ago
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