Shay Houser: Experienced IT Channel Entrepreneur With New Ventures in the Works
Shay Houser is an experienced IT Channel Entrepreneur with a wealth of knowledge in the Greenville and IT Channel spaces. He has been around since 1999 when he founded Black Box, a company that helped businesses set up their own web servers. After that, he became involved in starting companies like NuVox, CTG (Channel Technologies Group), and Green Cloud. Most recently, Shay Houser merged You Turn Health with a private equity group based out of Dallas earlier this year.
In addition to his work in the IT Channel, he’s also been active on various panels and committees related to technology entrepreneurship over the years. All in all, Shay Houser is an experienced leader who knows how to put his knowledge into action and turn his ventures into successful businesses.
Valuation Differences Between Product and Software Companies
There is a distinct difference between the valuation of companies selling products and those offering software with recurring revenue. While both types of companies provide value to their customers, there are key factors that differentiate them and affect how they are valued.
When valuing a company that is selling products, investors look to factors such as cash flow and earnings. These companies can trade at 3-4 times cash flow, which is significantly lower than the typical software company valuation– typically around 10-14 times earnings. This discrepancy has to do with the fundamental differences between product companies and software organizations.
Software organizations are driven by recurring revenue – i.e., fees that are collected month after month from customers who use their products or services. As long as these companies can continue to generate this type of revenue, they will be able to maintain a high valuation. However, when a company transitions into licensing and services mode – which is often necessary for it to grow – it faces some difficulty in achieving sustained success.
VCs want to see long-term value creation when assessing a company’s worth, which cannot be achieved by simply looking at one-time fees collected. Instead, VCs look at Revenue growth when valuing an organization – something that product companies struggle with due to the fact that they typically don’t generate this type of growth on a consistent basis.
That said, there are still plenty of product companies out there that have been successful in shifting into licensing and services mode thanks to their innovative ideas or exceptional customer service skills. If you’re one of these businesses, don’t hesitate to reach out to a potential investor!
Maximizing Revenue Through Recurring Models
One of the best ways to increase revenue in your business is to offer various Recurring Revenue models. There are many different types of recurring Revenue models that companies can choose from, and each has its own advantages and disadvantages. By selecting the suitable model for your business, you can maximize your revenue while providing a better customer experience. Here are some examples of popular recurring Revenue models.
Maintenance and software-related services: These types of services have the potential to provide higher margins in the long run because customers tend to stay with a company for longer periods of time if they know that there will be regular maintenance or updates available. By offering this type of service, you can keep your customers happy and locked in for longer periods of time which is great for stability and growth.
Licensing agreements: Licensing agreements are another popular type of recurring Revenue model because they have the potential to provide a high level of repeat business. By providing a licensing agreement, you give your customers access to a product or service on a periodic basis in exchange for payment upfront. This creates an incentive for customers to renew their agreement on a regular basis, which ensures greater long-term growth for your business.
Project-based work: Many businesses now offer project-based work as part of their recurring Revenue model. This type of work involves completing specific tasks or projects on a periodic basis in order to receive payment automatically. This can be an excellent way to get started with any new business venture – clients will often pay upfront for project-based work rather than wait until the entire project is completed before paying.
By wrapping up this package into one invoice, it is possible to lock in customers for much longer periods providing greater stability and growth for any business.
Recurring Revenue vs Project Revenue: Benefits of Multi-Year Contracts
When acquiring new customers, businesses have two very different options: project revenue and recurring revenue. With project revenue, businesses will need to continually seek out new business in order to make profits. This can be a risky proposition as it can be difficult to predict when or if the next big contract will come through. On the other hand, recurring revenue is stable and consistent – meaning that you know exactly how much money you’ll receive each month, regardless of the state of the market. This makes it a more attractive option for long term growth, as it ensures that your profits are reliable and stable.
Investors willfocus on top-line and bottom-line revenues before delving deeper into sources of income such as services vs projects etc., as these are the two types of revenue that are most indicative of future success. When considering an acquisition, it’s important to understand which type of business will provide greater long-term stability for your company. By doing this, you’ll be able to make smarter decisions when acquiring other companies in the future!
Factors That Impact a Business’s Sale Value
When selling a business, it is important to value it based on its non-one-time revenue. This means that you should be looking at things like customer satisfaction, attrition rates, and revenue consistency. If a business has high attrition rates, this will negatively impact customer satisfaction and the overall success of the company.
An ideal attrition rate for recurring revenue businesses should be under 1% per month; anything more than 1.5% poses risks and drastically affects the value of the company downward from there. Mixing different types of organizations such as software or MSPs into one doesn’t affect these numbers when it comes to financial investors or buyers; they all look at key components, like revenue consistency and attrition rates, first before making any decisions regarding purchase offers/valuations of companies.
When starting out with an established business, putting contracts with service providers in place can bring extra commission earnings in essence creating additional gross margin which has a strong impact on sale values later down the line. As seen with personal experience from building UCI Communications from 2003 – 2008 without additional consistent revenues earned through service provider commissions, their sale offer would have been almost halved compared to what was actually achieved when accounting for this factor.
The takeaway is that focusing on critical components such as recurring Revenue, accuracy rates, and utilizing contractual agreements with partners is highly beneficial if your end vision includes selling off your company.
Maximizing Margin with Recurring Revenue Streams for Career Prospects
There’s no doubt that a successful career in engineering requires a deep understanding of how different decisions and solutions influence pricing. However, achieving high margins on every component of your business is difficult. By understanding how margin influences business enterprise value and one’s career prospects, you can maximize performance bonuses and drive more margin into your circuit sales.
Additionally, by understanding how decisions and solutions influence pricing, you’ll have a better chance of success in promotion within the company structure. All components need to be geared towards maximizing margins – including software, subscriptions, and recurring revenue streams – to be successful.
To Sum Things Up
Recurring revenue is an important factor to consider when looking to achieve long-term business growth. Shay Houser and Jon Scott have provided great insight into the importance of recurring revenue, the differences between product and software companies, how to maximize revenue with recurring models, and more. Additionally, they have also shown us how their company is supporting infrastructure development in Greenville, SC. Now it is your turn – take what you have learned from these two experienced entrepreneurs and start leveraging the power of recurring revenue for your successful business!