BigCyber — A Federation of Services Firms, Growing and Creating Liquidity, Together

[so much cybering]

Here’s a list of company categories that have almost no power with institutional capital (i.e. Private Equity firms, institutional investors, et al.):

  • custom software builders for hire
  • UI/UX shops
  • digital design shops
  • “product” consultancies
  • SEO firms
  • digital marketing groups
  • mobile app makers
  • software/hardware/IoT consultancies

Sometimes these businesses are called “digital agencies” but that term suggests they are making “digital stuff” primarily consumed by advertising agencies. So digital agencies isn’t quite right; instead we’ll call them digital & tech services firms.

Most of those above businesses — yours included — are highly profitable. 40% margins are not unheard of, and 20% is common. That is to say digital and tech services firms throw off cash. They pay a lot of mortgages. I know.

I was an executive at one. And my partner Dave had a few of his own, including a few where he took over duties as CFO to help clean up the books and get the companies back to profitability.

THE PROBLEM WITH DIGITAL AND TECH SERVICES FIRMS

They’re incredibly hard to sell. For starters, 90% of institutional capital doesn’t want anything to do with companies under $10M in revenue. Of the 10% of investors left, 90% of them don’t want anything to do with project-based revenue.

Likely that’s what you have: clients that pay you for project work.

If you’ve made it that far — and found a mythical buyer of a small, projected-based firm — your offer might be for 1X your annual revenue. So after taxes, you get a few years salary. Nice but nothing life changing. You can’t retire, and you’re out of a job.

Further, cut the number down with multiple partners.

A BETTER WAY TO CREATE LIQUIDITY EVENTS AT DIGITAL AND TECH SERVICES FIRMS

Scale solves liquidity challenges from project-based firms. The same company — your same company — at $100M in (gross) revenue is worth between 2X-6X in valuation.

BigCyber was designed by services owners to use the network-effect to grow, scale, realize efficiencies, help partners leave more easily, and ultimately lead to a life-changing liquidity event.

Look for more on this space. I’ve been on this tip for awhile.

Post by Josh Oakhurst, Managing Partner

Web: bigcyber.co

Twitter: @bigcyberco

LinkedIn: BigCyber