Great VMSCo’s are often referred to as having ‘sticky’ products. Sticky in the sense that customers don’t want to (or can’t) stop using the product and hence keep paying recurring fees to the vendor. Sticky products keep customer attrition low and recurring revenue streams high, which ultimately leads to greater business value. So what makes a VMSCo product sticky? How sticky can software really be? How can VMSCo’s make their products stickier? Procurement Let’s start with ho
This post may seem a bit controversial if you're an entrepreneur who built your business organically, from the ground up, but when I think about value creation in VMSCo’s, a well known quote from Jim Collin’s book “Good to Great” comes to mind.
“When you turn over rocks and look down at the squiggly things underneath, you can either put the rock down, or you can say, ‘My job is to look at the squiggly things,’ even if what you see can scare the hell out of you.” - Fred Purdu
1. Don’t over pay.
The single most important factor in driving returns in VMSCo investing is seemingly obvious; it’s purchase price. However, it’s amazing how few investors have the discipline to wait for and execute a transaction at a purchase price that gives them a chance at favourable returns. Since VMSCo’s rarely grow rapidly due to the dynamics of their respective vertical market, it’s even more important to minimize the cash outlay (and risk) up front. Good VMSCo’s ar
Suppose you’re looking to invest in or outright acquire a Vertical Market Software Company (VMSCo), where do you begin? How does one go about finding VMSCo investment opportunities? Sourcing VMSCo investments is a relatively little known topic compared to more traditional private equity investment deal sourcing. A quick Google search reveals hundreds of articles on the best practices of private equity funds for originating investments however, almost all of these articles are
Why are Vertical Market Software Companies (VMSCo’s) so interesting? It’s a good question. Most people have never heard of them. Even people who work in the software industry often struggle to rhyme off more than a few. VMSCO’s are usually relatively small (less than 100 employees) and the vast majority are privately held. So why bother writing about them at all. Well, aside from the fact that I spent the past decade working in (or with) hundreds of VMSCo’s and hence I have a
According to Gartner, vertical market software is the largest category of the overall software market with over $100B in sales in 2013 and representing 28% of all software sold that year. This category is a huge chunk of the software market, but what exactly is a “vertical market software” company? The Wikipedia definition of a Vertical Market is "a market in which vendors offer goods or services to an industry, trade, profession, or other group of customers with specialized