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The Secret Sauce of Valuable Service Businesses – Finn's Cave

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Robert Smith of Vista Equity Partners famously said, “Software companies taste like chicken. They’re selling different products, but 80% of what they do is pretty much the same.” Service businesses are no different. You buy someone’s labor, mark it up, resell it, and spend opex to operate the business. You also spend money on capex to improve the “infrastructure” of the business, and what’s left over is your profit. Markup – Opex – Capex = Profit The challenge is that in the long term, the free market is annoyed with your business model. Customers and labor don’t fully understand the role that you serve, and they don’t particularly care that you have to spend money to operate the business. Labor doesn’t like you marking up their time, and customers want your markup in their pocket. Many suspect they would be better off if the service were cheaper, and you were removed from the equation. To be loved by customers and labor for your middleman role, you must be obsessed with creating more

Robert Smith of Vista Equity Partners famously said, “Software companies taste like chicken. They’re selling different products, but 80% of what they do is pretty much the same.” Service businesses are no different. You buy someone’s labor, mark it up, resell it, and spend opex to operate the business. You also spend money on capex to improve the “infrastructure” of the business, and what’s left over is your profit. Markup – Opex – Capex = Profit The challenge is that in the long term, the free market is annoyed with your business model. Customers and labor don’t

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