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Startup Question: consulting EBITDA vs SAAS ARR

Veteran

Cody Smart Nashville, TN

I left active-duty this spring to grow my (then) side business, which does niche consulting for hospital finance departments.

I'd like to ultimately convert our services to SAAS, but I think we need to grow as a consulting firm first. From the standpoint of achieving a longterm future exit, how do I reconcile what appear to be conflicting aims of building a SAAS business vs a services business? For consulting, it seems maximize EBITDA....but for SAAS maximize annual recurring revenue.

If short-term, we're still building a consulting firm first, does it still make sense to reinvest all earnings to grow as fast as humanly possible, or is that purely a SAAS tactic? We're a small team of 3, bootstrapped, and have capital to put towards growth, but we're also still feeling out market fit in what might prove to be a limited TAM for our current service.

How focused should we be on growth vs maintaining profitability?

4 October 2022 5 replies Small Business

Answers

Advisor

Drew Schildwächter Wilmington, NC

Hey Cody: I think the big considerations for changing to SaaS are support and development. Consulting can grow at its own pace but you have to work at the pace of customers and industry with a product. I contrast my time at a small ISV with my time at Salesforce. I hated being the guy who had to tap dance while product issues were ironed out or new features were mulled over by the same small team; now I can just say, "well that's on our road map for one of our three annual releases" because we have sprawling product development.

TL;DR: Lacking resources in either support or development of a SaaS product could negatively affect your image as a trusted consultant. Consulting services also only go so far. SaaS is a way to create consistent revenue but is also fraught with demands and risks. Managed services might be a way to grow and insulate risk.

6 October 2022 Helpful answer

Advisor

Sotir Koev Washington, DC

If you automate what you do and turn it into a SaaS solution, that is where you can grow big. One cannot scale a consulting business, but scaling a already created SaaS solution, absolutely.

7 October 2022 Helpful answer

Advisor

Richard Byrne Hillsborough, NJ

You could read this.
https://www.salesforce.com/in/saas/

https://aws.amazon.com/solutions/saas/
https://aws.amazon.com/partners/programs/saas-factory/saas-architecture-overview/

https://www.ibm.com/topics/saas

https://azure.microsoft.com/en-us/resources/cloud-computing-dictionary/what-is-saas/
https://github.com/Azure/azure-saas

https://www.intel.com/content/www/us/en/cloud-computing/as-a-service.html

https://www.oracle.com/applications/what-is-saas/
https://www.oracle.com/applications/
https://www.oracle.com/industries/healthcare/erp/

https://blogs.sap.com/2019/07/04/sap-s4-hana-cloud-erp-on-saas-model/
https://www.sap.com/industries/healthcare.html

https://docs.docker.com/get-started/overview/

As you'd ultimately like to convert to SaaS, you could try to start it as a pilot project while you grow your consulting business. It might take several iterations to implement & it might be that not all customers will ultimately prefer it. As you grow your business, you could be learning how to transition some of your customers in a beta trial.
The TAM could include those who can use SaaS & those who prefer the alternative.

A competitor might be working on SaaS already!
Might be good for their EBITDA ...

6 October 2022 Helpful answer

Advisor

ACP AdvisorNet Staff New York, NY

Hi Cody,

You might be able to find some resources here, as well!

https://smallbiztrends.com/2019/11/veteran-business-resources.html

Thank you for your service.

5 October 2022 Helpful answer

Advisor

Cary Grossman Houston, TX

Not an answer to your question but take a look at autocfo.com. The daughter of a family friend, with a background in PE and investment banking created this with minimal resources and while doing advisory work on the side. Might give you some insights.

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