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Episode Summary
You’re billing by the hour, your demand is lumpy, and the months the phone doesn’t ring are the months you wonder why you own a business at all. Jamison West ran an IT consulting shop in Seattle for 21 years and lived inside that exact problem until 2007, when he flipped his entire business model in twelve months. He stopped selling time. He started selling availability. He raised every client’s bill by ~20% and braced for a fifth of them to walk. Almost none did. His EBITDA went from four or five points to seventeen or eighteen, and that’s where the conversation gets interesting, because Jamison didn’t just build a more profitable company. He built a more sellable one. We got into how the revenue mix (recurring vs. product vs. professional services) decides what a buyer will actually pay you, why a signed contract is worth dramatically more than a handshake at close, the four-piece deal framework he used on three acquisitions and his own sale, and the operational maturity gap that nearly took his business out before he sold to Aldridge in 2016.
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## Top 10 Takeaways- The hour you sell ends. The fixed fee you sell renews. That’s the difference between income and equity.
- Your revenue mix decides what your business is worth, not your top-line number.
- Raise prices 20%, lose maybe 10% of clients, and you’re working less for more money.
- A handshake recurring contract is not recurring revenue to a buyer. The signed paper is what they pay for.
- Earn-outs aren’t a discount on the deal. They’re how the seller pays for the risk they couldn’t reduce before close.
- Operational maturity is the gap between scrappy and a machine that drops 25% to the bottom line on autopilot.
- Buying a company two maturity levels below yours will break the integration, no matter how good the people are.
- Owners want to sell when the business is broken. Buyers only pay for businesses that aren’t. Fix it first.
- Your monthly recurring revenue should cover 100% of overhead and COGS before you call yourself sustainable.
- The best time to sell is when you no longer want to operate the business you’d have to keep operating.
Sound Bites
“All of a sudden, I had a business that was dropping 17 or 18 points EBITDA instead of four or five points EBITDA. A lot more breathing room to be profitable and scale and add clients.” (@TBD) — Jamison West
“Values in the eye of the beholder. The seller really doesn’t have a say in what the value of their business is.” (@TBD) — Jamison West
“Business owners don’t love their job when they want to sell, when they’re not making any money. And they don’t want to sell when they’re making a lot of money. Which kind of makes sense on one hand and is completely dumb on the other.” (@TBD) — Jamison West
“Do I want an evolution or do I want a revolution? And I chose the revolution. I’m gonna sell what I was doing and just start what I want to do from scratch.” (@TBD) — Jamison West
About This Episode
Jamison West founded and ran Arterian, a Seattle-based IT services company, for 21 years before selling it to Aldridge in January 2016. He’s a business operator first and a technologist second, which shaped how he thought about pricing, recurring revenue, and operational maturity from the start. Over the life of the business he completed three acquisitions, transitioned the company from time-and-materials consulting to fixed-fee managed services, and structured his own sale using the same four-element deal framework he’d used as an acquirer. He’s a long-time member of the HTG peer group and a student of Service Leadership’s operational maturity model.
Resources Mentioned
- HTG Peer Groups — Industry peer group Jamison credits as his “pocket MBA” and the source of much of the business model thinking.
- Service Leadership / Paul Dippel — Source of the Operational Maturity Level (OML) framework Jamison used to benchmark his company and his clients.
- David Shafran — M&A advisor who represented Jamison on his acquisitions and his sale; source of the four-element deal structure.
- Aldridge — The ~100-person IT services company that acquired Arterian in January 2016.
- Contact Jamison — Jamison.West@Outlook.com
Connections
Phase + Module:
- Module 5 — Predictable Revenue — The shift from time-and-materials to fixed-fee managed services as a recurring revenue system
- Module 1 — Ownership Goals — Timing the sale to value, energy, and family pressure all converging
- Module 9 — Operator Transition — Selling, staying on, and pivoting to a new venture
Milestones:
- Milestone 15 — Revenue Systems & Forecasting — Recurring revenue mix as the spine of forecastable, transferable revenue
- Milestone 16 — Target Gross Margins — Pricing the availability premium, not the hour
- Milestone 1 — Time & Role Goals — Knowing when you no longer want to operate the business you’d have to operate
Concepts referenced:
- Normalized EBITDA — The 4-5 points to 17-18 points shift, and what multiple a buyer applies to it
- Value Gap — The space between what an owner thinks the business is worth and what a buyer will actually pay
- The Four Value Levers — Revenue mix and margin discipline as two of the levers Jamison pulled before sale
- The Owner-Operator Trap™ — Lumpy demand, hourly billing, and trading dollars for hours as the trap he engineered out of