Ep. 412 — Shiv Narayanan: Why Your Revenue Is Too Lumpy to Sell (and Too Lumpy to Enjoy)

5 min read

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Episode Summary

Your revenue is up year over year and you still can’t tell me what next June looks like. That’s the gap I see in almost every owner-operator I work with, and it’s the exact gap that kills deals when a private equity firm runs a real diligence on your business. I brought Shiv Narayanan on because he sits on the other side of that table. Shiv was the CMO of Wild Apricot, sold to PE in 2017, got pulled into portfolio companies as a marketing operator, and built How to SaaS as a McKinsey-for-marketing firm that PE investors hire during diligence and value creation. We got into the three things that make a business actually buyable (revenue predictability, founder dependency, customer concentration), why 90% of the companies he audits are wasting 30-50% of their marketing budget, and how he runs his own firm against a $1,000 effective hourly rate, 70%+ gross margins, and 12 months of cash in the bank before any new hire. The whole conversation lands on one idea: a business that can be sold is worth not selling, because the same discipline that gets you to a Milestone 5 — Market Value is the discipline that lets you collect the distributions you actually started this thing for.

Top 10 Takeaways

  1. A business that can be sold is worth not selling. The discipline that makes it transferable is what produces real cash flow.
  2. Three things kill deals: lumpy revenue, founder dependency, and customer concentration over 50%.
  3. There is roughly $3 trillion in dry powder hunting deals. The shortage is not capital, it’s businesses with clean fundamentals.
  4. If you can’t forecast next June, your stomach ache is the same one that compresses your multiple at exit.
  5. Your gross margin floor for a services business is 70%. Below that, you’re a glorified freelancer.
  6. Saying no to revenue that doesn’t fit is the price of admission for margin expansion and pricing power.
  7. 80% of your event ROI comes from 20% of your events. Your headcount is staffed for the wrong 80%.
  8. Don’t compete with whether something is a good idea. Compete with the opportunity cost of doing something else.
  9. Strategy means trade-offs. If the opposite of your strategy is absurd, you don’t have a strategy.
  10. Hire only when you have 12 months of cash in the bank. Between now and then, optimize operations.

Sound Bites

“A business that can be sold is worth not selling. It’s worth continuing.” (@TBD) — Shiv Narayanan

“The number one issue is deal flow. There is close to three trillion in dry powder sitting on the sidelines. The reason it’s uninvested is there aren’t enough quality assets out there.” (@TBD) — Shiv Narayanan

“If your gross margins are 50% or lower, you don’t have a good service business. You’re kind of like a glorified freelancer at that point.” (@TBD) — Shiv Narayanan

“We’ve audited public companies, $800 million companies. North of 90% where at least 30, if not 50% of their budget is going to waste.” (@TBD) — Shiv Narayanan

“Your owner’s goals are the constraints. Your cash flow goals and your valuation goals are the constraints. Then we need to understand what leverage you need to pull in the operations and what the trade-offs are.” (@TBD) — Ryan Tansom

About This Episode

Shiv Narayanan is the founder of How to SaaS, a marketing strategy firm that partners with private equity investors on diligence, value creation planning, and fractional CMO work for portfolio companies. He was previously CMO of Wild Apricot, which scaled to $20M ARR without a sales team and sold to private equity in 2017. He is the author of Post Acquisition Marketing and Exit Ready Marketing, and his work essentially created the category of marketing due diligence. Shiv brings the PE operator’s lens to a question most owner-operators avoid: what does my business actually look like to a sophisticated buyer, and what does it take to make the revenue believable?

Resources Mentioned

  • How to SaaS — Shiv’s firm. — howtosaas.com
  • Exit Ready Marketing by Shiv Narayanan — The book Shiv recommends for this audience.
  • Post Acquisition Marketing by Shiv Narayanan — Shiv’s first book on the PE value creation playbook.
  • Private Equity Value Creation Podcast — Shiv’s podcast, used as a content-based networking play to reach PE investors.
  • What Is Strategy? by Michael Porter — Referenced for the principle that strategy is about being different, not better, and requires trade-offs.
  • Profit First by Mike Michalowicz — Referenced for taking distributions out of the business systematically.
  • Built to Sell by John Warrillow — Referenced as a conceptual companion read.
  • Bob Moesta — Jobs to Be Done — Referenced for understanding customer pain points before building solutions.

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