TLDR: I am insanely excited about the release of the new NARPM Benchmarking Study. This data set dramatically expands our understanding of SFR financial performance and the results were both confirmatory and surprising. I feel incredibly privileged to wrestle with this caliber of problem thanks to both NARPM and my ProfitCoach teammates. If you aren't a NARPM member, this is a reason to join. Results drop Wed.
Busy week.
Hit the waves in Santa Barbara to announce a new integration at the AppFolio User Summit, then on to Nashville for RPM Reunion & now Vegas for NARPM National.
My biggest take away thus far?
A single comment over lunch.
A creed someone shared.
It hangs next to his desk.
He looks at it each day.
I had to look it up.
It hit me deeply.
Old wisdom.
Made new.
Behold.
A way.
🙏
What s your creed?
Creed: From Old English creda, crede, credo, from Latin crēdō (“I believe”)
See some of you this week!
Drinks are on me 🍸🥳🕺
To the builders,
- JAAM
P.S. - I am recording for the podcast again this week. I've saved one slot for a listener deep dive. If you want to jam with me live in Vegas this week just hit reply.
P.P.S. - Knock CRM was acquired last week. RealPage remains at the forefront of proptech acquisitions and I predict we will see further consolidation specifically in the SFR vendor space (it's already happening). For founders that have been in the game for a decade plus with no liquidity it makes sense to take chips off the table.
Two takeaways:
- SaaS founders need a better secondary market - Paper money doesn't pay bills & often times founders sell early simply because they can't stomach the bizarre dichotomy of being told they're paper millionaires while still having to double check to make sure their kids tuition check doesn't bounce. There are solutions. Let's hope Carta, AngelList, etc. make this easier.
- PM is a cashflow business. Period. Anyone that tells you otherwise is selling you something. Cashflow is stamina, cashflow is optionality, cashflow means calling your own shots all the way to the end.
P.P.P.S. - I'd like to say more about cash flow vs equity value and I will be doing so in an upcoming issue of Strategic PM - a new periodical produced by my friend and identical twin Jeremy Pound. Because I can't resist here's a snippet below.
Cash Flow vs Enterprise Value
Common wisdom about PM company valuation is that they generally sell for somewhere between 1 and 1.5x annual revenues - which is a fascinating deviation from the generally accepted small business valuation norms of 3-5x EBITDA.
Consider that a PM shop with a 5% operating margin selling for 1x revenue comes out to a 20x EBITDA multiplier.
What’s even more remarkable is that the EBITDA multiplier actually goes down as operating margins go up… even when accounting for an increased sale price. Meaning for a shop with 4x better operating margins, the revenue multiple only goes up modestly. A PMC with a 20% margin selling at 1.5x revenue = 7.5x EBITDA multiple.
The bottom line is that running a dramatically better, more efficient and profitable business than you peers does not net you a dramatically better price at sale. While being 4x as profitable as your peers will enrich you 4x as much while you own it - it will never net you a 4x sale price.
P.P.P.S. - Regarding PMS providers... it's fascinating watching the seat of power continue to shift. AppFolio opening their marketplace was a final ceding of the walled garden premise and a quantum leap forward for the industry as we are finally in an arms race to see who will build the most connected marketplace and be the first to truly achieve platform status. We are still in early days here but it's hard to over-emphasize how significant the recent sea change is here.
P.P.P.P.S. - This one chart illustrates why every PMS vendor continues to expand their offering even in the midst of embracing integrations. There's nothing more powerful than expansion revenue and PMS vendors have figured out how to take new accounts from $1.50 per door at the outset to closer to $10 / door in the end.
I gave a talk at the NARPM AZ Conference recently where I attempted to highlight this point and reframe it beyond increasing RPU. Slides from my deck below.
Net Revenue Retention = Total Rev. - Lost Rev. / Starting Rev.
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