The Secret Sauce of Valuable Service Businesses

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.

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