After talking to a number of entrepreneurs over the years, the vast majority are focused on a building a technology product (e.g. a SaaS product or web site). Of course, there’s a natural bias since that’s what I focus on but nonetheless I talk to very few entrepreneurs trying to build technology-enabled business services startups. A technology-enabled business service is a business services company that uses proprietary technology to deliver something better/faster/cheaper than if you do it yourself or hire a traditional firm.
Here are a few examples:
- SecureWorks – an Atlanta-based managed security services provider that offers outsourced solutions to monitor and test for different security issues (as was recently acquired by Dell for a rumored $650 million)
- Liazon – a health care and benefits broker (e.g. you can buy your company health insurance through them) that differentiates itself with a proprietary portal that makes it easy for your startup employees to choose from a variety of plans and allocate a set budget (instead of having a single health insurance plan for all employees you can have several and let them pick and choose)
- SoftLayer – data center and hosting services that differentiates itself through a proprietary portal, provisioning process, and APIs that allow it to offer dedicated boxes provisioned much faster than most providers
- WebGreeter – an outsourced live chat service for web sites where the call center agents are provided a simple list of questions they can answer otherwise they collect the visitor’s information for follow-up by one of your own employees
Each of these examples is a successful business with proprietary technology that give it an edge in their market. My recommendation is for entrepreneurs to consider technology-enabled business services in addition to technology products.
What else? What are some other examples of successful technology-enabled business services?
5 thoughts on “Technology-Enabled Business Services are Underappreciated”
What are the differences in valuation multiples between technology-enabled service companies and pure product companies?
Good question. It depends on things like gross margin, growth rate, and churn rate. They could have the same multiple or be wildly different. SecureWorks with $120M in revs and an exit of $650M has a really nice multiple for being a technology-enabled service company.
Hi David. Thanks for writing about this topic. There just isn’t much on this subject. SecureWorks at 5.4x gross revenues is pretty amazing. Do you happen to know what their gross margins were? I am curious as to what that multiple was, since for TES companies, there is still a service component to account for COGs. Also, same question for EBITDA?
Generally speaking, what kind of range do you see for multiples? I understand it varies widely. Thank you so much.