The Search for Recurring Revenue

After talking with hundreds of entrepreneurs in the Entrepreneurs’ Organization and the community, one of the more repeated themes that comes up is the search for recurring revenue. The pattern is as follows: entrepreneur follows his/her passion, startup gets some traction after two or three years, revenue is lumpy, school of hard knocks teaches entrepreneur that inconsistent revenue is extra challenging, and finally entrepreneur starts searching for recurring revenue. Numerous entrepreneurs have brought this up to me.

Here are some reasons why recurring revenue is desirable:

• Allows for more consistent cash flow
• Makes it easier to plan and forecast
• Provides for better sleep at night knowing payroll will be met (assuming break even or profitable)
• Enables easier year-over-year growth since the recurring revenue layers on top each year (assuming low churn)
• Values a company more substantially, all things being equal, to a similar revenue and profitability company that isn’t recurring

Recurring revenue is often more difficult to get going as the customer is financed over a period of time vs paying a lump sum up-front. In general, a recurring revenue business is the way to go, but much harder to achieve. The search for recurring revenue continues.

What else? Have you talked to entrepreneurs searching for a recurring revenue business?