At today’s MIT Enterprise Forum Atlanta Entrepreneurs Uncensored Sanjay and I were asked if there were things that kept us up at night. Being the first to respond, I quickly said that I sleep great at night (unrelated to my Tempur-Pedic bed but that’s nice as well) for one simple reason: recurring revenue.
Recurring revenue with high gross margins is the holy grail of business models.
Here are some reasons recurring revenue is so powerful for startups:
- Recurring revenue makes cash flow forecasting very easy (running out of cash is the #1 reason startups fail)
- Recurring revenue makes predicting hiring needs straightforward so that you can recruit well in advance
- Recurring revenue is often indicative of a business model that has strong economies of scale
- Recurring revenue makes banks more comfortable with providing debt to finance growth (most businesses won’t qualify for debut unless the entrepreneurs have significant personal assets and are willing to do personal guarantees)
Recurring revenue businesses are more difficult to get off the ground but once they’re going they’re easier to manage. Recurring revenue helps entrepreneurs sleep better at night.
What else? What are some other reasons recurring revenue is so powerful for startups?