ARR gives the image of certainty (is it illusion?)
two companies: one has a million in revenue (how will they get to a million next year?), other has arr
sure you have something that you can keep selling to your customers every month or year
but price you pay is that people can opt out at any time, so churn is your worst enemy
and boy do people churn
not all revenue is created equal
I love this statement because a dollar is not actually worth a dollar
the value of the dollar is the meaning we associate with that dollar (the narrative, the story)
a dollar with a higher multiple means people give it a story of lasting further into the future (recurring customers) or being worth more because the company can reinvest it for even more dollars (growth companies).
but licenses vs. subscription is not obvious
pros:
- lower barrier to entry allows you to hit more customers → a sales tool
- people end up paying more than they would have for a license
cons:
- people can churn at any point, competitors can take customers before they’ve fully paid off acquisition costs or “license willingness to pay”
- you have to keep maintaining and improving the product to stay competitive