I come at it from a professional service background and see SaaS and PS collapsing into each other. Software and services blend together and there will be no difference eventually. It'll be hard to have sustainable margins as a result. Tooling can capture margin for a while (particularly if you specialize) but I think it'll be competed away as Claude just absorbs it (the Bitter Lesson).

Sin-eating is probably where it's at and maybe some kind of truly unique signal/data that you can amass and make it unprofitable for anyone else to go get. I'm also looking at the combination of this thesis with the creator thesis. Is distribution a way to keep margin?

Anyway, I really appreciate your writing as I'm thinking through this right now on a second professional services company.

Reply (1)

Yoni Rechtman

Feb 23

Author

I definitely think truly proprietary distribution/brand is a way to differentiate.

Sumit Sahdev

Mar 23

The Vertically Integrated Services section particularly the inorganic/GBO path - is missing a second-order advantage of building product first.

If the SaaS is sold to the operators you'll eventually acquire, the software becomes a deal sourcing and underwriting engine before it becomes the transformation tool. You get full financial visibility into the target while they're still paying you a subscription. Information asymmetry goes to zero. Cost basis drops 60–80% below what a traditional buyer pays. Integration collapses from months to weeks because the target is already running on your platform.

We validated this inside Tier 1 PE-backed enterprises - the SaaS subscription is a fine business, but its real value is as the acquisition intelligence layer. That piece isn't well understood yet in most GBO frameworks.

Are you seeing this pattern? SaaS as structural deal sourcing in any of your GBO portfolio companies?

Andre Moura

Feb 25

Loved the thesis on buying services and layering software.

We’re looking at a vertical CRM with strong distribution but weak tech in the motorcycle industry, which was built by an influencer known as the best bike seller in Brazil.

In cases like this, how to assess product strength vs channel strength when thinking in acquiring a service business?

Reply (1)

Yoni Rechtman

Feb 25

Author

We don't do X-US, but that does make some sense. If you're thinking about acquiring a services business to then transform it with the software, you need to underwrite it on the basis of that transformation. If the tech is weak, most likely you can't underwrite a lot of margin/earning expansion.