How we got here
Technology has advanced so much over the past couple of decades that today, anyone can start a software company with minimal resources and startup costs. Where before, you’d need a large workforce, a dedicated web team, and massive warehouses to store your computing power, now the only thing you need to get a web application up and running is a hosted server.
As a result, tons of new tech startups pop into existence every day. In some cases, this boom has caused increased competition in already established software markets. But many new companies are instead tackling markets that haven’t been touched by software. Now that it’s so fast, cheap, and easy to spin up a business, innovators can develop niche solutions that cater to smaller markets and still turn a profit.
Modern software companies are already incredibly capital-efficient and brimming with technical chops. But they’re often dealing with operational debt—no one taught them how to run a growing business, so they stumble through all the common pitfalls that more experienced business operators know how to avoid or solve. And as these structural issues accumulate, they slowly become a burden to the business, hindering growth.
To get access to the experts and tools they need to get growth back on track, these companies have a few options: find and recruit capable operators, pitch a VC, or give up the company to a private equity firm or other buyer.
Hiring the right people is often prohibitively expensive. And with minimal overhead and a strong balance sheet that funds growth, high-velocity software businesses don’t appeal to venture capital funds in the same way they once did. In fact, the “burn cash for growth at all costs” VC model is almost the exact opposite of what these modern software companies need. But taking stock of the business and correcting systems and operational infrastructure isn’t appealing to traditional private equity either, which tends to be laser focused on profitability.