SaaS Portfolio Strategy: A Swiss Holding Company Case Study

[00:00:00]my guest today is uh Philip Willie CFO coo and the co-founder of doft uh doft group is a European holding company headquartered in Switzerland and currently has six portfolio companies that provide software solutions for various tourism service providers such as team Parks Sky schools and experience providers thanks a lot for coming to the H Builders podcast philli thanks a lot for having me hey today doft has a perform of six companies more than 130 people but it all started from somewhere first uh could you please walk me through your journey from University all the way to becoming a co-founder at doft and its early days yeah for sure I'm not happy to do that and um I I I just saw that I'm CFO coo it sounds so comp so sounds very complicated right so I I currently I'm the CEO of troft group so you can see the evolution my title changed quite a bit um and also the amount of employees were above 170 employees at the moment and by end of this year we'll be um above 200 so that's sorry for that this this moved a bit um but happy to talk about where the journey started so um I did study at the University of s I think you also did study there right Mick uh I was in Geneva Geneva sorry yes yes okay so H sorry then I got that wrong but yeah it was San University of San and actually there um I met two two important friends in my life uh like one was Adrian loer he was uh also he's also serial entrepreneur he founded um D deal in Switzerland and also metics metics in Berlin which is an artificial intelligence uh company Builder um and farm so um I met him there and also Valentine who then later become my co-founder with troft um so I that was basically during the studies we we had an a first company together so Adrian Valentine and I we started together um like kind of fun thing right a fun company uh we we sold websites to small medium-sized companies in Switzerland and um also we did uh a website to collect old tests School tests or university tests and then we did distribute those tests and back to the to the students um and we uh along the way we sold a bit of advertising that that was one way to to make a bit of money and actually it did work quite well um but I after the university time I missed a bit interlocking so I'm originally I grew up in Interlock in Switzerland which is a small but beautiful mountain town I have to do a little bit of advertising for Interlocken at this point and um so uh in Interlocken I missed it h it's my hometown I want to go back and um I then was approached by my for it's it's a fun story so by by my former High School teacher he approached me and said hey philli we might need your help we have here an adventure company doing River rating canyoning and paragliding and for this adventure company we need somebody helping out in back office I was good I was like a good um student I assume because he approached me and he invited me basically to join that Adventure company in interlock and um at that point before that actually I even worked at one point for a fitness center in Interlocken so um I tried out many things uh but the adventure company really um that was the thing which uh was quite interesting we're growing quite a bit and I'm still involved um with with that Adventure company we're actually doing a rollup of Adventure uh operators in Switzerland so the compan is called outdoor. CH outdoor Switzerland and we um we uh listed at the otcx which is a small Stock Exchange in Switzerland and um so I'm still involved there and as basically because of outdoor uh.

[00:04:34]CH or out in interlock because of that Adventure company we started actually troft that was in 2010 we thought we need to build a system ourselves and um that's where everything started so that's where John which was uh or still is my co-founder and Valentine so three of us we originally started troft in 2010 okay and what was the first company or is the adventure Rolla part of it yes so the the first client was outdoor originally so that was the beauty back then that we had a very strong relationship with that client so we actually we were even doing both right so we on one hand operated and on the other hand we were also trying to build the software and from where did you decide that uh okay you started 2010 when was the first acquisition or how did you how did you grow from there so yeah so I'm sure if we have enough time for that it's quite a long long story right we have time we have time because the early days are always so interesting you mentioned the story of her old teacher and all that because very often uh you never know who you're going to build the next big thing with and in your case it it's a fascinating story so feel free to share yeah okay so two so thanks a lot um so for two 2010 to 20133 um troft so formerly troft AG was formed the legal entity in 2010 and then 2010 to 2013 we did bootstrapping we hired our first uh employee and he's still with us so I'm very proud that Phillip his name he's still with us um he's a very talented senior developer today and he's leading uh on the tech side our payment business today so he's doing a fantastic job so 2010 to 2013 13 bootstrapping and then Valentine John and I we thought we need to do a rocket ship type of thing right so we thought all the cool kids they they raise money from W capitalists and they want to build a rocket ship so we thought that's we need to do that as well and uh so in 2013 we actually raised for the first time money from from Venture capitalists um and then from 2013 to 17 we tried to to to scale classical BC Playbook rocket ship approach um and in 2017 I I I think the three of us the three co-founds we we felt this is not the right thing for us this is not working the churn rates were way too high I think with roughly two two 2 and a half% monthly churn rates we had a back then 100 employees but it didn't feel right you know like we just were we we're still growing at that point um but on the other hand we also burning lots of cash and um it felt to me a little bit like uh burning through cash and then trying to um you know raise more cash from investors uh after showing them very very high growth rates right so this this this didn't feel right to us so we said no we need to change so that was 2017 we had to let go actually half of the of the team so from 100 team members we we had to reduce to 50 in order to reach profitability uh plus we like we were in Lucky position that um we we we we met Richard uh from Digi tickets the managing director and founder of Digi tickets and in 2017 he joined our group and because we were so busy with ourselves we we didn't really touch the business so we just basically ask Richard as the founder managing director to continue to do what he what he does best to around the business and um so it was in a way decentralized because we we didn't we didn't know better right so it was just um there was the way it was it was 2017 and we had a bit of money left as well in 2018 to buy the second company which was then a ski school software business so the first acquisition was Digi tickets which was software for theme parks and attractions uh in the UK and then the second acquisition 2018 was a ski school software company um led by hes and his team and also there we left it decentralized and at that point we also started to read the presidential letters for Lenard and um and this did resonate so much with me back then and it still does right because it was some it was such great thing to see there is an alternative way to build a group of of of software companies without having to follow that typical W capital W Capital Growth Playbook so can you share maybe as I don't have this experience you raised the VC Capital to build the business for many many years uh so 2017 you realized this is not the way you want to do things this is not the way you want to build this business how is the process of so-called getting rid of investors or are they still investors or how how the structure works out yeah that's a good question right it's I'm I I think we're still we we're in a lucky position that um our investors were very very very very patient with us because um the story We the equity story changed drastically right from originally trying to build that rocket ship so we told everybody you know from our investors hey we want to build a rocket ship that's great let's let's do it right and then we we basically changed they now with a group of software companies and uh we want to do more Acquisitions our role model is Mark Leonard from constellation software we want to build that group right so it drastically changed and I I have to and I think all of us were very thankful that the investors they were patient and um I I don't take that for granted mhm what was their response when three of you reached out to them like okay this is this is what we're going to do instead of building this rocket ship into a I don't know billion dollar valuation then selling it uh uh what was their response for that I think they they thought it's a very stupid idea to do that I'm sure maybe some of them still think it's a stupid idea I don't know uh but uh obviously we could like in the like over the years I think we we could prove now that this works out quite good and also creates a shareholder value but in the beginning I think there was a lot of skepticism we also had to take a heavy hit on the growth rates and that obviously had had an impact when we did that change it had an impact on the valuation methodology right because like uh instead of you know like looking at it as as a growth case you start to look at it as a as an e a multiple case and I think that had that had obviously an impact on valuation methodology so I think in the beginning was a lot of skepticism and um again I have to I I have to say thank you to our investors that they were so patient and and still supporting us still and still do today right which is great have you talked to other Founders who are in a in a similar position I'm asking because there there have been some uh VC backed companies who who struggle they they can't show the growth they just shut it down move on build another business uh but there are also investors who try to buy these type of businesses and the guy I think called them like Venture orphans so they could buy them on a very cheap valuation so my question is have you talked to other VC Founders who maybe could go through the same Journey as they have a crate product crate service customers are happy although they can't achieve the growth but they could uh turn it into this EB multiple case which which you did no I unfortunately I sometimes we we have by accident discussions right but it's not that we did proactively reach out to those companies um we currently buy when we buy companies when we do Acquisitions we buy from Founders so that's our preference and um when a VC is involved it's um so far I I still struggle a bit to to agree on valuation but um but I actually I did hear that as well Mick that um there are in North America potentially there might be a little bit more developed from that point of view to agree on valuation I think here in Europe it seems like um even though the company might be struggling the VC still might to might aim to maximize the value but I again I I don't have um that much experience that's such an interesting story because uh maybe some people get the motivation from here to they start with a goal to build a rocket ship they have their investors and then when things don't work out they have this soft Landing of maybe building a holding company of software businesses yeah but I I'm not saying that that's the best strategy right I'm just saying that we like this is then that that's the that's what we Tred to do over the years right so um and uh it took us also uh I did underestimate a lot of things and one of the things I did underestimate was to to reach profitability because uh you know like I profitability to reach it was very very painful the other thing what which was difficult for us was that we lost some of the team members um because some of the team members were actually um signing up for building a rocket ship right then when you tell them similar to the investors right even though the investors all stayed or maybe they didn't have another choice to them to stay but the the employees some of them unfortunately the some of our a players they left because they they wanted to have that rocket ship experi and once we changed for them also a little bit maybe the the Outlook changed right so next question when building this portfolio why did you decide to buy other tourism type software businesses instead of maybe building like a very Diversified portfolio of SAS businesses actually that's the only thing we really understand right so um our circle of competence is in in the tourism and um industry and uh that's what we understand and I think the like the other sectors or verticals we don't really understand that much um so I think it makes sense for us to just do what we understand and where we have connections the network um I think uh we we're about to hopefully sign the spa of an acquisition in the next couple of weeks and that's a that's a company which struggles a bit mhm it's in our industry and I think we can bring to the table a lot of experience because we know that that type of business quite well um so I think um this is this is for us maybe a little bit the differentiated that we know the industry well we know that type of businesses ticketing business Etc we know quite well so I think that's what we can bring a bit to the table as well do you only focus on European companies or us or Asia as well no just European um we want to be close to them as close as possible um definitely not too far away North America is is huge right but we absolutely not having a look at that um I I think Europe is big enough for us we we're also not that big right over all so it depends you say you're close to 200 employees if things go well uh so we I want to continue from the story at the moment we are at two portfolio companies sitech UK company and then The Skys School software uh it's year 2017 I guess or 2018 so what happened next yeah then we um actually I think I said before I think we did under estimate a bit the um the challenge right um of the uh trying to reach profitability so the core business we call it track of SAS which was the original business we started back in 2010 where we basically built tried to build that rocket ship very high growth levels very high churn levels High cash burn so we tried to turn that into profitability um and it took us much longer than we were hoping for um so I think we were then quite busy with ourselves so tracks of SCE is a business which took longer to turn around then we did spin off um our payment business because we had inside tracks of SAS like our own payment service business we basically spin that off into its own business unit um so that that was another thing we did we had the key School software business we had digit tickets and then the next company we bought was um a company who does software for museums and cultural institutions in Germany and that was in 2021 so that was after Co and then we recently bought this year another company which we didn't publicly announce yet and we're about to buy two two additional companies this year one which I hope to sign the SP in the next couple of weeks and then another one which we're about to do which is pretty pretty pretty sure that we're going to do but it's more like a talkin acquisition mhm and how is the financing when it comes to adding new portfolio companies do you reinvest the profits to you raise depth uh how is the deal structure if you can share yeah so like we I would say we had two phases uh so far but I think that we're going to add a couple of phases um after but initially when track oft s so the original business still was burning cash we it was very difficult to do any deal right because there was like when you have cash burning kind of fundament of the group then it's very difficult to to make progress um and do deals right and finance deals right but then Co hit and Co was brutal to us um so uh this was was super super diff difficult and it it actually forced us to save costs so before I I like we were a bit hesitant to really save costs uh especially at track oft sasce but then with Co we had to save costs so we did and we were super lucky that digit tickets had the best year ever in 2021 so those two factors together then helped us to to reach um a very healthy AB level with positive cash flow and I would say since then we can use first of all our own cash flows to redeploy for Acquisitions which is fantastic that's the best case scenario I think in our model plus uh since last year we have a credit line with our bank with very very healthy interest rates okay maybe few questions still about the investors uh I mean what is the strategy today for troft I mean is it an IPO in the future or I mean the VC investors they probably had a goal when investing you in a first place they had this five to seven five to eight year goal but obviously it has changed now so what is the what is the so-called Exit Plan or what is the liquidity event for them what they're expecting to happen in the future yeah so this is currently a dialogue we have with them um I think realistically for the ones who want to leave us today or have to leave us today maybe because of uh of the the maximum timeline they can invest um I think um for them a secondary transaction is the most likely exit scenario secondary either somebody of the existing shareholders buying those shares or a new shareholder joining us uh but more from a minority investment point of view um and then I think our like kind of exit scenario we still debating a bit I would say that's the honest answer so it is not clear uh is it is it um type of a private Equity transaction or is it uh is it IPO I have to say when I look realistically at our numbers it will take a while to to get there for us realistically speaking so I I'm not sure if that's feasible but on the other hand who knows right and maybe we did discuss actually today for lunch that one cool scenario could be to join with somebody else to to do an IP right something like that would be also an option so yeah it's not a clear answer I can give okay I want to talk a little bit about the challenges and uh lessons uh when it comes to the co times because travel industry tourism I was living in Geneva Switzerland during covid uh not too many tourists I think the mountains we visited were only in Switzerland we couldn't go to France so uh how did you recover and when all this happened like how was your life how was the business what did you do to to Really recover from this I think I think in in a lot of the things in our in our business and in the in the Years um of building track oft group I think we at at many many points in our story we were just like lucky I have to say right because um most of the the business units in the group that suffer heavily um uh but we're just lucky that dig tickets had in 2021 the best year ever and I would say to some degree that saved our group our very small group um just one one very very very strong business unit almost like saving all of the group MH um we had to reduce costs of course we had to do all kinds of measurements and I I I know that a lot of people were affected by this like like one thing is business one thing is money right but another thing is on the health level right so I I know this was for a lot of people a very very difficult time um yeah and we I I would say from a business standpoint we had we had our fair share of that mhh so what about the synergies across portfolio as the businesses are in in the same same Industries serving same type of customers do have any or how how does it work yeah just one one one question I actually asked Mark Leonard um I asked him like what's your view on synergies and I he looked me in the eyes and said I don't believe in synergies so um it's def definitely one side uh like one input I I took very seriously on the other hand I have to say like obviously we do payments like payments is the business unit inside our group it's a good money maker um the so from a strategy point of view payments is definitely something we try to do um Channel management uh so the connection to get your guide Trip Advisor um that's also something we try to do as a Synergy and then we have a couple of um products which have the potential to be um to be cross-sell mhm um so that's also something we do but I think overall when we when we would buy a company we wouldn't buy the company on the assumption that we need to have synergies to be successful um it should be something which um is an option but not a necessity so you've said your more as we had this small chitchat before this podcast you're a more operational type person compared to maybe to investment type person so I mean once you acquire the business uh the goal obviously is to grow the business so what do you usually do Post acquisition like how are the first 30 to 60 to 90 days yeah so that's actually a trick I learned from from basically I I have to admit right we get a lot of inspiration um uh from from other people in our industry and in private equity and as I said I'm like a big admirer of Mark lanet so we have built our own own kind of PMI Playbook post merchant integration Playbook and um we normally do that preferably preferably before we sign an Spa so we try to identify action points where we see U Improvement potential and we try to discuss this with the founder team or with the founder management team of the acquisition Target um our ambition is to build Group which is founder Le so we really believe in a in a Founder Le group of software companies in the tourism travel industry and that's what we trying to build right so we we have the action points identify as part of that PMI plan we discuss it and then we try to to put it on a timeline and and and and work right so I know I'm I'm covering a lot so a lot of new questions coming up all the time uh do you buy 100% of the business and does the founder stay on and for how long so we would love to have the founder stay on with us for a very long time um we don't have to buy 100% we're very flexible um to to listen to the founder and the management team what the preferences are so we we try to be as flexible as possible we obviously need to buy a majority but the rest is up for discussion now back to the risks of of such portfolio you have uh you've survived covid what happens if it covid version two is coming I think today we will be more ready for that um I think uh we are I think the is ready ready in terms of cash reserves or I would say overall resilience of having to adapt uh to whatever Market condition would exist so I think we we gained a lot of trust in ourselves that we can do that and we also saw you know sometimes as a Founder you you struggle to make the hard decisions to have to especially to let go people is brutally difficult and um so like I think we have much more experience now and I think a lot of the fears we have around those hard decisions to make um I think we have now experience I would say so I think I I absolutely don't wish for the next cover to come absolutely not but I think we we will be in a better position today than we were before you mentioned the the reason for you to get into and continue building businesses in travel and tourism industry is the circle of competence uh how much Temptation has there been over over the years to to get into other other Industries because I guess you you have friends you know people in other software businesses who might be interested in maybe selling their business and you could potentially see the ways you could improve this business and make it more valuable so has there been a temptation to getting into other Industries yeah I think we looked at one two deals or so but um I think uh luckily I I think I even recall our chairman of the board Manuel he he to put me back on track very fast I think was a very short Temptation okay um you mentioned a meeting with Mark Leonard the founder of constellation software uh uh tell me about it how did it happen you shared you flew from Switzerland to Canada had this dinner or lunch or whatever it was flew back home you went there for for Mark so share us the story please yeah I'm a big fan of Mark Leonard so everybody who knows me knows that I'm a big fan of Mark Leonard and I think he's a fantastic uh role model um and the president letter so that's that's how I I started to um learn about him and his his thinking and what he does etc and then in 2019 um I I I flew for the flew for the first time to Toronto together with my wife so I convinced first my wife to spend uh the vacation in April in Toronto um I would recommend maybe to visit Toronto not in April because I think from a timing point of view there might be better times to go there but the shareholder meeting of constellation software back then was still in person I think today it's not anymore um and so we flew to Toronto and I wanted just to say hello to Mark lennet and and and uh say thank you to him for the president's letters but I failed because I back then there weren't that many pictures on the internet from him so actually I didn't I didn't know how he looks like right so and we also then flew further to Berkshire halfway shareholder meeting so anyway I didn't have time but then I during the rest of the vacation I talked to my wife and and and she said yeah you know like like like stop talking about it just just tried to get still get in contact so she she convinced me to send an email and I think that speaks a lot for Mark Lenard so like at at one point then we via the CFO so it's really a crazy story so I I I think I wrote to info at CSI software this was then answered by the CFO and I I and had done the email address of the CFO and asked him to send the email to Mark Leonard and he did and Mark Leonard answer was I don't meet with investors right which which was a joke because I I thought we just have my wife and I just each had one share of constellation software so we not we wouldn't consider ourselves investors so um but then like I we we tried to to stay in contact and at one point in 2019 he came to Switzerland and he was so kind to visit us um in at our home in surk so we had dinner together which was F fantastic I could ask a lot of questions was really really inspiring and I think it speaks so much for Mark lnet that he so down to earth that he's that's willing to do something to meet the stranger small software operator and just spent uh an evening which is great right and then I stayed in contact with Mark and in so this year then I flew to Toronto to have breakfast with him which also was great again I could ask a lot of questions and again he was so TR to spend time with me um so really I I think as a human being um Mark Leonard is fantastic I want to get into maybe a bit more into details because I I I guess you you weren't just talking about food or or or something you were talking about business but a quick Story the fact that your wife said to you like uh Philip you keep talking about this guy Mark uh why don't you just send a message and ask you know uh he here it reminds me a story of one guy selling a home to Elon Musk and everyone everyone were like come on how did you make it happen it's it's a big thing it's the well-known guy like it's impossible and he just said that uh I just sent him an email like uh have you been thinking of moving soon and Elon said yes and so he he found a house for him and that's it you know the simple you create your own luck by just simply sometimes sending out the message and asking and that's what you did thanks to my wife yes thanks to your wife yes you probably were a bit overthinking maybe that it would be impossible and things like that 100% I was overthinking my wife was spot on but business-wise uh what did you learn what were maybe if you can share some of the some of the problems you maybe shared with you you shared that maybe you expected him to to have an answer or if this was the case yeah so I think the it's it's one thing to read the president's letters but it's another thing to experience somebody in person and uh it was interesting right my wife is is a Goldsmith so she's not a a software entrepreneur right but she also uh the two of us together spend time with Mark and it was interesting just to experience him while having dinner right and to to just try to understand what type of person is that um and I think I think it then to build them that bridge from what type of person is that to the president's letters that was very interesting um and I would say if you if you look at this huge success of constellation software I think the like Mark Lenard is definitely a very very disciplined person actually when I said consolation software is a very disciplined company he said yeah but that's he he was like downplaying it a bit right but I think it's really true it's a very disciplined approach working on on rather small steps but over a very long period of time and just being disciplined to the Playbook just continue to execute don't get distracted being very very data driven not talking about opinions per se but rather trying to quantify those um ideas with numbers looking for evidence Etc so I think that's that's a lot of things which which um which you when you spend time with somebody you spend time with somebody in person right then you somehow get that feeling in a way in a different way I'm not sure if that makes sense what I'm trying to explain okay troft today again you said your are more this operational type uh founder compared to investor type uh today I have a portfolio of businesses so how has being an operator focused leader like maybe influenced the way you grow and manage those companies because today there is not just one business there are multiple businesses you have five days I hope five working days a week and not more so how do you manage it all as a operator focused uh founder yeah I would say I would say that um we have now we started we in the process in the early process to start group management um which mainly consists of people who did work in the business unit or former managing directors so I have together with me on the group level um Richard so that's the the founder managing director of of digets as well as Martin which was the former COO of track of t a business unit and I have a group CFO Marco and together we are working on the group level and the main focus we have is to to focus on operational excellence so our big goal is to reach rule of 40 uh per business unit so we try to coach visits the business units we try to see what would we do differently with our operational uh experience um how can we reach that rule of 40 that's that's the big thing right so like um we have this week a board meet actually tomorrow and uh we we going to discuss big part of our discussions around rule of 40 and how we can we achieve it and maintain it in some of the cases and um in addition to that then the other big topic is acquisition targets um m&a pipeline uh in organic growth right but I think given the fact that we're coming from an operator background I think uh we're heavily focused around that operational excellence topic your thoughts about organic growth versus growth via m&a and maybe mixing those two so what do you think and how do you think especially when running troft yeah I think I think the DC Playbook is clearly prioriti prioritizing the uh organic growth right and as as high as possible kind of and they're willing to accept accept in efficiencies and I think we at our group we wouldn't accept that so our goal is to have a very high efficiency level but still grow right and um we're very careful with new sales so new sales can be can in a worst case scenario um make big deviations from a from a revenue standpoint and then also from EP standpoint so we're careful there so expansion is easier in a way uh to some degree uh be it price increases be um uh increasing adoption rate of the payment services Etc so expansion is definitely a good thing to do new sales again we bit careful so when we see budget proposal from from our business units which come up with a heavy heavy new sales Focus we we we will challenge that um so I think that's that's a bit the defocus organic growth obviously is important but I would say like in the early days of track s when we were a typical VC were the goal was to grow as let's go crazy on growth right but today that changed definitely so it's more that efficiency focused of growth even though the VCS also say they want to have efficiency right but I I I would say from a cash flow point of view we want to also see some cash flow and inorganic growth is great as well I think we do the way we do it at the moment we can do two to three Acquisitions per year so we're far away of the north of 100 Acquisitions of constellation software 30 years tiny in comparison to that you mentioned two to three Acquisitions per year is it enough deal flow for you to do this how do you mean deal flow like great opportunities where you can actually buy two to three businesses a year yeah I think so I think this so far so good yeah mhm so you mentioned the price increases uh how has been the case so far for example acquiring a business uh have you had to raise prices or how often do you do that and what are your overall views when it comes to raising prices because when it comes to more traditional businesses this is where I have more experience uh uh the guests have said that they bought businesses and then they've like during the due diligence they've heard that the business hasn't increased prices for 11 years and once they acquired they raised the prices even though the owner said that you're going to lose all your customers they raised the prices they doubled the business within the next 90 days and voila magic happen so how has been the case for for you and troft I think our preferred kind of um approach to pricing is that we always like to see some natural expansion effects build into the pricing methodology so um in a lot of the cases because we're dealing with the gmv of our clients so of the kind of transaction volume of our clients we uh try hope that we in one form or the other can monetize on that transaction volume that's definitely the case with payment services but we also try to incorporate that into the kind of payment not only payment offering but also contractual offering so let's say we we process 100 million or 500 million per year right and it's always the question how much of that as a take rate from the total volume we can we can monetize and that's a mixture of payment Revenue plus software Revenue everything together right so that works quite well because then if the clients will increase prices and adjust for inflation we automatically grow as well um obviously it's different when you have classical subscription Revenue then I think indexation is great if you can do it it's not always possible plus the margin um so I think so far like I I I think this is now pretty much known that there is not a like um a correlation between um increasing prices and churn so I think in I would support that argument that if you increase prices you shouldn't feel that the churn jumps up I I would support that perfect makes makes sense uh you mentioned rule of 40 this is something I hear the very first time in my life so what does the rule of 40 mean why is that important and what are some of the key strategies you you you you implement to achieve this rule of 40 because you mentioned it so many times okay so the rule of 40 is like there is only one kpi we really have so the really big kpi we look for is the rule of 40 That's EP margin without any software activation plus um organic growth rate and that should equal to 40 so let's say 20% abdr margin plus 20% growth equals 40 That's the goal um not all of our business units today are performing on that level and in our case we also track the group overhead cost separately to that so if you account for the group overhead cost as well as group we're not the rule of 40 company yet we're working on it and it's our goal it's our bench mark but that's that's a bit the way we look at it um and normally when we buy a company there way below the rule of 40 and we hope that this with the post merchant integration process directly directionally goes towards a rule of 40 so it was e and organic growth right correct yes so how are usually the ratios when you have bought the business do they grow enough uh maybe 30% but the EB is extremely low like how has it been I guess uh yeah how has it been I think I think our pattern seems to be that a lot of our companies um have rather uh low EP margins um and then it's a bit the question on how can we how can we review that with kpis we got a lot of inspiration from constellation software to look at benchmarks you know cost of goods sold like sales marketing uh R&D GNA so we have benchmarks for each of them and we would review those benchmarks and try to see if there is anything which is not as we would expect or the other companies in the group already perform on and then we try to adjust it towards um a higher probability to reach the rule of 40 so that's that's what we normally would do that's also part of the PMI process um and again for organic growth in that equation the rule of 40 equation we're rather um a bit careful right to not over stretch it which is your favorite case what I mean is you you buy the business the business is still maybe in a rule of 20 League 10% I 10% organic growth which is your like favorite case of which you know like I can add value here immediately is it the growth-wise is the profitability I think I think that would be perfect company if that company also is then in our industry right tourism and travel industry doing software um then I think that would be great right the 10 plus 10 is great then we can work with that uh improve it um I think we I I I think we're still learning I have to admit right but like um it seems like we do also a bit of rather challenging cases right where there's even slight losses existing right slight negative EP not not not extremely high negative AB I think we wouldn't touch that but I think a little bit maybe even beat zero beat slight loss so we do have cases which which we which we bought um and then yeah then do the heavy work right right together with the management team with the founder to bring it up to the road of 40 as much as possible so I think there is no so real perfect scenario obviously if if I would ask our CFO he would say hey like bring me bring me lots of abdr so in that equation right I'm not that much worried about the growth side of it but I want to see EP there it also would depend a bit on who who do you ask how many years are you willing to sacrifice when it comes to achieving the rule of 40 what I mean in here is uh would you be happy if the E would be 0% but the growth would be 40 I think that that would be difficult one for us I I I I think this is not our goal we would like to see l like quite an equal uh approach or an equal kind of setup there um no I think this is this is more like with 40% growth I think then this also the question are we the right partner for that um maybe that would be done more potentially directionally a VC case right so no I think I think it's it's actually without maybe it's the type of businesses we talk to or we acquire it's it's it's not that extreme dream scenarios um it's rather it's rather what we see I think more is that on the efficiency level it's not optimal so that mean that they either at zero profit or slight slightly losses right and a little bit of growth but um and not that 4 Z case no mhm I want to talk maybe a little bit about the risks when uh and do you have the risks specifically specifically the key man risk because you know the tourism and travel industry so well and the software part of it uh when looking for businesses to buy and the businesses you bought already do you even consider the fact of there is any like keyman Risk yeah I think I think succession planning is is key right I I try to um do that um in in the in the business units which I still have some operational role so I'm trying to work on succession planning as well as Richard for example um will be working on it as well moving forward so I think um obviously we would love to have a bench of very capable um uh operators uh at the moment we're still working on it so we hope to build over time that bench so and I I also think the fact that we a foundl group of companies also is is a key aspect there um so if we want to have Founders there might be always some sort of of a keyman risk there right because the founder is is um is a is a is a special type of person right I think I might quote that wrong but I think Andrew Wilkinson from Tiny said that founder is like an elephant right and uh it's hard to adjust the direction where he runs the elephant right and I think uh in in in in in that example right it's an elephant to replace an elephant is not that easy but I I really think from a cultural point of view we we want to build that group of of Founders I I we really believe that this is the thing we want to do what is the reason for Founders to selling the business to you and not to maybe some other uh so-called serial acquirers in a software space who would like to maybe build a diversified portfolio of uh different businesses I think I think what we try to do is to when we identify potential Target we quite early on try to invite um the founder of that company to a retreat so twice a year we do a retreat we try to exchange um um learnings we try to teach whatever we know right and we try to somehow share our group Culture um and I think once a Founder sees that this is something which resonates with him or or with her then I think then that's that's a good approach right um so I think we the the way we do m& is is pretty much focused around that cultural aspect is there an alignment yes or no um because in theory the founder could sell to whoever he likes right and if it's somebody who just looks for for a transactional sales then I think we're the wrong potential partner anyway so I hope it's obviously it's not that easy and still work in progress but I hope that we can different that founder culture when we get very specific uh what are some of the mistakes you've seen people made when running those SAS businesses this is this so hard to say right so many so many I I thought about that question um quite a bit right because this this was something we discussed a bit uh before uh while changing emails you you mentioned that uh there are some obviously it's a very broad question but I think once you see something that someone makes a mistake this probably gives you this advantage and the reason for actually wanting to buy this business because you maybe know how to fix it and it could immediately add value to the business yeah I think what like one driver definitely is sometimes the founder is not willing to make a hard decision uh because of fear and um especially when it comes to the the employees right this is something we we see quite often and I think when you are then part of a group you might be willing to to do those hard decisions together with our help together with our support and also basically taking over a significant amount of risk um so I think that's that's a key aspect right and then obviously we we see lots of operational kind of mistakes right but I also have to admit right I did many of them myself right so it it's almost like it's hard to play the found when I think okay honestly a couple of years ago I might have done something similarly wrong right but it's an evolution and it's a it's a learning process and I think that that's the type of founder we look for right somebody who says hey you know like actually as being part of that group I could could learn faster and better and hopefully having fun so you're definitely having fun you're so I mean we are having our very first conversation we never talked before this podcast you you're happy you're relaxed you're excited uh you must be having a lot of fun on on day to-day so how does your day-to-day look like yeah I it might be that that part might be a bit boring right because I because I know I I I travel a lot um I try to to visit the business units right we have business units in Austria in Spain in Germany obviously in Switzerland in the UK um maybe I even forgot some countries but I'm traveling a lot also when we talk to acquisition targets I try to meet the founders very early in the process so I'm traveling a lot um there's lots of trade shows also again traveling and then um we hopefully we can spend a bit of time on on the group management level actually that's what we do today so I'm sitting together uh today in a room with with my colleagues um and then uh also a little bit of of of home office that I can spend a bit of time with my wife and with my family um um and and obviously during the home office time we also try to do all that analytical part you know review the numbers and try to understand the kpis ETC so it's it's I think my daily life is not that exciting but it seems to be working well because uh you're smiling all the time many people I'm talking they're dead serious all the time I've been really enjoy I think it helps in life when you take take yourself not too serious but I I have to repeat that as well H I know I asked quite a lot questions from a to c but did I forget to ask something or is there anything you'd like to add no no I think I I was a lot of questions I I don't thanks a lot but was some super interesting conversation few more before we wrap up uh how has entrepreneurship and building troft changed your life and changed your family life yeah I know I I I think it it changed my life from the point of view that I I couldn't get a job now right I think I I nobody would employ me right I'm I'm too long now an entrepreneur I think and I was lucky that my wife is also as a go she's a Goldsmith I think I said that already before and she's also an entrepreneur so yeah I was lucky to find like a soulmate right who is um also who knows what it means to be an entrepreneur awesome so let's wrap up with a famous five how old are you 41 favorite book how to get rich even though I don't like the title how to get rich from Felix Den Dennis and I I read that book because of one of your podcast guests fascinating Colin Colin I think Colin is his name yeah he he recommended that book and it was was really good even though the T the title is not good I think married single kids um married two cats okay what car do you drive an old BMW what's the best investment advice you've ever got um yeah Focus I mean a lot of people now listening this podcast would probably like like to get into the SAS because it seems it makes a person very happy so where can people find you on LinkedIn uh would be best okay Phillip seriously thanks a lot for doing this I'm I'm I'm not a SAS guy I don't really understand the this world but you you you made it so much fun to have this conversation with you and uh thanks a lot for sharing your journey same here thanks a lot for the invitation