I love this post… as depressing as it is. And must say that I feel some jealous pangs as Nick beat me to the punch of guest posting for OnlyCFO this year.
Nick- you are of course spot on in your observations. But I do think we all need to take a deep breath. Sure let’s lament the end of the gravy train we got with high gross margins, 120% ARR and 10X+ ARR multiples in unicorn VC valuations.
Always with the deus ex machina of a PE buyer (or even better a strategic) at the end of the yellow brick road.
But - even today, I still believe there are great businesses to be saved (or started) that are “recurring” and high margin with good growth, even if not based on seat -based subscriptions. I believe that if you optimize for the new economics (far fewer people, rapid iteration of products, etc) and leverage available due to AI and agentic workflows - well there is still gold in them hills!
Orlando Bravo said it well. AI is a tailwind for software. How can it not be?! And Anthropic and Nvidia don’t get to keep all the economics. The application layer requires specialization. Someone’s going to win in each category. Buck up!
True! Certainly still value in many of these businesses. While we will see known names disappear over the next few years, the ones that adapt (and quickly) may survive. Like intercom
But the model has certainly changed and it will not be nearly as easy as before
Nick nailed it—ARR was the 8th wonder of the world and indeed fun while it lasted. 'Annual Recurring Restart' is a much more accurate term going forward, but it completely upends the economic and investment model everyone's been riding for years. No more 'set it and forget it' renewal or margin assumptions - now it's constant and ongoing reinvention just to stay relevant. The SaaS industry has no option other than to cross this bridge, but it's a bumpy road ahead.
The uncomfortable truth: most SaaS companies confused contractual stickiness with product stickiness. Customers stayed because leaving was painful, not because staying was valuable. AI just removed the friction. Now every renewal is a real decision, and a lot of "recurring" revenue is about to discover it was never recurring at all.
The survivors won't be the ones who fight hardest to preserve the old model. They'll be the ones who realize the old model was always a lie, and build for a world where you have to re-earn customers every year. Nick's "Annual Recurring Restart" isn't a pessimistic take. It's the first honest definition of ARR we've had in a decade.
I love this post… as depressing as it is. And must say that I feel some jealous pangs as Nick beat me to the punch of guest posting for OnlyCFO this year.
Nick- you are of course spot on in your observations. But I do think we all need to take a deep breath. Sure let’s lament the end of the gravy train we got with high gross margins, 120% ARR and 10X+ ARR multiples in unicorn VC valuations.
Always with the deus ex machina of a PE buyer (or even better a strategic) at the end of the yellow brick road.
But - even today, I still believe there are great businesses to be saved (or started) that are “recurring” and high margin with good growth, even if not based on seat -based subscriptions. I believe that if you optimize for the new economics (far fewer people, rapid iteration of products, etc) and leverage available due to AI and agentic workflows - well there is still gold in them hills!
Orlando Bravo said it well. AI is a tailwind for software. How can it not be?! And Anthropic and Nvidia don’t get to keep all the economics. The application layer requires specialization. Someone’s going to win in each category. Buck up!
True! Certainly still value in many of these businesses. While we will see known names disappear over the next few years, the ones that adapt (and quickly) may survive. Like intercom
But the model has certainly changed and it will not be nearly as easy as before
Def not easy, but doable. Great article!
Nick nailed it—ARR was the 8th wonder of the world and indeed fun while it lasted. 'Annual Recurring Restart' is a much more accurate term going forward, but it completely upends the economic and investment model everyone's been riding for years. No more 'set it and forget it' renewal or margin assumptions - now it's constant and ongoing reinvention just to stay relevant. The SaaS industry has no option other than to cross this bridge, but it's a bumpy road ahead.
The uncomfortable truth: most SaaS companies confused contractual stickiness with product stickiness. Customers stayed because leaving was painful, not because staying was valuable. AI just removed the friction. Now every renewal is a real decision, and a lot of "recurring" revenue is about to discover it was never recurring at all.
The survivors won't be the ones who fight hardest to preserve the old model. They'll be the ones who realize the old model was always a lie, and build for a world where you have to re-earn customers every year. Nick's "Annual Recurring Restart" isn't a pessimistic take. It's the first honest definition of ARR we've had in a decade.
Agree ! - I wrote a post about reoccurring vs recurring revenue as well. https://substack.com/@leadershipbehaviors/note/p-190796054?r=2qew8&utm_medium=ios&utm_source=notes-share-action
It’s def a change. I do like how Nick put ARR as “annual recurring restart” :)
There’s still a gap that you’re setting everyone up to rally around an annual transaction.