Microsoft Excel = Durability
I’m sick of people saying that their revenue is durable just because they have a three year subscription contract.
Yes, subscription is great - it’s recurring - meaning you can reliably expect payment in a predetermined amount at a series of predetermined times.
But subscription contracts, in and of itself, are a payment construct; they are not the essence of durability. We can’t conflate the two.
I spoke with Tony Kim, Head of Technology Investments at Blackrock about this:
“I have some two year contract app with a note taking application or a collaboration work management tool, I’ve gone through four of them in the last six years. It’s subscription! It’s SaaS! It’s durable right?
No, that’s not durability. I’ve been doing this for 25 years. I’ve had Bloomberg for 25 years. That’s durability. That’s not a metric or KPI. That’s a qualitative assertion of what has this duration. Durability withstood the hand of time.”
Durability revolves around a technology's sustained usage and necessity over an extended period, often despite changes or advancements in the field. It isn't just about subscription models or being a software as a service; it's about technologies becoming so essential and ingrained in operations that they are less likely to be replaced than other parts of an organization.
“Durability is a function of these other qualitative concepts. The dominance, the stickiness, the absolute necessity, and the amount of competition - is there a lot of gravity - system of record to what you are selling”
Here are some technologies and solutions that exemplify durability:
Microsoft Office: Since its inception in the late 1980s, Microsoft Office has become the cornerstone of business operations worldwide. Try as they might, FP&A planning tools are learning to work with it, not around it. Microsoft Office illustrates workflow gravity.
Bloomberg Terminals: Used primarily by finance professionals, Bloomberg terminals offer financial data and analytics tools that are essential for real-time decision-making in markets. Wall Street’s mascot is not the Bull; it’s a Bloomberg terminal. Bloomberg Terminals illustrate account gravity.
Oracle Databases: Oracle's database solutions are known for their robustness, scalability, and security features. Many large enterprises rely on Oracle databases for critical data storage and operations. It’s also a pain in the ass to move your data after it’s been in one place for so long and connected to so many other things. Oracle Databases illustrate data gravity.
These technologies share common traits that contribute to their durability:
Dominance in their fields: They are the de facto standard.
Stickiness: Once implemented, these technologies become embedded into the workflows and systems of an organization, making them hard to replace.
Necessity: They fulfill essential functions that organizations depend on daily.
Limited competition: While there are alternatives, the entrenched nature and comprehensive features of these technologies make switching costly and complex.
The concept of durability in technology is characterized by a product or service becoming almost indispensable due to its utility, integration, and the significant role it plays within its user base.
You might be able to squeeze a few temporary net dollar retention points out of a longer contract duration; throw in some ramped licenses in years two and three and you’re looking pretty!
A handful of major public SaaS companies were exposed in 2022 and 2023, with NDR dropping sometimes more than 30 points.
But make no mistake - if your product is not “durable” in a qualitative sense, we’ll see who’s swimming naked when the tide goes out.
So remember - contract duration does not equate to product durability.
Run the Numbers
I had the chance to speak with Guido Torrini, the CFO of OneTrust and former CFO of Celonis. On this episode we cover:
The qualities that differentiate wartime vs peacetime leaders, and how wartime forges the best future leaders
Why he wants his finance teams to make the news, not report it
Why he’s a big proponent of agile planning, drawing parallels to how engineering teams build products in sprints and adjust on the fly
How he sizes up controllable vs noncontrollable spends
How he thinks about insulating his company from controllable vs non controllable risks
And how he ties company priorities back to the budgeting process
Quote I’ve Been Pondering
“Enjoy your obscurity while it lasts. Use it.”
-Steal Like an Artist, Austin Kleon
