All Revenue Is Not Created Equal: The Keys to the 10x Revenue Club

Sustainable competitive advantage

How easy is it for someone to provide the same product or service that you provide? Are there high barriers to entry?

Value to the incremental customer is a direct function of the customers already in the system

Some network effect systems are stronger than others. Network effects are NOT merely economies of scale.

Certainty of future cash flows through e.g. recurring revenue, low churn, etc.

Ease of switching to your competitors' products or services, which directly impacts customer life.

Can take many forms: technical lock-in, data lock-in, high startup costs with new vendor, etc.

High gross margins necessary for high cash flow.

If good, higher revenues = higher profit margins i.e. increasing returns to scale.

Common in zero marginal cost businesses. Seen via marginal incremental profitability e.g. QoQ or YoY.

Concentrated customer base = risk.

High partner dependencies = risk.

e.g. many businesses' dependency on search traffic and SEO.

Organic demand is free; marketing = buying new customers = less efficient and less profitable.

Must be able to translate into profit e.g. own-the-market-then-profit is good; buy-the-market-without-path-to-profit is bad.

Capital-light businesses are far less risky vs. those that require heavy capex

High cash flow can be translated into earnings when it makes sense; earnings without cash flow is value destructive.

Option to generate new businesses is preferable (e.g. Amazon with AWS = turning a cost center into a profit center)