Hi Reader,
"automatically you have to take on board this philosophy that the only thing that matters is how much cash you generate. Everything else is a vanity metric."
This quote is from Eric Bidinger, co-founder and CEO of Luca.
He learned it in private equity. You buy a company with borrowed money, and that debt sits on the books of the company you just bought. Miss your numbers and the bank takes it off you. Do that for seventeen years, and it sticks forever.
Today he builds software, and he starts from the same question: ‘What does this actually do to the bottom line?’
On top of that, here are three other principles he uses to guide his business:
Every hour they use it should make it worth more
Ask most founders what they defend, and they point at the product. Eric doesn't. He'll tell you himself that a competitor could build what he built, no problem. What nobody can rebuild is everything his system has learned about the customer: their documents, their workflows, the odd way they run things, their patterns. The longer they work with it, the sharper its suggestions get. If they switched to another vendor, they would lose that advantage.
Depth beats reach until you own the segment
Eric turns whole industries away. Not because Luca can't serve them, but because you don't get missionary clients by spreading yourself across a whole market. He wants the kind of customer you'd have to wrestle the product away from, and that only happens if you go deep enough to be the best thing they've ever had. Horizontal comes after, not instead.
Spend your best people where AI can't close the gap
Eric builds his stack with a handful of engineers. He says the gap between a good and a weak hire has narrowed in engineering, in product, in data, because AI closes most of it. But in the seat facing the customer, forget about AI. Someone has to go and sit with a prospect, build a relationship, and earn enough trust that they hand over their data. That seat is the only one where a weak hire still costs him.
Click here to listen to the full interview with Eric.
Question to reflect upon:
What percentage of your customers would fight to keep you? And what would you have to give up to double that number?
The Remarkable Effect is when staying pays off more every year.
Ton