The New Growth Playbook
How AI-first Startups Could Redefine Customer Acquisition with M&A
Growth is the lifeblood of startups. But what if the path to scale isn't paved with sales decks and cold calls, but with term sheets and LOIs?
The traditional route to growth in enterprise SaaS involves hiring salespeople, feeding them qualified leads, and building a repeatable playbook to close sales quickly.
In the new era of "service-as-a-software", an AI-first startup can leverage LLMs, integrations, and agents to boost efficiency in traditionally low-margin service businesses, such as property managers or health coaches.
These new tech-enabled services businesses don’t have to grow the traditional SaaS way, embarking on a 12-month enterprise sales cycle. Instead, they could use M&A.
Historically, the M&A narrative has been fairly straightforward:
Mature businesses acquire others for revenue growth and operational synergies.
Private equity firms "roll up" similar businesses in fragmented markets.
Large tech companies acquire adjacent tech products to upsell to their existing customers.
Could AI-first services businesses adopt a growth model more akin to private equity?
Acquire legacy service businesses with established long-term enterprise contracts.
Transition customers from low-margin services to your high-margin, AI-powered alternative.
The Two Critical Competencies
To excel in this new paradigm, startups need to develop expertise in two key areas:
The Art of Strategic Acquisition: Teams must build a repeatable process to identify and acquire businesses at attractive EBITDA multiples, targeting gross-margin payback periods of less than 24 months.
The Science of Seamless Integration: Transitioning the end customer from the existing service model to a new one must occur with minimal disruption. The team must develop a playbook to transition data across seamlessly and train end customers on new processes to ensure swift customer adoption.
The Implications
If this works, AI-first startups could rapidly consolidate fragmented service industries and expand market share quickly. While R&D spending will be higher than the average services business, there will be significant operating leverage as revenue grows.
If you're building a startup reimagining a traditional services industry in a novel way using LLMs, agents, and integrations, and you intend to become the global leader, please get in touch.
Interesting idea. The proposed ACCC merger reforms might be problematic though given low thresholds and provisions that are directly aimed at PE style roll ups with a focus on nascent industries.