Private equity firms often prioritize operational efficiency, but at what cost? The tension between innovation and profit margins is explored, shedding light on the magical 25% operating margin in software. Discover the concept of the Rule of 50 and the dangers of cutting R&D, which can lead firms down the path of an 'Innovation Death Spiral.' The discussion emphasizes the importance of balancing short-term gains with long-term sustainability to avoid compromising future growth.
08:51
forum Ask episode
web_stories AI Snips
view_agenda Chapters
auto_awesome Transcript
info_circle Episode notes
question_answer ANECDOTE
Host’s Campfire ERP Experience
CJ Gustafson describes using Campfire as his company's ERP and praises its impact on finance workflows.
He mentions speaking at Campfire's Finance Forward AI Summit on October 28th in San Francisco.
insights INSIGHT
Why 25% Operating Margin Matters
Target operating models almost always show a 25% operating margin as the investor magic number.
That margin signals capital independence and room to reinvest while hitting the Rule of 40.
insights INSIGHT
Multiple Paths To Rule Of 50
Achieving a Rule-of-50 profile can come from many revenue/profit mixes across business archetypes.
Each archetype (hyper-growth, cash cow, harvest, etc.) carries very different long-term risks.
Get the Snipd Podcast app to discover more snips from this episode
Private equity firms love to talk about operational excellence… but when “efficiency” comes at the cost of innovation, are they mortgaging tomorrow for today’s margins?
In this episode I break down why 25% operating margins became the magic number in software, how PE-backed businesses chase the Rule of 50, and what happens when cutting R&D tips companies into the “Innovation Death Spiral.”
Today’s podcast is brought to you by Campfire.
You may know that we use Campfire as our ERP, and it’s been a game changer for our finance workflow. The interface is intuitive, migration was quick and painless, and it's freed us up to focus on strategic work instead of manual processes. In case you don't know, Campfire is an AI-first ERP powering next-gen finance & accounting teams. Helps you close fast, unlock insights and scale smarter.
If you’re curious about where finance tech is heading, and would like to hear more of my thoughts on the topic, don’t miss Campfire's Finance Forward AI Summit - the upcoming summit bringing together the sharpest minds in finance and operations.
You’ll hear directly from industry leaders on how they’re using AI to shape the future of finance, and how your team can get ahead of the curve. I'll be speaking on panels with finance leaders from Anthropic, Snowflake, Mercury and more. The summit is October 28th in San Francisco; I hope to see you there.
Run the Numbers