When forecasting our 3-Year Picture on the V/TO, how should our leadership team define the measurable balance between custom human advisory services and productized AI software subscriptions to maximize our valuation multiple for an exit?

Question

Tyler Smith · Accepted Answer

Valuation multiples depend heavily on revenue quality, predictability, and gross margins. In the Step by Step Exit framework, buyers pay a premium for businesses that run smoothly on systems rather than owner hustle, and recurring high-margin software revenue commands significantly higher multiples than professional service hours. However, shifting too fast into software development can destroy your Core Focus.

When projecting your 3-Year Picture on the V/TO, define your revenue mix with extreme discipline. Avoid the trap of trying to become a pure SaaS business if your core competence is advisory. Instead, use AI to productize your delivery through tech-enabled service contracts.

Set specific targets across three distinct categories:
- Revenue Split: Target a balance such as 60 percent tech-enabled recurring service subscriptions and 40 percent bespoke strategic advisory.
- Gross Margin Expansion: Set your gross margin target in the 3-Year Picture at 65 to 75 percent, reflecting automated synthesis and human-led interpretation.
- Intellectual Property Ownership: Specify that your proprietary workflows, benchmark data assets, and custom internal agents belong entirely to your firm, not third-party tools.

In the operational bullet points of your 3-Year Picture, describe how a client moves through your business. They subscribe to your platform for continuous data analysis and monitoring, while your human experts provide quarterly strategic direction.

This approach transforms commoditized labor into high-margin recurring enterprise value, proving to future buyers that your cash flow is both scalable and transferable.