This is going to be a controversial take for most folks on here. Recurring Revenue is nice, but it's not the silver bullet it is made out to be. Purely focusing on recurring revenue businesses causes several issues for searchers that I write about in this week's post on Buy Small Sell High: Recurring Revenue Is Overrated
1. Truly recurring revenue businesses (mission critical / government mandated software or service) are rare, highly sought after and almost always trade for multiples searchers can't pay - we saw a $700k SDE HVAC deal trade for 8.25x SDE.
2. Recurring revenue businesses are generally recession resistant but not recession proof. Great Think Like An Owner Episode on that here.
3. If your customers are sticky, then so are your competitors'. Short of significant white space, these businesses are harder to grow organically, which is why we see so many roll-up strategies in those industries.
4. Recurring revenue is a proxy for the real metric everyone is looking for: predictable cash flows. There are other businesses that have predictable cash flows without recurring revenue driven by reordering trends, industry demand and position, etc. These are harder to prove since they required in-depth diligence, but also offer significant upside as the quality of the business is not apparent to everyone.