Entrepreneur & Investor.
Entrepreneur & Investor.

Issue #35: Thorndike’s Rule of 10

NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.

Today’s gem is this podcast excerpt where Will Thorndike discusses the power of low customer churn:

For those unaware, Thorndike is the author of one of my favourite books of all time, The Outsiders. He’s also had an impressive career in private equity, he’s involved with a lot of impressive companies.

Churn is one of the first things we assess in a business at Atlasview Equity. High churn is a common deal killer for us. Luckily for us, the hunting grounds we play in (vertical software) contain many businesses with low churn. The last business we acquired had annual gross churn rates of less than 2%. They have customers on recurring billing going back 2+ decades!

The rule of 10 is an interesting concept, I like it a lot (much better than the rule of 40). It ties business quality (churn) with entry price (multiple). It’s a great metric to help you filter for high-quality business but still maintain discipline on the acquisition price. We’ve inherently used the “rule of 10” concept at Atlasview without officially measuring it. Low churn + reasonable EBITDA multiple.

You can listen to the Will Thorndike full podcast here, I highly recommend it. Lots of great insights.