For those who have never worked in finance, it can often seem like a complicated and demanding line of work that justifies its recognition as an illustrious career.
Financiers are often viewed as titans, domineering industries as they push around hundreds of billions of dollars, and tens of millions of jobs.
Well let us burst that bubble: finance is a joke.
In broad strokes, finance is leveraging a lower cost of capital over people that lack the scale or sophistication to do it themselves.
In exchange for moving money, financiers get a disproportionate percentage of the proceeds, complete with the most generous tax treatment our country offers.
Now don’t get us wrong: taxation is theft, and there are much better ways to generate revenue if you’re a government.
But the working man pays a much larger percentages of his wages (ordinary income) than finance bros who get a sweetheart deal with long term capital gains.
And the working man is actually working: interviewing customers, building products, running support, hiring, firing, training, and taking risk.
Finance bro hides behind covenants and structure, takes no risk, and could not build a new business to save his life.
Which is totally ironic because finance bro cannot rent seek if he doesn’t have an operator’s back to ride on.
But enough waxing.
Let’s talk about Olo, and how this is going to play out.
Olo and PAR, after its acquisition of MENU, are the only two enterprise online ordering systems we see in the market.
The long tail of SMBs (and even the mid-market now, frankly) is dominated by A) POS companies like Spoton, Toast, and Square, or B) third party delivery companies like DoorDash, who like the POS companies are moving further upmarket.
If PAR and Olo had merged, they would have had significant pricing power in enterprise.
Given how long restaurant sales cycles are, the PAR + Olo power couple could have raised prices 20% annually and faced low pushback for a long time.
Investors aren’t dying to throw money into people dumb enough to sell to restaurants, so Par and Olo would have faced very little competition.
But that engagement ended when PAR was left at the altar and Olo chose the finance bro side chick.
And that finance bro side chick is a finance bro first.
Which means that you better f*cking believe price increases are coming.
It’s not like Olo’s TAM is growing.
Sure, they have payments, but it’s hard to make payments margins on enterprise merchants who are thinly priced. The only way we’ve seen Olo landing these larger payment deals is by threatening to add additional fees to use Olo lest the merchant also pay for Olo Payments.
BTW, classic payments bro tactic.
Well done, guys.
What about Wisely or guest engagement as a TAM expander?
That thing is dead.
Not because it’s not valuable, but because Olo completely bungled the execution of the acquisition.
That, and restaurants cannot do math on ROI.
So if Olo is ceding market share for its core product to enterprise competitors like PAR, or SMB vendors moving upmarket, how can finance bro side chick Thoma Bravo make this work?
Why, the #1 private equity playbook, of course:
Jam through price increases.
Hell, PE funds take at least one price increase on every portco annually.
The bigger ones do it more than annually.
You think they use data science to measure the effect of those price increases?
LOL.
Finance bro is good at excel and golf.
That’s it.
And, we suppose, convincing operators to let finance bro pretend to operate.
Thoma Bravo knows Olo has the leading share of enterprise ordering.
Those merchants sign 4-year contracts.
And replacing Olo will be work.
Not as much work as a POS, but it’s not nothing, either.
Driving returns through operations is hard.
If you can’t do it with a spreadsheet or a golf course membership, finance bros are lost.
The closest they get is writing a 7-figure check to a pedigreed consulting firm, who in turn hires a cluster of 20-somethings who know almost as little as the finance bros about operations, to deliver a report that the finance bro then uses to browbeat the management team of their portco’s as if the finance bro knew how to do any of it.
It’s hilarious, frankly.
Sure, finance bro will always cut costs, and Olo was an absolute shit show of a company, run by people who were seemingly more concerned with their public brand than they were about shareholder value.
Lot of fat to cut, and finance bro definitely put Olo on that overnight Hollywood diet.
But you can only cut so far before company performance will suffer.
Yes, we’re sure Olo will now extend their contracts to 5-year terms and beyond, so any cuts Thoma Bravo makes will be hidden until after they sell the business and the next owner has to deal with a nosedive in NRR.
The easiest way to make the math work is just to increase prices.
The end.
Tucking in more businesses is hard, because that requires operations.
Big moves are also expensive and time consuming, and that will add strokes to your handicap, so let’s not do that.
The answer here is a boring but predictable price hike.
Cut costs, increase revenue, EBITDA expands nicely, and Thoma Bravo makes a killing to do basically nothing all while having teethy covenants that insulate them from any downside risk.
So, who in the market is seeing these price increases?
We know they’re coming.
Or already out there.
Can’t get around mathematical realities, even if your customers are mathematically illiterate.
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