Annotations (12)
“Public investors who are extremely smart, creative, highly-educated, and great, for some reason they believe that investing in growth is the same and goes hand-in-hand with losing money and having a negative margin. Those two concepts are completely different. High profitability leads to higher growth because what high profits means is that first you have operating management that innovates correctly.”— Orlando Bravo
Software Investing Philosophy · p. 4
Strategy & Decision Making · Economics & Markets · Operations & Execution
DUR_ENDURING
Growth and profitability are not mutually exclusive
“When you're really profitable, it means you're doing the right sales channels that fit your product and your business. You could have 20 R&D initiatives, and if one works and you grow really fast, that's great. But how about the other 19? The operating world doesn't work that way. That company in year four is not all of a sudden going to change how they plan, how they think about initiatives, how they tell their direct reports what's important and what's not. They'll never get there.”— Orlando Bravo
Software Investing Philosophy · p. 5
Operations & Execution · Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
Culture of discipline cannot be deferred to year four
“The theme that we had at the time was you can buy software maintenance streams less expensively than almost any other form of recurring revenue in different industries: media, radio, transaction processing, and that quality of that revenue is even more sticky than those categories. These companies were unprofitable, especially coming out of that bust in 2000.”— Orlando Bravo
Software Investing Philosophy · p. 3
Strategy & Decision Making · Economics & Markets · Business & Entrepreneurship
DUR_ENDURING
Software maintenance cheaper than other recurring revenue
“When you let those operators know where exactly do they stand on direct revenue and direct cost in their activities, what they do creatively always exceeds our recommendations, even on top of our metrics and processes. It's coming back to desegregating these P&Ls to give people the visibility of how their decisions are impacting the profit and loss statement.”— Orlando Bravo
Software Investing Philosophy · p. 6
Leadership & Management · Operations & Execution · Psychology & Behavior
DUR_ENDURING
Transparency on direct P&L drives operator creativity
“Every month we have an ops review at each of our companies for four hours, at least, with a CEO and all of her or his direct reports. We review the P&L of every functional area of that business: customer support, professional services, marketing, sales. We review the P&L and activities of every business unit, of every geographical area. We do that with all of the direct reports of the CEO together in the room, because they have to collaborate through this.”— Orlando Bravo
Opportunity Set vs. Capital Flows · p. 2
Operations & Execution · Leadership & Management
DUR_ENDURING
Four-hour monthly ops review, all direct reports
“The words that we use on selling is, you should lean on selling when a strategic buyer approaches, because if they're here today, it's likely that they won't be here tomorrow, because they'll either buy something else, they'll either build the product organically, or next year they will change their set of strategic initiatives.”— Orlando Bravo
Selling Well & The Art of Dealmaking · p. 10
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Strategic buyer interest today unlikely to persist tomorrow
“When you work with existing management, you can develop your business plan with them way before you close that deal. In the software companies that are people-based, that move very quickly, you can make changes very quickly. If you come at it with your approach that existing management has made too many mistakes, whatever you put on paper on your model, you have to look at again, because did you really model the disruption of changing leadership, the time that it takes to get new leadership, the...”— Orlando Bravo
Selling Well & The Art of Dealmaking · p. 11
Leadership & Management · Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Back existing management, plan before close, avoid disruption
“She said, 'Don't think about culture fit. Think about culture add.' The way we think about it is, why have we been lucky? Our culture has a lot to do with it. It's not our metrics and our processes. Other people have that. It's how we come together as a culture to make decisions. What does that culture stand for? It stands for being open-minded, being collaborative, thinking differently. Is that culture, therefore, consistent with having a homogeneous group? Absolutely not.”— Orlando Bravo
Leadership & Nurturing Talent · p. 14
Leadership & Management · Psychology & Behavior · Culture & Society
DUR_ENDURING
Culture add not culture fit for hiring
“Growth equity investors are investing those funds in nine to 12 months. Traditional private equity that would take four to five years to fully invest the fund is doing it in 12 months, 24 months. The reason is the market is becoming much more tech-oriented. These tech companies are going public and achieving scale faster than you could raise capital to go out and invest in them.”— Orlando Bravo
Opportunity Set vs. Capital Flows · p. 1
Strategy & Decision Making · Economics & Markets · Business & Entrepreneurship
DUR_ENDURING
Asset growth outpacing capital deployment speed
“So many of these companies, since they have such high gross margins and are winning in their marketplace are making a lot of decisions based on gut feel. Gut feel has served these companies well. If not, they wouldn't have been the market leaders that they are today. What we see that we bring to them is an analytical approach to decision-making, everything being guided by the data and the numbers.”— Orlando Bravo
Software Investing Philosophy · p. 6
Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Replace gut feel with analytical decision-making
“If your job title has a C in it, you're not allowed to complain. The C level title has proliferated. When you get it, you have so much responsibility for other people and there can be so much drama in our organization, so much internal competition that becomes unhealthy. Your role is not to increase that level of drama and potentially useless conversations and not value-creating anxiety. A big part of your role is telling people, 'You know what? That's okay. Go make a mistake. It's okay.”— Orlando Bravo
Leadership & Nurturing Talent · p. 12
Leadership & Management · Psychology & Behavior
DUR_ENDURING
C-level role is to reduce drama, enable mistakes
“The key is separating the things that really don't matter from the ones that really, really matter. How crazy can you go over each one of them? The division missed the month in this area, that call with that division did not go as well. Do you really have management buy-in? Some of these things you don't really know until you close the deal and you're working together.”— Orlando Bravo
Selling Well & The Art of Dealmaking · p. 12
Strategy & Decision Making · Leadership & Management
DUR_ENDURING
Separate signal from noise in due diligence
Frameworks (2)
Monthly Functional P&L Review System
Four-hour operational review with cross-functional collaboration
A monthly four-hour operational review meeting structure that examines P&L performance by functional area, business unit, and geography with all CEO direct reports present. The system surfaces direct revenue and cost accountability, enables cross-functional collaboration, and uses best-in-class metrics to drive operational decisions.
Components
- Complete Board Formalities First
- Review P&L by Functional Area
- Review P&L by Business Unit and Geography
- Conduct Cross-Functional Collaboration
- Compare Against Best-in-Class Metrics
Prerequisites
- Ability to desegregate P&L by function and geography
- Executive commitment to four-hour monthly meeting
- Best-in-class benchmark data
Success Indicators
- Operators making data-driven decisions independently
- Cross-functional collaboration improving
- Margin expansion without sacrificing growth
Failure Modes
- Using allocated versus direct costs
- Letting board formalities consume meeting time
- Not having all direct reports present
- Lack of best-in-class benchmarks
Existing Management Partnership Model
Backing incumbent leadership for rapid execution in control investing
A control investing approach that partners with existing management teams rather than replacing them. The model develops business plans collaboratively before deal closure, avoids leadership transition costs, and enables rapid execution by leveraging incumbent knowledge and relationships.
Components
- Develop Business Plan Before Closing
- Avoid Leadership Disruption Costs
- Leverage Incumbent Knowledge
- Bring Analytical Rigor to Gut Feel
Prerequisites
- Management team open to partnership
- Operational value-add thesis beyond capital
- Time between signing and closing to develop plan
Success Indicators
- Plan ready to execute at close
- Management commitment and trust established
- Rapid execution in first 90 days
- No leadership turnover in first year
Failure Modes
- Management resistant to operational changes
- Investor inability to inspire trust pre-close
- Underestimating cultural integration challenges
- Imposing versus co-creating the plan
Mental Models (13)
Capital Deployment Speed Mismatch
EconomicsWhen asset growth rates exceed the speed at which capital can be raised and deployed, opportunity exceeds available capital despite abundance. The mechanism occurs because business compounding (20% in software) outpaces fund formation cycles (4-5 years historically).
In Practice: Bravo explaining why opportunity exceeds capital in software private equity despite capital abundance
Demonstrated by Leg-ob-001
Compounding Advantage from Growth Rates
TimeAssets compounding at high rates (20%) double every four years through the rule
In Practice: Bravo describing billion-dollar software companies compounding at 20% and doubli
Demonstrated by Leg-ob-001
Cross-Functional Visibility System
Systems ThinkingWhen functional leaders see how their decisions impact adjacent functions and th
In Practice: Bravo describing four-hour monthly ops review with all CEO direct reports presen
Demonstrated by Leg-ob-001
Information Asymmetry Creates Performance
PsychologyGiving operators visibility into the direct P&L impact of their decisions unlocks creativity.
In Practice: Bravo explaining that operator creativity exceeds recommendations when they see direct P&L impact
Demonstrated by Leg-ob-001
Recurring Revenue Arbitrage
EconomicsWhen one form of recurring revenue (software maintenance) is priced below other forms (media, transaction processing) despite equal or superior quality (stickiness), an arbitrage opportunity exists. The mechanism exploits market inefficiency in valuing different revenue stream qualities.
In Practice: Bravo describing 2000-era thesis that software maintenance streams were cheaper than other recurring revenue despite superior stickiness
Demonstrated by Leg-ob-001
Profitability Funds Growth
EconomicsHigh profitability generates capital for both tactical growth (sales, marketing) and strategic growth (R&D, new initiatives) while indicating operational soundness and product-market fit. The market fallacy that growth requires losses creates opportunity for those who reject this false tradeoff.
In Practice: Bravo contrarian view that profitability and growth are not mutually exclusive, profitability enables superior growth
Demonstrated by Leg-ob-001
Culture Cannot Be Deferred
PsychologyOrganizational culture and operating discipline cannot be turned on in year four after running unprofitably for years.
In Practice: Bravo warning that companies cannot suddenly become profitable in year four
Demonstrated by Leg-ob-001
Replace Gut Feel with Data
Decision MakingSuccessful operators often rely on gut feel that served them well reaching market leadership. Introducing analytical decision-making and data-driven processes on top of their strategic instincts creates a multiplicative effect, not replacement.
In Practice: Bravo describing how high-margin companies often make decisions on gut feel and benefit from analytical approach
Demonstrated by Leg-ob-001
Strategic Buyer Interest Is Fleeting
TimeWhen a strategic buyer expresses interest in acquiring an asset, that interest i
In Practice: Bravo explaining that when strategic buyers approach, you should lean on selling
Demonstrated by Leg-ob-001
Model Leadership Transition Costs
Decision MakingReplacing existing management incurs hidden costs: disruption during transition, time to hire, time for new leadership to learn the business before acting. These costs typically span 18-24 months and are rarely modeled accurately, creating systematic overconfidence in management replacement strategies.
In Practice: Bravo explaining why working with existing management allows rapid execution versus costs of replacement
Demonstrated by Leg-ob-001
Separate Signal from Noise in Diligence
Decision MakingDuring deal processes, countless details surface and most don't matter. The art is distinguishing the few truly material issues from the noise. Experienced investors focus energy on what really matters and accept that some uncertainty is irreducible until post-close.
In Practice: Bravo on separating what matters from what doesn't during deal processes
Demonstrated by Leg-ob-001
Leadership as Emotional Stabilizer
PsychologyC-level leaders' primary role includes reducing organizational drama and anxiety.
In Practice: Bravo's principle that if your job title has a C in it, you're not allowed to complain
Demonstrated by Leg-ob-001
Culture Add vs. Culture Fit
PsychologyHiring for culture fit creates homogeneity; hiring for culture add builds the culture you need.
In Practice: Bravo sharing insight from young employee about culture add versus culture fit
Demonstrated by Leg-ob-001
Key Figures (2)
Orlando Bravo
48 mentionsCo-founder and Managing Partner, Thoma Bravo
Orlando Bravo co-founded and leads Thoma Bravo, a PE firm managing over $90 billion focused on software.
- Every month we have an ops review at each of our companies for four hours
Carl Thoma
1 mentionsMentor and Co-founder, Thoma Bravo
Glossary (1)
multiplicative effect
DOMAIN_JARGONEffect where factors combine through multiplication rather than addition, creating exponential rather than linear impact
“Introducing analytical decision-making and data-driven processes on top of their strategic instincts creates a multiplicative effect, not replacement.”
Concepts (2)
SaaS (Software as a Service)
CL_TECHNICALCloud-based software delivery model where applications are centrally hosted and accessed via subscription
Recurring Revenue
CL_FINANCIALPredictable revenue streams that repeat at regular intervals providing visibility
Synthesis
Synthesis
Migrated from Scholia