Outcome-as-a-Service
The reason I'm writing about this is simple: it's a game-changer for the architecture, engineering, construction, and supply chain (AECS) industries. My partner Shub and I coined the term "Outcome as a Service" years ago, and since then it’s become proven in our portfolio. Time to talk about it !
The OaaS approach has the potential to revolutionize how founders operate in AECS and can build legendary firms. I believe it's a key to building the next generation of AEC-Tech ventures.
Services are the norm in AECS: Here's why
In the architecture, engineering, construction, and supply chain (AECS) industries, services are the default way of doing business. This is a fundamental difference from many other sectors, where products and software are the primary focus. There are several key reasons why services have become so deeply ingrained in AECS.
One key factor driving the prevalence of services in AECS is the project-based nature of the work. Unlike other industries where ongoing operations are the norm, AECS is characterized by discrete projects with clear start and end dates under constraints. AECS projects are complex, high-stakes endeavors. They involve multiple stakeholders, long timelines, and significant financial investments. For example, sales prices get fixed months to years in advance while purchase conditions do not.
That's why projects carry risk. Contractors are responsible for delivering against fixed budgets, schedules, and quality standards that are often set years in advance. In this environment, there's no room for error. A single missed deadline or subpar deliverable can have cascading effects that jeopardize the entire project.
To mitigate these risks, project managers rely heavily on trusted service providers. They need partners who can guarantee outcomes, not just provide tools or resources. This is where the service model shines. By offering a specific, well-defined outcome - whether it's a completed building, a piece of infrastructure, or a component of the supply chain - service providers can give project managers the certainty they need to succeed.
Services are not just a preference or a habit - they're a necessity. Services provide the certainty, expertise, and flexibility that project managers need to deliver successful outcomes in a complex and high-stakes environment.
This custom of services also presents significant challenges and opportunities for innovation. Traditional service models can be inefficient, labor-intensive, and slow to adapt to changing market conditions. There's a clear need for new approaches that can deliver the same level of certainty and expertise, but in a more scalable and technology-driven way. Not just SaaS !
The difference to SaaS
In my experience, there are various attributes that differentiate successful Outcome as a Service providers from traditional SaaS vendors in the AECS sectors. Here's a framework to cover four of the most important attributes:
1/ Value provided
The first and most important attribute of Outcome as a Service winners is their focus on delivering guaranteed outcomes, not just providing tooling or software. Outcome as a Service providers take responsibility for delivering those results. They offer specific, measurable outcomes that are tied directly to their customers' business objectives. For example, a construction Outcome as a Service provider might guarantee the completion of a building project by a certain date, with a certain level of quality and safety. An engineering Outcome as a Service provider might guarantee the accuracy and constructibility of their designs.
This focus on outcomes aligns the provider's incentives with the customer's goals. It shifts the conversation from software features and functionality to business value and risk mitigation. And it differentiates Outcome as a Service providers from traditional SaaS vendors, who typically disclaim responsibility for the end results their customers achieve.
2/ P&L items
The second attribute of Outcome as a Service winners is the P&L line item they attack.
SaaS tends to attack a total value pool of 1-3% of the industry P&L today. That's how much the industry spends on technology today. While that will be expanding over the next decade, it comes with a ceiling for now.
Outcome as a Service firms have up to 50% (directionally) to attack: The cost basis of labor, engineering, design, machinery, logistics etc. in the sector.
3/ Purchaser
Outcome as a Service startups often find themselves highly appreciated by front-office purchasers. These are the most technical experts in AECS, and they are the ones responsible for delivering the project or results for their organization. Since the P&L line items are budgeted for, the governance for purchasing through this front-office organization is defined for many years.
In SaaS for AECS, on the other hand, purchasing still often times gets delegated to back-office purchasers, who in their organization are not always technical. That's a key difference to other verticals enterprise SaaS has targeted in the past, where the buyers are often technical. The equivalent in AECS is the technical front-office !
4/ Touch-points
Common enterprise SaaS wisdom will often teach a mantra of minimizing touch-points in a belief that this will drive shorter sales cycles and a repeatable adoption motion.
In AECS, the best advice Outcome as a Service ventures will adopt is the exact opposite: NOT to minimize human touch-points with their clients. Touch-points allow to convey track record, thus driving faster adoption. Co-incidentally, they allow higher AOVs and repeat service purchases much better.
This distinction is crucial. In AECS, having human touch-points with the front-office is where the action happens. They're the ones who are savvy purchasing solutions that can deliver real, tangible results but need to feel confidence in the service provider. A pure-play Outcome as a Service provider is designed to meet their needs in a way that SaaS simply can't.
Think: P&L and purchasing
The key to Outcome as a Service is understanding P&L and purchasing processes. Look for the lowest P&L line item budgeted for in a project or process, and attack it with your solution. Buy readiness is crucial - if the outcome has been purchased for years, the process and governance are ready for you.
This is where too many SaaS models go wrong in AECS. They try to sell toolings that don't align with existing purchasing processes, or they target P&L items that are too granular. By focusing on established outcomes and buy-ready processes, you can tap into a massive market opportunity.
Framework: The attributes of service winners in AECS
Someone asked me recently here on Linkedin if Outcome-as-a-Service startups are VC-backable. Absolutely ! If specific attributes are given. Attack established P&L line items, look for services that have been purchased for years (better decades) as they are buy-ready in terms of procurement governance and processes, and power your service with software (and additionally hardware, as in the case of robotics-enabled services).
I look for ventures that commit to Outcome as a Service in AECS. Those who do often have efficient distribution, achieve 80-90% gross margins, and often reach early net profitability. Venture money is used to scale software and hardware, not to find profitability. That's what old-school venture should be like.
These attributes are the hallmarks of successful Outcome as a Service ventures. They're able to achieve rapid growth and profitability because they're solving real problems for their customers in a way that aligns with existing purchasing processes. It's a winning formula.
Examples
Managed marketplaces, robotics subcontractors, energy audits, engineering services, and cloud installer models are all examples of Outcome as a Service winners in AECS. In our portfolio, companies like InfraMarket, Metalbook, Monumental and Enter already demonstrate its power at great scale.
These ventures are proving that Outcome as a Service works. They're delivering real value to their customers and achieving impressive growth and profitability as a result. I believe we'll see many more ventures following in their footsteps in the years to come.
If you're a founder looking to build a legendary firm in AECS, consider Outcome as a Service. It's a powerful way to differentiate yourself and create value. I love to see more ventures embracing this approach and helping you with refining yours. Reach out and let's chat !