Hello! We hope everyone is having a great start to their summer. We’re excited about our work at Third South and are continuing to put the work in.

Expanding the Scope

We have spent a lot of time (both virtual and in person) talking about our organizational goals, how big we should aim, and how we should get there. We are focused on two things, both of which complement each other and create a flywheel effect:

First: What we’ve already been doing

Third South Capital started as a permanent holding company to own and operate businesses. That has not changed. We still own the businesses in our portfolio, which to date consists entirely of software businesses. Our goal is to aggressively grow the cash flow from the businesses we own.

As we continue to grow, we believe our portfolio companies may eventually expand out of software.

Second: What’s newer

Third South Services, Customer-Driven Development, and Labs.

Third South Services: this is inspired by conversations with folks in our personal and professional networks. We heard countless times that organizations want to use AI, but rarely make it past generating text/emails (or maybe a loosely used Claude connectors project).

Plenty of firms now focused on “AI implementation.” Our thesis is that we can do it differently. AI proficiency belongs at the organizational level, not with external parties. Put bluntly, we have no interest in parachuting in, building a sloppy AI integration no one can use, and asking to get paid for it. All tools should be usable and understood by the people operating the business daily. Second, we are approaching it from a ‘business problem’ point of view — taking context for where there are inefficiencies and bottlenecks, and figuring out what solutions we can build around that. We believe this combines the experience of our partnership (industrial private equity, public markets, operating businesses, startups) with our technical ability.

To give one tangible example, we are currently working with a business to replace an Excel spreadsheet that they use to schedule thousands of annual client visits with a custom tool they can use to simplify this process. Today, booking these visits takes multiple days of employee labor: scheduling the visits is complex (they all have their own if/then logic), needs to be verified against client SLAs, each of them has team/staffing assignments, and it all needs to plug into their existing system to make sure it coordinates with PTO and on-site schedules. This is a type of problem we feel well-equipped and excited to solve.

We are excited about the early traction we’re generating.

Customer-Driven Development: getting a feature or business from idea to revenue generation is hard. There is a significant “cold start” problem. You can create a great product or service — but how do you find your first customers? Cold emails are tough. How do you rank in search results? Digital ads are a mature space. How will you handle customer support requests that could come in? They will. Is this even a good idea? It’s hard to say. Most importantly, how do you determine whether continuing to work on this is worth the opportunity cost of time?

While it may seem like an obvious thing to say, as a team, we have internalized why it is sometimes easier to buy an existing business rather than to start something from scratch. Existing customer relationships, brand identity, systems, processes, and search rankings matter.

That doesn’t mean we won’t keep trying to incubate new business lines; it just means they must be well-scoped and have a clear way to measure success. Customer-driven development is how we expect to develop a lot of our future products: with a customer already in place. This goes hand in hand with Services. Breaking the initial inertia is the hardest part, and starting with a customer who is willing to pay makes it much easier to roll the metaphorical snowball down the hill.

Labs: at Third South, we have no shortage of energy for new ideas. Labs is where we work on them. Every time a new idea comes in, we have a standard one-page template we use to fill out some basic validation: how big could this get, how much investment is required, what work we have done to validate the idea. Over time, we expect Labs will be where a lot of projects that started through customer-driven development end up.

The end goal of Labs is to be able to validate new ideas while also “failing fast” on ideas that might be better suited as a hobby project (see: the Mt. Diablo bike race tracker I built. Cool for comparing how weather impacts finish times each year…but likely not a big revenue opportunity).

Over time, we are excited about the idea of potentially partnering with people in our network (or hiring) to invest behind a Labs project that gets traction.

Tying it all together

These pieces of the business work in harmony. Services introduces us to new business models, end-markets, and operators. We get to work directly on business problems while generating revenue that helps fund M&A and future reinvestment in the holding company.

As we continue to turn over rocks and see what’s possible in the world of AI, we are open-minded about the types of future assets we could buy.

Ultimately, it comes down to finding the highest return on an incremental hour of partners’ time. What we don’t want is for all of Third South’s time focused on opportunities that are good… but could undershoot where we want the organization to be in 3, 5, and 10 years. As such, over the last month, we have worked on positioning most of our software businesses so that they can run smoothly, freeing up hours of our time to focus on some of our newer bets (h/t Myles for a lot of this work, including spinning up a full-time support staff for EntryThingy).

If any thoughts, questions, or ideas jumped out at you while reading this, please reach out. Thank you to our friends, family, and advisers for encouraging us to think big!

— Colin