In Service Companies, There Is No Line Item for R&D

Originally posted on The Combine.

Originally posted on The Combine.

Recently, Matt Gray, BuiltWorlds founder and co-chairman of Graycor, a 90-year-old, Chicago-area general contractor, interviewed The Combine Co-founder and Partner, K.P. Reddy. We captured the interview on video, which is important, because this interview is one of the very few times you’ll ever see K.P. Reddy in a collared shirt and a coat. Here’s the video.

Notable Quotes from K.P.

The capital requirements to start an architectural firm are nothing. All you need is a customer.The Combine works with large companies to spin out new tech companies.  Especially in service companies, they are so close to the customer’s problem. They understand the problem. They’ve studied the problem. Then they start trying to solve that problem, by launching a new service unit to focus on that problem. Or, these days, everyone wants to build a new piece of hardware or software.

There is no line item for R&D

But in these companies it’s about billable hours, project revenue, project margin. There is no line item for R&D. So we’re able to go into these companies and mine these really cool innovative ideas and spin them out as tech startups.

Higher ROI outside of their core business

The large companies also retain ownership in the startup. Startup valuations are very different than services firm valuations, and particularly engineering and architectural firms. So we’re able to in many ways generate higher ROI outside of their core business than within their core business.