Ask HN: Should I sell my SaaS (400k rev)? | Hacker News Reader

Ask HN: Should I sell my SaaS (400k rev)?

Hi All,

For the sake of my employees, customers, and reputation, I've decided to use this alias.

I started a SaaS co 6 years ago, in a very popular/crowded industry. It's grown to roughly 400k/year in revenue (60% profit margins).

The business has been quite slow the last 6 months and even started to decline (roughly loosing 100 MRR every single month – churn being 10% and growth being 10%). We haven't grown much in the last 12 months (maybe $300 mrr was added, in total, after churn, after 12 months?).

My question to you is, when is the time to pull the trigger and sell?

I'm quite bothered by the fact that I can't fix churn, and my broker believes we can get a good payout for the business.

Look forward to hearing your thoughts

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Having sold a couple of companies now I will put it to you this way. If you were to sell right now you are selling from a position of weakness, not strength.

If I was in your position and if you are just tired and want to do something else you need to get the business growing consistently again month to month. Maybe that means finding some fresh blood to bring in.

Another option is instead of selling, look into hiring professional management to take over and you drop back to advisor and chairman. Hold them accountable to grow the business. This means for some period the net income will obviously drop but it come back. Plus it may give you the push and distance you need to be able to help the business and yourself.

And of course you could just sell and try to maximize right now but it won't be as favorable since you are not in a strong position. But sometimes it is nice to just move forward and put cash in your pocket even if it isn't the highest amount you could.

Good luck!

This sounds like great advice. Agreed on the "selling from a position of ...strength".

Being able to point to a continually increasing MRR is huge. If I, as a potential buyer, see a decline in MRR [and customers], I'm going to try to get the company for a steal.

The flip side is that the market segment he operates in is very popular and this might blind some less disciplined buyers. So if you focus on the popularity part you still might be able to get a good price.

You have to be positive and down play the churn by saying that you haven't really been focusing on the company and that the new buyer can step in and make a difference....play to their ego....

If you went completely passive (let your top employee just be CEO) today, how long will it take to lose all your customers and wind down to $0 revenue?

I would just map out how long you think that would take, and forecast all future cash flows by that hypothetical method, and then make your sale price $1 above that amount (discounted).

Very simply if this year you net $240k, next year $200k, then $150k, then $50k, then $0 without you lifting a finger, why would you sell for less than the NPV of that $400k?

That makes financial sense, but people's time, sanity and overall health has some utility too. What if OP is simply burnt out?

Well that's why I said go completely passive. Not involved at all beyond getting a dividend payment

Except that is not that simple when you own the business. You will always be responsible for things at the end of the day and that itself is a big burden.

OP here. I've considered this "passive income" approach, and perhaps am in this right now – I haven't been doing much work on the business, just collecting checks.

I often wonder what the value/problem of the upfront cash would be. I feel like I could do big things – but I just can't get over the fact that I wouldn't know what to do with $600-750k in cash, to produce more cash.

Some people buy businesses that passively generate income for them, so that's a thought.

Wait...

New app: business swappers

Couldn't help but take a look at your profile. I noticed that you asked Sam 1.5 years ago whether to sell. It feels like you've been considering the selling option for a while now. Given the slow growth and that you are starting to tip towards negative growth, my hunch, and it's only my hunch, is that deep down, you've been feeling a little burnt out on this for a while now. But because of certain attachments naturally created because you made this thing, it feels like you can't get yourself to sell it.

That's just a long long hunch. But if it is true, and you feel that way even a bit, I'd say sell. Not as a financial or any other kind of scientific piece of advice. Just out of kindness to yourself and those working with you, allow yourself to step away and sell.

Two things that stood out for me when reading your question:

1. I'm quite bothered by the fact that I can't fix churn Maybe you have already done, but I would suggest that you can be more transparent with your employees, who may have some ideas on how to resuscitate the business and make good returns again. This statement seems to imply that you are solely trying to fix whatever is broken with your current business model.

2. My broker believes we can get a good payout for the business Do you believe that your broker is acting on your best interest or the interest of the company? There's a fine line between those two. A payout at this stage of the company seems to be a scenario where you are simply abandoning ship while the rest of the crew is still paddling towards shore.

Hope you find what's best for you, the company and everyone that may be affected.

Hi, OP here. Thank you for your comment. I'm baffled by how many wonderful people have shared their POV & experience.

I don't believe my employees would know what to do. I've spoken to them before, and gotten very little value from it. They don't have much of a business acumen.

It goes without saying that the broker is doing what's in his interest. But I've found this particular broker to be very truthful, upfront.

He believes we could get $700k, upfront cash and the rest ($100-200k) an earn out.

Of the 700k, I'd get $560-600k upfront after paying back investors (10%) and broker (10%).

At this point, I'm really paralyzed on how to move forward.

I'd LOVE to be able to fix the business, but my worry is I'd have to redo the product from ground up (we have a wonderful codebase that we rewrote a few months ago), in a way where we essentially put out a completely different product.

^^ That is one of the reasons I thought about selling – If I have to build a new product to fix churn, I might aswell sell, and do it from 0, given the risk at hand.

Can I ask how you found your broker?

Sell 90% of it. Or some other structure where you give up ownership and control, but retain some residual.

You'll have to reduce your asking price quite a bit (so maybe you end up with $450k vs $600k), but I'm guessing that won't really matter in the grand scheme.

As for what's next, you need to figure that out anyway. It doesn't sound like your business is going to continue forever without some new passion, so this gives you 2-3 years of runway to figure out what gets YOU excited.

If you choose your buyer well, maybe you'll get a huge recurring payout over time. Or maybe you'll get nothing. But hey, without passion your business is on its way to zero anyway, so there's no real loss there.

I have created this account for responding to this answer.

Move product development to 3rd world country, by spending 6-7K$/month you can gain 3-4 fresh bloods, who will continue working on your project. You will go to passive CEO position, where you control project development and oversea new features. may sound weird, but you dont need to think about giving shares to new employees, taxes for salaries or giving them office space. Just pay for their work and it will go as much as you want to continue with your project.

I am living in one of the developing countries, reach me out by email if you wish. simon dot kerstein at gmail

Thanks for the idea. I'm already doing this – my burn rate is $6k for my team of 3 (support, sales, dev).

Well this answers why your team doesn't have good product insight.

Perhaps you need to do the opposite. Hire American talent with college degrees. They can provide real useful feedback.

You've probably done some churn analysis at this point -- do you know what % is passive churn (i.e. payment-related) versus customers who are explicitly canceling?

I'd consider spreadsheeting the biggest leaks and getting super aggressive with multiple approaches. Empower your team, consult with professionals, leverage third party tools, outsource... all out offensive.

It's difficult to know the ONE THING that will increase retention, but improving many things by a percent or two will give you noticeable lift.

And by compressing it into a short timeframe, you'll reduce the number of variables around cohorts, seasonality, etc.

Since you are not spending much time on it anyway, why not leverage the customers that you already acquired and spend time fixing the problem? Even if it requires rebuilding your product. The hardest part of every business endeavor is customer acquisition, don't underestimate all the hard work that went into building something people will pay to use.

Try to interview every user that churns (offer them a Starbucks card for their feedback) and figure out why they are leaving. For some reason, their expectations are not being met. Fixing that is probably easier than starting a new business.

If you're thinking of selling, definitely sell. There's a million things to do, and getting a decent exit on anything means you can now do the next fun thing on your list!

On the other hand, 3 things could happen if you stay with the business: 1. It keeps declining. You'll have to fire employees and down-size. :( 2. It stays stagnant. You'll end up feeling like you're wasting your life. :\ 3. It grows. You'll likely have to hire outside management, growing pains, etc. That's the "not-fun" part of entrepreneurship. :|

Sell it and move on! :)

It's unlikely you'll be able to sell at a reasonable multiple (beyond 1x-2x ARR) unless your buyer thinks they can turn the company around. If you're not willing to double down and figure out how to a) reduce monthly churn to less than 1% and b) grow revenue by at least 5% per month (after churn), you're much better off putting the company in SaaS maintenance mode, eliminating new development, downsizing the company to the bare minimum, and earning $30k per month with a 70%-90%+ profit margin while customers are still happy.

Thanks for your input, it makes a lot of sense. However, I'm worried reducing churn to less than 1% is very very hard (I don't know if you've ran a SaaS with 1% churn – It's not as common), and often requires product changes, which may impact overall growth and cause even more churn.

If you can't fix the slowing growth and someone else wants to buy it and attempt to do so I'd say why not sell: the multiple you'll probably get on your revenue should be a tidy sum.

Thanks for your comment – another thing I'm worried about is what next? I've been doing this so long, that, unfortunately, I've gotten quite comfortable at it, and worry that I wouldn't know what to do next.

400k a year means the selling price would be about 4 million? How're your savings? I think that would be enough cushion to either seed your next thing or help you have the time to study and get up to speed for a 9 to 5.

I don't think you can get 4 million.

Looking through some listings on a broker like FEInternational (https://feinternational.com/buy-a-website/), most SAAS businesses are valued at 3-4x anual profit.

He said profit margins were 60%, so $400000 x 0,6 x 4 = $960000.

And thats for a healthy business. This one is not growing, so you get probably less then that. After the seller's fee, and taxes you might end up with something like $600k.

Ahhh well then I am way off.

Indeed, it would be around $600k after paying back investors and such.

Even if I did net the $600k (3x my current annual salary), I wonder if I could use it to recreate something I have right now (a biz that produces $200k/year for me w/ little effort)

Is this a product in the digital marketing space? If so, I might be interested in acquiring it.

As an aside, I'd be interested to hear more about how you started and grew the business.

Have you talked to your customers to understand what they need now and why they are churning?

Of course, but the feedback has always been completely different, depending on the size of the business/customer. It'd range from "price is too high" (value) to "you don't do X" (x being a all-in-one suite, as our market often bundles products together) to "not what we were looking for"

That could be frustrating. It's an interesting problem. I think the knowledgeable people of YC would probably have an answer for you on, or a way to think about, what to do in the situation where you have unworkable churn and when you talk to your customers and they all have different advice depending on their type.

I don't know if it well help you and I don't know anything about your business but I'll throw in my 2 cents since you're asking for opinions.

Even tho it sounds from your post like you'd like to sell it, the sense I get is you'd actually like to save it if you can. It's your baby, right? And this whole process is extremely frustrating to you. You feel the pressure right now, right? So what I see is this is a sort of real crisis for you. So that's where you are.

And so my question for you is what did you want to achieve when you started this business? What was your goal for it or the very cool idea you had in mind? If you can find that maybe you can get back to that. And if you need to make some changes, and drop some types of customers, and focus on other types of customers, to get back to your core purpose with this, then you'll do that, because this business is that important to you. You're welcome.

Out of curiosity, what was the reason for slowdown? Competitor product?

Don't sell it, give it to me!

If the space is really that crowded though, you shouldn't have issue finding someone to pick up your clients, don't you think?

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