Selling My Bootstrapped SaaS Business
indiehackers.com
indiehackers.com
(not asking $$$ .. just multiples that were presented)
I sold a business not too long ago.
Just curious, what types of activities did you do at MicroConf? Did you speak/present? Did you attend sessions (which ones)? Did you just talk to people and network? How did you plan to approach people at the conf? What worked, what didn't?
I once paid to attend an industry conference for a product I was working on, it was a complete waste of time because I basically did nothing, could not get out of my shell, and didn't know what to do. So any guidance you have here would be very valuable!
I run an online lsat prep business. I sell video courses. Not a monthly SASS, but everything runs automatically. Students arrive at predictable times of the year and buy in predictable quantities.
But, to expand on it, you would need domain knowledge. That can be hired; I have an assistant who’s an lsat tutor who handles a lot of support.
There aren’t really any buyers within my niche. Existing lsat prep companies already have a course.
There’s also the issue that my personality is in the business. The videos feature me, and the informational materials are written in my own style, using the word “I”, etc.
So far I’ve been operating on the assumption that I can’t sell it at a reasonable value. But maybe that’s mistaken. Do you think non-lsat experts might want to buy a business like this?
There’s definitely some cost savings potential. “Programmer” is one of my larger expenses. A developer could optimize it with their own labour instead.
Most business owners are business owners because they enjoy the returns of the asset, not because they are themselves experts at every facet of maximizing those returns. Expertise can be bought; that is a major part of their responsibility. (When I expressed surprise at the existence of non-technical SaaS buyers someone reminded me that there are people who could not cook a burger who nonetheless buy McDonalds franchises.)
There’s also the issue that my personality is in the business. The videos feature me, and the informational materials are written in my own style, using the word “I”, etc.
This isn't ideal but isn't insurmountable. Is your personality in the business or is it the business? People have sold very personal brands before, but it's tricky to arrange at the lower end of the scale. To the extent that you appear in a video, well, someone has to appear in the video, and "founder" remains true regarding you even if it is an entirely emeritus position. Informational materials being written in your style is not a problem; style is one of the things they're buying, and they can either continue consciously adopting it or adjust to the styles of the people doing writing when you aren't, at their option.
For a more detailed opinion, chat up a broker; they'll be happy to tell you their opinion of whether going through the process is worth your time.
It’s probably worth thinking about this as I grow, because it would be nice to diversify in a year or two.
As for personality, it’s kind of a mix, but I think a purchaser could overcome it. It’s helpful that the site be run by me, but probably not integral.
> For example, I really do not understand paid search advertising (Google Adwords, Facebook, etc) so I purposefully put almost no effort into it as a customer acquisition channel for Storemapper.
This article is awesome and super helpful, but that particular point seems like terrible advice. Surely it would be much better to hire a marketing/adwords contractor, and increase the value of your company by getting more customers.
I don't think I would want to purposefully leave any "room for improvement", just to make a startup more attractive to buyers who have some experience with ads and SEO. I'd prefer to do the best job I possibly can, and I'm sure people would be still interested in buying, as long as you have the customers and revenue.
Having $500k - 1m brings decent peace of mind, even if it was a nice business.
I'm sure there are some hotshot marketing/adwords contractors out there...and unicorns probably exist also.
If your small SaaS business can afford to hire them, then they aren't worth hiring.
I'm still not sure the theoretical consultants you've listed would be "good" as such. They'll just have a massive budget they can use to blow the competition away.
I'll rephrase it as: The "good ones" would be working in a completely different field where their talent actually provides some value to the world.
I'll be the first to say that measuring the incremental impact of advertising is often very challenging for a variety of technical and business reasons. That does not mean it doesn't work.
Where it doesn't work is when you have inexperienced people spending an amount insufficient to properly measure results, not implementing conversion tracking properly, using poor targeting, etc. Of course that's going to fail.
And I'll note that there are VERY technically-oriented people in the industry who seem to have no problem feeling confident that advertising works for them.
My problem is simply with people who have had a few bad experiences writing off an entire industry. All I'm asking is for a bit more evidence for such a sweeping accusation, which I think is more than a fair ask.
Personally, I would rather leave money on the table than trouble myself with another marketing channel to make more money than I already super-happy with.
Paying someone to do something for you is as an investment. If you have no understanding of what you're investing in, it's not strange to be reluctant to make the investment. Additionally, if you're doing this type of marketing, but doing it suboptimally, you're not only wasting money, but an investor might not see the room for improvement because they may not see that you're doing it badly. They see "this is how many users they're able to get while doing all this marketing". If you haven't tried this type of marketing at all and the investor knows how it works better than you, they may see more room for improvement.
I think he is just being too liberal with the term "optimize" and what he means is, do the things you understand, and avoid doing the things you don't understand badly if you don't have to urgently deal with them.
I'm trying to figure out if you're just being a jerk here, or whether you are genuinely curious about a question with a wide range of acceptable answers. I hope it's the latter.
Market rates are typically something between 2x and 5x some sort of revenue or profit measure.
That said, the price can go over 5 if there is a big strategic advantage to be had.
Conversely, the multiplier can be measured in months if there are some red flags -- bad management, suspect financials (e.g, lots of charge backs, excessive debt, cash flow mismanagement, etc.), suspect marketing activities (e.g., janky backlink profiles), evidence of black hat / gray hat activity, publicity issues, etc. Sometimes folks just want to sell these to get away from them, and they are willing to offer the right price. Is offering a 12 month revenue/profit multiple or lower bad here? I would say potentially no.
Also note that some people are motivated to sell for some reason. If you've got cash on hand, they will sell for less.
Anyway, whether you intended to or not, this sounded like a snarky reply. Much has been written about markets for small companies, so blithely challenging someone on HN seems inappropriate.
On the other hand, if you do know someone who has an unconditional open offer to buy businesses at a specific multiple of revenue, please let me know. I can hook them up with as much as they want. I'm fairly certain that this is not the case, but I think it is prudent for me to ask.
From a financial perspective it almost never makes sense to sell unless you have to get out today. If you have a good business that is earning good money then just run it out for cash. At worst take your best employee, give them 10% of the business, and let them run it.
On the contrary, you should never wait to sell until you have to. That just puts you in a very weak position and ensures you'll be selling it for pennies on the dollar.
I've done it twice. FEI (the broker I used, linked by others) was very effective at bouncing people with very unreasonable expectations of market prices; I felt like my time was not wasted with non-serious parties (relative to my prior expectations of how many there would be).
Sorry, but which is it? 2X to 5X revenue and 2X to 5X profit are wildly different numbers.
My point was precisely that the market bears wildly different values.
As mentioned elsewhere, 3-3.5x of SDE is reasonable for a well-documented solid SaaS. If you read the article, even that can vary.
Business aside, I'm interested in picking your brain about your line of work. Always fascinating to speak to people who are doing cool stuff. Keep up the good work.
Really liked the "see an opportunity", of the business being worth more owned by them - the sale creates value in the world. Really, it's how a sale of anything, product/service, should be.
Unfortunately, getting a business into a saleable state, and getting a sale actually done, seem about as much work as creating a profitable (but not self-running) business in the first place. Conceptually analogous to Brooks' program vs. product.
> In a strategic acquisition, businesses can be purchased
Typo/something missing after that?
Accounting (consult your own accountant please0: when you make salary/profit from your small biz you get taxed at ordinary tax rate (up to 40% in the US) where is when you sell biz as assets you may be taxed at capital gain tax rate (0%-20%) which is a financial advantage - like you get paid 3-4 years ahead. Again, consult a professional on this.
You could have other ideas or projects you want to work on, but unable to because your business is your 100% priority and has been for too long.
You might not want to deal with hiring a team because that's the stage your business is at - too big for you to handle on your own or you don't want to work 60-hour weeks anymore.
I could just go on and on, but a combo of 2-3 of these will certainly make the thought of selling quite appealing to many.
Developed during a single flight? It shows. So the real question is, why the $$$$$ valuation?!
You would not believe the shit we pay for.
Were our company in need of a way to cross the street, we would almost certainly look for a vendor supported crosswalk, plus consultants to guide us through crossing the street the first few times, and training for our designated crosswalk guard.
And I'm not even convinced they're doing it wrong. People are expensive. Most the time Build vs Buy is a no-brainer for everything but your absolute core business, and even then you should wonder if custom software really will differentiate you from the rest of the market.
Honestly? I wish I had seen Storemapper a few months ago. We were in the middle of a website redesign and the board president decided he didn't like the map. He got the CEO involved who told the CIO who told... you get the idea. Storemapper would've been pure win that day.
Hire a developer with a salary, benefits, and tax to build this module plus project mgmt time for requirements building, testing, training, documentation, sustain, etc.
Pay $60/month and 1/10th of an FTE to plug it into existing assets and sustain it.
However, the analytics piece alone could be worth $60/mo if it provides something that Google maps doesn't, especially with regards to finding out when/where searches happen for your stores (conceivably getting the user's coordinates, and you already know the context for their search because they're on your site's store map). A large amount of searches in a particular location might mean it's a good store expansion location.
At $19/mo, even if it only took me day as a developer to create my own, I'd rather just buy the service for a year. I'll get a more polished version, I don't have to maintain it, and I can go do something more productive instead since I'm not actually in the business of creating store maps, I just needed the one. If you don't have in-house developers, like a retail operation might not have, the value proposition becomes even clearer.
I am a former developer myself so certainly been there done that mistake myself.
I implemented Storemapper for a few clients (indie sellers and major brands), and they absolutely loved it b/c it solved their exact problem and cost next to nothing.
I just knew that would be in there. Why do so many tech people seem to think that VC investment is what they want to be doing once they have spare cash? This isn't a personal critique of the OP, but it just seems so very common in general. I don't understand it.
It is not just a financial decision.
If you've got the spare time, cool, if you've got the spare money, cool. What's the issue here?
However, giving back to a professional community seems like it would run on a different set of fundamentals to giving back to a social community.
Could one not equally apply the argument to non-monetary activities -- giving talks, running events, writing OSS software, etc? That's all stuff that normally falls under the mantle of giving back to the community, yet it often confers resume benefits.
What is it that makes it different?
I think a lot of us non-rich guys know this, too. When I was young and had no money, it was harder to give someone a significant amount of money than to spend my time helping them. So I would give my time. Today when someone asks me to help them with something I'm thinking "can I just give you money, hire someone to do it" unless it's something I actually enjoy doing. And I'm FAR from rich.
One of my least favorite things is when a family member asks me for help but they refuse to take money / let me pay for something. They think they're being fair by refusing money but they're actually being unfair because they're asking me for help but not letting me help them in the way that is easier for me, purely because they don't want to feel bad for having taken the money.
With banks out of the business of loaning people money there are genuine opportunities out there where people can put money to work. I imagine he is not going to be gambling on ICOs but investing in profitable companies.
Hell, with current interest rates, you might as well use some portfolio margin and borrow an extra million.
Uh, it's 6-8% compounded over what ever time frame. Which is actually still quite good and probably handily beats most angel investment returns.
Vanguard 500 Index Fund, 130.56% since 2010.
And neither look like hockey sticks.
Longer term 6 to 8% feels about right though.
If you made a million today, you probably want to just keep it in an account and wait until a 20%+ correction happens before buying in, though -- it's been quite while since the last significant drop.
Most tech companies looking for angel investment or VC money are just other versions of information selling (that is, information about people) or social interaction or both. They aren't worth "giving back" to, from either a tech perspective (from the perspective that they'll possibly advance technology) or from an investment perspective (they'll almost certainly perform worse than even conservative investment).
I'd also add something to the general topic. I never expected to sell my company and I think that actually helped. I drew a salary and kept my finances distinct from the legal entity that was the company. As it was I was the only owner, there were no investors to please, so profits went into growing and securing the business. Note: I consider sharing the profits with employees to be part of business growth and security.
That meant I had complete ownership and a healthy business, without much real debt. This was attractive and it was quite surprising, sort of, when the offer came in. It was only sort of surprising because there had been a few rumors about it.
So, I'm of the mind that the mentality drove the process and the process influenced the results. Of course, there is survivorship bias and I'm just a single data point.
Have you seen any correlation to the "no pressure"/generous aspect of your investments to the success or failure of said investment? My feeling is that the lack of stress attached to the investment may make it easier for the founder to achieve their goals. No anxiety about failure to pay you back = no self fulfilling prophecy. Probably depends on the founder.
Any startups that come to mind that have helped this generation?
That sounds noble. But, concretely, you want to help people make SaaS products like Storemapper (mentioned in the article)? I don't want to sound demeaning, but is that really such a noble goal?
That comes across as a pretty negative thing to say, the implication you're hinting at and not saying in a forthright manner.
Noble goal is an inherently subjective concept. Your definition of that, will vary from everyone else. It makes very little sense to challenge someone's actions on that basis.
Sure he's not curing cancer but there is a tremendous amount of nobility in his future actions.
Look beneath the surface my friend :)
When I started there were zero angel investors and next to zero VCs. Things have got a lot better, but we still have a long way to go.
This is the reason I would do it if I ever make FU money.
If you want a series of potentially-fun lottery tickets in industries and teams you choose, you have an advantage.
If you want any return (and I mean any, as in, recovering any capital), you have 3 huge disadvantages: insufficient diversification[1], a lack of dealflow, particularly great deals, and inexperience evaluating and participating in other people’s startups. These are all surmountable, but doing so is an occupation.
If you don’t already read Matt Levine, the “Retail Traders” section of https://www.bloomberg.com/view/articles/2017-10-09/retail-vo... applies to picking a small quantity of individual startups too. The reason to do it is because it’s fun (and you’re comfortable losing all of the principal), not to earn average risk-adjusted returns.
[1]: Check out 500 Startups’ presentations and posts on how much diversification is required to expect average returns for the asset class. Here’s one: https://500.co/not-so-simple-math-on-venture-portfolio-size/
> I don't understand it.
I do. Angel investing is a status symbol in tech circles.
without it, this is one of many aspects that will make it impossible for some hamlet in Bumbaf* Cheapsville to be "the next silicon valley"
Interestingly though, a read of "paying it forward" in wikipedia - https://en.wikipedia.org/wiki/Pay_it_forward - teaches me that the phrase can also be implemented in the contract law of loans. I never knew!
Perhaps I’d take my money and go build schools in the Himalayas or something.
But to each his or her own!
Makes sense to skew towards industry where one has acquired lots of information.