SaaS Acquisition Stories w/ Lauralynn Drury - VP of Experience, StayTuned Digital

Foreign Andrew, founder of Microacquire here, and I'm so excited to be with Laura Lynn from Stay Tuned Digital. Laura Lynn, thanks so much for your time today.

Yeah, excited to be here.

So before we started recording, you were telling me about your personal background in operating and growing different startups. Do you want to maybe give a little introduction of yourself and your background for everybody listening?

Yeah, I'm probably very different from a lot of the other folks you've had on this podcast, so thanks for having someone who zigs when others zag. But my background is in operating and product, so I'll skip a few of the early boring years where I learned how to be an adult. But after playing around with consulting and working at a bank for a while, I decided I want to learn tech. And I went to Warby Parker, kind of tricks them into hiring me and had an amazing four or five years there on the tech team where I got to build products. So everything from our point of sale at our first few stores that then became many, many stores, to our inventory management, and all the way to an app that lets you take a vision test from home, which is an incredible app that a lot of you should check out if you're still hanging out more at home than you are in stores. But at the end of my tenure there, I was really curious about this thing called Shopify, because it seemed to make a lot easier that I was kind of doing by hand at Warby. So I left with the intent of learning Shopify and I went to a few brands. First Verity, which was a big apparel retailer that had wholesale retail e Comm. So I got to I was thrown into the world of Shopify and from there then worked with a handful of other brands and CPG and beauty, getting them on Shopify, understanding how to use it, how to use it efficiently, and how to grow your business on it, primarily from the operations, product team, customer service standpoint, less the marketing standpoint. So Serge, our CEO, and I have been friends for years and he had been working on all sorts of things around the Shopify ecosystem. And in the summer he started incubating this idea, which is a little more popular now, but the idea to roll up Shopify apps and provide a better experience for merchants. And I from the moment he said that, I was all on board. It's really, really fun to be working in the Shopify ecosystem with the goal of making merchants lives easier.

Nice. So tell me a little bit more about Stay tuned Digital. What kind of apps do you specifically look for? Is There a certain category? Is there a certain s. Is there certain. Just anything that kind of really gets you guys excited?

Yeah. Does it have to have like a rhyming name? Alliterative ambient pentameter? No, we're trying to focus. We have six apps right now that we've acquired since the fall and we are focusing on things that make sense to our merchant minds, which is things that increase AOV uptick conversion, which a lot. I know many, many apps, you can kind of say they do, but we're really trying to focus on, on those. So anything from upsells to bundle builders, things like that. And in terms of size, we're open to anything. We typically are looking for things over 20k a month in MRR but really open. And I think the other thing, we're very opportunistic in terms of who is selling and how they want to grow it. It's been really nice finding some merchants, excuse me, some developers that want an earn out and want to stick with the growth of the app for a little bit because they really believe in it and they want to hand it off to a team that believes in their product and their vision and can help them see that through a bit.

Nice. And then I guess this kind of goes into my next question you touched on a little bit. How do you, how does your firm evaluate certain Shopify apps? What's like maybe some main metrics that you would personally get really excited around?

Yeah, if we have a handful of team members to bring different perspectives. So I definitely skew on our merchant usability and product perspective. Our, our CTO evaluates the tech stack and I'll go into more details on this. And then our head of corporate development really understands the financial modeling around it. How much like do what do we want to pay for it? What do we think it's worth? What are the different ways we could structure it, knowing what the app developer wants to get out of it. But basically if we don't think the product is good, it's a total no go. Like even if the revenue is off the charts. One example would be if your app makes a red button on a site that just says click me and people click it and you get a dollar every time they click it. That product doesn't make sense for merchants. And even if the MRR was crazy, we're not going to buy it and there are probably a lot of people who will buy it and that's great for the developer and a lot of developers out there who can sell, but we really care that we like the product. And so from my perspective, when I'm looking at the product, it's what does it do, what are the pain points, how are people using it? And my background is as a merchant, so I can hopefully see those things a little bit faster and just getting in there and playing around with it. We also are kind of hedging a bit and thinking about the future and I'm sure so many people are right now and a lot of app developers and folks who want to sell their app are wondering what's going to happen with all the ever changing market shopify earnings. And there's a lot of interesting apps that are helping take people offline a bit too. We actually just purchased one called EV Events that allows store owners to sell events whether they're zoom events or in person events. So first and foremost, going back to your question, the product has to make sense for a thesis of ours for future growth or how current merchants are using it before we even evaluate how much money they're making, how big their team is, what kind of tech stack they have, what they're spending and marketing, what their content base is today and where we'd like it to go.

Okay, I'm going to throw a curveball at you. If you had to, if you could only look at one metric when looking at a product, let's say you love the product, it's a great product. It's not the red button that you get a dollar for. What would be like the main one metric that you would look at?

I think, I mean, I'm trying to combine two in my head right now.

I'm guessing it's one is probably churn.

Yeah, yeah. But of course that it's challenging because some apps naturally have higher churn and some try not to generalize, but it would be a combination of three. I'm going to break the rules. Revenue, obviously. Churn and tenure. And the reason I'm calling out tenure and churn differently is because some apps are so cyclical and seasonal.

That's very true. Especially with E commerce. That's very, very true.

Especially with E Comm. Especially. Especially like with. With the nature of what merchants are going to be doing more and more of is testing things out on their own. Like if you look at the uninstall rate for the first 14 days, does that give you the whole picture? No. So I think it would. I'd have to break the rules and combine a few of those metrics.

Yeah, that's a hard question, but I like your answer. A lot. So your firm has acquired a number of Shopify apps. What's your personal favorite that you've acquired?

We acquired one of our, I think it was our second app called Box Builder and it was an app built by a self taught engineer to solve a problem. And so off the bat, I love it. It was, you know, the intent was to solve a problem and it was to allow merchants to create their own bundles and add certain rules to them. You know, whether it's a buy, two get one free, or a whole curated experience of filling up your cart with different products. Let me just explain it a little better before I talk about why it's my favorite. So one brand, beauty brand, sells fake eyelashes and tools to put them on your face. It's kind of overwhelming because they all look the same. So they were able to make a three step builder that allows customers to select their style by lash and put as many in their card as they want to trigger a discount. And the next step walks through which glue they need. And then the last step was some accessories. So I love this the most for a couple reasons. One, it serves such a need. Not only is this not an innate feature set in Shopify, but this app also allows you to apply discounting in addition to Shopify's discounting, which has some limitations. The biggest limitation of Shopify discounting is that you can only use one discount code. So this kind of helps merchants get around that. But whether merchant. And another reason I love it is whether merchants have just a few skus or, or thousands. This allows them to make a curated selection. So some other merchants have different gift sets. If they sell like wax seals or fish, they can really walk someone through it. Almost akin to like if you had a personal shopper that's saying, okay, here are your shirts. Now pick this shirt. Moving on to the belts. This one goes with that. How about that? Oh, and do you want to personalize and engrave it? We have a tool for that too.

That is awesome.

It's so cool. And the other reason I love it is we bought it. I think it was at a 4.4 review rating and now it's a 4.8. So it's a little bit of like a first child to me and that we brought it in and gave it a lot of love and gave it a lot of customer support and helped merchants out a ton and it's been getting better and better.

That's awesome. I always love stories of number one. I mean it sounds like a great app, but two is you. After you Acquired it, you improved it. And, you know, I'm sure the original developer can look at it and see it, you know, still thriving and being used by a bunch of happy customers. So that's awesome.

Yeah, it's, it's a great story. And it also helped us grow up. So because of that app, you know, it was in our early days, we, it helped fast forward our hires and our systems and our processes internally. We also acquired it right during holiday season, which I can personally tell you my holiday, my Thanksgiving, I was like on a laptop in the middle of nowhere answering customer emails because I knew how important it was to them to get their builder set up. So that by Black Friday everything was humming.

Yeah. Nice. Okay, so switching gears here, there's a lot of Shopify developers and just startup founders that are potentially looking in this next year. If you had to give maybe one or two piece of advice, you can break the rules again and give three if you want. What would that be?

I think be really upfront about what you're looking for because there are no issues with that. If you want to sell and have nothing to do with it, that's totally your prerogative. If you want to sell to someone who's going to partner with you in some way to carry it to the holy land of where you think it can get because you have all that product knowledge, great. Just be super upfront. There's no wrong way to do it. There are acquirers for every type out there. Some that will sign the check and want you to walk away and others that will want to partner with you. So I think off the bat, make that really clear because only when that's on the table can you work with the acquirer to come up with a structure that works for both of you. Yeah. And I mean, we should all be honest with each other too. I think that's something that we try to do of what we like to do most like. We really like when sellers want to do an earn out. And why? Because they have so much of the knowledge in their head about what works and what doesn't. And we love partnering and working with great people. We're having a blast with August Noble from AOV Boost. We just acquired working on a product roadmap about where we're going to take it and how we're going to grow it. And he's excited and we're excited. It's fun. So I think that would be one piece of advice.

I like, I like that. I was going to say I like that one. A lot too, because you're right, there are a lot of firms that you know are looking for 100% buyouts, but you'll essentially work with an original developer. Maybe they've just taken it to a point, they just can't take it any farther. And your firm will work with them as a partner so they can continue to have a piece in the success as it grows.

Totally. And we're lucky. I mean, we're, we're well capitalized. We're having fun with this. We can be creative and we can be developer friendly, merchant friendly all at the same time while we're building our business.

Nice. Do you guys, do you guys focus on 100 bios or do you prefer majority buyouts, like partnership buyouts?

We're open. I think we, there'd have to be a reason to not have a majority, like a really good reason.

I guess when I say majority like founder walks away versus like partnership.

We prefer partnership. And for the intangibles of like, it'll be great to work with them and it'll attract the type of people who believe in product and supporting merchants like we do. We have had an experience where the original developer walked away and it was a lot harder for us. I think just the handoff, one of the, you know, every tech stack is super different. Every, every historical piece of working with a merchant that has been working with a certain founder or the app owner for a long time and gets transition. There's a lot that you want to make sure is a seamless transition. And so you want to incentivize that and just align everyone to doing that. I think it's in probably most cases, SaaS and beyond. If you can have a seamless transition with anything, it's going to be better.

Yeah, that can be. One of the bumpiest parts is, you know, you acquire something and then you don't have the original developer and then you don't know how the source code works. And then you have to spend weeks or months finding someone to figure out how it works if you don't have someone in house. So it sounds like, you know, you create these win win partnerships.

Yeah. And I think, I mean, we have learned that that's the way, a little bit the hard way. But it's. I think the other piece of advice, going back to your previous question or for advice to sellers is, all right, so once you've sold it or you're getting to that point, what do you think to do is like tell them which snakes are in which mailboxes. No Apps are made perfectly. I think anyone who's acquisitive in this space knows that. And so just be upfront about, like, where there are weaknesses, where there needs to be more buttressing. And I know it can be super personal because maybe this person coded it in their free time and their, their code isn't up to even their snuff. And it might be more emotional, but, like, the team needs to know that or else it can make that transition process more tense than it needs to be.

Nice. Would you agree with this? I meet with a lot of founders and they feel that they always need to advertise or when they approach buyers and basically display their app as perfect, everything is, they've done everything right. There's, you know, all growth channels are perfectly optimized. But it's almost like a, in my opinion, a benefit to bring your business forward with, you know, scars and especially, like, growth opportunities. Like, hey, I haven't done this, haven't tried this. I tried this and I failed at this. Or this has a, you know what I mean? Like, because it shows, number one, honesty, like you were describing, but number two, you know, potential upside that you can capitalize on that maybe the original owner wasn't able to.

I think you have to assume that if you're not disclosing it and things get serious, it will come out and it doesn't need to be exactly. Like you said, be honest about what you've tried, what's worked and what hasn't. So the companies evaluating you can determine if what they would need to put in place. You know, have you not done any content marketing? Do they need to find someone who's an expert in your space to do content marketing? That's not a showstopper. It's just a consideration that they'll have to think through. And if you try to hide any of that, it will come out. We were on a call recently with a company that really tell us about your competitors. What are they doing well, we don't look at competitors, and to me, that's a huge red flag of even talking about disclosures. Think about what your competitors are doing. What are they doing well? What aren't they doing well? When might you refer a merchant to a competitor because they offer something you don't? What are they doing really well that you'd want to bring into your set? So I think it is, yes, disclose anything you've done, where you think your gaps are, as well as, like, your roadmap, what you want to do, what you think competitors are doing well, how the environment's changing or else you're just so myopic and have those blinders on. And I think you'll have a lot of, a lot of more interesting conversations if you are a little bit up front.

Yeah, I completely agree. And for this next question we're recording this at a very interesting time. So we're into the year and it seems like the sky is kind of falling a little bit. Specifically for Shopify. I believe their stock is down like 80% or something like that. I don't know. But anyways, what are your predictions for if you had to give one for your head in terms of just acquisitions or e commerce. Commerce as a whole.

It's interesting. I mean it's I think and these are my personal beliefs and also call about what stay tuned things is everything's cyclical. I think some of us looking at the Shopify earnings are really surprised and others aren't personally it was bound to happen with looking at all the different tech stocks and even all of the different companies that really had a big of huge growth during COVID The height of COVID had to come back to reality. We look at Peloton Zoom. Thank you Zoom for sponsoring this call. But they all took a hit and so it's about time for Shopify because a lot is returning in real life. I think this less so Shopify's earnings but more so like the macroeconomic environment, inflationary environment will change the acquisition space a little bit. It might take multiples down a hair. They've been crazy high. Maybe that'll happen for those selling it might have the acquirers a little more focused on actual metrics and results. I know I've been in a lot of conversations where the app seller didn't really have that hard data so they might have to provide a little bit more of that hard data to back up their claims. And I think we're going to see a change in the merchant behavior on Shopify which will of course have a trickle down effect into the apps. I think we're going to see a lot more stores closing sadly and a lot more stores probably that aren't plus so the ones that are on there not paying as high of a premium to be on Shopify and I think that will greatly. You know that's going to affect Apple providers and app roll ups like ours as well.

Yeah, I would, I would agree with that. Especially the valuation piece. I mean for the last like two years. I mean I, I'm sure you've been in this situation where my App is worth 20, 30 times revenue and it's like, no, it's not. So I think this, this, I think this is almost a good reset for everyone to, you know, really understand. Like this is the true value of, you know, a SaaS company or Shopify app or e commerce store. What. And then I don't know what your take is on this, but even if you bought something like at the peak, not all.com stocks, but if you bought Amazon at the peak, which was I think $113 a share and then kept it or even at the peak of the. I was in college during the Great Recession, but people, anything during that time period just held it.

Yeah.

So I think, you know, what we're seeing right now is just a lot of short term panic and if you kind of zoom out and look at the bigger picture, like there's still a lot of growth being seen and across SaaS, Shopify, everything, it's kind of just like you said, like what goes up comes down and what goes down totally.

And we also have to think like Shopify. And I loved part of what Harley was saying or after earnings about like the goal of Shopify is to support entrepreneurs. Right. And we believe deeply in that. We're a bunch of entrepreneurs that are, that are working at Stay tuned. But more so when, when folks, if they're getting hit by inflation and just tightening in the economy, they might turn to Shopify to try to, if they lost their job to try to sell something out of their home. So there will continue to be commerce and not just those people, but everyone that needs to be supported with great software and excellent customer service. And I think the other thing that tends to happen during these like cycles is, oh, there's this great quote when the, when the water goes out, you see who isn't wearing pants. Like maybe I'm misreading that by like not saying that. And I think we're going to see a lot of like, what are the apps that are just like vaporware and not really doing anything to contribute to a merchant's bottom line. What are the companies that haven't been able to add value when they buy up these apps? So I do think like for us, if we just keep our focus, help merchants be great partners to the apps that we buy and the folks we partner with, we'll be fine.

I think so too. I love the positive attitude. I think long term thinking always beats, you know, short term thinking every single time does.

And we're trying like the other thing I'm I'm spending some time thinking about now is assuming this is going to happen. And, you know, a lot of the app sellers that are out there probably feeling this pain do. Merchants are feeling it a lot and they're probably emailing you nastier notes when things aren't working or they don't think things are working. We're really trying to think through how we can support them better. Of course, it's like great customer service and being responsive, but even proactively, like, what can we do to help out folks that might be going through a hard time? So I don't know exactly what that's going to look like just yet, but it is something we're trying to think through. How can we best prepare for tightening with the merchants that we support?

Nice. I love that. I guess my last question would be with all your knowledge with E commerce and Shopify and just your experience, if someone wanted to, like, are there any books or podcasts that you would recommend for, you know, maybe a person looking to get into, you know, the Shopify ecosystem or anything that, you know, you check on a regular basis?

Yeah, yeah, that's a great, great prompt. Okay, what would I recommend? Well, if you are trying to learn Shopify, open a store, try to put it together and learn the basics there. Shopify help is always going to that website. Really wonderful info to learn about that. But if you're trying to learn about the ecosystem and apps and all that Shopify partner Slack is great. There's so many people from developers at Shopify and folks working on their app. It's very collaborative. People help each other out. If you're a plus user, I love the Shopify plus community. And then if you're trying to learn the marketing of it all, go to a geek out conference. They're expensive and worth every penny. I think they're having one in Miami this coming weekend. You could probably get a virtual ticket. That's the best, the best way to figure out how to unlock marketing. I think those are. That's a good handful.

Yeah, I love the first one. Yeah. I always say the best way, it's more towards just general startups in general. But the best way to learn how to build a startup is build a startup, do it.

Yeah.

Even if you fail, you learn and then you try again. You keep going.

And it's so amazing how much better questions you can ask if you're, if you're interviewing. If you're trying to sell, like, get in there, download the app that you're looking at buying use it. Everybody should be able to understand it. So many people from developers at Shopify and folks working on their app. It's very collaborative. People help each other out. If you're a plus user, I love this.