SaaS Acquisitions w/ Derek Homann co-founder of Workshop

Foreign. I am live with Derek Hammond, CEO of Workshop. Right.

I'm co founder and chief customer officer at Workshop.

Workshop. Nice. And so you sold a company on my require for what? Quarter million?

Yeah, a little more than that. Just under, just under 300k.

Nicely done. Did you buy a Ferrari Lamborghini? Did you do anything cool?

I, I actually I bought, I bought this watch. I'm like, I was like, I'm a cheapskate. And so I was like, I gotta have one thing to commemorate it. And so I bought a, you know, a nice ish watch but, you know, nothing crazy. And I was like, you know, gotta have something to commemorate it. And literally the moment the money hit the bank, I went out, bought it like five minutes after the money at the bank bought it and then immediately went to transitioning the business over to the new buyer. So I like, for me I was like, before the money hits the bank I need to actually, or like once I see it hit the bank I don't want to spend it on other stuff. And so if I just kind of wrapped it into that transaction, it just like felt like I wasn't just like being stupid with money. So if the new watch just came out of the sale price and I was like, it looked like I just got a free watch amongst, you know, kind of the other parts of the deal.

That's awesome. Well, tell me about the deal. How did you, how was your experience on Microacquire? How'd you find the buyer? Maybe just give me kind of like the, you know, five minute run through of like posting, talking with the buyer. We kind of just go from there.

Yeah, so had kind of got a unique experience. So my previous company was median. It was a two person bootstrap company. Myself and my co founder Ben, I was kind of on the sales and marketing side. Ben was building up the entire product and we've been running the company for a couple of years. We went for a while without paying ourselves. It was just kind of a niche product. It's a piece of software called co browsing and we integrated with a bunch of live chat providers like Live Chat Intercom, Zendesk and those sorts of things. And along the journey we had kind of done two different things when it came to building the company, one of which was selling it as, you know, a $50 a month subscription as an add on to your existing intercom account or whatever. And then we also white labeled the product. So we powered co browsing under the hood for a number of chat providers like Olark and Then a couple other ones that are based out of Europe. And so we had kind of these two revenue streams, one of which people knew they were buying Median and the other of which were like Olark was essentially selling co browsing as a power up. And it just looked like Olark co browsing, they didn't know that Median even existed. And so we had these kind of two channels there. And then along the way, kind of later in the history of Median, we ended up doing something unique which I don't think a lot of people know about. And I didn't even realize it was something we could do was we got approached by two different companies in a short period of time. They're kind of large now, both publicly traded companies that were interested in doing kind of a white label version of co browsing. And through a series of events we ended up doing this kind of non exclusive perpetual licensing deal with them rather than doing a monthly subscription. And because we're a bootstrap company, we had the freedom to just take one really big check and then basically hand over a copy of our code base, knowing that it wasn't going to a competitor, knowing that we could still sell it to other customers and that sort of thing. So we did two of these really big perpetual licensing deals that were essentially an exit in and of themselves for us. And then myself and my partner Ben were kind of interested in moving on to the next thing and we had a bunch of money in the bank account and we were kind of like, all right, well we still actually own the business. Like all of our customers, all of our contracts. What do we want to do next? And that's where we found Micro Acquire. I don't know, I have found on Twitter or something. You're a beast on Twitter.

The Internet, yeah, found it on the Internet.

And it was interesting because we were like, well, we can keep this thing and keep cash flowing in the background while we start the next business. Or it'd be interesting to test the waters and see if there's any interest for acquiring the company. Because it's still valuable, it's still a cool product, there's still revenue, there's still customers, there's all this other stuff. But we were just ready to move on. And so it came across Microacquire because I had looked at other potential brokers and we were a small company, kind of not in the mindset of we're going to go hire a broker and give them 15% of the fee or wherever the heck it is. I don't even Know, Microacquire was interesting because I was like, oh, I can list this, publish our stuff anonymously. You can validate our financials, and then people can basically, like, see if they're interested in it. And I just didn't know what I was going to do. All I knew is I didn't have to. I didn't even know I wanted to sell the company, but I knew that I might want to if we had the right offer. And so I was like, oh, I showed it to my partner. I was like, this is really interesting. Looks like I can set up a profile super fast. And then they just validate it on the back end and see if there's interest. And that's what we did. And then. And then, holy shit. Like, I don't know if I can cuss on this, but, like, holy shit. Like, I just got a whole bunch of people, like, reach out, like, super fast and had interest. And I was like, well, I guess we're doing this now. This is like, there's a lot of interest. Which was like, the interesting thing for me, too. It's just like, how do we even connect with people that would potentially be interested in acquiring your business in, like, a, like, scalable way? And I just. I just kind of lucked into finding Microacquire early on and then was interested in testing the waters. And I was super surprised with the results in a positive way.

So how long did it. So I assume you talk to, you know, multiple buyers. Okay, you found. You found the one. Okay, the one that, you know, maybe you're at Loi. How long did it take you to get to that point?

Yeah, so I think the timeline was we listed and then got a couple of responses right away. And then I think you sent out, like, the email newsletter, like, two days later. And then we got probably 15 buyers within the first three days that had messaged me and were interested. And then over the course of the next week, I think we ended up having another 20 or 30. So I ended up with like 40 people who reached out. It's been about a year now. And then I had probably. And they asked for like, you know, let me. Can I see some more financials. We had a, you know, a deck that we put together, so I gave that to them. And then of those probably 40 total, I had like a zoom call with probably about 10 of them within. And I. And I was trying to move fast because I was like, we either need to figure out if we're going to sell this or. Or keep running it. And I want to move on quickly. And so zoom calls with about 10 within the week. All of those happen within a week of us listing and then of those about three of them, four actually gave some sort of like verbal offer or like like hey, I'd be interested in this. I would like to figure out a way to make you an offer or at least put some sort of LOI in place. And so I ran a pretty tight process there and within a week and a half we had an LOI in hand. And then we looked at it like we optimized actually not for top price. We optimized for getting the business transition out quickly. We had already started workshop our new company and we had some commitments there and that sort of thing. So we kind of optimized for like what's a good price, a good home for it, like who do we think is actually going to take care of this? And then also like what's going to allow us to kind of clear our minds of anything median related and move on. And so from there on I think we did due diligence, was probably three or four weeks and then we signed an loi, went back, did a month of due diligence and then a month later, first check was in the bank and then we had a 60 day transition and then the second check, which was the final check was in the bank after 60 days.

Nice. I really like how you focus on terms and the relationship make sure because if you sell your company to someone that you just don't mesh with or something like that, you probably have a lot of problems.

So just.

I like your approach of, you know, not optimizing for top dollar. I did that with business apps. I optimized for terms rather than a bigger and out and stuff like that. So I'm totally on the same page with you on that. If you had any advice for, you know, other entrepreneurs are going to be watching this and they're going to be thinking, you know, I want to sell my startup, maybe a micro acquirer. If you had like any tips, like if you go back, what are some things you recommend potential entrepreneurs prepare for know about to successfully get acquired?

Yeah, I think for us it was just like knowing what you want. So for us we, I think at first we were just like, we don't know, we didn't know if we wanted to sell the company or if we wanted to keep it cash flowing in the background while we were there or not. And so we were just kind of like on the fence of what we wanted to do. And the interest is what kind of like, led us to go down that path. And I'm glad we did. But it probably would've been a little bit better for us if we're just like, oh, like, this is what we want. Like, we. We would prefer, you know, something in this offer range. We would prefer to get out in 60 days. Like, we kind of actually had to, like, have these discussions along the way between Ben and I to be like, how long should we. Like, how long do we even want to be a part of this business as part of the transition? Like, what's all this stuff? And I think if we would have kind of knew that, known that stuff between the two of us ahead of time, it would have been a little bit easier for us. But I'd say that. And then just making sure, like, our finances and stuff were up to date. Like, we were pretty good about it and had our accounting and all that stuff up to date. But I mean, that's the stuff that people poke around with. Like, we had some, like, kind of company overview decks and, like, what our partnerships were and our contracts all there because those two perpetual licensing deals that we did before required us to do just a crap ton of due diligence. So we had this data room of all of our financials, all of our contracts and all that stuff, luckily already ready. So when somebody was like, hey, we want to sign an LI and go through due diligence, we're like, sweet. We actually just did this. So for us, we had the due diligence stuff kind of buttoned up and ready to go already. I think most people probably wouldn't, but I would recommend that. And then two is just making sure that you know what you want. Because once you know what you want, then it becomes really easy to say, hey, thanks for the offer. But, you know, that's not. That doesn't kind of meet what I'd like. Or it's like, hey, that sounds great. Like, you seem like a great home for the business that I spent last few years on and. And also that, like, it also meets, like, the financial needs that I need from this. It also meets the transition time and that sort of thing. And some people want to stay in the business a little bit, have some ownership and that sort of thing, and just knowing that stuff up ahead of time, like, realistically, what you are actually okay with, I think it's super important to know upfront rather than kind of figuring out as you go.

Yeah, I would completely agree with that. And buyers appreciate that too, because they're wondering that exact same question, like, what do you want? And so being able to articulate even just kind of like a range, like, hey, you know, 300 to 500.

We'Re.

Open to this amount of transition. We're open to staying in the business, really being upfront. We're looking to sell the business. It just makes it much easier on a buyer so they don't have to guess that.

Yeah, I think there's your negotiables and non negotiables because they're like, hey, this is not negotiable. We need to get out in 60 days if that's what you need. Because we're working on this new business. But what we are able to work on is a consulting agreement beyond that or whatever else. I think that's super helpful to know what your negotiables and non negotiables are.

Nice. What would you say like the hardest part of due diligence was? Like what, what's like one part, like as a founder, like, hey, get ready for this part because it's going to take a ton of time. So you prepare in advance.

Yeah. So we had some contracts that we had to deal with and so we had to kind of go through each of those and basically explain what our commitments were where like, because some of we had a two year contract with one of them and we were like, here's what we're actually obligated to do. If you take over the business, here's what you are now obligated to do. Here are things you're potentially not obligated to do. And like, I'll be completely honest, we didn't know all of those off the top of our head just because we had been with that, you know, with some of those customers for a while. And if, you know the new person who's coming in to run the business wanted to increase prices on them, could they because they're the new owner of the business versus is the contract part of the whole deal or that sort of thing. And so we just didn't know some of that stuff. And I think it would have been helpful to know that a little bit better, like when you're actually putting together your due diligence stuff. But again, we were a little bit lucky because we put together a lot of the due diligence for some of those perpetual licensing deals that we did. But man can be a little bit of a beast if you don't have that stuff up and running. So like if you use QuickBooks and you have all Your accounting taken care of or, you know, you're using Stripe or, you know, bare metrics or whatever and you can just kind of hand that stuff over. A lot of the due diligence can get done super quick. So if you're kind of using stuff like that, I would recommend using as much kind of tooling as you can to kind of just like be able to hand that stuff over. But like we had some contracts and stuff that we needed to kind of. We had to check with our lawyers, like what did we actually like sign here two years ago? Like what, what is the implications for the, the buyer and then their lawyer has to look it over and that sort of thing. So that's the biggest thing is it kind of check marking those sorts of things. But I mean, if you're using like a Stripe or you know, barometrics or Chart Mogul or whatever, it's really helpful to hand that stuff over. And like the due diligence on like the financial stuff can get done really quickly if you have that in place, which luckily we did.

Yeah, I've noticed we have data around startups that connect Stripe or Barometrics or any sort of analytics within Microcore. They get like 500% more buyer requests because it really cuts down on the due diligence of the buyer.

It's pretty hard, pretty hard to fudge those numbers when it's just being automatically piped in.

Yeah. So what I love about your story though is so you had a company, you sold it for quarter million dollars, man. Like that's awesome. Like I'm super stoked on that. But I think it's, it's the better half of this is now you're working on a new company that I assume you're more excited about and maybe you believe has, you know, more upside. Do you want to maybe talk about your new company and what it does and what you're doing that?

Yeah. So I mean with the sale of median, both with that and then the licensing deals that we did kind of all combined that ended up being close to 2 million bucks. The perpetual licensing deals were actually bigger than the acquisition price, which actually is kind of what lowered some of the recurring revenue we had, but also kind of showed a pathway for upside for a buyer who was going to take it over is like, hey, you could buy this company for 300k and, and we have evidence that there are at least some buyers out there who would pay a 11 time fee of 500k or 750k to actually have this technology. If they could just completely white label it.

Those are huge contracts. Yeah, nicely done. Did you close those?

Oh, yeah, yeah. We closed those before we sold the company. And so once we closed those deals was when we actually decided we want to sell the remaining assets of the company because we're like, oh, this is kind of like our mini exit already. So let's, let's see if we can kind of clear our minds completely of the company while we go to work on the new business. And so once we had done that, because, you know, 300K is a great outcome, especially for a lot of people, but kind of cumulatively we, we made, we kind of banked personally much more than that, which was great. And so that allowed us to start kind of figure out what our next kind of swing at this thing was going to be because we're shitty employees. So we have to start a new company and do it all over again. And this time we wanted to swing bigger. And so company number two is a venture backed company called Workshop. We focus on internal communications in particular. And so myself and my other partner from Median are two of the partners and then two of the folks that we worked with at a previous company called Flywheel, which exited for a large sum of money, all got back together. The four of us started the company and raised some money and you know, this time instead of the bootstrap route, we're going the venture capital route and kind of, you know, we hit our single and we're trying to, you know, swing for the fences on this one and you know, kind of internal communications at companies is a big, big market and so it's something that we actually did previously at our previous companies before Median. And um, so we're really passionate about it and got a kind of good crew of getting the band back together and you know, kind of what you did at Micro Acquire, getting the old team back together, it's, that's what we're doing too. So, you know, so it's fun.

I'll put a link to your new company in, in the notes below on this. But I, I love that path and it's kind of a similar path to me too. You know, I sold business apps and that was kind of a win. And then now Microacquire has investors. I bootstrap business apps investors with Microquire. But it allows me the freedom to kind of swing bigger because you have.

More experience.

You'Re more confident in being able to build a larger size company. So congrats to you, Derek. That's freaking awesome, man. I guess. Final questions. Who's your favorite entrepreneur? And you can't say Elon Musk. I don't think Elon would be mine anyway. I do that to everybody because I used to. Everyone would always say Elon. I'm like, no, no, more Elon.

Oh, man, that's a tough one. You know, actually, like, there's some. There's. The entrepreneurs I like the most are actually folks that I get to see really closely. And so actually, just in the offices that are kind of next to me are some companies that have kind of been grinding out for a while. They just raised some money from one of the companies just raised from Greylock and one of the other companies.