The Ultimate Playbook To Buy & Sell SaaS Companies with Andrew Gazdecki

I've just released a book, from grassroots to greatness 13 rules to help you build iconic brands with community led growth. We cover stories from big brands and small, all the way from Harley Davidson to HubSpot to Nike to Saster to Gainsight to give you the frameworks to build a community led business that will take you from an obscure idea to a movement to a cult like phenomena. Check it out at from grassroots to greatness dot com. The digital copy is on for 99 cents.

The thing with acquisitions that I think a lot of people don't understand is when you go to sell your business, you're really being valued on current execution. So what have you accomplished today? So your projections don't matter. Don't even share them like you. You can discuss them like, we think we can hit these. But you might run into a trap of, okay, we'll talk in three months and see if you actually hit these projections. And if you do, then you get into a situation where the business is more valuable each month. But generally buyers are looking at what have you accomplished up until this date? And that's how you're going to be valuing the business and not future projections.

I need some traction. You need some traction. Let's get some traction.

Hey, what's up innovators? I entrepreneurs, visionaries and disruptors. This is your Traction podcast host, Lloyd Lobo. We're a community of over 100,000 people just like yourself on a mission to help you get the methods, the money and the madness to explode your business growth. Featuring stories and tactical advice straight from those who've done it before, like Shopify, Twilio Asana and many more. Hey folks, Lloyd Lobo here, co founder.

At Tracktion and Boast AI. Today's Traction webinar is brought to you by Boast AI and Launch Academy in partnership with Growth Lasers. As you're joining, hit everyone in the chat and introduce yourself. Tell us where you're tuning in from. I'm tuning in from Austin. Andrew said he's tuning in from San Mateo, which is right across the bridge from where I live. I lived in Castro Valley, very close to Dublin, Pleasanton.

Nice.

And yeah, so lived there for almost 12 years. So folks, feel free to introduce yourself in the chat from Dallas, Texas. We usually get a very international audience all the way from Vancouver to Dubai. Let's see what the makeup here is today.

Oh, wow. What's going on everybody?

Indonesia, India. You have a lot of fanboys from all over the world. Philadelphia, London, Ontario, Columbus, Ohio, Vancouver, Seattle. Fantastic. Great, great. Session here today, the art of buying, building, growing and selling non venture scale cash flow positive companies with stable growth is a growing trend in the startup world and people call it Micro pe. But Andrew here is the champ of the game. Serial Entrepreneur, CEO of Microacquire and he's going to give us his detailed playbook. Andrew is a 4 time founder with 3 exits, also a former CRO. He founded Business Apps as a broke 20 something entrepreneur and sold it to a P firm private equity firm before the age of 30 after going head to head with Apple over a blanket app store policy that threatened to ruin him. And Andrew, if you might be following him on LinkedIn, I certainly do. He has a lot of great content. Plus he's been featured on New York Times, Forbes, Wall Street Journal and Entrepreneur. So super excited to have you here. How you doing today?

Doing great and thanks for everybody for the kind words in the comments. Appreciate each and every one of you and hopefully I can give you some good tips. But yeah, excited. Thanks for having me.

Definitely people from Israel, India, all over. So you've had a super successful career, four time entrepreneur, three exits, former Croatia.

Give us your backstory.

All the way from being this broke 20 something entrepreneur to micro acquire.

Yeah, I would say I've had a very fortunate career in terms of the opportunities that have been given to me. I've been an entrepreneur kind of my whole life. I was born Detroit, moved to Southern California when I was around five. Dad passed away when I was early so growing up for me was rough. That's kind of how I entered entrepreneurship. It wasn't hey this like I'm going to Stanford and I want to do a start. It was more like I got a hustle to make money. So I started off with ebay store. I sold some embarrassing facts like I had a World of Warcraft affiliate website. If anyone's familiar with that game, you're a nerd just like me. And I had what else? Just did a lot of things online to generate just some sort of money in junior high and high school and really just learned entrepreneurship just through practice. And I feel really grateful for that because I learned very early that business was my passion and I'm a huge believer that when you find your passion you're going to be really good at it because it becomes like a sport. Then I went to CSU Chico. I somehow got in with like a 2.2 GPA. I was definitely never a classroom learner. It was off like SAT scores. I was a decent test taker. But as soon As I went to CSU Chico, I knew I wanted to start a business. So I basically had this like mindset where I had four years to figure everything out. And I used that time where every summer I'd start a new business. And we talked about three exits. One of them was in college and it was a little one. And this is kind of where my entrepreneurial career really started. Basically. I'm not technical. I'd say my strengths are brand storytelling, sales, marketing. I think I'm a decent leader. I don't know, you have to ask me to even that. But I bought a script that was basically like a job board clone and I niched it to iPhone application. So this is when the iPhone first came out. And when I say success in my career, a big part of it, candidly is just luck. I was in the right place at the right time. But a big part of entrepreneurship is creating your own luck. And so I had this kind of unique insight into mobile applications where this job board, all it did was connect iPhone developers with businesses. And I spent like a whole semester, like skipping class just commenting on every single blog that had to do with iPhone apps, just saying if you have an iPhone app idea, go to this job board and you can find developers. And I noticed a trend where specifically high end restaurants and high end hotels were paying like a hundred thousand dollars for an iOS app. And this was before Android. This is how early I was with mobile. But I, I saw mobile and I was like, that's like I gotta get in on that. So I jumped on that and I just thought to myself, okay, so these businesses keep asking for kind of the same application, like a loyalty program, push notifications. There's these do it yourself website builders. What if there was like a do it yourself mobile app builder for small businesses and sold that business to a person named Vladimir? I can't the details, it was, this was, geez, like 15 years ago. So I'm 33 now. That was when I was maybe 20 and sold that for, let's call it like 50k or something like that. But at the time it felt like a trillion billion dollars because everyone's broke in college. But the reason I sold it was I thought if I could just make a template that I could customize and sell to local businesses and have a price point that's much cheaper than a custom app, I could have a decent business. My only goal was to just not get a job, just to allow myself to keep working on different business ideas until one really took off. But this one was the one that really took off in this company that I'm describing is business apps which is still up, it's spelled B I Z N E S S Apps com and it's a drag and drop, no code mobile app builder. And yeah, the way it started was very humble beginnings. Again, this is before Android. We almost made a BlackBerry app. I'm glad we didn't do that. And started the business with me just cold calling restaurants, signing up pretty much every business in my college town. Which was kind of the perfect incubation area for that type of business because college students, local businesses looking to connect with them, they would send out a push note like happy hour or we're doing a discount for lunch today or something like that. And college students were heavy users of mobile applications and then yeah, ran that business for, ended up raising a hundred thousand dollars for that business, grew to about 10 million in annual recurring revenue and then sold it to a private equity firm when I was 29. And that was my first sort of whoa, my life's gonna be a little different after this. And I did not expect that to happen. So I'm super grateful. But yeah, that business was like a right place, right time business. But again going back as an entrepreneur you gotta. What I always say is you wanna make a, you wanna look at a market that is not obvious to everyone today, but will become obvious over time. And I have these unique insights into people like businesses are gonna wanna know how to build mobile applications. But it was really hard, it was really complex, really expensive and so we made it faster, easier and cheaper. So I made a non obvious bet on something I thought would become obvious over time. And I was right. In hindsight, you know, it was very obvious being everyone has a mobile phone in their pocket and half the people listening are probably looking at their phone. So yeah, that's how I got started.

So what are some hacks to finding those non obvious ideas? Did you develop any that you can recommend? Really?

I'd say the biggest hack is just movement like doing stuff like the way I got the unique insights into business apps which became my competitive advantage. What functionality do businesses want? What do they want the app to look like? What do they want? Like what do they want? I had a job board where I was seeing all this information firsthand. One easy recommendation I always have for people is if you're thinking of a business idea or something like that, start an agency and then if you start to see a pattern in terms of customer problem, you can automate that into a software product and you have this unique insight because you're talking to these customers every single day. So that's one way. But yeah, sometimes you gotta just have some conviction and believe in yourself and you're not always gonna be right. That's another thing too is you gotta understand that you gotta get it wrong to get it right. And there's tons of failures that I've had in terms of my career, but every failure you learn from and with those learnings, when you go into your next venture, you're more prepared. And then when you come across one that you know really has some legs, your chances of success are so much higher because you have that experience. So I'd say just movement. The more you're in the market, the more you're talking to people, the more you're doing stuff. Action just has a way of just creating opportunities, at least in my experience.

I love that Action has a way of creating opportunities. And something you said we did at Boast as well. I'd been a part of a few venture backed companies and Boast we started doing things manually. As you talk to more and more customers, then you figure out what you need to automate, delegate and so on. And that's worked extremely well for us. Now what led you to Microacquire? You had a great success. You could have done in any number of things. And seems like Micro acquire is one of those things that you're betting on that others not many are betting on. But what led you to it?

Yeah, good question. So a couple few unique insights as well. Number one, I'll just start with. I wanted it to exist personally. And for those that aren't familiar with Microacquire is the largest startup acquisition marketplace in the world. We've helped over 500 startups get acquired, we've done about over a quarter billion in closed acquisition volume. And that growth to me is whoa. I did not expect that. But when I first sold business apps, I had a lot of founder friends reach out to me and say like how did you sell your business? What is due diligence? How'd you find the buyer? What's private equity? What's. And I was like, whoa, do okay, so founders know about fundraising, growth, sales, everything but how to sell your business. So I thought there was an opportunity. And then I looked around the market a little bit and I just saw other marketplaces that were felt kind of like Craigslist, kind of everything goes. There's Nothing specific to SaaS, there was nothing specific to startups, profitable software companies, nothing really where I would list business on. And so I basically built what I would list one of my prior companies on. It's private. I have control over which buyers see any sort of sensitive information. But yeah, I just thought entrepreneurship through acquisition was gonna be a trend. And so I made a bet on that. I just said I started hearing about other micro P firms having a lot of success and I was like, this is gonna be a trend. You can have a business idea or you can just buy one. Like, it's not just Google and Apple and these large companies doing acquisitions now. Sometimes it's an individual buyer, sometimes it's two people with a small fund. So there's been so much growth that's been out of my control. So we're definitely benefiting from market tailwinds. But yeah, I just looked around the market. I saw the, the only options to really sell a SaaS business was like through business brokers charging like 15%, which I thought was like highway robberies. I just said, hey, what if we just remove the middleman, no fees, completely free to sell your business and then we'll just charge the buyer for access to the platform. So we basically did the opposite of what everyone was doing in the market because the market was really, from my view, favoring buyers. And we wanted to put entrepreneurs and startups in the best possible position to maximize their exits. Long story short, I love startups. So when I started thinking of my next startup, I wrote down startups and entrepreneurs as the customer I wanted to serve. Discovery was taken, their investing was taken, and acquisitions just felt like an area where I had some unique insights. And yeah, definitely.

Now that's a tough business model, isn't it? Charging a subscription fee to buyers when the rest of the market is taking a percentage. Tell me more about that. Tell us more about that.

Yeah, it definitely is. And I've been told it would never work a hundred times. And our current business model, so we will eventually have a fee, probably 3 to 5% or something like that. But what we want to do is we want to standardize the acquisition process. We want to make it so easy that it feels like you're buying something off ebay or something like that. That might be a bad analogy, but we want, like right now we're working on a letter of intent builder. We want to innovate on due diligence tools. We want to innovate on tools to transfer the assets, all the legal documentation. There's just so much acquisitions just going to be so confusing. And just getting buyers and sellers on the same page in terms of step by step process, that's where we want to get to and that's when we'll probably start charging a commission fee. But part of our growth strategy has really just been let's provide as much value to the market as possible and then focus on capitalizing on this activity later to build the brand to really prove out that there is product market fit here. But funny story, with our current business model, basically we had one day I just had a few sellers reach out to me and they just said like I've had like 50 buyers reach out to me. Who do I focus on? This is just way too many. And so the premium buyer program that we have now, which is just 390 a year and that allows buyers to contact sellers, then sellers look at their LinkedIn profile, have a short conversation and give them access to their private details or their data room. I just made that up. I was like, hey, they'll just put a paywall up to vet the buyers a little bit. So now as buyers come in, we vet the buyers and we vet the listings. So we're just starting with this business model now, but over time we'll definitely expand into commissions on each deal.

Fantastic. Fantastic. You're a big fan of bootstrapping. You effectively bootstrapped a bunch of businesses. What are the benefits of bootstrapping and some tips for building and growing startups with limited resources.

Yeah, good question. So first question in terms of the benefits of bootstrapping is you own the whole business. That is number one. And that makes a business a hundred times easier to sell the more people you have involved. An example with Microcurrent, we're venture backed to sell the business. There's controls within most venture backed businesses where you need approvals and the more capital you raise, you have liquidation preferences where you can raise $10 million. And then if you get an offer for $10 million, like all that money is going back to investors. But if you had bootstrapped the business and you get an offer for $10 million and then if you raise money and you sell for 10 million, it's a complete failure. But if you bootstrap the business and you're able to get it to any sort of profitability, you're at the blackjack table with like you're in the money, you can cash your chips in whenever you want and you have full control, full freedom. It's definitely not as easy as it doesn't like bootstrapping or venture, they're both just startups in general. Incredibly Hard to build. But I truly believe for 99% of entrepreneurs, bootstrapping is the way to go because it gives you so much more optionality in terms of an outcome. So I always tell entrepreneurs when they start businesses, think of what do you want out of a startup? Do you want to have a lifestyle business? Do you want to, you know, change a market? Do you want to potentially get acquired for a few million dollars? What is your goal? And if you can outline that before you start making irreversible decisions, the better. So if you want to change a market, venture capital might be your route. But if your goal is really just, you know, start a lifestyle business, get acquired for a couple million dollars, which is a lot of money, but not a lot in terms of NBC land. So that's the main things. And I bootstrapped my first company and I said no to venture capital a ton. I said no because we were in the money. We had a profitable business. It was growing. We didn't have the pitch was, you can go up market, it could get bigger. And I was so young at the time, I just thought, you know, this is like a for sure thing if I play my cards right. Not a for sure thing, but I was confident we'd have a successful exit. So, yeah, it just. I'm glad I took that path. And again, it wasn't easy. But when it comes to how to scale a bootstrap company, the main metric that we looked at business apps was customer payback, period. And we would call ourselves more of a distribution company than a product company. And I'm happy to expand on that. But we built a business model where basically every customer that came in, we were profitable after 32 days. So if we kept the customer on for just 32 days, we can reinvest that capital back into the business. And so we had this really fast. I can't think of the accounting term off the top of my head, but just the ability to reinvest into the business as quickly as possible. If you're bootstrapping a startup, you need to focus on really capital efficient customer acquisition strategies. And for business Apps, we were really heavy on press, really heavy on storytelling, even just boring old SEO. Boring old SEO can really pay off if you are consistent and rank for the terms that your customers are literally typing in to find your product. So that was our main strategy at Business Apps and worked out pretty well.

And then when you were bootstrapping Microacquire, what are two or three things you did to seed it and drive early sort of Growth, customer acquisition.

Oh, man. So Microacquire is like a business for me. Like, it's like a video game that I love to play. So if you look at the activity, I was managing all of customer support, all product management, all marketing, quite literally every part of the business. So I would wake up at 4am, I would work till 10pm I don't recommend this, but sometimes a business needs to be willed into existence. So I went on every podcast I was invited to my background because being in sales, I had a huge, like, outbound, cold, outbound email campaign that like ran automatically just to create awareness of this marketplace because you need to get both sides. You need supply and demand. So it's this tricky chicken and egg problem and you have to attack it quickly all at once. So basically, I just did everything and every opportunity that came to me. Any person that wanted to talk about the business, any person that wanted to have me on their podcast, anyone who wanted to interview me related to the business. And then I had a big social strategy of just telling a story around why this business is interesting and how I think M and A is going to be a trend coming up. So, yeah, I started even my own podcast. I guess what I'm trying to say is I just had a belief that this is a business that needed to exist. And I did everything I could to possibly get it off the ground. And a lot of that is just hard work. There's no silver bullets, there's no magic. Like, I did this one thing and it took off like it was like a hundred little things that added up. And that's really how most businesses are started, is you have an idea and then you iterate on that idea over and over and over and over and over through customer feedback. And that's what I did. And it. I look back and I laugh. Now I'm like, I can't believe I did that. But it was fun. So when you can get to a place where you find a business where it's fun to you, but it's work to someone else. That's a quote from one of my investors. You have a huge competitive advantage because you're going to go that extra mile to make the business work. When your competition, it's work for them, they're not going to. And you'll think about the customer difference. You'll have more empathy for the problem that you're trying to solve. And yeah, it helps you push through when the times get hard. And any startup you start, it's a bumpy road. So, yeah, Just kind of everything and everything is the only answer I have.

I liked what you said there. Sometimes some startups need to be willed into existence and it's not about having a Mike Tyson like KO channel. You probably Floyd Mayweather throwing a lot of jabs and punches there and trying a bunch of things. And the other thing you talked about which I drew out was passion. And when passion meets profession, you can be that Michael Jackson or Michael Jordan here. Now there's a question here on what did you look for in a lead investor? One, why did you decide to raise money and what did you look for in that lead investor when you did raise?

Yeah, good question. So my lead investor was, his name is Jeremy Levine. So our first financing was with Naval, the founder of Angellist, Andreas Klinger and Jeremy Levine from Bessemer Venture Partners. So I never actually pitched anyone. I never actually had a dad. I had these relationships pre built and I met Jeremy six, seven years ago in n out which was funny and we just kept in touch and he really saw and opened my eyes to the size of this possible opportunity and given I had just, I had a win and really I'm not financially motivated. I thought to myself, I want to make an impact on thousands of entrepreneurs. Let's see how far we can take this. Let's see what's really here. And so I'd say that's like another thing I always recommend with entrepreneurs is stair step in entrepreneurship. I'm sidetracking your question, but I'll answer it like this. My recommended path for entrepreneurs is first start an agency. Just learn how to build like the basics of a business and then number two, bootstrap an asset that could be an e commerce company, a SaaS company to make you financially secure. And then after that do whatever you want, raise money, swing for the fences, go lay on a beach, do a lifestyle business like whatever your thing was and microacquire. For me, just again like you said, my passion and my profession aligned so strongly on this when I just thought to myself, I want to run this business for the next decade and I want to basically bring in the smartest people to help build it with me and build it with the startup community. So that was the first financing and then we did two other financing, two other financing. So we've raised about 11 million in total and 90% of my investors are entrepreneurs, CEOs of companies I admire and corp dev teams of, you know, companies I admire. And it's been a lot of fun to hear their thoughts on like how big of a problem this is and like how needed this is for the startup communities. Yeah, there's definitely downsides to raising venture capital. Like your odds of financial success truly do go down in my opinion. But again, not being motivated by my personal success and really just wanting to help entrepreneurs, it made a lot of sense. Bring on investors.

And as you talk to entrepreneurs that are raising, if they want to go on that path, what are the top two or three things you say look for in an investor?

Well, number one, candidly I tell everyone don't raise money. Like just I. Unless you're at a point where for me it's mentally stimulating to think how big can this thing get? And if that's really what your intentions are. So I start with what are you trying to get out of this? What if you're just trying to build a medium sized business? Bootstrap as long as you can, because you can always raise money at. You don't have to raise money now. You can raise money in a year after you've de risked the business you've gone into. So when Microacquire raised money, we had already done, I believe a hundred million in acquisitions, we were over a million in revenue just from the premium buyer subscriptions. It was just me running the business. So there, there's enough there for me to feel confident. So I usually say don't raise money. But if you are going to raise money, I always recommend relationship for sure, 100%, especially with your lead investors. Given I had known Jeremy for so long and just his track record of Pinterest, Shopify, Yelp, I felt he could bring a lot of knowledge in terms of how to really make this the best marketplace for acquisitions. But the relationship part is crucial because if you bring in an investor that you just don't get along with and they are your quote, unquote boss, you're not going to like running the business. And I think the key to going the distance with really any sort of venture, bootstrapped or not bootstrapped or funded, is you've got to set up your company in a way where you enjoy every bit of it. You enjoy the people you work with, you enjoy the problem that you're solving, you enjoy the hard challenges that you have to somehow overcome. I would say relationship, cop out answer, but it's so true, especially for the first investor that you bring on.

Definitely. And with us at Boast, we build this massive traction community, about a hundred thousand subscribers. And over time we built a lot of investor relationships that before we even needed to Raise it just came together and we had bootstrapped to near eight figures in revenue as well. But a question for you folks who are not super well networked. What are one or two hacks to build those relationships before you even need them?

Build in public? Yeah, like that was the biggest thing for me was. And I didn't know. So build in public is a thing. I didn't know it was a thing. But it's basically just being very transparent in terms of here's my revenue, here's our progress and you share what's working and you share what's not working and you, I always say the best brand stories that you can tell is you tell a story that has no ending. And so what I did at Microacquire in that and how I attracted a lot of our initial users was I told the story of Microquire like look, we just had this company acquired or today we just took live $50 million worth of startups or something like that. So I was constantly talking about the day to day activity of Microacquire. We and I drew people into this story where people were rooting for microacquired to succeed. And I think that's the biggest hack right there is just getting people to notice you instead of the other way around. Instead of going and trying to chase investors, you create a business to a point where you don't have to necessarily pitch them like they want to have calls with you. So you flip the paradigm and then that's how it all the financing happened at Microacquire. The second financing was basically just users of Microacquire. It was just people that had bought companies, people that had used the product, that were excited about what this vision or what this company could become. And a lot of them found me on like Twitter or LinkedIn. I'd never met them in person. So I'd say build in public and just really telling your founder story like it anywhere you possibly can. And that goes back into willing the business into existence. And another comment I'll make is I always think that when you look at a business you'll see five direct competitors. But in reality most startups competitor is just customer attention. There's a hundred million plus startups right now. So any way you can find a standout and really get people, pull it into your story and you consistently tell that story over time you'll just bump into people and you just make these again. It's action creates opportunity. And I think when you put yourself out there like that it surprises people and they want to talk to you and you just never know where those relationships might go. So I'd say build in public.

I've just released a book from grassroots to greatness 13 rules to help you build iconic brands with community led growth. We cover stories from big brands and small all the way from Harley Davidson to HubSpot to Nike Disaster to Gainsight. To give you the frameworks to build a community led business that will take you from an obscure idea to a movement to a cult like phenomena. Check it out at from grassroots to greatness.com the digital copy is on for 99 cents and I've seen you be.

Very transparent on LinkedIn and Twitter and I've also watched your following over the years go from thousands to tens of thousands, thousands. And you really have this knack for drawing people into your story and microacquire story. What are some tips for people to become better storytellers?

It's a good question. I would say the first one is just understanding that every everyone has a story. It could be and it's all about finding like your angles. The story with Microacquire is really just my background with going through acquisitions, looking at the current marketplace, seeing zero innovation, seeing startups being borderline ripped off by current options to sell their business. And I wanted to put a stop to that and help startups again maximize their exits without these crazy fees. And that really resonated within the marketplace. Let's take out the middleman and have a free and open marketplace. Let's democratize startup acquisitions. But it could be you want to talk about things like why did you start the company? Like what problem? Like what. What drew you to this problem? Is there a Goliath in your industry where you can have David versus Goliath story that we did that at business apps where we would tell a story to small businesses during our sales process where we paint a picture of hey Starbucks down the street, they have a mobile app and they spell. They spend $2 million on it. And we can give you that same experience but for the price of a newspaper ad. Like we want to help you compete with mega brands without spending money that you don't have, which is hundreds of thousands of dollars. So we had this like David versus Goliath story of you can compete against franchises by utilizing our product. And we told it better than that. I totally didn't sit tell the the pitch as good as I could have. But you get the idea of maybe there's a Goliath in the market where you can call them out like, hey, you've been doing this for so long. We don't like, we have a different stance. And you basically like brand an enemy, where you have people create or pick a side in the market. And some examples I'll bring up from other companies would be when Salesforce launched, like their big story was on premise software, they were like, no software. Like, hashtag, no software. This is when like you would go into an office and software was installed on computers and they were the first to put software in a web browser. And they started SaaS as your category. Another great company would be Drift. And what they really recognized was customers want information immediately. They don't want to fill out an ebook and then or a form and then get an ebook and then have a account executive reach out to them to talk about their product. And so they had a sort of. They branded an enemy of no forms. So I think. And then with Microacquire it was brokers, and then with business apps, it was small business versus big business. So there's a lot of different angles, but I think you want to do one that is, is really true to you and one that you truly believe in because the more authentic your story is, the more it's going to resonate with people. Because if you tell a story that you don't really believe in, you know, 90% of what you say is in your tone. And. And then it just gets exhausting of just if you think one thing, but you're saying another thing just gets tiring. So just being authentic and being creative too, and always testing the story that you start out with doesn't have to be the story that you stick with throughout your whole company's history. So you can test and iterate like multiple different variations of your story, but I think just the founding story is really the key. Why'd you start it? Why you basically, what is the founder market fit? Why you. Why are you the founder? To really solve this problem?

Definitely. And the other thing that I see with you is consistency, right? You're showing up day in, day out, you're putting out content and you're sharing stories of not only your journey as a founder, but journeys of thousands of people that build, scale and sell on Microacquire. And that resonates with people, people connect with people. And those stories I see working, getting hundreds of likes, tens of thousands of engagements, and a lot of brand for you. Now let's switch gears for a second here. Acquiring a startup, you've helped thousands of SaaS companies grow and get acquired. How do you estimate the value of a SaaS startup in this day and age? And ties to a question here around the state of the market and average ARR valuations, types of buyers, Perhaps you can shed some light on that.

So valuing a startup, it's hard. My least favorite question is, hey, I have a SaaS company doing a million in revenue. What is it worth? Is it a Ferrari? Is it a Corolla? Is it an old Corolla? Is it a moped? What is it? There's so much variability. Are you developing like really valuable ip? Do you have really, do you have five year contracts with like enterprise customers? Are you SMB? Do you have super high churn? Did you just start this business like 6 months ago? Is it like a stable business? How removed are you from the business as a founder? Is it automated? All those factors really can, you know, sway your valuation quite a bit. But generally, rule of thumb, I always tell founders to think around. On Microacquire we see ranges from three to eight times trailing 12 months profit. So a lot of the buyers that we work with on Microacquire are financial buyers. So they're looking for profitable businesses, not ones that are VC backed that are, you know, bleeding cash that need a soft landing because those deals require approval from the VC firm and then approval from the members of the VC firm and then maybe there's a second VC firm and then there's a angel investors. Let's use this like boutique investment bank. When you're profitable you can use a multiple on profits or if you're just running like when I sold business apps we were barely profitable but we were basically running the business at break even. So that's where you put just a multiple on your annual recurring revenue. And right now we're seeing like two to five. We see outliers, we see we've seen as high as like 10 and stuff like that. But those are kind of the ranges. And if you want to get more information go to microacquire.com and then click Resources. And we just released a full basically valuation guide of all the acquisitions that we've seen and averages based on whether you're E commerce startup, a SaaS business, even marketplaces and a number of other agencies as well. So I'd definitely check it's but that's a hard question to answer that like specific what does the business do? How valuable is customer set? What does churn look like? What are the growth opportunities? How long has it been in business? The list can go on.

The rules of the game probably are similar in that if you want to command top valuation, then you need to have best in class nrr, best in class growth rate and churn kind of.

Thing you just got. You got to have a great business if you want to get acquired. And I laugh when I see like this is like the framework of getting acquired and it's important, like you want to be prepared, you want to understand. And there's a ton of resources on microcur. We talk about due diligence, the legal steps, how to create a data room, what to put in it, what financial metrics do buyers want to see. Due diligence checklist. So you can prepare all of that in advance. But the number one thing really @ the end of the day is just having a good quality business with happy customers. If you get that, generally everything else takes care of itself.

Definitely. Now that ties to this question here, which says, what are the things a startup should keep in mind to position themselves for an acquisition?

From the beginning, I would say documentation of everything. The more you can show. So when you meet with buyers, they're going to have a list, a large list of questions like due diligence is basically like getting audited by the IRS multiplied times like 100 depending on the buyer. Some buyers are a little loose with due diligence. The buyer I sold to was very like, we basically locked our exec team in a room for two months and went through a ton of stuff. But going through that thinking back, keep track of all your NDAs, keep track of all your customer contracts, have a proper P L at all times, ideally up to three years if you're in business for that long. Again, just understanding like the process of an acquisition in advance can be huge. So when you do get a reach out, I always say when you get a reach out from a buyer, for you it could be a life changing event. But for the buyer it's, it's Tuesday. So you want to educate yourself as much as possible on how acquisitions work. What are yellow flags that buyers look for? How can you best position your startup? And sometimes the best way to position your startup is, is showing the warts and all, showing like growth opportunities. Like when I sold business apps big part of our conversation was opportunities that we hadn't yet capitalized on. So we didn't present a perfect business. This is perfect. Like every, we've exhausted every sort of growth channel. We were like, these are five like huge opportunities that we haven't explored that if you buy this business and you execute on you can grow the business. And they did. And they were successful post acquisition. But sharing those candidly, like we didn't do a good job here, but maybe you have more expertise. I could go on and on that, but showing growth opportunities. But I guess the theme I'm getting at here is being prepared, being honest, and then being honest with yourself about why do you want to sell the business, what is your ideal outcome, what does that look like? And being able to articulate that with buyers saves a lot of time.

Is there two or three key pieces of documentation that buyers typically ask for or get hung up on? Entrepreneurs don't do it right.

P and L for sure, like a proper, like just get someone to go through all of your expenses, all of your revenue, all the services. Just a good healthy financial snapshot of your business. Like that alone can save a ton of time. So I'd just leave it at that one point. Just a clean, healthy P and L. And with Microacquire, we're building tools to automate the process of creating a P and L. Those are some things that we want to do to make startup acquisitions easier for startups. But that's the number one thing I see is like a lot of startups don't have a P and L with three years of historical financial metrics expenses. What services do you use, what are you paying for, who's on staff, just. And it doesn't have to be like you're giving away your secret sauce. It's just a high level financial view of your business. Is it growing, is it declining, is it flat? What is your churn? What is your customer acquisition cost? Where are you spending most and where are you spending to acquire customers? Those are all very common questions that almost every single buyer will ask. So that alone I think I'd use it as number one and number two. And just a good clean pinot.

Definitely. And how important is one, your financial model looking into the future, next two, three, five years, and then second, your customer file if you're SaaS by by cohort to see if they're growing, shrinking, staying flat kind of thing. Do people ask for that on Microacquire?

So the thing with acquisitions that I think a lot of people don't understand is when you go to sell your business, you're really being valued on current execution. So what have you accomplished today? So your projections don't matter. Don't even share them. Like you can discuss them. Like, we think we can hit these, but you might run into a trap of okay, we'll talk in three months and see if you actually hit these projections. And if you do, then you get into a situation where the business is more valuable each month. But generally buyers are looking at what have you accomplished up until this date. And that's how you're going to be valuing the business and not future projections. And then in venture, the way you get these huge valuations is investors are betting on future potential execution. So that's a big difference. What was the second question? Sorry.

On the customer file, like cohort analysis of existing customers over years to see if they're growing, shrinking, churning kind of thing.

Yeah. If your business is growing, you can command a much higher multiple compared to if it's flat or if it's shrinking. And that's what a lot of buyers look for is they want to buy healthy businesses. And if you're flat, you can still sell a flat business and you can sell a declining business. But the multiples change dramatic. Like if you're growing 2, 3, 400% year over year, if you're at 2 million in revenue, your multiple will be so much higher than if you were flat at 2 million. And then your the amount of buyers interested, if that went on microfire, you're going to be reached out by like celebrities, like private equity groups like Corp dev teams, public companies. Growth really is, it just shows the business like has a lot of room to, to run and buyers love to see that.

What is the growth number? Is there like a magic number? Is it rule of 40, is it 50?

It depends on the business and it depends on the buyer. If you're a profitable business, you're taking profit out of the business. So you're not going to be growing as fast as like a break even business or a business as losing money because you're invest so much into growth. So it's a different conversation. So it, it just depends. I know that's not the best answer, but if you're extremely profitable and you're still growing like 20% year over year, 20, 30%, that's a good healthy business. But then you can have conversations of if we took this profit and we reinvested in growth, we think we can get it to 50% or something like that. You know, that's a more realistic conversation. So I would say it depends on the buyer. Like some buyers are looking for high growth startups that have clear opportunities to take this from XYZ and revenue and 10 exit. And then other buyers are comfortable with just really stable, profitable software companies. So there's such a wide Group of buyers looking for different types of startups in different scenarios. There's no perfect answer there. But yeah, it definitely has an effect for sure.

Definitely. I like that. Growing business at break even versus a profitable business. And if you're 20, 30%, what if you could reinvest that back into the company? But as a startup, how do you think about balancing growth versus profitability? Right. In the VC world, it's all about growth and profitability is rare. How should founders think about it?

I think it just depends on like your personal goals. If you're pulling out profits from business, I assume you're paying yourself, that is your salary. When I ran business apps I had a salary but I ran the business where we were extremely profitable for the first time, three years and then we had a couple million in the bank that we use as like a rainy day fund and then I ran the business break even for six years after that. So that was. I was always pushing the pedal for growth. I like to grow businesses and not saying you can't grow a profitable business, but the more you invest in growth and what's working and double down on the things that are really moving the needle at your business, the better. So I would say it's more of a personal question. It's definitely when you run a break even when I went into due diligence, obviously we went through a bunch of line items of stuff that we probably don't need, things that we can reduce to make the business profitable if they chose to. So that was another option. But I always recommend when you first start the business, run the business at break even for as long as possible or take as little as possible out of the business and reinvest everything into growth to capitalize on opportunity. And then once you get some altitude where you feel like you're at a point where maybe the business can't be killed, it pays your bills, you can run this business full time, then you could start thinking about maybe pulling back on growth and you'll find areas of growth start to get saturated where the return on investment in terms of your spend go down and so you can pull that back a little bit. But like with Microcoire as a real example, I put everything back into growth every and I still do and there's probably areas that we can pull back to reach profitability, but we're looking to really reshape this market. So we're going to keep investing into growth. Yeah, cop out answer. But it's a personal question like what are you trying to achieve?

Definitely now some questions here. Which ties to the next theme, which is walk us through that whole negotiation legal process. People see earnouts, people see mandatory transition periods. What is the ideal scenario for founders and what are some tips for negotiating a deal on your terms?

Yeah, there's a saying, if you have one buyer, you have no buyers. So you want to bring as many buyers to the table as possible. And that's, I think what really helps with Microacquire is you get in front of over a hundred thousand buyers like immediately. And so that gives you leverage with other buyers to negotiate on price or terms or both. When I sold business apps, the terms that I negotiated were pretty strong. We did all cash, we did a stock purchase. So that allowed me to benefit from Q S, B s. We also asked them to buy the cash on hand, which is a clever deal structure where if they buy the cash, you pay basically just state taxes on it instead of federal. Or if you dividend it out, you're taxed at 40% and instead we were taxed at 13% on the 2 million cash on hand that we had when we sold the business. And then I negotiated a 90 day transition period for me to leave the business to start working on another startup. So that's what I was looking for. I wanted to leave the business. I'd been in it for eight years and a year in startups is like dog years, it felt like a hundred years, so I was ready to move on. But leverage creating basically a process where you know, when you go to the table with other buyers, you have a plan in place, you have all your materials ready, giving yourself as much, you know, negotiation power as you can. But good terms like what we see a lot of Microacquire is all cash, like quick due diligence, being able to leave the company quickly. But as your company gets bigger, you can expect like an earn out because they need you to bring that business into. And it also depends on who you're selling to. So if you're selling to a strategic organization, so strategic buyers would be basically other businesses. Private equity is a financial buyer. So they're more loose in terms of absorb everything you know and then you can leave. And then we'll put you on a consulting basis if we need anything. So I would say just outlining like what makes the most sense for you and then also what makes the most sense with the buyer and then generally trying to meet in the middle. That's usually the best acquisitions is when both sides are not one side wins all the terms unless you Have a startup that's like slack and you can command whatever you want. But just being flexible with terms I think is important. But yeah, I mean just understanding what is important to you and then articulating that to buyers. And also have some like non negotiables. Like I, I knew that I could not work at another company. I would just basically if I had like 4 year earn out I'd leave that month too. Like I just knew that about myself and I couldn't do it. So I avoided those, those buyers and those offers and I focused on ones that allowed me to leave the business quickly with no earn out. All cash upfront because it was a de risked acquisition. Allowed me to move on to working on other things like Microcar. So just depends on you as a founder.

Now talk to us real quick about buying the cash on hand and the benefits of that because that went a little overhead.

Yeah, so that one was a kind of a creative. So we got to a price and I wasn't happy with the price. And so no founders have the price. Like we always want more. And that's your time to negotiate. So I had a decision of negotiate on price or terms. And so I said all right, I'll do this deal but we have to do a stock sale. Because if you do an asset sale you're taxed at 40% and with a stock sale you're taxed at 20% long term capital gains plus state tax. We also qualified for something called QSPs which is qualified small business tax exemption. Look it up. If you're a C corp and you hold stock in your business for five years, you can be fully exempt from federal taxes. So I paid 13% on up to the first 10 million in of the proceeds of the acquisition and then we stacked the 2 million that we had on hand. So the usual route would be during an acquisition, once the deal closes, that money is dispersed to all shareholders at 40% tax. And since we put it on top of the purchase price where they bought the business with the cash in the business instead of dividending it out at 40% we were taxed at 13%. Just state tax. But if we lived in like Texas it'd be zero.

Definitely. That's why I moved to Texas.

Yeah, if I was in Texas I would have a little bit more change.

Definitely. Now for founders here looking to buy businesses, you're out of ideas. You want to buy a business that's at product market fit fit. What are some ways to identify the perfect business to buy? And then how could they finance an acquisition using something like an SBA loan or any sort of financing mechanism instrument.

Yeah, definitely. So I would again, if it's your first acquisition, find something small, like something that just feels like a pet project. Because acquisitions, I don't want to give the sense that they're super easy and that everything's going to go smoothly. You have legal, you have due diligence, you have transfer of assets, you have post acquisition strategies. Like, when you get the business, is it gonna fall apart? So don't swing big on your first one. Like, just go through the motions of, okay, this is how an acquisition is done. So I'd recommend starting small and then really just finding out like where you feel like you can add the most value. So, like, if you're a larger buyer, you're looking for businesses that you can add an operator and you're the owner and someone else is growing it. But if you're not at that point and you're looking to buy a business for 1 to 2 to $3 million, you're essentially buying a job. So you're going to be running the business. You're going to want to buy a business that you see growth opportunities. Maybe you're really good at marketing, maybe you're really good at direct sales. And they've never really explored or invested in those areas. That's where I would look. And then it has to align with like your passion. Is it an industry you understand, an industry that you have some sort of competitive advantage, that's the best place to start. And the three things I always recommend looking at is churn. Because you don't want to buy a business with just a leaky bucket of customers that are just canceling left and right. You want to look at customer reviews, read a ton of customer reviews, talk to a ton of customers. And you want to look at the code too. You want to have a technical partner that can look through the code, who wrote it, is it clean, is it outdated? Like, how is it going to be maintained moving forward, just in case you acquire a company and there's like a bug or the servers go down. Like, someone needs to be available to fix that stuff. In terms of financing, there's a number of different options, like pipe E Commerce lending is another good one. SBA loans. I'm not an expert in SBA loans, but they've been quoted as like the cheat code to American capitalism. Because you can get these loans at a really favorable interest rate and allows you to acquire a sizable business. For example, a business like 5 million doing 500,000 in profit. And so immediately upon acquiring that business, you are now making 500,000 a year. And so if you're able to grow that business and increase profitability or increase the revenue it's bringing in and then service that debt as you're growing it, that can be a huge advantage. But the downsides on SBA loans is they do require a personal guarantee. Just take caution with that. You're essentially taking out a loan where if you buy a SaaS company, it can go to zero if you don't know what you're doing. So you want to make sure you have a good plan in place, you have a target of this is what I want to buy. And then applying for SBA loans can be a very cumbersome process. And that's another thing we're trying to improve at Business Apps is, or excuse me, Microacquire. My current company, not my old one, is making it easier to get those loans, because the way you get them now is you got to go to a bank. You gotta present the opportunity. It just SBA loans haven't caught up to startup acquisitions. SBA loans are generally used to buy like a restaurant or Laundromat or something like that. That's something that we're working with different banks in terms of educating them on. These are the businesses, these are good ones, which fits your profile. But there's also a pretty good article on Microcart that we read on, like how to search for an SBA loan, how to apply for one, things to look out for, all that fun stuff.

Awesome. Now, is it Pipe or captchase? Better routes, you're saying? And I've come across Sterling bank, which has very favorable interest rates as well.

Are they better than themselves? Is that better?

Are they good options to finance an acquisition?

I guess, yeah, I would. It just depends on where you are. So if you're a startup and you go to say Pipe, what they'll do. And again, I don't work at Pipe, so I can't give. This is exactly how it work works. But let's say you have a SaaS startup doing 5 million revenue. They'll advance 5 million in revenue for you to either grow your business or use that capital to acquire a business. And it's very quick and you can basically acquire a company within a week with that capital. The other routes will be a little bit more affordable, but you have to go through some hoops. You might have to put up a personal guarantee. And so they all have pros and cons. So I recommend researching all the options because if it's going to be like a large acquisition, just spend an extra like week of just like going over like financing options. Because if it comes with a personal guarantee, are you comfortable with that or would you rather go with maybe a higher price loan that's a little bit more quicker, allows you to leverage your existing revenue from your current startup. So it just depends on where you're at in your entrepreneurial journey. But I will say if you need a loan to buy a business outright, meaning you have zero money to put down there, there really aren't no options. Every option requires some sort of collateral, some sort of down payment. Just like buying a house. Very rare. Have I heard of people buying houses with a hundred percent mortgage?

Yeah, buying a house. But a SaaS business that can potentially grow significantly and also cash flow significantly more than a house, definitely. Now, as you look back at your journey, what was the lowest point in your life and how did you navigate that?

That's a tough one. I don't know. I've been punched in the face a bunch of times. I would say the Apple thing was pretty hard, but we had wrangled with Apple like a few times, like once in like 2013 and then about a year prior before actually selling the business. Those are always pretty tough, even just getting the business off the ground. There was a point where I was the only person running business apps. I had three friends that joined the company and our initial plan was to cold call small businesses and we started calling restaurants and we were like, what's your mobile app strategy? And they're like, what appetizer? What are you talking about? So they all went back to class and I just remember being in an office, like a very small office, like the size of this room basically. So that was like a point where I started doubting myself, is this a viable business? So that's why I always say believe in yourself when others don't, because that's absolutely mandatory. As a startup founder, it's startups are hard, there's no way around it. And so now I've just learned to just enjoy the ups and downs. And the more you can learn to enjoy the whole process, the ups and the downs and remain consistent, the better. But I can give you like a whole list of like times where it's like, oh my gosh, this happened. Like key employee leaves, key customer leaves. Like I've seen it all. But again, it's all about persevering through. And that's really when you look at successful founders, they make it look easy, but in the background, like every founder has gone through, like they started with zero revenue, they started with zero customers, they started with zero funding, they started with everything that, you know, if you are thinking about launching a startup, they started with everything you have now, which is like nothing. But they persevered and they pushed through every challenge that came to them. So I would just say, yeah, I've been through, you know, some pretty tough times, but the key is just having a positive attitude and just, I always say every problem has a solution and it always works out. I know that's like fortune cookie advice, but half of building a startup can be mental. Just being able to push through those hard times and believe in yourself.

Definitely perseverance is key. One piece of unconventional advice that founders ignore but shouldn't. And I feel I know what you're going to say.

I would say the importance of founder market fit. And what I mean by that is finding something that you truly love because that's what's going to get you through the hard times and that's what's going to make the whole journey just so much more enjoyable if you wake up every day and you have a startup. Or I guess another piece of advice would be, when you think about a startup, understand that you can build whatever you want. It can serve any customer you want, you can solve any problem you want, you can work with whoever you want, you can make it whatever you want. But somehow I know a lot of startup founders that build these companies and these jobs that they end up hating because they brought in the wrong investor or they scaled the company too quickly. So just being like really sometimes knowing when to really hit the gas pedal and knowing when to maybe pull off the gas pedal. But I don't know if any of that's unconventional, but the theme I'm going for is the more you can do to optimize your happiness while you're building your startup, the more successful you're going to be.

It's like putting the oxygen mask on yourself. The founder is happy and mentally strong. The business will do well. A lot of people are going this venture capital or fundraise or explosive growth path and then you hit with the roadblocks when you're not ready to scale and you end up being miserable or you don't have conviction for the customer you're serving and the problem in the market and you're also miserable, eventually it turns into a job. Now you're very active on LinkedIn and Twitter. Your LinkedIn is just Andrew Gazdecki. Any other channels you're active besides LinkedIn.

And Twitter LinkedIn, Andrew Gazdecki and then Twitter Agazdecki and then if anyone has any questions like I love connecting with entrepreneurs startups, feel free to shoot me an email. Andrewicquire.com I'd be happy to help out any way I can.

I dropped a link to your book Microacquire Built Sold startups. Any other books that you've read or that's formulated your journey?

There's a really good book called Play Bigger. I have it sitting over here. It's a book about brand creation, category creation, storytelling. Another good one is Strategic Entrepreneurialism. That's really a word, I guess by John Fisher and it's a book about how to build a company with the intention to sell. And the premise of the book is like building a puzzle piece that would fit into a larger strategic, you know, choir.

What is the name of that book again?

Strategic Entrepreneurialism by John Fisher. J O N Fisher F I S C H E R Something like that. It's a small read that not a lot of people have heard about, but another good one Tuned in. I'm a big advocate of talking to customers. Tuned in is like a framework on like how to talk to customers in a way where you're getting the feedback you need to hear, not what you want to hear. And then From Impossible to Inevitable by Jason Lemkin and Aaron Ross. That's one of the best SaaS books on starting, building a sales team, building a marketing strategy from end to end. I highly recommend that book too. Cool.

And your email again is just andrew.

Icoacquire.Com yeah, my personal email is gmail@andrew gazdecki.com I thought that was funny to set up but when you get on the bank and they're like gmail@andrewgazdecki.com Are you serious? It's not that funny but yeah either either of those work.

Awesome. This has been a fantastic conversation. Thanks for staying longer than we had planned. Wishing you great success my friend. Love and peace.

Yeah, thanks so much for having me and shout out to everyone that joined. Truly appreciate all of your support and rooting for all of you.

Thank you. Have a good one.

Bye.

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