Neil Patel walks through acquiring Photopea, a free Photoshop alternative, for $20-30 million and scaling it to $72 million annual revenue. He'd grow monthly users from 10 million to 40 million, then monetize just 0.5-1% at $3/month, targeting $600,000 in monthly recurring revenue with a 30-person team.
Another great opportunity right now is, uh, free. So I look at the whole software market as really backwards, okay? In which right now it doesn't matter if you're HubSpot or Canva, eventually someone can just create a me-too company and just undercut you on pricing. And what I've learned is if you can create a software company that already has a brand that has a free product and you just make it really good for free and you just keep adding more and more to it. A great example of this is Photopea. So there's this company called Photopea. It's a—
We love it.
Photoshop. And it's like they make very little to no money. So I hit up one of my buddies who is great at outreaching and I told him I want Photopea. I offered him $10 million. He said no. Offered him $20 million. He said no. I can take Photopea, make it a really good Canva competitor, undercut them on pricing, Would I ever be worth $10, $20, $40 billion, whatever they are? No. But I probably can cash flow that thing to like $4 or $5 million a month in EBITDA, right? It's like, who cares what it sells for, what it's worth? And then I can make—
You're saying make it free and then you're saying it cash flows like a motherfucker. So what, how do you take a free product and cash flow like a motherfucker? How would you explain that?
Well, he said, he said a Canva, a Canva knockoff.
Canva knockoff. So you make, you make almost 99% of it for free. You charge for 1%, but that 1% is enough where you can drive in the revenue. So you don't ever make as much as like a Canva or like a Mailchimp or a HubSpot. But hey, if you can make millions a month in profit, it's still good.
What's your math there? So when, what's the calculus when you were thinking, so like let's say Photopea according to SimilarWeb has 10 million uniques a month or something. What was your math? Is that right?
Yeah, it is right.
Yeah, we researched it.
Yeah.
So, but like what was your calculus to get to 4 million in EBITDA a month? Like what would, how many people would you need to run it and what was the, what's the calculus there?
Sure. So I can probably get the thing from 10 million visitors. I can, so let's say I bought it for 20, right? He wouldn't sell it to me for 20. I've never outreached him, but I had a buddy outreach to him for me who just does all my outreach. So let's say I bought it for 20, I would put another 10 into it. So now I'm out $30 million. I'm really good at growing traffic and I know I can grow the thing to roughly 40 million uniques a month. I just have a, I don't know how, but for some weird reason I know traffic really well and how to calculate what I can get it to and all this kind of stuff, right? And I've done enough research of competitors of what features drive X amount of traffic, just looking at so many competitors in the space. So let's say if I get it to 40, what is it called? 40 million.
And what are the one or two things that you'd get it to 40 million?
Like SEO basically.
So more SEO, more virality, increasing the quality of the templates, increasing features, adding AI in there, like click a button, we can automatically detect backgrounds, remove it, filters for social media, 'cause a lot of people use them for social media.
Logo generator, website as a lead gen, shit like that.
Right, so let's say you got it to 40 million, right? At 40 million, I can easily monetize, let's call it like 1% of the traffic, but let's be even more conservative, like a half a percent. 200,000 people. If I have 200,000 people hypothetically paying $3 a month, okay, that's $600,000. The reason I give you on average $3, in certain countries you may want to charge different pricing like India and stuff like that so it's more affordable. So $3 a month, and at $3 a month, if a customer stays for 10 months, that's $6 million. You can probably run the thing with less than a million, million and a half in burn each month.
So then you think, oh, so then for a million and a half burn, you would need—
burn goes up once you have tons of revenue, right? When you don't have tons of revenue, your burn is much lower on a monthly basis.
Yeah. But so then how many people then, if it's, you're looking at 30 people, you would need to run that operation?
I, I don't even think 30, but let's say 30 total. So I think I can actually run the thing for under a million dollars a month.
Right. So I'm just trying to do the math in my head, but I mean, the revenue was like under, under a million too there.
It was like $600,000 or something, right?
$600,000 a month. But if a customer stays for 10 months, you're looking at $6 million.
Because you charge upfront?
No, no, no, no. Okay. If they're paying $3 a month, if you have 40 million, not 4 million, but 40 million, you're converting a half a percent. That's 200,000 paying customers a month. If they pay you $3 a month, that's $600,000. They last for 10 months. That's $6 million a month in MRR. Over a year, you're making $72 million in revenue.
That's crazy.
Wasn't that long ago that this whole operation was just the captain, me, and a couple of parents. But HubSpot helped us grow our business across all 7 seats.
Hey, celebratory cannons!
Woo!
HubSpot. Grow better.
