SaaS Interviews with CEOs, Startups, Founders
871 Which is Smarter: Buying vs Starting Companies
12 Dec 2017
Chapter 1: What is the main argument for buying companies instead of starting new ones?
Good morning, everybody. I wanted to just quickly remind you, if you love B2B SaaS and you're loving all these CEOs I have on, remember, you can get all of their data in a big, beautiful spreadsheet at getlatka.com. That's G-E-T-L-A-T-K-A dot com. So I hope you're enjoying the month. I love December. I love the holidays. And here is our program for today.
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple of hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is JD Grafling.
He's a user experience expert and business leader. He founded his first business, Simple Focus, a digital experience company back in 2009. Today, he manages two digital agencies and six product businesses, all of which are bootstrapped and profitable. JD, are you ready to take us to the top?
Let's rock and roll.
So I got an intro from you from a mutual friend, and I don't think that bio does you justice. So I'm going to do you more justice, which is you buy companies, right? Smaller SaaS companies, kind of like what I do. And you use your experience to grow them, make them more valuable, and maybe sometimes sell them. Is that accurate?
Yeah, sure. That's close enough.
Where did I miss?
I haven't really sold anything. I've gotten rid of one, but the rest I'm holding on to.
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Chapter 2: What criteria does JD Graffam use to evaluate potential acquisitions?
The business had several hundred customers and what was it doing? Uh, what's it doing per month now?
Uh, well, we are, uh, well, I could pull the exact numbers, but I'm going to approximate around $140,000 a year. Okay.
And so you've, you said you've, you've doubled that since you purchased it from litmus? I didn't say that, no. Okay, so that's big. You wouldn't have bought it at 140K because that's way larger than 500K annually.
No, no, 140K annually.
Oh, annually, not monthly. Annually, got it, got it. Okay, 140K annually. Go ahead.
So the thing you need to know about when I do an acquisition is I'm not trying to grow it massively, especially not in the beginning. What we wanted to do was buy something that was stable, this was stable, and spend time getting to know the customers and the product before we make any dramatic changes. So we haven't changed a lot about curated.
We've made some small improvements, fixed some minor defects, and really focused on getting to know the customers. Uh, it's year two or three before I really start focusing on, uh, taking the product in a new direction or trying to grow it heavily.
Got it. So right now, how is it getting new customers if you're not really focused on any paid acquisition or, you know, acquisition strategy?
Sure. Uh, well, it's always grown, uh, And it's always grown through just sort of this, I don't want to call it viral, but this sort of awareness that happens when someone influential gets on the platform and starts their newsletter out because we've got our branding in the footer. That's been the best source of referrals for us. So footer links in the newsletter.
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Chapter 3: What insights does JD share about the acquisition of Curated?
I see a hard hat behind you. I see some other things behind you that maybe give me clues to other things that you do. How do you decide what money to take out of your companies, your SaaS companies, and where do you decide to put it?
Well, I take pretty much all of it out of the companies and either give it to Uncle Sam or buy new companies.
Uncle Sam, wonderful. Are there any ways to take... Like, you know, in real estate, you can do a 1031 exchange. Are there ways to avoid taxes when you're taking cash out of these companies and just funnel it into a new company or no?
Not really. I've talked to my CPA about this. I want to scheme something. And he's like, look, you're in this tax bracket. You're going to be in this tax bracket. You're going to pay 39.5%. I'm like, dang it.
There's nothing you can do.
Nothing I can do. No, not at this point. All I can do is... Take what's left over and put it in savings and provide for my family.
What's your family look like?
I have a wife and three kids. How old are the kids? I have a four-year-old daughter and twin boys who are two.
Okay, good. So young family. So $750,000 top line annually. About how much of that goes to the bottom line? And so can we assume you take out, what, $600,000, $650,000 out each year to reinvest?
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Chapter 4: How does JD Graffam assess the value of a business he's considering?
Why'd they say no?
I don't know.
Okay, number four, how many hours of sleep do you get every night?
Eight.
Eight, that's actually pretty good considering you got little three kiddos, right?
Yeah, I live a pretty healthy life and the kids sleep really well. We're really lucky.
And you're married, right? So your wife obviously helps out there too. Absolutely. Married, there it is. All right, and how old are you, JD? I am 35. 35. Last question. Take us back 15 years. What do you wish your 20-year-old self knew?
Ooh, that's a good question.
Well, come on. You knew it was coming. You said you listened to the show.
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