SaaS Interviews with CEOs, Startups, Founders
Why You Should Buy and Sell SaaS Companies
02 Mar 2019
Chapter 1: What is the main topic discussed in this episode?
I call you guys the originals, the original SaaS gangsters, because podcasting was my first medium to get this SaaS data out there. And now we've got a best-selling book out called capitalistbook.com. It would mean so much for me if you grabbed it and read pages 197 to 220.
where I talk about taking over your competitors' distribution channels with email scripts that I use for guest bloggers, and chapter nine, page 151 to 171, where I show you how I buy and sell SaaS companies for very cheap. You guys can do this whether you're just starting out or you're running a $100 million ARR company.
Go grab the book today at capitalistbook.com, and if you want a free preview, scroll halfway down capitalistbook.com, and you'll see a bunch of screenshots. In the meantime, here's an excerpt from the book. I bought three companies by the time I was 28. I didn't pay anything for one of those companies, the top inbox. In fact, the founders paid me $15,000 to take it over.
I bought an identical company that same year, SendLater, for $1,000. All three of my companies are in the tech space, but I know nothing about coding. And lastly, each acquisition began and ended with a short email. No lawyers, no painful red tape. Here's how the deal for Sendlater started, that's spelled S-N-D-L-A-T-R. First, the outreach was this email in June 2016.
The subject line was, potentially acquiring Sendlater. I wrote, Manuel, who's the CEO, do you have any interest in selling Sendlater?
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Chapter 2: How can you take over competitors' distribution channels?
Manuel said back, hey Nathan, that depends. What do you want to do with it? I do get many of such requests, usually obviously from super shady adware or data collection companies that I usually delete right away. You don't appear to be one of those. I originally planned to build this into a commercial product, but currently left the time to put any resources into it. So I'd be open to the idea.
Best, Manuel. The no money, no lawyers way I buy companies. Four days after that email, we had a deal. No lawyers, no accountants, just an email agreement and me sending $1,000 via PayPal. It was an incredible setup because that $1,000 included a working Chrome extension and a 75,000 person email list. A lot of marketers would pay 20 to 30 grand or more just to build an email list that size.
I was getting the email list as a side product for free. Here's how the full conversation played out. I wrote back and said, hey Emmanuel, I'd be interested in buying it and then investing more time and energy along with money to commercialize it. Let's chat via Skype. What's your username?
Our call was just a few minutes and I asked Manuel the kinds of questions I walk you through later in this chapter. I inquired about annual revenue, which was zero since Sendlater was a free tool at the time. I asked him about user base, which was 75,000 people. I asked him about how much time he spent on developing the software each week, which was just a couple hours.
And I asked about his team size, which was just him. I love that. He was willing to sell it because it was a side project that he didn't know how to monetize. Well, I did. Then we picked up the conversation again on email. I followed up after the call and said, hey, Manuel, great chatting.
To sum up what we just discussed, Nathan will pay a total of $1,000 for the SendLater business, which includes but is not limited to, one, Manuel making Nathan admin of the Chrome extension, two, Manuel sending Nathan an Excel file of the approximately 75,000 users, three, Manuel sending Nathan the source code as is. Manuel will not be expected to update or change the code.
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Chapter 3: What strategies did Nathan use to acquire his first companies?
The payment will be $500 when this document is signed, which is Manuel replying, I agree, and will be to Manuel's PayPal account. After the transition of the first three steps has occurred, the second half of the 500 will be deposited into Manuel's PayPal account. Manuel, if you accept this, sign by replying with, I agree, and we can move forward. Best, Nathan.
He came back with a minor technical snag, which I didn't see as a problem because it didn't affect my ability to run the software and commercialize it, which was my whole purpose in buying it. This is what he said. Hey Nathan, there's one concern I didn't think about before. SendLater uses some common source code, by the way, I have no idea what that means, that I use in some projects as well.
So we'd have to make sure I can continue to do so. Would it work for you to agree that the source code is licensed under a permissive open source license, Apache 2, again, foreign to me people, instead of being sold completely? Best, Manu. He goes by Manu for short. I replied, sure. I'm okay to agree that the source code is licensed under a permissive open source license.
By the way, I have no idea what that was. I just copied what he wrote me to sound really smart, knowing this wasn't a deal breaker. So we jumped on Skype once more to talk through the details. Then I followed up with this email. Okay, Manuel, we have a deal. Summarize below. Reply back if you agree and we can move forward. Nathan will pay $1,000 for send later.
And in exchange, Manuel will send Nathan an Excel file with 75,000 users, the source code. Manuel will make Nathan an admin of the Chrome extension. And then additionally, Manuel will license the source code under the Apache 2 license to Nathan. And Nathan will make the source code publicly available under the Apache 2 license.
Additionally, he will also make any derivative work thereof, that's me, that is distributed within a period of three years publicly available under the same license. The payment will be 500 bucks when this document is signed, which is Manuel replying, I agree, and will be to Manuel's PayPal account. After the transition has occurred, the second half of the payment will be made.
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Chapter 4: How did Nathan negotiate the acquisition of Sendlater?
Best, Nathan. Manuel, we're back. I agree. You can use this PayPal account, and he tells me his PayPal email. To transfer the accounts, I'll send the account email of your Chrome Web Store developer account that has the registration fee paid. I'll also need a Google account signed up for Google Cloud Engine to transfer the server-side project. Best, Manuel. Done. There you have it.
One thing I want you to notice is this was an email agreement with an I agree as a signature. I avoid five to 10 grand in legal fees here, but it will hold up in court. If they do reply, I agree, and it's quickly laid out. So our deal was done. SendLeader started printing money for me just a few weeks later. More on how I did that coming up.
I'll walk you through everything you need to do to buy companies from finding them to negotiating a deal. Stick with me even if you're worried this is over your head. I promise you it's not. I'd like to believe my mom when she tells me I'm brilliant and special, but that's why I'm so successful at this while you aren't, right? Well, maybe. Here's what's more accurate.
I just had the balls to make these companies offers and see what happened. It doesn't always work. Like the time I tried to buy Success Magazine for $5 million. But even when I fail, I learned something from the experience. The only thing separating me from you and you from the new rich, if you're still doubtful, is my willingness to try. Let's talk cash.
If we're going to talk about buying businesses, we have to talk about cash. There's good news and bad news here. The good. People tend to get stuck on the idea that you need to have money to make money. That's true, but not as much as you'd think. You don't need a million dollars to buy a million dollar company. You legitimately don't need any cash at all to buy a company.
I'll tell you how this works coming up. The potentially bad side of this, you don't need cash to buy a company, but you do need cash to get things set up.
You're not gonna buy a company you need to rebuild from the grave, so I'm not talking about hundreds or even tens of thousands of dollars here, but you'll have to front, say, 65 bucks an hour per week to pay a developer from top to out to spruce up an app you just bought, or a team of freelancers that you hire from Fiverr to maybe improve the company's website.
These are your startup costs, but they'll be infinitely less than any startup costs you need to launch a business from scratch. The problem is that most people lack the discipline to build up even $500 in savings. There's no silver bullet for that, folks. You need to make sacrifices today so you can have cash, even 500, to make these small investments that will give you huge payoffs.
When you get paid, you have to immediately set aside what you can, anywhere from 5% to 50% of your check. I still do that with every one of my income streams so I can keep putting money back into my companies. The good news is once you have as little as $500 saved, you can leverage that to buy your first company. Cue the victim's whine here.
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