In episode 672, Rob Walling speaks with Jon Hainstock, M&A advisor at Quiet Light and previously ZoomShift. They discuss Jon’s bootstrapper journey, his exit from ZoomShift, the benefits of buying versus building, and how he helps other founders sell their businesses at Quiet Light. To wrap up, Jon exposes some common pitfalls to avoid when buying businesses.
Topics we cover:
- 2:17 – Timeline of building and selling ZoomShift
- 6:07 – Deciding to sell ZoomShift
- 11:06 – Jumping into a new project immediately after exit
- 17:16 – Acquiring small assets
- 19:16 – Picking Quiet Light Brokerage over smaller acquisitions
- 26:23 – “Broker” vs. “Advisor”
- 30:26 – What to avoid when buying a business
Links from the Show:
- The Exit Event
- Jon Hainstock (@jonhainstock) | Twitter
- Quiet Light (@quietlightinc) | Twitter
- Quiet Light
- Finish Big by Bo Burlingham
- Acquire.com, formerly MicroAcquire
- Rich Dad Poor Dad by Robert T. Kiyosaki
- The Quiet Light Podcast
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Whether it’s your first or your 600th episode, welcome to Startups For the Rest of Us. I’m your host, Rob Walling, and on this show, we talk about entrepreneurship and diving into bootstrapping and mostly bootstrapping. Sometimes we raise a little money. What we do know is that we seek freedom, purpose, and relationships, in relation to our companies and our products and the businesses that we build and put out into this world. Today, I talk with Jon Hainstock. Jon bootstrapped and exited ZoomShift. He’s currently building ChatterDocs.ai, and he’s an M&A advisor, helping entrepreneurs exit well at Quiet Light Brokerage. I’ve known Jon for several years. He’s come to several MicroConfs, and you probably know him from Twitter. But if not, it’s a great story hearing how Jon bootstrapped his company and then, immediately after the sale, tried to dive right back in.
He’s acquired a few things since then, but really has found joy in helping other people do that hard task of exiting, of deciding when to sell their company. And towards the end of the conversation, we talk about pitfalls to avoid when you are looking to acquire a company. And while we’re on the topic of exits, this is the first announcement of MicroConf’s Exit Event. This is an invitation only, premium all inclusive retreat for SaaS founders looking to sell their companies for eight or more figures. So that’s 10 million or more dollars. We’re in the early stages of planning a transcendent, an amazing experience.
It’s going to be in partnership with Quiet Light Brokerage. It’s going to be co-hosted by myself and Dr. Sherry Walling. And we’re going to talk about all things selling SaaS. This event’s going to have super limited capacity, probably only have maybe 20 founders. It’s for high performing SaaS companies, that are growing quickly, and it’s going to be a mix of work and play. It’s called the Exit Event. You can head to microcomf.com/exit if you’re interested. This is one that’s going to sell out fast. So if this is something you’ve been thinking about, I would suggest head to microconf.com/exit. And with that, let’s dive into my conversation with Jon Hainstock. Jon Hainstock, welcome to Startups For the Rest of Us.
Hello. Thanks for having me.
Yeah, man, I feel like you’ve been around MicroConf for quite a while. I’ve seen you on Twitter. I’ve known each other for several years. I was thinking as we were chatting today that somehow you had been on the show before, but you haven’t. You just kind of been in the zeitgeist. So I’m really kind of happy to introduce you to the listeners. And so folks get an idea, you built and sold a SaaS company called ZoomShift. And do you want to give us just a brief kind of timeline of how that happened, when you started, and when you exited? And then, we can talk briefly about that decision around that.
Yeah, absolutely. So ZoomShift was started by my business partner, Ben, and he had created it kind of as a portfolio project to kind of showcase his development skills. He was learning development essentially in programming, and he built that when he was in college. And he won this business competition at the Marquette School of Business. And we ended up partnering up together through an accelerator program. I was doing some marketing for that accelerator program, and we ended up joining forces when that whole thing kind of shut down.
What year was that?
I believe this would’ve been 2000 and… Let’s see here, 8, maybe. 2009.
Oh, wow. So it was a long time ago.
Yeah, yeah, yeah. So I’m trying to think of the exact timeline. I’m going to have to go back and think about that for a second. But yeah, it was a while ago.
Yeah. Yeah, that’s crazy. And was it SaaS from the start? And to give people an idea, I probably should have said the H1 of ZoomShift is a work schedule maker designed for hourly employees, build your work schedule in minutes, track time off, reduce labor costs, and have confidence your team will show up on time. So back in, we’re talking, if it’s ’08, you’re talking 15 years ago, and whether it was 13 or 14 or 15, doesn’t really matter. It’s just that it was a long time ago. Was it SaaS from the start?
Yeah, it was. So actually, I’m going to have to reverse back on this answer. So I think, when I think back to the timeline, I believe it was 2011 is when we first started building into what would become ZoomShift, so different timeline, for sure. Still a long time.
Yeah, it’s still 12 years. Yeah. It’s a long time ago. So it was SaaS from the start, and you partner up with your co-founder. So did he come up with the idea then? He was already working on it?
Yeah. And there was a couple incumbents in the space at that time. It was still very early. This is before things were really starting to take off. It was still very early. And he had built the prototype kind of based on some of the things that he was seeing happening in the competitive space. So it wasn’t this, “Hey, this is an original idea. There’s already some other solutions out there. Let’s try to create something similar and ride the wave.”
As everything’s being SaaSified. We’re still in the golden age of SaaS, but it’s definitely more competitive today than it’s ever been. And so, when did you sell it?
So that was in 2020 that we sold, was going right into COVID, which nobody had any idea what was going on at the time. ZoomShift serves retail, hospitality, or restaurants. So they took a pretty big hit during that period of time.
But we had sold right before all that happened, actually.
Without any knowledge it was coming, right? None of us knew it was coming. That’s crazy. Okay, so can you give us an idea of maybe where the business was at when you sold?
Yeah, so we were profitable. We were both working full-time on it. We had a full-time customer support person doing six figures in revenue, and things were really pretty stable overall. Churn was low, growth was slow, but steady.
That’s cool. And why did you decide to sell?
There were a number of reasons. I think the biggest reason for us was realizing we were kind of at a fork in the road, in terms of, if we wanted to take the business to the next level and to try to grow and maybe potentially exit to a private equity company or something along those lines, strategic in the future, it would really require a massive shift in how we were operating the business. We were operating primarily around profits, lifestyle, kind of on a saver’s mentality versus a growth mentality. We realized that, as the competition increased, we would have to put a lot of energy and resource into building the team, pouring the gas on marketing, investing capital into the business, whether that’s raising debt or maybe some sort of equity. And so, we were kind of at a fork in the road when we were approached by this private equity company, and we realized it was just a good period for us to take some chips off the table. Because we had also been working on the business for seven, eight years part-time, two full-time.
It was kind of a teeter-totter in between other things. So it’s enough time to be working on a project for somebody who’s more of a builder, to start to get to an itch to say, “Look, is there something else I could be doing? Do I really feel like getting into a manager role, where I’m trying to be more of a resource allocator than an actual builder of product?” And obviously, there was a lot more involved in the emotional side of this decision process making, but a lot of it had to do with just where we were as a business. And I find a lot of other folks that I speak with now, getting to that point, where it’s either double down on what we’re doing and what’s working and invest a lot more resource into it, take less profit, build the team, invest, and kind of assume that risk yourself, or look to divest some of that either through a partial or a full exit. And so, it just happened that, when somebody reached out to us, we were kind of at that inflection point, that fork in the road.
Yeah, I talk a lot on this show about there being, there’s the venture track, which we kind of know what that means, go big or kind of go home, in essence. And then, we used to say it’s bootstrapping and venture track, and now, we know there’s a lot of nuance in between those things. And even within bootstrapping, and now, I say mostly bootstrapping, which is raising small rounds, there is there are lifestyle bootstrappers and there’s I call it the more ambitious bootstrapper track or growth bootstrapper. And lifestyle bootstrapping is amazing. I had an awesome business doing 30K a month with 2K in expenses, and I work 12 hours a week. And that is, it’s like super cash flow, great lifestyle. But that business was, for reasons, for bunch of reasons, platform risk and churn and such, was never going to be something I ran for 10 years and it was never going to be a million dollar business unless, to your point, I completely changed the way I did things. Because I had a bunch of contractors.
Everybody was part-time. I was the hub of the hub and spoke. And that has its pros and cons. At a certain point, I decided “I want to do the growth track, the growth bootstrapper, ambitious bootstrapper,” and that’s where you think, “I want to get to one, 10, 20 million.” And I probably, if you’re going to do that, you want to exit at a certain point. But going down that path, as you said, completely different. It’s like you do start grinding a bit. It’s not as bad as venture, I would say, but it certainly comes with hiring, managing, really going after growth.
That becomes your number one, and suddenly, you have no profit, you run a break even, or even you lose money, if you’re able to pull money out of your personal stuff, as I did. And so, I could see being at that inflection point, I can imagine, in your shoes, thinking, “Do I want to go down this road?” And I bet you struggled with that decision for a while. It wasn’t like one week, you thought about that. I bet you thought about it for months, if not a year or two, thinking, “What are we doing with this business?” Because you’ve been doing it a decade, right? That’s a long time to run this same company.
I actually remember attending a MicroConf in Las Vegas with my business partner and being in the hallways with him and just chatting and having this exact conversation, which is, “What are we doing with the business? Where are we going? Where are we headed? Do we want to double down? And do we want to keep focusing on this project? Is this even really what we feel passionate about doing?” Because at that period of time too, I was really a lot more driven by what excited me, less just the practicalities of building a SaaS business. And so, it was a conversation we were having for probably multiple years in there, where it would come up, we would talk about it, “Should we raise? Should we sell? Should we do this or that?” And we kind of just pushed it to the side as we continued doing what we were always doing. And when the opportunity came to sell, that’s really where it brought all of those conversations to the forefront. You had to deal with them, you had to think about them, because there was an actual offer on the table.
So you exit this business and you and your co-founder walk away. If you’re doing six figures, you walk away with a pretty nice, what I call life-changing money. Even putting half a million dollars in a bank account, for almost all of us, is life-changing, because it gives you that comfort and a little bit of freedom. Maybe it’s “I can take a year or two to do stuff,” and I use half a million dollars as just an example. So you exit, you put money in the bank, and then, what do you do next? And I ask this question, it’s almost a trick question, because here’s what most founders say, “I went on to do my next thing right away.”
And here’s what I tell anyone who asks me these days, when they say “I’m going to exit,” I say, “Take three months off, maybe six. Don’t do anything. You can write. You can write in a notebook of all the ideas you have. You can maybe buy domains if you give yourself a 48 hour cooling off period. Do not start another company.” That’s assuming you… If you sell something for 30 grand or a hundred grand or whatever, maybe you don’t take a bunch of time off, but when you have a more sizable exit, especially after working on something for a decade, there should be some time to just let it still. So with that ask Jon, I almost know what your answer’s going to be. What did you do after you sold ZoomShift?
Oh, I did the opposite of that.
No, I wish I could say that I was very methodical about my next steps. I was not. I really kind of floundered for a bit, because I didn’t know what I wanted to do and I wasn’t in a position to just not do anything for the rest of my life either. And even if I was, I don’t think that that was really the question I was trying to answer in that period of time. The question I was really trying to figure out is , “What do you really want to do? So take all this away. Now, what do you really want to do with your time? Do you want to do this again? Do you want to start something else or get totally out of software?”
And so, for me, I kind of took a little bit of time off, but then, quickly after that, I was talking with friends who are also feeling what I call the itch to create again, to build again. And I was kind of chasing down some ideas. Nothing really amounted to anything, because I was floundering. I was really not sure if this was even what I wanted. And I think there was a pretty big conflict inside me emotionally as to, “Should I do this? Should I do that?” And having my foot in multiple things, not really going all in on anything. So that was a difficult period of time, for sure, before I landed at Quiet Light.
And that’s pretty common. There’s a book called Finish Big by Bo Burlingham, that talks about finishing big. It talks about selling a company and a little bit more of the psychological aspect of it or the mental health side of “This is going to be hard.” And in that book, they talk a lot about it’s manufacturing companies and storage companies. It’s not necessarily tech, but I think the sentiments, if you worked on any company for a decade and it’s kind of been a mostly full-time focus, I think anyone’s going to feel that. It’s this feeling of being a little lost maybe. And I think, to your point, if you have enough money that you never have to work again, then there’s no pressure. You can get bored, you can take six months off. So after I left Drip, I took six months off, and I got pretty bored and I got restless.
I wasn’t like, “Oh my God, I have to make money.” I didn’t have that feeling. It was a luxury of selling for what I did. But if you’re not there yet, then of course, that pressure has to be lingering in your mind of, “I need to start something. I need to start revenue. I’m drawing down on my bank balance every month.” And as bootstrappers, that never feels good. We’re not used to that. That’s something that the funded folks get pretty good at is watching a bank balance drop and being runway and being okay with it. But was that a factor? Were you kind of freaking out a little bit, a little panic attack every time the bank balance dropped 10K?
Yeah, definitely. That weighs into it, for sure. And it wasn’t like an immediate, “Hey, we have to fix this problem immediately.” But what really ate at me more than anything was the emotional side, like you mentioned. And it wasn’t really as much around the financial aspect of it, because we’d be fine. We could go for a while without really feeling a major hurt there. But it was really the psychological aspect of answering the question for myself, “Well, now what? What’s next?” And so, that really weighed on me more than the financial aspect of it. Yeah, the financial aspect of it never feels good to see that money going out and no money coming in, which is kind of what drew me into eventually buying a couple smaller assets as well, small software businesses. But that was secondary to the feeling of restlessness, aimlessness, that was really just there from the exit onward, just trying to figure out, “Well, now what? Well, who am I, to a certain degree? And if I’m not a founder anymore, what does that look like?”
Yeah, it messes with identity. I talk a lot about my three kind of north stars, freedom, purpose, and relationships. And most of my adult life, I was seeking freedom. And then, you achieve it. You achieved freedom, where it’s like you may have to work years down the line, but you certainly don’t have to work this year or next year or whatever the number is. You have a certain freedom, and you really can call your shots on what to work on next. But what you were lacking was purpose. You achieved the first one and hopefully, had the third one, relationships. But when you don’t have all three of them, it’s disorienting. And it’s fine for a week, it’s fine for two weeks. For months, it’s not. It’s not okay. We lose a part of ourselves, I think, or a part of our humanity perhaps when we don’t have… Especially as entrepreneurs, because we’re so ambitious in wanting to have an impact.
So you said it earlier, now, you’re an advisor with Quiet Light. Folks who listen to this show know Quiet Light as a broker that’s been around for what, 15 years or something, sells. It helps people buy and sell SaaS, e-commerce, content sites, WordPress plugin software, just pretty much the gamut. And I want to talk about your experience, your decision to make that leap into it, and then, how that’s been. Also get some tips on buying businesses, right? Buying and/or selling, whatever you want to offer, because folks are always interested in that. Before we get there though, I want to cover this piece you just teased, which was, “Before I went to Quiet Light, I acquired a couple small assets.” I’m assuming websites or web properties of some kind. So how did those go? Were they successful? And I guess, why didn’t you keep going with them? What made you decide to become an advisor at Quiet Light, instead of running more with that path?
So again, as I was trying to work through what would be the next thing, couldn’t sit still and started looking at, at the time, this was MicroAcquire, kind of following the playbook of buy then build. And found a couple interesting small ones that were under $50,000, which is very reasonable for somebody getting started and somebody who’s listening to this, I think it’s a great way to test out entrepreneurship through acquisition. It’s kind of in that 20, 30, 40K range is a great sweet spot to find something. And so, I connected with a few folks there that I felt like were good fits from either a partnership or a full acquisition standpoint. And one I bought was in the trucking space. That one ended up getting to a few thousand in MRR, and we ended up selling it because the partner on that deal just wanted to not do it anymore.
And I didn’t really have a strong opinion either way. And so, I’m actually still receiving payments on that one, which is kind of fun to get mailbox money on that one. And so, we sold that one, and then, I bought another one around the 50K mark. And it was just at a multiple and at a price point that just like it was a low risk situation. And so, I ended up buying that, and it’s paid itself back and cash flows every month and makes a few thousand dollars every month, which is great. And then, there’s a couple other ones that I own now, that are kind of similar story. Some of those are partnerships, some of those are owned solely. And why didn’t I focus on this? I think, for me, the main reason is because when I was exposed to Quiet Light and the work there, it checked off the purpose box for me more than this other kind of portfolio of software companies did.
It really checked off that box for me, because I was able to help entrepreneurs sell their business. I was able to help them during a period of time, which is very challenging to navigate,, practically speaking emotionally, all those things, and try to give them the advice that I wish I had when I was going through that not too long ago. And so, it was super rewarding going through that cycle. And I had kind of acquired some of these assets along the way, and they help and serve as a way to offset some of the ebbs and flows of advising and brokering, which is deals come and go. And lots of times, they fall apart, because that’s what deals do. And this kind of gives us stability of revenue and income through these smaller assets. And so, that’s what appeals to me about them. I really enjoy them, but I don’t have any desire to make those my full-time thing at this point. Because I really am enjoying the advising side of things.
What you’re saying is triggering this memory of mine of the one thing that I think Robert Kiyosaki who wrote Rich Dad Poor Dad and now, this huge empire of info products. I don’t particularly like most of his stuff. I think his first book, there’s Rich Dad Poor Dad for Teens, and I’ve had my oldest child read that. And I think it’s super cool. A lot of the other stuff, I think he just repeats himself in different ways. But there’s one framework that I’ve always loved of his, which is he has it as four quadrants, but let’s just say bottom to top. At the bottom is where most of us start as an employee. And then, many of us become self-employed. And this is when you’re a freelancer or a contractor where you say, “I’m an entrepreneur,” but realistically, I did this for years, dollars for hours.
“I’m really just employed for myself and I can decide who to work for, but it’s dollars for hours.” And then, the next step up is an entrepreneur, which is where you’re running ZoomShift. You’re leveraging assets like software and employees, other people’s labor, where you’re paying them and then, you’re making money on that and don’t necessarily have to work 40 hours a week to make a full-time salary at that point. And then, the level above that is investor, and that’s where you are potentially acquiring assets, that are just much more passive. Either someone else runs them or in this day and age, Kiyosaki didn’t write about this back in the day 20 years ago when he wrote the book, but these days, it’s like you can get some passive investments, where they kind of go along with minimal involvement. And it sounds like you’re entrepreneur with ZoomShift, and then, as you acquired these other business, I’m guessing you worked on them and in them for a while, but have almost stepped back to the point of being an investor, where it’s more passive income.
I’m careful with this phrase “passive income,” because really, there’s no SaaS company, for example, that’s on permanent autopilot. It just doesn’t happen. They always decline, because Google smacks you, because a competitor comes along. It just happens. I’ve never seen one that’s like, “Oh man, I had this SaaS company 10 years, and it was just passive the whole time.” It’s like, nah, let’s be real. But with that said, you can still be an investor in companies and need to invest periodically to hire to replace someone or to beef up the SEO or whatever. And being an investor is fun, but it can be boring too. And as you said, if that’s not a big interest of yours, then trying to find something else to give you purpose, I could imagine wanting to do that. And at Quiet Light, you’re able to work with a team of other people, which oftentimes gives us purpose, because we’re communal beings as humans. So I’m curious then, leading us into that piece of it, why Quiet Light? And how did that happen? Did you approach Quiet Light? Did they approach you?
Yeah, they approached me. I was actually on the Quiet Light Podcast telling the story of selling Zoomshift shortly after it happened. And it was through a friend of a friend that knew the co-founder there, Mark. And so, I didn’t really know anything about Quiet Light, except for one interaction I’d had with a broker, when I was thinking about selling Zoomshift and we were going through that process. So I didn’t know much about the industry, didn’t know much about even how they thought about brokering. And I had a chat with the founder there. And what I realized was fundamentally different about the way that they approach things versus some of the other folks that I’d spoken with in the industry is that they kind of come at it from the perspective of working with advisors who have been there and done that. There are other entrepreneurs who have already gone through this process and been on the sell side and sat in that seat and actually have gone through the ups and downs of growing a business and then, eventually exiting it, sometimes multiple businesses.
And so, I liked that approach. It was different from what I had seen before, which was a little bit more mechanical or investment bank. It just felt different, almost like shuffling along inventory through a real estate kind of process or something. And so, I really liked their approach. And meeting some of the team there solidified kind of what I felt about the business, in terms of its values and the people involved. Just stellar people, every single one of the folks that I spoke with before coming on just very real and very eager to help, even though they didn’t know if I was coming on or not. There was a spirit of collaboration, not just competition among the team members there. So that was a big part of it.
And then, I wanted to try something different. I wanted to get out of, even the last year of experimenting with some of these other ideas and trying little projects, I wanted to try to put on a different hat completely and see what it felt like to be in a different role, in an advising role, a role where you’re not in the active operating seat at all times. And I just wanted to see what that was like. And I came to realize it was something that I could really enjoy, I was decent at, I felt like I could really connect with entrepreneurs. And that, to me, was a huge bonus of the job is just being able to talk with folks. Even if they didn’t decide to work with me, it was just great to connect with them, because you have that human element, like you mentioned before, the relational side. And so, to me, it was a great opportunity to try something different, to stretch and learn some new skills. And it’s been great so far. I’ve really enjoyed it.
Yeah, I find that learning is a huge part of entrepreneurial purpose. Most of us, as entrepreneurs, if we’re not learning or growing, just don’t have that, right? And so, stepping into something new, I think, is super interesting. And to your point of being generous with your advice, there’s no string attached, if someone were to DM you on Twitter, by the way, you’re Jon, J-O-N, Hainstock, H-A-I-N-S-T-O-C-K, on Twitter, your DMs are open, and if folks want to ping you and ask you your advice or ask you whether it’s about your experience or how they should think it through or whatever, you’ve never been the person to say, “Oh, well now I want to sell you something. Now you should come work with me. Well, now you owe me.”
It’s like, you’re not that type of person, right? I’ve known you long enough to know that. So I have an interesting question for you, and I’m curious to get your take on this, broker versus advisor? It’s terminology. Quiet Light calls their folks who advise and help people buy or sell companies, they call them advisors. I typically say Quiet light is a brokerage. So some people might think, “Well, people who work there are brokers,” but I don’t know enough to know how you think about this or how the industry thinks about it.
Yeah, so the actual company name, I believe, is Quiet Light Brokerage Incorporated. So from outside appearances and when trying to communicate, comparing us to other organizations, it’s definitely what we position as. We are a brokerage. We have a marketplace of businesses that we help sell. I think, for me, there was a stigma around the term being a broker, because of what I imagined that person to be. I imagined it to be kind of like used car sales person, whatever it was, try to finagle you into doing business, so that they could take a commission or whatever it was. And so, I think that part of it was difficult for me, psychologically, to overcome and identify with. It’s like, yeah, no, I’m an advisor. You can call me a broker. But ultimately, from my position, the goal is to help you maximize your exit and to help you through that process, which is very difficult.
I want to help make sure that you get what you’re looking for out of this process. You can call me a broker. You can call me an advisor. The stigma around the broker term, I think, is just due to some of the either tactics or the types of ways that people have tried to engage with entrepreneurs and to try to get their business and take commissions and this and that. And so, I think, for me, it was hard, because as a founder entrepreneur, in that seat, I had a hard time with that outside opinion of that role. And so, accepting that as an identity, it was a little difficult at first, but they’re one and the same. We are primarily sell side focused, and so, we advocate for the seller at Quiet Light. But a lot of sellers go on to be buyers.
And a lot of the buyers that we work with keep coming back to us, because they trust what we do. And so, it is, yeah, we do sit in the middle here and we do try to help broker the deal, but there’s a lot of things that go into that, that do look more like an advisor, trying to prepare your business for sale before you sell, not just at the moment that you are going to market, but six months, a year in advance, what should you be thinking about? And all those types of things. So yeah, we’ve moved more into the terminology of advising and the advisors, instead of brokers. But ultimately, yeah, we’re a brokerage. We help facilitate the sale of businesses.
Makes a lot of sense. And so, I want to get your advice. You’ve bought companies, you’ve sold companies. I’m sure you have some advice on maybe pitfalls to avoid when if someone wants to buy a business. I know there’s a lot of different things that people think about, and I know there’s some it depends as well, but as we kind of move towards wrapping up, if someone’s in the audience, I get this question every once in a while, so I’m a huge proponent of buying businesses. And in fact, I’ve tried to think back recently of all the companies that I’ve had or all the kind of revenue generating products I’ve had, I think I may have bought slightly more than I’ve started myself. If I can skip product market fit, if I can skip 18 months, and I have the money to do it, I was doing it all day and all night from 2006 till, I guess the last one I bought was 2011.
So there’s about five years there, where I acquired literally dozens of web properties. A lot was software, there was like two SaaS, and then, there was all the other things, eBooks, and just anything, content sites, whatever. So I’ve always been a proponent of it. I’ve found that most people who listen to this podcast, they want to build their own thing, and that’s fine. But in the early days, when I was really coming in starting to teach, “Hey, if you’re a technical person trying to be a software entrepreneur, don’t go the venture track, do this,” I would say, “Try to buy a business.” I bought the businesses. That’s been the fastest way to get there. And yet, most people don’t want to, which is fine. But I know that there are folks listening to this, because I get a question every few months about this topic of, “I’m thinking about acquisition entrepreneurship.” And I’ve run through the pros and cons of it here, but you, as, I would say, an expert in this space, what should someone be thinking about? What are some common pitfalls to avoid when they’re going to be buying a business?
So I think, first, it gets down to your expectations and the motivations, the things that you’re trying to accomplish by doing this. I think you do get to skip some of the product market fit aspect of it, if you’re able to find something that has some traction, that has some net profit. I think one of the big benefits too, that a lot of people may miss, is that you are essentially buying cash flows. And so, you’re getting the code, you’re getting the product, the marketing kind of base of it for free in a sense, because you’re buying a multiple on the cash flows typically, kind of at the smaller level, not on revenues, or if the revenues are matched, really close to the cash flows, it’s very similar. But you’re kind of getting a lot of what has been already built for free in a way, because you’re, like I said, you’re buying these cash flows that won’t dry up most likely in the next year or two.
And so, with that in mind, I would say the biggest thing is to look out for downside protection. Everything is about mitigating risk. And so, understanding that there’s various aspects of the business that are going to expose you to risk, whether that’s on the channel side, how people are acquiring customers, whether that’s on the technology side, being in a very antiquated tech that will be difficult for you to find contractors or to be able to resell someday, every single deal you see will have risk associated with it. And so, to assume and look for the risks as you go through that process, and this is pre-due diligence, trying to understand the history of the business, both from the financial side, as well as the technical side. And then, once you’re under offer, not rushing through due diligence, making sure that you’re actually checking and verifying that the information that they provided is accurate and correct.
So not rushing that process and making sure that you have built into your model the way that you’re kind of considering this to be a good or bad investment, that you’re willing to walk away from it when it doesn’t look right, you’re willing to take the loss, if it’s a calculated risk. And in the case of the one that I bought earlier, that I was telling you about, it was very low multiple, so it was a high risk in one sense, but low risk in a cash sense. And so, I think just having an understanding of those things as you’re looking at the business. Happy to provide more specific guidance as you get into the nitty gritty of a deal or something. But those are the things to really think about, in terms of the buckets of risk. You have your financial, your technical, the team, if you’re buying things like that, and acquisition on the marketing end.
And so, seeing it through that frame is really useful. And then, from there, I think one of the best things you can do, if you’re really deal hunting, is to come up with your own criteria. Come up with something that really matches your strengths and plays to those things. So if you are really good at, let’s just say, SEO, and you’ve done this before in another business, look for businesses where you’ve examined them in Ahrefs and they’re not doing a good job there. And you know that, if you put five, six months into building some high quality articles, that you’ll be able to start ranking and getting traffic that way. So look for the angles that are specific to your skillset. Don’t just look for a great deal necessarily. Look for things that actually you can provide some extra value add, because those are the investments that always do the best is when you can provide some extra value to the deal or you have some knowledge that can actually provide some insight that they might be missing.
Maybe it’s around pricing strategy, maybe it’s around product and product development, some key things that they’re missing. And you look at their competitors, and it’s like, “Hey, they have all these people are requesting this feature, and I know if I add this feature, I can start grabbing those customers.” So I think it’s both strategic and practical to think through that lens of what is your criteria, and then, try not to deviate from that. So if your background, let’s say you’re a Ruby on Rails shop and you start looking at all these deals and you start seeing deals that are Laravel or you have another deal that’s in Next.js or something, try to be disciplined to find the deals where you can really provide the most value. And I know this is probably common sense, but I think it can be difficult when you see something pop up and you’re like, “Oh, this is it. This is the one,” be patient and really kind of make sure that you’re doing your homework before pulling the trigger, even on a 20, $30,000 website.
Patience is so huge. Patience when you’re buying a house and you’re buying commercial real estate, I buy collectibles, and I find, when I’m in a hurry and I’m like, “Oh, I really need to get this,” I just pay too much or I make bad decisions. Like you said, your Rail shop and you buy a Laravel app, that’s not the end of the world, but it’s like, ugh, that’s a lot to deal with. It’s like, “Am I going to hire someone? Are they going to be full-time? Do I vet them?” What do you do with that? I like the way you said, if you have an expertise, especially a marketing expertise, that you see they’re doing very poorly and you can feel like you can optimize, use that as kind of a superpower. That’s exactly what I did for that five, six year stint is the first thing that I learned was SEO.
And I kind of taught myself/learned it/then acquired something that had halfway decent SEO. So then, by the time I was getting that into a flywheel, I was like, “Oh, I kind of know more than most people, especially most developers about SEO.” So then, I would just gobble up these little projects, that were, at the time, they cost, let’s say, five, 10K each, but the multiples were way low back then. This is kind of pre… It’s pre the Quiet Lights almost. And so, the multiples, I would get stuff for 12 to 18 months of net profit, which is bananas when you say that today. But the risk was huge. It was me dealing with a seller, and I had someone basically forge revenue stuff that I couldn’t verify. It was shenanigans, right? But you had to buy it a low multiple, such that you could get around that.
But through that, then I would just look at something and exactly what you said, I’d go and be like, “Oh, they’re not doing any SEO and there’s a ton of traffic for these terms.” So then, I’d buy it, SEO it, autopilot it, and then, move on. And through that, I learned, this is where I built my marketing tool belt. So much of what I learned about marketing was from reading info marketing books, internet marketing books back in the day. And then, doing this SEO, I learned AdWords. I learned how to do display ads at a certain point, online display ads and Facebook ads, and then, messing with pricing, all the touchpoints here.
You just said SEO and pricing. But these are things that you can learn on the job, so to speak. Once you own and have skin in the game, it’s super interesting how quickly you learn. And you go from the theory of listening to this podcast and watching Hacker News or reading a book to, suddenly, you have to make the hard decisions with maybe incomplete information around it. But if you can develop that tool belt one at a time, it makes you so much more capable of running your own show. And whether you acquire in the long term or whether you build something later, you still have that skillset that you can use.
Yeah. And ultimately, if the goal is to scale up and do this at a larger level, maybe some of these take off and your goal is a little bit to be more ambitious and to get to a mid eight figure exit or something like that, if you don’t have the skills and the understanding around some of what it takes to run the SaaS business, this is a great way to get started with pretty low stakes, but having skin in the game, it’s not theory. You’re in it. And then, you can kind of move out of being an operator and all that stuff to finding the whos, that are going to help you take it to the next level, which I think is really where you need to graduate to scale the business. But I think, in the early stages, it can be so rewarding to get your hands on something, get your hands dirty, and try to make some improvements and see those actually work.
And you’re not spending all of your time in a basement coding out your MVP and wondering if anybody’s going to use it. You have maybe a thousand dollars a month, $500 a month that’s coming in, that you get to see every single day when you wake up. You see something new in Stripe, which is just a huge motivator when you open up the app and you see money coming in, and you are sleeping. So I think everybody should really look at this as a way to invest. Because if you have the skills, if you’re listening to this, you probably have some of those skills already developed. And to put them into action, think about how much it would cost to go to grad school, think about how much it would cost to level up your education, you can do that by buying something small and taking a ton from that.
And the marketplaces are very mature now, so that worst case scenario, you can sell at a low multiple and probably still not lose money. So I think it’s a lot lower risk than people do see it sometimes. Obviously, there’s risks around platforms and things changing. We’ve seen some of these Twitter based apps going away or Reddit based apps and stuff, and that’s super sad. But I think that, in general, the risks are not necessarily as high as you might imagine them to be, especially kind of in this lower, call it, 10 to 50K range.
I like that you mentioned kind of learning things and then, stair stepping up into larger SaaS, because honestly, so little known facts, similar stair step approach or stair step method of entrepreneurship that I have, it used to say step one and two were build or buy. Build or buy. And I just pulled out the buy, because no one was listening to me, Jon. But that’s why I like, every once in a while, just calling it out like, “Hey, I get it. It’s not for everyone. Everyone doesn’t have 10 to $50,000 in their bank account.” We get it. But it is something people should think about. It is a path that you traveled. It’s a path that I traveled. It’s a path… Honestly, if you go read the stair step blog post, the essay I wrote about it, I think about half of the entrepreneurs I mentioned actually bought their thing, bought their WordPress plugin, or bought the… It’s just the way it wound up.
So everyone thinks about building, and that’s an okay way to go too. But I think it’s a lesser talked about avenue to buy. Jon Hainstock, thanks so much for joining me on the show. Again, on Twitter, you are J-O-N-H-A-I-N-S-T-O-C-K. Your DMs are open. And of course, quietlight.com is what you’re working on today. And the Quiet Light Podcast, you gave it a brief shout out earlier, but I’ve been on there once or twice as well. And it’s a good show. Mark does a good job with that show. So Quiet Light Podcast, wherever greater podcasts are served. Thanks again, Jon.
Thanks for having me.
Thanks again to Jon for coming on the show. And thank you for coming back every week. If you keep listening, I will keep recording. This is Rob Walling, signing off from episode 672.