Our experience was very positive. We had structured our business to be as sellable as possible, even when we didn't intend to sell it. Having documentation and automation in place at every corner made the due diligence and transition phases a joy.
I see a lot of people in the comments here asking for valuation and structural information. In researching the process before we sold, I had the same questions, and never really found reliable answers. It seems that every transaction is inherently unique. All numbers we throw around, MRR, EBITDA, multipliers, they are thrown out of the window once you look at the actual business, it's internal workings and dependencies.
My suggestion for fellow SaaS bootstrappers who want to sell their business: make sure you can hand it over easily, make sure you are not required (to remain part of the operations), make sure your infrastructure is either easily migrated or well-documented.
You will want to negotiate, as value is in the eye of the beholder.
I am currently writing at length about this whole process. I'll release it on the blog before the end of the month.
I'll add a simple tip to other builders, use a password manager. When I sold my startup, remembering all the passwords and getting them changed took longer than I would have liked.
Additionally, we also lost access to a service because we used "Google login" with name@company.com and in the hand over the new owners deleted name@company.com in G suite.
We couldn't access the account since the email no longer existed.
I have a $400K/year bootstrapped SaaS I'd sell if I didn't have to deal with the process of selling it. But because I'm not willing to pick up the phone and talk to buyers and lawyers, and the long-term transfer of knowledge about an old tech stack and all that, I'm likely going to sit on it until some day I shut it down, or some kind of marketplace appears where you can flip a business like that without getting on the phone.
Alternatively you could hire someone to take over the day to day of it while you, being the sole shareholder, get the rest of the profits without having to spend much time on it, leaving you free to pursue other interests.
My two cents: It's a great idea if you find the perfect person but is very hard to go out and do. The compensation you need to provide to bring on someone to run the entire business, in terms of salary + ownership is often ends up with pretty similar economics to just selling. Also very tricky waters to navigate long-term if you both retain a majority ownership of the business but cede all day to day operations and strategy to somebody else. Likely to end up either with some conflict or the hired CEO gets tired of doing 100% of the work in a business they only have a minority stake in. Definitely not impossible and has the potential to work out to better economics than a sale if all goes perfectly.
(I'm the post author btw)
I'v attempted to do this before and it takes someone you really trust to take over the business. I had three months before I had to step back in and make sure the business was running the way I envisioned. The person I thought I could trust came in and basically started making big changes he thought should be made without consulting me.
It's incredibly hard to let go of something you built from the ground up and hand it over to someone you trust enough to run it the exact same way you did.
A lot of these bootstrapped business owners don't have a lot of people management experience.
The idea of hiring somebody to run the day to day operations of the business is financially sound.
Finding, incentivising, managing, monitoring and collaborating with that person/people is a separate set of challenges most solo/bootstrapped people do not possess the skills to undertake. Moreover, their business is their "baby" and letting somebody else take the reigns is emotionally difficult.
May I ask why you would want to sell such a business? Running such a business is my dream and I just have a hard time understanding why someone would sell a profitable business unless you're set for life?
I haven't had a vacation from being on-call 24/7/365 for the past 15+ years. I've been woken up by texts from server monitoring systems more nights than I can count. My wife and I had to plan our honeymoon around internet availability. I'm tired. I have other businesses that don't require the constant vigilance of an SaaS where every minute of downtime is costing hundreds of customers money.
I was in a similar predicament, and it was one of the reasons I considered selling the business.
I never hired. I should have hired. I had alerts waking me at night dozens of times as well. I planned family trips around internet availability. I thought I was needed to solve any problem. That's why I never hired. I thought it would be too much effort to train someone.
Selling the business resolved all these issues at once. Hiring someone to take care of these things for you will allow you to have time to yourself and wind down. I trained my replacement. Turns out other people can do this job.
You don't have to start with the sale. You can start with delegating.
If that's the case, can you describe how you ended up with customers?
Whenever I consider entrepreneurship as an option for myself, it is always the customer-facing sales part which leaves me feeling like I would struggle.
People come to the website and sign up, from ads, affiliates, social media, or through word of mouth from other customers. Most business does not involve any "customer-facing sales".
Lots of reasons, although as i said in my post, unless it's a "strategic acquisition" at a huge multiple, it's usually not because "the math" of selling makes more sense than holding it. In my case, having the liquid capital from the sale allowed me to start a fund to invest in more companies like this (https://earnestcapital.com/). Something I probably couldn't have done while operating my SaaS and just out of the business's profits. Other reasons are that the acquirer is a better fit to take the business to the next level, so if you hold it the business will likely degrade whereas a buyer has the capacity to invest in and grow it... also to create opportunities for growth for talented employees who may otherwise get bored and leave.
I don't see why. My experience in selling websites in the past (sub-$100K so I could just go through Flippa) is that the new owners never add anything, keep the site up for a year or two to recoup their money, then shut things down. I'm still hosting services I wrote as far back as 1998 (as Perl CGI scripts).
Thing is you don't want to sell to a nontechnical owner. I've sold apps in the past where it all just died, because the purchaser did not put in any effort.
You want to sell to a party who will run it as if it was their own product (or who will hire a capable team to expand it further). That is possible for a $400k ARR product, but much harder for a website doing say $50k through one-off sales.
For anyone interested in perhaps purchasing a side project to pursue your very own SaaS, take a look at a project that I've been running on the side - SideProjectors
Lot of interests in the past few years around "indie makers" and "life style businesses" and "side hustles" have attracted quite a few interesting projects to be posted on my site. It's been cool to see these projects being exchanged.
I use BrowserStack for my webapp. A little script hits dozens of pages, grabs screenshots and let's you quickly see across many, many browser/os combinations
One problem with bootstrapping is that the founders carry all the risk.
The alternatives, i.e. selling equity for capital, usually means the founders mitigate some of that risk. For example their salaries would not come completely from their own capital anymore.
I think that's important to keep in mind. Bootstrapping is not the optimal solution for everyone. If you fail, you pay dearly, especially in opportunity costs, but many also touch their savings or their families' money.
That wasn't at all the problem for me in the first years of bootstrapping. I didn't invest with my own capital, but by putting my spare time into it. Funding was provided by the early customers. I kept working full time for my previous employer for one year, then part time the second and third year with decreasing hours.
Also now that its running on its own, I also feel that I have less risk, because with a profitable company there is no requirement for growing a specific amount that investors demand or otherwise they take your control away.
As I said, this varies from situation to situation.
Also, you may be confusing risk with outcome. Your outcome was positive. If your business had failed, at any point, you would have lost any benefit from the work you put in. It's also not quite fair to assume that the time you worked on that project is worth 0 Dollars.
That's definitely true for some folks, but it's not universal. I split my time between contracting and my bootstrapped business. The business is profitable and operational costs are very low. The only financial risk is the opportunity cost of not being employed full time.
Through contracting I make about 30% less than I did as a salaried employee, but I am immensely happier than when I was employed full time. Even if I wasn't bootstrapping a business, that tradeoff feels worthwhile to me.
In your situation, no, your opportunity cost from working on a side project is probably bigger than you think. First of all, I wasn't talking about the contracting/employment choice, so you need to compare the time you lose for contracting.
And then you need to differentiate between cost and risk. You sound like you are comfortable with the cost you are taking on (good for you, nothing wrong with that!). But when talking about the risk, you need to compare it to the possible outcome that your business completely fails.
That's what I am talking about when I say that bootstrapping means you carry the complete downside risk for the business.
I don't know what kind of risk appetite you have, or what percentage of your total net worth got tied up in your side business. So it's completely possible that this is a rational and beneficial choice. But it's not as easy as "I think it's worth it."
And people also forget about the upside risk of outside funding. Yes, your piece of the pie shrinks, but the pie also gets larger.
And again, I don't want to make people feel bad about their decisions, I just wanted to point out that risk management, with respect to their own personal capital, is something that start-up entrepreneurs need to think more about.
Selling equity for capital introduces new risks though - many businesses are pushed to grow too quickly and take actions in the pursuit of billion dollar exits because they had raised money which causes them to fail.
Sure, the capital injection helps grow quicker but many businesses could have been comfortably bringing in a few million dollars per year but end up dying because they were forced to grow too quickly.
No outside funding means the founders carry 100% of the risk. No amount or form of outside funding can increase that percentage (duh!).
And if you are putting in your time (with the associated opportunity cost), you should be asking yourself what kind of growth you are willing to accept in exchange, shouldn't you?
I’m saying you don’t just change the risk allocation by raising money, you change the risks themselves in a way that may be making your risk as a founder greater, not smaller.
You don’t carry “all” the risk but your risk still goes up.
No. Raising money only changes risk allocation, not downside risk, unless you increase the value of the equity, which "raising money" doesn't do on its own. The valuation might increase at the same time, but that effect would not be just from "funding" but rather from non-money aspects of the partnership.
There are all sorts of crazy agreements one could think up, but basically if a funding agreement increases your downside risk, it's really not so much about the funding but rather about a fundamental change in the venture. Otherwise, why do it?
Of course you can enter an agreement where you increase the risk of the venture failing significantly. But that's not fundraising, and it's probably not smart, either. And the risk of staying small is sometimes underestimated.
If you enter into a funding agreement where you put in your own money, or a loan you personally guarantee, that would increase your downside risk. But it's also not fundraising, because it's your money.
If you’re interested in selling your side project or SaaS business shoot me an email (in profile) with the URL, avg monthly pageviews, and October’s full month revenues if any. I started out 15 years ago brokering but have transitioned into running my own network of sites. I can make an offer within 24 hrs if I’m interested and you can skip the hoopla of fielding buyers, creating financial statements, spending weeks on QA, paying 8% brokerage fees, etc.
Above about $1-2m enterprise value, any half serious buyer will require exclusivity as part of an LOI. In fact, it is a good signal of an unserious buyer if you get an LOI without a binding exclusivity clause.
Even in deals where there is a breakup fee, it's not a part of the LOI. It would be negotiated as a part of the Merger Agreement or Asset Purchase Agreement, to cover what happens if the deal signs, but then one party breaks off before moving to closing. The LOI is always non-binding so there's no firm commitment to do the deal at that phase and no penalty for breaking up.
Beyond talking to a knowledgeable M&A advisor who does deals in the range you’re looking at, I’d take a look at usesummit.com (full disclosure: am an investor)
The absolute most important factor in getting a great deal in a sale is not having to sell. All of the work here happens well before the sale. Craft your business in a way that you would be perfectly happy to run it indefinitely. Get your work/life balance in order and your stress level under control. Go into a sale process with the idea that if you don’t get exactly the offer you want, you are 100% willing to just wait it out and run your business for another year.
Bootstrap or just don't raise 'too much' capital and not from VCs. Lots of optionality still available for founders who raise eg less than $500k and don't give up control. (I'm not exactly neutral on this tho)
Does anyone have any idea how much his business would be sold for? He described it as a "life-changing amount of money". If he was doing around 50k in MRR at the time he sold, what would his valuation look like?
I’ve not seen multiples that high selling two companies. The multiple depends heavily on the growth rate. If you’re growing at 25% YoY — unless you’re in a hot market — it’s probably closer to 2x revenue.
> There’s always a risk that these posts turn into a 5,000-word humblebrag. But I really do think it’s worth a read because, unlike most business acquisition stories, which often feel like an out of the blue stroke of good luck, the way that I sold Storemapper feels very replicable for other entrepreneurs.
Emphasis mine, but that's why I love reading about these things. It seems somewhat realistic compared to moving to silicon valley and doing the VC fueled rocket ride.
I worry that perhaps the advice isn’t quite the same for all businesses. My SaaS business is fairly technically complex. I don’t think it would appeal to a non-technical buyer that gobbles up simple Wordpress sites. I think it makes the available market of buyers a lot smaller. I hear less stories about this kind of business being acquired (although I know it happens)
(post author here): The team did not have equity but I paid out substantial bonuses voluntarily to all employees. There's a lot of work to be done on how to incentivize employees in bootstrapped startups tbh. Nathan Barry has some good posts on the topic but I don't think it's a problem with any best practices yet:
https://nathanbarry.com/profit-sharing/https://nathanbarry.com/equity/
Thanks for taking the time to answer. Yeah, you arrived at the root of my question which was how do you share with your team, especially in a closely held startup.. I probably would have been better served directly asking the question. ;)
But like; it was a Shopify plugin, so saying it can be replaced by another plugin (for a different platform completely) doesn't make sense here, right?
Not a bad article, although the couple of paragraphs about hiking Mount Kilimanjaro and the like are beyond cringey.
Seconding the desire to know the corporate structure and how it worked out for the team. Any equity split? How did these factors add or subtract to the sale process? Cash sale or some interest in the acquirer? It's really baffling that these would be left out.
It took us less than two years from founding to exit. I write about it at https://thebootstrappedfounder.com/from-founding-to-exit-in-... . Danielle, my Co-founder, and I did an interview at https://www.sureswiftcapital.com/blog/bootstrapped-saas-foun... as well. Both articles give some insight into the process of selling the company and how we got it to that point.
Our experience was very positive. We had structured our business to be as sellable as possible, even when we didn't intend to sell it. Having documentation and automation in place at every corner made the due diligence and transition phases a joy.
I see a lot of people in the comments here asking for valuation and structural information. In researching the process before we sold, I had the same questions, and never really found reliable answers. It seems that every transaction is inherently unique. All numbers we throw around, MRR, EBITDA, multipliers, they are thrown out of the window once you look at the actual business, it's internal workings and dependencies.
My suggestion for fellow SaaS bootstrappers who want to sell their business: make sure you can hand it over easily, make sure you are not required (to remain part of the operations), make sure your infrastructure is either easily migrated or well-documented.
You will want to negotiate, as value is in the eye of the beholder.
I am currently writing at length about this whole process. I'll release it on the blog before the end of the month.