Maximize Your Exit Strategy: Tips for Founders with Andrew Gazdecki

Tune into my conversation with Andrew Gazdecki, where we discuss the intricacies of startup acquisitions and building market value.

Delve into the Transcripts for Key Takeaways from this Episode:

Mark MacLeod:
In this episode, I sit down with Andrew Gazdecki, founder and CEO of acquire.com. If you want to sell your SaaS business someday, you’re going to want to listen to Andrew. This is what his business does. He’s built the largest marketplace connecting buyers and sellers of SaaS businesses.

This discussion was really a masterclass on how to sell with some sobering stats. Only 4% of SaaS companies cross 1 million in revenue. I was surprised by that statistic. Lots of goodness here. I hope you dive in and enjoy this episode.

Andrew, welcome to The Startup CEO Show. How are you doing today?

Andrew Gazdecki:
Doing good. Thanks for having me on the show, Mark.

Mark MacLeod:
Yeah, it’s a real pleasure. I’ve been meaning to have you on for a while. Despite the fact that LinkedIn tells us we know 166 people in common, I only came across you because you were pretty prolific on the Internet.

And that’s like, this guy’s like speaking truth every day and telling CEOs kind of how it is. So I got to get to know him, and so I’m just going to dive in. That kind of brings up the first area I’d love to explore with you, which is how you’ve built this kind of brand that you’ve built online and this audience. You’re approaching 100K followers on LinkedIn, you’re over 230k on Twitter. How did you go about that? Are you doing that as the top funnel for acquire.com? Tell us about that.

Andrew Gazdecki:
Put simply, I just started posting consistently.

Mark MacLeod:
Just showing up. How about that?

Andrew Gazdecki:
Yeah, it’s like, it’s not that complicated, but when people ask me, they’re usually surprised at how little time I spend on things like writing social content and stuff.

And I always say that, when you do your best work, you’re typically enjoying it. And when you enjoy it, you’re consistent. When you’re consistent, you’re gonna see results. So for context for people that may not know me, I just post simple startup tips on LinkedIn and Twitter once a day.

Sometimes they’re right, most of the time they’re wrong. But they’re usually like reminders for myself, for things I’m going through or things that I’m dealing with in my business. But there was no initial plan like wanting to be an influencer, wanting to have a big social following or something like that.

It was just that I like sharing these tips. Hopefully, they’re helpful to one person. And that’s probably my favorite thing is when I get a comment that says something like, I really needed this today, or I completely agree, thanks for sharing this.

You know, you kind of like really reaching someone wherever they’re at in their journey building a company. But in terms of business benefits, it’s definitely undeniable in terms of what we sell specifically to startup founders and entrepreneurs. And so that content resonates with startup founders and entrepreneurs.

So it definitely helps with the business. And I’d say it’s probably one of our top customer acquisition channels, definitely.

Mark MacLeod:
So you’re helping people and in turn helping you, which is really good. And the beautiful thing about what you’re sharing is that it’s timeless and evergreen. There’s always somebody who’s never heard that, even though for you it’s a reminder, you know?

Andrew Gazdecki:
Yeah, if you follow me enough, you’ll definitely hear me talk about sales at some point. That’s probably my favorite topic in terms of how important sales is when you’re a founder, entrepreneur, CEO, or whatever. So yeah, I agree. I mean, you can also just talk about the same thing and reward it 50 different times as well.

Mark MacLeod:
It’s funny that sales is the thing you focus on. So, I coach CEOs of venture-backed companies that are at scale. And when you’re a CEO running one of these multi-million dollar things, there’s endless demands on your time and you could do 100 things and feel good about the day.

But I always ask my CEOs how many of those things were actually on the critical path of unlocking growth. Because especially if you’ve raised venture capital, growth is the thing that you’re solving for. It’s the magnet that attracts more capital, ambitious talent, customers, and ultimately acquirers.

Now, you are not a reformed investment banker. How did you come up with the idea of creating a marketplace to sell technology companies?

Andrew Gazdecki:
Interestingly enough, I kind of was scratching my own pain point, you could say. Before this company, I bootstrapped a SaaS business, about $10 million in recurring revenue, and sold that to a private equity firm. When it was happening, I remember I had no idea what I was doing. I had absolutely no education around acquisitions or how to get acquired or if I was even doing it correctly or maximizing the exit.

And when the transaction closed, I remember a good amount of friends texted me or called me and said, like, “You got acquired? Like, how did that happen? What was due diligence like? How much was your legal fees?” And I just, I don’t know, I thought going through it, everyone else maybe knew this stuff.

And so that really opened my eyes. I remember that being like a light bulb moment. And I always say there are hundreds of books on marketing, sales, fundraising, hiring, but maybe like two or three on the most important part of the founder’s journey, which is arguably the exit.

So I just saw a big hole in the market for startups looking to sell their businesses or get acquired. So I just thought, hey, this could be cool. And when I launched it, being honest, I didn’t think it would have that momentum or get to where it is today. And so to my surprise, it took off relatively quickly, and here I am.

Mark MacLeod:
That’s amazing. Yeah, I mean, there’s so much written about how to raise capital, and yet entrepreneurs still struggle, especially in the current environment. But generally, there’s, to your point, very little written about how to sell your company. It’s just this black art, right?

A friend of mine, many, many years ago, a guy named Basil Peters, wrote a book called Early Exits. And it’s like one of the few books on how to do the kind of bread-and-butter exits that really represent the bulk of M&A. We read TechCrunch and we see these giant, multi-hundred million dollar acquisitions, but those are actually very, very rare, right? The vast majority are.

Andrew Gazdecki:
One thing that I’ve always thought is interesting about acquisitions is we hear about the big strategic acquisitions like you were just describing, I imagine. But the majority of acquisitions, at least from my vantage point, are typically private equity financial buyers.

And I think a lot of startup founders and entrepreneurs don’t realize that, that you’re probably going to sell to private equity and the goal should be strategic. I don’t want to run on anybody’s parade, but the stars kind of have to align. You’ve got to build these relationships really far out.

Private equity was something interesting to me because I built a startup thinking I was going to sell to GoDaddy, J2 Global, or Endurance International. Those are the strategic companies we were always trying to knock on their doors. We got close but didn’t successfully get through there.

And then I remember just discovering private equity and being like, oh, interesting. Like these are businesses that just buy a bunch of other businesses. This is cool. And so for startup founders listening, just understanding that swing for the strategic buyer, but understand when you read those headlines like you just said, Mark, I agree, that’s definitely the outlier. And then the norm is typically a financial buyer, private equity.

Mark MacLeod:
Yeah, you’re bringing me back to my old world. So before I became a coach, the last thing I was doing, I was running an investment bank. Those names you brought up like GoDaddy, Endurance, and our investment bank focused on SMB software, so we knew these buyers super well. Endurance bought like 80 companies. Very prolific acquirer.

But to your point, private equity is a huge buyer. There’s 2 trillion of dry powder in the mid-market private equity space alone. And I did lots of PE deals in my banking days. Very credible buyer.

With strategics, I don’t know, I’d love your thoughts on this. There’s only a handful of truly strategic buyers for that company and they’re not waiting for an investment banker to pitch them the idea if they’re really interested, they’re in touch with you.

And so if you’re not getting those inbounds already, there’s not really a strategic market for you today. And that’s why to your point, you gotta build, build those relationships in some cases many years in advance.

Andrew Gazdecki:
Yeah, I would say with, when it comes to strategic buyers and I’ve never done a transaction personally with strategic buyers but, I mean, before you start a company, I think you should have a general idea of who this could be a good buy for in an acquisition.

There’s a really good book on this topic. It’s called strategic entrepreneurship by John Fisher. And he just talks about, I think he built, let’s call it like ten or twelve different startups, at least like six, seven, I don’t know the amount, but he sold all these to strategics.

And he describes a different view on entrepreneurship, where you basically think of your company as a puzzle piece that can slide right into the giant puzzle of another corporation and you build the company with the intent to potentially sell to those businesses.

But I mean, even if you say they’re strategic buyers or your company would be a great fit, it doesn’t always work out. I’m sure, Mark, you heard this a lot because I used to say it like, hey, GoDaddy, you should buy my company because you have 5 million small business customers.

And if you just plug your company in and buy our monthly subscription plan, you’ll make this much money. Yeah, no, it’s a lot harder than that because strategic buyers are typically working with other stakeholders in the business, like their product officer, figuring out what is a roadmap, should we build this or should we buy this? So timing also is a huge factor.

So, I agree. I mean, yeah, you should definitely have your strategic buyers outlined and at least have like a short line of communication with them just over email. That’s what I would do. At least I would have quarterly emails going out to people that I thought were strategic buyers. I got on the phone with some of the names that we talked about. Godaddy, I met with Endurance in Boston, met with Web.com in Florida, and got close to between Web.com and Deluxe at one point, but turned that down because I had a little bit more gas in the tank and I was kind of young.

But my point being is I at least tried, I tried to get the conversations going, the relationships built. So if you have strategic buyers mapped out, I think just quarterly updates would be a good way to go about it.

Mark MacLeod:
And so just to bring that down to kind of actionable steps, would you begin with the corporate development people or were you starting somewhere else?

Andrew Gazdecki:
I would typically go to the head of Corp Dev. That was the person I would reach out to. But depending on company size, I think you can go CEO. But I would also kind of email everyone, if I’m being honest.

I’d email like, the CEO didn’t hear from him too often or her chief product officer or head of product. But those were the three I typically targeted was CEO whoever is in charge of product and then definitely corporate development.

Mark MacLeod:
Maybe let’s take a step back. I’d love to learn more about acquire.com. It’s funny you said that you didn’t really know how successful it would be. But I feel like the domain that you have suggests that you had some ambition attached to it because it’s the perfect brand for what you do. But curious to know, how does it work, how do you build supply, how do you build demand and how do you create liquidity in this marketplace?

Andrew Gazdecki:
Yeah. So it’s a marketplace where you can buy and sell startups. So, pretty straightforward. And fun fact, when I started the business, it was originally called Microacquire, and then we ended up dropping Micro and that’s when we bought…

Mark MacLeod:
I totally remember that now. There was like a lot of people talking about it.

Andrew Gazdecki:
Yeah. Cause the brand affection that we had with Microacquire was pretty high. And so the idea I had behind it was we needed to have people fall in love with the new brand. So I did this kind of like a slow rebrand. We made it kind of funny where we’d share like logos, one was designed in like papyrus. And I kind of just have something to talk about with the rebrand making it humorous and bringing people along for the ride.

But the reason for that was we started to help larger startups get acquired and so we made the shift to push up-market with that. And that was the main purpose of the rebrand.

But in terms of how the marketplace works, again, pretty straightforward. We target startups specifically in the high six-figure to seven-figure range. Once you get to about eight figures, it’s probably when it makes sense to work with an investment bank. You have the resources, you have the capital.

So we’ll typically work with a company that’s raised a little bit of funding, either bootstrap, generally profitable, and also typically SaaS. But we do have categories for other startup types. And then on the buy side, we work with a number of private equity firms, some strategic buyers, and then a lot of just high net worth individuals, second-time founders, other executives that are just looking to buy a company and essentially plug themselves in as CEO.

And then in terms of the supply and the demand. So when I first launched Microacquire, I knew it was going to be kind of like marketing, like when you run a marketplace, you need to have a really, really loud marketing engine or go-to-market engine. And what I mean by that is you need to have both sides of supply and demand filled up. And so in this case it was businesses, then it was buyers. And if you don’t have either one, then you don’t get either one.

So, no business wants to list their company on a marketplace with no buyers and no buyers want to sign up to a marketplace with no businesses. So it’s this chicken and egg problem that we had to solve at the same time, which was kind of challenging.

What I thought we needed was a really strong brand narrative and brand story, one that resonated with startup founders, entrepreneurs, and buyers all at the same time.

So, when I initially launched Microacquire, the brand positioning that we had was kind of a David versus Goliath brand position where we championed for bootstrap founders during a time when everyone was raising venture capital because again those were the businesses that we would predominantly help sell. And so that positioning was really effective in terms of making a name for ourselves in the market.

And then fast forward to today, how we create demand is lots of social marketing, paid marketing campaigns, podcasts like this, just basically always marketing the business and always telling our brand story.

But to get it started was kind of fun. I cold-emailed a bunch of different startups and buyers and VC funds and accelerators and private equity firms to try and get the marketplace seeded so to speak, and that little spark helped us quite a bit in the beginning.

So when I first launched the marketplace we had probably about like 20 businesses listed or something. When we let the buyers in that was enough to at least get them excited and have them talking to other buyers. And that’s when the word-of-mouth flywheel started picking up.

Mark MacLeod:
When I think about the decision to sell a business of any size, it’s a big decision and sometimes it’s forced upon me because I can’t raise money, but sometimes it’s a choice and I have to imagine there’s like a high trust barrier for me to now trust this marketplace to sell the thing that I have been working on for a year. So I’m just wondering was that a thing and if so, how did you overcome it?

Andrew Gazdecki:
Absolutely. I would say trust is probably one of the biggest factors when people are looking to work with us over an investment bank, a business broker, a different marketplace, or a competing service. So we heavily work with the businesses that we’re helping sell and we really try to tap into showcasing startups that we’ve successfully helped close, really celebrating acquisitions.

We have a marketing strategy that’s kind of similar to Nike, where we celebrate getting acquired, we celebrate when businesses sell, we celebrate entrepreneurship and really highlighting our ability to help a company sell is what drives a lot of the trust.

But when you also sell your business, some other things that are always on founders’ minds are security and privacy. You obviously don’t want your team, your investors, or your customers to find out.

So when you list on acquirer, everything is private. Every buyer signs an NDA. You have full control and access to whoever views your company’s private details. And then also when you’re meeting with buyers, you want to know that these are illegitimate buyers and they’re not going to waste your time.

And so we’re able to verify their funds, we verify their ID, we make sure that you’re only speaking with qualified buyers. So a lot of that kind of adds up to create a healthy ecosystem and also helps transactions occur on our marketplace.

But trust is definitely one of the top things that we’re always trying to increase with people that we work with.

Mark MacLeod:
Cool. That totally makes sense.

I’d love to maybe begin like an open-ended kind of, I don’t know, master class style discussion here, right? You’ve sold your own business. You now oversee a marketplace that has sold hundreds of businesses. You had one tip earlier, right? In terms of like, the strategics to begin building those relationships early. You talked about how you did that in your case, so maybe walk us through how should founders be thinking about preparing for an eventual sale of the company, whether it’s to a financial or a strategic buyer? What are the steps? What’s the checklist?

Andrew Gazdecki:
I would say the first step is figuring out that you really do want to sell. That’s the big one. Just saying, hey, this is the time to sell the business then commit to it. And before you do that, or when you get to that point, just take inventory of your company and see if you have everything organized. Do you have an internal company wiki? And this can be a good process for you to kind of audit your own business. Do you have a clean P&L for financial buyers to look at? Because you’re definitely also speaking with financial buyers. You should also speak with strategic buyers.

So I would figure out you want to sell. Step two is to start organizing your business in terms of your SOPs, how sales work, how customer support works, how the product works, etc. And then also understanding the typical documents that most buyers are going to want to know, such as what is your churn, what is your growth rate, what is your profitability, where are your expenses?

So just having a clean P&L can make all the difference. I’ve seen a lot of startups try to sell and they kind of get stuck at these certain points, and I just tend to tell them, if you’re going to do this process, you want to start it on the right foot and not be backtracking, getting materials. You want to start it with all the materials that most buyers are going to need. You don’t have to have 100% of them because most buyers will have different requests at different points, but at least have the basics in order.

And then once you have all the basic materials down, that’s when you want to do buyer outreach. So you’re going to want to start reaching out to buyers, making a list of private equity firms, the strategics, like we were just talking about.

Ideally, you want to build these relationships in advance. So depending on your situation, if you’re going for a strategic acquisition, you’re going to want these relationships built up for quite a while. And then financial borrowers can be a little less dependent on a relationship, but it helps.

So, depending on the size of your company, it might make sense to start reaching out a year before, just slightly kind of creating the relationship, just having a single call.

Another example would be the private equity firm I sold to. We had spoken two or three years before, and so when I felt like selling the business, we had already had a little introduction call. So that helped a good amount when I sold the business and then just understanding how an acquisition works.

So I would recommend reaching out to all the buyers at once when you actually kick off a process with the goal of getting multiple offers at the same time. Because when you get multiple offers at the same time, you can have them competing against price or terms and then understanding that this is how you increase your valuation or negotiate things like all cash on close or additional earn-out components, whatever is important to you, and that’s kind of the main part of it.

Then you sign a formal offer called a letter of intent. And once that happens, that’s when you move into the fun part called due diligence. And that could take you three to six months, depending on the buyer. So you want to be prepared for that as well. So having a good law firm by your side can make all the difference. And I’d recommend even an advisor or mentor to kind of help you as well so you don’t pull your hair out or get super stressed as you’re going through this stringent process.

And yeah, if you do all that correctly, I mean, hopefully at that point, you’re safely going through due diligence and you got an acquisition price that you’re comfortable with, and you can sell your business, and that’s a super oversimplified version of it, but that’s kind of the high level.

Mark MacLeod:
Yeah. Thank you. There’s lots of goodness there and lots of things that might be non-obvious to founders. So I want to just maybe pick one or two. Like, one being the notion that you shouldn’t even go to market until you’ve dotted your “I’s” and crossed your “T’s”. You didn’t use those words, but basically line up all your materials before you hit go. I feel like lots of founders sort of hit go, and then they get a diligence request and scramble to pull it together, and then it just doesn’t go smoothly because they’re changing an airplane engine mid-flight versus getting all the maintenance done upfront.

Andrew Gazdecki:
Yeah, the problem with that, and I’d love your opinion on this, too, Mark, but when you get that diligence request, the buyer is kind of giving you a subtle signal of “I’m grading you, and I’m going to devalue your business if you mess this up.” And the same is true with investors.

So there are a lot of parallels between selling your company, in my opinion, and also raising venture capital. You want to control the timeline, you want to make it a competitive process, and you want to be prepared. So when a buyer asks you some simple questions like, I don’t know, do you have an org chart? Do you have just a 36-month P&L broken out with expenses?

And if you can’t produce that quickly, they’re going to immediately know that if you told a story like, I’m talking to five different buyers, it’s like, no, you’re not, because this is step one stuff. And so you’re kind of showing your cards and you slow down the process, and you lose momentum so easily if you do that.

Mark MacLeod:
That’s right. This goes back to trust for me. You had to build trust for acquire.com to get both sides to participate, but selling your company is selling trust. If I buy shares of GoDaddy today, I can change my mind and sell them tomorrow. If I buy some random startup, I’m stuck with it. And so, yeah, there’s a huge element of trust there. A big part of that is, yeah, you want to know that management is on top of their game so being diligence-ready is definitely a thing.

I don’t want you to disclose your roadmap, but as you were kind of describing that process, I was picturing in my mind areas where you could add value long before the ultimate exit transaction. Just in terms of how to govern yourself. Set yourself up. Here are some templates for this, that, and the next thing. Here’s like a hosted data room. Like, here are some recommended law firms. Lots of ways for you to add value along the journey, should you choose to.

Andrew Gazdecki:
Yeah. Do you want to hear about the acquirer.com process and how we kind of solved some of those problems?

Mark MacLeod:
Yeah, please.

Andrew Gazdecki:
So the big one to start with is finding buyers. So that was a challenge for myself, and I didn’t know who was legit or what their background was. Do you have any information on these people? Do they actually have the funds? Some are more obvious, some are not. Like, GoDaddy has the funds, and typically most large firms you can google if they’ve had a raise recently. But when you listen to acquire.com, we give you access to thousands of different buyers immediately.

And so before you go live on acquire.com , we also have templates that you were describing, because we want to make sure that you’re successful, and so we want to make sure you have the best impression for buyers when they sign, and they get access to your data room if you choose to grant them. And so we’ll help you prepare initially in terms of, you know, there’s a big document called “SIM,” and I’m sure you’re familiar with this confidential information.

Mark MacLeod:
You know, I’m breaking out in a rash here. I’ve got PTSD.

Andrew Gazdecki:
Yeah. So we’ll help put that together with you. We’ll also recast your financial statements so everything is in good order when you meet with buyers, and then we’ll go through the database. We have about 500,000 buyers registered on acquirer.com. So depending on your business, we’ll go through our database and we will specifically email those types of buyers that could be interested in your business.

So we have data on all these buyers in terms of what they’re looking to acquire, what they’re most interested in, size, industry, you name it. And so we’ll proactively reach out to those buyers on your behalf. So as soon as you go live, you’re immediately in front of thousands of buyers specifically interested in your type of business.

And then we also have tools that help streamline the legal doc creation process. So letter of intent, asset purchase agreement, and also escrow as well. So we help with the closing aspect.

And then along the way, if you need legal help, we also have a number of different partners with legal partners. So the main area is helping ensure that you’re prepared and that you’re meeting with the right buyers as quickly as possible and you’re running a good process with these buyers and you’re not reaching out to businesses or firms that may have zero interest in your company.

Mark MacLeod:
Wow, I didn’t realize you did all that. So are you like a tech-enabled investment bank? Is there a bunch of people doing things as well as the actual technology?

Andrew Gazdecki:
Yeah, it’s definitely a combination of the product and then also M&A advisory. So when you go to sell your company again, as you already know, Mark, I feel like I could speak about investment banks, but it’s a very emotional process, regardless of the technology you have, you’re always going to be nervous.

You’re going to be wondering, did you do this correctly? And you literally just need someone in your corner that you can call on sometimes at midnight because you’re super stressed out and you can’t sleep, or you just want to make sure you’re doing it all correctly.

When you get on a call with a buyer and they’re asking certain questions that you just can’t pick up quickly. You want to be able to bounce off an advisor who’s been through this process with you. And so we do provide that service at acquire.com.

Mark MacLeod:
That’s amazing. A big part of my decision to become a coach was that I was doing it already. I was basically a therapist, just with a different business model. And CEOs would come in, I had this nice setup where we could sit. I had a decanter with single malt whiskey because somehow that just promoted open conversations and they pour their heart out and we talk about it and there’s so much emotion, first of all in the decision to sell, but then second in the process itself. And it’s like, you can’t A/B test an acquisition decision.

I can think of companies that I went back to in my operating days. We sold a scalable storage software company that was putting storage clusters into all the server farms as Facebook was growing. So we were growing linearly with Facebook. And who knows? We had a great exit. Investors made a 10x return, but who knows? It may have been a billion-dollar public company today and we’ll never know, right? So, there’s no, like I said, A/B test, meaning you can’t try it out. Be like, that was a bad decision. I shouldn’t have done it. You know, it’s a binary thing.

And then I just find if there’s drama or friction in the fundraising process, it’s so easy for the investor to just be like, I’m done. Because deals are like streetcars. If I miss this one, another one’s coming along, I don’t care, I’ll just bounce. But I find there’s way more tolerance for drama in the acquisition process, particularly with strategics.

And I was never this way as a banker, but on the other side, just literally pounding the table, throwing things at me, like stuff you would never see in fundraising. And then you think that my client would be like, oh, my God, that deal’s dead. But then they came back as if nothing had happened and closed the deal, which was super stressful.

And then for that founder who’s kind of picturing the exit closing and picturing the Ferrari they’re going to buy or the house by the lake it’s just super emotional. So, do you do any of that yourself, or do you have just advisors who’ve kind of been there, done it, got the t-shirt, who are part of your team?

Andrew Gazdecki:
Yeah, I do it myself. And then I also have a team that coaches founders on the full acquisition process every single day. And, yeah, I mean, we also see that stuff, too. When you said therapists, I kind of laughed because it’s a big part of our job. I mean, picture this, you get a letter of intent from an amazing buyer, you sign it, and then you get a month into due diligence, and the buyer walks away, and you’re like, what do I do?

And so we have to step in and help the founder. And obviously, there are ways to prevent that but it still happens. You know, buyers can walk away at any point. A letter of intent is not a legally binding document, aside from the exclusivity or something like that. But once they walk away, that breaks.

So, acquisitions are tough to the point where you can do everything right, get to the 9th inning, and have the buyer walk away. Unfortunately, they can find something they don’t like. So, yeah, I mean, we’re there to help founders. That’s, again, a big reason why I started the company; acquisitions can be confusing, scary, and hard to navigate. So trying to bring more of a data-driven approach to that whole process.

Mark MacLeod:
I love it. Are you like, a registered broker-dealer, like acquire.com?

Andrew Gazdecki:
No. So we don’t do stock transactions. We only do asset sales. So I’m not registered to do security sales of any kind, but we are registered to do asset transactions.

And maybe another fun fact for you, Mark, is most acquisitions under $10 million are typically asset sales. Very rarely do we see stock transactions unless it’s way above that. And that’s typically above the market value that we deal with.

Mark MacLeod:
Well, you just saved yourself a whole bunch of headaches anyway. In my tiny little investment bank, we were six people with an 88-page compliance manual. It was total brain damage.

Andrew Gazdecki:
We’ve looked at becoming a broker-dealer. But oddly enough, to just participate in asset sales, you have to be a registered real estate agent because it’s regulated under the department. Yeah, it was a regulatory issue that I found right when I was launching the business.

But if you take any sort of commission on the sale of a business, and the reason for this is, prior to software companies, most businesses were brick and mortar. And so to sell those types of businesses, let’s just call them small businesses with a storefront, you would need some sort of real estate education. And so that’s why you have to have a license to advise on those types of businesses.

Mark MacLeod:
Again, I’m kind of in the venture-backed startup community and I feel like that world is very focused on what they read in TechCrunch, you know, Meta, Shopify, Canva, OpenAI, the big names. But I’m wondering if you have maybe seen a different world that people don’t know about.

My impression is actually that the vast majority of SaaS businesses don’t look anything like those companies I just mentioned. And they actually look more like those brick-and-mortar companies. It’s just that they sell software. Do you have any thoughts on that? Is there just like this whole universe of small bootstrap SaaS businesses out there that people don’t know about?

Andrew Gazdecki:
Yeah, it’s definitely not as glamorized or glorified as the companies that have raised capital but I call it the long tail of SaaS. So, I believe it’s 4% of startups reach a million in revenue and then I think it’s 1% reach 10 million a year in revenue.

So, I’m describing businesses where, yeah, you can call them small and lifestyle, but a SaaS business making $6-$7 million a year, the founder owns the whole thing, that’s going to sell for, let’s call it $20 million on the low end. I’m oversimplifying things again on a high level, but that founder is going to walk away with more than a typical co-founded, venture-backed company that’s been through a few rounds of financing.

So, I think it’s a very interesting market and I think we’re going to see more of it as startups become easier to create. Distribution is kind of the one factor that determines if a startup is going to scale or not scale.

So, it’s definitely interesting because you see a lot of businesses that are just so simple, but also extremely hard to create. So I don’t want to say it’s easy, but you definitely get the sense that it’s a lot more achievable. Rather than trying to create a billion-dollar outcome, which is not easy. It’s extremely hard. It’s a billion dollars in enterprise.

But I think if entrepreneurs were just honest with themselves, I think a lot of them would be perfectly happy bootstrapping a business, getting to a $20 million exit. That’s the type of customer that we work with and it’s definitely an interesting market that isn’t necessarily talked about as much as the venture-backed market.

Mark MacLeod:
I used to tell founders all the time. They would ask me, what’s the number I would sell for? I was like, first of all, that’s not my place to tell you, but I would say, generally speaking, if you put ten in your pocket, you’re good. You don’t have to worry about money. Your life’s changed. You can think big, do whatever, do nothing. I always thought of ten as a number. So, yeah, selling for 20 is absolutely life-changing, that’s for sure.

Andrew Gazdecki:
I love what you just said because I say something similar, too, which is, for your first business, I always recommend creating some sort of service company. And then for your second business, bootstrap a sellable asset like a SaaS company. And if you’re successful with that and you exit the business for, gosh, $5-$10 million dollars, cool. And then go lay on a beach or swing for the fences that second time or I guess the third time.

Because when you run a venture-backed business, you’re going for such a large outsized return, sometimes you’ll be a lot less stressed out if you already have your life kind of in a good position financially, where you don’t have all your eggs in one basket. And so that could be an interesting path, plus you’re more experienced, you’ve already built a business. You aren’t going to make any of the early mistakes.

But, I mean, if you’re complaining after $10 million, I don’t have any advice for you.

Mark MacLeod:
No, that’s right. Nothing’s going to make you happy. Yeah. I had Hiten Shah on the podcast maybe a month ago, and he was saying, if you’re solving for personal wealth, don’t raise venture capital. And obviously, he sees outliers that disprove that. But just on a probability basis. It’s just like you said, that stat about the number of companies that, like you said, only 4% reach $1 million. I’ll bet nobody thinks it’s that low.

I meet founders all the time. We talk about building a billion-dollar company, and I’m like, that’s unlikely. Maybe, let’s take it one step at a time. So, yeah, those are, those are pretty sobering stats, that’s for sure.

Andrew Gazdecki:
Yeah. I mean, the stats for becoming a billionaire company, I believe, is 0.01%. So that’s one in a thousand. And that’s a funded company. So it’s no easy feat. I mean, absolutely, you should go for it. But I think when you understand the odds… I’m a very analytical person, I like to look up statistics and stuff like that. So I’ve always found those stats interesting and fascinating as well. And I think if you look at that, maybe objectively, you might think about how you finance your business a little differently.

Mark MacLeod:
So, the venture world was a drunken orgy in 2021. Anyone with a pulse was raising stupid amounts of money. We came back down to earth as interest rates went up. I’m wondering whether you benefited from that in any way. Are there kind of orphaned VC companies that can’t raise more capital, who came onto your platform? Or are you still stuck to kind of your bread and butter, mostly bootstrap businesses?

Andrew Gazdecki:
Yeah, we’ve seen quite a few venture-backed businesses. Nothing like in the series A or series B range. We kind of stopped at the seed round, but we have seen a good number of those businesses.

But candidly, among our buyer pool, which is the majority of financial buyers, they’re looking at profitability immediately. And so for a lot of those businesses, when they start working with us, they’re typically really difficult to find buyers for. And what I mean by that is they’re typically losing money, they’ve stopped growing, and when we have a number of other profitable businesses that we’re also helping sell, they just don’t fare too well.

So we do see them and I think we’ve had a handful of success stories, but I think maybe the learning lesson there is if you go to market, like, understand what buyers are looking for, and today it’s profitability, and that’s a big shift from 2020 and 2021 when we were seeing pretty ridiculous multiples on revenue.

I remember that it was good times, but now it’s definitely shifted towards everyone’s looking at profitability and trying to figure out immediately how am I going to see a return on investment from this if it’s not obvious your buyer pool is going to be limited.

Mark MacLeod:
Do you have any thoughts on the Tiny Capitals of the world running around, buying lots of companies that look like your companies? What do you think of that model?

Andrew Gazdecki:
Yeah, we worked with Tiny. I think it’s great. I think what’s been most interesting since launching acquire.com is that in the past, private equity would typically not play in the sub-5-million range. And we’ve seen more and more private equity firms coming up that will look for companies in the $1 million to $3 million range or $3 million to $5 million range, and there are specific funds just going after vertical SaaS in that revenue range.

I think that’s been really interesting to see, but five, six, seven years ago, I don’t think that was around maybe you saw it. I wasn’t running this company. And, yeah, I think they’re very interesting models.

Essentially what they’re doing is they’re just looking at really nicely run, typically calm, low-growth, profitable SaaS companies and paying five, six, seven times on EBITDA. I think that’s a very attractive private equity model.

Mark MacLeod:
I’m assuming those companies don’t live by a rule of 40. Is that true?

Andrew Gazdecki:
Not all the time. I think that’s a good rule for any company. But when you’re selling to those types of private equity firms, typically your growth rate is going to be lower. So, you’re almost always in the 40% profitability margin, not so much the growth rate. So I guess in a sense, yeah. But it’s always skewed towards the margin, not the growth rate.

Mark MacLeod:
A lot of founders I speak with think that to maximize the value of the company, the thing they need to shoot for is top-line growth. So I think what you’re saying here is to open up the buyer universe. There’s, like, a meaningful probability your buyer will be financial, not strategic, and therefore you should be at least at $1 profit as well. Is that fair?

Andrew Gazdecki:
I would say so. Or at least a straight line of profitability, like being able to show that we could become profitable or that this is sustainable growth. Like, you just don’t spend $5 and make $1. That’s not gonna work.

Mark MacLeod:
No, definitely not. So, sometimes we have no choice but to sell. In those cases, it’s simple, okay, I gotta sell, but when I do have a choice, what should founders be thinking about to help them arrive at a decision that, yes, now is the time to sell my business?

Andrew Gazdecki:
Well, right off the top of the bat, does anyone want to buy you? I think founders drastically overestimate that thinking that I used to do this, I would just take our revenue and just multiply by ten in my head, be like, anytime I want, we can just sell for ten times our revenue. And I was pretty off the mark on that.

And so I think understanding if it is a good time for buyers to make a serious offer on your company? Maybe you just got some inbound interest or something like that, which can be a great signal but it doesn’t mean that after going through due diligence and looking at your company closely, they would actually buy the company means there’s potential interest. So I would figure that out first.

But let’s assume you have an optionality. There’s maybe a couple of strategic buyers you’ve spoken to lightly, and you’re profitable to some extent. So a private equity firm will probably make a bid or something like that. I think the decision to sell comes down to what’s most important to you.

And like you said, there’s a number, but there’s also things like you have gas in the tank. Are you still excited about this? I candidly sold because I was just tired. I’d been in the business for nine years. I started it when I was 21, and sold it when I was 29. So you could just be at the point where you built the business as far as you feel it can go, so timing can be a huge aspect of it.

I’ve seen a lot of businesses where they should have sold, like you described a situation where you sold a business at a great time, and there are stories where it goes the other way around. I don’t think enough entrepreneurs think of that, where things are going great. And again, you could sell now and see a great outcome, and if you waited three, or four years, you could just get completely disrupted and the business could go a completely different way. So there’s always that risk.

But I would say just kind of walking through how you’re feeling about the business. Are you still excited about it? Is the number or amount you would be selling something that gets you more excited? Would you be willing to do something else with your life? Because I think a lot of founders don’t realize, too, when you sell a company, you’re going to go through a different emotional roller coaster where you have almost some kind of an identity crisis because you’ve built a lot of your identity into the company.

And so, once the team is gone and your day-to-day looks a little different, and sometimes you have too much time on your hands, you’re going to miss your company. And so, you really gotta ask yourself, is it the right time to sell? I think this is super important since it’s a very emotional and personal decision.

Mark MacLeod:
That thing that you said, right? I think the number one reason why people sell is because they’re burnt out. And they could theoretically replace themselves with another CEO but there are a few problems with that. One is losing your baby. Like, my identity is completely wrapped up in it. It’s hard to imagine the whole thing without me. I may or may not be employable, and then all of my net worth is in these illiquid shares. So what am I supposed to do until nothing sells, you know? So if I look back on all the businesses I helped sell as a banker, burnout was the driver for most.

Andrew Gazdecki:
Yeah. It can be a combination of they want to cash in, but at the end of it, or the core of it is typically, I’ve taken this as far as I can go. I’d happily step aside.

Mark MacLeod:
I don’t know if this resonates with you or not, but something I’ve seen is, even with a life-changing outcome, founders often regret the decision to sell afterward because they sold thinking, well, I built this one, I got it to a certain amount of revenue, I know what I’m doing, it’ll be even better next time. But market success is actually out of your control. So much of it is luck and timing, and, to your point, it’s a lot rarer than people think to create commercial success, to figure out go-to-market.

And so I’ve seen multiple instances of somebody starting another company that doesn’t work, and then they realize they should have never sold that thing that was working in the first place. Wondering whether you’ve seen that in your channels with helping folks sell companies.

Andrew Gazdecki:
Yeah, absolutely. I think everyone’s different, but it’s common and it’s understandable too, because as entrepreneurs, you’re literally doing this every waking hour of the day. And then once you sell the business, and depending on who you sell to, you may be doing absolutely nothing.

I sold again to a private equity firm after I negotiated this aspect, but after 90 days, I literally just started another company. So I had nothing to do. I should have taken a break. Reflecting back, I kind of went through that personally, but no regrets about selling my business, I think it was a great outcome, a great experience.

But, yeah, I mean, it’s definitely something that every entrepreneur goes through to some degree and some more than others.

One interesting thing that we see a lot at Acquire is that instead of entrepreneurs starting new companies after they sell their business with us, they’ll typically become buyers. Sometimes it actually causes problems like, I have one transaction on top of my mind right now, but he’s gonna make several million when it closes, hopefully soon.

And he’s made two offers on different startups during due diligence. And I kinda have to keep telling him, like, hey, you gotta wait for the first transaction to close. And his Twitter profile has already changed to acquired founder, buying SaaS companies now. So I think that’s been an interesting change.

Mark MacLeod:
He’s cursing himself. Sorry, I’m not superstitious about anything except for deals. So I don’t know, that’s stressing me out.

Andrew Gazdecki:
Yeah, I don’t recommend it, but I think that’s been one interesting shift I’ve personally seen. And I think obviously it has to do with the business that we run. But instead of starting a new company where you kind of have to grind your teeth and chew to product market fit and beg customers to sign up and try your thing, your product, you can just buy product market fit. You can buy a business for maybe half a million or a million bucks or something like that.

And it’s just gone through the hardest years to get it to a point where it’s just starting to make customers happy. And this business is owned by an entrepreneur that only likes the zero-to-one phase, has no idea how to scale the business, and they’re selling it. And so those are interesting opportunities.

But, yeah, a roundabout way of saying every entrepreneur goes through something when they sell their business.

Mark MacLeod:
Yeah. Well, as we start to wrap up, maybe one observation and then one final question. So my observation is, you strike me as a very grounded human, and I’m trying to picture myself at 29 years old putting eight figures in my pocket. I don’t think I would have been grounded. I think I would have had a two-year-long party. So kudos for that on your part.

Andrew Gazdecki:
By the way, can I give someone a shout-out?

Mark MacLeod:
Yeah, please.

Andrew Gazdecki:
I’ll give Christian Friedland a shout-out. He was a small angel investor in my first company, and he always had this rule that he would tell me about. And he previously sold a company for, I think, like $50 million. It was a company called Build.com which was basically Home Depot online, but when you sell a company, don’t spend any of the money for a full year. So don’t touch it, let it sink in.

And I thought that was some of the best advice because, yeah, I’ve also seen entrepreneurs kind of just buying random stuff.

Mark MacLeod:
Yeah, that’s right. That’s sound advice. I love it. And then, yeah, maybe a final question. So you’ve got a pretty big lens now into this kind of smaller end of the SaaS market. What is the state of that market? What are you seeing? What’s the outlook?

Andrew Gazdecki:
Things are looking good, I would say. It’s definitely picking up in terms of people starting these types of businesses. Again, I’m kind of biased when I view this market, but I would say I’m seeing more and more entrepreneurs who may have run a venture-backed business and they’re realizing that that wasn’t the path for them.

So they’re now bootstrapping a different business or, with the changes in technology, I’m starting to see different companies being created and scaling up much faster to a few million in revenue.

So, I think it’s probably a really good time for people to think about bootstrapping a company or just raising a small round of angel financing or seed funding. So I’m optimistic.

Mark MacLeod:
Well, good. Well, glad to hear that. Well, I’ve really enjoyed this conversation, Andrew. You’ve been bringing me back to my banking days, which is good and bad. I loved it. But also there’s a little PTSD there. So yeah, it’s cool that your service exists and I’m certain that this conversation is going to be illuminating for everyone listening, especially folks at the earlier stage who still have all of that optionality. So I really appreciate you taking the time.

Andrew Gazdecki:
Yeah, thanks again for having me, Mark.

Mark MacLeod:
Hey, thanks for listening to the Startup CEO Show. If you’d like to connect with me, be sure to visit my website at markmacLeod.me, or follow me on LinkedIn at The Mark MacLeod, or X account @markmacleod_, and if you want to tune in again next week, be sure to subscribe on YouTube, Spotify, Apple, or wherever you get your podcasts. We’ll see you next time.Hey, thanks for listening to the Startup CEO Show. If you’d like to connect with me, be sure to visit my website at markmacLeod.me, or follow me on LinkedIn at The Mark MacLeod, or X account @markmacleod_, and if you want to tune in again next week, be sure to subscribe on YouTube, Spotify, Apple, or wherever you get your podcasts. We’ll see you next time.