$500,000 Micro-SaaS Deal Deep Dive

I’ve received quite a few requests to go “under the hood” on an internet business I’ve acquired.

Everyone loves the idea of buying an established business with steady cashflow.

But the process is intimidating, especially for first-time buyers.

Specifically, readers have asked:

• How do you find micro internet businesses for sale?

• How do you quickly filter hundreds of deals?

• What's your unique strategy?

So in today’s issue, I’ll answer all three of those questions using a $500,000 software business my team recently acquired.

Let’s dive in.

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What’s the business?

The business we purchased is Software4Nonprofits.

At its core, the software helps nonprofits track their donation income and issue year-end charitable giving receipts.

We found the business through one of my favorite online brokers: Quiet Light.

Check out the old website (don't worry, we're in the process of updating).

If it looks like it was built in 2007 it’s because it was:

It can be difficult to find micro-SaaS businesses that’s aren't overpriced.

But this one had some hair on it, as we’ll discuss below, so the valuation was reasonable.

What immediately caught my eye?

#1: Over 4,500 customers paying for mission critical software.

A nonprofit is required to issue charitable giving receipts.

It’s more than a “nice to have”.

There is essentially zero customer concentration.

Also, the seller had only raised prices one time in the company’s 15-year history.

Lots of accumulated goodwill.

#2: Everything was outdated:

• You saw the website

• 20% of customers paid by check

• There was no retention / lifetime value data

• 90% of users were on a desktop-installed local version

Just check out the program’s main dashboard:

Given these characteristics, the valuation was low.

If you want to buy a micro business (sub $1M EBITDA) you need to be OK with risk.

No asset is perfect.

It’s about finding risks you know how to control.

In this case, we knew our team could:

• Efficiently rebuild a high-performing website

• Implement Stripe automated billing

• Build modern data systems

• Develop a web app

If we executed these things well, we believed we could immediately triple the valuation.

#3: The owner’s reason for selling was retirement.

Nothing was fundamentally wrong with the business.

Customer count was stable and revenues were growing.

I’m always warry when the motivation for selling is an inability to take the business to the next level.

"We're builders, not scalers."

I call BS most of the time.

Structure a Compelling Offer:

You need to root out the seller’s true motivation for selling.

You’ll be surprised, but price is not always the #1 motivator.

In this case, it wasn’t.

His priorities were:

1. Employees

2. Customers

3. Price

In that order.

Some actionable advice to root out true motives:

• Read the Investment Summary (or CIM) in detail. In this case, the seller mentioned his employees by name several times. He used the word “family” to describe them.

• Directly ask the question: “Is price your biggest motivator, or is it something else?”

• Google the seller(s), look them up on LinkedIn, get a full picture for who they are.

Once you determine why they're selling, craft a Letter of Intent that directly speaks to those motives.

For example, in this deal we mentioned each employee by name and promised to invest in their ongoing growth and development, post-closing.

The positioning was very well received and a big reason we won the deal.

Final thoughts

Not every deal will be a homerun, but they don’t need to be.

In this game, a double may be more than enough to replace your day job income.

Our strategy is simple: we find internet businesses with problems we can fix and assemble an all-star team of Virtual Assistants and contractors to run the day-to-day operations.

We buy profitable businesses and use the cashflow to buy more assets.

The modern flywheel to wealth creation.

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That’s a wrap for today.

Until next week,

Danny