The Bootstrapped Founder

Welcome to the Bootstrapped Founder.

My name is Arvid Kahl and I talk about bootstrapping,

entrepreneurship, and building in public.

Today, we'll dive into something that most founders do way too late in their journey,

and that is making their business sellable.

You'll see how this should be an ongoing concern from the start,

even when you don't want to sell.

In fact, it's particularly important for those who don't want to sell to think about sellability.

And before we get to that, let me thank the sponsor of this episode,

acquire.com, real quick right here.

It's an amazing topic for exit planning,

the whole theme of this episode today to be sponsored by Acquire,

because we often think of the happy path to exit,

but forget that there are also situations that we don't really plan for,

and Acquire helps with that.

Imagine this, you're a founder who's built this really solid SaaS product.

You have customers and you're generating consistent monthly recurring revenue.

It's a good product, it's a good business.

The problem is you're not growing for many reasons, whatever reason really,

lack of focus, lack of skill, lack of interest, you just feel stuck.

So what should you do?

There's this ongoing narrative out there that everybody wants to hear,

that you buckled down, reignited the fire, you started working on the business,

rather than just in the business, you know, the stories that we tell about success,

you built this audience, you move out of your comfort zone,

sales and marketing happen all of a sudden, even though you hate it.

And six months down the road, you've tripled your revenue.

But wouldn't that be a great story?

Well, it's not realistic, right?

Reality is not this simple.

And situations like this are extremely unique and different

for every founder facing this crossroad.

The problem is that too many times, the story here ends up being one of inaction

or stagnation, and that means the business becomes less and less valuable,

or at its worst, I guess, completely worthless.

So if you find yourself here at this point,

or your story is likely headed down a similar road,

I offer you the third option, consider selling your business on acquire.com.

Capitalizing on the value of your time is the smart move.

You don't have to be stuck with the thing you have.

Acquire.com is free to list.

They've helped hundreds of founders already.

They have great materials for people who want to make their business more sellable

and who want to sell it eventually and how to do it,

where to find people to talk to and all that stuff.

It's really useful just even to figure things out.

Go to try.acquire.com/arvid so they'll know that I sent you

and see for yourself if this is the right option for you right now,

for the business that you're running.

Now, let's talk about how to prepare for that happy event of an acquisition.

Recently, I had this conversation on this podcast with Kevin McArdle,

an accomplished investor who essentially operates in the private equity space.

He's also the person who acquired my first successful SaaS business.

Feedback Panda had a great chat with him.

He's a wonderful guy.

He's been extremely helpful in getting us through this process.

And right now, he's building a new holding company that effectively acquires

and operates already successful SaaS companies, just keeps them running.

And during our chat, we delved into what he refers to as bootstrapped SaaS exit planning,

something conceptually that I wasn't aware of.

The idea is that entrepreneurs should always have an exit strategy for their business.

Regardless of whether they're currently in any space to sell it,

if they have any intentions to be acquired.

It's like preparing your living will and testament long before you really need it, hopefully, right?

We rarely get around to doing it, but it's critical to have

just the whole thing in place when you need it.

And in that regard, I think I'm a preparer,

might be because I'm German and we love doing these things.

I like to have these things in order.

And that's why this concept resonated with me so much when Kevin talked to me about it.

I already had been doing some kind of that with my previous SaaS business,

almost unintentionally, really.

I didn't have a framework or name for it at that point.

I just did it.

And that's what I will share with you today.

My framework for mentally and organizationally preparing yourself

and your business for an exit long before you sell or even want to sell.

And I think this is where most founders just stop.

They don't go further than, "I don't want to sell it."

Because when you're enjoying the right of building a business

and you see it grow into meaningful profitability,

you think about many different things, right?

How to market your product, what features to build,

whether expand to and how you can slowly but surely build a team,

like all these things.

And most of the time, getting rid of the whole business,

that's not in those considerations at all.

And I believe that that can actually cause your business to be less valuable

and less well operated than it could be.

And it's kind of where I come from with this is that

while preparing to launch my own SaaS business,

Feedback Panda, back in the day,

I came across a profoundly influential book.

And that's Built to Sell by John Warrello.

I did a full review of that on my blog as well if you're interested.

But let me just explain it to you right here.

The book compelled me to confront the reality that a business,

incapable of being sold, is a liability, more liability than an asset.

The book showed me how good business practices

don't just increase the value of your business,

but they also make it more sellable, which is obvious, right?

The value of the business makes it transactional.

You can exchange money for that value.

People want to buy a business that operates smoothly and efficiently.

So if a business is sellable, it signifies that it's well run, you know, and vice versa.

I talked to John at a conference in Toronto a while ago.

And one thing that he said stood out to me quite a bit.

He mentioned that for most founders,

selling their business was always at least five years in the future,

whether they just started or had been running it for a while.

Future talk, right?

And as funny as that is, it clearly deprioritizes any thought about an asset.

For a growth mindset, thinking about documentation,

P&L spreadsheets and handover dynamics is just not that important.

You have other things to focus on.

Or is it? Should you?

I think, like, thinking about your exit is one of the most critical things

to keep in mind at all times.

It's not just about selling your business, but making it as sellable as possible

and in the process, making it better.

And that makes thinking about the sale of your business

a consideration for how well it is run right now.

And that is something you definitely need to keep an eye on, right?

Well, so how do we do this?

You conduct sellability check-ins or exit planning sessions, I guess,

as Kevin McCardell would likely call them.

He's seen those things done plenty of times,

been doing it in all of his other properties

that he has been running in the past, like the one that he purchased for me.

He's been helping founders do these things along the way to then acquire them.

These things happen in addition to your regular business planning efforts, right?

So you have your exit planning and your regular business planning.

And this part cannot be stressed enough.

These exit planning sessions are not replacements

or even part of the usual business planning sessions.

You need a very different mindset between these and an exit planning day, right?

That the idea here is that the exit is something you kind of simulate in your mind

and you look at where do I need to go for this.

And any business planning is very focused on the present and the near future.

Exit planning might happen at any point, always five years in the future, right?

So perhaps on a semi-annual basis or even quarterly,

it's really important to reserve some time to review not just your business's current trajectory,

but also prepare for this potential exit, wherever that may be.

And that is regardless of your current disposition towards selling it.

That's the important part, right?

That's the hard part why most founders find themselves unprepared.

Eventually, when they get into actual conversations with acquirers,

most of the time an acquisition develops much faster

and for other reasons than you might think.

That's also something that John talked about during that conference.

There's illness, economic changes, mental health issues in the team.

The list of surprising causes of having to sell your business real quick is very long.

So planning for an unforeseen exit is actually insurance.

It's not a nuisance, it's not a waste of time.

It's really, really useful.

So forcing yourself to mentally simulate the situation that leads to an exit

allows you to just fight your own day-to-day assumption about your business.

When people imagine continuing to run their businesses,

they often consider this exit this very distant prospect, something to deal with later.

But if you cultivate the habit of conducting these periodic check-ins,

just gauging where your business stands regarding sellability,

and also how it has moved towards more sellability over time,

it offers valuable insights into how you should run your business today

and what changes you should make to run it even better.

Let me give you an example of my own experience right now as I'm saying this.

I have a SaaS business right now, it's called Permanent Link,

and I schedule exit planning sessions every three months or so.

I devote a few hours to just sit on my couch

and introspect about the current state of the business in regard to exits.

I look into my numbers, I have a laptop with me obviously,

I make sure that the documents that the most numbers are in are easily found and complete,

makes it easier to transition them over,

and I wonder how I would proceed if I were to sell my SaaS tomorrow.

I check if I'm adequately prepared to do so, if all my ducks are in a row, so to say.

I love ducks, but you know, I love the saying too, like have everything figured out

so it makes the transition much easier if there needs to be one.

And who even would be the ideal buyer, the ideal acquirer at this time?

I keep a running list of private equity funds and other companies

that I would need to reach out to, and most importantly,

I guess I also figure out what the business is worth.

Or rather, maybe, I guess that's the point here, what I would sell it for right now.

Permanentlink makes a few thousand dollars a month,

that puts it into the low five-figure yearly revenue numbers,

like I know somewhere between 15, 20, 30 thousand dollars in annual recurring revenue,

it's not that big, it's a business I keep running on the side, it's not my main thing.

So that makes it probably worth somewhere between, I don't know, a hundred thousand dollars,

two hundred thousand dollars.

Would I sell it for a hundred thousand dollars?

Probably not, but if somebody offered me a quarter of a million today,

I'd probably sign the letter of intent within a week or so.

And if it's half a million, for whatever reason, I'd sign within five minutes.

But I know these numbers now, right?

And that's the important part, I know where my numbers are.

I also look into what kind of provisions would need to be part of such a deal.

I use my software for my own needs, because that's why I created it.

I created Permanentlink because I needed reliable links in my books

that don't break if the original target of the link breaks.

I hate link rot, I don't like it in books, and I needed links that would function

even if the original thing is gone.

If the tool is really simple, I effectively redirect

any request to a defunct or offline site to an archived version of it.

It's a link forwarder with a twist, right?

But it's my product, I build it for myself.

And I have those books out, I have two books out that need this product.

And those books will still sell and still exist, really, after I sell the business.

So the links in them need to stay protected.

And ideally, the acquirer of Permanentlink would have kind of a guarantee for me

that that would still be the case.

But honestly, as I build easy offboarding and alternative link redirection

into the product by choice to make it easy for people to migrate their stuff out

if they're not interested in using the product anymore, I'm not too concerned.

But I'm thinking about these things, right?

I'm thinking about the provisions that need to be in there.

And what I would actually be concerned about is an earn-out situation.

I would rather hand over the business entirely than have to work in it and on it

for years after being acquired.

For a buyer to feel comfortable with that, they would then need to be able

to take over the business completely within days, maybe weeks.

And for that, I need to provide airtight documentation for everything in the business.

Operations, development, financials, customer service, every single field.

And this is why early exit planning is so important.

If I didn't know what my dream exit for this business would look like,

how could I even focus on making it possible in the future?

If I want a clean cut like I just figured out, my business manual must be pristine.

It can't be a second priority.

It needs to be my first priority.

And I only learned that through my exit planning introspection.

And you will notice that there's nothing in my exit planning about what I should do,

like feature-wise for the next couple months or who I should partner with for potential

marketing things or what social media stuff I should do.

That's all business planning.

I'm not doing business planning.

I'm doing exit planning.

Exit planning is really just about how can I make this thing sellable,

buyable, transitionable, and then forgettable?

Because once I'm out, I don't want to be part of it anymore.

So all of these things are very distinct from regular business planning.

Just wanted to make sure you understand the difference here.

And I hope that sharing this personal approach with PermanentLink

inspires a regular habit of reflection, distinct reflection in you.

Being prepared for the eventuality of selling is always beneficial,

no matter the actual urgency.

And I think the critical takeaway is that there might be a point in your journey

when selling the business emerges as an appealing option.

Appealing in the sense of, oh, that would be great.

But appealing as, oh, I really should.

And being prepared for this scenario is just a good idea, a good business practice.

The process that I've outlined here isn't rigid either.

You can be flexible and it's continuously evolving too.

You'll find that you change the questions that you ask yourself in those moments.

Like, how do I want to exit?

Like, do I want to stay on?

These things change as your business evolves with you.

One crucial piece of advice in this particular process that I would like to share

is to jot down notes during those reflection sessions,

both about the questions and the answers you find to them.

It's incredibly useful to then eventually compare your current thoughts and feelings

about the business and all the things around it with those from previous sessions.

Because you will observe how your answers have evolved,

even how your questions have evolved over time,

and how this perspective you have on your business and your own life may have shifted.

Maybe there's a life event that happened that has prompted you

to reconsider your previous conviction never to sell your business.

Many founders have this when they become parents.

They just notice there's a significant internal reframing of their financial prospects

in those moments when they have kids.

All of a sudden, you really need to make sure your family is financially secure.

There's no paycheck to paycheck anymore if you can't avoid it,

which makes selling the business an interesting proposition.

You might even realize at that point that while you can continue running the business

for a few more years, you're feeling like you're eventually starting to glance at moving on

and exploring new ventures.

I think Kevin was sharing a story with me in the podcast episode about a founder who

for years never wanted to sell their business.

They did exit planning and every time there was a nap, never going to sell it,

just going to prepare it to be good, to be a well-run business, never going to sell it.

Then over time, the thought was like,

"Yeah, probably not going to sell it within the next 10 years."

And then a couple years later, it's like, "Yeah, maybe not going to sell it for another year or two,

but I'm getting there."

It's a process.

It's an evolution and it's perfectly fine.

Fine to be an evolution.

You're allowed to change your mind about your business.

That's what entrepreneurship is, like changing your mind 4,000 times a day

and then still making good choices.

And I think it's really perfectly fine.

And this is why you run these sessions regularly.

So you can see that there is a development inside you and in the business.

So if you need a checklist to get started with,

here's the framework that I promised 15 minutes into this thing.

Based on my experiences, I consider three primary elements during these exit planning sessions.

And these are not exclusive, but they are the three most important ones for me.

You will probably find other ones for you as well.

But these three, they're always important.

First one is founder business fit.

The second is business continuity and then preparedness to sell.

So let's delve into each of these.

Well, firstly, the concept of founder business fit that essentially revolves,

involves reassessing whether the original vision that inspired the creation of your business

continues to be its guiding force.

Is the current mission of your business aligned with the original vision that you had when you

started it?

How does the business trajectory look?

Is it heading into the direction that you envisioned or are you kind of veering off course?

Are you still serving the people that you had initially targeted with the business?

Do you still like the people you have as customers?

Or has the business shifted towards serving a different market segment?

And maybe the people in there are not as interesting to you anymore.

You don't care as much anymore.

It's really important.

It's crucial to assess whether the business still aligns with your personal aspirations,

with your goals and that vision of what a successful business should look like for you.

This perspective shifts over time from a purely individualistic one,

once you're a solopreneur, towards something else.

If you're not a solopreneur anymore, if you're part of a team or you're building one,

it now becomes essential to ensure that your co-founders or partners or employees

share that vision too.

And often when you're thinking about co-founders, one partner might be content with just maintaining

the status quo, keep the business, keep it running, while the other wants to go for a

different strategy, maybe raise or maybe sell.

It's vital here to ensure that everyone is on the same page because misalignment here

will lead to motivational issues in each person and therefore the whole organization.

If you're not fighting for the same cause, that can tear the business apart because you're moving

into different directions.

So ask yourself and those you partner with for your why.

Why am I still doing this?

And why are we doing this for?

What is there?

Why are we aligned?

The second critical element is business continuity.

And here the focus is on the future course of the business.

I kind of hinted at it already, but what are the goals?

If you started your venture as a bootstrap business, do you still want to continue on that path?

Or could you see taking on investors in the future or bigger partners?

Selling is the ultimate investor, the ultimate partner.

You give your whole thing to somebody else for money.

But even internally, the question is always there.

This is a massive decision because many entrepreneurs who bootstrap when they start

are almost allergic to the idea of taking on funding, even though it might be useful.

And I get it.

We cherish the autonomy that bootstrapping affords us.

But hey, as the business grows, you might realize that bootstrapping is becoming a liability,

holding you back.

And if you think about the value of the business, that might actually be a problem, right?

Because your business might be your most valuable asset and you want to make it more valuable.

And it's particularly problematic if you lack substantial savings or other investments.

And in such a scenario, for continuity reasons, selling a stake in your business to an investor

might not be such a bad idea.

You de-risk the thing.

And that's where I was back in 2019, just before we sold Feedback Panda.

I had a company that was worth millions, but I personally was effectively poor

because I was just living from paycheck to paycheck.

I had no savings.

It was really bad.

So de-risking my financial situation made selling that business a very tempting idea.

And it's good to reflect on those things.

And finally, the most important aspect, the third one for exit planning, is assessing your

actual preparedness to sell.

Life is unpredictable, right?

And the most well-crafted plans, they will go awry due to unforeseen circumstances.

You never know.

And you might run into situations where you really need to sell your business for whatever reason.

If that happens, you must be prepared to transfer ownership effectively, smoothly,

and without surprises to yourself and the person that acquires your business.

And this preparation has several factors.

You must have up-to-date documentation of your business at your disposal.

And this documentation includes records of your business's financial history,

detailed information about the whole operation of the business internally,

the processes involved, your customers, and more.

A lot.

And if you have diligently maintained this documentation, it'll be much easier for you

to present a clear and concise account of your business to any potential buyer out there.

And as John Warlow would say, a well-documented business is usually perceived as well-managed

and reliable, and that attracts higher valuations from buyers as well.

In addition to good documentation, which is kind of an image, a depiction of the present

of the business, so to say, you need to have good insights into your past performance

and clear growth projections for your future as well.

These insights will not only be helpful to potential buyers,

makes it more interesting to buy a business, right, if you see the past and the future,

but it will also enable you to plan your business strategy more effectively.

So it's good to have them anyway, particularly in this package for exit planning.

And an essential part of being prepared to sell is effectively minimizing your role in the business

to the extent that it can function without you.

And this might seem counterintuitive because most founders like to believe that they are

indispensable to their business.

They are the person that made it happen.

But if a company is overly reliant on its founder, that'll deter potential buyers

who are rightfully concerned about the business's ability to function at all without the founder's

presence.

And one thing here, if your customers see that the business depends on you, they're smart.

They know what a bus factor is, even though they may not understand the concept of it.

They know that if you're not there, their use of that business's tools or product is

kind of in jeopardy.

And that is a problem.

Like you don't want to signal, even if you're a solopreneur, to your enterprise customers

that if you're sick for a couple days and there's a bug, nobody's going to help them, right?

So that's a big problem.

That's kind of why most solopreneurs really don't have enterprise customers,

because they would have to kind of lie to them about this or promise things they couldn't

sustain.

But the idea is that you removing yourself necessarily from the effective functioning

of your business is a good idea as a signal both to the investor market, to the acquirer

market, and to your customers all by itself.

And by documenting your business, by delegating and automating tasks, probably the biggest

thing, you can ensure that your business can and will run smoothly without you in the day

to day operations.

Also allows you to take vacations, which is a good idea.

And that makes the business more attractive to potential buyers plus the other parties.

And also makes it massively easier to hire people because their job can just be onboarded

with existing standard operating procedures and guidelines that you have in your documentation.

The moment you think of your business as a franchise, if you had to hand over the operations

manual to a new franchise owner, would they be able to operate the business as effectively

and efficiently as you can?

If you just do a lot of docs, if you think about this whole question all in itself, you

can find areas in your business that need improvement and automation and then improve

them and automate them and document it.

That's really cool.

Once you have all of this in place, you are prepared.

And the primary objective of exit planning isn't, like I said, selling the business.

That is a thing that may happen.

But it's about optimizing your business's internal structure and the processes within

it to the point where you as the owner aren't needed.

And that's how your business becomes as valuable as possible to potential buyers at

more importantly to yourself, really, because it generates more wealth for you.

Regular exit planning can help you figure out your personal feelings about your business

and your role within it, too.

We talked about a lot of structural things, but talking about yourself, thinking about

how you feel about your business, the thing you've been doing, the thing you've created,

that is important, too.

And it's important to formalize it, because if you're just in the weeds all day, like

dousing fires left and right, dealing with customers, you often forget, like, the why,

not just the why the business exists, but why you run the business that you've created.

What is the purpose of you being the person behind this?

And you might actually discover at this point, if you do this actively, if you reflect actively,

that you're not as fulfilled by that business as you once were.

Maybe you're more fulfilled by it because you found something new.

But there is a chance that you're not.

Or you start to realize that you're ready to move on to a new challenge or you reach

a kind of a skill ceiling or something like this, right?

All of these feelings can turn into resentment and burnout, like actual mental health issues.

If you don't catch them and deal with them early.

And exit planning allows for you to do this.

And no matter if you want to sell your business today or in five years or never ever,

you never know, consider planning for the eventuality of it.

The side effects of planning for this are incredibly useful for you,

your business and the wealth generating potential that it can and will have.

And that's it for today.

Thank you for listening to the Bootstrapped Founder.

You can find me on Twitter at @ArvidKahl, A-R-V-I-D-K-A-H-L.

You will find my books on my Twitter, of course, there as well.

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Thank you so much for listening today and have a wonderful day. Bye bye.