201–210 of 339 posts
So good to see some actual Startup News on here. I miss the old days of this site when things were more optimistic and less click-bait.
I think people (and the founder) are focusing on yearly profits as their remuneration and comparing it to a salary... but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. In reality your net worth went up by over $1.5 million in the last year, in addition to earning 236k - t…
Weird to see CC rewards as income. If you're taking cash-back or applying to balance, I'd move to a points-based rewards card ASAP now that you're making money and don't need it to live off of. Our business has a significant amount of cc spend because of ad networks that don't charge processing fees, and high CC limits acting as nearly free lines-of-credit. This generates something like ~$100k annually in points valu…
Michael, You are an inspiration. I have been following your journey since your post about quitting Google hit the HN front page. And what a wild ride it has been. You tried many projects ( https://mtlynch.io/projects/ ), and it took a while for you to find your winning idea. And I have read each of your retrospectives on TinyPilot ( https://mtlynch.io/retrospectives/ ) and know that it wasn't easy. Your journey shows…
>Have you always been so disciplined in life? If not, how did you improve it?
No, I was a lot less disciplined when I was younger. I remember as a teen trying to learn Java several times and always getting bored a day or two in. I was a good student, but I would procrastinate work and distract myself while working.
I probably became more disciplined in my twenties, but I unfortunately don't think it was something I tried to do as much as it just happened.
One thing I think helped was protecting my focus more. I used to hop between different tasks a lot and constantly check social media or email if I had a moment of downtime or boredom, so I became more aggressive at stopping that.[0]
I also found the book Deep Work by Cal Newport to be helpful in staying more focused.[1]
>As you shared here (https://mtlynch.io/solo-developer-year-1/), doubts are natural when you haven't succeeded yet; how did you keep going? Did you ever come close to giving up and going back to corporate America?
I went into it with the expectation that it might take 3-5 years for me to find a successful business, so I think that was helpful. I've spoken to other founders who feel disappointed that nothing they're doing is working because they were expecting success to come quickly.
I definitely did worry that I wasn't cut out for being a founder and that my skills made a lot more sense for a big tech employee. The thing I found comforting was reading stories and listening to podcast interviews with other founders where they talked about how many failures they had before they landed on the right business.
I never came close to going back to a corporate job because I knew I had enough savings to last me, but if my financial situation had been different, I might have given up before I landed on something that worked.
>I believe you have a partner; how did this affect your relationship with your partner?
There are lots of effects in different directions. Me not having a regular job means that my income is less consistent and certain, and she absorbs some of the risks I take. I also feel like I'm not a good partner when I'm stressed a lot about work, and so part of my motivation in de-stressing the business has been to be a better partner in my personal relationship.
>Knowing what you know now, what would you do differently?
I wish I'd done educational products ("info products") earlier. They're like a microcosm of the experience of launching a product because you have to find customers, pitch to them effectively, and then deliver something they'll want. Like you can do that whole cycle in a month, whereas it would probably take 3-10x that long to do it with a SaaS. I made my first course right as TinyPilot was getting traction, and that course made more than anything I'd done in the previous three years.[2]
[0] https://mtlynch.io/eliminate-distractions/
[1] https://mtlynch.io/book-reports/deep-work/
[2] https://mtlynch.io/solo-developer-year-4/#hit-the-front-page...
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No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.
Ouch. Businesses sell for more than 4x all the time. There are countless examples of that.
2-4X is the current range.
The exceptions are for companies with extreme growth rates for multiples years in a row. These are extremely rare, even more so with pure bootstrapping.
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No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.
It really depends on a bunch of factors, if you've capped out your total addressable market, and/or there's no fat to cut out of the business (i.e. potential is limited) lots of competitors etc, then a low valuation is reasonable. But if you're growing, have big upside, and can be a rollup or been operating quite inefficiently 4x would be ridiculously low.
That's the dream, but the number of startups that check all the boxes to fall into this category is extremely small.
There's a lot of data supporting 2-4X for small SaaS companies. You'd have to be growing at an extreme rate year over year over year for 4X to be considered "ridiculously low".
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> It's worth close to zero. Serious question… have you bought a business before? It’s what I do. This business is not worth close to zero, and the stuff that the current owner does (even if he’s some miracle worker, which xooglers aren’t guaranteed to be) can be handled any number of ways that cost less than $236k by some buyer . This may not mean you or the person that I replied to, but you two most likely aren’t a…
You should write something about what you do too. Buying businesses sounds interesting, can you expand on this?
I think most of what one needs to know is already out there. The key is being adaptable to the current environment and being aware of one’s value add (skill set, network, etc.).
The problem with writing specifics about what I do is that it invites competitors and/or haters (e.g., review bombers or DDoSers). Some parts of my businesses have enough moat such that I don’t care, but other parts definitely do not. It’s not something I want to spend additional brain cycles on.
> Buying businesses sounds interesting, can you expand on this?
It’s largely not. It’s financially comfortable, and it’s nice being your own boss / leading your own team if that’s what you’re into (I am), but I’ve done more interesting work while working for “The Man”. A lot of what I do is just streamline a system that was inefficiently run/managed.
What I do is very similar to what Andrew Wilkinson of TinyCo has done, except I am about 10 years back on his timeline, and I’m not sure I will end up going public. I recommend looking for interviews and podcasts with Andrew — I have found them to be super interesting.
In relatively vague terms, I started a web dev agency, and then used that cash flow to start buying businesses that generate additional cash flow. Rinse and repeat. This is exactly what Andrew did. Note that I didn’t learn about Andrew until last year, so I was happy to see someone taking a similar path and scaling to a holding co worth over half a billion.
Some things that I think folks don’t do well when buying and/or valuing businesses (both buyers and sellers):
- Keep an active deal flow pipeline, ideally one that is not widely tapped. This usually entails talking to people… lots of people. For example, finding solid businesses on FEI is possible, but they will be very competitively priced, and it will be prudent to have some sort of pocket growth “hack” in mind if you want to make it pay off handsomely. On the other hand, targeting some “mom and pops” that have little or no idea about SEO and SEM can present some soft deals.
- Figure out ways that one party can scale that others can’t. This is the type of “growth hack” that I mentioned above. I know one guy who has one main move. He looks for businesses in which he already buys some of their inputs at a huge volume discount that smaller businesses can’t access (supplements are an example of this… I don’t recommend getting into supplements unless you are already eyeballs deep in that world). Another example is having access to markets or distribution that the businesses you are targeting to buy don’t have. One area I target (when relevant) that many others don’t is East Asian markets. Another area I target is just increasing prices (usually via segmentation). So many businesses charge way less than the market will bear.
- Learn how to negotiate, including how to say no. Many people just lay down and leave a ton of money on the table. You don’t have to be an asshole about it, but it’s prudent to be aware of what the value is for both the buyer and the seller, and it’s not uncommon for the buyer to have significant upside potential.
- As someone else said, you’re basically turning over a lot of rocks. There are a lot of people trying to bamboozle you, and there are a lot of solid businesses that don’t really offer a growth opportunity that you can efficiently maximize. When you find something that fits, it’s often a no-brainer.
Let me know if you have any other questions. I will be happy to answer.
I will add as a caveat that I can only give you perspective from my limited experiences — there are myriad ways to buy and sell businesses profitably, and my path is only one of them.
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Give the examples. Businesses this size in this market have very few (/0) logical buyers.
I can't speak for valuations, but I don't see the 'no logical buyers' argument. This product has multiple competitor products, mostly at far higher price points, any of those manufacturers would seem like a logical buyer to me (if only to get rid of the competition). Can you elaborate?
If you buy this company and hire somebody who can do all those things, that $235k of net profit becomes $0.
Buying it just to shut it down without continuing the product- eh- does your product really address all the needs of the customer base? Or will they go to another competitor instead?
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Why sell a healthy growing $10m business for 4x earnings? Did you have debt to service, or just wanted to do something different, or some other reason?
Because valuation is different than the actual yearly revenue. Company could be valued 10m, but revenue 1m. In our case because of legal permits we aquired to run our business and would normally take up to two years to get.
Looks great. As a note I don't count credit card rewards as revenue, but rather I count it as an offset to expenses. In this way, rewards don't add to the top line, but rather improves the bottom line. Basically I consider it a way to discount my expenses, or as a negative expense. The reason is because those rewards are linked to expenses. If you spend more, you get more rewards. Spend less, you get less. You can't…
Agreed. You should not include rewards as revenue. That is incorrect and misleading. I get lot of credit card rewards for our business but it is definitely not revenue. If anything, some accountants will argue that it is actually an income for yourself if you redeem them.