The Business Inquirer #127
Two SaaS with >80% margins, property management in high-end mountain resort, and a productized marketing agency for SMBs.
Hello Friends!
In this week’s issue:
☁️ SaaS - 2 listings
💼 Online Service - 1 listing
🏡 Main Street - 1 listing
⚒️ Tools & Resources
💡 How I Can Help
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☁️ SaaS
Shopify SEO & Optimization App (Acquire) - $4.2M
Launched in 2019
SEO and speed optimization app for Shopify; SquareSpace pre-approved;
5/5 rating; 1,400+ reviews; 50k+ paying clients;
Revenue: $780k
Profit: $630k
Margin: 81%
Multiple: 6.67x
💬 Quick Take
This Shopify app boasts impressive financials, positive client feedback, and a substantial user base. Its strategic focus on SEO has reaped benefits, as indicated by a DR of 75 and monthly web traffic surpassing 100k visits. Two promising growth drivers - a 95% complete integration with SquareSpace and the anticipated "Built for Shopify" badge, both expected to boost installations. Nonetheless, the valuation is elevated and growth is tied to the ever-shifting SEO industry. Shopify has a very competitive app ecosystem.
Further reading: The Ultimate Guide to Building and Selling a Shopify App Business
✅ What I Like
Highly Profitable
The business is generating a substantial profit of $630k from a revenue of $780k translating to an 81% profit margin.
Moat
With a 5/5 rating and 1,400+ reviews, the app has demonstrated its quality and user satisfaction. Such a strong reputation can help attract new users and minimize competition.
Diverse Features:
The app offers an array of tools such as image ALT text, JSON-LD, 404 page, 301 redirect, SEO image compressor, among others. This diversity could make the app more appealing to a broad range of customers.
Expansion to SquareSpace
The business is close to completing its integration with the SquareSpace platform, opening up a new growth avenue.
❓ Concerns
Valuation
The asking price of $4.2M is 6.67x TTM profit which is on the higher end of SaaS multiples.
Dependency on SEO Practices
The business's success is tied to ever-changing SEO practices. If these change dramatically or if Google, for instance, modifies its algorithm, the app may need significant updates to stay relevant.
Competitive Landscape
The Shopify app market is crowded. The business needs to constantly innovate and maintain a competitive edge to sustain its growth.
Platform Risk
Building an app on a platform such as Shopify can be risky. Shopify can replicate these tools and include them in their standard subscription.
💼 Due Diligence Questions
Customer Acquisition Cost: What is the current customer acquisition cost? What’s the CLTV?
Customer Churn Rate: What is the customer churn rate and what strategies are in place to reduce it?
Team: Is the current 12-person team staying with the business? Who handles tech support, client service, and marketing?
Support: How do the support tickets look and who is in charge of addressing them?
Future Roadmap: What are the future product development plans?
🚀 Growth Levers
Further Platform Expansion: Expanding the app to other ecommerce platforms could further boost revenue.
Partnerships: Forming partnerships with ecommerce consultancies and agencies could bring new customers.
Additional Features: Developing additional features or tools could make the app even more comprehensive, attracting more users.
Pricing Optimization: Implementing a pricing optimization strategy may lead to increased revenue.
🙋🏻♂️ The Buyer
SaaS Experience: A buyer with experience in SaaS businesses would understand the unique dynamics of this market.
SEO Knowledge: Having a solid understanding of SEO will be crucial in managing and growing this business.
Growth-Oriented: The ideal buyer should be able to identify and capitalize on new growth opportunities within the ecommerce space.
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Webflow to Airtable Sync (QuietLight)- $400k
Launched in 2020
Owner spends just a few hours on the business
Revenue: $101k
Profit: $91k
Margin: 90%
Multiple: 4.40x
💬 Quick Take
This 3-year-old SaaS business presents an attractive offering with its Webflow-Airtable sync product for no-coders and web agencies. Despite minimal marketing, the company generates a considerable MRR with impressive margins. However, the business has a relatively high churn rate and largely depends on its developer-owner. Valuation is difficult to justify unless there are clear growth drivers.
✅ What I Like
Minimal Time Commitment
The owner has outsourced low-level support and spends just a few hours weekly on the business, suggesting operational efficiency.
In-Demand Product
The business meets a specific market need, with Airtable and Webflow becoming increasingly popular among no-coders and web agencies. Positive feedback on Webflow forums indicates product acceptance.
Growth Potential
Given the minimal marketing effort thus far, there is potential for revenue growth through targeted marketing and expansion of integrations.
❓ Concerns
High Churn Rate
The average monthly churn rate of 7.4% over the past five months could be concerning, indicating customer retention issues.
Dependency on Owner
The business is largely dependent on the developer-owner, potentially making a handover complex.
No Active Marketing
Current customer acquisition relies on word of mouth and a few forum posts, which might not be sustainable in the long run.
Limited Integrations
The product currently only integrates with Webflow and Airtable, limiting its potential user base.
💼 Due Diligence Questions
Churn Rate Explanation: Could you provide insight into the primary causes behind the high average monthly churn rate of 7.4%?
Owner Dependency: How challenging would the transition be, considering the business's dependence on your technical expertise and knowledge?
Technical Challenges: Are there any current or foreseen technical obstacles associated with the product's development or maintenance?
Cost Breakdown: Can you share a detailed breakdown of the costs that result in the reported 90% SDE margins?
Transition Support: What level of support or assistance are you willing to offer during the handover period to ensure a smooth transition?
Competition: Who are the competitors and why would someone choose this product over them?
🚀 Growth Levers
Marketing Initiatives: Implementing SEO, YouTube, and social media marketing could significantly boost customer acquisition.
Expand Integrations: By adding integrations to other no-code databases like Notion, the product could attract a larger user base.
Enterprise Sales: Developing an enterprise sales strategy could tap into a potentially lucrative market segment.
Customer Retention Strategies: Addressing the high churn rate with strategies such as enhanced customer support or loyalty programs could improve customer retention.
🙋🏻♂️ The Buyer
Technical Expertise: Given the nature of the business, a buyer with a strong understanding of software development, specifically Ruby on Rails and MongoDB, would be beneficial.
Marketing Skills: The business could greatly benefit from a buyer with experience in digital marketing, particularly in SEO, social media, and YouTube marketing.
Growth Mindset: An ideal buyer would be someone with a growth mindset, looking to expand the business and work on improving customer retention.
Understanding of No-Code Ecosystem: Knowledge of the no-code space and related databases would help leverage the business's strengths and navigate its challenges.
💼 Online Service
Productized Marketing Agency (Acquire) - $125k
Launched in 2018
Revenue: $252k
Profit: $39k
Margin: 15%
Multiple: 3.21x
💬 Quick Take
The concept of productized digital marketing services is compelling to SMBs. While the business has some momentum, it has encountered difficulties when trying to scale up. An individual with a background in marketing could be a good fit for this acquisition.
There is ambiguity in the business listing, as it references SaaS-like margins, but the provided data doesn't substantiate this claim. It raises the question - is this business primarily a marketplace facilitating digital marketing services?
✅ What I Like
Unique Custom-built App
Their proprietary web and mobile app facilitate client interactions, request intake, and file management, making their services accessible and easy to use. Maybe an opportunity to whitelabel the app for other agencies.
Productized Service Model
The business offers an innovative productized service model that is efficient, scalable, and more profitable compared to traditional marketing agencies. The offering is attractive to SMBs.
Potential for High Scalability
With its established operational framework and digital platform, the business is well-positioned for scalability, especially under a sales-focused operator.
❓ Concerns
Confusing Listing
The listing mentions SaaS-like margins yet the numbers do not reflect that. Is this an actual productized service or a marketplace?
Competition
A lot of competition in this space. Ensuring consistent client acquisition and retention in a competitive market could pose a challenge.
Dependence on App Performance
The business is heavily reliant on the efficiency and functionality of its proprietary web and mobile app.
Capacity
Marketing agencies are notorious for being difficult to scale due to hiring challenges.
💼 Due Diligence Questions
Client Retention Rate: What is the client retention rate and the average client lifespan?
Software Maintenance: What is the ongoing cost and effort involved in maintaining and updating the proprietary software?
Market Differentiation: What differentiates this business from competitors offering similar productized services?
Customer Acquisition Costs: What is the current cost of customer acquisition and the lifetime value of a customer? What marketing strategies have been tried?
Revenue Concentration: Is the revenue dependent on a few big clients or is it well-diversified?
Personnel: Who provides the actual marketing services to clients? How easy is it to hire for the role?
Reviews: Are there any client reviews online?
🚀 Growth Levers
Expand Service Offering: Consider expanding the range of marketing services to include more diverse and advanced digital marketing solutions.
Upsell Opportunities: Develop strategies for upselling and cross-selling, taking advantage of existing client relationships.
Partnerships: Forge strategic partnerships with related businesses to increase client base and market reach.
SaaS: Could the custom-built app be its own separate business? Sell the app to other marketing agencies?
🙋🏻♂️ The Buyer
Sales-Focused Operator: An individual or a firm with strong sales acumen would be well-positioned to expand this business.
Understanding of Digital Marketing: Knowledge of the digital marketing landscape would be beneficial to guide the business's service offerings.
Tech-Savvy: The buyer should have an understanding of tech platforms to maintain and improve the business's proprietary web and mobile app.
🏡 Main Street
Property Management (BizNexus) - $1.2M
Based in the Colorado mountains
Revenue: $989k
Profit: $406k
Margin: 41%
Multiple: 2.96x
💬 Quick Take
Are you an admirer of alpine landscapes and outdoor activities such as skiing and hiking? This property management firm, nestled in a prosperous resort town in Colorado, benefits from a thriving demand for its services and a dedicated, proficient team. The business exhibits robust profit margins and at a preliminary evaluation, the asking price appears fair.
✅ What I Like
Strong Cash Flow
With a cash flow of $406k and a 41% margin, the business demonstrates good profitability, suggesting effective operations and cost management.
Experienced Staff
The existing team is experienced and loyal, which is vital for a service-based business like property management, and their willingness to stay on will ensure a smooth transition.
High Demand
Property management services, especially for luxury properties and homeowners' associations, are always in high demand. This need provides a level of stability to the company's income.
❓ Concerns
Regional Economic Fluctuations
Being in a luxury resort area, the business could be affected by economic fluctuations, impacting the property market or the number of seasonal visitors.
Client Concentration Risk
The business's clientele might be concentrated in a few HOAs or luxury homeowners, presenting a risk should any of these clients choose to switch providers.
Scalability
The business's ability to grow could be limited due to its geographical location and niche market.
💼 Due Diligence Questions
Client Retention: What is the client retention rate and how has it changed over the past few years?
Major Clients: Who are the major clients and what proportion of the revenue do they represent?
Staff Turnover: What is the staff turnover rate and what are the strategies for retention? How easy is to to hire?
Competition: Who are the main competitors and what is the competitive edge of this business? What is the overall TAM in this area?
Owner Involvement: How involved is the seller in the day-to-day operations of the business? What functions do they handle and can they be outsourced?
Insurance: What are the insurance costs and have there been any incidents?
Software: What software is used to track the company's properties, tenants, and finances?
🚀 Growth Levers
Expand Geographically: There may be similar resort communities nearby that could benefit from these services, providing a natural extension of the business's current market.
Diversify Services: By adding more services such as concierge services or event management, the business could broaden its offerings and increase its revenue.
Partnerships: The company could develop partnerships with real estate agencies and other local businesses to gain referrals and extend its reach.
Marketing Strategy: Revamping the business's marketing strategy, particularly in digital channels, could increase visibility and attract new clients.
🙋🏻♂️ The Buyer
Industry Experience: A buyer with previous experience in property management or real estate would be ideal to understand the industry nuances.
Customer Service Orientation: Given the business's service nature, a buyer with strong customer service skills would be beneficial.
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⚒️Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these are paid sponsors of the newsletter.
PrivSource - PrivSource helps you source deals and connect with transaction partners without ever paying a success fee.
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Rejigg - Platform that connects searchers/investors directly with owners of off-market software businesses ($500k - $15m revenue) considering exits. All deals are sourced by the Rejigg team, ~5 added per week.
Scott Oldford - If you're interested in gaining insight into the process of building, scaling, acquiring, and selling online businesses, Scott Oldford can help.
Acquisition Lab - The Premier Accelerator for Buying a Business created by Walker Deibel, Author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Start-up Game. They combine world-class education, a vetted community, extensive group coaching, and resources to provide the first do-it-with-you buy-side advisory service.
BizNexus - Marketplace + off-market origination in one platform. The marketplace averages about 10k active listings & pre-CIM opportunities, and the off-market origination focuses on data & multi-channel.
Search Fund Coalition - community for the Entrepreneurship Through Acquisition ecosystem. Monthly events and meetups for acquisition entrepreneurs.
Deal Sourcing Guide - a comprehensive list of business marketplaces, brokers, deal origination firms, and more.
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