The Business Inquirer #136
A mobile app for hip-hop music fans, an all-in-one platform for sports coaches, a lead capture tool for trade shows, a unique landscape business, and a multi-service cleaning business in Midwest.
Hello Friends!
I will be on vacation travelling through Japan for the first half of October. Luckily, two readers reached out to me and offered to guest edit the newsletter during this time.
This newsletter was written with the help of Corey and Riley, two searchers looking for digitally native businesses <$2M in total transaction value. If you’re interested in networking, please reach out to corey@skyviewadvisory.com and riley@skyviewadvisory.com.
I am very grateful to Corey & Riley for their assistance with this newsletter.
In this week’s issue:
☁️ SaaS - 3 listings
🏡 Main Street - 2 listings
⚒️ Tools & Resources
💡 How I Can Help
This issue of The Business Inquirer is sponsored by Smash.vc
Buying a business with the SBA?
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They contribute capital, give advice, or help with growth when asked... but stay out of the way the rest of the time.
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☁️ SaaS
Mobile Recording Studio and Social Network for Rap Fans and Artists - $7.4M
Launched in 2018
Competitors: Bandlab, Soundcloud
Revenue: Premium subscriptions, in-app purchases
10-person team
Revenue: $3.4m
Profit: $1.2m
Margin: 35%
Multiple: 6.2x
💬 Quick Take
This mobile app for rap fans and artists has created a vibrant community where individuals can grow as artists and monetize their talent. Its strong financials are fueled primarily by premium subscriptions, making up 75% of total revenue. While the business presents a unique blend of tech and community engagement, prospective buyers should be mindful of the competitive landscape and potential for user churn.
✅ What I Like
Network Effects: For any SaaS business, a strong network effect can create a formidable competitive barrier. With around 15k subscribers and over a million users, the company boasts a substantial user community that enhances its market stability and resilience.
Scaled Operation: The company's existing scale allows for significant cash flow generation.
High User Engagement: With a combined Monthly Active User (MAU) base of 560K, the platform has a substantial, engaged audience.
Diversified Revenue Streams: The revenue streams are split between premium subscriptions and in-app purchases, providing multiple avenues for income.
Critical Acclaim: The app has received high ratings and awards from both Apple and Google, underlining its quality and user satisfaction.
Growth Opportunity: The business has already identified multiple levers for growth, including new markets and potential advertising partnerships.
❓ Concerns
Competition: The scale and fast growth of this company is likely to attract competition from potentially well-capitalized and/or experienced entrepreneurs.
Potential Reverse Network Effects: It’s possible that at a certain subscriber count, the quality of the network and service offering will begin to degrade.
Dependence on Subscriptions: A significant part of the revenue (75%) comes from subscriptions, posing a risk if user retention falters.
💼 Due Diligence Questions
Reason For Sale: Given the scale you suggest the business could reach ($1b+), could you please elaborate on why you’re choosing to sell now?
Current Investor(s): What is the role and ownership of current investor(s) (~$2.2m cumulative capital raised) and how will that impact the sale process?
Customer Retention: What are current and historical customer retention rates and how long is a customer typically subscribed for?
Team: Who is a part of the 10-person team and what is each person’s role? Are there any opportunities for headcount cost efficiencies?
Growth Opportunities: Have any studies been done on the potential growth opportunities (interest in new markets/countries, genres, etc.)?
Marketing: What are the current marketing initiatives and how are sales being driven? Specifically, noting the growth opportunity of social media / influencer marketing - why is this not being done currently?
Intellectual Property: Does the business have any patents, trademarks, or copyrights? Intellectual property can be a competitive advantage and may add to the business's valuation.
User Demographics: Is there a detailed breakdown available of user demographics and engagement metrics? This will help in understanding the customer base and tailoring marketing strategies accordingly.
Feature Roadmap: What is the future roadmap for introducing new features or services? Knowing the business's future plans will help in assessing its growth potential.
🚀 Growth Levers
New Markets: Expand into Latin America, Asia, and the Middle East by capitalizing on a strong global reputation.
New Music Genres: Use the existing platform to offer a similar product for music genres outside of rap.
Marketing: Begin social media marketing by partnering with Instagram and TikTok influencers.
Partnerships: Explore B2B partnerships with companies looking to advertise to the company’s global audience.
Beat Sales Marketplace: Adding a marketplace for beats could further monetize user interactions and make the app more appealing to artists.
🙋🏻♂️ The Buyer
Music Enthusiast: Someone with a background and network in the rap/music industry could take this business to the next level.
Tech Leadership Experience: Given the founder’s current role at the business and the relatively large team (10 employees), it will be important for the new owner to have prior experience leading a tech SaaS.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Coaching and E-commerce Platform for Running, Nutrition, and Endurance Coaches - $345k
Launched in 2014
Competitors: TrainingPeaks, Final Surge, Today’s Plan, Science Training
Bootstrapped
Revenue: $122k
Profit: $44k
Margin: 36%
Multiple: 7.8x
💬 Quick Take
This B2B SaaS platform specializing in coaching and e-commerce for endurance sports exhibits a unique market position, focusing solely on coaches. While organic growth has been the primary driver so far, the opportunity for new marketing channels and an upmarket shift are promising. However, the valuation at nearly 8x profit is on the high side, warranting thorough due diligence.
✅ What I Like
Focused Offering
The platform only serves coaches, creating a specialized, highly tailored experience that competitors lack.
Pricing Power
The business recently raised its lowest pricing tier from $17 to $49, showing it has the ability to adjust pricing without losing its customer base.
SEO Strength
The business has strong organic growth, particularly with certain high-performing pages, indicating untapped potential for more targeted marketing efforts.
Upmarket Potential
The owner acknowledges room for higher-end service offerings, suggesting good prospects for revenue growth.
❓ Concerns
Limited Marketing
The business relies heavily on organic growth, which may be unsustainable in the long term.
Solo Operation
The business has been run mostly part-time by a solo founder, raising questions about how scalable the operation is.
Valuation
With a multiple of nearly 8x TTM profit, the valuation appears steep and demands careful scrutiny.
💼 Due Diligence Questions
Customer Churn: What is the customer churn rate, and have there been noticeable trends following the recent price change?
Revenue Streams: Are there other potential revenue streams that have been explored?
Competitive Analysis: How does the platform compare with other tools on features and pricing?
Technology Stack: Is the tech stack up-to-date and easily maintainable?
Intellectual Property: Are there any patents, trademarks, or crucial IPs that would be included in the sale?
Operational Costs: Are there any hidden or variable costs that could affect the margin?
🚀 Growth Levers
Diversified Marketing: Currently, the focus is on organic growth; introducing PPC, social media marketing, and influencer partnerships could accelerate growth.
Affiliate Programs: Partnering with brands and services in the endurance sports space could add a lucrative revenue stream.
Content Marketing: Creation of specialized content for coaches in running, triathlon, nutrition, etc., to drive organic traffic.
Community Building: Hosting webinars, creating forums, or other community engagement tools can improve customer retention and attract new business.
Cross-Selling: Offer additional services like analytics tools, more specialized training programs, or mobile apps for easy access.
🙋🏻♂️ The Buyer
Marketing Savvy: Given the current focus on organic growth, a buyer with marketing expertise could unlock significant growth potential.
Domain Expertise: A buyer familiar with the coaching and endurance sports industry would be advantageous.
SaaS Experience: A background in SaaS would be beneficial for understanding the intricacies of scaling this business model.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Lead Data Capture Tool for Tradeshows and Events - $1.0M
Launched in 1993
Competitors: Icapture, Zuant, Integrate
Revenue: $627k
Profit: $221k
Margin: 35%
Multiple: 4.5x
💬 Quick Take
This SaaS company specializes in lead capture at tradeshows and events, offering an automated solution that's customizable. A strong gross margin of 35% and an all-annual subscription model add to its appeal. However, its dependency on tradeshows does pose a certain risk, especially during pandemics.
Further reading: [2023] 150+ Trade Show Stats That Reveal All — Trade Show Labs
✅ What I Like
Large TAM
The business operates in a market with a very large TAM, offering ample room for growth.
Strong Margin
The business has a robust gross margin of 35%, indicating a healthy bottom line.
Annual Subscriptions
All customers are on recurring annual subscriptions, providing predictable and stable revenue streams.
❓ Concerns
Market Competition
As lead capture tools become increasingly popular, the level of market competition could rise, affecting growth prospects.
Technological Dependence
The business hinges on software that needs to be constantly updated and maintained. This could be expensive without the right team in place.
Pandemic Vulnerability
The core business model relies on tradeshows and events, which are highly susceptible to cancellation or restrictions during a pandemic. This could significantly impact revenue.
💼 Due Diligence Questions
Customer Retention: What is the annual churn rate, and how does it affect the business model? Is there any customer concentration? Are any client large client contracts at risk for non-renewal?
Scalability: How easy is it to scale the existing software platform, both in terms of feature additions and user volume?
Customer Lifetime Value: What is the average lifetime value of a customer, and how does this figure into the overall business strategy?
Competitive Analysis: What are the main competitors, and how does this platform differentiate itself?
IP Rights: Does the company hold any patents or trademarks that provide a competitive edge?
Tech Stack: What technologies are used, and what are the costs involved in maintaining and updating the software?
🚀 Growth Levers
Market Expansion: Given the customizable nature of the platform, there may be opportunities to serve adjacent markets beyond tradeshows.
Feature Development: Additional features like analytics or integrations with popular CRMs could provide more value to clients.
Partner Ecosystem: Establish partnerships with event organizers, further embedding the software in the industry ecosystem.
Marketing Diversification: The business could benefit from a multi-channel marketing approach, supplementing current efforts with content marketing or PPC.
🙋🏻♂️ The Buyer
Tech-Savvy: A buyer with technical knowledge would be advantageous for navigating updates and potential feature expansions.
Marketing Acumen: A strong background in marketing would be beneficial for further scaling the business.
Industry Experience: Familiarity with the tradeshow and event industry could provide valuable insights for business development.
🏡 Main Street, Offline, Other
Landscape Design and Installation Focused on Low Budget Clients - $550k
Based in Sacramento County, CA
AOV of $8k-$10k
Revenue: $968k
SDE: $314k
Margin: 32%
Multiple: 1.8x
💬 Quick Take
This landscaping business meets a neglected need for budget-conscious consumers, offering an attainable and attractive yard transformation. The business has streamlined operations and rides the tailwind of city rebates and increasing demand for home improvements. However, the narrow focus on lower-budget projects could limit growth and it operates in a highly seasonal industry.
✅ What I Like
Simple Operations
Budget-conscious customers require less complexity, facilitating a simpler and faster service delivery than competitors, and allowing the company to take on more projects.
Targeted Niche
The business addresses a gap in the market by focusing on lower-budget yard transformations, thus reaching an audience most landscape companies ignore.
Streamlined Operations
The use of templates, a well-designed website, and structured processes make it easy for a new owner to step in and run the business.
City Rebates & Environmental Push
The business benefits from up to $3k in city rebates for converting lawns to drought-tolerant landscapes, providing a financial incentive for customers to make a change.
❓ Concerns
Customer Price Sensitivity
Company may not have the ability to raise prices which could erode margins in a continued inflationary environment.
Lack of Recurring Revenue
Company has little visibility into future revenues, increasing reliance on customer acquisition and overall investment risk.
Addressable Market Size
With the business’s limited geographic coverage area, there are only so many houses that need a one-time lawn overhaul; the buyer must consider the feasibility of expanding the operating radius or offering maintenance services.
Limited Service Scope
The business’s focus on simpler projects may limit growth opportunities and expose it to increased competition from other low-cost providers.
Seasonal Nature
Landscaping is a seasonal business, which may result in fluctuating revenues and the need for efficient cash flow management.
Dependency on Local Policies
The company's appeal is partially driven by city rebates for drought-tolerant landscaping. A change in these policies could impact customer demand.
💼 Due Diligence Questions
Owner Involvement: How critical is the current owner to operations? Is the buyer acquiring a business or a job?
Durability of Business: Need to see how the business has performed historically and in different cycles - how stable has revenue been?
Marketing Efforts: How does the current owner acquire new customers?
Market Penetration: How many more houses are there in the current footprint for the company to service? How easy is it to expand the operating footprint?
Historical Profitability: Has the company historically been able to pass on price increases to customers?
Recent Price Drop: What’s the reason behind the ~30% price drop for the business this month?
Customer Retention: What is the rate of repeat business or customer referrals?
Employee Turnover: What is the employee turnover rate, and are there any key personnel?
Legal Compliance: Are there any ongoing or potential legal issues, especially concerning environmental regulations?
Customer Reviews: Are there online reviews or testimonials that can validate the quality of service?
🚀 Growth Levers
Launch Maintenance Services: Find a way to add continuous value to customers and increase their LTV.
Expand Service Offering: Add complementary services, such as higher ticket, higher complexity service offerings that may also require future maintenance.
Expand Geographically: Increase geographic footprint either organically or through M&A.
Digital Marketing: Investing in SEO and online advertising can drive higher traffic, leading to more leads and conversions.
Partnerships: Collaborate with home improvement stores or local contractors to refer business to one another.
🙋🏻♂️ The Buyer
Roll-Up Entrepreneur: A good buyer of this business is currently engaged or planning to engage in a landscaping roll-up company.
Landscaping Experience: Given the significant number of changes that should be made to expand this business, the buyer likely has previous experience in or knowledge of landscaping.
__ __ __ __ __ __ __ __ ____ __ ____ __ __
Large Midwest Laundry, Dry Cleaning, & Carpet Cleaning Business - $5.0M
Based in Ohio
5-year avg FCF of $802k on $8.1M revenue
Revenue: $7.4M
SDE: $570k
Margin: 8%
Multiple: 8.8x
💬 Quick Take
A market leader with a robust portfolio of services, this Midwest-based cleaning business offers a lucrative acquisition opportunity for the right buyer. The diversified revenue streams, comprehensive geographic footprint, and long-standing customer loyalty make this an attractive prospect. However, the relatively moderate SDE margin and high valuation could warrant a closer look during due diligence.
✅ What I Like
Established Brand Equity
The business has built up significant brand equity over several decades, giving it a competitive edge and pricing power in the market.
Diversified Service Offerings
The company offers a broad range of services from laundry and dry cleaning to carpet cleaning, providing multiple revenue streams and cross-selling opportunities.
Solid Financials
With a history of consistent, profitable growth, the business has proven financial stability.
Strong Management Team
The company boasts a talented management team, with institutionalized processes that would help a new owner hit the ground running.
❓ Concerns
High Valuation
The 8.8x valuation based on SDE is on the higher end, potentially stretching the limits of a reasonable ROI timeline for a new owner.
Local Market Competition
Despite being the market leader, the presence of 6-7 medium-sized, multi-store brands indicates a competitive landscape that could be a challenge.
💼 Due Diligence Questions
Revenue Breakdown: What percentage of revenue comes from each service line (laundry, dry cleaning, carpet cleaning, etc.)?
Customer Churn: What is the customer retention rate, and how does the business manage customer churn?
Lease Agreements: What are the terms of the lease?
Staff Turnover: What is the staff turnover rate, and are there any key personnel planning to leave?
Capital Expenditures: What capital expenditures are planned or required in the near future?
Debt Profile: Is the business carrying any debt, and what are the terms?
🚀 Growth Levers
Service Line Extensions: The existing brand equity in residential and commercial cleaning offers opportunities to expand into related services like maid services or window cleaning.
Geographic Expansion: Leverage the brand's strong reputation to expand into adjacent markets, which would benefit from the existing service offerings.
Digital Marketing: An enhanced digital marketing strategy can help capture a younger demographic and drive additional footfall to both digital and physical locations.
Loyalty Programs: Implementing a robust loyalty program could further cement customer retention and increase the lifetime value of existing customers.
🙋🏻♂️ The Buyer
Experienced in Service Industry: A buyer familiar with the service industry can better leverage the existing business model and infrastructure.
Operational Expertise: A buyer with strong operational skills can further streamline the business to improve the gross margin.
Strategic Vision: Someone with a strategic vision for growth can successfully expand the business into new service lines and geographies.
How did you like this issue of the newsletter?
⚒️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.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Rejigg - Platform that connects searchers/investors directly with owners of off-market small businesses ($500k - $10m revenue) considering exits. All deals are sourced by the Rejigg team. Their team adds 7-10 new deals each week.
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.
Smash.vc - Whether you're looking to sell minority stakes in your business to take some chips off the table, looking for a partner to acquire an asset, or needing capital to complete an SBA deal, we'd love to chat with you.
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.
💡 How I Can Help
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