What I Learned Last Week
Week ending Friday, October 28 2022
What I Learned Last Week curates the most interesting content relating to business acquisitions, operations, entrepreneurship, finance, and more. WILLW is a publication of The Business Inquirer.
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📰 Articles
Andy VandenBerg outlines his method of evaluating a business idea from inception to the first few months of operations. There are some applicable lessons to business buying as well.
Our most important questions:
Can we test this effectively with under $10-25k of investment?
Can we become cash-flow positive in 6 months or less?
More traditional questions around the business:
Recurring revenue?
Barriers to entry?
High gross margins?
Margins improve with scale?
Industry tailwinds?
Return Potential:
This business has exit value – would someone buy it?
Does this business have the potential to distribute $250k per year? $2.5m per year?
Is that business idea you have any good?
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Maverick capital writes about the search fund fundraising process and what you can expect.
As discussed previously, the months leading up to fundraising need to be spent wisely by meeting with searchers and investors while you finalize your PPM. Do not try to compress this exploratory and preparation stage too much, as it could send a negative signal to investors during the fundraising process or cause you to regret the decision later on once you hit some serious adversity.
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Big Deal Small Business writes a great post about the differences between SDE, EBITDA, and cash flow. This is a very important concept to understand.
Why does any of this matter?
Because if you hear someone say they bought a business for 4.5x, you have no idea if that’s a good deal or not.
If they bought a biz for 4.5x SDE of $1M (so $4.5M price), but there’s like $400K in replacement costs to replace the seller, that means EBITDA is $600K. That means they paid 7.5x EBITDA! On the other hand, if they paid 4.5x Buyer’s EBITDA…that’s pretty solid.
How do you know that? Because the 7.5x Buyer’s EBITDA deal will have a way lower unlevered free cash flow yield than the 4.5x Buyer’s EBITDA deal.
Big Deal Small Business: SDE vs EBITDA vs Cash Flow
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Bloom Growth Studio published a guide on SaaS pricing.
Over the years, a range of different models have sprung up:
Feature-based - You break your features into different categories. If users want to access the features that are most valuable on your platform, they’ll have to pay a larger monthly subscription. The feature-based strategy often results in a tiered user base.
Flat Rate - The simplest billing strategy. You charge a flat rate every single month, with no plans, no additions, and no alterations for different user groups. Simple as can be.
Freemium - An incredibly popular method of SaaS pricing over recent years, freemium often sees huge growth at a rapid rate. Attempting this payment model could even be seen as a form of growth hacking. This pricing model allows users free access to your platform, with users that either hit a certain usage or want additional features needing to pay for it.
One-Time Pricing - Lifetime packages are where users can hit buy and never have to renew the product again. When you sell your SaaS product at a lifetime fee, you might see a quick return, but will ultimately lose out on the huge LTV of customers that SaaS is famous for.
SaaS Pricing: A Guide to Models, Strategy, and Optimization
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Kingdom Builders outlines their step by step guide to introducing systems into a business.
There are four core reasons why systematizing your business is critical for growth:
Predictability - you want to be certain that things will continue running smoothly even when you're not around
Efficiency - systems help you eliminate waste and get things done more quickly
Leverage - when you have systems in place, it frees up your time so you can focus on other areas of the business
Growth Potential - systems set your team up for success by providing clear instructions on how tasks should be completed
KB #12: How to build systems in your business (step-by-step)
🧵 Twitter
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🤔 Thoughts, Events, Other
Car Wash
There was a great post in the Trends FB group about doing your due diligence when buying a car wash. I’ve copied the post below…
🛠 Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these may contain affiliate links. This means that I may receive compensation if you sign-up and use them.
Cerebro Capital - Cerebro has a network of 1,500+ lenders who can provide debt financing for your acquisition, refi, etc. $500k minimum.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Curators - Proprietary deal sourcing. You need targets that fit your investment criteria, and Curators delivers week after week - we even update your personalized database on a daily basis with new information on best-fit targets.
BizNexus - Proprietary deal flow, deal aggregator, and exit prep. Local Boston company and I consider the founder (Adam Ray) a friend.
PrivSource - Deal aggregator for lower and middle-market listings.
The Website Flip - a newsletter that sends content sites for sale to your email inbox. They send deals each Wednesday and Friday.
Kumo - Find every deal in one complete platform. Spend less time sourcing deals and more time closing them. Kumo aggregates 180K+ business listings into one easy-to-use platform.
ProjectionHub - Access to 50+ CPA-developed financial projection templates. 25% discount using code “duedilio” at checkout.
Logology - Best automated logo & brand identity tool I’ve come across.
DeepBench - Access a cutting-edge expert network. $200 discount.
OpenPhone - The best VoIP phone solution that I have found. I use this for DueDilio. You get a $20 credit if you sign-up.
Eloquens - Knowledge marketplace. I’ve purchased a few templates from them.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
That’s all for this issue of What I Learned Last Week!
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