Buying Vs Building
Let's take a look at why you might want to buy a business vs build one. I've done both. I've exited a company I built from scratch. I lost a lot of hair, but ultimately did get a decent pay day. I am now personally funneling my winnings back into XO because I feel that, particularly in this inflationary economic environment, this is the best place I can allocate capital. At XO, we've bought 6 XO, and sold 2 so far.
Skills
Building from scratch and buying with the intent to grow highlight two different skill sets. Let's call them starting vs growing.
What are you good at? I'm good at building. And sometimes, oddly, selling. I'm still learning about marketing, and a softer, more insidious insight is that broadly the things I like are not things a lot of other people like. Not in a cool trend-setting way either, just some odd preferences across music, film, literature that translate into product decisions when I go to build something. I've built 20 ish flops, and 2 wins.
Who
Anyways, point is, you may not be good at both building and growing. If you are, come work here. Hell even if you're just really good at growing, come work here :)
Who is in an ideal spot to buy one of these tiny SaaS companies? These aren't rules, these are just helpful. Try to stack the deck for yourself. If you:
- work a day job that provides you with a few thousand extra per month
- work in tech if you're buying a tech company
- have experience with project or product management
then you're in a pretty good spot to buy a tiny SaaS company, and slow play it while working your day job. I always recommend partnering but it's up to you. If you haven't bought a business before, then this is as much about learning as it is about profit. Emphasize the learning. If it works, you can scale it up.
We did our first 3 deals just to educate ourselves. We accomplished that and secondarily 5x-ed and 6x-ed them. That was partially luck, timing, maybe a sprinkle of skill, etc.
Starting - Involves some dev, marketing, a little luck, but fundamentally you're good at building a new product and getting the first hundred customers.
Growing - Take an existing thing that works to some degree and focus on systems, processes, optimizations to get your next 100 customers.
I think people good at starting businesses can grow them (if they're interested) but not all people good at growing businesses can start them. Starting is a particular skill set. More rare than growing. If you're a "Starter", I think you'll be just fine jumping in to an acquisition and figuring it out.
If you're good at growing businesses, I'd highly recommend just buying something that already exists and is working to some degree.
Not all heroes wear capes. You don't need to prove anything to anyone. We're trying to make money here, if you're good at growing shit, why do you need to prove you can start something from scratch? Who cares, just buy, grow, and sell it. The money is green on the other side of both equations.
A note on passive income:
So you know how you wouldn't ever ask how much passive income someone's SaaS startup makes that's sub 1 year old because thats an asinine question? Same is true when you buy these things. Assume you're buying a job. It's exceptionally rare that a business with some revenue has zero support tickets and zero bugs, and zero feature requests with 99.999% uptime. They apparently exist but you're probably not going to find one. If you do, I'll buy you a drink and ask to invest.
Why Build
| Pro | Con | ||
|---|---|---|---|
| Own all of it | Spend time / money building something people don't want | ||
| Can bootstrap or get VC | High chance of failure | ||
| Props for being the inventor / founder | Really hard | ||
| Learn a ton | Feels like pushing a rock up hill | ||
| Can build it exactly how you want it | |||
| Can be started for $0 |
Why Buy
P.S. When I say buy, I mean buy something with revenue. We don't buy stuff with $0 revenue. Has a lot of the same risks as building from scratch.
| Pro | Con | ||
|---|---|---|---|
| Lower Product Risk | Requires Cash | ||
| $ from day 1 | Tech Debt | ||
| Guaranteed Demand | Higher Complexity (you didn't build the systems) | ||
| Buying on a multiple of revenue give you the code, innovation, research, etc effectively for free | Get rich slow | ||
I started XO at the same time I started a separate marking business but have been investing heavily in buying vs building. I honestly wish someone had told me about the buying path 10 years ago... I'd be in a very different financial position had I started buying earlier. It may not be true for you but I like buying a lot more than I enjoy eating the risk of another failed launch. Call me old and jaded but I've had my fill. That's not to say I don't launch new things, I do, but I'm doubling down on acquiring.
Happy Friday
✌️,
Andrew
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